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January 24, 2023

Cash Flow Portal How To Select Syndication Software With Perry Zheng [EP137]

Today we have Perry Zheng on the show! Are you a multifamily investor or syndicator looking for a better way to manage your investments? Perry Zheng recognizes the challenges investors and syndicators often face when managing their multifamily properties. So, he developed Cash Flow Portal – a comprehensive software solution that streamlines the entire process of syndication. With features like deal-room organization, automated document management, financial modeling templates and more, Cash Flow Portal makes it easy to collaborate with partners and investors while staying organized throughout each step of the investment process. In this episode we discuss how Cash Flow Portal handles various pain points in the syndication process. Listen and learn!

Table of Contents:

Introducing Perry Zheng, CEO of Cash Flow Portal

Introducing Perry Zheng, CEO of Cash Flow Portal
Perry Zheng

Darin: Perry Zheng lives on the West Coast in California. He saw an opportunity to help both investors and syndicators and that prompted him to create Cash Flow Portal. He didn't need to allocate his funds or his time to this venture. But he's an entrepreneur, and he is passionate about creating best-in-class solutions.

A little bit on how we know each other. We're both part of the same multifamily mentorship group based out of Dallas. Perry is in California, but I met him at a number of different networking events. Then not only has he invested in multifamily and we're going to talk about that. But he's also started a new software company. I want to talk to him about that as well.

With that, I typically ask how many properties and how many units you're invested in. If you could share that with the listeners. But then also share the name of your company and why'd you start it?

Perry: So my name is Perry Zheng, I'm the founder and CEO of Cash Flow Portal. I started off in tech, worked at Lyft, Twitter, Amazon. And I was an engineering manager at Lyft. I started investing in single family, accumulated about seven of them before going to multifamily. In 2018, did my first deal, 172-unit apartment complex in Dallas, Texas. Raised $3.5 million out of the $4.3 million on that deal. Then 2020, did a 408-unit. Last year, did a 236-unit and this year did a 208-unit.

Discover How To Save Taxes and Build Wealth

How Cash Flow Portal Started

Perry: I have more than 1,050 units including all my single family portfolio and four properties, four syndications. I don't live in Dallas, I live out of state. But I have a really good business partner that's boots on the ground in Dallas.

Darin: That's fantastic. You've done a lot, man, since you came on board for sure. That's fantastic. The name of the company is Cash Flow Portal. Why did you start the company?

Perry: On my first deal, I was the capital raiser and my partner is the boots on the ground, the asset manager. While I was raising money, it was 70 investors, $4.3 million raise. I remember sending out 70 DocuSigns to investors. They sign it, I countersign. I send them wire instructions through email, they send a wire. I put that on my spreadsheet that I got the wire. And I send another email, say, "Hey, look, I got your wire." Then they're like, "Oh, I invest a 100K, I want to divide that a 100K into 50K IRA and 50K joint tenancy." That means I actually have to scratch the old document. I send them two new documents.

Coming from an engineering background, I thought that was extremely inefficient. That was the first seed that I want to automate this or I want to make this a lot better. At the time, I was still an engineering manager at Lyft and I was one of the early employees. When I joined, it was 300 people. When I left, it was 3,000 people. I was in this what's called a golden handcuff. I never take the plunge. However, that hurts.

Darin: Because of stock options?

The Impetus for Perry Zheng to Quit His Job

Perry: Yes, absolutely. Then the following year, the 2020, we actually use a large syndication software for the 408-unit apartment complex raised. Then 2021 is when I used my own software for the raise. At the time, I was still actually at Lyft and I couldn't disclose I owned the company. My LPs were like, "Oh whatever you're using this year was better than what you were using last year." I'm like, that cannot be true because the other company is like a billion-dollar company.

That was the impetus for me to quit my job. We applied to an incubator program in California called Y Combinator or YC and the acceptance rate is at 1.8%. Some of the notable alumni include Airbnb, DoorDash, Dropbox, Instacart, Coinbase, and so on. We were very fortunate that we got in, and since then, we raised $5 million. We have 30 employees now and I put 99.9% of my time into my software company. Which is to help other syndicators manage their deals and investors and not as much time on my own syndications.

Darin: That's fantastic. What would you say, I mean you used a different software application for one of your deals. I've used several applications as a co-sponsor on different GP deals. What would you say is the big pain point, the big efficiency that your application solved?

Perry: By the way, for the audience, we never really sync up on this topic. I'm going to ask you, Darin, you are a co-sponsor on a lot of these on your software. Do you need a different login for each one of the co-sponsor portals?

The Problems Cash Flow Portal Solve

Darin: Yes, I do.

5 Step Process Ad

Perry: Then when you are investing as an LP, do you need a separate email address for your LP investments?

Darin: I do.

Perry: Does that mean that at the end of the year, you have to log in to say 10 different portals to get 10 different K-1s if you assume that you invest with 10 different co-sponsors?

Darin: Let me think. Some of the applications will bundle the deals. I could be partnered on multiple deals and log in once as an LP and see all my deals. But some of them require me to sign in with different emails.

Perry: The email in which you used to syndicate is a different email from the email in which you used to invest? Is that correct?

Darin: I have a different email that I use as the co-sponsor and a different email for when I'm going to personally invest.

Perry: And so this is a classic example. One differentiator, there are actually a lot of differentiators.

