Tim Flannery - Simplifying Fund Closing - [Founder’s Field Guide, EP. 55]

My guest today is Tim Flannery, co-founder of venture fund administrator Passthrough. Passthrough is removing friction from the manual, time-consuming fundraising process by making investor onboarding as simple and automatic as possible. Their software helps investors fill out subscription documents in minutes rather than hours and allows GPs to easily track LP subscriptions during a fundraise. In our conversation, we discuss the power of identity as a feature to build products around, the double-edged sword of solving an unsexy problem, and how Passthrough has thought about pricing their software. Please enjoy my conversation with Tim Flannery. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Pilot. Pilot handles your startup’s finance, accounting, and tax prep needs so you can focus on what matters most — building your business. Join over 1,000 startups that rely on Pilot to help them scale. Founder’s Field Guide listeners get 20% off their first six months. Get in touch with Pilot at https://pilot.com/founders. ----- Founder's Field Guide is a property of Colossus, LLC. For more episodes of Founder's Field Guide, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:02:08] - [First question] - The push and pull nature of what Passthrough is trying to solve [00:04:17] - What the idealized end state 10 years from now looks like [00:07:33] - A history of friction in investing and what barriers still remain today [00:12:35] - The spark of insight that led to starting this new venture [00:17:45] - Lessons learned from Okta and why identity is so powerful [00:19:39] - Plans to expand this concept deeper into the tech stack [00:22:24] - Adjacent problems that they plan to tackle as they continue to scale [00:24:30] - What it feels like to use their product as an LP today [00:26:10] - Working with service providers without becoming one [00:28:06] - What great sales and distribution looks like to him at the infrastructure level [00:31:50] - Defining what “bring your collaborators” means [00:33:19] - His secret to recruiting talent to help solve an unsexy problem [00:37:46] - His love for the intersection between process, pipelines, and efficiency [00:40:12] - Having a process for designing processes [00:42:11] - How they arrived at their pricing and thoughtful pricing in software [00:45:08] - Lessons from building Passthrough that other builders could benefit from [00:47:16] - The kindest thing anyone has ever done for him

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

  I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai. This episode of Founder's Field Guide is sponsored by Pilot.com. Pilot handles your startup's finance, accounting and tax prep needs so you can focus on what matters most, building your business.

• 0:42Patrick O'Shaughnessy?

  My team at Colossus started using Pilot earlier this year and saw immediate benefits. Pilot provides a team of US branded accounting experts and fractional CFOs, ready to support you at every stage of your hypergrowth company. In addition to working with us at Colossus, they've run the financial back office for over 1,000 startups, including Airtable, Scale.ai and Lattice. Founder's Field Guide listeners get 20% off their first six months, so please learn more at pilot.com/founders.

• 1:09Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Founder's Field Guide. Founder's Field Guide is a series of conversations with founders, CEOs and operators building great businesses. I believe we are all builders in our own way and this series is dedicated to stories and lessons from builders of all types. Founder's Field Guide is part of the Colossus family of podcasts and you can access all of our podcasts, including edited transcripts, show notes and resources to keep learning at joincolossus.com.

• 1:39Speaker 01

  Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 2:04Patrick O'Shaughnessy?

  My guest today is Tim Flannery, co-founder of venture fund administrator PassThrough. PassThrough is removing friction from the manual, time-consuming fundraising process by making investor onboarding as simple and automatic as possible. PassThrough software helps investors fill out subscription documents in minutes rather than hours and allows GPs to easily track LP subscriptions during a fundraise. Our conversation discusses the power of identity as a feature to build products around, the double-edged sword of solving an unsexy problem, and how PassThrough has thought about pricing their software. Please enjoy my conversation with Tim Flannery.

• 2:41Patrick O'Shaughnessy?

  Tim, we were talking before hitting record and you said something just there and I told you to stop because maybe it's the right place to start our conversation, which is this notion that if you think about the complex Yale endowment model, sort of the fanciest of asset allocation investing models out there in the world, the ability to do that sort of thing may be working its way down, all the way down to the individual. There's this sort of democratization of ways that you can invest, types of investors, different kinds of backgrounds of GPs out there. We're going to talk a lot today about just like what's happening in the world of investing, but maybe that concept is a great wedge to begin our conversation. What are you seeing that leads you to say that what Yale can do, perhaps at some point soon, the individual will be able to do?

• 3:24Speaker 02

  There's a couple of things happening. The very practical examples of this is, one, Angel List has continued to develop products. And so if companies like allocations and Carta and everybody else that's building these things that allow fund managers to get off the ground quickly, these fund managers, because they're new to the environment, it means that they know different investors. And so first, there's this pull where the manager themselves, they have their own network, they can go bring it in. And the second is a push. So about a year and a half, two years ago, Partners Group, huge, huge private equity firm, lobbied the Department of Labor to change regulations around ERISA requirements. So individual risk plans weren't allowed to invest in private funds.

• 4:08Speaker 02

  Then all of a sudden in June of, I think it was 2020, they issued a letter that said, actually, sure, you can start taking IRAs in. And so then companies like Alto IRA have exploded. First, they have opportunities to do this in tax advantaged ways. Then they're actually looking for those opportunities. And so this dates back all the way to the JOBS Act, where everybody's just been trying to modernize the infrastructure around this and increase access. There's just this continual trend of institutional products are available to non-institutional investors, both the allocator side and on the fund manager's side. So we're seeing people left and right. I have all of this pent up demand, or I have all of this pent up capital that I want to deploy, but how do I make it happen?

• 4:49Patrick O'Shaughnessy?

  Maybe we could go all the way to the end and then all the way to the beginning. One thing I'm obsessed with as we've talked to you is just the nature of frictions in the world of investing. All the things in the middle between a pool of capital and an asset that are something that's purchased at the end. There's just lots of regulation. There's lots of process. There's lots of standards. There's not much software, although that's changing. Go all the way to the end for us. What is the idealized end state? In your opinion, like if pass through and other companies that are trying to reduce frictions in this world are maximally successful, what does the world of investing look like 10 years from now relative to today?

