Tim Flannery, Alex Laplante, and Ben Doran were working together on the Investor Services team at Karta when they realized that saving money to invest in startups was a taxing process (no pun intended). It required manually creating subscription agreements—the agreements that investors fill out to invest in a fund—by aggregating unstructured data across different financial systems. Often, this work, which was not paid, resulted in errors and took an extremely long time, Flannery says.
“It was a nightmare dealing with him,” Flannery told TechCrunch in an email interview. “We also discovered issues with investor retention, a single source of truth about the raise and incomplete or inaccurate subscription documents.”
The solution they came up with is passes throughWeb-based fund automation workflow tool for investors. Transit launched in 2020 — which Flannery, LaPlant, and Doran co-founded after leaving Carta — to make it easier for investors to join private funds, specifically aspects such as processing subscription documents, identity verification, and anti-money laundering compliance.
“We make investing in private markets as easy as Robinhood made for public stocks. Although this asset class has been around for decades, it was not built to handle this volume of investors,” Flannery said. Signing up for Robinhood? Takes two minutes. Investing in a venture capital fund? You have to fill out a 200-question questionnaire every time you invest. Forms are not standardized and not every question applies to every investor. Investors miss questions or answer the wrong questions and then have to They have to redo it all… We’ve created a TurboTax style workflow where investors get one question at a time and only the ones that are relevant to them.”
There is definitely 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 The Motley Fool Ventures, Broadhaven Ventures, Company Ventures, and Great Oaks VC. Flannery says the round — valued at Passthrough at $50 million — will go towards product research and development, marketing, and expanding Passthrough’s core offering.
At a high level, Passthrough organizes tasks such as screening investors upon admission to a fund and on an ongoing basis to manage risk. It achieves this through an ID system that uses more than 200 data points to create investor profiles, which can be quickly applied to any compliance and configure workflows on the transit platform to save time. (Investors can delete their data if they wish, of course.)
“Most fund managers don’t have an in-house solution today. It takes investors days or weeks to fill out the documents. Crossing over, it takes about twenty minutes if you do it in one sitting,” Flannery said. “We asked investors over 36,000 unique questions, And we used these questions to create a model for the information collected across all the funds we work with… Investors identify their beneficial owners, we screen them against sanction lists and fund managers can assess risk, accept investors into the fund and monitor their risk over time.”
Transit competes directly with companies like Anduin and Plus Subscribe, which offer a range of mutual fund services including customer relationship management systems, investor portals, and data warehousing. To stay ahead, Flannery says Transit plans to expand into the enterprise with a powerful new API offering that allows anyone to develop on top of the startup’s platform. Later this year, he added, the passthrough will be fully embeddable, allowing API clients and partners to control the user experience — that is, finding investment opportunities — from start to finish.
“[Many of these enterprises] Using trade order systems developed in the 1990s to process investment requests and the need to send and receive information from legacy CRM systems and investor portals.” “Passthrough’s open API helps them connect the dots while having a unified on-board experience no matter where they are where these investors come from.”
Passthrough also has competitors in fund managers such as AngelList as well as law firms such as 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 is confined within each provider.
“From a fund manager’s perspective, first you need to work with one of them. Next, you need to adopt their standard forms. If someone gets out of shape, you’re probably out of luck,” Flannery said. “In the meantime, we can work with any Provider and build workflows completely customized to what you need… Our goal is that no matter how investors invest in a mutual fund, private equity fund, or other alternative asset, Transit will be the factor that supports it. We aim to be the default choice.”
It is making gains on that front. According to Flannery, Passthrough has processed multi-billion dollar 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. “The electronic subscription documents were a curiosity until no one had access to a printer,” he said. “Fund formation has exploded and we have a seamless workflow automation tool ready to evolve the simplified investor onboarding process for everyone.”
When asked if the Challenge the current investment climate It may affect growth, Flannery said; He saw no evidence of a slowdown in business. In fact, he claims that Passthrough didn’t need to go up but decided to because “it felt like the right time to be aggressive,” especially since Passthrough plans to double its 26-person count.
“When we did breeding, we did it with a three-year plan in mind,” Flannery added. “After that, we can make the decision if we want to raise it again.”