Today, we’re announcing Passthrough’s $5mm seed round to provide fund workflow automation, starting with fund closing software. The round was led by Sam Cates and Patrick O’Shaughnessy from Positive Sum and a handful of strategic investors and industry experts. Passthrough is led by myself, Alex Laplante, and Ben Doran.
Alex, Ben, and I met thanks to Carta. We helped scale the Investor Services and fund administration business from nothing to the behemoth it is today. It’s also where we met this particularly annoying problem: the subscription document (or sub doc).
If you’ve ever seen a sub doc, I don’t need to convince you why they’re terrible. Signing up for Robinhood takes a couple of minutes. Investing into a private fund takes far longer.
Compare Robinhood’s workflow to this:
- Investors spend hours filling out non-standard legal agreements with 100–200 question questionnaires where not every question applies to them. Even professional investors make mistakes and have to revise entire docs.
- Fund managers have no idea where their investors are once they send out sub docs and have a hard time coordinating their investors, law firms, fund administrators, and more.
- Anyone who needs data from the sub doc has to manually transcribe information from executed PDFs into their destination of choice.
We built Passthrough to fix that.
We take any sub doc and create a custom workflow that looks a lot like TurboTax. Investors only see one question at a time and only the questions that matter to them. Fund managers can track the raise live and nudge someone along towards the close. Because the data’s structured, fund managers, law firms, and fund administrators can export the data into whatever format they need.
Passthrough makes it simple for investors to fill out sub docs and fund managers to manage the raise. But why isn’t this a feature? Why is this a venture-backable business?
- Products like this are ruthlessly efficient at generating new business. If someone has a good experience, they’re going to tell others in this tight knit community. 80%+ of our customers have come inbound through our engagements.
- That virality compounds into a really interesting network: an identity graph.
The non-obvious truth is investors have complex workflows like this across the private markets because they don’t control and own their identity. Sub docs ask you things like who are you, where do you live, why are you qualified to invest, and a million others. It’s really a moment of identity verification. A similar process plays out across VC, private equity, hedge, real estate, and credit (and with service providers). Today, everyone exchanges PDFs and wastes days or weeks reconfirming the same information to get it into their systems. Passthrough wants to shrink that identity verification process to real-time through fund workflow automation.
When an investor completes a sub doc on Passthrough, they’re passively providing us with their identity. Passthrough’s goal is to give them control of it and allow it to be interoperable across future sub docs and anywhere else that it needs to be applied. Though we have more work to do, a version of that investor passport is live today.
As asset classes like private equity, etc. become increasingly accessible, we’re seeing more investors than ever. Meanwhile, we’re dealing with the same processes and tools that I used at JPMorgan over a decade ago.
The private markets look more like the public markets every day, and we think that trend is accelerating. See SVB’s most recent state of the market, this Twitter thread of active managers by strategy, Barron’s article on the democratization of the privates, the Department of Labor’s move to allow 401k /ERISA plans to invest in privates, the Economist’s piece on the proliferation of privates, and the FT’s article on the growth of privates for a tiny sample of what that’s looked like over the past 20 years and past 12 months. It’s begging for modern infrastructure. Existing financial services firms and fintechs had to build identity solutions when they launched but it’s not what makes them valuable. Some will switch to us one day, others won’t. But the next generation will build on Passthrough by default.
We’re excited to make continued progress on Passthrough’s mission alongside the support of our existing team, investors, friends and families. If this gets you excited, we’re hiring across all teams. Come build with us.
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