Carta to exit secondary trading business | Hacker News Reader

Carta to exit secondary trading business

henrysward.medium.com

225 pointsthewarpaint114 comments

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.

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.

Pulley is what has been recommended in the past.

What about an excel sheet?

As an early employee at a startup from seed through a healthy Series B last year, I would have serious concerns about the company’s bookkeeping and how-up-to-date the shareholder information is if it were kept in an excel spread sheet on Google drive.

Carta and Pulley, etc. do a solve a valuable concern here for non-executives who are compensated with stock options and want to keep track of stock vesting, exercises, and shares in a transparent way, I’d say.

Once you get past a handful of grants, every Excel cap table I've seen has been an absolute disaster. Use a software product. Both Carta and Pulley offer free versions, until you exceed certain limits (e.g. for Carta Launch, until you exceed $1M raised or 25 stakeholders). If you are over those limits, even more reason to use a software product and not Excel.

Some VCs will withhold investment until you use a product like Carta or Pulley. Cap table in Excel carries major risk.

(And yes, Carta/Pulley are often portcos of those VCs pushing you to use them)

As a seed VC, I still see a majority of Excel cap tables over Carta. (Pulley / Shareworks is even rarer).

I have a competitive product and excel is a very valid option but if you want automation for anything like this, you really need something like us hit me up on DM if you want a demo

HN doesn't have DMs, and you don't have any contact info in your profile. I agree about just posting a link though - self-promotion is okay if it's clearly relevant and up-front.

Just post a link and tell us why we should trust you. It's an appropriate time/place for you to self-premote imo.

Https://investorportalpro.com

People in my network have recommended both Pulley and AngelList.

Carta > Pulley >>> AngelList.

This is largely a result of how long each product has been available, i.e. the older products are more mature. Hopefully Pulley and AngelList continue to catch up so there is a diversity of good options available.

Shareworks, Scwhab

I can recommend Ledgy

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

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

Wow, this is bad.

Why do people work for such terribleness?

To pay rent

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

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.

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!

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.

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”

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.

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.

> asked what my shares I was leaving behind were worth

I always decline to answer these questions by saying "it's not relevant; I'd like to be compensated according to my background/experience and the role". If there's a specific number I'm looking for, I'll also ask for that. But I'd never directly answer the "what was your last salary/comp?" question.

I flat out never trust any numbers from startups. Some companies are still using the SaaS 10-13x revenue as an estimation, despite the current economic climate and often in spite of a) not reqlly being a SaaS and b) not growing that fast.

Throw in liquidation preferences, etc. and it's not really possible to know anyway. I've been at three startups. Two were acquired and one is still plateaued over 10 years after I left. Total value of my stock so far? $0.

It'd have to be some rare unicorn for me to treat startup options as anything other than a lottery ticket.

I’ve had two offers where only the number of shares was quoted, one of them from a YC alum. One now has a record of making false statements about their valuation and has gone under, the other got sold for pennies. If they only give you number of shares it’s a big red flag and could be outright fraud.

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.

I agree it’s up to the company how much they share. And companies that sure very little are not worth smart talent.

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

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

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?

Some financial institutions are basically required to retain everything for years, Carta may or may not be outside some of those stricter requirements.

Given their customers are startups, but more specifically founders themselves, and they handle cap tables, I’m sure they’re getting plenty of direct questions from legal departments with the interest of C suites everywhere. Assurances might well be coming in to form of legal agreements and external audits, and possibly SEC investigations and discovery for lawsuits.

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.

It’s in the previous post: https://henrysward.medium.com/how-we-handle-captable-informa...

> On Friday we had an internal policy violation that affected three companies. I’ve been in touch with the founders and I’m appalled we made that mistake and it should never have happened. It is unacceptable and we’ve dealt with the violation on Saturday morning and are continuing the investigation to make sure it never happens again.

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

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

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

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

https://linear.app/

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

Now planning to re-brand myself as a logarithmic CEO of course.

I’d rather be an exponential one then!

Exponent, Inc. is already taken...

Exponent, Shell.

Or to CS folks, a CEO(n)

He could be both, who are we to judge

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

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

Oh wow thanks, I just assumed it's Linear Technologies.

How was the beef stew?

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.

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.

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.

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

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”.

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

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.

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)

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.

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

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

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).

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

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

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

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.

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

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

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?"

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

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

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.

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

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.

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).

And the CEO’s own medium

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.

> 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.

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.

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

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

What’s an alternative to Carta’s solution?

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

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.

> 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.

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?

Some startups pay Carta more than $10k a year. For instance, in a community I’m in, someone mentioned that they pay Carta $150k/yr. It comes down to how many of Carta’s various services startups find worth paying for.

Yes, Carta has tens of thousands of customers.

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?

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

Is that too little? Too much?

That’s a lot.

I had no idea that a well-oiled Excel-as-a-Service could be so lucrative.

I think that's pretty much all SaaS; well-oiled Excel-as-a-Service

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.

What other ways does Carta share data?

That is my fundamental question after all this.

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

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

It's aggregate.

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

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.

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

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.

This is a business entirely dependent on trust.

Trust is quickly lost and hard to win.

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

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

what

Investorportalpro.com

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

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.

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.

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.

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

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