After taking credibility hit, Carta announces it is exiting the secondaries business: “We have decided to prioritize trust”

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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 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 a 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. Wrote Saarinen, project management software company Linear is four years old and a Carta customer:  “As a founder it feels kind [of] shitty that Carta, who I trust to manage our cap table, is now doing cold outreach to our angel investors about selling Linear shares to their non disclosed buyers.” Continued Saarinen, “They never contacted us (their customer) about starting an order book for Linear shares. The investor they reached out to is a family member whose investment we never published anywhere. We and they never opted in to any kind of secondary sales. Yet Carta Liquidity found their email and knew that they owned Linear shares.”

While Ward apologized publicly to Saarinen, blaming a rogue employee who “violated our internal procedures and went out of bounds reaching out to customers they shouldn’t have,” Saarinen continued the discussion very publicly, saying he had identified numerous other founders whose investors had also been contacted by Carta representatives without their knowledge.

This story is developing . . .

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