Ready for Boarding — How the admission of fund investors can be digitized

If the fund mana­ger can offer his inves­tors an easy, contem­po­rary onboar­ding process — compared to one that costs them a dispro­por­tio­nate amount of work — then onboar­ding has just as much of a compe­ti­tive and ther­e­fore fund­rai­sing factor as a convin­cing pitch deck or PPM. Onboar­ding that faci­li­ta­tes the coll­ec­tion of complete and correct infor­ma­tion and avoids errors right from the input stage ther­e­fore not only helps the inves­tor, but at least as much the fund mana­ger. Today’s opti­mum must be measu­red against the crite­ria of legal confor­mity and inves­tor friendliness.

The aim is simpli­city, clarity and less effort for ever­yone invol­ved. Consider the hete­ro­gen­eity of inves­tors in private equity and venture capi­tal funds. At one end of the scale are large insti­tu­tio­nal inves­tors for whom inves­t­ing is part of their daily busi­ness. In addi­tion, there are inves­tors with invest­ment expe­ri­ence who invest via compa­nies in a wide variety of dome­stic and foreign legal forms. And finally, at the other end of the scale, the first time inves­tor, who invests as a natu­ral person. But they all have one thing in common: the need for simple, clear proces­ses that require as little effort as possi­ble. ‑Follo­wed by clear proces­ses and responsibilities.
A clear process means that inves­tors know their cont­act person at every step of the process and that respon­si­bi­li­ties are clearly assi­gned. In this respect, there is a conver­gence of inte­rests with the fund mana­ger, who should not be unneces­s­a­rily distrac­ted from “actual” fund­rai­sing and inves­t­ing by onboarding.

The use of digi­tal poten­tial also applies: inter­faces, auto­ma­tion, trans­fera­bi­lity and reusa­bi­lity of data. For a long time, there was a lot of room for impro­ve­ment in onboar­ding proces­ses in parti­cu­lar, as many inves­tors shared (and still share) their infor­ma­tion with the fund mana­ger by filling out long PDF docu­ments that only “take the filler by the hand” to a limi­ted extent. Howe­ver, the venture capi­tal and private equity market has now reco­gni­zed that the inte­rest in a lean, clear process can best be reali­zed digitally.

The opti­mal onboar­ding portal offers a high level of func­tion­a­lity, allo­wing inves­tors to click through the neces­sary infor­ma­tion intui­tively and quickly without the need for further advice and requi­ring them to provide as little evidence as possi­ble them­sel­ves. A portal that offers (exter­nal) iden­ti­fi­ca­tion solu­ti­ons or even links to commer­cial regis­ter proce­du­res can also shine. At the same time, legal certainty for the fund mana­ger and the inves­tor must be guaran­teed in the same way as if every piece of infor­ma­tion were obtai­ned and confirmed on paper. It is also no longer a side issue that onboar­ding portals must comply with data protec­tion regu­la­ti­ons and offer a high level of IT secu­rity for sensi­tive data.

In view of the fact that onboar­ding invol­ves secu­ring the subscrip­tion of a sum of at least six, often seven or eight figu­res over seve­ral years, legal secu­rity, data protec­tion and IT secu­rity must take prece­dence over ease of use and func­tion­a­lity if there are conflicts of inte­rest between these requi­re­ments. Howe­ver, current legal deve­lo­p­ments in the area of digi­ta­liza­tion give us hope that there will be fewer conflicts between these objec­ti­ves in the future.

Dr. Stephan Schade is a lawyer and part­ner at POELLATH. His parti­cu­lar focus is on advi­sing on fund compli­ance, espe­ci­ally in the areas of data protec­tion, money laun­de­ring preven­tion and regu­la­tory report­ing obligations. 

You can read the detailed article by Dr Stephan Schade and his two colle­agues Katha­rina Hammer and Dr Philip Schwarz van Berk (both Pöllath) on the topic of “Ready for Boar­ding — How the admis­sion of fund inves­tors can be digi­ti­zed” in the new issue of FYB-2024 and/or order it as a PDF! See FYB store.