Carta to exit secondary trading business

https://henrysward.medium.com/should-carta-facilitate-secondary-trading-c319e0c9f080

by thewarpaint • 3 years ago

225 114 3 years ago

henrysward.medium.com

BRAVO!!!!

Edit: we did just spend 2 days pouring over every negative detail, I don't think this has to be at -5. I will consider it a karmic offering of the karma I got for being negative

gruez• 3 years ago

Prior drama: https://news.ycombinator.com/item?id=38897363

Personally I think it's great that they removed this potential conflict of interest, but the fact that the announced this while conveniently omitting the events that led up to this makes me still distrust them.

blindriver• 3 years ago

I thought his responses were terrible and worthy of being fired over the weekend, but I am impressed with his quick action on this. I guess you can put me down as “neutral” towards this person.

rrr_oh_man• 3 years ago

Caught with your hand in the cookie jar pre-IPO. Of course you’d want to act quickly.

ironmagma• 3 years ago

They sound like a classic machiavellian, deflecting at the first sign of criticism.

dastbe• 3 years ago

dude pretty clearly got his cheeks clapped by everyone around him, presumably including the board/vcs who invest in carta.

lotsofpulp• 3 years ago

Didn’t expect to see the use of “cheeks clapped” in this discussion.

caesil2• 3 years ago

He really comes across as a sociopath. And I don't mean that as an insult. I don't see any other good explanation for how he can fail, over and over, to foresee that his clearly unempathetic responses will be received poorly.

vikramkr• 3 years ago

Given that the last Carta scandal their response was to amplify their owns candal by sending everyone a link to their weird ranty medium article about how the mainstream media is bad, I will give them credit for at the least not responding that poorly this time. I mean, not that the response is great but it's better than going door to door to all their customers and shouting in their face "hey, did you know I'm in the middle of a scandal? I'm being scandaled right now! Would you like to learn more about how I screwed up?"

smt882• 3 years ago

This is the best response, but remember it's a response to getting caught. They didn't grow a conscience or replace leadership.

My company is still taking our business away from Carta, and I don't think anyone's plans should change because they repented after being caught. Things might be different if the CEO stepped down, but he hasn't yet.

notfried• 3 years ago

A quick search shows me a number of alternatives to Carta, but none that I have ever heard of or come across. Is there any competitor that is considered the second best? Carta just seems to me what everyone had been using without a second thought.

threeseed• 3 years ago

Pulley is what has been recommended in the past.

earnesti• 3 years ago

What about an excel sheet?

Matticus_Rex• 3 years ago

People in my network have recommended both Pulley and AngelList.

choppaface5• 3 years ago

Shareworks, Scwhab

mkreis• 3 years ago

I can recommend Ledgy

xyzzy_plugh3• 3 years ago

Seconded. While this is a great move, they have yet to provide assurances that this sort of thing won't happen in the future. This blog post doesn't sufficiently serve as official policy for us.

jrflowers• 3 years ago

You make a good point. This is the best response despite it being in response to getting caught and them but showing any conscience or replacing leadership.

If you think about it if a company acts in a way that makes you no longer want anything to do with them, the best thing is a vague blog post bragging about how much money they make doing other stuff

__loam2• 3 years ago

This is also the second shady article I've seen from carta this year.

https://sfstandard.com/2023/10/25/carta-san-francisco-lawsui...

helloericsf2• 3 years ago

Wow, this is bad.

Waterluvian• 3 years ago

The only people who will ever be caught using Carta are fools, the unaware, or those who have no choice for some reason. You need a base level of trust and that’s gone.

choppaface5• 3 years ago

And then oops we'll change our mind again in 6 months because it was only $3m/yr revenue we lopped off. Especially as investor interest grows with falling fed rates. By the way, to VCs who want to invest in Carta: look it's only $3m/yr, we're saving so much brand by doing this and it's not going to hurt our valuation at all. You should probably value us like an OpenAI, we're capturing the light cone of cap table info!

RunawayGalaxy• 3 years ago

Does that go for Carta Marketplace also? Asking because it seems to be a separate business.

elefanten• 3 years ago

Yeah, the commitments in this post don’t preclude an entity other than Carta doing the same thing.

