By Connie Loizos | Tech Crunch
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.
Carta co-founder and CEO Henry Ward posted on Medium tonight that: “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. So we have decided to prioritize trust, and exit the secondary trading business.”
It’s a dramatic turn of events for 14-year-old Carta, which originally focused on cap table management software but began over time to evolve into a “private stock market for companies” to take advantage of the network of companies and investors that already use 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.
While the move made Carta more valuable in the eyes of its venture backers — a company has to scale, after all! — it put the company on dangerous footing after Finnish CEO Karri Saarinen posted on LinkedIn on Friday 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.
“Besides breach of privacy, Carta may be subject to breach of contract claims. Uncontrolled sale of company shares by investors can be a huge problem for startups as it may disrupt their valuation and their ability to control the terms.” – Shruti Gurudanti, director of corporate transactions at Rose Law Group
