Home Private Equity Why Carta’s public battle might be a private markets nightmare

Why Carta’s public battle might be a private markets nightmare


To say the Carta news that broke over the weekend has caused a furor in the startup world is an understatement. 

The accusation that the cap table management and software unicorn was using customers’ confidential data to bolster its own business has left Silicon Valley startup founders apoplectic. This is not something Carta was supposed to be doing (as Carta CEO Henry Ward has acknowledged)—there are ethical concerns, data privacy concerns, and a general sense that pulling data from customers without their permission is shameless and wrong. The fallout has been so substantial that Carta has put a hold on its sales outreach “until further notice” and then last night said it would exit the secondary trading business altogether, my colleague Jessica Mathews exclusively reported yesterday

Among the many questions we still don’t have complete answers to are who’s to blame, how systemic was the practice, and what even happened? For my part, I immediately jumped to, “Wait, did they do anything illegal here?” 

Frank Ballantine, a partner at law firm Dykema, told me there are two areas to look at when it comes to possible legal ramifications of the Carta situation—contracts and data privacy.

“The foundation of their obligation is in a written agreement with their customers,” said Ballantine, who’s worked with VCs and startups for decades. “There are also data management laws that regulate how companies handle what’s called personally identifiable information—that includes things like social security, address, age.”

As Ballantine explained, it’s deeply unclear—and may be for a long time—whether Carta has broken any laws here. But that doesn’t mean that Carta hasn’t crossed some bright lines. 

“The law is uncertain. The customer relations part of this is not,” said Ballantine, calling the practice shocking. “Venture companies just don’t expect to be subject to involuntary tender offers,” he added. 

Carta’s no stranger to scandal, as Fortune has reported. Four former female Carta employees have stepped forward, either in statements or lawsuits, to claim they’d been subject to harassment, retaliation, or gender discrimination at the company. The allegations were serious—in one of the lawsuits, Alexandra Rogers, who’d been a sales manager at Carta, asserted that Ward and Chief Revenue Officer Jeff Perry had repeatedly engaged in sexual harassment, even stating that Perry had groped her at company events. 

In court filings, Perry and Ward both fervently denied Rogers’ allegations. 

Carta, like many startups and tech giants, last year also ran headfirst into an increasingly tough macroeconomic environment, conducting messy layoffs that employees described catching them off-guard

But this episode, hitting on allegations of self-dealing and data privacy, could mark a turning point for Carta, which is backed by Andreessen Horowitz, Lightspeed Venture Partners, and Spark Capital. Customer trust is a valuable, fragile thing. I’ve had at least two sources tell me unprompted that they or people they know are re-considering their relationship with Carta—and they’re not alone. 

“We’re concerned about some of the predatory business practices around data and pricing, and don’t believe their pricing model will scale efficiently as our company grows—currently looking into AngeList and others as alternatives,” Sober Sidekick founder Chris Thompson wrote in a text message to Term Sheet. 

For competitors, Carta’s black eye is an opportunity. 

Noel Moldvai, CEO and cofounder of secondary marketplace Augment, told me that he saw a “relatively large flurry of signups over the weekend” to his newly launched platform. That wave, which happened after the Carta news broke, comprised between 10% and 20% of Augment’s total sign-ups so far.

“If I’m a founder, I’m worried that my shares are being marketed to people that I don’t want on my cap table,” said Moldvai. “So possibly trades that wouldn’t have happened, are now going to happen…The original promise of CartaX was to empower founders to control the entire secondary process, control pricing. Now, it’s like pricing is out of your hands.”

Tomas Milar, CEO of cap table company Eqvista, said when we talked on Monday that he hadn’t slept for the prior 48 hours, such was the inbound interest and deluge of reach-outs he was getting. He got as many as 150 texts and calls.

“It was clients, investors, advisors, friends—everybody was texting me saying ‘this is crazy’ and advising we take advantage of the situation, obviously, very carefully,” said Milar. 

So Carta’s messes may be catching up with it. But, if you’re not a founder or investor, should you care, especially now that Carta said it is getting out of this line of business? In my view, and Ballantine’s, the answer is yes. The nightmare scenario here is far bigger than Carta. It’s bigger than customer trust, data, and competitors. This practice on Carta’s part, if it goes too far, could jeopardize the stability of the startup ecosystem. Uncontrolled sales of company shares by other investors might disrupt startups’ control over when, how much, and at what price they can offer their own shares, potentially deflating valuations and fostering power struggles.

“The tip of the iceberg is a potentially unauthorized transfer of very private data, but the iceberg is the potential loss of control by company boards,” he added.

