Three 'RIA' executives headline $20-million VC raise to address an alts problem so annoying and tedious that existing alts players are cheering them on

It's a dirty job but somebody's gotta provide the startup capital and get it done. 

Three headline-makers in the RIA business are stepping up with big-gun Menlo Ventures to provide $20 million to take a shoebox full of forms and solve the administrative pain of managing them. 

New York City start-up, Arch will use proceeds from the raise on hires and fresh research and development (R&D).

“Arch is building the digital backbone for the tens of trillions of dollars that sit in alternative assets,” says Croom Beatty, partner at Menlo Ventures, in a release. 

Arch co-founder and CEO Ryan Eisenman, says the mission is to build the infrastructure to make private investing scalable, efficient, and understandable,"  according to a LinkedIn statement. 

“By collecting K-1s, managing cash flows, and providing reporting-ready data for our client base, we’re enabling wealth managers, family offices and private banks to successfully track and manage the universe of private investments,” he adds. 

Smooth experience

The problem is so banal, tedious and annoying that it had slipped between the cracks until Jason Wenk (Altruist), Steve Lockshin (Vanilla) and Marc Spilker (Merchant Investment Management) stepped up. 

Applying unglamorous, but useful data in one place makes [Arch] stand out from the crowd, according to Will Trout, director of wealth management at consultancy Javelin Strategy and Research, via email.

"Arch’s ability to transform the clunky private capital-markets workflow into a smooth user experience similar to … the world of public equities" makes it worthwhile, Trout says. 

“This isn’t glitz and glamor; it’s more grunt work, but 100% worthwhile grunt work for Arch, not your top advisor,” says Eisenman, via email.

Right now, many alts investors regularly login to potentially hundreds of fund portals to track and record tax, capital call, and fund management data, in particular.

Only investors using older, but similar Canoe Intelligence software, the document tools in iCapital or CAIS’ software, have anything close to that ability now. 

Annoying problem

Joe Lonsdale, a General Partner at 8VC, and a founder of Palantir, Addepar* – where he also served as CEO and remains executive chair – and 2021-launched Opto, among other firms, says there is a lot to do in alts.

“I'm not convinced this is the biggest or hardest problem in the space, but it's certainly an annoying problem, worthy of solving well,” he says, via email.

The “annoying” problem is how to source, sift and collate alternative investment (alts) data then make it as easily digestible as standardized ETF data for performance reporting and portfolio management software.

“It’s not a moonshot endeavor, but I don’t think that’s what the industry needs at this point,” says Trout. 

“Less is becoming more, as the alts space becomes crowded by look-alike distribution platforms, and investors seek a single view on the state of their investments.”

Huge need

Indeed, a casual observer might believe Addepar, Opto, iCapital and CAIS  – aided by Canoe Intelligence, Accelex and others – had long since turned all investing into a facsimile of owning stocks and bonds.

They would be wrong, says Wenk, speaking as much as an investor in 20-plus alts investments as somebody who does business with RIAs as CEO of an RIA custodian.

"Other firms like Canoe and Accelex also streamline the data lifecycle for private capital investors," Trout explains.

"The focus of these platforms is a little different, in that they ingest GP documents in order to aggregate and normalize holding data, capital calls, cash-flow and tax data for the LP… often in the form of new documents. 

"Arch manages data in a similar fashion via a combination of OCR [Editor's note: Arch does not use OCR] and human oversight," he says.

“But [Arch] makes the process truly end-to-end by loading core client investments data and other publicly available data points into an easy-to-use, cloud-based client portal. It’s a one-stop shop for industry participants and the UX really stands out,” he adds.

"It solves a huge need for me personally, and so I suspect it does the same for advisors,” says Wenk.

“I view it as much like a Stripe or Plaid for alts … Keeping track of all the data is very tedious, and not just the values, but all of the tax documents, capital calls, and corporate actions.

“We’ve found that alts go from annoying to painful when folks have somewhere between 12 and 25 fund investments. When a client is managing 3,000-plus data points weekly, a problem isn’t just annoying, it is a real pain point,” he adds.

Foundational problem

Yet some in the industry doubt Arch's ability to become the data spine of the alts industry, largely because of the competition it faces and its lack of a moat.

"It's a commoditized segment," says Craig Pearson, founder and CEO of alts software shop, Private Wealth Systems (PWS), which has competitive overlap with Arch on aggregation.

"I like [Arch] a lot – truly nice people – and I wish them great success … [but] Arch is simply a tool for convenience; they aren’t solving a foundational market problem.

“If you don’t have meaningful I.P. and control the full value chain, you are creating an open market for others and a ceiling of growth for yourself,” he says.

“Many have tried, and failed, [and] continue to fail at digitizing alternatives," adds Brian Shapiro, founder of Manchester, Vt. alts aggregator and performance reporter, Altsmark.

“The answer doesn’t lie with another thing that reads a PDF; it's abolishing the PDF, but this won't happen soon.”