• 5:25Speaker 02

  The way that we got to see this friction really up close and personal was through subscription documents. And the nightmare it is for not just convincing people to invest in your fund, but how to actually make it happen. We saw that there were some issues around essentially it's the same information that's being used over a different context. And so if we could go fix subscription documents by capturing this investor information and allowing the investor themselves to own it, control it, repurpose it. We think that there's all of these hidden processes they're not even aware of that's distributing their information. Today it's through PDF and it's through all this manual verification work. And so at least our aim, what we want to do is we want to centralize that, give them control of it. And so the simplest version of it is if you want to go log into a website, you can click a button and log in with Google.

• 6:10Speaker 02

  And if you want to go invest in the private markets today, you're getting a 200 question questionnaire and you're trying to figure out how to go answer it. But what if all your information was stored somewhere? And you could just click login with pass through. And then what you can do is you can turn investing into private equity, venture, hedge, whatever, into something that's reduced to buy now, one click investing, one click, whatever it is that you need to do to understand who has access to your information? What levels are you granting? It's giving control back to the investors. Use the word friction. It's removing friction from fund managers. It's hard enough to convince people to invest in your funds for lots of fund managers. So why don't you just make it simple enough that when somebody invests into your fund, that you can just go collect the capital and get to work doing the thing that they're paying you for, which is making good investments?

• 6:54Patrick O'Shaughnessy?

  The friction, I guess, is there's probably a lot more potentially useful, good, whatever term you want to use, fund managers that aren't active because they don't have escape velocity to escape these current frictions of convincing their LPs or whatever that they're a good investor, but that it's worth the effort to get going. If I think about that question of what's the promised end state, if there's someone that deserves or belongs as a professional fund manager, there's really nothing in their way of being one from a red tape standpoint.

• 7:23Speaker 02

  Totally correct. The reason that you're a fund manager, part of it is because you're good at convincing people to give you capital, but the main reason is because you're good at deploying the capital. And so let's reward you for the things that you're good at, instead of having to have you focus on everything else that's not core to your business. And so there's kind of two things. One is it means that I might not have had the opportunity to go out and build this on my own because the amount of time, the amount of energy, I don't have the expertise for it. That could be something that holds me back. But the second thing that can happen is people that are already are professional fund managers, it allows them to move with greater speed. And it doesn't matter if you're an emerging manager or if you're Tiger, you're still dealing with the same annoying processes.

• 8:06Patrick O'Shaughnessy?

  Can you give us a history lesson of the major frictions through time, those that have fallen and those that remain in this world? Like you mentioned the Jobs Act, maybe, I don't know if that's the right first place to go, the role of Angel is, et cetera. But give us what you view as the key moments in history that have mattered to get us to where we are today and the key barriers, regulatory or otherwise. Obviously, you've already addressed the one of just like the friction of onboarding that the pastor is dealing with, but give us that history lesson and kind of what barriers remain to a frictionless version of the investing world.

• 8:38Speaker 02

  The best point of view I have from this is from my time at Carda. So what we'd seen was that the private market space was this niche industry where there were a number of players and there was a number of investors. And because there was just this smaller subset of people, there was all these inefficiencies from how to go out and execute a close and open up your bank account and handle all your compliance work and everything else. But then we saw a couple of things happening. We talked about a little bit earlier. One is that we're seeing more and more investors that are coming in. And so Operations that were set up to be able to handle the 20 or 30 institutional LPs can't

• 9:18Speaker 02

  handle the giant RIAs with thousands of clients that want to go deploy into them. And so first, we saw that there was more investors that started coming in. And so that started putting strain across all of the operational processes that people were doing across the firm. The second thing that we saw was that there was increased regulatory pressure. So it wasn't just that you were bringing people in, but it's private funds continue to be held to a higher standard. They're not treated like banks today. They don't have the same KYC, AML requirements as broker dealers. But everything that's happening, it doesn't even matter what your domicile is, what your regulatory regime is, we're seeing more and more pressure on people. So Carta started first off by doing a little bit of standardization on the venture side,

• 10:01Speaker 02

  where we could take a look at all of our investments as a fund manager and understand what we owned and what the broader context, the performance over time. And we got to see the consolidation of that portfolio, too. That starts to give fund managers a new view of what it is that they own, which allows them to, just a better insight, uh, real time. Then we saw things on the company side, which is a little bit less relevant to the conversation. But anytime that there's an inefficiency with your companies is also spills over into what you're doing as a fund manager. And so Carta allowed people to actually go out and manage everything. And then we saw Carta start to build all these other tools in the investor services side. So the parallel on the company side was a 49A.

• 10:41Speaker 02

  49A was this thing that you used to have to go out and pay a analyst to prepare for you. And it was this expensive, still annoying process that nobody really got major value out of. It was just a requirement. And so Carta managed to take that and turn it into software. And then Carta found other things that they could start to turn into software, too. So they took this from a 49A for a company to an ASC 20. So fair market valuations for financial reporting for you as a fund manager. So when you start to do things like that, they put pressure on the rest of the industry. First of all, I think you saw a collapse of a lot of competitors in the space that were unable to adapt at times. But you also saw that people were forced to have a technology solution. It really brought the entire industry forward.

• 11:25Speaker 02

  And then there's all sorts of other work that Carta and Eye Level and everybody else is doing around portfolio company data collection. And then it was, well, all right, well, I want to be an emerging manager. And we talked about this a little bit earlier. How do I actually just go stand up this fund? What I know how to do is I know how to go find good companies. I know how to go do whatever the reason is that I want to go out and be a manager. And so Carta eventually started building tools that allowed people to do this through software. They did it with a fund administrator. They did it with a SPV in the box offering. They did it with a variety of different solutions. And now you're seeing them all over the place. It allows people to just go out and focus on their investment returns rather than on their back office.

