The Incident
Cap table management startup Carta has been dealing with a public relations nightmare for the past couple of days. This isn’t the company’s first scandal, but this new one seems to have caused more of a stir because it directly affected its customers.
What Happened?
According to Carta, one sales employee used confidential data from one of the company’s customers to craft a sales pitch for a secondary stock sale. The act was an obvious violation of Carta’s ethics and customers’ data privacy. The company initially paused secondary trading, and then last night said it would shut down that business altogether.
The Problem, According to Carta
Carta’s co-founder and CEO, Henry Ward, said in a Medium post Monday night that the company’s annual recurring revenue was $373 million, of which only $3 million was from these secondary sales. The company’s last primary round was raised in 2021 at a $7.4 billion valuation.
Valuation Concerns
While Carta hasn’t raised a round since that 2021-era transaction, per secondary data from platforms like Hiive, Caplight and Notion, its current valuation is estimated to be about half of its last primary round. This isn’t terrible when you compare it to current valuation trends for late-stage startups.
Growth and Revenue
Carta’s growth over the last few years has been promising, even without the secondary markets business. The company’s revenue breakdown highlights that startups and investors make up 93% of its revenue. For Carta to have any chance at recovery, it needs to convince its customers that their data is safe and that the company can be trusted.
Mitigating Factors
What happened was bad, but it was mitigated rather quickly, and many who initially thought about leaving ended up exactly where they started once they realized how painful it would be to try and take their business elsewhere. This drama is reminiscent of some of the early panic around Silicon Valley Bank’s collapse.
Repercussions
The scandals from last year and the year prior didn’t move the needle, so it’s unlikely this will have a material impact on Carta or how startups and investors interact with it. However, only time will tell if this is true.
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