Carta, a platform known for managing cap table information for startups, has opted to shut down its liquidity services business. This decision follows a recent controversy in which a Carta “liquidity solutions” salesperson was accused of improperly accessing confidential company data via Carta’s primary business, which oversees cap table information for startups. The liquidity services business facilitated the trading of private company stock, matching buyers and sellers. However, the revelation of data access concerns prompted Carta to reassess its operations.
The issue became a focal point over the weekend when an entrepreneur disclosed the unauthorized access by a Carta employee. In response to the controversy, Carta CEO Henry Ward acknowledged the challenge of simultaneously acting as both a database provider and a marketplace for trading private company stock. This dual role created potential conflicts of interest and raised concerns about the integrity of the platform.
In a blog post announcing the decision to close the liquidity services business, Ward stated, “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.” This statement highlights the inherent conflict that arises when a platform possesses sensitive company data and engages in secondary trading activities. Carta has chosen to prioritize trust and eliminate any perceived conflicts by exiting the secondary trading business.
Carta’s recent valuation was reported at $8.5 billion, making it a significant player in the startup ecosystem. The company initially gained popularity as a provider of cap table management software for startups, allowing them to efficiently manage ownership structures. Over the years, Carta expanded its offerings to include fund administration tools for venture capitalists, diversifying its product portfolio.
While the secondary transaction business contributed approximately $3 million in annual revenue, it remained a relatively small part of Carta’s overall revenue compared to its core services. The primary revenue streams for Carta include the cap table management business, generating around $250 million, and the fund administration business, contributing approximately $100 million.
In the aftermath of the controversy and to address concerns about potential impropriety, Carta’s decision to exit the secondary trading business reflects a commitment to maintaining trust with its user base. The move underscores the challenges faced by platforms operating in both database management and marketplace facilitation, especially when dealing with sensitive financial and ownership data. Carta’s strategic shift aims to reassure founders and stakeholders that the company is prioritizing their best interests and mitigating any perceived conflicts of interest in its operations.