• 12:05Speaker 02

  And so we saw this broader trend across the privates, really, I think, dating back to, there's something about Sarbanes-Oxley to this. There's also something about financial crisis and people getting lean with their fees. I started my career at JP Morgan in the fund administration group. So strangely enough, my life took me back to fund administration at Carta. I never thought it would. Even then, we saw that there is this trend of people outsourcing it because it was more fee efficient and it was also a little bit more risk efficient. And so part of it's regulatory, but regulatory is driven to need. The way that it's been solved today has primarily been through service. And what I love seeing with Carta is Carta started solving it with software. And so that's kind of our point of view, too. It's, we think that there's lots of room to go out and drive efficiencies across all of these different things.

• 12:50Speaker 02

  So that when SEMA and the Caymans comes out and says, well, here's this other new thing that you need to do that you didn't need to do last year. Then you can just have something that handles it for you without having to do a total scramble, hire a new person and find a new provider. And it shouldn't be the case. It's all the same information that's moving back and forth anyways.

• 13:07Patrick O'Shaughnessy?

  Can you tell the origin story of you and your co-founders, your time together at Carta? And what the spark of insight or sort of like the first risk movement was to create pass through? Like, I'm always interested in why people go to do something new and hard and different. So in the case of pass through, what was that story? Like, what do you think of as the key episodes in that early story?

• 13:28Speaker 02

  My partners Alex and Ben joined Carda after the Series A and Series B. I joined after the Series C. And they helped launch initially the Investor Services Group, and so includes the ACA 20 and portfolio, the data collection stuff. And they also helped launch Fund Administration. And so Carda's Fund Administration was meant to be and is meant to be a software-driven approach to it. And like most things at Carda, it was growing really quickly. And when things were growing really quickly, how do you onboard new funds? What you do is you take these executed subscription agreements. And again, for context, the subscription agreement, if you wanted to go invest in Apple today, you could go sign up on Schwab or on Robinhood in two minutes. And then you could be investing in Apple and everything else that's out there.

• 14:11Speaker 02

  If you wanted to go invest in the latest private fund, whatever, instead, they give you a 50-page, 100-page, 100-question, 200-question questionnaire where there's no standard. And not every question applies to every investor. Even professional investors are filling these things out incorrectly all the time. And the state-of-the-art on it is kind of paper. So when we were onboarding new funds, we would get these emerging managers with 100 investors and Ben had to stand up a team that was taking information out of these subscription documents and getting them into an Excel file to go upload them into our investor portal. It was unstructured. And he was so confused, the rest of the world was getting structured data, but somehow subdocs were still trapped in the 90s.

• 14:53Speaker 02

  This unstructured data was a problem for our team at Pass. And who else was it a problem for? It was a problem for the law firms, because they need to pull out all sorts of information so they can tell you status of the raise, understand the different risks that your investors are bringing in. It's important for fund managers. They need to get into their CRMs. The fund managers then also have the fun task of trying to understand where they are on the raise at any given time. And so, once you send out a PDF, how do you actually know what your status is? How can you run an effective sales process with that? And then, not only do you need to run an effective sales process, you need to coordinate all the pieces of the raise. So how do you make sure that your compliance team, your fund admin, your law firm, your team, your investor are all talking the same book? And the investor is the worst experience of all, I highlighted earlier. Good luck filling these things out correctly the first time.

• 15:36Speaker 02

  And so, Ben had this insight that, look, there's definitely a workflow that you could build here to make this better and solve. Really just the issue of executing these subdocs. We take any subscription document, we build out this workflow where investors only see the questions that matter to them and they see every question that matters to them. It looks a lot like TurboTax. And so that way, there's no such thing as an incomplete subscription agreement. And the chances that somebody makes an error go down dramatically. And so he had this insight that great, there was a workflow to go build it. I actually didn't join as one of the initial founders. I joined about a year later in the company's life. And when Bennett approached me about joining, I was like, well, this feels like a feature. I don't understand why this is actually a venture backable business.

• 16:18Speaker 02

  And he had this insight that there were some things that were really attractive about it. First was it's hyper efficient distribution. Every time you onboard a subscription document, a fund manager is telling you, hey, go out, meet my investors, provide a really, really good experience for them. And if those investors have a really good experience, those investors might be fund managers. They might be investors in other funds. And so it just generates leads left and right. There's a network component to it, yeah. We saw something similar with cap tables. We knew that lesson really well. The thing that really got me excited about though was great. We can acquire new business easily. But the fun thing is that just by having somebody fill out a subscription document, we get to capture their identity. Subscription documents ask for all sorts of information like who are you?

• 17:03Speaker 02

  Where do you live? Who are all your contacts? Why are you accredited and available to invest in this fund? Why are you qualified? You're subject to Freedom of Information Act, all of these different things. And this information is repurposed across a million different contexts. So it's used for KYCML. You screen an investor against a sanctions list to determine whether or not they might be laundering money through your fund. It's used for regulatory reporting purposes. It's used for banking purposes when you want to open up a bank account as a fund manager or apply for a line of credit. Everybody was doing was the same thing that we were doing with Carta, which is taking these executed subdocs and exchanging PDFs. And everybody was doing this exact same verification process that was taking days or weeks. And it was all tied to the unstructured data. And besides being really efficient, what we did is we captured this information.

• 17:47Speaker 02

  We allow an investor to own it and control it. And so that first we can allow them to repurpose it across subscription documents, which we have available today in a limited way, but then allow them to repurpose it across other contexts. So think about it like an investor passport. So you want to go have KYC performed on you? Why should it be performed 50 different times? That's inefficient for the entire system. And so when we start to remove all those inefficiencies, it actually changes the way that the private markets flow and function. And so that felt big. That felt really big and it just felt like it was a worthwhile product to go build.

• 18:18Patrick O'Shaughnessy?

  What have you learned from Okta? Okta Ventures, I know as an investor of yours, obviously, there's a common trait there of focusing on identity. Maybe even abstracted away just from investor identity. Like, why is identity as a thing to build around so powerful? It just seems like a really neat thing where we've heard a lot of people talk about your investor identity is one thing, but like everyone's identity is sort of chopped up and LinkedIn's one version of identity. Facebook's one version of identity. Like, it's this incredibly powerful force in general in network-based businesses. What have you learned about from Okta about this concept of identity and why it's so powerful?

