What happens to Carta now?

Image Credits: Carta

Cap table management startup Carta has been dealing with a PR nightmare for the past couple of days. This isn’t Carta’s first public scandal, to be clear, but this new one seemed to cause more of a stir because it directly affected its customers.

So, what happened? The short of it is that one sales employee, according to Carta, used confidential data from one of the company’s customers to craft a sales pitch for a secondary stock sale. The act was an obvious violation of Carta’s ethics and customers’ data privacy. The company initially paused secondary trading, and then last night said it would shut down that business altogether.

The problem, according to Carta, is taken care of. But the company’s clients — investors and startups — may not love that there was a pretty blatant breach of ethics and violation of privacy at a provider that houses some of their most sensitive data.

Before we dive into what this mess might portend for Carta, we need to understand the state of affairs at the company before this came to light. Henry Ward, Carta’s co-founder and CEO, said in a Medium post Monday night that Carta’s annual recurring revenue was $373 million, of which only $3 million was from these secondary sales. The company’s last primary round was raised in 2021 at a $7.4 billion valuation.

While Carta hasn’t raised a round since that 2021-era transaction, per secondary data from platforms like Hiive, Caplight and Notion, its current valuation is estimated to be about half of its last primary round.

Now, that isn’t terrible when you compare that valuation haircut to current valuation trends for late-stage startups. My colleagues Alex Wilhelm and Anna Heim also wrote Tuesday morning that the company’s growth over the last few years has been promising, even without the secondary markets business.

So the company was doing well, by 2023 standards, and seems to have moved quickly to quell damage from the misstep. It’s too early to tell definitively what happens now, but how customers and investors react in the medium term will give us a better idea.

Carta has been able to grow into the company it is now because it has customers on both sides of startup dealmaking. As the company’s revenue breakdown highlights, startups and investors make up 93% of its revenue. For Carta to have any chance of getting back on track, it needs to retain and continue to grow this customer base.

On Monday, Anand Sanwal, co-founder and executive chairman of CB Insights, wrote in his newsletter that he didn’t think the Carta trading incident would cause a large percentage of customers to jump ship. He said CB Insights analysis found that Carta’s customers are pretty happy with the service and, on average, 89.2% of them intend to renew their contracts.

It’s also worth pointing out that while there are competitors like AngelList and Pulley, moving to another platform could prove difficult, especially for late-stage startups, and wouldn’t come without fees. Multiple high-profile Carta customers like Parker Conrad posted on X to say that they are happy with how the company responded and are very happy customers.

If a noticeable chunk of Carta startup and venture customers do leave, it would hurt the company’s otherwise impressive revenue figures, but that seems unlikely to happen.

The other factor at play concerns the company’s own investors. While I would have a hard time wrapping my head around investors precluding future investment in a late-stage startup that actually has a solid business model and real revenue — in this economy — I’ve been surprised before.

Recent secondary data, or the lack thereof, regarding closed deals on Carta’s shares doesn’t imply that investors have a ton of confidence that the startup will grow into its prior valuation. Platforms like Caplight have shown that there are significantly more folks looking to sell their Carta shares as opposed to folks looking to buy them.

Dan Primack at Axios also raised a good point in his newsletter Tuesday: What percentage of Carta investors backed the company because of its aspirations of growing into a secondary sales marketplace? That’s interesting to mull over, especially because Ward pointed out in his post that creating a market for secondary transactions was the actual business the startup got into from the start.

But if investors look at the numbers, this secondary trading business may not be the worst thing to eliminate. Forge Global, a secondary trading platform that went public at a $2 billion valuation after raising more than $350 million in VC, now has a market cap of $457 million. That’s not that far off from Carta’s annual recurring revenue of about $373 million at the moment.

All this drama is reminiscent of some of the early panic around Silicon Valley Bank’s collapse. In both cases, what happened was bad, but it was mitigated rather quickly, and many who initially thought about leaving ended up exactly where they started once they realized how painful it would be to try and take their business elsewhere.

I’m not sure this will end up having a material impact on Carta or how startups and investors interact with it. I’ve been wrong before, but if the scandals from last year and the year prior didn’t move the needle, it’s unlikely this will move it much, either.

What happens to Carta now?

Image Credits: Carta

Cap table management startup Carta has been dealing with a PR nightmare for the past couple of days. This isn’t Carta’s first public scandal, to be clear, but this new one seemed to cause more of a stir because it directly affected its customers.