One differentiator is Cash Flow Portal allows a single email that allows you to syndicate multiple deals with multiple sponsors. It is also the same email that allows you to invest as a passive investor on your own deal. As a passive investor, that email, when you invest in say five different deals that use Cash Flow Portal, it's a single login to see all your K-1s in one dashboard.

The Inspiration for Cash Flow Portal

The Inspiration for Cash Flow Portal
Photographer: Compare Fibre | Source: Unsplash

Darin: I did see that. I actually had a deal that I was a co-sponsor on and happy for you. They transferred their business from the application that we used to raise the capital over to your software. When I did that migration, that was one of the things I noticed was like, I was like only need one email. I don't need to have two email addresses. I thought that was cool. There's basically a toggle feature on the software that lets you go from investor to co-sponsor, and back and forth.

Perry: Exactly.

Darin: I liked that as a co-sponsor for sure.

Perry: Then people as you know, where does the inspiration come from? It came from the Airbnb inspiration. On Airbnb you have a single login that allows you to toggle between traveling and hosting. I think a great meta point is I came from a tech world, I was raised as a techie, I did not know syndication back in 2015. I was just doing my single families.

And I was pretty motivated to create a real estate portfolio and that's why I start buying single families. Then after seven of those, I basically maxed out my debt-to-income ratio and that's how I got into multifamily. But the multifamily is nice but after a while, you start finding your niche, which is my niche and my passion is the intersection of technology and real estate.

This is a classic example of that. When we start a company, I was very adamant that we have a single login. Because it's painful to have multiple emails when you try to get your K-1s at the end of the year.

Why Cash Flow Portal Can’t Sync With Other REI Applications

Darin: It is painful. All right, so you said you put me on the spot. I have a few questions too. Some of them maybe you guys solve and some of them maybe are still in the works. I have investors that have invested with me as a co-sponsor in multiple deals with different sponsors. And so some of them use different portals ideally and I don't know how to solve this problem. But technology at some point probably should be able to. It would be nice for the investor to be able to sync all those up regardless of whether they are with Cash Flow Portal or multiple other hosting platforms. What's your take on that?

Perry: Yes, absolutely. Again, some of the concepts I learned from the technology world and it's a combination of technology, business, and so on. From a technology perspective that's not hard. From a business perspective, that is difficult in the sense that there's a reason that LinkedIn, Facebook, Twitter never opened up their API for each other. And so within the syndication space, there is a reason that ResMan and AppFolio and these property management companies do not open up their API for others. Unless you're like a very preferred client because data is important, and so do we.

That's number one, which is it's hard to solve that problem. Now so within that limitation, what does Cash Flow Portal do to solve that? That's actually a second differentiator. Because your email is a single login for all your investments that you invest with the GPs, there is a button called investment tracker, a menu icon called investment tracker where you're in the LP view.

Investment Tracker and Add Investment Buttons

Perry: Then within that, there is the SREO information. The GP will put in the SREO information in their side and then you will get the percentage pro rata. This is in contrast to the traditional way of doing it. Which is they upload a document and you have to put that in your own spreadsheet of the percentage you own and then calculate your SREO. This is especially important for co-sponsors that need this feature. Because they may need to provide a schedule, a real estate owned for the lender to get along.

Darin: This is only for deals that are raised with Cash Flow Portal?

Perry: With Cash Flow Portal. However, as an LP on that particular page, at the upper right-hand corner there is a button called Add Investment. That's how an LP can add manual investments to make full of their SREO information. Now as again, because of point number one, there's no way that you can sync directly. But there's a way to manually add. Now what I hope for is as more and more deals come to Cash Flow Portal, you can do that.

Darin: It's not completely linked. But if I think about, say my personal stock portfolio, I use Vanguard and I have data in there. But I may end up having other investments someplace else. I can go to say Yahoo Finance or someplace and just create a portfolio that tracks all the stocks and everything. That basically would solve that. You manually have to put it in there, but they could say, "Okay, I'm going to go and see all my LP investments regardless if it was within Cash Flow Portal or not." But you'd have to have some manual intervention there. But that's still nice to know.

Visualizing Which Deal Performed Best

Perry: This is actually a really nice journey. Some LPs put a bunch of passive investments on there, that's how they keep track. Now the nice thing about keeping track here is that you can keep track of distributions as well. You can keep track of your IRR and then even for those that are not on Cash Flow Portal. Because it's built on top of software instead of spreadsheets which is a feature we will implement sometime next year, early next year. Which is how does this deal measure up against some common indices like S&P 500 during this same time horizon?

I actually did a math from December 2019 to April of 2022 is the duration of our first syndication. We made a 94% return on that deal. And so your first deal also went really well. But how does that measure up against the rise in S&P during the same time horizon?

People say S&P has an 8% annualized return, but that's not really exactly true. Certain years have way lower return. And so I actually looked it up, S&P actually had a 47% return over that two and a half years, and we did a 94%. We're twice as good. We have another deal that's going full cycle between December of 2020 to maybe January of 2023, which hasn't happened yet. It will be very interesting if I look up on S&P, what happened during that time.

I looked up from December 2020 to December of 2022, S&P actually only rose by 6%. We got a 94% return, and S&P did a 6% return. It would be really cool for the LP to visualize which deals are doing the best.

