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Carta<\/a>, an ambitious<\/span> 12-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 \u201cprivate stock market for companies<\/a>,\u201d as founder Henry Ward once told TechCrunch. As he explained back in 2019: \u201cNow 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.\u201d<\/p>\n The strategy has boosted Carta\u2019s valuation<\/a> 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.<\/p>\n On Friday, Finnish CEO Karri Saarinen posted on LinkedIn that he had received surprising news about Linear<\/a>,\u00a0 the project management software company he co-founded four years ago and that raised $35 million<\/a> 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 \u201cfirm buy order\u201d from either an individual or an institution \u2014 the Carta representative didn\u2019t say \u2014\u00a0 at a specific price, though this buyer might be willing to \u201cflex higher,\u201d said the Carta employee in an email.<\/p>\n As it turns out, that angel investor is related to Saarinen and immediately alerted him to the email outreach. Clearly feeling betrayed by Carta, Saarinen wrote on LinkedIn, \u201cThis might be the end of Carta as the trusted platform for startups. 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.\u201d Continued Saarinen, \u201cThey 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.\u201d<\/p>\n The post took on a life of its own \u2013 thousands have \u201cliked\u201d it and it has drawn nearly 800 comments \u2013 before Ward waded into the conversation to apologize. Ward also said the email to the Linear investor is not something that Carta condones.\u00a0 Wrote Ward: \u201cHii Karri and everyone, I\u2019m 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\u2019t have. This impacted Karri\u2019s 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.\u201d<\/p>\n TechCrunch reached out to Ward for more information yesterday; he has not responded.<\/p>\n Saarinen meanwhile continued to post on LinkedIn that the incident seemed anything but isolated. \u201cSo far I\u2019ve 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.\u201d<\/p>\n He later posted on X<\/a> that, \u201cI\u2019ve 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\u2019t opted in to this and companies haven\u2019t approved these sales.\u201d<\/p>\n Asked for comment, Saarinen told TechCrunch via email last night that, \u201cI\u2019m retiring from this fight, this already has consumed too much of my time . . . My trust in Carta hasn\u2019t recovered after talking to the CEO.\u201d Added Saarinen, \u201cI 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.\u201d<\/p>\n TechCrunch also reached out to numerous Carta board members to ask about the practice.<\/p>\n One of them, venture capitalist Matt Murphy of Menlo Ventures, echoed what Ward told Saarinen on Linkedin, writing to TechCrunch via email that: \u201cCarta does not use customer cap table data. The cap table business and the CartaX (private stock liquidity) business are separate business units with separate teams and leadership. There was a breach of this protocol from an employee on the CartaX team that has been dealt with and which we learned from.\u201d<\/p>\n But startup founders are following the conversation and comparing notes. As one told TechCrunch this morning, \u201cI am a customer of Carta. I just learned about all of the weird stuff going on with them going behind companies\u2019 backs to offer secondaries. I haven\u2019t been affected by it, but I would be furious if I learned they were peddling shares in my company without my knowledge. I am definitely considering switching platforms.\u201d<\/p>\n Companies typically have to approve transactions relating to secondary sales, notes Murphy. \u201cAlmost every board meeting I go to, some employee is selling stock and we have to allow, exercise our [right of first refusal] and sometimes block if we can.\u201d He further implies Carta\u2019s process is fairly straightforward \u2014 and ethical. \u201cWith Carta, they have a tender product where they coordinate directly with the company to help a process they would run. Then in the case of CartaX marketplace, we verify a buyer and confirm their demand, and they we use public sources of data like Crunchbase and Pitchbook to find potential supply to match the buyer.\u201d<\/p>\n As Saarinen suggests on LinkedIn, however, the mere idea that a service provider like Carta would go around its founders\u2019 back is disturbing to founders. \u201cCompanies likely won\u2019t approve these transactions. Most have restrictions and would need board\/majority approval. Carta mentions that in their pdf faq that \u2018Most secondary transactions will be subject to approval by companies,’\u201d he writes. \u201cBut they still take buy orders and spam our investors knowing that these won\u2019t get approved.\u201d<\/p>\n For Carta, the unflattering attention is the latest in a stream of bad publicity. It has been so constant that in October, Ward even emailed customers, telling them that if they are concerned about \u201cnegative press\u201d tied to the outfit, they should read a Medium post of his. The move appeared only to call more attention<\/a> to the many reported problems plaguing the company.<\/p>\n Carta kicked off 2023 by suing its former CTO<\/a>. But it has been embroiled in numerous other lawsuits over the years.\u00a0 In 2020, the company\u2019s former VP of marketing\u00a0sued<\/a> Carta, accusing the outfit of gender discrimination, retaliation, wrongful termination and of violating the California Equal Pay Act. (TechCrunch featured that case here<\/a>.) Soon after, four employees spoke on the record with The New York Times, telling the outlet that when they voiced concerns about the way the company is run, they were\u00a0sidelined, demoted or given pay cuts<\/a>.<\/p>\n The company has also been accused of poor customer service. TechCrunch year interviewed numerous Carta customers who expressed dissatisfaction with the company and its representatives. One, a fund manager who is in the midst of transitioning off the platform currently, told TC that his team had \u201cfour different account managers in the less than a two-year engagement at Carta; it certainly didn\u2019t help with continuity and understanding of our fund and needs.\u201d<\/p>\n<\/p><\/div>\n