Carta, the esteemed $7.4 billion software company specializing in investor tracking for start-ups, is now under scrutiny for allegedly attempting to trade its customers’ shares without consent. The accusations stem from a complaint lodged by Karri Saarinen, co-founder of the software start-up Linear, who disclosed that Carta had initiated unsolicited outreach to his investors about selling Linear shares.
The controversy has deepened as subsequent reports indicate that Carta employees also approached investors associated with two other start-ups. This raises serious questions about the potential misuse of private information by Carta, casting shadows on its integrity and raising concerns about the evolving dynamics of the secondary market for start-up stocks.
Facilitating transactions for start ups
Carta’s CEO, Henry Ward, (photo above), swiftly responded to the allegations, expressing his dismay at the incident and attributing it to what he labelled as a “rogue employee” violating company policies. However, as more details emerged, Ward acknowledged that two additional companies, clients of the Carta platform, had experienced similar unauthorized solicitations.
At the core of Carta’s business model is its role in helping start-ups manage their capitalization tables, essential records detailing ownership structures. This incident has shed light on potential lapses in privacy protocols and the internal handling of sensitive information by Carta. The company, valued at US $7.4 billion in a 2021 funding round, also operates a private share trading platform, facilitating transactions between start-ups and investors while taking a percentage from each deal.
In an attempt to quell concerns, Ward published a detailed blog post attributing the breaches to an “internal breach of protocol” where an employee directly contacted investors without proper authorization. He acknowledged that such a breach should not have occurred.
The scarcity of public listings in recent months has heightened interest in the secondary market for private company stocks, with Carta being a major player in facilitating these transactions. While the majority of Carta’s customers use the platform to manage their investor base, not all actively seek to sell their shares. This incident has sparked debates on the independence of Carta’s dual roles – investor tracking and private share trading.
Saarinen, the complainant, asserted that the issue transcends the concept of secondary sales platforms, highlighting concerns when Carta’s employees allegedly use private information to solicit sales without company or board approval. The incident has triggered a broader conversation about the potential implications of employees having unrestricted access to sensitive company and cap table information, raising questions about the overall integrity of the process.