Carta’s valuation will be reduced by billions in an upcoming secondary sale

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Carda once-high-flying Silicon Valley startup that loudly withdrew from one of its companies earlier this year is working on a secondary sale that would value the company at $2 billion, JS has learned.

Carta is working with investment bank Jeffries on the sale and initially hoped to find demand for the offering valued at $4 billion, but our sources say even $2 billion could prove ambitious.

That’s a huge, if not entirely unexpected, drop in valuation for Carta, which originally focused on cap table management software but over time began to evolve into a “private stock market for companies.” The goal was to take advantage of the network of companies and investors that used the platform and into which it has insight. The big idea was to become the transfer agent, broker and clearinghouse for all private equity transactions in the world.

As part of that story, Carta launched an exchange that aimed to find buyers for shares using an auction system, and later used the same system to increase its own value in the eyes of investors. After major jumps in valuation, from $1.7 billion in 2019 to $3.1 billion in 2020, Carta announced in the summer of 2021 that it was worth a whopping $7.4 billion, after first selling for $100 million dollar worth of shares at a valuation of $6.9 billion on the stock exchange. own platform.

About fifteen months later, in late 2022, the company’s CEO, Henry Ward, said told Axios that Carta was worth even more – $8.5 billion – after a separate secondary sale. (He did not disclose how many shares were sold at this valuation or who bought them.)

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These rising numbers have already been astonishing to some industry insiders, who have long sniggered that Carta has merely brought together a bunch of disparate, fairly lucrative companies in an attempt to position itself as the next big platform company.

But that $8.5 billion valuation seemed even more destined to fall after a row earlier this year with a startup customer whose complaint about the company resonated with much of the rest of the startup world.

It all started in early January when Finnish CEO Karri Saarinen complained very public that Carta used information about his company’s investor base to attempt to sell his shares to outside buyers without the company’s knowledge or consent.

Ward initially blamed a rogue Carta employee, but the startup’s founders began comparing notes — and sharing similar experiences — and within 72 hours of being accused of misusing customer information, Carta said the company was out of line got into so much trouble. .

“Because we have the data, people are always going to be concerned that we’re using the data when we trade secondary stocks, even if we’re not,” Ward says. announced on Medium at the time. “So we decided to prioritize trust and exit secondary trading.”

A PR disaster for Carta. It wasn’t the first time Carta ended up in the press for the wrong reasons. The company has a long history of getting sued by contradicting former employees who claimed the company has a toxic culture, including one that disadvantages women.

Now Carta appears to be returning to its roots – and to an earlier valuation that probably better suits the company. While Carta’s captable business is still growing — a source familiar said Carta generated $380 million in revenue last year — it also lost $65 million in 2023, and there “aren’t many other places it can grow,” according to this post. person.

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Another related challenge is that Carta has not found a way to make its fund administration business profitable on a gross margin basis. In part, this may have to do with how the company has priced that business, but it doesn’t help that many of Carta’s customers don’t return because they fail to raise subsequent new venture capital funds. Meanwhile, some of Carta’s previous clients are now so big that they have moved on to larger banks like Morgan Stanley for some of the same services they once received from Carta.

Carta did not immediately respond to a JS request for comment.

Over the years, Carta has roughly risen $1.2 billion of investors, according to the startups tracker Tracxn.

Some of the venture capital firms leading rounds in the company include Union Square Ventures, Andreessen Horowitz, Spark Capital and Tribe Capital.

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