This content is from: Wealth Management

Former BlackRock Bosses Fund Early-Stage Compliance Startup Paragon Data Labs

Jefferson Mitchell, co-founder and CEO at Paragon Data Labs, sees a part of wealth and asset management “ripe for disruption.”

A group of former BlackRock employees has raised capital for a compliance software startup they co-founded last year called Paragon Data Labs. Complying with regulatory and company policies and procedures might seem humdrum, but they say it is “ripe for disruption” and a good business opportunity.

Paragon said last week it raised $1.75 million in a second seed round of funding from 24 individual investors, many from BlackRock, following a quarter of rapid growth. All nine previous investors participated in the latest round alongside 15 new ones. The minimum investment amount was $100,000 and investments ranged from $100,000 to $250,000, Jefferson Mitchell, co-founder and CEO at Paragon, told RIA Intel. The round was a SAFE (simple agreement for future equity) note and all investors hold equity in the company.

The startup has raised a total of $2.3 million in capital.

No changes were made to Paragon’s board, which includes Joseph Kochansky, president of product and technology at Clearwater Analytics and formerly the head of BlackRock’s Aladdin. Hilary Agin, former managing director and chief of staff to deceased BlackRock co-president and chief operating officer Charles Hallac, is also a member of the board. Both board members participated in a previous round and the latest one. 

Many of the company’s angel investors are former bosses or mentors from BlackRock, Mitchell said.

Scott Condron, chief technology officer at Wilshire and former managing director at BlackRock’s Aladdin Wealth; Jeff Keil, former chairman of the board at Knight Vinke Asset Management, a company co-founded by CalPERS; and Andy Stewart, an Industry Partner for Motive Partners, also all invested in Paragon again. Kristen Dickey, a venture capitalist who serves on the board of several corporate and non-profit organizations including BNY Mellon Investment, was a first-time investor in the latest round. 

While building compliance solutions for BlackRock's Aladdin, Mitchell said he and his colleagues Joshua Litwack and Sid Gupta saw a gap in commercial offerings. They founded Paragon to fill that void and help wealth and asset managers with compliance.

“Something we've heard and experienced firsthand is the complexity and difficulty of keeping up with all of the attestation and certifications and disclosures that you need to do as a financial services employee,” Mitchell said.

Over the past 12 months, Paragon has gone from one to eight clients, including four asset managers and RIAs (Paragon also caters to hedge funds, family offices, and alternative asset managers). Its largest client has about $40 billion under management but the majority of the clients manage between $2 billion and $15 billion, Litwack, chief revenue officer at Paragon, said. Some clients are new funds or RIAs and Paragon is the first compliance technology they have implemented. Other Paragon clients were previously using competitors including Complysci, MCO (My Compliance Office), and Schwab Compliance Technologies, Paragon said.

Since the second quarter, Paragon’s revenue has increased 300 percent and its annual recurring revenue is $209,000. It has 17 employees.

Paragon’s small size and customizable platform makes it easier to address client needs and innovate to fit an ever-changing compliance environment, according to Litwack. Each client can customize their environment and workflow to accommodate their needs, he said.

“A lot of other tools are kind of a one-size-fits-all solution, which may have worked 10, 15 years ago, but as the regulatory environment evolved, there's nuance and intricacy, those compliance teams are struggling to be able to take that evolution and build it into these one-size-fits-all solutions,” Litwack said. 

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Paragon has direct data aggregation connections to more than 1300 financial institutions through Electra Information Systems, which was acquired by Gresham Technologies this year, and account aggregation access to more than 10,000 financial institutions through Plaid.

Normalizing data — or making sure data is consistently a certain quality — that is imported from thousands of different financial institutions into each client’s work environment, is something attracting customers to Paragon, Litwack said. Paragon can bring millions of rows of data into their browser where compliance teams can “slice and dice” the information directly in the browser, he said.

Paragon can also collect data around mandatory employee disclosures about potential sources of conflict, like political contributions, personal trading, and private investments. “A key part of the oversight responsibility for our clients is monitoring their employees’ trading activity,” Litwack said. 

“We believe that employees want to be transparent with their compliance teams, but existing solutions don't make it easy,” Mitchell said in the statement.

Providing a data-centered way to solve compliance issues like this was why Paragon was founded, said Litwack. 

Paragon charges wealth and asset managers with 15 users or fewer a $7,500 annual fee for its platform. The annual fee for organizations with thousands of employees could be as much as several hundred thousand a year, a spokesperson for the company said. 

The startup is already in some preliminary talks with potential investors for another round of capital. It hopes to complete that round and announce it in the first quarter of 2022, Mitchell told RIA Intel.

Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.

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