Carta, the Silicon Valley startup that loudly exited one of its businesses earlier this year, is pursuing a secondary sale that could value the company at $2 billion, TechCrunch has learned.
Carta is working with investment bank Jefferies to advance the sale and had initially expected demand at a valuation of $4 billion, but sources said even $2 billion may be too ambitious.
This is a significant, if not entirely unexpected, drop in valuation for Carta. The company originally focused on cap table management software, but over time began to evolve into the “private equity marketplace for corporations.” The company's goal was to tap into the network of companies and investors it knew using its platform. Its big picture vision was to become the transfer agent, broker, and clearing house for all private equity transactions in the world.
As part of that story, Carta launched an exchange aimed at finding buyers for its shares using an auction-style system, and later used this same system to increase its own value in the eyes of investors. Indeed, after a major rise in its valuation from $1.7 billion in 2019 to $3.1 billion in 2020, Carta announced in the summer of 2021 that it was now worth a whopping $7.4 billion after first selling $100 million worth of shares on its platform at a valuation of $6.9 billion.
About 15 months later, in late 2022, the company's CEO Henry Ward told Axios that another secondary sale had further increased Carta's value to $8.5 billion (he did not disclose how many shares were sold at that valuation or who bought them).
These soaring numbers were already surprising to industry insiders who had long derided Carta as merely cobbling together a collection of disparate, moderately profitable businesses to position itself as the next big platform company.
But its $8.5 billion valuation seemed destined to fall further after it ran into trouble with a startup customer earlier this year, whose complaints about the company reverberated across many other companies in the startup space.
It all started in early January when Finland's CEO, Kari Saarinen, publicly complained that Carta was using information about its investor base to sell shares to outside buyers without the company's consent.
Ward initially blamed rogue employees at Carta, but startup founders began to share similar experiences and, within 72 hours of being accused of misusing customer information, Carta announced it was exiting the business that had caused so much trouble.
“Because we have data, if we were to do secondary trading, people would always be concerned that we were using their data, even if we weren't,” Ward said in a Medium announcement at the time. “As such, we have decided to prioritize trust and exit the secondary trading business.”
While this was a public relations disaster for Karuta, it's not the first time it's been in the headlines for the wrong reasons: The company has a long history of facing lawsuits and countersuits from former employees who claim it had a toxic company culture that disadvantaged women.
Now, Carta appears to be returning to its roots, and back to an earlier valuation that was perhaps better suited to the business. Carta's cap table is still growing (Carta made $380 million in revenue last year, according to one source), but it's also projected to lose $65 million in 2023 and “there's not a lot of room left to grow,” this person said.
Another related challenge is that Carta hasn't found a way to make its fund management business profitable on a gross margin basis. Part of that may be down to the way the company prices its business, but it's also down to many Carta clients failing to raise subsequent new venture funds and never returning. Meanwhile, some of Carta's early clients are now very large and are migrating to larger banks like Morgan Stanley for some of the same services they previously received from Carta.
Carta did not immediately respond to TechCrunch's request for comment.
Carta has raised about $1.2 billion from investors over the years, according to startup tracking site Tracxn.
Venture firms leading the company's funding round include Union Square Ventures, Andreessen Horowitz, Spark Capital and Tribe Capital.