It seems incredibly risky and foolish to try, to the point that I don’t expect them to. But this post leaves room for other attempts.

altdataseller4• 3 years ago

Will they still be selling equity and compensation data or getting out of that business? Technically that’s still a data product too.

simonebrunozzi• 3 years ago

It's aggregate.

altdataseller4• 3 years ago

And? That’s still taking customers data and selling it

bix6• 3 years ago

What other ways does Carta share data?

That is my fundamental question after all this.

altdataseller4• 3 years ago

They sell equity and compensation benchmark data to other startups. That’s one example

xyzzy_plugh3• 3 years ago

To be honest this still seems off.

If Carta shows respect for your data and privacy I believe they could still offer an opt-in secondary market, and I can see plenty of companies being interested in participating in it.

No one was complaining about the secondary market, they were complaining that Carta was double dipping with their data without consent. This whole post feels like he's just trying to move the goalposts.

Ultimately it's about treating customer data with respect, building trust, and operating with transparency. They can't do those things, so they have to shut the whole thing down?

Smells funny.

logiduck• 3 years ago

The core issue of the secondaries market is that companies have a conflict of interest not to participate and the control that they want in order to participate essentially violates securities law. Founders want control over the price, who buys the shares, who can sell, etc. Carta and other companies so far haven't been able to solve this problem on mass scale of motivating founders to allow all shareholders to sell on an open market. There was weak demand from the company side so it seems like Carta tried to force it by making the market first and then asking for forgiveness because asking for permission wasn't working.

xyzzy_plugh3• 3 years ago

I agree.

My issue with Carta is now the permission vs forgiveness thing. They won't get the opportunity to ask for forgiveness again at least in my case.

yesimahuman• 3 years ago

Agreed. And to make such a seemingly big decision in a matter of a weekend. Respect for being decisive I guess but this seems impulsive and framing the secondary opportunity to conveniently fit the narrative instead of addressing the core issues that, when resolved, might make it viable

AmericanChopper• 3 years ago

The comments ITT are a great example of why it’s often a good idea to ignore complaints and do whatever you want anyway. The behaviour that conventionally would be used to build trust, like admitting when you’re wrong and changing what you’re doing (in this case, shutting down an entire division of your company) is simple met with “no not good enough, you were wrong and should be punished more”.

dbt00• 3 years ago

They didn’t admit they were wrong, they said it was just the appearance of impropriety.

andrewstuart• 3 years ago

This is a business entirely dependent on trust.

Trust is quickly lost and hard to win.

o0-0o4• 3 years ago

I run a competitive product if anyone wants an honest run good business alternative

esafak2• 3 years ago

what

o0-0o4• 3 years ago

Investorportalpro.com

relaunched• 3 years ago

There is a lot of patting themselves on the back and no acknowledgement of wrongdoing. They got caught violating trust for an inconsequential revenue stream, at the expense of their biggest revenue stream's customer - so, we'll shut down the conflict.

Also, 409a is a conflict of interest, but since it doesn't negatively impact our biggest revenue streams, we'll keep doing it (at the expense of tax revenue).

milkglass2• 3 years ago

I do not understand why these have to be done through Medium posts.

kyawzazaw• 3 years ago

And the CEO’s own medium

tw04• 3 years ago

Presumably to make it difficult for any prospective customers to find. Anyone already in the know can rest assured “things have changed” because they’ve been following the news cycle and will readily find the relevant tweets and medium posts. That in theory cause this all to fall out if the spotlight.

Any future unwitting potential customer who didn’t think to search for the current CEOs personal medium account to find a damming scandal about the company will be none the wiser.

caesil2• 3 years ago

Well uh, he emailed every customer about it. He also emailed every customer about his previous Medium article, about a different controversy, earlier this year (I hadn't known about it until seeing the email).

jez• 3 years ago

When a company says something like:

“Fast forward to today, our business is broken down as follows: the captable business is about $250M/year, fund administration is about $100M, private equity is about $20M, and the secondary trading business is about $3M.”

Is that assumed to be yearly revenue? Earnings? Something else?

tiffanyh• 3 years ago

I’d assume annual since the first number says “/year”, but that blows my mind captable mgmt is $250M in annual revenue.

altdataseller4• 3 years ago

Is that too little? Too much?

granshaw3• 3 years ago

Separate of what did or didn’t happen here, I hope more companies crack the secondary market puzzle. The current environment really sucks for startup employee liquidity and might be going on for a lot longer.

nico• 3 years ago

Yes. Btw, what are someone’s potential liquidity alternatives for ISO options in profitable private startups?

