5 minutes with… Tim Flannery, co-founder and CEO of Passthrough

The Drawdown (TDD): First things first, how did Passthrough start out?

Tim Flannery (TF): In our previous professional lives, my co-founders and I were building a fund administrator at Carta and found ourselves incredibly frustrated with the onboarding process. For one, the data we received in PDF format was unstructured. And as we onboarded clients from the fund admin side, we would get paper subscription documents that were often incomplete or inaccurate. My co-founder Ben was literally running teams of people trying to decipher someone's handwriting at the time.

So we set out to provide structured data and an onboarding process not characterised by figuring out someone’s handwriting.

TDD: How have you solved these problems?

TF: Passthrough is custom built to onboard investors into private funds. Today, we facilitate this in two ways. Firstly, we offer electronic subscription documents. We build customised workflows tailored to the documents, which allow fund managers to manage how they invite their investors to fill them out but investors will only need to deal with the questions relevant to them. Additionally, Passthrough allows different operational teams to coordinate directly on a single platform, where before they got lost on email threads.

Secondly, we provide KYC and AML services. The documents we collect from investors are automatically screened against lists including US sanctions, adverse media and politically exposed persons. Passthrough reviews the documents for accuracy and flags potential matches to our clients, which are tracked in our case management system.

Both offerings cement a streamlined and successful investor onboarding process, which is what we aim to achieve.

TDD: Is this a one-size-fits-all solution?

TF: No, we offer two different versions: one for emerging managers and one for established managers. For emerging managers, the question is: ‘How do I solve this one fundraise?’ For established managers, we need to answer: ‘How do we solve operations?’

In most cases, emerging managers will not require a lot of customisation. They need a tool to coordinate their providers and investors, then be able to monitor the entire process. For them, it is a simple configuration of subscription documents and accepting standard KYC/AML requests.

Established managers will have several different teams – including counsel, administrators, IR, tax and compliance – involved in the process. They all have different tasks that need to be performed in a specific order. They’ll have an established system with all of this information sitting in it. For us, this means building custom approval flows, connecting all the pieces in their architecture over API, and plugging into their system.

TDD: What about investors?

TF: For investors, we offer tailored profiles. Private markets lack standardisation because there is no common authority dictating them and requirements are only shared to a degree. If you were to force a common format, it would end up at the lowest common denominator experience, which is not useful.

If you can only collect bespoke data, you need to normalise it on the backend. What we have done is ask over 40,000 questions, from which we identified 900 data points, answering approximately 90% of those questions. Today we have over 200 of them live. With these profiles we can tag the data points appropriately and allow individuals to reuse that information from one investment to the next, and one context to the next. We launched our KYC/AML offering because it is an extension of the same dataset.

If you were to invest into a fund today using pen and paper, it could take you days or weeks to go through. With Passthrough, it takes 20 minutes on average for the first go-around. Then about two minutes the second time because you simply need to confirm the information already in your profile. It also doesn’t matter whether it is the same fund or manager because your information follows you wherever you go.

TDD: What is your take on the current state of technology in private equity?

TF: I’ll draw a line to another technology, computers. If I wanted to buy a computer in the 80s, I had to get it from IBM, with its software and hardware in a bundle. For the vendor, this was great as it locked the customer in. For the buyer, it was terrible because switching costs were so high, I couldn’t configure pieces the way I wanted.

As a consequence, customer preferences changed from a fully integrated solution to the ability to select whatever piece of software they wanted on whatever operating system, hardware and microprocessor they wanted.

I see the same development in private market software. Historically, if you wanted a CRM, investor portal, accounting, onboarding software – it all came in one package, from large players.

But our customers have started to demand the best solution to each of these functions. From my point of view, the differentiator going forward will be how seamlessly you can plug in and play with everybody else.

TDD: What is on the development roadmap for the coming year?

TF: Let me start off with our ‘anti-roadmap’, all the tools we will never build. We will never build a CRM, an investor portal, general ledger, fund admin or a data lake. What we aim to be is the pipes of the infrastructure connecting all of these pieces.

At the top of the list is being able to plug into systems and move information back and forth. But more importantly, we need to be able to exist within those systems so we are focusing on being fully embeddable. Additionally, we are looking to launch more of the data points I mentioned earlier.

Besides powering other pieces of software, we need to speed up transactions. One way is to get the client up and running faster. Currently, it takes us seven business days to onboard a client. We want to cut that in half. Another way to speed up transactions is to make filling out subscription documents faster for investors. We want to shrink by half the average time to complete of 20 minutes for the first go-around on electronic subscription.