Comparing Apples to Apples

Darin: I think it's interesting for new people that are getting in the space too. Because I have some investors whose stock portfolio did very well not in 2022 but in 2021. They're like, "Why should I move out of stocks when stocks are doing so well? But to your point, if you're able to compare other LP real estate type investments and they're significantly better as compared to the S&P, you can point to that and it's not overselling. This is what really happened. That's interesting.

Perry: It helps answer two questions. The first question, sometimes even for experienced LPs, they're like, "Yes, you haven't experienced a 2008 downturn. You cannot claim that you are a good syndicator. Because all the deals in the last few years did well. So, there's not much validation." But then that kind of argument is the same argument that can be used many, many times. There's no way to prove that someone is actually good.

It helps answer even if you're comparing apples to apples. Because I also owned an Airbnb during that period, September 2019 to April 2022 while I bought the first syndication. That first Airbnb I bought in Seattle, we bought it for 875K, we sold it for $1.175 million. Our IRR is like a 28% return. By the way, this is the best time in Seattle to ever purchase a single family and then sold it. How many hours I spent on it? A lot, bought the furnitures, put it on Airbnb listing.

How Flexible Is Cash Flow Portal

How Flexible Is Cash Flow Portal
Photographer: Richard Horvath | Source: Unsplash

Perry: I did all the single family stuff and then I compared that against as an LP. My own syndication actually made more on my syndication. How is that possible? It's only when you compare apples to apples during the same time period can you answer the question. There's still an edge, there's still a delta over the S&P. I think the second question in my answer is that it becomes more pronounced in the downturn. As we saw during the downturn, real estate way outperforms than the S&P.

Darin: Yes, that's interesting. Because I had somebody on the podcast that said they had an investor that wasn't in any real estate-related passive investments and then decided to get into one. It increased like 50% in a year, which was amazing. But then he said, "You know what? My stocks, that money would've been in stocks and that went down by 25%." So I really had a 75% gain on the money that I shifted over there. And so that's extremely important. Hey, does the software have the ability to have co-sponsors versus lead sponsors?

Perry: By the way, you can more than feel free to grill me with any questions about the company. Because we actually have basically everything. Absolutely. Our co-sponsors is really, really good. The way it works is that every person has an account. An account just happens to have different permissions in different deals. On one deal, I'm a lead sponsor. On the other deal, I'm a co-sponsor. This is different from say other portals that is you have to join someone else's portal in order to be a co-sponsor.

Your Cash Flow Portal Account Is Branded and Secure

Perry: The problem with that statement is when you send out the link, it actually sends out that lead sponsors logo on it. Whereas in our case, you have your account and that account has your own brand local background image, your white label portal. But that account just happens to be a co-sponsor on this deal.

When you send out the offering of the deal that you're co-sponsoring, it still has your logo on it. But everything goes to the same cap table, so the lead sponsor can still countersign everything. And then you will show your logo. Then the next time you are working with another partner and you are the lead sponsor this time, well, it's still the same account. Still the same logo except just you have the permission on that deal as a lead sponsor.

Darin: That's great.

Perry: Now why is that important? Because every time when you send out the offering link, it's linked to your account. You are the select sponsor automatically. When you're the select sponsor, a contact is created in your CRM between that investor and you. If that contact has not exist in your CRM. That contact does not exist in any other sponsor CRM. So that means there's no way for them to email the investors of other co-sponsor. They don't even see what they are.

Darin: Let me ask you this because there's certain walls that are created in certain platforms and certain co-sponsors like to work differently. And so some of them want to really guard their investors and I'm like a handshake guy.

How Cash Flow Portal Can Help You Save Time and Energy

Darin: I'm like, "Look, just don't blatantly market all these to all the investors if I'm not involved in your future deals. But I want you to send all the email correspondence of the monthly."

I don't want to have to do that admin piece. That's part of the attraction for me to be a co-sponsor is I don't have to deal with that. Where some other people, "Well, I'll send you the monthly email and then you could turn it around and send it to your investors." Well, I don't even want to do that. Can you change that with permissions?

Perry: Yes, absolutely. That's a great point. So we talked about the marketing piece, the CRM, the content is not created in the other co-sponsors or sponsored CRM besides the select sponsor. When it comes to deal-level monthly updates, the lead sponsor or the team staff can create that monthly update. Then what happens, which is magic and I'm very proud of what we make. We made this because I'm a syndicator so I know kind of like what's the dynamic.

Darin: Knowing the business.

Perry: What it does is that the co-sponsors, if they have the setting as relate this directly to my investors on this deal, then it goes directly from that email to the co-sponsor's LPs. But then there's another setting which you can toggle say, I want to review it before it's sent to my investors. And so when you choose that, what happens is that that same email does not get sent to the co-sponsors LPs. It's sent as it appears as a draft on that co-sponsor's inbox on Cash Flow Portal.

Can Cash Flow Portal Protect Your Contacts?

Perry: They can go in, they can change whatever they want technically. They will just change the last paragraph to make a little bit more personal. Or more like personal for their LPs because some LPs are not all real estate professionals. For example, those depreciations don't mean as much to them, as example. Then they can send from their inbox.

We provide a really granular way for the co-sponsors to decide where to intercept the email before sending or to just let it bypass. In your case, it sounds like you just want to bypass. I think we're the only platform that actually have this.

Darin: Let me ask you this and the contact is at the co-sponsor level. Say, it's my investor and I give permission to send it to the lead sponsors. When they send out their monthly communication, it goes to all of my investors. But now they get another deal, the lead sponsor gets another deal. Are my investors' emails and everything visible to them?

