Carta's stock marketplace was a moonshot

Catch up quick: Carta announced the move Monday, after a weekend-long controversy over its ability to access customer cap table data.

• On Jan. 5, Linear CEO Karri Saarinen posted on X that one of his very under-the-radar investors had received an email from a Carta employee, pitching a sale of their shares.
• CEO Ward eventually admitted that the company had made some mistakes.
• But by Monday evening, Carta announced it would be getting out of secondary stock trading to avoid any appearance of impropriety (the firm will still facilitate company-initiated tenders).

The big picture: For most of its existence, Carta has been known for its widely used cap table management software for startups.

• It's expanded to adjacent business lines, like fund administration and 409a company valuations, taking advantage of a flywheel effect.
• Eventually it began building CartaX, which it hoped would fulfill its original vision of becoming the "Nasdaq for private markets."

Zooming in: Carta touted the exchange as the future of the company, with Ward telling the Financial Times in May 2020 that "If CartaX wins, in 10 years there won't be a NYSE or a Nasdaq."

• It quietly acquired Australia-based MarketGrid to help build its marketplace tech. It also hired a few employees from stock exchange IEX.

Yes, but: CartaX faced bumps in the road.

• In spring 2019, longtime customer Slack jumped to Etrade just two months before its direct listing, after repeated unfulfilled promises that a rudimentary CartaX product could capture secondary trade data.

Notably: The model didn't gain significant traction, generating about $3 million in annual revenue, per recent figures shared by Ward.

• That's less than 1% of its annual revenue of about $373 million.

Meanwhile, as the Carta controversy unfolded over last weekend, it didn't take long for Silicon Valley denizens to start discussing — and promoting — alternative cap table options.

• Carta is the market leader in that software category, but it's not the only player. Here's how the fallout has impacted some companies:

AngelList:

• The company says it's seeing a 7x increase in demand from Carta companies looking to switch.
• On Tuesday, the company announced it would waive fees for customers switching from Carta, for however long they have left on their subscription.
• "Over 1,000 startups have moved from Carta to AngelList since we launched cap tables, so I think companies like our plan," AngelList CEO Avlok Kohli posted on X on Thursday.

Pulley:

• By Monday, the company had seen a 5x uptick in traffic to its website.

• "The interest over the weekend has actually grown — we have 8x the number of demos we normally have," Pulley co-founder Yin Wu told Axios via email Thursday. "Many of these conversations are with later-stage companies that value data privacy and security."
• Like AngelList, Pulley is waiving its fees for Carta customers so they aren't paying double.

Fidelity/Shoobx:

• The company didn't provide Axios with any information about how the past week has been going, but it has been sending out marketing emails asking recipients if they're looking for a new cap table provider.… 👀

What we're watching: Whether Carta's valuation will suffer.

• While CartaX was certainly a shiny part of the company's pitch, sources tell Axios that that wasn't what it staked its whole future and valuation on.
• "It was always the cherry on top," says one longtime investor.

However, Ward predicted in 2020 that "the exchange could represent four-fifths of Carta's value in the next five to 10 years."

• Now it will have to figure out how to keep growing beyond its flagship cap table and fund administration businesses.

The bottom line: CartaX turned out to be more of a moonshot than a slam dunk.