Philadelphia startup Passthrough raised a $5 million seed round to build out a platform aimed at making investing in the private markets as easy as retail stock trading.
Venture capital firm Positive Sum led the round, with participation from Okta Ventures, Great Oaks VC and Company Ventures. The seed round also had participation from serial Philadelphia entrepreneur Bob Moore, now CEO of Crossbeam; Josh Smith, co-founder of institutional investment portfolio management startup Solovis; Marshall Boyd, co-president and chief investment officer at Interstate Equities Corp. and several other individual investors.
Passthrough’s platform was created to make it easier to onboard investors through the automation of subscription documents: applications for an investor to join a limited partnership. Subscription documents comprise questionnaires and agreements that can span hundreds of pages, and each subscription document is different across each financial institution.
The startup built a platform that looks a lot like TurboTax, where investors only answer the questions within a subscription document that are relevant to them, co-founder Tim Flannery said. The hours-long process of filling out subscription documents was whittled down to as little as six minutes, he said.
The amount of money invested through private markets has outpaced the money raised in public markets in recent years, according to the U.S. Securities and Exchange Commission. The number of individual investors entering the private market for the first time has picked up, putting more strain on the onboarding systems, Flannery said.
“There just wasn't enough volume to have a bespoke process,” he said. “Now there's so many people that have entered into the private market for the first time that those processes are broken.”
Passthrough’s ultimate goal is to serve as identity verification for investing, Flannery said. Subscription documents are designed to determine what makes a person qualified to invest, including their regulatory and security risks, such as Freedom of Information Act requests. Passthrough wants to take the data disclosed in those documents and translate it into an “investor passport” that can be used from one fund to the next. A limited version of that product exists now.
“The way that we think about this business is there's all of this friction throughout the investment process, and so our goal is really that people, one day, it becomes a click of a button to log in or invest through Passthrough,” Flannery said. “And that allows everybody else to just focus on the things that they want to do, instead of all of the millions and millions of hours that are spent on tedious paperwork that is truly just a waste of time.”
Passthrough was founded in 2020 by Flannery, Alex Laplante and Ben Doran, all former employees at Carta, an equity management platform. The startup was bootstrapped until the seed round, Flannery said.
The founders sought a diverse set of investors that represent different sides of investment and could be helpful to Passthrough’s operations. Investors like Bob Moore of Crossbeam had years of experience as a founder who successfully started multiple companies. Moore advised Flannery on running a board meeting, he said.
For the lead investor, Positive Sum was an ideal fit because its co-founder Patrick O’Shaughnessy is the host of the podcast “Invest Like the Best,” a talk show with heavyweight founders and investors that has more than 20 million downloads.
“It's just like this massive distribution and megaphone across this audience that we really care about,” Flannery said.
Private investment is a “really tight network,” and most of Passthrough’s existing clients have come in through word-of-mouth, Flannery said. He declined to share revenue figures. Clients include Lowercarbon Capital, a fund focused on companies that aim to cut carbon dioxide emissions; New York-based Lead Edge Capital and seed stage fund Hustle Fund.
Passthrough’s 17 employees are split between Philadelphia and New York, with two of the startup’s founders based in Philadelphia and one in New York. The startup is looking to hire at least 10 more people within the next six months across engineering, design, product and revenue, Flannery said.
“We think that there's a big opportunity to go build a team in Philly,” Flannery said. “We think it's a really under-tapped resource, even after all the progress we've seen in the last year or two.”
