What happens to Carta now?

Cap table management startup Carta has been dealing with a PR nightmare for the past couple of days. This isn’t Carta’s first public scandal, to be clear, but this new one seemed to cause more of a stir because it directly affected its customers.

So, what happened? The short of it is that one sales employee, according to Carta, used confidential data from one of the company’s customers to craft a sales pitch for a secondary stock sale. The act was an obvious violation of Carta’s ethics and customers’ data privacy. The company initially paused secondary trading, and then last night said it would shut down that business altogether.

The problem, according to Carta, is taken care of. But the company’s clients — investors and startups — may not love that there was a pretty blatant breach of ethics and violation of privacy at a provider that houses some of their most sensitive data.

Before we dive into what this mess might portend for Carta, we need to understand the state of affairs at the company before this came to light. Henry Ward, Carta’s co-founder and CEO, said in a Medium post Monday night that Carta’s annual recurring revenue was $373 million, of which only $3 million was from these secondary sales. The company’s last primary round was raised in 2021 at a $7.4 billion valuation.

While Carta hasn’t raised a round since that 2021-era transaction, per secondary data from platforms like Hiive Markets, Caplight and Notion, its current valuation is estimated to be about half of its last primary round.

Now, that isn’t terrible when you compare that valuation haircut to current valuation trends for late-stage startups. My colleagues Alex Wilhelm and Anna Heim also wrote Tuesday morning that the company’s growth over the last few years has been promising, even without the secondary markets business.