[logiduck]

As a founder it is easy to see how the actions of Carta seemed like a breach of Trust. but the lack of a major player in the secondary market is a problem for past employees of startups who can't sell.

Putting aside using data they shouldn't have used, this episode is revealing a major problem in the startup space.

Unfortunately there is conflicting interests when it comes to secondary liquidity in a company. The founders/CEO wants control of the cap table, who the investors are, and the share price. They also want any interests in purchasing shares to go towards issuance of new stock in a round rather than cashing out past investors.

But for employees and other investors, secondary markets are a positive thing. If you are an employee sitting on millions or hundreds of thousands of dollars in shares, it can be frustrating that the company locks up and controls all liquidity even though you might have paid considerable exercise costs for those shares. As an past or current employee it should be a positive thing to have inbound demand for your shares, but this goes against the interest of the company.

The reason Carta's secondaries business failed is because founders are not motivated to provide liquidity to employees or investors. Founders and the C-suite want control and typically can self-approve transactions for their own liquidity. This conflict of interest needs to be solved by someone.

Hopefully someone can solve this problem in the future.

[AndrewKemendo]

This system is built by investors for investors as terms of how to issue these securities. There’s dozens of ways to give stock ownership without requiring purchase or gifting, including 83b elections and structuring the company in a way that distributes ownership.

The conflict is intentional in order for early investors to maintain control.