This is about Passthrough, a company that automates the painful subscription document process for fundraisings, aiming to make private investing as easy as clicking 'buy now'. Founder Tim Flannery is optimistic about the trend of private markets opening to retail investors. Key holdings mentioned: Okta (identity platform, inspired Passthrough and is an investor), Carta (cap table network effect model), and AngelList (helps new funds launch quickly).
At a Glance This episode of Founder’s Field Guide features Tim Flannery, co-founder of Passthrough, discussing how automation software can streamline the fund fundraising process. The core argument is that making investor identity verification a core product feature can significantly reduce LP subsc
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This episode features Tim Flannery, co-founder of Passthrough, a fund administration services company. The core discussion revolves around how to automate the most cumbersome aspects of fund fundraising by placing "investor identity" at the heart of the product. Tim Flannery argues that solving the universally disliked but non-core process of "subscription documents" not only creates efficient network distribution but also captures investors' core identity data, laying the groundwork for building an "investor passport" and enabling one-click investing in the future.
Tim Flannery points out that Passthrough’s starting point was solving a specific and widespread problem: the "subscription documents" in fund fundraising. This process is extremely inefficient, requiring investors to fill out a questionnaire of 50 to 200 questions, which are non-standard, require repeated entry, and are highly error-prone. Tim Flannery believes this is not just a process issue, but a data issue. He describes it as: "The state of the art on it is kind of paper."
Passthrough’s solution is to create a TurboTax-like workflow, allowing investors to see only the questions relevant to them, thereby reducing the filling time from hours to as little as 6 minutes. However, this is only the first step. Tim Flannery emphasizes that the real value lies in capturing investor identity. Subscription documents contain all key information about investors (identity, address, accreditation status, etc.), which needs to be reused repeatedly in scenarios such as KYC/AML, regulatory reporting, and bank account opening. Passthrough’s goal is to enable investors to "own it, control it, repurpose it" for this data, ultimately achieving an "investor passport" that allows investors to simply "click log in with Passthrough" to complete an investment, simplifying private market investing into a "buy now" experience.
Passthrough’s distribution strategy is not traditional top-down sales but leverages its product features to build network effects. Tim Flannery believes the most effective distribution channel is service providers. He notes: "I’ve selected a law firm. I have a trusted counsel... My counsel tells me, you should go check out Passthrough. So I’m probably going to go take that meeting."
The core of this strategy lies in the inherently "hyper-efficient distribution" nature of Passthrough’s product. Whenever a fund uses Passthrough for fundraising, its investors (who may be GPs or LPs of other funds) experience the product’s convenience, thus becoming potential customers. Tim Flannery likens this to Carta’s "cap table" network effect. Additionally, Passthrough amplifies this network effect through tactical means, such as converting ineffective sales calls into referral opportunities and offering referral incentives to clients who successfully raise funds. Its sales process itself is also designed to be repeatable and optimizable, emphasizing that "there’s got to be some repeatable process here."
In terms of pricing strategy, Passthrough does not adopt the standard SaaS subscription model. Tim Flannery believes that the pricing model must match the actual behavior of customers. He points out that a fund may only raise capital once every three years, and charging an annual fee would be unreasonable for the client. Therefore, Passthrough initially adopted a model that charges based on the "number of investors" or "fundraising rounds."
As the business evolved, they introduced a "bundling" strategy, offering packaged services to active funds that raise capital frequently. This allows clients to gain efficiency while Passthrough secures more revenue upfront. Tim Flannery emphasizes that the core of its pricing is "value-based pricing" rather than "cost-plus." They first determine the maximum value (i.e., "willingness to pay") that the fund closing process holds for large global asset managers, then offer discounts based on fund size or the number of LPs, ensuring the price matches what the client can afford.
As a first-time founder, Tim Flannery shares the key transition from executor to manager. He believes that in the early stages, a founder is a "super individual contributor," hands-on and deeply involved, which brings immense emotional rewards. However, as the team grows, the founder must shift focus from "what to solve today" to "what to do in the next three to five years."
