As part of PitchBook’s Q2 2022 US PE Breakdown report, Ontra CEO and founder, Troy Pospisil, discussed the advantages of contract automation.
Many startups and tech companies throw around the phrase “AI-enabled,” “machine learning-powered,” or “technology-led” to help drive attention to their company and increase valuations. How does Ontra think about holding companies accountable regarding these claims?
Ontra has invested in artificial intelligence (AI) since 2017, when we hired our first machine learning engineer. Since that time, we’ve grown our machine learning (ML) team to about 10 people, covering disciplines such as machine learning science, engineering, and data infrastructure. No doubt, there are companies using AI as a buzzword to generate attention. But we’ve stayed focused on the measurable benefits of the features our AI team builds.
The main customer benefits we focus on are time savings, speed, and quality. We have a data set of almost a million tagged contracts that we’ve built over eight years—the largest of its type in the world. This unique asset allows us to create incredibly accurate AI models that let us build features with tangible benefits for our customers. For example, for each NDA we process for our asset management customers, we capture over 60 key terms of the final agreement in data format so that our customers can use our reporting tools to easily manage their obligations and benchmark against precedent. Some of these data points are simple, like term of the agreement, but some are nuanced and complicated, such as which parties a no-contact provision covers.
Traditionally, an experienced lawyer captured these data points by manually answering questions. Instead, using our AI models, we can automatically answer over 95% of these questions with near 100% accuracy. This saves a lawyer almost 10 minutes of time for each contract and improves the accuracy of the data, which our asset management customers rely on to comply with critical obligations, such as public securities standstills and non-solicits. Our AI outputs are also continually audited by experienced lawyers, which continues to refine and improve our AI features.
With more asset management firms thinking globally, special attention is being paid to their technology platforms. How are firms you work with approaching this task and what are the benefits when done correctly?
As asset managers grow across asset classes and regions, the complexity of their operations is compounded by the effects of scale, regulation, LP requirements, and an increasingly complex technology and cybersecurity landscape. This coincides with a continued rise in the number and size of funds across the industry, leading to increasing competition and the need to be laser focused on investment performance.
The most sophisticated asset managers are working hard to digitize their mission-critical workflows in partnership with vendors that can deliver comprehensive, global solutions tailored for the industry. This approach has a number of important benefits.
- First, by adopting a comprehensive solution that solves the whole problem, asset managers can quickly reallocate their precious internal resources to more strategic, high-value work that directly impacts investment performance.
- Second, by adopting a solution tailored for asset management, the implementation time and quality of the outcome are substantially better. The alternative is a high degree of customization and configuration, followed by continued education and hand holding of the vendor.
- Third, by adopting a global solution, firms can standardize processes across their global footprint, maintain a single source of truth for their valuable data, and lower the complexity of their operations by maintaining a relationship with a single, scalable vendor.
Speed has never been more important. What can firms do to work more quickly and how can Ontra help?
The easiest way to let time and deals slip away is to move slowly on routine contract negotiations. Ontra is the global leader in managing high-volume, routine contracting for the private markets. We provide a comprehensive solution to automate contracts such as NDAs, joinders, release letters, and vendor contracts for more than 500 asset managers, including Blackstone, Brookfield, Bain Capital, Battery Ventures, and over half the PEI 300. We are maniacally focused on driving down contract turnaround times, so our customers can move faster than their competitors.
Another great way to work faster is to be able to easily track and reference the key terms and obligations in important agreements, such as Limited Partnership Agreements (LPAs), Side Letters, and Credit Agreements. Historically, referencing information in these contracts was a manual and incredibly time-consuming process. For example, knowing what actions your firm has to take to satisfy obligations to LPs if a key person leaves the firm used to involve hundreds of hours of finding and pouring through countless LPAs and Side Letters. Ontra’s Insight platform digitizes these complex agreements into structured data and provides purpose-built workflow and reporting tools. Asset managers and their advisors can quickly and easily stay on top of and reference their obligations and benchmark against precedent.
There is a push to drive strategic value from all areas of an organization, including from corporate law departments. How should general counsels (GCs) think about their part in driving value and their role in the business?
Usually, GCs at private funds aren’t involved in the negotiation and management of the agreements that matter most to the firm’s executive team—fund and deal documents. Partners and deal teams work exclusively with outside counsel on these agreements. This leads executives to view legal departments as cost centers rather than a function that consistently delivers value on what matters most—raising funds, investing capital, and driving higher returns.
While there’s an emerging trend at the largest asset managers to insource some funds and transactional legal work, most in-house teams will never have the capacity to drive the day-to-day execution of this type of work. GCs can, however, become important strategic partners by helping to organize the incredibly valuable data entombed inside the firm’s most important agreements. By making this data more organized and accessible, business teams will be able to move faster, make better decisions, and negotiate more effectively.
For example, giving deal teams the ability to quickly answer questions about key NDA terms, such as whether they can share confidential information with other financing sources or contact a target’s customers or suppliers to support their diligence efforts will allow them to move faster and make better decisions. As another example, giving deal teams the ability to see what covenants other lenders have agreed to in similar credit transactions will allow deal teams to negotiate better terms, which could ultimately have a material impact on returns. Turning contracts into structured, actionable data is one of the most important things we do at Ontra, and we believe it’s one of the most important steps GCs can take to drive value for their organizations.
What have we not talked about that you believe is relevant with the current economic backdrop?
As the economic environment becomes more uncertain, the cybersecurity landscape becomes more complex, and the SEC becomes more focused on ensuring the resilience of the private funds industry, it’s increasingly important for asset managers to put in place sophisticated vendor due diligence processes that select for financially and operationally resilient vendors.
Most asset managers do at least some amount of initial vendor due diligence around financial resilience and cybersecurity. However, there’s a wide range of thoroughness across the industry. Sophisticated asset managers not only ask detailed questions, but also verify the most important matters by reviewing the underlying data. And the most well-run firms have programs in place to periodically refresh their due diligence on vendors they deem mission-critical.
At Ontra, we’ve made major investments in our security infrastructure, including features such as two-factor authentication and single sign-on, and are proud of our many certifications, such as SOC 2. Additionally, because we provide mission-critical technology and services to our customers, we view our strong balance sheet and sustainable P&L as a necessary “feature.” It’s essential that our company can withstand any economic environment and continue to deliver for our customers.
