A leading provider of equity management services for privately held startups was accused of using confidential customer information to expand its business, sparking a wave of criticism and criticism within Silicon Valley's startup community over the weekend. .
At the center of the dispute is Carta, a stock management services startup that was last valued at $7.4 billion. On Friday, Carta customers claimed on social media that Carta was using their personal information for self-dealing.
This customer, Karri Saarinen, co-founder and CEO of product development and management startup Linear, publicly shared an email that a family member received. In the email, a director of Carta Liquidity, a subsidiary specializing in secondary market trading, asks the family about the possibility of selling Linear shares to one of its clients.
The mystery, Saarinen said, is how Carta employees knew the family owned Linear stock. Saarinen's family has never disclosed their investment in Linear publicly and is “barely online,” he wrote to X.
“Carta was somehow able to find out their email addresses and the fact that they owned Linear stock,” Saarinen wrote, adding that Carta, as Linear's cap table service provider, was able to find out their email addresses and the fact that they owned Linear stock. He pointed out that he has information about the company, including who owns and how much stock it owns. The price and timing of the purchase, what transactions were made, and any legal and compliance documentation. Mr. Saarinen's social media posts suggested that Carta was using Linear's sensitive data without authorization to build Carta's own order books for secondary market platforms.
In other words, Saarinen said he believes employees accessed confidential data about Linear shareholders for the purpose of brokering transactions that brought existing Linear shareholders together with prospective buyers of Linear stock in the secondary market. (Carta has disclosed that Carta Liquidity, in its role as intermediary for secondary transactions, charges a fee (typically around 2% on both sides) for these types of transactions.)
Saarinen published a tweet thread X on Friday, and also on LinkedIn, eventually screenshot Regarding another Carta aid made to one of his investors in mid-December.he was suggested This may not have been an isolated incident. On Sunday, Saarinen's complaint about X was viewed by more than 1.7 million people and drew thousands of reactions and a chorus of criticism from other startup founders on LinkedIn.
“We are appalled that this has happened,” said Henry Ward, Carta's chief executive. I have written X on Saturday admitted in a subsequent post that this had “impacted Kari's company and two others.”
“While we are still investigating, it appears that on Friday morning, an employee violated company procedures and went above and beyond to contact a customer that he should not have contacted,” Ward wrote.
“Perhaps just by appearing to be in the liquidity business, our company appears compromised. Everything we do must be based on trust, and being in the liquidity business If that trust is undermined, perhaps the offering needs to be reevaluated,” Ward wrote.
The incident sparked a backlash among startup founders, many of whom said they also use Carta to manage their cap tables. Many startup founders plan liquidity events through processes such as takeover offers, but founders lose control over which investors buy up shares and secure control of the company. , are often cautious about secondary transactions by third parties. Carta says on its website that around 40,000 companies use its platform, which has widespread impact across the private ecosystem.
“They did the same thing that we did. All of a sudden, even if we didn't authorize them, they were I contacted a member of staff to request a secondary position.” response “They continued to do it even after we told them to stop. It's hugely damaging to trust!”
“Companies need to get buy-in from the company and/or define a right of first refusal. Otherwise, start-ups could have control ripped out from under them.” Sarah McKenna, CEO of web data extraction startup Sequentum, responded on LinkedIn.
Saarinen did not respond. luckThis is a comment request from . Mr. Ward did not respond to a request for comment, but a Carta spokesperson noted: luck Go to Ward's blog post.
Ward and Saarinen continued their exchange on “X” this weekend, with the two reporting details of a phone call and Ward making personal attacks about the episode.
“Despite all the bashing in the world, it seems like you still plan on staying with us? Don’t you understand? This is an incendiary attack on us for your personal Twitter and LinkedIn exposure. Was that all?” Ward I have written.
On Saturday evening, Saarinen said he had “retired” from fighting Karuta, saying as much as he could and declining requests to speak with reporters.
Carta has been embroiled in controversy over the past four years following several public scandals, including a series of lawsuits by former employees alleging gender discrimination and harassment. Late last year, Carta made further cuts, with at least a third round of cuts expected in 2023.
Mr. Ward has previously pushed back against public criticism of Carta. Late last year, Mr. Ward luckArticles about filing lawsuits within the company. Mr. Ward then sent a link to the letter to all of Carta's customers. The email caused a stir at his company, and Mr. Ward said he brought it up internally at the company's weekly town hall meeting in late October.
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