• 18:55Speaker 02

  What we learned from Okta was that a lot of automation is tied to identity and there's all sorts of different cuts to identity. If you can take a look at what Okta does, they say, well, who is this employee? What are the certain things that they're allowed to do? Also, they do some work around who are your customers? How can you start to identify that this customer is the same as that customer and make more intelligent decisions? And so it actually changes the way that not just you manage your security and infrastructure, but the way that you might manage your marketing and your outbound. And so whether it's the context of Okta that's doing that or different contexts, managing my logins as an individual and one password, just by having it centralized, first of all, there's control. Second of all, there's speed. Third of all, there's reduced risk of error and exposure.

• 19:37Speaker 02

  And as we continue to live more and more of what we're doing online, then being able to actually own it and control it is a really important feature. And it's something that just allows businesses to move quicker. And we've seen this broader trend of the private markets continuing to look more and more like the public markets. And so the reason that we got really excited about bringing on Okta and a number of their executives directly into the round was because we saw that they'd been incredibly successful doing this in one environment. And we wanted to see how they could help us reapply this learnings in another environment. They've been unbelievably helpful partners for us.

• 20:12Patrick O'Shaughnessy?

  Maybe to extend it even further, if you think about Okta, which is fundamentally like a developer-facing, programmatic API-type consumption business, do you think that there's a future for pass-through like that too? Because today, as I think about the product, you've already said it, TurboTax from the LP or user's perspective, and then tracking, dashboarding on the other side for the GP or the sponsor's perspective. It's SaaS today. What do you think versions of this that get deeper in the tech stack, I guess I'll call it, and really play off that identity even more could look like, or is that not part of the plan?

• 20:44Speaker 02

  It's absolutely part of the plan. There's a couple of different ways to look at it. One is, what are people doing that are manual processes and it's done by individuals and teams, and those teams could be repurposed to go out and do things that are more profitable for the business. Fund closing is one of them. There's tons of law firms and fund admins. Law firms are taking first, second, third-year associates, and they've graduated from law school and they're chasing down signatures. It's a terrible use of their time. They hate it. With fund closing, it's the first application of how we can take these workflows that exist throughout funds in the private markets and we can automate them. If I was building a modern-day law firm, or I was building a modern-day fund administrator, or I was building a modern-day

• 21:28Speaker 02

  tech platform that was in this space, what I probably want to do is make sure that I could handle investor onboarding in some way that didn't look like I was doing it 15 years ago at JP Morgan. I'd want to be able to do it with software. And so I think there's some component of this that's, we can have a programmable interface for the way people do this. And so our API allows people to go out and not have to worry about, how do I go fix subdocs instead? It's, how do I just have a really pleasant experience for my user, whether I'm a startup, or whether I'm a service provider, or whatever the context, have a really pleasant experience for them, without having to solve, on the face of it, kind of looks like an easy challenge to solve subdocs, but it's way harder than people think it is. So that's one. And the second part is, we talked about this with the investor

• 22:12Speaker 02

  passport analogy. There's also some data element. There's not just investor onboarding, but I, as an investor, am constantly asked for information about who has access. Access to my information. I have a new CPA, a new lawyer. I've got a new treasury team. I have a new set of banking instructions. First of all, it's a nightmare to be able to handle all that information. Second of all, if you don't handle it correctly, then you've got information that's getting shared to the wrong people, or worst case, you've got a wire that's going out the wrong place. And so there's some data elements to this as well, where an investor can permission all of these different people to have access to this data on a real time as needed basis. Actually brings down the risk of running a provider, of running a fund, of everything else.

• 22:57Patrick O'Shaughnessy?

  What do you think the exhaustive inventory is of current nightmare undifferentiated heavy lifting problems like subdocs and KYC AML? Like, are those the two biggest ones? Or are there lots of other ones that tie directly or adjacently to this investor identity concept that you think you'll ultimately tackle?

• 23:14Speaker 02

  We know that there's a lot of wood chopping in the space from firsthand experience. And so it really is anything from, I'm a fund manager, one of my companies exited, I need to go distribute capital. The thing that you don't see as a fund manager is that your fund administrator is reaching out to all of your investors to reconfirm their wire instructions because those wire instructions are two years old. Same thing with if you have somebody who is transferring an LP interest or all these other things that are kind of like the constant changing state of the fund. There's a million of them that you're handling directly as a fund manager, whether it's through your finance or your IR team, that your law firm is handling or your fund admin is handling, and everybody's doing it manually. The other part of it that's kind of interesting too is besides like the traditional providers that are doing it.

• 23:58Speaker 02

  Take a look at a company like iCapital. iCapital, the way that they make money is by matching money with fund managers. The way that they don't make money is by making sure investors can sign up quickly and easily. And so what we can do is even this one simple workflow of how do you help somebody sign up with a fund regardless of the context is immensely important. Across all these different people that are trying to make money in a million different ways. And so even this little thing of how do I make sure that my contacts are up to date? That's very applicable outside of the specific relationship that you have as a fund manager with your service providers. It's also applicable to I am a founder trying to build in this space. And why would I want to waste my engineering time on something

• 24:42Speaker 02

  that should be a solved problem? And so it's the same thing that Plaid did with financial transaction verification. There's hooks that they've built in so that we don't need to do ACH test deposits. And that has transformational impacts on our business. And that transformational impact is felt all the way from firms like Carta, people that have just decided to build it on it from the ground up.

• 25:03Patrick O'Shaughnessy?

  What does it feel like as a repeat LP customer today? And what is the idealized end state of that experience? If I go through one of these onboarding flows, I'm answering the relevant questions to me only. You're capturing that. I then go want to do subdocs to a second fund that also uses pass through. What does that feel like today for the LP? The second time?

