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Carta doing unsolicited tender offer outreach to their customers' investors
- dehrmann 3y agoThis is a good thing for employee-investors, right?
- zerothOffset 3y agoDepends if you are the founder and how tightly you want to control the price
- zhivota 3y agoYes I believe so. Founders will claim your interest is aligned with theirs to keep the cap table clean, but in my experience you can't determine the true market clearing price for your owned shares without marketing them outside the current set of investors. Founders may not like it but it's kind of on the startup scene's current proclivity for keeping companies private for much longer than in the past and therefore restricting employee and investor liquidity. These services are responding to a market need. Carta may have broken their agreement with the startup but it is, in my opinion, generally a good thing to allow more price discovery for all investors.
- sergiomattei 3y agoThat’s brutal and a risk to startups managing their cap table with them. Exit signal.
- babyshake 3y agoPresumably it would be alright if the same type of email was sent to the CEO or President of the Board?
- notamy 3y agohttps://nitter.net/karrisaarinen/status/1743398553500971331 https://nitter.net/karrisaarinen/status/1743398553500971331
- adaboese 3y agoWhat is nitter?
- Jemaclus 3y agonot twitter :)
- aspenmayer 3y ago> Nitter is a free and open source alternative viewer for Twitter/X, focusing on privacy and performance. Its minimalist and unaugmented UI resembles the classic Twitter desktop layout. Since the user cannot log in to Twitter through Nitter, Nitter has no notifications, no home feed and no ability to tweet. By default Nitter has no infinite scroll hence doomscrolling is unlikely. https://en.wikipedia.org/wiki/Nitter https://en.wikipedia.org/wiki/Nitter
- mkl 3y agoA way to see Twitter threads properly.
- jprete 3y agoHow close is this to insider trading? I'm not an expert by any means.
- ironSkillet 3y agoNot close because it does not involve a public company. Still seems shady.
- yieldcrv 3y agoprivately held securities as well as non-equity securities can be involved in insider trading, specifically it is a fraud doctrine instead of a "publicly traded equity" doctrine, so it is quite flexible for different reasons Carta's solicitation doesn't necessarily trigger that, by mere nature of contacting people
- zerothOffset 3y ago+1 affiliates (insider) have to certify below a certain threshold its a private buyer and a private seller so no biggie
- medler 3y agoInsider trading laws apply to private companies as well. (No idea about the legal questions on this particular case though)
- kdamica 3y agoDon’t most private companies require board approval for secondaries? I wonder what you’d actually be buying here.
- peter422 3y agoThis is generally the case for common stock but not preferred shares (such as you'd get from being an angel), though it obviously depends company to company.
- tschwimmer 3y agoIt depends on the shareholder agreement, but many do. However, many of these secondary markets facilitate private market transactions via a forward contract which is sort of like long dated put option.
- nocoiner 3y agoAh, interesting. I think this might answer a question I posted elsewhere in the thread.
- deleted 3y ago[deleted]
- SCM-Enthusiast 3y agoforward contracts and long dated push options differ in their obligations. Put options gives the buyer the right exercise, but in forward contracts they both are by a specific date. I assume they would only trigger shareholder approve prior to them being exercised not collateralized in the form of the option.
- yieldcrv 3y agoeasily circumventable with trusts and other contracts
- im3w1l 3y agoCan someone explain this in simple language?
- adoxyz 3y agoCompanies typically use Carta to manage their cap table, shares, and overall ownership of the company. This requires a high level of trust as there is a lot of financial information at stake. Carta seems to be taking this confidential information and is potentially sharing it with other investors and soliciting investors to sell their shares. This is a big no-no.
- zerothOffset 3y agoSame can be said about JP Morgan who solicts you with credit card offers and other financial products no? They know where you live and how much is your credit score you bank balance
- liamwestray 3y agoNone of those things have a material effect on anyone by JP Morgan. The “service” Carta is selling here is your company to other people. Given 99% of private companies have specific limitations on not being able to do this with a company’s securities, this almost certainly runs afoul of SEC, FINRA, and other fraud regulations.
