Startup Scandal: Equity Management Provider Accused of Misusing Customer Data
A prominent equity management services provider for privately-held startups, Carta, has recently faced allegations of misusing customer data for their own benefit. The accusations have sparked a controversy within Silicon Valley’s startup community, leading to a wave of finger-pointing and recriminations.
The dispute centers around Carta, a startup valued at $7.4 billion that offers equity management services. A customer of Carta, Karri Saarinen, who is the co-founder and CEO of Linear, a product development and management startup, publicly shared an email that was sent to one of his family members. In the email, a director at Carta Liquidity, a subsidiary specializing in secondary market transactions, inquired about the possibility of selling their Linear shares to one of his clients.
Saarinen was puzzled as to how the Carta employee knew that his family member owned shares in Linear. The family member, according to Saarinen, had never publicly disclosed their investment in Linear and had limited online presence. Saarinen’s social media posts suggested that Carta was using Linear’s confidential data without authorization to expand their own order book for their secondaries market platform.
Essentially, Saarinen believed that the employee had accessed confidential data about Linear’s shareholders to facilitate a deal between an interested buyer on the secondary market and an existing shareholder of Linear. Carta’s role in brokering these transactions involves charging a commission, typically around 2%, on each side.
Saarinen’s tweet thread gained significant attention and generated widespread criticism from other startup founders on platforms like LinkedIn. Carta’s CEO, Henry Ward, responded by acknowledging the breach of privacy protocols and admitting that it had impacted Linear and two other companies. Ward assured that they were thoroughly investigating the incidents to prevent any recurrence and even contemplated whether Carta should continue its liquidity business.
The incident has sparked concerns among startup founders who also use Carta’s services to manage their cap tables. While founders often engage in liquidity events through processes like tender offers, they remain cautious about third-party secondary transactions. These transactions can potentially result in founders losing control over the investors acquiring shares and, consequently, exerting influence within their companies.
Startups have emphasized the need for Carta to obtain consent from the company or establish a right of first refusal to prevent their control from being undermined. The breach of trust caused by Carta’s actions has raised significant concerns among the startup community.
Carta has previously faced controversy, including lawsuits filed by former employees alleging gender discrimination and harassment. Last year, the company conducted several rounds of layoffs. Ward has also been vocal in his response to public criticism, having previously published open letters to address concerns.
As the investigation into the misuse of customer data continues, it remains to be seen how Carta will rectify the breach of trust and regain the faith of startup founders relying on their services.
Disclaimer: The information provided in this article is based solely on the allegations made and the responses from the parties involved. The investigation into the incident is ongoing, and any conclusions or judgments should be reserved until further information is available.
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