Private market transactions tend to be complex, riddled with legalese, and costly. Your deal can be anything from:

• A founder raising capital or doing their first priced equity round
• A syndicate lead raising capital for an SPV
• A first-time fund manager raising their first venture fund

Back offices (also referred to as fund administrators) describe the set of services that keep your deal in compliance. They show up in many forms, from high-touch, service-driven shops to low-cost, software-driven platforms.

1. Why do I need a back office?

Simply put, the tasks that back offices perform keep your dealmaking activities in compliance. Without a back office, you risk running afoul of securities laws, tax laws, and other regulations.

2. Can I just do it myself?

For the overwhelming majority of dealmakers, the answer is no. The complexity of the tasks that back offices perform is high, and the cost of getting it wrong is even higher. Of course, if you have a legal background in tax and securities, or you have a large enough management fee that can cover bringing compliance in-house, you might be able to do it yourself.

3. How do I pick the right back office?

There are three key factors to consider when picking your back office:

1. Features: What features do I need? This can be technical (e.g. does everything happen via email, or via a well-crafted software product/API?) and legal (e.g. jurisdiction, carry-sharing ability, tax optimization, secondary liquidity ability).
2. Fees: How much do I need to pay? Unlike, say, an ecommerce company deciding whether to pick Stripe or Square to power their activities, fund administration services have more complex and opaque business models. There are plenty of hidden costs that won't be reflected in the sticker price, and it your job to model out those costs.
3. Future: How do I know that my back office will be able to reliably provide me with service into the future? Most investments have a ten year time horizon. Will your fund admin make/raise enough money to be around in 10 years? Is their cost structure sustainable enough to support them growing without sacrificing service quality to you?

Don't take the bait

Be weary of back offices who differentiate solely on cost. While cost is a key criteria in deciding who you partner with, the fund administration/private investment back office space has been crowded with vendors that sell labor-driven services at unsustainably low prices to attract new business. This may seem like a good deal for you, but the headache in the future is not worth it.

A cautionary tale

Assure was a popular fund administrator with over $5B in assets under administration. They went under in December 2022, leaving thousands of founders, syndicate leads, and fund managers scrambling to find new back offices.

Assure, though a little less polished than others in the market, seemed like a safe bet to make: $5B in assets under administration, notable evangelists like Jason Calacanis sang their praises, and their cost was far below that of traditional fund administrators. How could you have known that they were going to go under?

Assure was only able to offer their services at a fraction of the cost of traditional fund administrators because they sold labor-driven services at a price point that was far below what was sustainable to support a growing workforce of accountants, lawyers, and salespeople. This put them in a compromised financial position, where they were unable to support their business operations and then had to shut down.

The cheapest fund administrator is not always the best choice, if it isn't sustainable. Simply ask the question: if this company were to become more successful and scale up to get more business, would they be able to support it without sacrificing service quality to you, and without ballooning their operating costs?

The best way to guarantee the longevity of your fund admin is by picking one that invests deeply in technology and automation, which allows them to scale and operate more efficiently than labor-driven models.

Seed Labs as your automated back office

Seed Labs is an automated fund administrator powering leading venture firms, syndicates, startups, and venture platforms. In our DNA, we are a software company. We've vertically integrated our entire back office stack and crafted a beautiful interface for it that enables us to provide a stellar experience at a fraction of the cost of traditional back offices.

With our deal execution engine, we've been able to rapidly experiment with new pricing models that align our interests with yours. Dive more into our offering here to see how we can help you.