Perry: No. The emails are not visible.

Darin: They can't mark it because I've had this situation happen before, because I am a handshake guy. I've had some situation where I'm like, "Look, just don't market to future deals. But here are the emails, I'll send the email, I don't want to do the monthly correspondence. Here are the emails, but segregate it somehow." Then all of a sudden one of my investors tells me, "Hey, look, I just got this email from so-and-so, so he used it." But with this system it sounds like it would protect it?

A One Page Document Can Help Protect Your Contacts

Perry: And so just a little bit of the company. We have 500 GPs on the platform, we have more than 10,000 LPs. We have a hundred percent retention so far, 0% churn. It's like we're 20X, our revenue this year, so we're doing extremely well. And so with that as context, as the backdrop, let me answer your question.

As a GP, when they have a new deal, they cannot send a marketing email to your LPs. However, then why is that they can send monthly updates to your LPs? The trick is you can send emails without knowing the email address on the platform. All I'm saying is I can send to the investors on this deal, it doesn't mean I know their email address.

Darin: But GP, the lead sponsor would still see the email address on the signed documents though, right?

Perry: Good question.

Darin: They could set up a new account within their database?

Perry: Yes, that's a fantastic point. Most of the legal documents does not have the email address in it. However, most of the documents actually have a paper trail at the end. They will say so-and-so just logged in. So-and-so just viewed the document and then so-and-so just signed it.

My point is you are absolutely right. From an easy to manipulate the data perspective, the GP cannot do it. At the end, if the GPs really want to do it, they will find a way. Which is go to the document, go to the very end and then find all the paper trail. I still recommend that the co-sponsors sign actually a formal one-page document that just says, "We will not poach other GPs, LPs."

Darin: You provide that one-page document?

The Advantage of Cash Flow Portal to LP’s

The Advantage of Cash Flow Portal to LP’s
Photographer: Den Harrson | Source: Unsplash

Perry: I'm more than happy to provide that for the audience if you email me at perry@cashflowportal.com. There is an argument to say, could we make that as part of the resources? yes, that's something I could do.

Darin: Yes. I mean look, I'm a handshake guy. Most GPs are straight up and aren't going to do it and some of them make mistakes, whatever. They didn't mean to. They have it in their database and they don't have a good well-segmented one. But I think it's shortsighted because if you do that then people don't want to work with you on future deals.

But anything that the software can do to provide that protection and maybe it's as simple as, the GP acknowledges something. Then that might make them nervous to not want to do it. Because hey, there's a record that he documented that he's not going to use this data. But in the event, I'm going on. I'm understanding the advantages to a co-sponsor. What are the advantages to the GP and what are the advantages to the LP’s?

Perry: Yes, absolutely. For the LPs, there is a way to fund the investment directly on the portal. In other portals, you have to wire the money separately from the actual portal itself.

The Cash Flow Portal Pricing

Perry: You have to do a Chase wire transfer and that sometimes could be 25, 35 bucks. You can choose ACH funding and then that will directly connect with the LP's bank account and then fund it. That's a big plus.

Darin: What's the timing? I've seen ACH could be the next day or three days or what?

Perry: The wire is same day or next day. ACH funding takes about two to three business days.

Darin: So that one's free? ACH?

Perry: Absolutely free. Our pricing is all inclusive. It's based on equity under management. The first million is $99. Then the second million is like 50 bucks more. The third million is 29 bucks more. And so if you raise say $30 million, which is a lot, if you single-handedly raised 30 million, then it's only like 400, 300 bucks a month.

Darin: What if you as a co-sponsor have used your software. But then you're partnering with somebody else that's the lead on something else using a different software that you have all your investors in your database. But now you have to go and use their software or does yours somehow work with them?

Perry: What's my take on that? Yes, absolutely. Thank you for the question. We have a ton of co-sponsors that actually use our software to raise their $1 million to $2 million that is separate from the lead sponsors portal. Now, why is that?

The Pros and Cons If You Become a Co-sponsor on the Cash Flow Portal

Darin: Is that like a fund-of-funds structure?

Perry: No, they are literally just a co-sponsor.

Darin: They're just a co-sponsor. They're not doing a separate PPM and everything, and raising the capital separately?

Perry: Yes. It's the same PPM. Just to be clear, we also do fund of funds. We actually also do customizable asset funds and they're open-ended and close-ended. We do both. Let's talk about your co-sponsor and then the lead sponsor uses another portal. What do you do, right?

Option one is you become a co-sponsor of the lead sponsors portal. When one makes that choice, the pros is that there's not much set-up time to do. The con is that the LP will have to go to different portals to fetch their K-1s. The other con is that the communication is not really centralized. Sometimes the LPs don't even know which link is that investment anymore after a while. The third one is it felt like there's always that chance that, not intentionally, that the contacts could be leaked on different portals and different lead sponsors. There's that.

Option two is that if you're raising say 1.5 million out of the overall 15 million on your own under still you're a co-sponsor. You're not doing your fund of funds. You can use Cash Flow Portal too for your $1.5 million raise. What happens is that there is one ledger line item on the lead sponsor's portal that says Darin invested $1.5 million. That's Darin's account.

How Countersign Works in the Cash Flow Portal

Perry: Then when they do distributions, they basically do the distribution. You may have to create a bank for the distributions, like a placeholder bank. They put money in your bank and then you distribute to your own investors. That's that.

