Carta’s crisis is about more than trust (but trust is still a big deal)

Carta, the most popular platform for startups to manage equity and ownership info, has spent the week defending how it handles that data.

Driving the news: Last Friday, the CEO of software company Linear posted on X and LinkedIn that a Carta salesperson had contacted one of his angel investors for a share sale.

  • The problem was that the investor had never publicly disclosed their investment, suggesting the employee had accessed data in Linear’s cap table to connect the two.
  • CEO Henry Ward acknowledged an employee broke protocol with Linear and two other companies. He promised an investigation, but also spent the weekend firing off barbs at customers and critics online.
  • Carta then suspended its secondary trading business to eliminate future conflicts of interest. Since 2021, it had operated CartaX a platform for trading private company shares.
  • Linear’s CEO then claimed the issue was bigger than what Ward knew or admitted, and leaked emails appeared to show Carta actively marketing client shares.

Why it matters: Carta is far and away the most-used cap table software, and now it is facing questions from its client base of over 40,000 customers about how their data is used.

  • It is also no stranger to bad press. Last year, Carta was hit with sexual harassment and discrimination lawsuits, in addition to reports of a toxic “boys club” culture.

What’s next: CartaX was the reason for at least one of the company’s funding rounds, so in addition to data security, there are also questions about how it could maintain its US$8.5 billion valuation.

Yes, but: The trust crisis has given competitors an opening to woo clients away. But while that may chip away at Carta’s status as the “default” cap table platform, it is unlikely to lose its leadership position — in the near term, anyway.