Image credits: Carta
Cartaan ambitious 14-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 corporate stock market,” 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.
The dispute dates back to Friday, when Finnish CEO Kari Saarinen posted on LinkedIn that he had received surprising news about him 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, Linear is quite happy with its existing shareholders, and this angel investor is connected to Saarinen so immediately alerted him to the communication via email. Feeling betrayed by Carta, Saarinen took to LinkedIn and attacked the company.
“This may be the end of Carta as a reliable platform for startups,” he wrote. “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) have never approached us about starting an order book for linear shares,” Saarinen continued. “The investor they approached is a family member whose investments we have not published anywhere. We and they have never been involved in any kind of secondary sales. However, Carta Liquidity found their email and learned they owned Linear stock.
After the post took on a life of its own — thousands “liked” it and attracted nearly 800 comments — Ward waded into the conversation to apologise. Ward also said the email sent to the Linear investor was not condoned by Carta. 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.
Ward did not respond to TechCrunch's request for more information yesterday. But Saarinen was not comfortable with Ward's public apology. He 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.
Saarinen too Published separately 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.
Returning to LinkedIn last night, Saarinen wrote that he had finally spoken with Ward, and that “nothing” Ward said to Saarinen “really changed” his position.
In response to an interview request, Saarinen told TechCrunch that he “is retiring from this fight, and this has already taken up a lot of my time. . . .” . My confidence in Carta has yet to recover after speaking with the CEO. “I hope Carta will take action on these issues but we will probably move to another service because we no longer trust it,” Saarinen added.
In the meantime, one lingering question is how much latitude Carta gives itself in its contracts with its clients. They may not have the protection they imagined. In one “master subscription agreement” a startup sent to TechCrunch, the language was noticeably vague about protecting customer data.
these The same customers follow the conversation and compare notes. As one founder 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'm definitely thinking about switching platforms.
When asked about the situation with Linear, venture capitalist Matt Murphy of Menlo Ventures, a Carta board member, sought to defuse the situation by repeating what Ward said to Saarinen on Linkedin. “Carta does not use customer cap table data,” Murphy wrote to TechCrunch. “The Cap Table business and the CartaX (Private Equity Liquidity) business are two 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 from which we have learned.
Murphy added that Carta is trying to “bring legitimacy to a chaotic market,” noting that these days, “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.”
In fact, Murphy implied that Carta's process on such sales is usually clear 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.”
Given Saarinen's very different experience, he doesn't seem interested in what is typical for karta. “Carta states in its pdf FAQ that “most secondary transactions will be subject to corporate approval,” he noted on LinkedIn. “But they are still receiving purchase orders and spamming our investors knowing they 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.
Carta began suing its former CTO in 2023, for example, and has been involved in several other lawsuits over the years. Among them: In 2020, 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, which TechCrunch exposed 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.
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