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Carta, a $7.4 billion software company used by startups to track their investors, is trying to trade its customers’ stocks without consent, according to a complaint that threatens to undermine trust in the widely used platform.
Kari Saarinen, co-founder of software startup Linear, claimed that Carta began communicating with its investors on Friday without consent. Carta is “now cold reaching out to our angel investors about selling Linear shares to their buyers,” Saarinen wrote in a post on social media platform X on Friday.
Since Saarinen’s complaint, it has emerged that Carta employees have approached investors about two other startups.
The dispute has raised questions about how Carta uses private information gleaned from customers of its platform to gain an advantage in the increasingly competitive secondary market for emerging stocks.
On Saturday morning, Carta CEO Henry Ward Reply to Saarinen’s post To say he was “appalled that this happened” and that the company was investigating what it said appeared to be a rogue employee violating its policies.
Shortly thereafter, Ward admitted that two other companies using the Carta platform were also affected by the same issue.
Carta’s core business is helping startups manage their capitalization tables, or caps — a physical record of who owns the company. This can be complex for startups that have multiple categories of stakeholders. Carta was last valued at $7.4 billion in a 2021 funding round, according to PitchBook.
Carta also operates a private equity trading platform, acting as an intermediary between startups and investors to allow early-stage companies to be private and liquid at the same time. Carta takes a small cut from buyers and sellers in any transaction.
A dearth of public listings in the past 18 months has heightened interest in the secondary market for private company stocks, which is one of the few ways for investors to gain access to buzzy startups. Carta is one of a number of platforms competing to trade in private companies.
While the majority of Carta’s clients use the platform to track their investor base, not all of them actively seek to sell their shares to investors at any given time. The two parts of the business are supposed to operate largely independently of each other.
Linear did not arrange a sale, and Carta used private information to target the company’s investors, Saarinen alleged.
“I’m completely on board with the idea if Carta had (a) secondary sales platform for a company-approved tender offer or secondary sales,” he wrote. “I think it goes too far for Carta to use its employees to solicit these sales… knowing that neither the company nor the board has approved any secondary sales,” he continued.
“If Carta and Carta Marketplace employees had free access to company information and cap table information in order to generate secondary sales (which companies often don’t want) then the whole thing would look corrupt.”
Carta World did not respond to a request for comment.