Cap table management startup Carta has struggled with a PR nightmare in recent days. While this isn't Carta's first public scandal, this new one seemed to draw more attention because it directly affected customers.
So what happened? In short, according to Carta, a sales representative used confidential information from one of the company's customers to conduct a sales pitch for a secondary inventory sale. The act was a blatant violation of Carta's ethics and customer privacy. The company first stopped secondary trading and then announced last night that it would stop this business entirely.
According to Carta the problem has been resolved. However, the company's customers – investors and startups – may not like the fact that there has been a fairly blatant breach of ethics and privacy by a provider that stores some of their most sensitive data.
Before we delve deeper into what this mess could mean for Carta, we need to understand the situation at the company before this came to light. Carta co-founder and CEO Henry Ward said in a Medium post Monday evening that Carta's annual recurring revenue was $373 million, of which only $3 million came from these secondary sales. The company's most recent primary round came in 2021 at a valuation of $7.4 billion.
While Carta has not completed a round since this transaction in 2021, its current valuation is estimated to be around half of the last primary round, according to secondary data from platforms such as Hiive Markets, Caplight and Notion.
Well, that's not a bad thing when you compare this valuation discount to current valuation trends for late-stage startups. My colleagues Alex Wilhelm and Anna Heim also wrote on Tuesday morning that the company's growth in recent years has been promising, even without the secondary market business.