Tim Flannery, Alex Laplante and Ben Doran were working together at Carta’s investor services team when they realized that onboarding funds to invest in startups was a taxing (no pun intended) process. It required manually creating subscription agreements — agreements that investors fill out to invest in a fund — by piecing together unstructured data across various financial systems. Often, this work, which was unpaid, led to errors and took an incredibly long amount of time, Flannery says.
“It was a nightmare to deal with,” Flannery told Pointypress in an email interview. “We also spotted problems around corralling investors, having a single source of truth for the raise and incomplete or inaccurate subscription 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, specifically aspects like 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. Even though this asset class has been around for decades, it wasn’t built to handle this volume of investors,” Flannery said. “Signing up for Robinhood? It takes two minutes. Investing in a VC fund? You’ve got to fill out a 200-question questionnaire each time that you make an investment. The forms aren’t standardized and not every question applies to every investor. Investors miss questions or answer the wrong ones and then have to redo the entire thing … We built a TurboTax-style workflow where investors get one question at a time and only the questions that are relevant to them.”
There’s certainly interest in the idea. Passthrough today announced that it 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 that the round — which values Passthrough at $50 million — will be put toward product R&D, marketing and scaling Passthrough’s core offering.
At a high level, Passthrough orchestrates tasks like screening investors when they’re 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 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 onboarding solution today. It takes days or weeks for investors to fill out documents. On Passthrough, it takes about twenty minutes if you do it in one sitting,” Flannery said. “We asked over 36,000 unique questions to investors, and we used those questions to create a model of the information collected across all of the funds we work with … Investors map their beneficial owners, we screen them against sanctions lists and fund managers can assess their risk, admit investors into the fund and monitor their risk over time.”
Passthrough competes directly with firms like Anduin and Plus Subscribe, which offer a suite of investment fund services including customer relationship management systems, investor portals and data storage. To stay ahead, Flannery says that Passthrough plans to expand into enterprise with a robust new API offering that will allow anyone to develop on top of the startup’s platform. Later this year, Passthrough will be fully embeddable, he added, enabling 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 requests for investments and need to send and receive information from outdated customer relationship management systems and investor portals,” Flannery said. “Passthrough’s open API helps them connect the dots while having a uniform onboarding experience regardless of where those investors come 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 argues that they only offer point solutions — and even then, point solutions that present a challenge for investors because their data’s trapped within each provider.
“From the fund manager’s standpoint, you first need to work with one of them. Then, you need to adopt their standard forms. And if someone breaks from form, you’re likely out of luck,” Flannery said. “Meanwhile, we can work with any provider and build workflows completely custom to what you need … Our goal is that no matter how investors invest into a venture fund, private equity fund, or any other alternative asset, Passthrough will be the one powering it. We aim to be the default.”
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 over 250 customers, including $50 million venture firms and $100 billion dollar-plus global asset managers.
Flannery credits the pandemic with fueling interest in the 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 evolved.”
When asked about whether the challenging current investment climate might impact growth, Flannery said it wouldn’t; he’s not seen evidence of a slowdown in business. In fact, he claims that Passthrough didn’t need to raise but decided to because it “felt like the right time to be aggressive,” particularly as Passthrough plans to double its 26-person headcount.
“When we raised, we did it with a three-year plan in mind,” Flannery added. “Then, we can make the decision if we want to raise again.”