- heads 3y agoImagine you are planning a wedding and you use party.com as an easy way to manage the guest list. Maybe you give your friend two seats — him and a plus one — the Smith family four seats, and your diving club pals a whole table. Also, you’ve invited surprise guest auntie Beyoncé. These are all people with whom you have entrusted important rights such as dressing nicely, staying relatively sober, and not poking the cake. Additionally, the wedding venue has a fire safety limit of 150 people. Any more than this and the authorities shut you down for abusing the privileges they give to small weddings. Well now imagine that party.com has been emailing your neighbours and mortal enemies the Joneses saying the Smiths have two seats they want to sell and that Beyoncé is going to be there. They also help the diving sell half their table to what turn out to be classical music supremacists who show up protesting Beyoncé’s pop music. One of them also gets drunk and pokes the cake. Thanks a bunch party.com. In real life, shareholders can do unhelpful things or act with downright hostility so you need people you know and who you trust to behave themselves. The SEC also give you an exemption from having to register with them (and publish your accounts) but only if you have fewer than 500 shareholders. If a big shareholder splits their holding and sells to a bunch of random people then they risk pushing you over that limit. Carta / party.com are abusing their position by marketing your shares / wedding invitations behind your back.
- nocoiner 3y agoI’m having some trouble conceptualizing the notion where there’s a secondary market buyer of private company who’s obliged to transact at a given price, but might go higher. Is the idea that a secondary market buyer struck a deal with Carta’s capital markets division that if Carta can locate shares of XYZ startup, then the buyer agrees to buy those shares at $x, but may pay the investor more if (for example) a higher price is a condition of the board’s approval of the transfer?
- Havoc 3y agoYeah - just a simple contract stating exactly that. Presumably the price they go in with is so low that it’s a no brainer and being contractually bound is functionally zero risk.
- deadbabe 3y agoThe calls to exit Carta are premature. Let’s see how they respond to the backlash first.
- mooreds 3y agoSeems like 3 hours is long enough for some kind of response, even if it is "we're looking into this". They reached out to the tweeter already, per another comment.
- scjody 3y agoDoes anyone have experience with a competitor that they like? Ledgy?
- scjody 3y agoPulley is mentioned a few times in the thread; seems legit but again I'm curious if anyone here has used any of these alternatives.
- siegel 3y agoWe have a lot of clients who happily use Pulley. I believe they are a YC company themselves. I don't have a dog in this fight. But there are plusses and minuses to these various solutions. Carta is not the be all and end all.
- smohnot 3y agoAngelList is great https://www.angellist.com/startups https://www.angellist.com/startups
- acjohnson55 3y agoI guess we'll see what Carta has to say for themselves, but seems like it could be a continuation of the lack of organizational discipline they've demonstrated in recent times. This is a really bad look, and given Carta's inability to add significantly more value beyond basic cap table and employee equity management, I wonder if the days are numbered before other companies supplant them, such as Pulley.
- alsodumb 3y agoI am surprised they didn't respond yet tbh, and this makes me think that it wasn't a simple oopsy.
- acjohnson55 3y agoTheir CEO's response is truly something to behold https://twitter.com/henrysward/status/1743794996732735679 https://twitter.com/henrysward/status/1743794996732735679
- etodemerzel 3y agothe guy is toxic. https://sfstandard.com/2023/10/25/carta-san-francisco-lawsuits-insider-fortune-reports/ https://sfstandard.com/2023/10/25/carta-san-francisco-lawsui...
- gurchik 3y agoRelevant tweet further down: https://nitter.net/karrisaarinen/status/1743407369512743094 https://nitter.net/karrisaarinen/status/1743407369512743094 > Buy price was exactly our series b share price. The angel investor in this case was a family member whose investment was never published and hardly online. Yet he was contacted directly to the email he used with Carta As said before, it is not impossible that the buy price was determined using public information. However, he is definitely implying it would be impossible to know the identity of this investor if it wasn't for Carta sharing private information with Carta Liquidity.
- zerothOffset 3y agoAgree the price is available on multiple platforms Forge, Hiive etc. Can’t the company just opt out?
- SMAAART 3y agoHold on! Is this legal in any way? Using confidential information held on behalf of third parties to become market makers?
- zerothOffset 3y agoThere are 2 guys with spreadsheets in denver doing the same with information scrapped of linkedin and pitchbook on who works where who invested where…
- eastdakota 3y agoThis is so awful. Carta is the Facebook of B2B software (i.e., hoover up user data then find lots of ways your users don’t expect to monetize it). Their business model has always been premised on a bait-and-switch. It’s how they’ve justified their crazy high valuations (e.g., “Imagine it we could create the largest market for private securities!! We’ll be rich!!!”). Otherwise, the market for cap table management just isn’t that big. As a founder you should maintain tight control of who is on your cap table. Carta disagrees. That may be good for them but is terrible for startups. If you’re using Carta, call your support rep and insist they never market, offer, or induce any buyers or sellers of your stock without your explicit permission. If they refuse, change vendors.