Again, I cannot stress enough that that is the nightmare scenario. But if the collapse of SVB last year taught us anything, it’s that the startup ecosystem is more delicate than we’d like to think—and carefully timed to boot. 

By the way…You might be thinking “she isn’t Jessica! Who is this?” My name is Allie Garfinkle and I just joined the Term Sheet team! I come to you from Yahoo Finance, where I covered Big Tech for print and broadcast. But my career started covering the private markets, and I’m a deals nerd at heart. I’m also a longtime reader of Term Sheet, and genuinely honored to be writing for you. As you read this, I’m on Day 4 at Fortune, so don’t hesitate to say hi!

One more thing…Term Sheet is partnering with Semaphore again for its 16th annual confidence survey of private equity, venture capital, hedge fund, and other professionals. How confident are you in the Biden economic team? What about your own boss? Should Sam Altman be running OpenAI today? Weigh in, if you like, and share your level of confidence in yourself, the economy, and your business; it’s anonymous and should take you 3-4 minutes. You can take the survey here. Have a look at last year’s results here, here, and here.

See you tomorrow,

Allie Garfinkle
Email: alexandra.garfinkle@fortune.com
Submit a deal for the Term Sheet newsletter here.

Joe Abrams curated the deals section of today’s newsletter.


Moonwalk Biosciences, a South San Francisco-based drug developer using gene-editing technology, raised $57 million in funding from Alpha Wave Ventures, ARCH Venture Partners, Future Ventures, GV, Khosla Ventures, and YK Bioventures

Radionetics Oncology, a San Diego, Calif.-based radiopharmaceutical company developing treatments for a range of different cancers, raised $52.5 million in Series A funding. Frazier Life Sciences, 5AM Ventures, and DCVC Bio led the round and were joined by Crinetics Pharmaceuticals and GordonMD Global Investments.

Triplebar, an Emeryville, Calif.-based synthetic biology company, raised $21 million in funding. Synthesis Capital led the round and was joined by Essential Capital, Stray Dog Capital, iSelect Fund, and Radobank


Ara Partners acquired a majority stake in USD Clean Fuels, a Houston, Texas-based developer of delivery infrastructure for biofuel and renewable feedstocks. Financial terms were not disclosed. 

Centre Partners acquired Quick Roofing, a Dallas-Fort Worth, Texas-based provider of roofing and exterior home services. Financial terms were not disclosed. 

Comply365, backed by Liberty Hall Capital Partners, merged with Vistair Limited, a Bristol, U.K.-based provider of compliance, safety, and data intelligence technology for the aviation, defense, and rail industries. Financial terms were not disclosed. 

Mercer Global Advisors, backed by Oak Hill Capital, acquired Transitions Wealth Management, a Denver, Colo.-based wealth management firm. Financial terms were not disclosed. 

Renovus Capital acquired a majority stake in Behavioral Framework, a Rockville, Md.-based provider of applied behavioral analysis therapy for children with autism spectrum disorder. Financial terms were not disclosed. 

Thoma Bravo acquired a majority stake in BlueMatrix, a Durham, N.C.-based content creation and distribution platform for investment research providers. Financial terms were not disclosed. 

Vision Innovation Partners, backed by Gryphon Investors, acquired Bucks-Mont Eye Associates, a Sellersville, Penn.-based provider of ophthalmologic, optometric, and retina care. Financial terms were not disclosed. 


Concord Technologies, backed by Excellere Partners, acquired Biscom, a Westford, Mass.-based provider of enterprise fax and secure file transfer solutions, from ParkerGale Capital. Financial terms were not disclosed.  

CUC acquired Beyond Podiatry, a New Baltimore, Mich.-based podiatry services provider, from Albaron Partners. Financial terms were not disclosed. 


Boston Scientific agreed to acquire Axonics, an Irvine, Calif.-based developer of devices for the treatment of urinary and bowel dysfunction, for $3.7 billion.

Johnson & Johnson agreed to acquire Ambrx Biopharma, a La Jolla, Calif.-based developer of cancer treatments, for $2 billion.


Metagenomi Technologies, an Emeryville, Calif.-based developer of genome editing therapeutics, filed to go public. The company posted $38 million in revenue for the year ending September 30. Bayer HealthCare, Humboldt Capital, ModernaTX, Sake Holdings, Sozo Ventures, and RA Capital back the company.  


Odyssey Investment Partners, a New York City-based private equity firm, promoted Tug Fisher to managing director, Judah Levy to vice president, and Spencer Marks to senior associate. 

Updata Partners, a Washington, D.C.-based private equity firm, promoted Alex Phelan to principal and Andrew Sabiǹ to vice president.

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