Yet, Arch is more than just an upgrade on its competitors, because what Canoe or Accelex compile, they spit out in new cleaner documentation. Arch gives advisors, funds and investors clean data to use how they see fit, says Trout.

“Capturing, organizing, and rendering this information into a secure portal for the [user] represents a major cost and efficiency gain,” he says. 

Staying power

Arch founders Eisenman, Jason Trigg and Joel Stein, also the firm's chief technology officer, have all had relatively peripatetic careers early on. Only Stein has spent more than five years in one job – as an engineering manager at Yext.

The trio spent 18 months building and bootstrapping Arch before making their first hire, according to Eisenman.

“We moved slowly and methodically … worked hard to surround ourselves with people who are much more experienced. We’ve also been conservative and methodical as a business in how we invest and allocate capital,” he says.

“Our lifetime burn multiple is greater than one, meaning we’ve acquired more in revenue than we’ve spent in investor cash, which is a metric we care a lot about,” he adds.

Arch claims net dollar retention – how much revenue you keep or grow from your existing customers – stands at 125% – a figure that drew VC interest, Eisenman says.

Not one large RIA or private client it works with has dropped its software since signing on, according to the firm. Arch has lost off smaller firms that aren't a fit.

Collecting data

Arch also has a track record of cutting its cloth to meet its means, surviving on a half-million dollar VC investment for its first three years.

A $5 million raise came along in 2021. At its current spending level, its new funds would last five years, according to Eisenman.

Today, Arch employs 61 staff – up from roughly 20 in January – and it intends an undisclosed number of hires in sales, marketing, software development, and client services. It expects increased spending to reduce its run rate to three years.

Arch does not track cryptocurrencies or collectibles, although investors and advisors can update collectible values on a centralized balance sheet report. 

Its current MO is to gather data on VC, PE, hedge fund, non-standard credit and real estate investments.

It also provides automated workflows, document storage, wider fund coverage, and a quasi-marketplace, which shares new investing opportunities from funds users previously invested in.

Cutting workload

Yet critics point out, with alts it always comes back to manual intervention, rendering most claims of automation moot.

"Automation is always nice to have. It solves a pain point [but] it's limited in its value and hence the cap on the opportunity … [The] bottom line is 99% of these firms use hard coded, document technology,” Shapiro explains.

Eisenman accepts the critique, although he asserts that Arch will keep spending to reduce the level of manual input needed. Today, less than 0.5% of the alts data it gobbles up needs human input by the end client.

“AI is an overused buzzword in our category, especially as it lacks the level of precision and accuracy needed to serve this segment well. We consider the vast majority of what we’ve deployed to not be AI,” Eisenman explains.

"For processes that aren’t fully automated today, we leverage internally built tools … [but] Arch removes manual work that our clients do today, which is majority replaced by automated processing through Arch [and] we’re continuing to invest," he says.

Big is better

Arch declined to detail its fee-model, although it charges a premium compared to its peers. Eisenman says the premium is returned through vastly improved capabilities.

“We’re empowering advisors to focus their attention on the actual meat of client relations and investing, not cash flow allocations and troubleshooting MFA codes with the client’s former assistant,” he explains.

Yet, as a premium product, Eisenman accepts Arch is not an ideal fit for advisors or investors with a handful of alts in their books. Arch's largest client manages tens of thousands of alts holdings, according to the firm.

“Our highest impact and value is for clients managing [20-plus] private investments. In this past year, we’ve decided to focus on larger clients,” Eisenman continues.

Acruing value

Some 50 of Arch's 200 clients are RIAs. The remaining 150 include family offices, “institutions” and one of the nation's largest domestic banks, according to the firm.

The current value of alts assets under management stands at roughly $11.7 trillion, according to McKinsey data, and the potential gains from smoothing out wrinkles in the alts infrastructure are huge.

"Long term value will accrue from many of the additional platform features we’ve built and are continuing to build. This is why we’re investing heavily in R&D," says Eisenman.

The early November Series A raise takes 2018-founded Arch's total funding to $25.5 million, and Eisenman says he decided to cap its latest raise at $20 million – although $40 million was on offer – giving the firm a three-year runway, at its current burn rate.

* Other individuals, who took part in Arch’s Series A round include Scott Prince, co-founder of GPS Investment Partners and Merchant executive co-chair; former National Economic Council director and ex-IBM vice chair, Gary Cohn; and Braughm Ricke, founder of Aduro Advisors.

Venture investors in Arch’s Series A include Focus Financial, Citi Ventures, Carta, and an undisclosed number of Arch's own UHNW family office clients. Prior backers Craft Ventures and Quiet Capital also re-upped.

Two undisclosed founders, namely those of PE administrator Sydecar and alts shop Equi also invested in Arch.

Prior investors who did not re-up include DoorDash founder Tony Xu; Warby Parker founders Neil Bulmenthal and Dave Gilboa; and Allbirds founder Joey Zwillinger, all of whom backed Arch's $5.5 million May 2021 seed raise.