What’s an alternative to Carta’s solution?

granshaw3• 3 years ago

I know there’s equityzen and probably other marketplaces, but I think the main issue is most even late stage startups ban secondary trading

This knowledge might be outdated, I quit that game and opted to join public companies since a couple years ago.

Yes it’s an upfront risk that employees take when joining but man does it not also feel incredibly one sided and smelly, esp the later stage the startup gets

jedberg• 3 years ago

I hope more companies crack the secondary market puzzle.

This feels like the wrong solution. I mean, the reason we need a secondary market is because companies are going public much later than the used to. Why? Because the government made it a lot more onerous to go public. Why? Because companies were abusing the process to enrich insiders.

If we make the secondary market easier, we'll just be right back where we were, and then the government would probably just step in and make it onerous again.

I think the actual solution here is to make going public easier again while addressing the loopholes for abuse so that companies can go public sooner and everyone can get liquidity sooner.

granshaw3• 3 years ago

From reading your first paragraph I thought you were heading to an opposite conclusion, but yes, completely agree that we should make it easier to go public

jgilias2• 3 years ago

And insiders found ways to enrich themselves even while working with the onerous process. Remember the SPAC craze?

Another example of where the honest people get penalized with a heavy process in the name of zero fraud.

enra2• 3 years ago

I’m CEO of Linear who raised the alarm on this.

I have to commend them for making this decision and removing the conflict of interest.

However they didn’t address the fact that sales people had convenient access to data and how long & broadly that access was abused.

Edit: fixed “Linear CEO” to “CEO of Linear”

CityOfThrowaway• 3 years ago

They did address it... by completely eliminating the department.

They didn't deep dive retro it, but in that, we know the answer.

milkglass2• 3 years ago

So strange. What are the data retention requirements for situations such as this?

The whole thing just feels so off. Some big moves but very little details from Carta.

Commitments just sound like empty promises now, especially when they're presented on Medium. Did any customers receive assurance or details of what went down?

baobun• 3 years ago

No, there is no acknowledgement that anything undue ever happened. Only that business in this department hasn't been financially successful and that customers could have concerns.

Nothing about those concerns actually being valid. This is vague misdirection at best.

stuaxo• 3 years ago

Stop doing the possibly illegal thing, and hope that nobody takes it further I guess.

jjtheblunt2• 3 years ago

what is "linear"? [ edit : thanks below! ]

dangrossman• 3 years ago

The company he's CEO of: https://linear.app

temp_praneshp• 3 years ago

https://linear.app/

He's the CEO "of" Linear, not a linear CEO :)

jjtang12• 3 years ago

Linear is the only thing saving startups like ours from using Jira ;)

jjtang12• 3 years ago

Are you leaving Carta for Pulley or other platforms? We've been long time Carta customers at Rootly.

enra2• 3 years ago

We’re starting to evaluate other platforms, Pulley and Angellist.

choppaface5• 3 years ago

I'm a former employee of a place that did Carta. Employees are already left in the dark about the cap table, liquidity preferences, venture debt, and the C-Suite's relationship with the Board. Based on this exchange, I'd now see usage of Carta as a red flag when looking at any new start-up. Maybe Schwab or Shareworks are ok (Shareworks has been fine in my own experience). The investors are already doing hyper-leveraged arbitrage with my labor, I don't need the HR Comp software to do that too (even if they say they don't, and even if they say that business is only worth $3m/yr vs $250m/yr for accounting). If they want to do that, they can pay me directly.

athoscouto• 3 years ago

I've worked on some companies that used Carta. In some of them, I had access to cap table, preferences, total raised debt, etc. In others, I could see only my number of options and their strike price. Is up to the company how much they want to share, Carta can be used on both ways.

therobots927• 3 years ago

I worked for a startup where I repeatedly asked basic questions to estimate the value of my shares. I never got a straight answer. So I applied to a FAANG and got in. When I was onboarding the FAANG asked what my shares I was leaving behind were worth (they take this number and use it to calculate starting bonus). I had no idea, gave an honest estimate, and later found out that I had given them a number about 60% lower than the true value. I'll never forgive the startup execs for keeping me in the dark, or ever work for a company again that doesn't make that information freely available. One of my favorite memories was walking out the door of that place.

