Introduction
In 2024, most fund managers are still using spreadsheets and email to run their funds. There is a certain irony that VCs funding the most innovative tech and latest AI startups are still calling LPs to make sure they have the right wire instructions (the same way things have been since way back in 1872 when the first wire transfers were sent).
Independent Sponsors who have left their high-powered PE jobs are taking their exceptional Excel skills to close $20m micro-PE deals on spreadsheets.
The real estate investor who owns half the town, still physically prints out and mails 80 pages of new deals, property info, distribution checks, and portfolio performance to his investors each month or quarter.
The first question to ask is why?
The Status Quo
The answer is, doing it old-school works (sort of). The advantages of the status quo can be perceived as:
1 | Customization: Spreadsheets offer almost infinite customization options, allowing fund managers to tailor their workflows to their specific needs and preferences, ensuring seamless integration with their existing processes. |
2 | Personal Touch: Email and phone communication enable fund managers to maintain a personal connection with their investors, fostering trust and strengthening relationships through direct engagement. |
3 | Familiarity: Fund managers and investors alike are accustomed to using spreadsheets, email, and telephone, cutting the need for extensive training or onboarding processes when adopting new platforms. |
4 | Cost-effective: Traditional methods are generally free or low-cost, as opposed to paid platforms and software solutions, making them an attractive choice for firms with limited budgets. |
5 | Flexibility: Fund managers have complete control over their processes and can adjust as needed, without being constrained by the limitations of a third-party platform. |
But here is why you might want to reconsider the status quo. Simply put, there are major advantages of leveraging a modern purpose-built investment management platform:
1 | You want to get back to being a GP: You’d rather spend your time refining your strategy, finding and evaluating deals, meeting with investors, and ultimately growing your AUM. |
2 | You want your LPs to have a great experience: Sure, if your deals are good, an investor will walk a thousand miles to bring a check to your door but what if you removed friction and made it easier and enjoyable for them to invest? |
3 | You want to protect against risks, fraud and compliance issues: Well, okay, you probably aren’t thinking about this, but you should be; both as a fiduciary responsibility to your investors and to protect your valuable reputation. |
Fraud & Compliance Issues
Reliance on email and static document-sharing increases the risk of human error, fraud (such as business email compromise scams), and regulatory non-compliance. These risks can lead to substantial fines, legal disputes, and reputational damage for fund managers and their firms.
Capital Call Wire Fraud
Fraud, especially wire fraud, is on the rise. $809,000 is the average amount defrauded from investors per capital call scam. We hear horror stories all the time of wires going out to the wrong people because a bad actor was in someone's email and then they gave them fraudulent wire instructions, with wired funds going out that are unrecoverable. Business Email Compromise (BEC) is unfortunately an increasingly popular tool used by cybercriminals. But it’s not just email that can be compromised. Capital call notices saved as Word docs or PDFs sitting on static document-sharing portals or sent out to investors can also be easily manipulated by bad actors.
Human Error
And it’s not only bad actors. Simple human error can cause big headaches. It can be a silly thing, like transcribing a bank account number incorrectly or sending funds to the wrong account. For example, an LP saved their capital call notice from Fund I and now the GP is issuing capital calls for Fund IV and that LP pulls it off their desktop and sends money using the wiring instructions for Fund I, but a new account is being used for Fund IV. A mess to untangle and these situations compound as GPs grow their number of investors and track record of deals. The good news, it’s all very preventable.
Compliance
Staying compliant with regulations is another threat. In February 2024, the SEC fined 16 firms $81M, and over the past few years, a billion dollars in fines have been issued for what the SEC has labeled ‘off-channel communications.’ GPs and their firms had been texting and WhatsApp messaging their investors, and the SEC penalized these firms for failing to maintain and preserve electronic communications.
Mitigating Risks
At Verivend, we provide our customers with the tools to maintain a compliant regulatory environment so that they don't get fined thousands (or millions) of dollars for sending a text message to try and close their next raise. With Verivend, all communications are kept secure, encrypted, and on-platform. There is an easily auditable track record of all messages and activity. It's all chronicled, dated, and timestamped. So, there's no dispute about who said what and when because it's all there as the one source of truth.
Bringing your full payments, communications, and investor management workflows into Verivend reduces compliance risks, eliminates the opportunities for human error, and strengthens your security against fraud. Verivend enables GPs and LPs to transact seamlessly, transparently, and securely. You never need to store or share sensitive wire or banking details again. Our platform uses enterprise-grade security features to keep you and your LPs safe to always protect your capital. Verivend protects your personal data, company data, and payment information with the latest technology and protocols including TLS, multi-level data encryption, and Multi-Factor Authentication.
The Solution: Verivend’s Investment Management Platform
Verivend offers a comprehensive platform designed to simplify fund administration and provide a single source of truth for financial data, fund performance metrics, and task tracking. By leveraging Verivend's proprietary payments software, GPs & Investment Sponsors can:
1 | Raise & Deploy Capital Efficiently: Fund managers can prepare and send capital call notices in minutes, receive real-time status updates on their fundraising progress, and automate follow-ups and reminders, eliminating the need for manual tasks and reducing the time spent on administrative tasks. |
2 | Offer a Frictionless Investor Experience: Verivend's platform enables investors to invest with a single click, reducing friction and increasing the likelihood of repeat investments. Additionally, investors no longer need to worry about wire transfers or banking details, as Verivend's secure platform handles all transactions. |
3 | Mitigate your Risks: By maintaining a secure, auditable record of all communications and transactions within the platform, GPs and Investment Sponsors can significantly reduce the risks associated with fraud, human error, and compliance issues. Verivend's platform uses the latest security protocols, including data encryption and Multi-Factor Authentication, to safeguard sensitive information. |
It’s time to bring your dealmaking and capital raising to Verivend. Verivend is the solution that allows you to get back to being a GP, provide your LPs with a great experience, and protects against risks, fraud, and compliance issues.
We welcome GPs and Investment Sponsors at all stages of the investment journey and across all private market asset classes. Experience the immediate benefits of Verivend. You owe it to yourself and your investors. We have de-risked getting started.
Set up and market your deal, open a data room, and onboard your LPs with our institutional-grade platform today!