Darin: Hold on, the documents. I'm not the one signing the documents countersigning. It's the lead sponsor. How does that happen?

Perry: First of all, I will pause here and say we take the legal documents that you provided. We actually put all the signature blocks on top of these legal documents for you. That's actually the most painful thing that the co-sponsor doesn't want to do when they want to move to a new portal. But we do it so that's no longer an issue. I'll explain the second, we have digital test questionnaire, that makes it super easy.

When it comes to the countersign, we suggest that the lead sponsor basically put the signature there already. Then you as the co-sponsor will just be the one countersigning. Now you can say, "Shouldn't the lead sponsor be the one countersigning?" That's true, but they're just basically pre-countersigning. The LP will sign and then Darin, you're basically the approver of that. That's perfectly legal. Talk to any legal counsel about that.

Darin: Okay, gotcha.

Perry: You still need to countersign, but it just happens that for your investors, you are the one countersigning. But that's already been pre-countersigned by the lead sponsor.

The Value That Investors See in Cash Flow Portal

The Value That Investors See in Cash Flow Portal
Photographer: Clark Tibbs | Source: Unsplash

Darin: I saw on your website that you had some deals, some GPs that raised some significant money. One, how much money has been raised by your top GPs? Then two, what value are they seeing moving? Because these are not GPs that were not using a platform before. They were coming from a different platform, they saw value in yours. What was that value?

Perry: Our customers have raised more than multiple billions on the platform. Now some of it is migrations. Some of it is that they're actually raising money through the document signing. The biggest reason they move over, there is the product reason and then there's kind of the culture and the DNA reason. Like the character of the company reason. The product reason is that I believe we really focus on the LP ease of use and the GP ease of use. But when LPs are happy, it makes the GPs look good. As a result, the GPs think like, "Oh wow, your platform is awesome."

Darin: I'm going to stop you right there because that is so true. There are so many times that if the process went easy, then it's a reflection on you as the co-sponsor or the lead sponsor. The investor's like, "Oh man, that was easy." I really liked that.

Perry: That's a common reframe, is they raised $14 million. They oversubscribe in basically three days and then not a single LP complaint, I couldn't use the portal.

Darin: That's huge. I've been on some other ones where like, "Man, this is so tough, it's just not working or it's clunky or whatever." That's interesting.

A Digitized Questionnaire

Perry: We took a painstaking effort to make sure the LP experience is good. As an example, a regular subscription document consists of four parts. There is the questionnaire, there is the PPM, there is the subscription booklet. Then finally there's the operating agreement. The last three documents are actually deal-specific. The first documents are just questions from the SEC directly. They have nothing to do with the deal itself. They're just information about the LP.

What we do is we digitalize the first part. What that means, we ask them, are you accredited? How are you accredited? And then if you're not accredited, these are information you need to fill out. We ask them their address and so on. Once we get that information, it gets prepopulated on the legal document. If you invest $50,000, we prepopulate the $50,000 and we actually translate that to 50 units. Because we determine you can set how much is each unit equal to.

The little things trip LPs up, they're like, "I don't know how many units." Then when they go to the W-9 form, they're like, "I'm an LLC. Depending on whether I'm a single proprietorship versus an LLC. I need to fill out the EIN versus the SSA." Every LP goes through this. And so you can make them both optional. In that case, there are which one do I fill out. There's no way to say fill out exactly one of the two. There's no way to say that on a DocuSign.

How Efficiency Can Help You Close a Deal

Perry: What we do is we also digitalize the W-9 form. By the time they fill out both of them on the actual document it’s literally four clicks and they're done. Then at the end, they're like, "On the previous one, I spent 20 minutes filling out. On this one, I spent two or three minutes. I just filled out. Did I invest $50,000?"

Darin: That's great because from a capital raiser, from a GP or co-sponsor's perspective, you could say, "Oh, what's this big deal between 5 minutes and 15 minutes?" Well, I've had some investors that are like, "Hey Darin, your deal looks good, but I just don't have the time."

And so if in their mind they're thinking to themselves, "Man, last time it was kind of a pain and I don't have that chunk of time to set aside for this. " Then they're just like, "Hey, I'm traveling. I can't deal with it." But if they're like, "Wow, that was a really smooth process and I could do this in the airport in five minutes and be done." Then that could help get a deal done, so that's huge.

Hey, on that process, a couple of things. One, does it help? Another place I see investors get tripped up is, "Hey Darin, man, there's like three or four investor classes, which class am I investing in?" That confuses them sometimes. Because they looked at the investment deck maybe a week ago. They know what type of investor class, but now they're online doing the documents and they're like, "What class am I supposed to do?"

Why Cash Flow Portal Do Not Ask For ACH Distribution Information

Perry: Right. You have a dropdown to pick which class. When you click on the class on the right-hand side, it will show kind of the preferred return. And so that's a refresher.

Darin: It'll have what was in the investment deck as something that you click on that you can see. And so you can see, okay, class A is all cash flow, class B is this. That's great.

Perry: The reason that it works really seamlessly is I think some portals actually send out three different links. It's like if you’re class A, click on this link, class B, click on this link. We don't do that. It's a single link within it. They can choose which class and then depending on which class they choose, it has a summary on the right-hand side that they can refresh.

