Private Equity Investor Onboarding Must Be Fast, Seamless, and Secure

A great onboarding experience is essential for building investor trust, ensuring regulatory compliance, and enhancing operational efficiency.

As the tip of the spear in the lifecycle of a fund, onboarding is an area that can prove to be make-or-break for investor satisfaction, which directly impacts fundraising and fund management in the long-term.

It's important to be clear: a slow investor onboarding process could be harming your firm's relationship with investors. But speed isn’t everything.

If the process is rushed and disorganized, it can be just as frustrating. The goal isn’t just to move fast, but to make onboarding smooth, efficient, and investor-friendly.

This 2024 survey found that 74% of firms lost an investor due to delayed and inefficient onboarding processes.

You see, investors expect the same ease and efficiency in fund operations as they experience with other online services.

While investors may not explicitly demand these changes, their rising expectations make adopting tech solutions like Vestlane the most effective way to streamline processes and enhance the relationship between fund managers and investors.

The private equity market is projected to grow at an annual rate of 10.2% from 2022 to 2028. Fund managers need scalable back-office processes to handle this growth and meet investor expectations.

Traditionally, investor onboarding required extensive back-and-forth between fund managers, fund administrators, investors, and third-party firms like law offices, with no single source of truth.

Different parties or team members often held large datasets, making the entire process inefficient.

Now, with automated regulatory checks, investor wallets, and digital signatures, investor onboarding is much easier.

One of our clients, FLEX Capital (a private equity fund investing in mid-sized German internet and software companies), had a manual and time-consuming investor onboarding process. 

Their team had to send large batches of PDFs to each investor and wait long periods for them to return signed documents. This made it difficult to track the status of each investor and to know how much had been raised at any given time. 

Managing all LP information in Excel also consumed significant time and added to their administrative burden. The challenges Flex Capital faced are common among many funds and one of the reasons why we created Vestlane. 

We wanted to speed up the investor onboarding process and support funds with regulatory checks. Our platform simplifies the process for everyone involved and automates tasks where possible, allowing fund admins, managers, GPs, law firms, and investors to save time on onboarding.

Vestlane has allowed us to have all important LP information in one single and secure tool that can be accessed (with the respective rights) by all relevant employees. Gone are the Excel lists, and gone is the massive amount of paper as well as email streams.

Thomas Mayer

Director of Finance at FLEX Capital

What is the Investor Onboarding Process?

Investor onboarding is the first major touchpoint in an investor’s journey with a fund, setting the tone for the entire relationship. It’s more than just paperwork.

It's the foundation of a successful partnership between investors and fund managers.

A seamless onboarding experience builds trust, ensures compliance, and minimizes delays that could otherwise lead to frustration or even investor attrition.

At its core, private equity investor onboarding involves integrating new investors into a fund by collecting essential investor data, ensuring regulatory compliance, and establishing clear communication channels.

Traditional Pain Points in PE Investor Onboarding

Investor onboarding in private equity has long been plagued by inefficiencies that create bottlenecks and frustrate both fund managers and investors alike. Common challenges include:

1. Involvement of Multiple Stakeholders: The onboarding process typically requires coordination among various parties, including fund managers, administrators, and legal teams.
   
   This multi-party involvement can lead to communication breakdowns, unnecessary delays, and even the permanent loss of potential investors.
   
   
2. Manual Document Handling: Reliance on physical documents, PDFs, Excel spreadsheets, and extensive email correspondence is common. Such manual processes are time-consuming and prone to errors, further contributing to inefficiencies.
   
   
3. Lack of Standardization: Varying compliance requirements across jurisdictions make it difficult to streamline onboarding for global investors.
   
   
4. Slow Approval Timelines: A study by Fenergo found that 74% of asset managers have lost investors due to inefficient onboarding processes.

Legal Requirements for Private Equity Investor Onboarding

A study by Kofax found that onboarding high-net-worth individuals takes an average of 41 days.

Private equity funds must comply with various regulatory requirements to ensure transparency, protect investors, and prevent financial crimes. 

Germany enforces stringent anti-money laundering and KYC regulations to safeguard financial markets and prevent financial crimes. 

These rules, among the strictest in the EU, are monitored by the Federal Financial Supervisory Authority (BaFin) and adhere to both national and EU laws.

They require thorough verification of investor identities, ownership details, and ongoing transaction monitoring. 

Key Stages of Investor Onboarding

1. Investor Identification

• Collect basic information (name, date of birth, address, ID number).
• Verify identity using government-issued documents and reliable sources.

