Onboarding investors: Simplifying the complex process Is your firm sitting on untapped opportunities for fund formation?

Your firm could be sitting on an untapped opportunity to help venture capital and private equity clients by digitalizing the process of onboarding investors for fund formation.

What does this mean? In short, when venture capital (VC) or private equity (PE) clients attract investors to a fund or asset, they must first onboard them. This involves carrying out checks and vetting processes, for example, to confirm the investor is legitimate and they have acquired their capital legally. This process involves know-your-client (KYC) information, due diligence, and identification.

Many VC or PE clients are looking to law firms to make the process fast, discreet, and simple.

What steps are involved with onboarding investors?

Typical steps in onboarding investors include:

•   Gather: Collecting investor profiles and completing the onboarding process all in one place
•   Review: Managing all incoming onboarding requests and managing the workload and progress
  
•   Draft: Drafting subscription agreements and other documents
•   Close: Creating all necessary documents and storing them in one secure place
•   Sign: Managing e-signatures of subscription agreements and other documents

While the above steps make it look simple, it’s typically a complex end-to-end process involving multiple emails, forms, and back-and-forth communication with each potential investor. This way of communication is not the most effective use of time for anyone involved — the investor, the client, or your firm’s associates. It could also damage your firm’s reputation when clients pay significant fees for a service they could perceive as outdated or inefficient.

It also presents many risks, including data security and GDPR compliance — especially around identification sources — as well as the risk of not capturing all the required information correctly. Some investors may even find a slow and complex onboarding frustrating enough that they decide to back out of their investment and take their money elsewhere. 

For these reasons, the onboarding process should be as simple as possible for everyone involved.

The solution is digital

To meet all the legal requirements and client expectations involved in onboarding, your law firm should explore implementing a digital platform that can handle every aspect of the process and automatically prompt and guide investors through each step.

The solution should flag where there is missing information for the investor to complete, store every application and document in one central place that’s accessible from wherever you’re working, and automatically generate and send the subscription agreement for the investor to digitally sign once the onboarding is complete.

This last point is critical. By structuring onboarding questions in a certain way, the subscription agreement can be created and populated using the data the investor has entered — which saves your associates time and reduces the risk of manual error.

The advantages of digital onboarding:

•  Faster capture of required data
•  Higher data security
•  Regulatory compliance
•  Professional service
•  Lower cost
•  Protects the firm’s brand reputation
•  Can scale to service large numbers of clients and investors

How to get started

Investor onboarding in the fund formation space is a potentially significant new revenue stream for your firm. The good news is that you don’t need to make a huge technology investment to enter this space.

In fact, you may already have the technology in your toolkit.