Investor onboarding
March 21, 2023
5 min

Bringing investor onboarding into the modern age

Congratulations, you have successfully secured commitments from your LPs/investors! The next step is to onboard them to your fund – a critical yet often overlooked aspect of the fundraising process. 

You’re now faced with an important question: how can you streamline the investor onboarding process and offer an excellent onboarding experience? 

In today’s complex fundraising landscape, fund managers can reap rewards by offering a secure digital onboarding solution to their LPs. Outdated manual onboarding processes are often clunky and high-risk, and since Covid, LPs now expect a fully streamlined digital experience. 

That’s why digital onboarding platforms make it easier to attract and onboard new investors. Communication is faster and more efficient with digital onboarding, and it enables fund managers to let smaller investors invest in their fund.

In this blog post, we'll explore the benefits of modernizing your investor onboarding process with a secure digital solution. We'll also look at how digital platforms can help fund managers meet LP expectations, and provide a more efficient and effective way to communicate with investors. 

An overview of fund investor onboarding

What is investor onboarding? 

Investor onboarding is the process of introducing new investors to a fund or investment platform and facilitating their initial investment. It is a critical part of the fundraising process, and it involves multiple steps. The process typically takes several months and requires careful planning and execution to ensure a smooth transition for the investor.

The first step in the onboarding process is identifying the investor, followed by Anti-Money Laundering (AML) due diligence. AML due diligence is a critical part of the process, as it helps to ensure that the investor is legitimate, and their capital is not derived from illegal activities. Once AML due diligence is complete, the investor can then subscribe to the fund.

Why is the right investor onboarding Important?

Investor onboarding is a crucial component of the fundraising process, and getting it right can make all the difference for fund managers. But why exactly? 

First of all, regulatory checks and verifications are necessary to ensure compliance with relevant laws and regulations, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. An effective onboarding process ensures that these checks are conducted systematically, reducing the risk of compliance issues down the line.

The investor onboarding process is also instrumental in creating a positive first impression and establishing a long-term relationship with the investor. A slow or inefficient onboarding process is frustrating for investors and can lead to delays in capital deployment.

Ultimately, a good onboarding process frees up capacity for fund managers to focus on more value-adding tasks, such as finding new investors and managing the fund's investment portfolio. In the grand scheme of things, this is what fund managers should focus on.

The old fund investor onboarding process

The traditional fund investor onboarding process is slow, inefficient, and prone to errors. In fact, many of the traditional methods used in financial services are outdated and result in a clunky and time-consuming process. Signing physical forms, manually entering customer information into databases, and frequent back-and-forth email interactions have persisted far past their expiration date.

Multiple verification confirmations and repeated follow-ups are often necessary, adding to the delays and frustration of the process. The collected investor data then has to be manually entered into the investment platform's systems, which is time-consuming and prone to human error.

Furthermore, each new investor onboarded calls for a risk-based review and a high level of manual intervention at each stage. This puts strain on funds by multiplying opportunities for human error and non-compliance. 

These legacy processes also carry inherent risks, including:

  • Massive time costs
  • Human error
  • Increased exposure to corruption and fraud
  • Lost documents
  • Incomplete audit trails
  • Inability to track and analyze trends over time
  • Slow onboarding
  • Investor churn
  • Missed investment opportunities and profits

All in all, the traditional fund onboarding process is a time-consuming, risk-based process that requires significant manual effort and increases the risk of non-compliance. 

Improving investor onboarding for private equity and venture capital funds

Efficient investor onboarding is pivotal to the success of your fund. Let’s discuss some strategies to improve the investor onboarding process for private equity and venture capital funds.

Define and simplify

The first strategy to improve the onboarding process for investors is to define and simplify. 

Initially, start by mapping out your investor onboarding process, starting with the phrase “investor is ready to sign". Detail the steps that need to be taken to onboard the investor. 

Once the steps have been mapped out, identify who is responsible for each step in the process. Mark boundaries when the process leaves one team member or department and goes to another. Clearly define the activities each person or department is responsible for and how long they should individually take.

