Tim Flannery, Alex Laplante, and Ben Doran were working together on Carta’s investor services team when they realized that raising funds to invest in startups was a taxing (no pun intended) process. It required manually creating subscription agreements — agreements investors fill out to invest in a fund — by merging unstructured data across different financial systems. This work, which was unpaid, often led to errors and was incredibly time-consuming, says Flannery.
“It was a nightmare to deal with,” Flannery told londonbusinessblog.com in an email interview. “We also saw issues around investor corralling, having a single source of truth for the raise, and incomplete or inaccurate filing documents.”
The solution they found 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 subscription document processing, identity verification and anti-money laundering compliance .
“We make investing in the private markets as easy as Robinhood did for public stocks. While this asset class has been around for decades, it’s not built to handle this volume of investors,” Flannery said. “Sign up for Robinhood? It takes two minutes. Investing in a VC fund? Every time you make an investment, you must complete a 200-question questionnaire. The forms are not standardized and not every question is applicable to every investor. Investors miss questions or answer the wrong ones and then have to redo the whole thing… We built a TurboTax-like workflow where investors get one question at a time and only the questions that are relevant to them.
There is certainly interest in the idea. Passthrough announced today that it has raised $8.4 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 Passthrough values 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 they are admitted to a fund and on an ongoing basis to manage risk. It achieves this with an ID system that uses over 200 data points to create investor profiles, which can be quickly applied to any compliance and forms workflow on the Passthrough platform to save time. (Investors can, of course, delete their data if they wish.)
“Most fund managers today don’t have an onboarding solution. It takes days or weeks for investors to fill out documents. With Passthrough, it takes about twenty minutes if you do it all at once,” Flannery said. “We asked investors more than 36,000 unique questions, and we used those questions to model the information collected on all the funds we work with… Investors map their beneficial owners, we screen them against sanctions lists and fund managers can take their risk, admit investors into the fund and monitor their risk over time.”
Passthrough competes directly with companies like Anduin and Plus Subscribe, which offer a range of mutual fund services including client relationship management systems, investor portals and data storage. To stay ahead, Flannery says Passthrough plans to expand into enterprises with a robust new API offering that allows anyone to develop on top of the startup platform. Later this year, Passthrough will be fully embedded, he added, allowing API customers and partners to control the user experience — i.e. finding investment opportunities — end to end.
“[Many of these enterprises] use trade order systems developed in the 1990s to process investment requests and send and receive information from legacy customer relationship management systems and investor portals,” said Flannery. “Passthrough’s open API helps them connect the dots while providing a unified onboarding experience. experience, no matter where those investors come from.”
Passthrough also has rivals in fund managers like AngelList and law firms like Cooley Vanilla, Kirkland & Ellis’ Funded, and Gunderson. But Flannery argues that they only offer point solutions – and even then point solutions that pose a challenge to investors because their data is tied up in every provider.
“From the fund manager’s point of view, you have to work with one of them first. Then you have to adopt their standard forms. And if someone breaks out of shape, you’re probably out of luck,” Flannery said. “Meanwhile, we can work with any provider and build workflows that are fully customized to what you need… Our goal is that no matter how investors invest in a venture capital fund, private equity fund or any other alternative asset, Passthrough will power it. We want to be the standard.”
It’s 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 firms and $100 billion-plus global asset managers.
Flannery credits the pandemic with 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 simplified investor onboarding for everyone.”
When asked if the challenging current investment climate could affect growth, Flannery said no; he has seen no evidence of a slowdown in matters. In fact, he claims that Passthrough didn’t need to raise, but decided to do so because it “felt the right time to be aggressive,” especially since Passthrough plans to double its 26-person workforce.
“When we were parenting, we did so with a three-year plan in mind,” Flannery added. “Then we can decide if we want to raise again.”