So, what happened? The short of it is that one sales employee, according to Carta, used confidential data from one of the company’s customers to craft a sales pitch for a secondary stock sale. The act was an obvious violation of Carta’s ethics and customers’ data privacy. The company initially paused secondary trading, and then last night said it would shut down that business altogether.

The problem, according to Carta, is taken care of. But the company’s clients — investors and startups — may not love that there was a pretty blatant breach of ethics and violation of privacy at a provider that houses some of their most sensitive data.

Before we dive into what this mess might portend for Carta, we need to understand the state of affairs at the company before this came to light. Henry Ward, Carta’s co-founder and CEO, said in a Medium post Monday night that Carta’s annual recurring revenue was $373 million, of which only $3 million was from these secondary sales. The company’s last primary round was raised in 2021 at a $7.4 billion valuation.

While Carta hasn’t raised a round since that 2021-era transaction, per secondary data from platforms like Hiive, Caplight and Notion, its current valuation is estimated to be about half of its last primary round.

Now, that isn’t terrible when you compare that valuation haircut to current valuation trends for late-stage startups. My colleagues Alex Wilhelm and Anna Heim also wrote Tuesday morning that the company’s growth over the last few years has been promising, even without the secondary markets business.

So the company was doing well, by 2023 standards, and seems to have moved quickly to quell damage from the misstep. It’s too early to tell definitively what happens now, but how customers and investors react in the medium term will give us a better idea.

Carta has been able to grow into the company it is now because it has customers on both sides of startup dealmaking. As the company’s revenue breakdown highlights, startups and investors make up 93% of its revenue. For Carta to have any chance of getting back on track, it needs to retain and continue to grow this customer base.

On Monday, Anand Sanwal, co-founder and executive chairman of CB Insights, wrote in his newsletter that he didn’t think the Carta trading incident would cause a large percentage of customers to jump ship. He said CB Insights analysis found that Carta’s customers are pretty happy with the service and, on average, 89.2% of them intend to renew their contracts.

It’s also worth pointing out that while there are competitors like AngelList and Pulley, moving to another platform could prove difficult, especially for late-stage startups, and wouldn’t come without fees. Multiple high-profile Carta customers like Parker Conrad posted on X to say that they are happy with how the company responded and are very happy customers.

If a noticeable chunk of Carta startup and venture customers do leave, it would hurt the company’s otherwise impressive revenue figures, but that seems unlikely to happen.

The other factor at play concerns the company’s own investors. While I would have a hard time wrapping my head around investors precluding future investment in a late-stage startup that actually has a solid business model and real revenue — in this economy — I’ve been surprised before.

Recent secondary data, or the lack thereof, regarding closed deals on Carta’s shares doesn’t imply that investors have a ton of confidence that the startup will grow into its prior valuation. Platforms like Caplight have shown that there are significantly more folks looking to sell their Carta shares as opposed to folks looking to buy them.

Dan Primack at Axios also raised a good point in his newsletter Tuesday: What percentage of Carta investors backed the company because of its aspirations of growing into a secondary sales marketplace? That’s interesting to mull over, especially because Ward pointed out in his post that creating a market for secondary transactions was the actual business the startup got into from the start.

But if investors look at the numbers, this secondary trading business may not be the worst thing to eliminate. Forge Global, a secondary trading platform that went public at a $2 billion valuation after raising more than $350 million in VC, now has a market cap of $457 million. That’s not that far off from Carta’s annual recurring revenue of about $373 million at the moment.

All this drama is reminiscent of some of the early panic around Silicon Valley Bank’s collapse. In both cases, what happened was bad, but it was mitigated rather quickly, and many who initially thought about leaving ended up exactly where they started once they realized how painful it would be to try and take their business elsewhere.

I’m not sure this will end up having a material impact on Carta or how startups and investors interact with it. I’ve been wrong before, but if the scandals from last year and the year prior didn’t move the needle, it’s unlikely this will move it much, either.

Meta Quest 3 and Apple Vision Pro headsets

VR sickness happens. Here’s how to avoid and treat it.

Meta Quest 3 and Apple Vision Pro headsets

Image Credits: Brian Heater

Over the past week, a number of people have reported returning their Vision Pros for a number of reasons, including issues around headset comfort and sickness. Returns are par for the course with any nascent technology. No matter how polished a first-generation product is upon release, there’s a very real sense in which it serves as a large-scale public beta.

