Carta’s valuation will be cut by billions in an upcoming secondary sale

Carta, a once-high-flying Silicon Valley startup that loudly backed away from one of its businesses earlier this year, is working on a secondary sale that would value the company at $2 billion, TechCrunch has learned.

Carta is working with the investment bank Jeffries on the sale and initially hoped to find demand for the offering at a valuation of $4 billion, but according to our sources, even $2 billion may prove ambitious.

That’s a massive, if not entirely unexpected, drop in valuation for Carta, which originally focused on cap table management software but began over time to evolve into a “private stock market for companies.” Its goal was to take advantage of the network of companies and investors that used its platform and into which it has insights. The big idea was to become the transfer agent, brokerage and clearinghouse for all private stock transactions in the world.

As part of that narrative, Carta launched an exchange that aimed to find buyers for shares using an auction-style system, and it later used this same system to bolster its own value in the eyes of investors. Indeed, after big leaps in valuation, from $1.7 billion in 2019 to $3.1 billion in 2020, Carta announced in the summer of 2021 that it was worth a whopping $7.4 billion after first selling $100 million worth of its shares at a $6.9 billion valuation on its own platform.

Roughly 15 months later, in late 2022, the company’s CEO, Henry Ward, told Axios that Carta was worth even more – $8.5 billion – following a separate secondary sale. (He did not disclose how many shares were sold at this valuation or who bought them.)

Those ballooning numbers were already astonishing to some industry insiders who’ve long snickered that Carta has merely mashed together a lot of disparate, moderately lucrative businesses in an effort to position itself as the next-big platform company.

But that $8.5 billion valuation seemed even more destined to fall following an imbroglio earlier this year with a startup customer whose complaint about the company resonated with much of the rest of the startup world.

It all began in early January when Finnish CEO Karri Saarinen complained very publicly that Carta was using information about his company’s investor base to try to sell its shares to outside buyers without the company’s knowledge or consent.

Ward at first blamed a rogue Carta employee, but startup founders began comparing notes – and sharing similar experiences – and within 72 hours of being accused of misusing customer information, Carta said it was getting out of the business line that landed it in so much trouble.

“Because we have the data, if we are trading secondaries, people will always worry that we are using the data, even if we are not,” Ward announced at the time on Medium. “So we have decided to prioritize trust, and exit the secondary trading business.”

A public relations disaster for Carta, it was hardly the first time Carta has landed in the press for all the wrong reasons. The company has a long history of being sued by, and countersuing, former employees who’ve alleged the company has a toxic culture, including one that disadvantages women.

Now, Carta is seemingly returning to its roots – and an earlier valuation that’s probably better suited to the business. While Carta’s cap table business is still growing – a source familiar said Carta generated $380 million in revenue last year – it also lost $65 million in 2023, and there “aren’t a whole lot of other places for it to grow,” said this person.

Another related challenge is Carta hasn’t found a way to make its fund administration business profitable on a gross margin basis. Partly, it may be how the company has priced that business, but it doesn’t help that a lot of Carta’s customers aren’t returning as they fail to raise subsequent new venture funds. Meanwhile, a set of Carta’s earlier customers are now so big that they’ve moved onto bigger banks like Morgan Stanley for some of the same services that they once received from Carta.

Carta did not respond immediately to a TechCrunch request for comment.

Over the years, Carta has raised roughly $1.2 billion from investors, according to the startups tracker Tracxn.

Some of the venture firms to lead rounds in the company include Union Square Ventures, Andreessen Horowitz, Spark Capital, and Tribe Capital.