Image Credits: Carta
Carta, an ambitious 14-year-old Silicon Valley outfit, has gone through numerous iterations over time, originally inviting investors, startups, and employees to use its software to manage their cap tables and later aspiring to evolve into a “private stock market for companies,” as founder Henry Ward once told TechCrunch. As he explained back in 2019: “Now that you have this network of companies and investors all on one platform and the ability to transfer securities, you can build liquidity on top of it.”
The strategy has boosted Carta’s valuation in recent years. But a prominent customer is now accusing Carta of misusing sensitive information that startups entrust to the company in pursuit of its own goals. The claim is raising wider questions about how Carta operates, even as Carta argues the incident was isolated.
The row dates back to Friday, when Finnish CEO Karri Saarinen posted on LinkedIn that he had received surprising news about Linear, the project management software company he co-founded four years ago and that raised $35 million in funding this fall. Linear is a Carta customer, 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 “firm buy order” from an interested party at a specific price, though this buyer might be willing to “flex higher,” said the Carta employee in an email.
As it turns out, Linear is perfectly happy with its current shareholders, and that angel investor is related to Saarinen so immediately alerted him to the email outreach. Feeling betrayed by Carta, Saarinen took to LinkedIn and blasted the company.
“This might be the end of Carta as the trusted platform for startups,” he wrote. “As a founder it feels kind shitty that Carta, who I trust to manage our cap table, is now doing cold outreach to our angel investors about selling Linear shares to their non disclosed buyers.” Continued Saarinen, “They never contacted us (their customer) about starting an order book for Linear shares. The investor they reached out to is a family member whose investment we never published anywhere. We and they never opted in to any kind of secondary sales. Yet Carta Liquidity found their email and knew that they owned Linear shares.”
After the post took on a life of its own – thousands have “liked” it and it has drawn nearly 800 comments – Ward waded into the conversation to apologize. Ward also said the email that was sent to Linear’s investor was not condoned by Carta. Wrote Ward: “Hi Karri and everyone, I’m appalled that this happened. We are still investigating but it appears that Friday morning an employee violated our internal procedures and went out of bounds reaching out to customers they shouldn’t have. This impacted Karri’s company and two other companies. We have contacted the other two companies and are continuing to investigate. If you have any other information please reach out to me directly at henry.ward@carta.com to let me know while we continue our investigation.”
Ward did not respond to TechCrunch’s request for more information yesterday. But Saarinen was not assuaged by Ward’s public apology. He continued to post on LinkedIn that the incident seemed anything but isolated. “So far I’ve heard from 4 of our investors who were approached with the same email. All of them were the early pre-seed investors. Also heard from 2 companies who had this happen to them. One of them a prominent AI company.”
Saarinen also posted separately on X that, “I’ve learned from multiple companies that this has been going on for months or even years where investors or employees of private companies are solicited by Carta employees to put their shares on sale. These people haven’t opted in to this and companies haven’t approved these sales.”
Back on LinkedIn last night, Saarinen wrote that he’d finally talked with Ward, and that “nothing” that Ward told Saarinen “really changed” his position.
In response to an interview request, Saarinen told TechCrunch that he is “retiring from this fight, this already has consumed too much of my time . . . My trust in Carta hasn’t recovered after talking to the CEO.” Added Saarinen, “I hope Carta takes action on these issues but likely we will be moving on to another service as we no longer have confidence in them.”
In the meantime, one outstanding question is how much wiggle room Carta gives itself in its contracts with its customers. They may not have the protections they imagined. In one “master subscription agreement” sent to TechCrunch by a startup, the language is noticeably vague around…
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