Case study: A customised approach

Kim Carter from LKCM Headwater and Passthrough’s Ben Doran explain how collaboration is key for a successful partnership.

Since its first partnership more than two decades ago, the team at Texas-based private equity firm LKCM Headwater has understood that businesses do not make businesses better, people do.

Fast forward to 2024, the firm has raised six partnerships plus co-investment partnerships totaling $2.6bn of capital commitments. LKCM Headwater’s core philosophy is to add value through the expertise of its ecosystem of hands-on, strategic investors to transform businesses to be more sustainable, higher cashflowing, and more resilient over the long term. To do so, building strong relationships with their investors is critical.

“Our focus is alignment and partnering with portfolio company management teams to provide relationships, resources and capital to scale and build businesses that best serve our customers,” says Kim Carter, partner and CFO at LKCM Headwater. “Our limited partners are very engaged in our efforts. They source new opportunities, sit on boards, serve as operating partners, and bring expertise from having operated and built their own business. I can pick up the phone and call our limited partners with relevant domain expertise to work with our team to help unlock value across our businesses.”

Customised approach

Introduced by a limited partner, Passthrough provided a customised approach to LKCM Headwater that allowed the firm to scale the fundraising process for its lean team and simplify it for the LPs. Carter wanted a solution that meant she could expand the firm’s fundraising efforts without relying on more people doing more manual work.

“What Passthrough unlocked for us in digitalising our onboarding process parallels what we do with our operating companies,” says Carter. “We look for businesses where we believe we have a competitive edge and can create more value. Bryan King, the founding LKCM Headwater partner, believes in an operational, roll-up-your-sleeves approach that often requires an investment in technology, software and systems. This creates a J-curve to get operating leverage to create a step-change to a more profitable, scalable business.” 

Continuing to tailor the onboarding process through individualised messaging and customised ways of sharing information was key for LKCM Headwater to maintain and build connections with investors. The Passthrough team had the same collaborative approach and was quick to test and implement changes that allowed LKCM Headwater to best serve its clients. 

Carter attributes a significant part of the ease and success of their raise to the Passthrough team.

“There was always a response back from the team saying, ‘Yes, we can do this,’ or ‘We’ve seen this before. While you are suggesting this, I would also recommend you consider options A, B and C.’” 

Constantly improving

Ben Doran, co-founder and COO at Passthrough, says feedback from customers such as LKCM is a crucial part of constantly improving the product. “We always want to understand how customers are using the platform in order to make it even more useful for them,” he says. “By getting a real-time look into how Kim and her team wanted to work with their investors, we know exactly what we needed to build to get them there, which means the next customer gets that benefit too.”

Security was also a critical factor during the diligence process led by Sarah Topham and the IT team at LKCM. “We needed to give our limited partners the confidence their data is protected,” Carter says. “Passthrough provides a way to log in with a secure link without having to maintain passwords that could be hacked. This was one of the benefits that our IT and security teams identified when they did their diligence, and one that our limited partners really appreciated. We collect and store very sensitive data, so having confidence that Passthrough took security and privacy seriously was imperative.”

Ultimately, the success of implementing any investor-facing solution comes down to what the LKCM Headwater limited partners think of it.

“Our limited partners were impressed,” says Carter. “Passthrough simplified and made the process easier for them. The ability to start and stop filling their sub-documents as they needed, having all their information saved and sharing their documents with additional family members, CPAs or additional users on a single platform was something most of them had not seen before. It put control in their hands in a way that even those who were less tech savvy could easily benefit.”

Key Facts

As of early 2024, LKCM Headwater Investments has $26.3bn AUM, a team of 99 including 66 investment and other professionals, 27 CFAs, eight CPAs, four CFPs and 35 employees with MBAs, and is independently owned and operated by its employees. 

It has over $2.6bn invested in more than 40 platform companies and has generated 5.7x MOIC from its exited investments since 2000.

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