Why Venture Capital Firms Need Faster Investor Onboarding to Meet Market Demands

With Europe projected to reach US$26.1bn total capital raised in the Venture Capital market by the end of 2024, the competition for investor capital is intensifying. In this competitive space, a positive onboarding experience helps funds gain investor confidence and loyalty.

Imagine repeatedly asking an investor for corrections, clarifications, or additional information. This can create a negative impression and damage the relationship.

Traditionally, investor onboarding was done using paper forms and wet-ink signatures, often taking weeks or months. Today, investors prefer downloading and uploading their information to a secure portal, reducing redundant or unnecessary steps.

This is where a digital platform becomes vital to your daily fund operations. Having experienced the lengthy onboarding processes and regulatory checks firsthand, we noticed that VC funds relying on paper processes and Excel or PDF forms are often viewed unfavorably by investors. 

Efficient onboarding is a sign of competence and professionalism.

Cavalry Ventures, one of our clients, faced error-prone manual onboarding processes using PDF documents and Google Sheets. Their investor base, consisting of tech entrepreneurs, expected more streamlined and tech-savvy interactions. 

We have many investors who are founders of software companies. They asked us why they had to fill out a PDF document. Why can’t they populate their information online?

Leonie Klimpke

Director of Finance and Compliance @ Cavalry Ventures

After using Vestlane, Cavalry Ventures had real-time visibility into investors' onboarding status, significantly reducing the need for internal communications about investor statuses. 

They could invite investors to their fund in one click and seamlessly collect the data they needed. This efficiency allowed Cavalry to handle large volumes of data more effectively and streamline communications with their fund administration team.

Onboarding Investors for High-Risk Investments

Investing in seed and early-stage startups is inherently high-risk but can offer substantial rewards. For venture capital firms, onboarding investors for these high-risk investments involves specific challenges and requirements, especially in Germany, where regulatory compliance is stringent.

Types of Investors Interested in VC Funds

Before formal investor onboarding, initial due diligence is conducted to ensure the investor aligns with the fund's goals and regulatory requirements. This includes: 

• Assessing the investor's financial status and investment goals to ensure they meet the fund's criteria.
• Verifying the investor's interest and ability to commit capital.
• Conducting basic KYC checks to verify the investor's identity and assess any potential risks.

Once this is completed, the formal investor onboarding process begins. For VC funds, this usually involves handing over to the fund administrator to gather all necessary documentation, such as subscription agreements, KYC documents, tax forms, and authorized signatory lists. 

In Germany, KYC and AML regulations are stringent, requiring thorough verification of investor identities and the source of their funds.

After all documents are signed and compliance checks are completed, the investment is finalized. While this process may sound straightforward, the lengthy back-and-forth process often frustrates funds. Fortunately, over the past decade, more funds have started adopting digital platforms to streamline these tasks.

Digital Investor Onboarding for VC Funds 

Our platform serves over 279 funds, including HV Capital, World Fund, Headline, and Multiple Capital. 

For VC fund managers, Vestlane helps with:

• Personalizing the onboarding journey for each investor, addressing their specific requirements and needs.
• Ensuring compliance with regulatory standards through pre-built investor classifications and automated KYC/AML checks. 

Our platform offers detailed insights into the fundraising pipeline, allowing managers to monitor fund performance and keep investors well-informed. 

We also integrate with public registers like North Data, so investor information can be pulled and authenticated without them needing to provide it. 

All of Vestlane's functionalities are designed to satisfy both investors and fund managers. One notable feature that significantly helps both parties is our reusable investor wallet, which allows investors to effortlessly subscribe to new funds using their already stored data.

With Vestlane, investor onboarding for VC funds is easy. 

1. Invite investors to your fund and capture their information through intelligent questionnaires and prefilled company register data.
2. Verify investor documents and automate KYC/AML checks with ease.
3. Send subscription agreements with options for investors to use qualified electronic signatures.
4. Communicate with investors through the platform, offering a single source of truth for all parties involved.  

Funds using our platform also gain access to more than 6,000 investors already onboarded on Vestlane. 

Comparing Venture Capital and Private Equity Onboarding

VC deals often require less extensive documentation, focusing more on the growth potential and alignment with investor risk tolerance.

PE and VC investor onboarding are pretty similar, and digital tools can be used for both. However, the differences become evident when considering the types of investors and their legal requirements.

VC funds often work with high-net-worth individuals, angel investors, and corporate venture arms. These investors typically face fewer bureaucratic hurdles than the institutional entities that PE funds deal with, making the onboarding process simpler and faster. 

In venture capital, the focus is often on companies that are past the initial burn rate phase—where they are not just surviving but starting to realize gains. At this stage, venture capitalists step in to propel these companies into larger markets and deeper market penetration, enhancing their overall footprint and growth trajectory.

Ivo Schmiedt

Founder, CEO & General Counsel

VC investors usually do not require the extensive compliance checks and detailed risk assessments that institutional investors do.

Adapting to Changing Market Needs and Technology

Ultimately, adopting digital onboarding solutions in the VC space enhances efficiency and fosters stronger relationships with investors who appreciate the modern, hassle-free approach.

To optimize your investor onboarding process, consider utilizing technological platforms like Vestlane that are tailored to your needs. Although change can be challenging, investing in better onboarding procedures is worth it. 

Making the process efficient, secure, and personalized provides peace of mind and sets your venture capital firm up for a bright, successful, and scalable future. The time for better onboarding is now.

Book a demo with us and receive a quote within 30 minutes. Our founders are well-versed in the VC fund market and are ready to help your fund streamline processes.