- candiddevmike 3y agoWhat's wrong about folks selling shares they own? Maybe it's bad for the founders, but there's always a good chance these employees may not see a real liquidity event.
- xyzzy_plugh 3y agoIt's wrong for Carta to market your investment details to solicit a deal without your consent.
- FreakLegion 3y agoIt's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2) offer early exercise, and 3) support coordinated secondaries where the folks who want it can get some liquidity, without mucking things up the way a free-for-all can. 1. https://www.sethlevine.com/archives/2018/08/whats-a-fair-409a-discount.html https://www.sethlevine.com/archives/2018/08/whats-a-fair-409...
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- xyzzy_plugh 3y agoBizarre. Carta has an opt-in liquidity program that I'd expect to be the source of this type of offer, but doesn't fit the case here. I'm guessing someone fucked up and should not have considered this particular investor for a tender. I'm willing to give Carta the benefit of the doubt here, that this is a one-off fuck up (this type of offer being a human-managed process wouldn't surprise me as it's typically high-touch). Because if it isn't, and it is systemic, then Carta has fired their cannons into their own hull.
- zerothOffset 3y ago+1 Clearly looks manual high touch email
- alsodumb 3y agoI've spent quite a bit of time on HN frontpage, and I feel like the trajectory this post is taking in the feed order is weird, it should be near the top, as it was a while ago. Right now it's ranked 27, and there are many posts ranked higher than this that have fewer upvotes, fewer comments, and were posted before this point (assuming being recent, having high upvotes, and number of comments are used in ranking on the frontpage).
- threeseed 3y agoBased on recent events at Carta the culture there appears to be pretty toxic: https://sfstandard.com/2023/10/25/carta-san-francisco-lawsuits-insider-fortune-reports/ https://sfstandard.com/2023/10/25/carta-san-francisco-lawsui...
- k8svet 3y agoI work for a startup and I don't even understand half the comments in this thread I'd be very greatful for a few hours of content I can listen to or read that would explain what's at play. I feel so miserably ignorant and lost. :/
- sangnoir 3y agoIf your remuneration includes shares or options in the startup, you owe it to yourself to understand how startup shareholding works - I'm not being dismissive here - you could save yourself from making poor financial decisions. High level topics: Cap table, funding rounds, dilution, shares vs options (and the tax implications of exercising options), liquidity events & secondary markets. I may be missing more.
- nezaj 3y agoYC and Startup School have some excellent videos with Kirsty Nathoo discussing basic startup mechanics, finances, accounting, and fundraising rounds. You may find this one especially helpful https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG
- enra 3y agoDon't feel bad. The issue here is the relationship with the company & Carta and overall corporate concerns, not much about employee equity. Briefly: - In a startup you're granted options. Contract that allows you to buy certain amount of company shares at a specific price (”strike price”, also known as “exercise price”), which is usually the fair market price at the time when your options are granted. Options do not give you ownership of stock, instead they provide you rights to purchase stock at a favorable price. - Fair market price is the price of the stock based on the company’s current valuation (set by an outside evaluator). Early stage companies the fair market valuation 20-30% of the valuation investors pay. - Exercising your options means purchasing all or some of your shares and becoming a shareholder in the company. For example, if your strike price is $1.50 and you exercise your option for 1,000 shares, your exercise will cost $1,500 (1,000 x $1.50) plus any potential taxes, and you will be a holder of 1,000 shares. Now if in the future the company IPOs with a stock price of $100 you can sell those shares and get $100k or gain $98.5 per share. - Exercise window is the time you can buy your options. Commonly in US startups required you to purchase the shares within 90 days of you leaving the company or you lose it. More employee friendly startups have extended exercise windows that let you keep the options for 7 or 10 years. - Early exercise. Employee friendly startups allow early exercise for your options to avoid paying taxes along the way. Say you join the company when the strike price is $1.50. You exercise the shares at $1.50 now you own the shares and since there was no gain, you don't have to pay taxes at that time. If you don't early exercise then, but wait until the next funding round when the strike price is now $4.50, your now have to pay tax on the gain of $3. In both cases in the end if you one day sell the stock for $100 you still pay the same amount of taxes (gain from $1.50 to $100 or from $1.5 to $4.5 + $4.5 to $100). It just lets you to avoid taxes until you have actual liquidity and also lets you to pay long term gains, sometimes get it even tax free if your company and holding is QSBS eligible. Some guides that we share with our employees: https://medium.com/swlh/understanding-startup-stock-options-4bf9cc26089e https://medium.com/swlh/understanding-startup-stock-options-... https://www.holloway.com/g/equity-compensation https://www.holloway.com/g/equity-compensation https://blog.alexmaccaw.com/an-engineers-guide-to-stock-options/ https://blog.alexmaccaw.com/an-engineers-guide-to-stock-opti... https://www.wealthfront.com/blog/equity-ipo-guide https://www.wealthfront.com/blog/equity-ipo-guide
- shreezus 3y agoAre they opting-in all users by default? This is pretty grimy on Carta’s part!
