Carta, a prominent Silicon Valley startup that recently distanced itself from one of its ventures, is now exploring a secondary sale aiming for a $2 billion valuation, sources have disclosed.
Working with investment bank Jeffries, Carta initially sought to attract interest at a $4 billion valuation. However, insiders suggest that even a $2 billion figure might be overly optimistic.
This potential drop in valuation is significant yet not entirely surprising for Carta. Originally specializing in cap table management software, the company gradually transformed itself into a private stock market platform. Carta aimed to leverage its network of companies and investors to act as the transfer agent, brokerage, and clearinghouse for all private stock transactions globally.
As part of this strategy, Carta launched an exchange designed to find buyers for shares using an auction-style system. This approach was also used to enhance its perceived value to investors. After substantial valuation increases—from $1.7 billion in 2019 to $3.1 billion in 2020—Carta declared in mid-2021 that it was valued at $7.4 billion, following a $100 million share sale at a $6.9 billion valuation on its platform.
Approximately 15 months later, in late 2022, CEO Henry Ward told Axios that Carta was valued even higher at $8.5 billion after another secondary sale. Ward did not specify the amount of shares sold or the buyers involved.
These soaring valuations raised eyebrows among industry insiders, who have often regarded Carta’s business model as a fusion of various modestly profitable ventures aimed at positioning it as a major platform company.
The $8.5 billion valuation seemed even more vulnerable after a conflict earlier this year with a startup client, whose grievance resonated widely within the startup ecosystem.
The controversy began in early January when Finnish CEO Karri Saarinen publicly accused Carta of using information about his company’s investors to facilitate the sale of its shares to outside buyers without proper knowledge or consent.
Ward initially blamed a rogue employee, but as other startup founders swapped stories of similar experiences, the scrutiny intensified. Within 72 hours of being accused of misusing customer data, Carta announced its exit from the problematic business line.
“Given that we have this data, if we engage in secondary trading, people will always worry about data misuse, even if such misuse doesn’t occur,” Ward explained on Medium. “To prioritize trust, we have decided to exit the secondary trading business.”
This public relations setback is not the first for Carta, which has faced multiple lawsuits and counterclaims from former employees over allegations of a toxic work culture, including gender discrimination lawsuits.
Now returning to its core focus, Carta appears to be adjusting to a more sustainable valuation. Despite growth in its cap table management business—reportedly generating $380 million in revenue last year—Carta still suffered a $65 million loss in 2023. A source mentioned that the company has limited growth opportunities.
Carta’s challenge extends to its unprofitable fund administration business, which may stem from its pricing strategy. Furthermore, many of Carta’s customers have not returned as they struggle to raise new funds, while larger clients have shifted to bigger institutions like Morgan Stanley.
Carta did not immediately respond to a request for comment.
Over the years, Carta has secured approximately $1.2 billion in funding from various investors, including Union Square Ventures, Andreessen Horowitz, Spark Capital, and Tribe Capital.