You can then create a system that alerts the team when action is needed to be taken. This could be an email notification that indicates when an investor has completed a step in the process or when a team member needs to take action.

Next, identify what is absolutely necessary to get an investment processed and define it as mandatory. This will help ensure that critical steps are not overlooked and that the process runs smoothly.

Not all information will be available at the start of the onboarding process. Define a secondary follow-up process to catch the rest of the information that is needed to complete the onboarding process.

Similarly, not all steps in the onboarding process are equally important. Use the investor onboarding diagram to define what is mandatory and what is secondary. This will be useful down the line to ensure that critical steps are given appropriate priority.

Quick tip: Make the onboarding process more straightforward for investors by aggregating industry-wide standards into a simple format. Provide clarity around requirements, machine-readable information collection, and streamlined data validation.

Communicate

Effective communication is a key component of improving the investor onboarding process for private equity and venture capital funds. 

To avoid any surprises or misunderstandings, set clear expectations with investors about the onboarding process. Let them know what steps are involved, how long each step is expected to take, and what information they will need to provide.

Identify key touchpoints and milestones in the onboarding process and communicate them clearly with investors. Whether it is completing AML due diligence or signing legal documents, provide updates on progress towards these milestones to help keep investors engaged and informed.

Another best practice is to estimate lead times for each step in the onboarding process to help investors plan and prepare. Communicate these estimates clearly and be transparent about any potential delays.

During any wait times in the onboarding process, use the opportunity to check in with investors, gather metrics on customer success, and assess investor relations. You’ll be able to build trust with investors and identify areas for improvement in the onboarding process.

Provide regular updates on the progress of the onboarding process, even if there are no major milestones to report, to build a sense of momentum and keep investors engaged.

Digitalise

Digitalisation and automation are key ways to improve the investor onboarding process. Below are best practices to digitalise the onboarding process: 

  1. Automate repetitive tasks such as data entry and document management to reduce the potential for human error and speed up the onboarding process. Consider using Optical Character Recognition (OCR) to prefill information, e-signatures to streamline approvals, as well as facial recognition and biometrics for verification.
  2. Use Customer Relationship Management (CRM) tools to keep track of investor interactions and provide a centralized database for investor information.
  3. Integrate third-party tools, such as Zapier, to connect different systems and automate workflows. For example, you can connect online forms to CRMs, integrate email marketing tools, and sync data with Google Sheets.
  4. Use dashboards to track progress and provide real-time visibility into the onboarding process. Leverage this to identify any bottlenecks or issues in the process and provide data to support continuous improvement.
  5. Streamline data validation to reduce the time and effort required for due diligence. Consider using machine-readable data validation and sharing due diligence reports with investors.

The solution: A digital investor onboarding platform

A digital investor onboarding platform offers a powerful alternative to traditional onboarding processes. It has been proven to automate the onboarding process and reduce the time and resources needed by up to 80%. The benefits of digital onboarding are not only speed but also improved accuracy and reduced costs.

A seamless and efficient onboarding process offers a better experience for investors, which results in increased investor satisfaction and engagement. Digital onboarding also helps create a secure and transparent way to share documents and ensure compliance with relevant laws and regulations. With e-signatures, investors can sign from anywhere in the world, and live tracking of each investor's documents can help provide a clear overview of the process steps.

Using an onboarding platform is also more efficient for investors. With Vestlane, for example, if an investor already has an account, they can choose to prefill some of the questionnaires based on their answers from previous onboarding processes for other funds. 

Takeaway: The power of digital investor onboarding

In summary, digital investor onboarding offers an innovative solution to the challenges faced by traditional onboarding processes. Digital onboarding can help private equity and venture capital funds attract and retain investors and set the stage for a successful long-term relationship.

As more funds adopt this technology, it is likely to become the standard for investor onboarding in the future. At Vestlane, we offer a digital investor onboarding platform that provides a seamless and efficient process for investors. Vestlane is a secure and transparent way to share documents and ensure compliance with relevant laws and regulations. If you are interested in learning more about our digital onboarding solution, get in touch today! 

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