• 25:26Speaker 02

  So good news, the first time is actually better than you think it is too. So here's what the first time can be. And then let's start to talk about the second time is. The first time, the world record fastest subscription document that we've ever had somebody fill on our platform from sketch, correctly, six minutes. And that's a process that normally takes hours of collaboration across me, my lawyer, my CPA, everybody else that I need to help fill out my documents. So if that's the experience that we can have for somebody the first time, the second time can be way better. If we can start at six minutes, and then we've passively captured this information, what we can do today, like I mentioned, we can do it in a limited context. In some cases, we can prefill an entire subscription document. In some cases, we're prefilling sections of a subscription document. We can take the

• 26:09Speaker 02

  information that you've already submitted. And when you log in, it works like DocuSign, you're just going through your email. You're then presented with all of your information about your investor profile, about your investor passport. And if you want to invest through it again, you just confirm that that's all the same. Click a button and then get to execution. The length of time that it's going to take a subscription document to be executed on a repeat investor, right now, we've actually shrunk it to about three minutes. That's pretty fast. But the limit on this is how quickly can we get the DocuSign modal to pop up so that I can then click and sign? That's our limit.

• 26:43Patrick O'Shaughnessy?

  I was always interested in like the nitty gritty of the product. So right now, from a GP side, I get this much more manageable, how far through the process, it's like a actual legibility into the sales process. So I can go tell so and so they need to get moving or something. And that's facilitated by this. Do you also see the other side being valuable? So I think one of the powerful things about Carta is because it becomes a standard, as a VC, you might say, okay, I log into Carta to see my whole portfolio. It's a central system of record or system of truth. Do you think that this becomes that for LPs too? So if I'm an LP in 20 funds, it's like the equivalent of me being a VC looking at Carta, but now I'm looking at my LP interest or something across the funds. So it becomes a utility from a dashboard perspective, not just a docs perspective to the LP too?

• 27:28Speaker 02

  There's an element of that. There's lines that we don't want to cross. We don't want to become a service provider. We want to work with service providers. We don't need to go out and like build an investor portal. We want to work with investor portals. And so our philosophy on this is you already have chosen your teams, you've chosen your tools. Why do you want to replace them? Maybe you do, but choosing paths shouldn't force you to choose to dump one of your teams. There's some element of yes, here's the central place where I have all of my information. And what I want to be able to do is talk to people all the time where they have a profile on Angel List, a profile on Carta, on allocations, on like 50 other places where you can go and invest right now. And so the experience that we want is that you don't have to worry about this balkanization of

• 28:13Speaker 02

  your identity across 50 different platforms. We want you to just be able to have it in one place. That way you can, yeah, you can see who you are and where this information goes and how to control it. But our goal isn't that we're going to be able to go out and show you the performance of everything. We're not going to do your books and records. I'm not going to handle your audit. What I want to do is that when it's tax season, that information's in there and it's simple to go and grab instead of having to. Deal with everything else that's out there.

• 28:39Patrick O'Shaughnessy?

  I'd love you to tell us everything you've learned about distribution. You have a lot of personal history in that function inside of companies. I think the distribution strategy, which you've referenced around like the network based advantages of that for something like past due are really interesting. But I'd love to just hear your masterclass on what great sales and distribution looks like to you in general, but also through the context of a product like this that's dealing with identity, that's dealing with workflows, sort of the infrastructure level. Give us a lesson here because this obviously is an area where you've built a lot of expertise over the years.

• 29:13Speaker 02

  So there's pieces that are tactical and strategic. Tactical pieces can start with, I'm hopping on a call as a salesperson and I might even have an unqualified prospect that I'm talking to. But I know that the network is tight and maybe this isn't a problem that solves them. Very tactical thing you can do is before you get off the call and say, hey, my name's Tim, I'm one of the co-founders here. I'd be a terrible co-founder if I didn't ask you. I know that this isn't fit for you, but is there anybody else you know that we should be talking to? And so really simple tactical thing that's important because like people know like people. You know, lots of fund managers, fund managers know lots of fund managers, LPs know lots of LPs. And the context for that is universal. It's not just within the fund manager space, but it's especially powerful in the fund manager space.

• 29:57Patrick O'Shaughnessy?

  Meaning like build the pipeline as part of process of selling individual customers.

• 30:03Speaker 02

  Absolutely too. I mean, a couple of things you'll learn from that. First of all, who to go talk to. Second of all, you took something that might've been a wasted call and you've turned it into a new lead. What's a better use of time than that? And there's all sorts of other opportunities to go out and ask for referrals. And so that's deeply embedded in our business. Somebody has a successful fundraise with us, which they all do. We say, hey, we know that you just had a successful raise. Is there anybody else you know that's raising right now that we should be able to help with? And so everybody knows somebody else is raising because everybody's trying to solve the same problems together. And so that's really tactical. The other thing that's tactical is, this is again, specific to the context of the private markets. There's a set of service providers, and this is actually where we got to know

• 30:46Speaker 02

  the problem of subdocs in the first place is through these service providers. And so I've selected a law firm. I have a trusted counsel that helps advise me on a variety of things. My counsel tells me, you should go check out Pass. I'm probably going to go take that meeting. If I've evaluated a fund administrator and I like the work that they do, and they say, well, what do you think about looking at this product? I'm going to go take the meeting. And so, great, perfect. Again, very tactical. So create a good experience for those other parties, treat them like customers, and you're going to go out and do pretty well on that. Then there's stuff that's a little bit product driven. We talked about this earlier. An investor in your fund could be a fund manager, could be an investor, could be in an IR team, could be in a million of different places.

• 31:30Speaker 02

  Create a simple, approachable, easy way to go out and execute a subdoc. Because at the end of the day, with the subdoc, it's just this legal document you got to fill out so that everybody can go out and try to earn some money. And so let's just make it really easy. Then they move on and then they're done. And then that's kind of the whole thing. And so we've made a lot of design choices to make that simple for people. Investors, we want them to get moving really fast. So they come on board through their email. Again, like you would with DocuSign, you have a magic link that allows you to get moving really fast. You can bring in your collaborators. You're only seeing a subset of questions. So you're not getting blinded by the 200 questions that are out there, whether or not they apply to you. You're, you're getting this guided tour through this complex agreement

• 32:11Speaker 02

  that if it's your first time investing in the privates, you're not going to fill it out correctly. There's effectively no chance that you can. And so, cool, create a really good experience. And then that's just going to naturally turn into other things.