Darin: Perfect. Another detailed question. When you're going through the document signing, I just did one recently that didn't require the LP to put in their bank information. Then afterwards, I have to go back to each investor and say, "Hey, you have to log on again and put in your bank information so that we can get the ACHs." It's a pain for me as the co-sponsor and it's also a pain for the LP. Do you kind of push that in front of people?

Perry: We actually are on the camp right now that we don't ask for ACH distribution information. The reason we do that is when they are investing, that is not a thing they remember off the top of their head.

Cash Flow Portal Is Customizable

Perry: They have to log into Chase, figure out that number, and then put it in. We consider that "friction" to just get the deal done. What we do afterwards is that on the dashboard, there will be action items they need to populate in order to get their K-1s or get their first distribution. We believe based on historical data, the LPs are very motivated to put in their bank account information. If that means that's the only way to get distributed. That's point number one.

Point number two is that by default, we don't ask for ACH distribution information during the time of funding. That was a conscious decision because some GPs are like, "I don't need that right now." So just get them to sign the document first. Number two, however, is the GP can actually customize the funnel to add that information at the end if they want to. This is like a toggle, ask for distribution information.

Then in that case, those GPs will ask their LPs. Because their point of view is that I have such a good relationship with my LPs, I don't mind asking for it. It takes a lot of effort to even want to invest. By the time they want to invest, they got to put in the ACH information regardless.

Again, we are serving a spectrum of customers. What we can do is we make it customizable. That customization by the way is another point goes to some GPs actually want people to wire the money before they countersign.

The Tiny Difference Maker

The Tiny Difference Maker
Photographer: Arthur Mazi | Source: Unsplash

Perry: Some GPs want to countersign before they wire the money. We support both, but we default it that you have to countersign before you wire the money. But there is a toggle. I toggle it and then they have to wire the money and then you countersign last step.

Darin: The thing is the software is like toggle. It's just one little step for us, but it could be world's different in terms of coding and getting that to happen. If you don't think of it on the front end when you're designing it, that could be a major issue in terms of trying to implement that flexibility going forward.

Perry: You asked me some features that we have and what are some differentiators. I also want to talk about, again, I didn't mean this ought to be almost like about Cash Flow Portal.

Darin: No, you know what? I was going to split it between software and investing. But the thing is I think it's important. Because look, three, four years ago, I did my deal where sign the documents, scan it back in, and send it to me. That was the first syndication deal. There wasn't these portals and they were costly at first and then that came down. But there's still a lot that can be done. And so I love the fact that you have all this flexibility.

Perry: From a culture perspective, I'm super proud and grateful for the team members that we have. Some of the biggest reasons that actually the big customers that were managing $200 million, $300 million of equity management move over is that our engineering team is all in North America.

The Team Behind Cash Flow Portal

Perry: In fact, if we have to summarize our biggest strength is that there are not that many times in which Silicon Valley engineering bar is brought into commercial real estate. This is actually one of the very first few times. Our engineering team, five of them went to University of Washington. Two of them went to MIT. One went to University of Michigan. Two people went to Duke.

Some people turned down Facebook to join us. Some people turned down Google to join us. Basically, it is a Silicon Valley engineering team. I'm super grateful of my experience. I used to be at Lyft, so I know these people. Because we are Y Combinator-backed, that has some kind of weight to it that we hired the best folks. As a result, we're playing the long game. Which means that none of those features which is created out of thin air, is that we create something that's cool. It doesn't really work, let's make it better. How is the product built? It doesn't appear. It's built pixel by pixel.

It's not that we have the best product always, it's that we move, probably one of the fastest. As a result we end up closer and closer to a really, really good product, and the customers see that. That's from a character perspective that we really focus on innovation and we hire really good talent when we're designing these systems.

Darin: That's awesome. You are coming from the space so you understand the pain points. What is, if you're going to marketing terms, what's the hook? What's the secret sauce? What's the major differentiator between you and others? I know we talked about a lot of the feature function.

Cash Flow Portal’s Support

Perry: The biggest hook is that it makes the GPs look professional. It's very, very easy to use and modern and we have excellent support.

Darin: Can you actually call somebody on support and get somebody on the phone? What frustrates me to no end with software companies is that they don't publish a phone number anymore. You can chat with somebody or you can send them an email, but sometimes I just want to talk to somebody.

Perry: Great question. What we do is we create a WhatsApp group for the sponsor that's doing the migration and whatnot. When you have a new deal, you will have different co-sponsors on it. You can create a new WhatsApp group with just that one deal. Then you can invite all your co-sponsors into that chat group that's dedicated to you. Then so within it, you can say things like, "I have X, Y question." We usually respond within an hour to two hours. If it's a bug, we usually fix it in 24 hours. That's a big differentiator.

Now you can say within WhatsApp you can actually speak into the microphone. Some people just don't like typing. Then sometimes it's like, well we don't exactly cannot produce the bug. Let's go on a call. We'll send a Calendly link within 30 minutes and then you can book it right there and then for maybe later that day or the next day. Support is our way to gain customer feedback and so we can iterate on the product.

The Geek Engineering Mindset

Perry: A big point to make is our support is all in North America. They actually went to University of Toronto and really good universities. But at the end of the day, this is my geek engineering mindset which is that you can have the best support, but if the engineering cannot fix the problem, no amount of good customer service helps.

To be fair, we have excellent customer service and we are very on top of things. But what's more important is the support is tightly integrated with engineering. They speak in the same language. They're not just support to do support. They're actually support to improve the product. And so as a result, the product improves, so then other GPs don't have to ask the same question.

