Carta, the $7.4 billion software company that helps start-ups track their investors’ investments, is attempting to trade its customer’s shares without consent. This complaint threatens to undermine confidence in this widely used platform.
Karri Saarinen is the co-founder and CEO of software startup Linear. He claimed that Carta approached his investors without their consent on Friday. Carta is “now doing cold outreach to angel investors about the sale of Linear shares to buyers” wrote Saarinen on Friday in a social media post.
Carta employees have approached investors about two additional start-ups since Saarinen’s complaints.
Carta’s use of private information from its customers to gain an edge in the competitive secondary market for startup stocks has been questioned by this dispute.
Carta’s chief executive Henry Ward replied to Saarinen on Saturday morning to say that he was “appalled” that this had happened and that his company was looking into what they said was a rogue worker violating their policies.
Ward acknowledged shortly afterwards that two other Carta-based companies had been affected by the issue.
Carta’s main business is to help start-ups manage their capitalisation tables, also known as cap tables. These tables are essentially a record who owns a company. This can be complicated for young companies that have multiple stakeholder classes. Carta’s last valuation was $7.4bn, according to PitchBook.
Carta manages an online private trading platform for early stage companies. It acts as an intermediary, allowing them to remain private while also being liquid. Carta receives a small commission from both buyers and sellers.
The lack of public listing in the last 18 months has led investors to seek out secondary markets for private company stocks, as this is the only way to invest in buzzy startups. Carta is just one of many platforms that compete for the trade of private companies.
Carta’s platform is used by the majority of its customers to track their investor base. However, at any one time not all are actively looking to sell their shares. Both parts of the company are designed to work independently.
Saarinen claimed that Linear hadn’t arranged the sale and Carta used private information in order to target investors of the company.
He wrote: “I am perfectly fine with Carta having [a] secondary sale platform for a tender offer approved by the company or secondary sales.” “I think it crosses a line when Carta’s employees are used to solicit sales. . . Knowing that the company or board haven’t approved secondary sales”, he continued.
It all seems rotten if Carta and Carta Marketplace have employees who are given free access to information about companies and cap tables in order to make secondary sales, which many companies don’t want.
Carta and Ward have not responded to our request for comment.