Silicon Valley start-up Carta to launch private stock market in new year

Silicon Valley start-up Carta to launch private stock market in new year

The $3.1bn Silicon Valley software start-up Carta will launch its long-awaited private share-trading market in the new year, following months of delays as it addressed regulatory concerns.

The company said on Wednesday that its private stock market, CartaX, will begin listing companies in January. Carta will be the first group to offer its shares for trading, followed by three others that it declined to name.

Carta’s announcement had been eagerly anticipated in Silicon Valley, where tensions have emerged between ageing start-ups and employees who hold large chunks of their wealth in stock. This has fuelled private secondary markets, where an estimated $30bn in shares change hands annually, according to Sacra, a start-up providing research on private companies.

Henry Ward, Carta’s chief executive, has pitched CartaX as a new forum for companies to be “private and liquid”, ultimately competing with public exchanges. In May, private investors valued Carta at $3.1bn in a round of funding that some backers viewed as a bet on the potential of CartaX.

But the project has faced delays and scepticism from industry participants, who have argued Carta is trying to force a uniform solution on a fragmented market.

One person familiar with the process said discussions with regulators had taken longer than expected, delaying the project past Mr Ward’s targeted launch date in the summer.

“For Carta employees, and employees of our first cohort of listed companies, liquidity is coming,” Mr Ward wrote in an announcement.

Companies that list on CartaX will be able to run periodic secondary transactions, allowing investors to bid in auctions for shares offered by employees and other stockholders. Carta will take a 1 per cent cut from both the buyers and sellers.

The marketplace will operate as an alternative trading system, better known as a “dark pool”, which enjoys looser regulatory oversight because it is not a full exchange like Nasdaq or the New York Stock Exchange.

Adrian Facini, vice-president of product for brokerage services and markets at Carta, said the US Securities and Exchange Commission gave “final approval” to CartaX in late November.

Mr Facini said trades on the platform would be covered by a securities exemption, Section 4(a)(7), which requires accredited buyers to be provided with two years of financial statements prepared using generally accepted accounting principles.

“There’s a lot of infrastructure that exists in the public markets that doesn’t exist in the private market, and Carta has been building infrastructure for the private markets for the last six or so years,” Mr Facini said.

The project has drawn scepticism. Andrea Walne, the former head of liquidity solutions at Carta, said CartaX appeared to be solving problems that did not exist in secondary markets. Carta competes with Morgan Stanley’s Shareworks and Nasdaq Private Market in the market for company-sponsored secondary sales.

“To go from Henry’s desire to be the Nasdaq for private companies to an auction clearinghouse seems to show the bar was lowered,” said Ms Walne, a general partner at Manhattan Venture Partners, an investor in secondary transactions. Carta has denied public allegations Ms Walne previously made about her experience at the company.

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