• 32:23Patrick O'Shaughnessy?

  What does bringing your collaborators mean?

• 32:25Speaker 02

  I am an individual. I'm a high net worth individual. I'm an ultra high net worth individual. I don't fill out my subdocs. All I do is sign the things at the end. So I might have my lawyer, I might have my CPA, I might have a variety of people that are filling out things on my behalf. It might be my trustee because it's an IRA. It might be all these different places. There's this really annoying problem of collaboration between every party. And so, yeah, it's between the fund manager and the investor and the law firm and the fund admin and compliance team and your IR team. And the list goes on and on and it's totally configurable depending on the context. So that's an annoying problem, but even within these groups, there's all sorts of work that needs to happen. I'm an investor. I need to make sure that I've got my CPA filling out this one piece.

• 33:08Speaker 02

  I need to make sure that my accountant's filling out this other piece. And then I need to get alerted that, hey, it's time for me to actually go out and execute these documents too. It's like a vertical problem. It's not a horizontal problem. Being able to solve this at every level makes it pretty quick, makes it pretty easy. And if you were going to go solve this over emails, then I've got one email here, one email here. This person wasn't CC'd. This person was left off. This person, whatever. And aggregate pain felt by all of these people. My favorite thing about pasters is I've never had to convince people that subdocs are terrible. Everybody thinks that they are horrible. Cool. Great. We make it pretty easy and it looks like it's simple. It should look like it's simple. There's a lot of stuff that's complex behind it. It shouldn't feel like that. And so create that kind of experience and that puts the network to work.

• 33:52Patrick O'Shaughnessy?

  I happen to just think that the best possible thing is like you said, something that is universally regarded as terrible, but somehow persists. So subdocs being a great example, like what a great problem to go work on. It's not exactly landing a rocket ship on Mars in terms of the sexiness of the problem. Maybe to someone that hasn't encountered it before, and I don't mean that in a negative way at all. What has then in that situation, given the specificity of the problem that you're solving, been your secret or key to recruiting a team very quickly, which is something, you know, we've been able to see you guys do. To what do you attribute that success of high close rate, high, whatever you want to measure it with, of building a talented team pretty quickly around a problem like this?

• 34:33Speaker 02

  I love unsexy businesses and it's tough to get unsexier than subdocs. I don't have anybody dropping out of Stanford to try to solve this. So this is fantastic. There's a couple of things. Part one is you got to run a good process. Doesn't matter if you're three people like when we started or 25 people, which we're about to be shortly, or hopefully much bigger than that. You have to run a process that respects the time of the individuals that you're talking to and also allows your team to learn about them. And so there's all sorts of ways that you can choose to evaluate people. You can obviously evaluate their previous work product. You can evaluate how they line up with your values. You can evaluate their interest in the company and you could do practical things to just make sure that you're bringing in a quality talent.

• 35:17Speaker 02

  Great, but people can tell when you're running an efficient or inefficient process. It doesn't matter if it's in recruiting or if it's in sales or if it's in operations. It's very obvious to people when there's something, a substance behind it. So the first thing is that we ran a process that I'd be proud to run at a 100,000 person company, just as I'm proud to run it at a 20 person company.

• 35:38Patrick O'Shaughnessy?

  What are the aspects of that process? Break that down for us.

• 35:41Speaker 02

  So first part of it is that you need to make sure you're not asking overlapping questions. There's nothing that people hate more of like, tell me about a time when you experienced a failure. And the next person says, tell me about a time when you experienced a failure. You're not learning anything new. Somebody's just repeating the same story. All you're just doing is wasting time. Part of it's setting expectations. We have on all of our job descriptions, here's exactly the process that we go through for every candidate. First of all, because it's equitable. So we need to run all the candidates through it so that we're getting a proper evaluation of everybody because everybody is the same set of things that we've taken a look at. But what that also does is it communicates it. I'm not in the dark as a candidate about what I'm going out and doing. I know, well, first I've got a screen, then I've got a case study, then I've got an onsite.

• 36:24Speaker 02

  And at the onsite, it's going to be a mix of behavioral questions. It's going to be questions about my knowledge of the private markets. And then at the end of the day, I'm going to find out a week later, is this the right place for me? So. They know exactly what's going on. There's no confusion. You can move forward. Other elements of it is being thoughtful about the types of information that you're collecting. We believe pretty strongly that we want to make sure that when we're bringing people on, they do line up with our values. That's a big part of the evaluation process. We want to understand their work history, especially if it's relevant. We want to understand that they've actually done their homework into pass-through and into the private markets. So we'll hold you into a different standard if it's your first time ever looking at the private markets, as opposed to you've been in the space for 20 years. Of course, we'll have different standards for people, but we want to see there's interest actually in what we're doing

• 37:08Speaker 02

  instead of somebody who's just coming in. We'll also try to do something that's practical. And so there's different things that you can do with practical. We have a written case study for one role. We've got a live case study for another one. We have a show me your portfolio for designer positions. There's a bunch of different ways that we can evaluate it, but try to understand in that context, how can you actually see something tangible from this person? And use that to say, all right, they get it, but they don't get it. And that's a proper screen as well. We also are really, really thoughtful about using our investors. So we bring in Sam Cates, who sits in our board, and Sam talks to a number of our candidates. And that helps them get a different context. There's the view of what we have as the operators of the business, but there's the view that Sam has sitting on our board.

• 37:53Speaker 02

  And so, hey, you are important. We do want you here. Here's how you should think about it. And so when we see somebody we like, we throw the kitchen sink at it. We're going to go win that business. And our hit rate from when we've actually made an offer, I think we had two candidates reject offers. Both of them asked for something that we thought was unfair, given the role. And so it was a disagreement about comp. It had nothing to do with whether or not this was the right opportunity and they selected something else.