There’s a big difference between testing a product with dozens or hundreds of people and actually releasing that product out into the world for anyone to use. All product testing has its blind spots, but if you’re lucky, those examples are limited to a few outliers. Motion sickness, however, is decidedly not an edge case among the population.

According to studies, around one-quarter of people suffer from the condition. It can cause nausea, headaches, dizziness, fatigue and vomiting. If you’re lucky enough to have never dealt with it, just believe me when I say it sucks. A lot. There’s good reason tens of millions of over-the-counter motion sickness product units are sold in the U.S. each year.

Everyone is, no doubt, familiar with the condition as it pertains to car rides, boat trips and especially eventful flights (the bag in your seatback pocket isn’t for storing peanuts). Extended reality motion sickness is a far lesser-known phenomenon, owing to the low penetrations of augmented reality, virtual reality and mixed reality headsets. It is, however, a very real thing — and certainly not one endemic to Apple’s first headset.

Meta Quest, HTC Vive and PSVR users have all reported experiencing it. Reports of people returning the hot new tech products within weeks of purchase will always raise some eyebrows. That’s especially the case when you’re Apple releasing a device that was in the works for the better part of a decade, with a $3,500 asking price.

The company certainly was mindful about motion sickness during the R&D phase. Reducing latency and bumping up display resolution go a ways toward reducing its potentiality. But if a method exists to avoid all motion sickness in all users, no one’s found it just yet.

“With the emergence of new VR technologies, high-quality stereoscopic [head-mounted displays] are now capable of simulating the visual and spatial properties of the real-world,” notes a 2020 paper on the subject. “Despite improvements, current technology still falls short of replicating how humans see and perceive depth under natural viewing conditions. There are software solutions that can help to reduce discomfort by introducing blurring during motion, however, this technique may not be effective for everyone.”

The underlying cause is the same with all of these examples. Motion sickness is triggered when your brain receives disjointed information from your eyes, body and inner ear. These different senses are processing the current moment differently. It’s easy to imagine how using a headset effectively designed to trick your brain’s perception of reality might trigger these symptoms.

Apple was smart enough to know that this would present itself in a certain portion of Vision Pro users, and given how many of us are prone to motion sickness in some form, in all likelihood a significant number of people would experience some symptoms. Ahead of the Vision Pro’s release, Apple issued guidelines designed to minimize and address potential motion sickness.

Before we get into the specifics of Apple’s guidelines, allow me to state an obvious fact: The best way to avoid VR sickness is to avoid VR. Speaking from firsthand experiences, the second best is to limit your usage. If you’re prone to motion sickness (as I am), don’t expect to make the full-time jump into the infinite desktop any time soon. I tend to keep my sessions between 20-30 minutes. That’s enough time to do many of the things you’d want to do with the headset, but it’s far from actually living in the thing. I’ve also found that I’m far less likely to experience it while sitting.

I didn’t experience motion sickness in my early Vision Pro demos. It was only once I got it home and started to engage in activities that required me to stand up and walk around that I was hit with a wall of nausea. I overdid it and opted not to wear the headset for the rest of the day.

Apple similarly advises against wearing the headset for long stretches and moving around too much, if you’re prone to motion sickness. You also might want to think twice about wearing the headset on a plane for this reason. Apple also suggests reducing “visual motion.” The company writes:

Visual motion can come from apps in which you appear to be moving, or from the motion of objects or content within the app. To reduce visual motion:

Decrease the size of the window, or increase the distance to the window.

Reduce the level of immersion by turning the Digital Crown. This helps provide a sense of stability by allowing you to see more of the space around you.

Turn on the Reduce Motion setting on your device: Go to Settings > Accessibility > Motion, then select Reduce Motion.

One more seemingly obvious bit of advice before I leave you: Try it before you buy it. Go into an Apple Store, borrow a friend’s — get your hands on it first, before plunking down such a sizeable sum. You might be among the lucky folks who never experience any sort of discomfort from these products. God bless you and see you in whatever the hell we’re calling the metaverse now.

If, however, you’re like me and are prone to getting sick on boats and in the backseat of Ubers, proceed with caution. Even the best VR experience can be miserable if your brain and body disagree on the basics of reality.