Image credits: Karuta
Carta is an ambitious 12-year-old Silicon Valley company that has gone through many iterations over time, initially offering investors, startups, and employees the ability to use its software to It encouraged people to manage tables, which later aimed to evolve into a “private stock market.” '' founder Henry Ward once told TechCrunch. He explained in 2019: “Now that we have a network of companies and investors all on one platform and can transfer securities, we can now build liquidity on top of that.”
Due to this strategy, Karuta's reputation has increased in recent years. But prominent customers are now accusing Carta of misusing confidential information that startups entrust to the company to pursue their own goals. Although Carta insists the incident is isolated, the claims raise broader questions about the way Carta operates.
On Friday, Finnish CEO Kari Saarinen posted on LinkedIn that he received some surprising news about Linear, the project management software company he co-founded four years ago and raised $35 million in funding this fall. Linear is a customer of Carta, and Saarinen said that early Friday morning, without his consent or knowledge, a Carta representative contacted Linear's angel investors, and that Carta had received an offer from an interested party. It said it had received a “firm buy order.” A Carta employee said in an email that the purchase was at a specific price, but that the buyer could be “flexible to a higher price.”
As it turns out, the angel investor had a relationship with Saarinen and immediately warned Saarinen about the email outreach. Saarinen felt betrayed by Karta, writing on LinkedIn: “This may be the end for Carta as a trusted platform for startups. As a founder, Carta, whom I trust to manage the cap table, has announced that Angel Investors will sell Linear shares to an undisclosed buyer. I think it's a terrible thing in a sense to have such a ruthless approach to the United States,” Saarinen continued. “They never contacted us (customers) about the opening of the order book for Linear shares. The investors they contacted were family members and we did not publicize that investment anywhere. Neither we nor they opted in to any kind of secondary sales. However, Carta Liquidity discovered their emails and confirmed that they owned Linear stock. I knew.”
The post took on a life of its own, gaining thousands of likes and nearly 800 comments before Ward intervened and apologized. Ward also said that emails to Linear investors are not something Carta would condone. Ward wrote: “Hi Kari and everyone, we are appalled that this has happened. We are still investigating, but on Friday morning an employee violated company procedures and contacted It appears that they took the outrageous action of contacting customers they should not have. This affected Mr. Karri's company and two other companies. We have contacted the other two companies and will continue to investigate. If you have any additional information, please contact us directly at firstname.lastname@example.org while we continue our investigation.”
TechCrunch reached out to Ward yesterday for further information. he hasn't replied.
Meanwhile, Saarinen continued to post on LinkedIn that this incident does not appear to be isolated. “So far, we have heard from four investors who were approached via the same email, all of whom were early pre-seed investors. We have also heard from two companies where this happened. One of them is a prominent AI company.”
he later Posted in X “We have heard from multiple companies that investors and employees of private companies have been solicited by Carta employees to sell their stock for months or even years. These people have not opted in to this and the company has not authorized these sales.”
Mr. Saarinen also posted on LinkedIn that he had finally spoken to Mr. Ward in person last night, noting that it was unclear “what details he could share” as it was an “unquotable phone call” as per Mr. Ward's instructions to Mr. Saarinen. He said there was no. , Saarinen wrote that “nothing” Ward said to Saarinen “actually changed” his position.
Asked for comment later, Saarinen told TechCrunch in an email: . . Even after speaking with the CEO, my trust in Carta was not restored. ” Saarinen added, “We hope Carta will take action on these issues, but we will probably move to another service because we can no longer trust them on those issues.” I did.
TechCrunch reached out to a number of Carta board members to ask how much leeway Carta gives customers to change their contracts. One of them, Matt Murphy, a venture capitalist at Menlo Ventures, echoed what Ward previously told Saarinen on Linkedin, writing to TechCrunch in an email: The Cap Table business and CartaX (Private Stock Liquidity) business are separate business units with separate teams and leadership. There have been violations of this protocol by CartaX team employees, which have been addressed and we have learned from them. ”
But startup founders are following conversations and comparing notes. As one person told TechCrunch this morning: “I'm a Carta customer. I just found out there's this weird thing going on where they're hiding behind companies and offering secondaries. I'm not affected by that.” I haven't, but I would be furious if I found out they were selling my company's stock without my knowledge. I'm definitely considering switching platforms.”
Companies typically need to approve transactions related to secondary sales, Murphy said. “At almost every board meeting I attend, some employees sell their shares, so we have to allow them to exercise that power. [right of first refusal] And sometimes block them if possible. ”
Murphy also hinted that Carta's process is both simple and ethical. “At Carta, we have a bidding product that helps you with the process of coordinating directly with companies and executing them. Then, in the case of the CartaX Marketplace, you can see who your buyers are, see their demand, and use tools like Crunchbase and Pitchbook to help you with the process. We use public data sources to find potential supply matches to buyers.”
But Saarinen suggested on LinkedIn that the idea that Carta, which works with thousands of startups, would use the information it collects as a service provider to go behind founders' backs is enough to be alarming. are doing. “Corporations will probably not approve these transactions; most have restrictions and require board or majority approval.” Carta says in his PDF FAQ, “Most secondary transactions are subject to corporate approval. ”, he wrote. “However, they are still accepting buy orders and spamming investors knowing that they will not be approved.”
For Carta, this unwarranted attention is the latest in a string of bad publicity. It's been so constant that in October, Ward emailed customers to tell them they should read his Medium post if they were worried about “negative press” related to the outfit. is. The move seemed only to draw attention to the many problems reportedly plaguing the company.
For example, Carta started in 2023 by suing a former CTO, but has been embroiled in many other lawsuits over the years. In 2020, the company's former vice president of marketing sued Carta for sex discrimination, retaliation, wrongful termination, and violations of the California Equal Pay Act. (TechCrunch featured the incident here.) Shortly after, four employees spoke on the record to The New York Times about how they were fired, demoted, or had their pay cut when they raised concerns about how the company was run. He told the paper that he had done so.