Cartaambitious The 12-year-old Silicon Valley company has gone through several iterations over time, originally inviting investors, startups and employees to use its software to manage their cap schedules and later aspiring to evolve into a “private equity market for companies,” he said. Founder Henry Ward once told TechCrunch. As he explained in 2019: “Now that you have this network of companies and investors on one platform and the ability to move securities, you can build liquidity on top of it.”
This strategy has boosted Carta’s valuation in recent years. But a high-profile client is now accusing Carta of misusing sensitive information that startups entrust to the company in pursuit of its own goals. The claim raises broader questions about how CARTA operates, even as CARTA says the incident was isolated.
On Friday, Finnish CEO Kari Saarinen posted on LinkedIn that he had received surprising news about her lineara project management software company he co-founded four years ago that sparked 35 million dollars in finance this fall. Linear is a client of Carta, and according to Saarinen, earlier on Friday, without his consent or knowledge, a representative from Carta reached out to an angel investor in Linear, telling the individual that Carta had a “confirmed purchase order” from an interested party at a specific price, despite That buyer might be willing to “increase flexibility,” the Carta employee said in an email.
As it turns out, this angel investor is connected to Saarinen and immediately alerted him to the email outreach. “This may be the end of Carta as a trusted platform for startups,” Saarinen wrote on LinkedIn, after feeling betrayed by Carta. “As a founder, I feel bad that Carta, who I trust to manage our cap schedule, is now cold-calling our angel investors about selling Linear shares to undisclosed buyers. “They (their client) never approached us about starting an order book for Linear shares,” Saarinen continued. The investor they contacted is a family member whose investments we have not published anywhere. We and they have never been involved in any type of secondary sales. However, Carta Liquidity found their email and learned that they owned Linear shares.
The post took on a life of its own – with thousands “liked” it and attracting nearly 800 comments – before Ward entered the conversation to apologise. Ward also said the email sent to the written investor is not something Carta condones. Ward wrote: “Hi Carrie and everyone, I am horrified that this happened. We are still investigating but it appears that on Friday morning, an employee violated our internal procedures and went out of bounds to reach out to customers they shouldn’t have. This affected Carrie’s company and two other companies. We have We have contacted the other two companies and are continuing our investigation. If you have any further information, please contact me directly at henry.ward@carta.com to let me know as we continue our investigation.
TechCrunch reached out to Ward for more information yesterday; Did not respond.
Meanwhile, Saarinen continued to post on LinkedIn, saying the incident did not appear to be isolated at all. “So far I have heard from 4 of our investors who were contacted by the same email. All of them were early pre-seed investors. I also heard from 2 companies where this happened. One of them is a prominent AI company.
It is later Published on X “I have learned from many companies that this has been going on for months or even years where Carta employees ask investors or employees of private companies to offer their shares for sale. These people did not choose this and the companies did not approve these sales.
Saarinen also posted on LinkedIn last night that he finally spoke directly with Ward, and that although he wasn’t sure “what details I could share” because “it was a call I can’t quote” according to Ward’s instructions to Saarinen, Saarinen wrote that “nothing” Ward said Saarinen “really changed his position”.
When asked for comment afterward, Saarinen told TechCrunch via email: “I am retiring from this fight, and this has already consumed a lot of my time… My confidence in Karta has not yet recovered after speaking with the CEO.” Saarinen added: “I hope that Carta is taking action on these issues but we will likely move to another service because we no longer trust them.”
TechCrunch reached out to several Carta board members to inquire about how much leeway Carta gives itself in its contracts with its customers. One of them, venture capitalist Matt Murphy of Menlo Ventures, echoed what Ward previously told Saarinen on LinkedIn, writing to TechCrunch via email: “Carta does not use cap table data for clients. Private) Separate business units with separate teams and leadership. There has been a breach of this protocol from an employee on the CartaX team that was dealt with and from which we have learned.
But startup founders are following the conversation and comparing notes. As one of them told TechCrunch this morning, “I’m a Carta customer. I just learned about all the weird stuff that happens with them behind companies’ backs to provide byproducts. I’m not impressed, but I would be pissed if I knew they were selling stock in my company without my knowledge. I definitely am.” I’m thinking of switching platforms.
Companies typically have to approve transactions related to secondary sales, Murphy noted. “At almost every board meeting I go to, some employee is selling stock and we have to let that happen, and go about our business [right of first refusal] “Sometimes we prevent it if we can.”
Murphy also noted that the CARTA process is clear, straightforward and ethical. “With Carta, they have a bidding product where they coordinate directly with the company to help with the process that they will be managing. Then in the case of the CartaX marketplace, we verify the buyer, confirm their order, and use public sources of data like Crunchbase and Pitchbook to find the potential offer that matches the buyer.”
However, Saarinen points out on LinkedIn that the mere idea that Carta — which works with several thousand startups — would ignore its founders, using the information it has collected as their service provider, is disturbing enough. “Companies will likely not approve these transactions. Most have restrictions and need board/majority approval. Carta states in their pdf FAQ that ‘most secondary transactions will be subject to corporate approval.’ “But they are still receiving purchase orders and sending unsolicited letters.” desirable to our investors and they know it will not be approved.”
For Carta, this unflattering attention is the latest in a string of bad publicity. it has been Very steady That in October, Ward sent an email to customers, telling them that if they were concerned about “negative press” associated with the costume, they should read Medium share for him. The move appears to be merely intended to draw more attention to the numerous reported issues plaguing the company.
For example, Carta began 2023 by suing its former technology CEO, and has been involved in several other lawsuits over the years. In 2020, he became the company’s former Vice President of Marketing File a lawsuit against Carta, accusing the company of gender discrimination, retaliation, wrongful termination and violating California’s Equal Pay Law. (TechCrunch featured this case here.) Shortly after, four employees spoke on the record with The New York Times, telling the outlet that when they expressed concerns about the way the company was being run, they They were marginalized, demoted, or had their salaries reduced.