Darin: Yes, I mean that's huge. I'm sure you've gone through it too. You talk to big companies and it doesn't even matter. You feel like you're talking to deaf ears because I can tell you all things and they probably heard it a million times. But they don't have any channel to actually create change. It's friction with the customer and frustration with the customer. But the customer service person's like, "I'm just an employee here and I got my hands tied. I hear you and I'm sorry that you feel that way. But really there's nothing I can do."

Perry: Yes. The other scenario in which people don't like support is most GPs are type A personality. They're very competent. The reason they're in multifamily is they basically graduate from single family. And so by definition, all the GPs are probably in the top 1% in terms of real estate knowledge and just drive.

Cash Flow Portal’s Valuation

Perry: The worst thing that can happen is you explain things in a very clear and nuanced term and then the other side, they just don't get it. They ask the questions, "You should have gotten this. Why do you even ask this question?" It's a different kind of support. It has to be a very educated and very high competent support team.

Darin: That's awesome. Let me ask you this. One, I remember, man, it was probably two or three years ago when you sent out and you were raising capital for your company. I wish I had invested for sure. But now that we're in more challenging times, both higher interest rates, inverted yield curve. Everyone's talking about a recession coming, technology evaluations are down. Big tech companies are starting to lay people off. How does that impact the next raises for your company?

Perry: Since we raise last round, our revenue has 30X something. So, that's good.

Darin: That's good. Yes. I would say.

Perry: The valuation, I will say probably only doubles. So to some degree, our investors in the company understood that if they invest in any angel investment in the last couple of years, the valuation hasn't gone up. Even if the company does really well. In fact, the fact that the company is able to survive is amazing news to them. Those angel investors and VCs are playing the long game.

The Angel Investors’ Mindset

Perry: One thing really important for the people who are into angel investing is, this is an amazing fact, is they actually don't care about doubling their money. They want to 100X their money. The fact that the valuation gone down, it's actually a perfect time for them to invest.

As an example, if someone evaluates a startup at a hundred million dollar valuation versus a $70 million valuation, they want to own 20% of the company. 20% of a hundred million is $20 million. 20% of, say, $80 million is $16 million. There's a $4 million difference.

To the VCs, that $4 million difference is a chump change. Because the reward of being right is that they 100X their investment. The risk of being wrong is that they lost $4 million, fine. That to them is fine.

And so that's why the VC care more about the ownership of the company than about how much they're investing. It was a very interesting concept for me is that they're not trying to find, squeeze the little out of people. The ability to identify the right startup is way more important than the fact that they have to put in two more million dollars.

And so that means when it comes to the raise, at the end, the great companies are a waiting machine. Eventually they will get the funding they needed. The fact that we have data from Y Combinator, which is 1.8% to get accepted into YC. And then once you get accepted, there is one out of seven companies went on to be worth at least $150 million or more as a company.

Cash Flow Portal’s Future

Cash Flow Portal’s Future
Photographer: Johannes Plenio | Source: Unsplash

Perry: Then out of the companies that are worth $150 million or more, 27% of them went on to become billion-dollar companies. As soon as someone gets accepted into YC, historically, there is a 4% chance that they eventually become a billion-dollar company.

Darin: Let me ask you two questions, one of which I know the answer but I want to hear it from you. One is do you think that your company is one that will fall into that 4%? Then secondly, are you still taking angel investors and how does that work?

Perry: Absolutely, we want to go IPO where I think there's a ton of roadmap that we want to build. Actually one of the YC partners told me, which is basically our mentor within YC, they made a comment that they consider me a kind of the top 10% of founders within the batch.

Now obviously, I don't know if they say it to everyone and whatnot, but I consider that a compliment. If I'm in the top 10%, that means we'll probably be worth at least $150 million. Again, this is not correlated directly. That's just what they said. But I do see that our trajectory has been really, really good in the last couple of years. That's point number one. The reason that we could become a billion-dollar company is that there are billion-dollar company investor portals and there is so much other things we could build.

Cash Flow Portal Is a Beyond Investor Portal

Perry: Cash Flow Portal, portal is just the feature, cash flow is the brand. We will have Cash Flow KPIs that allow people to put in the KPI. Then the monthly updates is just automatically generated from the KPIs. We have Cash Flow Underwriting that allows folks to underwrite and just project different scenarios using software instead of spreadsheet.

We have KPI bank. Imagine you can just create a bank on a software layer that every co-sponsor has their own bank, whatever. You can have a credit card that's being used for this particular real estate syndication to gain credit card points. This is a decade-long journey.

Yes, I am confident. We're no longer doing investor portal in the purest sense. We are still working on it and we're still spending 90%. But we are building it in a way that allow us to extend beyond investor portal, if that makes sense. Still, our customers are the GPs. What else does the GP need? GPs need to raise more money, GPs need operational efficiency, and GPs just want to achieve good returns.

Darin: What does that mean beyond investor portal?

Perry: A typical investor portal nowadays is the signing documents, cap table management, distributions, email updates, and K-1s, and we have all of those. But a typical investor portal today does not have bank creation, entity creation, does not have KPIs. Does not necessarily have underwriting spreadsheet, does not have a marketplace in which the GPs can tap into to raise extra money.

Digitization and Tokenization

Darin: Well, I mean crypto is in the tank right now. But I see an opportunity for digitization and tokenization helping, say, provide more liquidity to, say, LP shares going forward. Is that kind of in the thought process as well?