elvinyung• 3 years ago

How was the beef stew?

asylteltine• 3 years ago

What does carta do that a spreadsheet can’t? I don’t understand how that can be so hard you pay an entire company to manage it.

dboreham2• 3 years ago

Does this question need to be asked when there are countless (even very successful) SaaS companies that do something that can be done with a 100-line bash script.

aku286• 3 years ago

You know the answer, you just don't want to believe it. Something trivial to you might be non-trivial to someone else and vice-versa.

Animats2• 3 years ago

So are they spinning the secondary trading business off into a separate company, or shutting it down completely?

If they shut it down, their claimed US$8 billion market cap goes poof, doesn't it? Maintaining cap tables as a service can't be good for more than a few million a year in revenue.

ipsum2• 3 years ago

Fast forward to today, our business is broken down as follows: the captable business is about $250M/year, fund administration is about $100M, private equity is about $20M, and the secondary trading business is about $3M.

$250M is more than a few million.

Animats2• 3 years ago

The poster with the original complaint said they were paying about US$10,000 a year for their cap table service. Are there 25,000 startups using this service?

hipadev23• 3 years ago

They let $3M out of $373M jeopardize the entire company. What incredibly poor foresight and management controls.

helloericsf2• 3 years ago

In the beginning, Ward positioned it as an internal process violation. "Hi Karri and everyone, I’m appalled that this happened. We are still investigating but it appears that Friday morning an employee violated our internal procedures and went out of bounds reaching out to customers they shouldn’t have.

Henry" https://twitter.com/henrysward/status/1743713154721554849

acjohnson55• 3 years ago

It's because they thought secondary could be the real business, because the hypothetical total addressable market is so large.

JCM92• 3 years ago

This is a good move, but still an inadequate response to what originally happened. It’s dogging deep questions about who had access to what data and just how bad the security controls were around startups’ sensitive information. Shutting down this bit of the business doesn’t put folks at ease that their information is still safe with Carta.

The Carta CEO has botched the response here multiple times now and this latest pass just comes across as an oops sorry we got caught, we won’t do that anymore response… but still dodging the hard questions on how data was being managed.

ahahahahah• 3 years ago

Name a startup that doesn't have shit security or privacy controls (or regulatory, or ... really anything).

JCM92• 3 years ago

If you’re a fintech startup you very much do or you’re toast.

dang• 3 years ago

Related. Others?

How We Handle Cap Table Information - https://news.ycombinator.com/item?id=38906749 - Jan 2024 (88 comments)

Linear CEO alleges Carta mishandled sensitive cap table data - https://news.ycombinator.com/item?id=38899001 - Jan 2024 (36 comments)

Carta CEO's response to the unsolicited outreach to their customers' investors - https://news.ycombinator.com/item?id=38897363 - Jan 2024 (98 comments)

Carta doing unsolicited tender offer outreach to their customers' investors - https://news.ycombinator.com/item?id=38886915 - Jan 2024 (80 comments)

htrp2• 3 years ago

They'll be back in this business again in 2 years.

htrp2• 3 years ago

Is there anything more complex to what carta offers to justify the 10k a year price tags ?

simpleEQ• 3 years ago

I've heard there are some European companies that started to join the equity management game. products like Nimity are bound to respect the EU data protection regulations, so they might be a solution of how to avoid such data breach issues.

siegel• 3 years ago

That's nice that they are leaving the secondary trading business. Of course, they can restart that business again.

But this all begs two questions:

1) Do their legal agreements protect customers sufficiently in terms of use of customer data? I'd argue no. They are a bit of a mess, but very broadly give rights to Carta and its affiliates to use customer data in all sorts of ways. Quite arguably they had every right to do what they did here.

2) Legal agreements aside, forget policies on use. How on earth did a CartaX employee get access to Carta customer data?

The reality here is that the loose legal restrictions on Carta's use of customer data plus what appears to be loose internal restrictions on employee access to customer data makes me wonder what ELSE they are doing with customer data that we CAN'T so easily see.

Carta to exit secondary trading business

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