Carta, an ambitious Silicon Valley company founded 12 years ago, has gone through numerous iterations over time, originally inviting investors, startups and employees to use its software to manage their cap tables and then aiming to evolve into a “private stock market for companies,” as founder Henry Ward once told TechCrunch. As he explained in 2019: “Now that you have this network of companies and investors on a single platform and the ability to transfer securities, you can generate liquidity on top of it.”
Now, a prominent client accuses Carta of using the confidential information it entrusted to the company to carry out that strategy. The claim is raising broader questions about how Carta operates, even as Carta maintains the incident was isolated.
On Friday, Finnish CEO Karri Saarinen posted on LinkedIn that she had received surprising news about Linear, the project management software company she co-founded four years ago and which raised $35 million in funding this fall. Linear is a Carta customer and, according to Saarinen, early Friday, without his consent or knowledge, a Carta representative approached an angel investor in Linear and told the individual that Carta had a “firm purchase order” for An individual. or an institution (the Carta representative did not say) at a specific price, although this buyer might be willing to “flex more,” the Carta employee said in an email.
It turns out that angel investor is related to Saarinen and immediately alerted him to the email. Clearly feeling betrayed by Carta, Saarinen wrote on LinkedIn: “This could be the end of Carta as a trusted platform for startups. As a founder, it seems shitty to me that Carta, who I trust to manage our cap table, is now cold-contacting our angel investors to sell Linear shares to their undisclosed buyers.” Saarinen continued: “They never contacted us (their client) to start an order book for Linear shares. The investor they contacted is a family member whose investment we never published anywhere. We and they never opt for 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—thousands of people liked it and generated nearly 800 comments—before Ward jumped into the conversation to apologize. Ward also said the email to Linear's investor was not something Carta would tolerate. Ward wrote: “Hi Karri and everyone, I am shocked that this happened. We're still investigating, but it appears that on Friday morning an employee violated our internal procedures and went out of bounds to communicate with customers he shouldn't have. This affected Karri's company and two other companies. We have contacted the other two companies and are continuing to investigate. If you have any other information, please contact me directly at [email protected] to let me know as we continue our investigation.”
TechCrunch reached out to Ward yesterday for more information; He has not responded.
Meanwhile, Saarinen continued to post on LinkedIn that the incident seemed anything but isolated. “So far I have heard from 4 of our investors who were approached by the same email. All of them were the first pre-seed investors. I also heard of 2 companies that this happened to. One of them is a prominent artificial intelligence company.”
he also published in X that “I have learned from several companies that this has been happening for months or even years where Carta employees ask investors or employees of private companies to put their shares up for sale. “These people have not opted for this and the companies have not approved these sales.”
When asked for comment, Saarinen told TechCrunch via email last night that “I am withdrawing from this fight, this has already consumed too much of my time.” . . My confidence in Carta has not been restored after speaking with the CEO.” Saarinen added: “I hope that Carta will take action on these issues, but we will probably move on to another service because we no longer have confidence in them.”
TechCrunch also reached out to numerous members of Carta's board of directors to ask about the practice.
One of them, venture capitalist Matt Murphy of Menlo Ventures, echoed what Ward told Saarinen on Linkedin, writing to TechCrunch via email that: “Carta does not use customer cap table data. The cap desk business and CartaX (private equity liquidity) business are separate business units with separate teams and leadership. There was a violation of this protocol by an employee of the CartaX team that has already been addressed and from which we have learned.”
Meanwhile, startup founders continue the conversation and compare notes.
As another founder told TechCrunch this morning: “I'm a Carta customer. I just found out about all the weird things that happen with them offering secondaries behind the companies' backs. It hasn't affected me, but I would be furious if I knew that they were selling shares in my company without my knowledge. “I’m definitely considering switching platforms.”
Ultimately, companies have to approve transactions related to secondary sales, Murphy notes. In a market where few companies are acquired or listed on the stock exchange, shareholders are more willing to sell their shares than perhaps management teams would like. Murphy writes: “Almost every board meeting I attend, some employee sells stock and we have to allow, exercise our ROFR, and sometimes block if we can.”
Still, he suggests, Carta's process is fairly simple and ethical. “With Carta, they have a bidding product in which they coordinate directly with the company to help in a process that they would execute. Then, in the case of the CartaX marketplace, we verify a buyer and confirm their demand, and use public data sources like Crunchbase and Pitchbook to find a potential offer that matches the buyer.”
For Carta, the unflattering attention it is receiving due to its dealings with Linear is the latest in a series of bad publicity. Last October, Ward even sent an email to customers, telling them that if they were concerned about “negative press” related to the outfit, they should read a post of his on Medium. The move only seemed to draw more attention to the many reported problems plaguing the company.
Carta started 2023 suing its former CTO. But she has been involved in many other lawsuits over the years. In 2020, the company's former vice president of marketing defendant Letter, accusing the company of gender discrimination, retaliation, wrongful termination and violating the California Equal Pay Act. (TechCrunch made that case here.) Shortly after, four employees spoke on the record with The New York Times, telling the outlet that when they raised concerns about the way the company is run, they were marginalized, demoted or subject to pay cuts.
The company has also been accused of poor customer service. Last year, TechCrunch interviewed numerous Carta customers who expressed dissatisfaction with the company and its representatives. One, a fund manager currently in the midst of transitioning off the platform, told TC that his team had “four different account managers in less than two years of engagement with Carta; It certainly didn't help with continuity and understanding of our fund and our needs.”