- alsodumb 3y agoUpdate: https://twitter.com/karrisaarinen/status/1743480576815096081 https://twitter.com/karrisaarinen/status/1743480576815096081
- enra 3y agoI'm OP on the tweet. To clarify on some points why I think this is wrong: Private companies generally don't want or allow secondary transactions. Every good company wants to manage their cap table and who is on it. Every shareholder has some level of rights and sometimes you need their signatures on things. A problematic shareholder can cause a lot of problems that are time consuming to the company. Companies do offer secondary sales to employees and existing investors at times but those cases the buyers are vetted by the company. If anyone would want to sell the shares, I'm quite sure we would find buyers from the existing shareholders. So secondary sales to unknown buyers is potentially harmful for the company. Carta's whole business has been to help private companies to manage their equity. Using their own employees to start soliciting these secondary sales is actively trying to harm the startup who is their customer. Carta also sits on this trove of confidential information about the company, the cap table, pricing, transactions etc. As a founder or company you trust them to manage this information and keep it confidential. Now it seems they are using this information to trying to build their order book on their secondary sales marketplace. They reached out to someone (a family member, whose investment is not public, who is not in tech/didn't opt in to this in any way). I believe only Carta knows is an investor in the company. The price the buyer was willing to buy was exactly our Series B price. The concern becomes what level of confidential information are exactly exposing here, who has access and how it's used. In this case it seems that this person had access to our cap table in order to reach out the investor and buyer somehow was able to set their price exactly as our Series B price. I'm perfectly fine with the idea if Carta has secondary sales platform for a company approved tender offer or secondary sales. Even could be ok if buyers could submit their interest and Carta could inform the company about the interest. Where I think it crosses the line where Carta uses their employees to solicit these sales and (I believe) use private cap table information to reach out to the stakeholders to get them to sell knowing company or board hasn't approved any secondary sales and doesn't want to. Carta who is expert in startup equity, should know that most startups don't want to see random secondary sales happening and usually they are not allowed. I know 3rd party platforms exists for this and you can go around the restrictions with forward contracts. To me it feels unethical practice from a vendor trying to actively harm us and using confidential information to do so. PS: Carta did reach out to me to schedule a call but didn't provide any details yet. Update: I polled our investors and so far 3 people have said they got the same email. All of them were the earliest investors with most gains. Again feeling that Carta had more information on who to targets
- blueridge 3y agoProbably just another clueless "customer success" manager who doesn't know what company they're working for, or who their customers are, or what day of the week it is. Just drooling on the keyboard while aimlessly clicking in Salesforce and copy pasting emails in between meetings.
- zerothOffset 3y agoI would read the Terms of Service. What’s wrong with someone getting liquidity? VC sell their stakes to other VCs all the time why shouldn’t other investors or even tenured employees. Liqudity programs like tender offers are price controlled not market controlled and companies are first to tout their RSU values in compensation packages esp when they are overvalued
- meindnoch 3y agoNooooo you can't do the same as the big boys! You're just a pleb >:( Oh, these RSUs will totally make you rich one day, trust me bro :-)
- milkglass 3y agoLatest update https://nitter.net/karrisaarinen/status/1743672776643535015 https://nitter.net/karrisaarinen/status/1743672776643535015
- poorman 3y agoHow is this not still on the front page? Is Carta a YC company?
- deleted 3y ago[deleted]
- doglov 3y ago[dead]
- oakhaven 3y agoWhy does Carta have Linear CAP table? I mean what service they're offering that it's worth for startups to have this info managed by other party? CAP table sounds like sth that could be stored in a spreadheet.
- oakhaven 3y agoThe video didn't convince me, looks like a toothpaste ad https://carta.com/blog/what-is-a-cap-table/ https://carta.com/blog/what-is-a-cap-table/
- oakhaven 3y ago.. but they seem upfront about it: "At the end of the day, the consequences of having a poorly managed CAP table, are the exact things that the startup founders have nightmares about"