Passthrough raises $10M to simplify the process of investor onboarding • TechCrunch

Tim Flannery, Alex Laplante and Ben Doran were working together on the Investor Services team at Carta when they realized that onboarding funds to invest in startups was a nerve-wracking process (no pun intended). It involved manually creating subscription agreements — agreements that investors complete to invest in a fund — by gathering unstructured data from various financial systems. Often this work, which was unpaid, resulted in errors and took an incredibly long time, Flannery says.

“It was a nightmare to deal with,” Flannery told TechCrunch in an email interview. “We also spotted issues with gathering investors, having a single source of truth for the raise, and incomplete or inaccurate underwriting documents.”

The solution they arrived at is Passthrough, a web-based fund automation workflow tool for investors. Launched in 2020, Passthrough – which Flannery, Laplante and Doran co-founded after leaving Carta – facilitates investor onboarding for private funds, particularly aspects such as underwriting document processing, identity verification and anti-money laundering compliance.

“We’re making investing in private markets as easy as Robinhood did for public stocks. Even though this asset class has been around for decades, it was not designed to handle this volume of investors,” Flannery said. “Are you signing up for Robinhood?” It takes two minutes. Invest in a venture capital fund? You must complete a 200-question questionnaire each time you make an investment. The forms are not standardized and not all questions apply to all investors. Investors miss questions or answer the wrong ones and then have to do it all over again… We’ve built a TurboTax-style workflow where investors are given one question at a time and only the questions relevant to them.

There is certainly interest in the idea. Passthrough announced today that it has raised $10 million in a Series A funding round led by Positive Sum with participation from Motley Fool Ventures, Broadhaven Ventures, Company Ventures and Great Oaks VC. Flannery says the round — which values ​​Passthrough at $50 million — will be spent on product R&D, marketing and scaling Passthrough’s core offering.

At a high level, Passthrough orchestrates tasks such as screening investors when admitted to a fund and on an ongoing basis to manage risk. It achieves this through an identification system that uses over 200 data points to create investor profiles, which can be quickly applied to any compliance and form workflow on the Passthrough platform. to save time. (Investors can delete their data if they wish, of course.)

“Most fund managers don’t have an integration solution today. It takes days or weeks for investors to complete the paperwork. On Passthrough, it takes about twenty minutes if you do it in one sitting,” Flannery said. “We asked over 36,000 unique questions of investors, and we used those questions to create a model of the information collected on all the funds we work with…Investors map their beneficial owners, we compare them to lists sanctions and fund managers can assess their risk, admit investors to the fund and monitor their risk over time.

Passthrough competes directly with companies like Anduin and Plus Subscribe, which offer a suite of investment fund services, including client relationship management systems, investor portals and data storage. To stay ahead of the game, Flannery says Passthrough plans to expand into the enterprise with a robust new API offering that will allow anyone to grow on top of the startup’s platform. Later this year, Passthrough will be fully embeddable, he added, allowing API customers and partners to control the user experience – i.e. finding investment opportunities – from start to finish. .

“[Many of these enterprises] use trade order systems developed in the 1990s to process investment requests and need to send and receive information from outdated client relationship management systems and investor portals,” said said Flannery. “Passthrough’s open API helps them connect the dots while providing a uniform onboarding experience, no matter where these investors are coming from.”

Passthrough also has rivals in fund administrators such as AngelList as well as law firms like Cooley Vanilla, Kirkland & Ellis’ Funded and Gunderson. But Flannery says they only offer point solutions — and even then, point solutions that present a challenge for investors because their data is trapped within each vendor.

“From the fund manager’s point of view, you have to work with one of them first. Then you need to adopt their standard forms. And if somebody breaks form, you’re probably out of luck,” Flannery said. “Meanwhile, we can work with any vendor and create fully customized workflows based on your needs…Our goal is that no matter how investors invest in a private equity fund- venture, private equity fund or other alternative asset, Passthrough will be the one to feed it.. We aim to be the default.

It is making gains on that front. According to Flannery, Passthrough has processed billions of dollars in investments for more than 12,000 unique investors and more than 250 clients, including $50 million venture capitalists and $100 billion global asset managers. of dollars.

Flannery credits the pandemic for fueling interest in space. “Electronic subscription documents were a curiosity until no one had access to a printer,” he said. “Fund formation exploded and we had a seamless workflow automation tool ready that made investor onboarding easier for everyone evolved.”

When asked if the current difficult investment climate could impact growth, Flannery said no; he has not seen evidence of a business downturn. In fact, he claims that Passthrough didn’t need to increase, but decided to do so because “it was a good time to be aggressive”, especially as Passthrough plans to double its workforce from 26. .

“When we lifted, we did so with a three-year plan in mind,” Flannery added. “Then we can decide if we want to raise again.”