2. Due Diligence

• Assess the investor's risk profile (country, business nature, investment type).
• Gather additional information for higher-risk investors (source of funds, business details).

3. Enhanced Due Diligence (EDD)

• Apply EDD for high-risk investors (PEPs, high-risk jurisdictions).
• Conduct deeper investigations (background checks, beneficial ownership verification).

4. Ongoing Monitoring

• Continuously monitor transactions for suspicious activities.
• Regularly review and update investor information.

5. Screening Against Sanctions Lists

• Screen investors against global sanctions, watch lists, and PEP lists.
• For firms operating internationally or with foreign investors, screening becomes even more critical due to the complexity of different sanctions regimes based on jurisdiction. 

6. Reporting Suspicious Activities

• File Suspicious Activity Reports (SARs) with relevant authorities to detect suspicious activities.
• Establish internal reporting processes for compliance team review.

7. Record Keeping

• Maintain comprehensive records of all KYC/AML activities.
• Store records for the required period (usually five years).

While the steps are simple, carrying out KYC/AML compliance in private equity is tedious. It involves numerous emails, forms, and back-and-forth communication with each potential investor. 

A digital platform like Vestlane allows fund managers to capture and manage all necessary KYC/AML data through intuitive questionnaires. We help with the collection of:

• Investor identity details
• Banking information
• UBO details
• Wealth origin
• Investor classification
• FATCA/CRS data
• Tax compliance information

For private equity firms using Vestlane, investor onboarding is simple. 

1. Invite investors to your fund through Vestlane and easily capture their information through intelligent questionnaires and prefilled company register data. 
   
2. Verify investor documents and automate KYC/AML checks with ease. Funds can provide law firms and other third-party services with an instant, single source of truth.
   
3. Send subscription agreements with options for investors to use qualified electronic signatures. 

After onboarding, you can track, manage, and constantly communicate with investors about the fund's progress and offer detailed insights into your fundraising pipeline.    

How Do Private Equity Investors Differ from Venture Capital?

Private equity and venture capital funds attract different types of investors, each with distinct requirements and expectations.

PE funds often work with established entities which have strict compliance mandates.. On the other hand, VC investors, such as high-net-worth individuals, angel investors, and corporate venture arms, face fewer bureaucratic hurdles, making the onboarding process simpler.

Individual investors may not require the same level of scrutiny as institutional investors since they are using their own funds and are subject to fewer regulatory constraints.

Private Equity Investors vs Venture Capital Investors*

*The data in this table is informational and should not be used as a legal advice substitute.

The Future of PE Investor Onboarding: Digital Solutions

With the private equity industry shifting towards digitization, modern onboarding platforms are enhancing the process.

We have more than 6,000 investors already onboarded on Vestlane, readily accessible to funds that use our platform. 

One feature that truly impresses both investors and fund managers is our 5-Minute Subscription functionality.

This feature allows investors who have already submitted their details and gone through the necessary checks to instantly subscribe to other funds by reusing the saved data in their investor wallet.

Fund managers also benefit from Vestlane’s intelligent information capturing, which is trusted by thousands of LPs.

It’s an intuitive questionnaire which collects only relevant information from investors and allows them to bypass unnecessary questions. 

Additionally, our platform integrations allow funds to use prefilled company data from sources like North Data and support qualified digital signatures, further simplifying the onboarding process and enhancing efficiency.

For funds not using a digital onboarding platform, some steps you could take to improve the investor experience are: 

• Use clear, concise, and well-structured forms to gather necessary information. 
  
• Provide investors with a detailed, step-by-step guide to follow during onboarding. This can help minimize confusion and ensure they understand each stage of the process.
  
• Keep investors informed about their onboarding status through regular updates via email or phone calls. Transparency in communication helps build trust and reduces frustration.

If you are considering digitizing some of your operations, Vestlane also offers a data room (a centralized hub for sharing critical documents), making it much easier to communicate with investors and have all the necessary parties access the documentation. 

After years of hands-on experience in private equity fund operations and extensive discussions with numerous investors, we confidently believe that digital solutions are the future of this industry.

While we may not be able to automate every process, the time savings offered by digital tools make a significant difference and give investors a better impression of the fund.

For more information on how technology can transform your investor onboarding process, book a demo with us and get a quote within 30 minutes.

We know your time is valuable and are happy to support your fund by expediting investor onboarding.