Unconsented Investor Contact by Carta Sparks Trust Issues in Startup Community

Carta, a cap table management outfit, is facing accusations of unethical tactics by a prominent startup. The startup’s CEO claims that Carta misused sensitive information by contacting investors without consent and attempting to sell shares without authorization.

Let’s quote from Yahoo Finance.  

Finnish CEO Karri Saarinen posted on LinkedIn that he had received surprising news about Linear, the project management software company he co-founded four years ago and that raised $35 million in funding this fall. Linear is a Carta customer, and according to Saarinen, earlier on Friday, without his consent or knowledge, a representative from Carta reached out to an angel investor in Linear, telling the individual that Carta had a “firm buy order” from an interested party at a specific price, though this buyer might be willing to “flex higher,” said the Carta employee in an email.

As it turns out, Linear is perfectly happy with its current shareholders, and that angel investor is related to Saarinen so immediately alerted him to the email outreach. Feeling betrayed by Carta, Saarinen took to LinkedIn and blasted the company.

The incident has raised questions about Carta’s operations and trustworthiness, with other customers sharing similar experiences. Carta’s CEO apologized and stated that the employee violated internal procedures.    

Carta initially paused secondary trading and later announced the shutdown of that business altogether. Carta’s annual recurring revenue is $373 million, with only $3 million from secondary sales, and its growth has been promising even without the secondary markets business.

Interestingly, I saw this and didn’t care… until several MSP vendors made me aware that I should care.  So, let’s dig into why.

Lots of technology companies use Carta.  The company claims forty thousand companies.  

For IT service companies and startups, this situation underscores the importance of transparent and ethical handling of sensitive data. Trust is a critical component in client relationships, particularly in sectors dealing with financial and investment data. This incident with Carta serves as a cautionary tale for companies in the IT service industry about the long-term consequences of ethical lapses and the importance of robust internal protocols to safeguard client data.

Tactically, reassess your data privacy policies, Implement stringent internal protocols for customer interactions and data handling, build trust with transparency, conduct regular training on compliance, and talk to customers about concerns.  Then, offer all of this as a service.

And be aware that your vendors may be doing that themselves right now.    With many leveraging Carta for financing, they may be a little off balance due to this breach of trust.