Tim Flannery points out that the most challenging and rewarding part of this transition is to "mentor and coach my team." He quotes advice from another founder: "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." This shift requires the founder to establish efficient hiring processes (e.g., standardized interviews, case studies, leveraging investor resources) and cultivate a "process-driven" culture. By reviewing mistakes (drawing on Google’s "postmortem culture"), the team continuously optimizes processes rather than relying on individual heroics.
| Position | Guest Sentiment | Key Data |
|---|---|---|
| Okta | Positive (as a learning subject and investor) | Its "identity" concept was the core inspiration for Passthrough; Okta Ventures is an investor in Passthrough. |
| Carta | Positive (as a former employer and industry benchmark) | It softwareized processes such as 409A and ASC 820, driving industry progress; its "cap table" network effect serves as a reference model for Passthrough. |
| AngelList | Positive (as an industry enabler) | Continuously develops products to help new funds get started quickly. |
| Allocations | Positive (as an industry enabler) | Alongside AngelList and Carta, provides infrastructure for fund managers. |
| iCapital | Neutral (as a potential partner/competitor) | Its business model matches capital with funds rather than optimizing the investor registration process, creating an opportunity for Passthrough. |
| Plaid | Positive (as an analogy) | Its "financial transaction verification" API solved the issue of ACH test deposits; Passthrough aims to become the "Plaid" of the private market. |
| Alto IRA | Positive (as an example of a trend) | After ERISA regulations were relaxed, its business "exploded," driving individual investors into the private market. |
| Partners Group | Positive (as an industry enabler) | Lobbied the U.S. Department of Labor to relax ERISA rules, allowing individual IRAs to invest in private funds. |
1. Tim Flannery believes that solving an "unsexy but painful" problem is a shortcut to building a strong business. Rationale: He never had to convince anyone that "subscription documents are terrible," as this is an industry consensus, which reduces sales difficulty and creates natural network effects.
2. Tim Flannery argues that "identity" is the core function for building an automated product. Rationale: By capturing and allowing investors to control their identity data, Passthrough can reuse it across multiple scenarios such as KYC, AML, and bank account opening, thereby eliminating inefficiencies throughout the system.
3. Tim Flannery believes that the most effective distribution channel is service providers (e.g., law firms, fund administrators), rather than direct-to-customer. Rationale: Clients trust their legal advisors' recommendations, so reaching customers through service providers yields far higher conversion rates than cold-start sales.
4. Tim Flannery emphasizes that pricing models must align with actual customer behavior, rather than forcing SaaS subscriptions. Rationale: For funds that raise capital only once every three years, annual billing is unreasonable; Passthrough charges based on the number of investors or fundraising rounds, and offers bundled packages for active clients.
5. Tim Flannery believes that the key transition for founders is from "super individual contributor" to "team coach and strategic thinker." Rationale: Hands-on involvement is necessary in the early stages, but in the long run, founders must invest time in building processes, coaching teams, and thinking about strategy for the next 3-5 years.
6. Tim Flannery proposes building a "process-driven" culture, optimizing systems through postmortems of errors, rather than relying on individual heroism. Rationale: Every mistake is an opportunity to improve the process; the goal is to "figure out how we can improve a process," not to "rely upon heroism from somebody."
7. Tim Flannery believes that the private market is undergoing a sustained trend of "institutional products opening up to non-institutional investors." Rationale: From the JOBS Act to the relaxation of ERISA regulations, and the emergence of platforms like AngelList and Alto IRA, the barriers for individual investors to enter the private market are lowering.
8. Tim Flannery points out that Passthrough's ultimate goal is to make private market investing as convenient as public markets, achieving "one-click investing." Rationale: Through the concept of an "investor passport," investors can complete the subscription process for all funds with a single click, similar to "logging in with Google," reducing investment decisions from "hours" to "minutes."