📶 what to make of the Carta news

Why CartaX shut down, a deep dive on the Red Bull founder, and three of the best VC articles you'll ever read,

January 16, 2024 • Estimated Reading Time: 8 minutes

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Good morning 👋

There was drama in the startup world last week when it came out that Carta was probably allegedly using inside info from their cap table product to pitch investors to sell their shares using another one of their products.

In this week’s piece, we’ll break down what happened, why it matters, what we think happens next, plus the best of what we found last week.

TL;DR:

NEWS
CartaX calls it quits 🛑

Last week, Carta announced it would be exiting its secondaries exchange business.

For those who missed the news, here’s how it played out last week.

Timeline:

  • January 5: Linear CEO Karri Saarinen posted on X that one of his angel investors received an email from a Carta employee, pitching a sale of their shares.

  • January 6: Henry Ward (Carta’s CEO) admitted the company messed up.

  • January 8: Carta announced it would be getting out of secondary stock trading.

Why it matters:

Everybody knows Carta as the cap table management software. CartaX was their moonshot project meant to make the company even more powerful.

The original vision was to become the "Nasdaq for private markets".

The high-level plan was to:

  1. Capture cap table information (who is in each deal) through Carta

  2. Use that data to track which companies are appreciating in value and which investors are seeing paper gains

  3. Use that information to create a secondaries marketplace for investors to create liquidity for themselves

But the project never caught on as they had hoped, and founders started to see right through the conflict of interest. (There is signaling risk every time shares trade hands, so founders generally are not big fans of secondary sales.)

According to Ward, CartaX was generating around $3 million in annual revenue, less than 1% of its annual revenue of about $373 million.

What happens next:

Carta evaporated a lot of goodwill last week.

We think their $8.5 billion valuation will take a hit (both from the reduced growth projections without CartaX along with the assumed loss of business in their core business as companies look for alternative vendors.

But we also think that there needs to be a better solution for LPs to get liquidity without riding an investment through an IPO or acquisition. It looks like that will have to wait, and we’re stuck with other existing options for now.

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