Perry: Yes. The tokenization of the documents, the fractionalization of shares is definitely in the long-term roadmap. Not in the short-term roadmap but it is something. Now for the second question about investments, obviously it's a file 6B, but right now we're not. Sometime next year, we probably should do another round. Definitely we can keep you updated.

Darin: Awesome. I was going to have this episode be split between Cash Flow Portal and investing. He is invested as a GP, in over a thousand units. He is a multifamily investor as well. But I thought it was important because I don't have many people like yourself come on that has all this experience. There's a handful of options and I've used a number of them. There's kind of pain points in each one of them, so you hit on a bunch of them.

Perry: Thank you. I have very astute observations as well about different pain points. That's correct. Honestly, that's why I'm very grateful I'm a GP because there's a difference of understanding these pain points on an intellectual level. It's another way to understand it in a visceral level.

Darin: You're actually doing it, and understanding from the different perspectives, the LP, the lead GP, the co-sponsor. I mean there's different people that are involved in the process. You started company, where do you go from here? What's kind of your next big stretch goal?

Perry Zheng’s Next Big Stretch Goal

Perry: I am spending 99% of my time on a company, less than 1% on my own syndications. Sometimes, I woke up wishing that I'm not a GP. The reason is that when I'm a GP, there could be a misconception. For example, that like, "Oh, am I just building the company to take all the LPs and then so I can raise more money?" The answer is absolutely no. Because there is one version that's building a billion-dollar company. There's another version, I raised extra $2 million, make extra 200K, which one do I choose? That's number one.

Darin: That's interesting. I didn't even think about that, but yes, I could see somebody doing that.

Perry: Now, do I continue to be a GP? And the answer is every year I probably still do one small deal. Like a $5-6 million raise. At this point, I can easily raise the money, and capital raising has always been my strength. It provides two things. The first thing it provides is it forced me to be always a customer of the product, which is very helpful.

Then by the way, there's a company called Gusto. It's a payroll company and it's also Y Combinator alumni. The CEO actually runs the payroll every two weeks himself, which is crazy. Why did he do that? He said, "I need to do that so that I'm still in touch with the product. Our entire product is running payrolls, so I need to be running my own payroll."

What Happens Behind the Scene

Perry: Same here. I want to do that. The second is it does provide some depreciation for my own tax purposes. So, 99% is going to be on the software. Again, we are growing extremely fast and there's a lot of work. What I told you is all the nice things, all the other things are heartbreaking right now.

Darin: Look, I'm an entrepreneur and I know that there's a ton of things that go on behind the scenes that nobody else sees. That you have to test and test and it breaks and it doesn't work. Then you just have to reconfigure to get it to where it's a smooth process for the end consumer. I appreciate that you've done that, and you continue to do that.

I appreciate that you are investing in customer service and support. Because I think that that's a missed opportunity with software companies that they're dropping the ball. They're coming out with very good products, but they're pissing a lot of people off. Because when there's an issue, they can't get it resolved and it impacts their business. I appreciate that you have that focus. What do you like to do outside of work for fun?

Perry: I like to travel. I'm a foodie, likes to check out good restaurants. Recently a lot of Michelin star restaurants when I go to New York City. I like to play poker. I'm a big credit card person as well, like 15 something credit cards.

Darin: Why do you like having so many credit cards?

Perry: Because you can earn points, that gamification.

The Pursuit of Solving Problems

Darin: Look, when you start earning, you're a multifamily investor, you're CEO, founder of the software company that's growing to never-never land and you're still talking about points.

Perry: Now my number one feedback on the credit card points is that eventually you loses your money in terms of opportunity cost. I actually always made a joke that as my real estate business partner that, "You lost way more money in credit card points than whatever points you get."

Maybe it's the same mindset, which is I'm not actually doing the company to become wealthy and whatnot. I can technically retire anytime even without this company. That's why I went to multifamily, and so at the same way I like credit card points. It's more that I like the game of it. I want to solve the problem and it just turned out that the problem just keeps increasing in complexity. But I still want to solve it.

As we talk to more users, see their pain points, and now we were talking to sponsors that raise anywhere between $0 to $50 million and then now we have customers that have more than $200 million, $300 million of equity under management. They need different things. And so the problem never ends. That pursuit of solving problems is probably what drives me.

Darin: That's awesome. I love that. How do people reach out to you, get to know about your company, your work as a GP? Are there different avenues? How do people reach out?

Ask for Perry

Perry: The best way is just you can email me at perry@cashflowportal.com. If you want to schedule a demo, just go on the website, cashflowportal.com. On the upper right-hand corner, there's a button called Schedule a Demo. You will talk to our team members. If you say, "Hey, ask for Perry," if I can make it, I'll definitely show up on the demo as well.

Darin: Fantastic. Well, I really appreciate you coming on. I appreciate you spending the time to develop this. Listeners, I hope you got a lot out of that, probably more on the GP side than the LP side. But as Perry mentioned, I have seen the fact that it's an easy process for the LP is very important. Until next week, signing off.

How to Reach Perry Zheng

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Darin Batchelder

Wealth creation through real estate provided me with a new passion to get the word out and let others know that they have an alternative to investing in the stock market.

If I can inspire and educate just one person to take action that results in life changing wealth creation then the work to launch and grow this podcast is well worth the effort.

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