Carta, the cap table management outfit, is accused of unethical tactics by a customer after it tries brokering a deal for the startup’s shares without consent

Carta, an ambitious 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 “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.

Saarinen told TechCrunch via email last night 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, TechCrunch has reached out to numerous Carta board members to ask about how much wiggle room Carta gives itself in its contracts with its customers. Venture capitalist Matt Murphy of Menlo Ventures, who is among the firm’s directors, responded this morning to TC’s request for comment, echoing what Ward earlier told Saarinen on Linkedin. “Carta does not use customer cap table data,” Murphy wrote. “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.”

But startup founders are following the conversation and comparing notes. As one told TechCrunch this morning, “I am a customer of Carta. I just learned about all of the weird stuff going on with them going behind companies’ backs to offer secondaries. I haven’t 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.”

They may not have the protections they imagined. In one subscription agreement sent to TechCrunch by a startup, the language is noticeably vague around the protection of customer data, stating only that “Carta will maintain appropriate administrative, physical, and technical safeguards for protection of the security, confidentiality, and integrity of Customer Data, as described in the Documentation. Those safeguards will include, but will not be limited to, measures designed to prevent unauthorized access to or disclosure of Customer Data (other than by Customer or Users).”

Companies typically have final approval over transactions relating to secondary sales — even as they feel more pressure to allow them these days, given the mostly stalled IPO market.

As Murphy noted in his email to TechCrunch, these days, “Almost 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.”

Indeed, Murphy implied that Carta’s process around such sales is typically both straightforward — and ethical. “With 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.”

Given Saarinen’s very different experience, he doesn’t seem interested in what’s typical for Carta, however. “Carta mentions that in their pdf faq that ‘Most secondary transactions will be subject to approval by companies,’” he observed on LinkedIn. “But they still take buy orders and spam our investors knowing that these won’t get approved.”

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 “negative press” tied to the outfit, they should read a Medium post of his. The move appeared only to call more attention to the many reported problems plaguing the company.

For example, Carta kicked off 2023 by suing its former CTO, and it has been embroiled in numerous other lawsuits over the years.  In 2020, the company’s former VP of marketing sued Carta, accusing the outfit of gender discrimination, retaliation, wrongful termination and of violating the California Equal Pay Act. (TechCrunch featured that case here.) 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 sidelined, demoted or given pay cuts.