Shareholding structure management agency Carta is accused of unethical tactics by a well-known startup

Karta, an ambitious The 12-year-old Silicon Valley company has gone through numerous iterations over time, initially inviting investors, startups and employees to use its software to manage their equity structures, and later aspired to become a “company’s private equity market,” founder Henry Ward once told TechCrunch. As he explained in 2019: “Now that you have this network of companies and investors on a platform and the ability to transfer securities, you can build liquidity on top of that.”

The strategy has boosted Carta’s valuation in recent years. But a high-profile client is now accusing Carta of abusing sensitive information entrusted to it by startups to further its own goals. The claim raises broader questions about the way Carta operates, although Carta has argued the incident was isolated.

Finnish CEO Karri Saarinen posted on LinkedIn on Friday that he had received surprising news about Linear, the project management software company he co-founded four years ago. It raised $35 million in funding this fall. Linear is a client of Carta, and according to Saarinen, early Friday, without his consent or knowledge, a Carta representative contacted one of Linear’s angel investors to tell the individual that Carta had received a request from Personal “confirmed purchase order” Carta employees said in an email that Carta representatives did not disclose specific prices, but the buyer may be willing to “increase the price.”

It turned out that the angel investor had a relationship with Saarinen and immediately alerted him about the email outreach. Saarinen clearly felt betrayed by Carta, writing on LinkedIn: “This may be the end of Carta as a trusted platform for new startups. As a founder, I trust Carta to manage our equity structure.” , but now making cold calls to our angel investors to sell Linear stock to an undisclosed buyer makes me feel bad.” Saarinen continued: “They have never contacted us (their clients) ) about initiating an order for Linear stock. The investor they contacted was a family member and we never published his investment anywhere. We and they never opted for any kind of second sale. However Carta Liquidity found their email and know they own Linear stock.”

The post took on a life of its own – thousands of people “liked” it and attracted nearly 800 comments – before Ward stepped into the conversation to apologize. Ward also said Carta would not tolerate emails to Linear investors. Ward wrote: “Hi Cary and everyone, I am shocked that something like this happened. We are still investigating, but on Friday morning it appeared that an employee violated our internal procedures and crossed the line by contacting someone they did not Customers who should be contacted. This affects Carry’s company and two other companies. We have contacted the other two companies and are continuing to investigate. If you have any additional information, please contact me directly at henry.ward@carta.com Contact so I can be informed as we continue our investigation.”

TechCrunch reached out to Ward yesterday for more information; he did not respond.

Meanwhile, Saarinen continued to post on LinkedIn that the incident appeared to be far from isolated. “I’ve heard from four investors so far who all received the same email. They were all early pre-seed investors. I’ve also heard of two companies where this has happened. One of them One is a well-known artificial intelligence company.”

Later he Posted on X “I have learned from multiple companies that this has been going on for months and even years, with Carta employees soliciting private company investors or employees to sell their stock. These individuals have not chosen to do so, and the company has not approved these sales.”

When asked for comment, Saarinen told TechCrunch via email last night, “I am retiring from this fight, it has consumed so much of my time…” . After speaking with the CEO, my trust in Carta has not yet been restored. “I hope Carta takes action on these issues, but we may move to other services because we no longer have confidence in them,” Saarinen added. “

TechCrunch also contacted a number of Carta board members to ask about this practice.

One of them, Matt Murphy, a venture capitalist at Menlo Ventures, echoed what Ward told Saarinen on Linkedin and wrote to TechCrunch via email: “Carta does not use customer cap table data. The equity structure business and CartaX (private equity) The Equity Liquidity business is a separate business unit with separate teams and leadership. An employee of the CartaX team breached this agreement and the incident was addressed and we learned from it.”

But startup founders are paying attention to the conversation and exchanging ideas. As one person told TechCrunch this morning, “I’m a Carta customer. I just learned about all the weird stuff going on with them providing secondary services behind the company’s back. I’m not affected, but if I knew they were on my I would be furious if my company’s stock was being unknowingly peddled. I’m definitely considering switching platforms.”

Murphy noted that companies typically must approve transactions related to secondary sales. “Almost every board meeting I go to, there’s some employee selling stock, and we have to allow that, to exercise our authority. [right of first refusal] Block sometimes if you can. ” He further hinted that Carta’s process is quite simple and ethical. “Through Carta, they have a bidding product that coordinates directly with companies to help them run the process. And then, in terms of the CartaX marketplace, we verify the purchase buyers and identify their needs, then we use public data sources like Crunchbase and Pitchbook to find potential supply matched with buyers.”

However, as Saarinen expressed on LinkedIn, the idea that a service provider like Carta would go behind their founders’ backs is unsettling to founders. “The company may not approve these transactions. Most have restrictions and require board/majority approval. Carta mentions in their PDF FAQ that “most secondary transactions require company approval,” he wrote. “But they still accept buy orders and spam our investors because they know the orders won’t be approved.”

For Kattar, the unflattering attention is the latest in a string of bad publicity. This has been going on so long that in October, Ward even emailed customers to tell them that if they were concerned about “negative press” associated with the clothing, they should read one of his Medium posts . The move appears to be simply an effort to draw more attention to the many reported issues plaguing the company.

Carta kicks off 2023 by suing its former chief technology officer. But it has also been involved in numerous other lawsuits over the years. In 2020, the company’s former vice president of marketing sued Carta, accusing the company of gender discrimination, retaliation, wrongful termination and violation of the California Equal Pay Act. (TechCrunch reported on the case here .) Soon after, four employees spoke out to The New York Times about how they had been pushed aside, demoted, or had their pay cut when they raised concerns about the way the company was being run.

The company has also been accused of poor customer service. TechCrunch spoke with many Carta customers this year who expressed dissatisfaction with the company and its representatives. One of the fund managers, who is currently transitioning away from the platform, told TC that his team “has had four different account managers in less than two years at Carta; this certainly doesn’t help our funding and demand continuity.” sex and understanding.”