Cracking the Black Box of Alts Investing: Our Series A Investment in Arch
Today, more than $14 trillion is invested in alternative assets in the U.S.—which is roughly the GDP of Japan, Germany, the UK, and India combined. Yet until now, that pool of capital has looked more like a black box—understanding the true performance of the underlying assets you invest in often feels like guesswork. For example, let’s say an LP in a venture fund has exposure to the same company across five different funds. For each of those, they could receive five entirely different holding values. And to even receive those values, that LP would have to log into five different GP portals, download five different PDFs, and then manually enter that data into a reporting engine. Now multiply that problem by 100 if you are an RIA and your clients are invested in private funds. It quickly becomes unmanageable. Addressing this problem head-on, we are excited to announce our Series A investment in Arch, a company that is building the digital backbone to aggregate and connect upstream GP portals and fund admins so investors can automate manual processes like document collection and capital calls, and make better, data-driven investment decisions.
To illustrate how broken this process has been, let’s pretend that the same problem still existed in public markets. Imagine if you invested in five generic ETFs tracking the SP500, but, to figure out what your investments were worth, you had to download many PDFs, with each one making up a different price for the underlying stocks—Amazon could be $140 a share in one case, $95 in another, and $200 in a third. Obviously, that would be a big problem—people would struggle to make investment decisions or judge investment performance, a massive amount of logistical overhang would creep into the market and add cost to any investment, and liquidity would dry up—similar to the general mess that likely existed when people were buying shares of the Dutch East India Company in open-air markets in the 1600s. But into the 2020s, this situation has persisted in private markets. In short, anyone investing in alternative assets has had both a data problem and a workflow problem, and the ultimate downstream impact is that returns are negatively impacted for the ultimate investors in these funds.
Enter Arch. When we met Ryan, Jason, and Joel, it was clear that Arch demonstrated some of the trifecta qualities that our best SaaS companies share:
- A clear wedge to modernize antiquated, critical workflows
- The opportunity to generate proprietary data and become a system of record
- The potential to leverage that data and expand laterally into multiple applications and workflows, driving network effects
Arch’s wedge of automating document collection solves a pain point that is universally shared across the entire value chain—from investors to advisors to accountants—and it was clear that Ryan and team found a seamless insertion point. The Arch team demonstrated incredible efficiency as they grew the business (in the wild, we don’t see many companies with higher ARR than all-time cumulative burn). By aggregating investment data, Arch is becoming the workbench on which teams manage their investments, enabling the company to automate more and more workflows for their customers. And perhaps most exciting, we could already see early network effects as investors would share Arch data with their own counterparties at banks, advisories, and accounting firms who themselves are becoming customers and nodes in the Arch network.
Arch fits into our broader API infrastructure thesis that massive amounts of value sit blocked in old data silos; unblocking that data can solve both immediate pain points for customers, but can also spawn new use cases. Not that long ago, bank account data was similarly stuck, clogged, and functionally unusable until aggregators like Yodlee and Plaid came along and built the tracks on which so much of fintech runs today. In that same vein, we backed Finch and Particle Health, which provide the middleware to bring payroll, benefits, and healthcare data online. We’re excited to see how Arch, in the near term, continues to provide clear value to RIAs, LPs, and investors through better, more accurate data and automated workflows. And in the longer term, we look forward to seeing how building that connectivity to alternative asset data will trigger new use cases, further accelerate the growth in alternative asset investments for everyday investors, and remove the shroud from an opaque ecosystem.