Carta’s decision to exit the secondary share trading business was a quick response to the controversy that emerged after it was chastised by customers for using private data to foster its equity transactions.
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After a customer criticized Carta for working to connect buyers and sellers of startup shares on its secondary trading platform without permission, there have been several questions regarding data security and just what — or who — its product is. Cloudflare’s CEO and co-founder, Matthew Prince, argued in the aftermath, for example, that the only way for Carta to “justify [its] multiple [and] valuation” was to pitch investors that it was going to build “the world’s biggest secondary market” predicated on the data it holds on behalf of its customers.
No one likes to pay to be a customer, but the idea that a Carta customer’s most critical internal data, its cap table, would be used as sales fodder was anathema to at least a portion of the company’s current users. So, the company had to make a choice. And now its exit from the secondary trading business is being received quite well.
But is Carta a bad business without its secondary trading unit? Can it rely on its other revenue sources to be able to grow big enough to go public in the future?
Thankfully, Carta’s CEO, Henry Ward, shared some useful numbers in his post announcing the changes to the company’s business model:
Fast forward to today, our business is broken down as follows: the captable business is about $250M/year, fund administration is about $100M, private equity is about $20M, and the secondary trading business is about $3M. We have done a decent job at building the captable business, an ok job at fund admin (but feeling the growing pains), and an abysmal job at the secondary business.
That adds up to yearly revenue of $373 million across the business, and of that figure, Carta will presumably retain around $370 million after the pesky secondary trading unit is shut down.
Update: Carta confirmed to TechCrunch that the above figures are annual recurring revenue.
Now, that’s not to say that the secondary trading market is a bad one to operate in. Other companies are doing a fine job of offering a marketplace to trade startups shares, such as Equitybee, EquityZen and Forge Global. And there are multiple companies offering cap table software — AngelList, Ledgy and Pulley, for instance, raised Series B rounds in 2022 despite the downturn, indicating that venture investors might still be interested in the cap table side of things.
AngelList expands into private equity with acquisition of fintech startup Nova
But it seems Carta couldn’t reconcile the inherent conflict between being a trusted place to store a company’s ownership DNA and its desire to connect buyers and sellers of secondary shares. It had to choose a fork in the road, and given how its revenues are balanced between the two efforts, it is not hard to understand why Carta chose to say sorry and move on with its core business.
So, how does $370 million in annual revenue square up with Carta’s last private market valuation? Here’s the math:
- Carta last raised $500 million in 2021 at a $6.9 billion pre-money, $7.4 billion post-money, valuation.
- With $370 million in annual revenue, the company trades at a 20x revenue multiple today.
- Per Clouded Judgement, public-market SaaS companies that are growing at 30% or more per year have a median forward revenue multiple of about 14x today.
- So, without its secondary-trading business, Carta is not that far from being a company with a revenue multiple ready for the public market, provided it’s growing at 30%.
Forbes reports that the company had revenue of $272 million in 2022, which would make for an about 37% increase in revenue to the $370 million figure we have today. (Update: Carta confirmed Forbes’ reported figure for its 2022 revenue.) So, Carta does seem to be growing quickly enough to earn a pretty good revenue multiple.
Carta really doesn’t need its secondary business to grow into its valuation if it can keep scaling its other efforts. The question today is whether or not the secondary trading mess has eroded its customers’ trust enough to seriously harm its growth prospects. If so, the company may have shot itself in the other foot, too.
FAQs
Carta's growth story is being overshadowed by its stock trading snafu. Carta's decision to exit the secondary share trading business was a quick response to the controversy that emerged after it was chastised by customers for using private data to foster its equity transactions.
What's going on with Carta? ›
Carta CEO Henry Ward claimed that an employee had violated internal policies, affecting three companies, including Linear. He also said Carta had launched an investigation and reached out to the impacted founders, and on Monday, that it would be exiting its secondaries business entirely to avoid conflicts of interest.
Did Carta exit secondary market business after sales controversy? ›
In a blog post Monday night, Carta Chief Executive Officer Henry Ward said the company will stop its work in secondary share trading, a business it was pushing into alongside its service managing startups' investor information, or cap tables. The company faced backlash over the weekend for combining the two businesses.
Is Carta profitable? ›
Carta itself is a $8.5 billion company with investors including Silver Lake and Union Square Ventures. Carta reportedly does north of $300M in annual revenues, so there is a lot at stake.
What is the latest valuation of Carta? ›
Latest valuation: $7.4 billion.
Is Carta a legit company? ›
Carta is one of the venture capital ecosystem's most critical companies, managing and safeguarding cap table information for around 40,000 startups. Driving the news: Its credibility is under fire, as is an aspirational business model that helped the San Francisco-based company secure a $7.4 billion valuation.
Is Carta doing well? ›
Total venture deal count on Carta was down 24% year over year in 2023, while cash raised by startups fell by 50%. But the fundraising that took place in 2023 proceeded at a steady pace.
Who is the CEO of Carta? ›
Henry Ward is the CEO and co-founder of Carta. The company is trusted by more than 40,000 companies, over 7,000 investment funds and SPVs, and over two million equity holders to manage cap tables, compensation, valuations, liquidity, and more.
How does the secondary market affect companies? ›
The market for private company equity sales, also known as the secondary market, is a way for executives and other employees of private companies to liquidate stock in order to gain access to cash in the near term.
When shares are bought in the secondary market does the money go back to the company? ›
Any transactions on the secondary market occur between investors, and the proceeds of each sale go to the selling investor, not to the company that issued the stock or to the underwriting bank.
- Align Ventures.
- Andra Capital.
- Vine Capital Management.
- OMERS Growth Equity.
From first check to IPO, over 40,000 companies use Carta to fundraise, issue equity, and stay compliant.
How many employees are at Carta? ›
This is at least the third layoff event at Carta since the beginning of 2023—following a reduction in January, then another in July. Carta, which is backed by investors including a16z, Silver Lake Partners, and Lightspeed Venture Partners, had approximately 1,800 employees as of this summer.
How much does Carta charge for 409A valuation? ›
For standalone valuations, the cost ranges anywhere from $1,000 to over $10,000, depending on the size and complexity of your company. At Carta, 409A valuations are included in an annual subscription along with cap table management.
What is the annual revenue of Carta? ›
Here's the math: Carta last raised $500 million in 2021 at a $6.9 billion pre-money, $7.4 billion post-money, valuation. With $370 million in annual revenue, the company trades at a 20x revenue multiple today.
How do I find my post-money valuation on Carta? ›
Post-money valuation
Calculated using the number of fully diluted shares and the share class price per share of that round. The post-money valuation = the original issue price x the fully diluted shares.
What did Carta do wrong? ›
Carta, valued at $7.5B and with an annual revenue touching $250M, faced backlash for allegedly misusing confidential client information to facilitate trades in its secondary share trading division. The catalyst for this fiasco was an accusation from Linear Orbit Inc.'s CEO, Karri Saarinen.
What are the allegations against the CEO of Carta? ›
Carta CEO Henry Ward. A leading provider of equity management services for privately held startups has been accused of using confidential customer information to boost its own business, sparking a wave of finger-pointing and recriminations within Silicon Valley's startup community over the weekend.
How much has Carta raised? ›
$7.4 billion valuation.
