Carta Plans to Launch CartaX
A Nasdaq-type stock exchange for private, secondary markets.
You likely have heard of Carta, the cap table management solution for startups. Carta as this point is well established. Founded in 2012 by Henry Ward and Manu Kumar, they’ve raised just over $627m to date.
Based in SF, Carta is a transfer agent for private companies that enables seed-stage to pre-IPO companies to manage equity electronically with the participation of their shareholders, employees, auditors, and legal counsel. It digitizes paper stock certificates along with stock options, warrants, and derivatives to create a real-time image of who owns what at a startup.
They’re now expanding their business to offer a unique platform for secondary transactions. This platform will be called CartaX, and this is going to be big. CartaX seeks to offer better prices, liquidity, and quicker, more convenient trading options for employees and founders alike.
So why is this so important? If you’re an investor, you are familiar with the difficulty around finding great secondary deals. You have to know the right folks and be in the right place at the right time.
I’d imagine CartaX is going to get a lot of play right off the bat granted their complementary primary business. They really are the perfect provider to be rolling out this platform.
CartaX is integrated with its affiliates, who have managed over $1B in secondary volume to date. CCMX also leverages Carta’s network of investors, law firms, and accounting partners. That line coming straight from their site, we can see they will be an all in one solution, and compiling outside transactions as well.
Carta completed the first auction of its own stock there. 414 market participants bought private Carta stock, across 1484 executed orders, totaling $99.7M in trading volume. CartaX enabled Carta to unlock meaningfully more demand for its stock and engage in market-driven price discovery long before it would otherwise have raised new private capital or conducted an IPO to go public.
All the way back in 2011, companies like SecondMarket were seeing nine-figures’ worth of shares being traded on their secondary share platforms.
That wave of liquidity startups really ran into two problems: One was regulatory, and the other was a lack of company information about cap tables and that company’s current financial picture. Stock buyers were essentially flying blind while buying into companies, which some investors were more than willing to do, but that blindness limited the market demand for secondary shares significantly.
Typically, secondary transactions involve secondary buyers who negotiate these deals manually one-on-one with individual sellers. What makes CartaX interesting is that it could allow for much faster and more frequent secondary sales at companies based on the same sort of computerized trading models that currently power the stock market.
Liquidity is a huge issue for startups, and while CartaX is just getting going, it fulfills a key need for many participants in the startup ecosystem, and it’s a key financial product to watch as it expands in 2021.
As for the retail investors, I wouldn’t be so excited about CartaX as it’s a platform designed for institutional capital and at minimum accredited investors. So I don’t think the WSB reddit group will be able to make their way onto this platform anytime soon.
Anyway, this is exciting news. I know plenty of investors who are continually looking for secondary deals and this platform may be a supporting resource if nothing else. I know nothing will ever compare to finding off-market or exclusive secondary deals but none the less even to know what’s out there trading is helpful and viable data.