• 38:18Patrick O'Shaughnessy?

  This example, the sales example, like you personally are extremely interested in process and pipelines and the intersection of those two things and efficiency. Where did that come from for you? Was that the personality thing? Is it based on formative experiences in other businesses? Like, why that common theme?

• 38:36Speaker 02

  I started my career at JP Morgan in an operations role. I actually started off just by wiring money between institutional investors and funds. So not the most glamorous of.

• 38:45Patrick O'Shaughnessy?

  Sounds something less sexy than SubDucks.

• 38:47Speaker 02

  Yeah, treasury operations is right there. And so. I started off by doing this and just taking a look at broken processes and tweaking them and getting better. And then went from that into an accounting context and then into a trading context. And so everything was kind of operations, a little bit of work on strategy. Then I left and raised a micro VC fund with a couple of other people. And that turned into a strategy and investing conversation. And I decided to go business school after that. And when I graduated from business school, I took a sales job. And so my background exclusively before this had been operations and in strategy. I thought sales would be helpful if one day I was going to go run a business. Glad I made that choice. But my approach to sales then was there's got to be some repeatable process here.

• 39:30Speaker 02

  There's something that I can do time after time to evaluate if this candidate's a good fit, to just be able to judge if I had a good call. It shouldn't just be this gut feel. I should go into a call and I should know what does success look like? Success might look like, well, this is a qualified lead or they asked for a demo or we're negotiating a contract. And so if you start to break things down into their component parts, you can really quickly understand what's working, what isn't working. And you can experiment and get better and better and better. Whether I'm going out and selling or whether I'm going out and helping to go build an operations process or whatever, it all comes down to process. So there's all sorts of different outcomes that can happen and those outcomes can be totally random. But we think that if we actually tweak the processes and we start to understand where we can get more efficient,

• 40:15Speaker 02

  where we can learn more information, where it can provide a better experience, the outcomes are going to tilt in our favor a little bit more. We do it across everything at Pass Through, recruiting, sales, ops. It's all process driven. So we always look for an opportunity. We love when we make mistakes. We took a lot from Google's postmortem culture. If you haven't read Google's postmortem culture blog, I'd really recommend doing it. For every time we make a mistake, it's an opportunity to get better. Let's not rely upon heroism from somebody. Let's figure out how we can improve a process.

• 40:45Patrick O'Shaughnessy?

  Can you say a little bit about process design from a cold start? So if you're approaching some new thing, you have to build a process for in the business. What is the process for process design? Like, what is the thing that you do over and over again to get one of these things going?

• 40:59Speaker 02

  It's kind of like writing an essay. There's lots of people who if they're gonna go write an essay, they're just gonna go write. And they're gonna go say, well, I've got all these ideas and I want to go put them all together. But the most effective writers that I know, my favorite writers, what they do is a lot of planning. And so they say, well, here are the certain things that I want to make sure that I'm capturing. I want to make sure that I'm saying like, here's my main idea one, how it goes to my main idea number two, how it gets to main idea number three, and then I'm gonna wrap it all up in a conclusion. Most things kind of look like this when you're dealing with customers. Here's what I'm gonna tell you, I'm gonna tell you, and here's what I told you. And so it's the same idea across pretty much all of these processes. Just be thoughtful about what it is that your goals are. And then what you can do when you are running a process is you can really quickly experiment. Well, I thought my goal was gonna be this.

• 41:42Speaker 02

  I thought that we were only having, in a sales context, a discovery call. But actually, it's probably a discovery call and a demo. Well, you know what? Maybe it's a discovery call, a demo, and I'm gonna give you a price. Actually, maybe I can actually get a signed contract out of one meeting. And so you start with an assumption, and you just systematically work through until eventually you arrive at something that looks like an optimal process. We truly believe that there is often an optimal process, an optimal way to go do things. And so what we'll say to people is, hey, here's the way that we think the world works. This isn't to say we're gonna go turn you into a robot. We've no interest in turning people into robots. But we think that this is the best starting point. And then take this and make it work. Tweak things, be thoughtful about it.

• 42:25Speaker 02

  And so it lets us train people so much quicker. It lets us collect the feedback that we need. It lets us just be more thoughtful about how we're managing the business, how we're managing the process, how we're tracking whether or not we're successful. Because every time we're going into something, we say, well, what's the measure for success here? And have we hit it?

• 42:44Patrick O'Shaughnessy?

  Can you say a little bit about pricing? I feel irresponsible if I go through a software company discussion and don't ask how they came to their price and their pricing model and their business model, because it's just like in the world of high gross margins, there's almost too much choice, right? There's a million ways you could price this, who you could charge, when you could charge them. What have you learned about thoughtful pricing in software?

• 43:05Speaker 02

  When you're a software business, what you try to do is you look for recurring revenue. But if your business model and your pricing model doesn't match what the customer is doing in practice, then you've got something that's broken. One of the earliest decisions that we had to make was, all right, well, I'm a fund manager. I might go out and raise every five years, every three years, might raise 20 times a year. And so what does it actually look like for us to price some fund closing software? If we tried to force a subscription model down somebody's throat that was raising every three years, that's not going to be very effective. You need to actually match what it is that they're doing. Now, there's some argument to be made, well, maybe you should go out and build something that's recurring in nature.

