Cap table management startup Carta has found itself dealing with a recent public relations crisis over the past couple of days. This is not Carta’s first public scandal, but this new incident has stirred more attention due to its direct impact on the company’s customers.
Here’s what happened: According to Carta, one sales employee used confidential data from one of the company’s customers to craft a sales pitch for a secondary stock sale, violating ethics and customers’ data privacy. The company initially paused secondary trading and later decided to shut down that business altogether.
Carta’s clients, including investors and startups, may not be pleased with the blatant breach of ethics and privacy. Before this incident, Carta reported an annual recurring revenue of $373 million, with only $3 million from secondary sales. Although the issue is resolved, the impact on customer trust remains a concern.
Carta’s success relies on maintaining and growing its customer base, consisting of startups and investors, which make up 93% of its revenue. The company needs to retain these customers to recover from the recent setback.
While competitors exist, switching platforms could be challenging and come with fees, especially for late-stage startups. Many high-profile Carta customers have expressed satisfaction with how the company responded, which might mitigate the risk of a mass exodus.
The incident may also affect Carta’s relationship with investors. Although investors typically focus on a startup’s business model and revenue, the recent secondary data on Carta’s shares doesn’t suggest high confidence in the company’s ability to grow into its previous valuation.
Eliminating the secondary trading business might not be the worst move for Carta. Forge Global, another secondary trading platform, went public with a market cap close to Carta’s annual recurring revenue.
In conclusion, while the recent scandal has caused a stir, its material impact on Carta’s relationship with startups and investors remains uncertain. Previous scandals did not significantly affect the company, and it remains to be seen how this incident will play out in the long run.