Roughly 72 hours after a prominent startup customer complained that Carta was misusing information with which it was entrusted — scaring many of Carta’s tens of thousands of other customers in the process — Carta is exiting the business that landed it in trouble with the customer.
Key Takeaway
Carta’s decision to prioritize trust over revenue by exiting the secondary trading business reflects the company’s commitment to addressing customer concerns and maintaining transparency in the private company ecosystem.
The Decision to Exit Secondaries Business
Carta co-founder and CEO Henry Ward announced the company’s decision to exit the secondary trading business, prioritizing trust over revenue. Ward acknowledged the concerns raised by customers regarding the potential misuse of data and emphasized the importance of maintaining trust within the private company ecosystem.
Background and Evolution of Carta
Originally focused on cap table management software, Carta expanded its services to include a “private stock market for companies.” The company aimed to facilitate private stock transactions and become a key player in the private stock market. However, this expansion led to challenges, particularly in maintaining the trust of its customers.
Customer Complaint and Public Apology
The decision to exit the secondary trading business follows a public complaint from a startup customer, alleging that Carta used confidential information to engage in unauthorized secondary sales. Carta’s CEO publicly apologized for the incident, attributing it to a rogue employee who violated internal procedures. However, the public nature of the complaint prompted other founders to share similar experiences, raising concerns about Carta’s practices.
Impact on Carta’s Business
Ward downplayed the financial impact of ending secondary trading, stating that the revenue derived from the practice is minimal compared to Carta’s other business offerings. He also expressed humility, acknowledging the challenges in implementing liquidity solutions and the limitations of leveraging customer data for such purposes.
Despite the swift decision to back out of the secondary sales business, the long-term impact on Carta’s valuation and its ability to retain customers remains to be seen. The company’s future trajectory will likely be influenced by its commitment to rebuilding trust and addressing the challenges posed by its evolving business model.