• 43:49Speaker 02

  Maybe, but I think the thing that we've got to solve is fund closing first. So our pricing isn't necessarily a subscription. We may take a look at a subscription when we do one of my favorite things, which is bundling. So you're constantly in the market. You have expectations of what you're doing from your A to your B. You have all of these other different things that could happen. And so you're a very active fund manager. Let's bundle some stuff together. I get the advantage of collecting more revenue upfront. You get the advantage of I can have some efficiencies and that lets me get a little bit more flexible on price than I would otherwise. You actually did a episode on bundling a year or two ago. It's a great episode, but bundling is incredibly powerful. It changed the way that we sold Akarta. It changes the way that we talk to our customers today,

• 44:34Speaker 02

  and it matches up across a ton of different contexts. And we're constantly experimenting with pricing too. So when we first started, we said, well, let's just do it based on the number of investors. It's the discrete activity that happens. You have a certain number of investors that run through your fund, but it might not be predictable and you might not know what's going on. Another one was, well, we could just... Just do it based on the number of closes. Well, what if it's a rolling close or what if it's everything else? And so eventually the way that we got to pricing, or at least our current iteration of it, and we continue to experiment and will continue to, is we just think about it, all right, there's a maximum price that fund closing is worth. And that price is not based on the cost of it. It's not cost plus pricing. It's not competitor pricing. It's what we think the value is. It's willingness to pay.

• 45:18Speaker 02

  And so we think the maximum willingness to pay for this is X. And so that's what it looks like if you are a large global asset manager. And if you're smaller, and that might be a number of LPs, it might be a number of, it's size of the fund, then we discount it. That's it. And so we try to match it to where you can afford it, but we understand what the value is that we're bringing. And that's how we price it today.

• 45:41Patrick O'Shaughnessy?

  What major aspects of what you've learned so far, building pass through, have we not talked about yet that you think are generalizable for other builders out there?

• 45:50Speaker 02

  This is my first time being a founder. I sat down with another founder. He'd had a successful exit. He was working in an investment bank. He was now running this giant business there. And we started off with the three of us. And we were doing everything. We were doing customer operations. We were doing support for investors. We were onboarding funds. We were building a product. We were doing all of it, just the three of us. When you're getting going, you're the super individual contributor. You're going out and your hands are in absolutely everything and you're really good at it. That's kind of why the business takes office because you're really, really good at it. It feels really good. It's emotionally rewarding. But he said, well, you're going out, you're about to hire your first couple of employees.

• 46:32Speaker 02

  My favorite transition was when I went from being the super contributor to there's actually, what I need to do is get my team up to speed. Because it's not a good use of my time if I'm going out and doing this thing, even though it's really rewarding like. Ben periodically loves going out and helping to onboard a fund. It's not the best use of his time at all, but you start to shift your context from not what's the thing that I need to solve this moment and what's the thing that is due today to, all right, well, what does a successful week look like? What's a successful month look like? What should we be doing over the next quarter, over the next year? It's not purely a budgeting exercise. It's how you step back and think about the strategy of the business. Maybe the most rewarding thing for me has been figuring out, one, how I can mentor and coach my team so that they can handle all this day to day and they can have this growth

• 47:17Speaker 02

  in their careers and they can do all these other things. We always make sure that pass through is good for them and they're good for pass through and the math always needs to work out. And so a lot of it's on career management. Career management is just fun stuff. But then the second part is my point of view on the business is totally different than at any point in my career, whether or not I was leading go to market for Carter's Investor Services, or I was an investor. I just have a different horizon than I'm used to. And so that transition from, well, I need to make sure this fund gets out by tomorrow to how do I think about what we're doing over the next three to five years has been really rewarding.

• 47:49Patrick O'Shaughnessy?

  Having personally built a lot in the investor technology space, we were sort of instantly attracted to what you're building. I love the lessons around identity and network-based distribution and product and something that's universally despised. And all these things are just really fun touchpoints, lessons that I've learned over the last five years about interesting software businesses. So it's so fun to explore this with you today, Tim. I ask everybody the same traditional closing question. What is the kindest thing that anyone's ever done for you?

• 48:17Speaker 02

  Even though I look very, very similar to my mother, my father, my brother, I'm adopted. And so the kindest thing that ever happened was that my birth mother made the difficult choice to give me up for adoption. And so I got to go grow up with a family in suburban Pennsylvania, just be surrounded by people who were loving and able and, and that supportive, just that attitude and the amount of love that I was able to get on a daily basis, set me up to just. Thrive and kind of set who I am as a person today.

• 48:48Patrick O'Shaughnessy?

  It's a wonderful answer. Can you say just a bit more about what it was like to grow up, adopted when you learned of it, or just what the experience was? Because I think you're the third person to have an answer sort of like this. And it's just like one of these incredibly elemental things. It's really powerful. If you're willing, I would love to just hear like a little bit more about the felt experience of it.

• 49:06Speaker 02

  Yeah. So my parents never hid from me that I was adopted. From the moment I could talk, I would walk up to people and say, hi, my name's Tim and I'm adopted. I'm sure that was a little awkward, but it was just something that was fact. It wasn't this stigma. It wasn't this anything else. It was just, all right, I've got blonde hair and blue eyes and I'm adopted. It was just a fact about me. There was nothing that was too crazy about it. And so because of that, it was just this really, really normal thing. There was nothing traumatic about it. There was nothing, whatever. It was just a fact of life. And I was never ever made to feel anything other than a loved member of my family.

• 49:43Patrick O'Shaughnessy?

  What made your parents decide to adopt?

• 49:46Speaker 02

  My parents had trouble having a second child. I was the second one that they tried to adopt. And then the first one actually got taken back. So my brother's 10 years older than me and they had like a seven year struggle trying to have a second child and going through the adoption agencies. And then a year or two before me, they did adopt someone and then they weren't able to keep them. And then turned out we were a good match.

• 50:12Patrick O'Shaughnessy?

  You reference it as a fact of life and also as a huge act of kindness. Do you think that it affects how you operate and what drives you on an ongoing basis?

• 50:22Speaker 02

  I don't know. What probably affects me on an ongoing basis is my genetic predisposition for ADD. And so the fact that I cannot sit still, rarely satisfied with intermediate outcome, and just have this constant, constant motion. And so there's your little bit of nature versus nurture.

• 50:41Patrick O'Shaughnessy?

  I appreciate the couple of extra levels of the final question. A beautiful answer, a beautiful scenario. Really glad to hear it. Didn't know it about you. Tim, thanks so much for that answer and for all your time today.

• 50:51Speaker 02

  Thanks for having me.

• 50:53Patrick O'Shaughnessy?

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