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SHOW NOTES FOR EPISODE 431: ALL-IN-ONE TECH SOLUTIONS FOR SMALL TO MEDIUM SIZED SYNDICATORS
As more and more people are investing in syndications, the need for effective data management and communication is critical. In this podcast, Jake Marmulstein, a real estate investor and the CEO of Groundbreaker, shares how his company is helping to meet the needs of both investors and operators through an all-in-one tech solution that takes fundraising, investor reporting and investment management to a whole new level.
What You Will Learn
- Why most major REITs and syndicators still use antiquated tech solutions for investor management
- What are some of the biggest syndication challenges?
- How do the largest REITs and Institutional Investors handle investor relations?
- Why time is critical for syndicators
- How to effectively screen syndication sponsors and operators
- What are investors looking for in syndication transactions?
About Our Guest
Jake Marmulstein
Jake is the founder and CEO of Groundbreaker, a software application that helps real estate investment firms automate workflows in fundraising, investor reporting and investment management. Jake discovered the inefficiencies of real estate investing firsthand while working at Watermark Capital Partners, a top real estate investment trust. On another late night in his office fixing a waterfall model, he grew frustrated and started searching for a better way to do his work. He only found complex software that served large institutional firms, but nothing for the vast majority of companies who fund their deals through high net worth and accredited investors. That is where his company was born.
More About Jake
- Grew up in an entrepreneurial family but they didn’t have real estate or tech backgrounds
- When he graduated from the university, he was excited by getting his first real job
- But much of hid education was theoretical and didn’t reflect “the real world”
- He realized he had none of the tech skills he needed for the job
- His first job was in real estate, working with a REIT (Real Estate Investment Trust)
Backward Solutions for Complex Issues
- He had to manually input data into Excel spreadsheets, on their own internal server, from PowerPoint presentations marked up in red from his boss
- He would then have to reformat the data
- It seemed like an inefficient and antiquated solution to processes and systems needed for the industry
- He was motivated to convert these manual processes and automate them so they can focus on the main tasks at hand – underwriting a deal, analyzing it, knowing why they should pitch it to their investors, and “telling the story” to their investors
- All REITs were still using Excel
- The largest firms, like BlackRock and Goldman Sachs, are known for building their own internal software solutions
- But for small firms there really is nothing to help them efficiently manage data
- Most firms, large and small, just have a document portal where investors can download their K-1s but it’s limited
- Investors can’t invest in a deal through the system
- They can’t link their bank account through ACH
- There’s no all-in-one integration
- There’s no capital raising in their systems
- They are mostly managing PDF documents
Forming Groundbreaker
- Jake didn’t like how he had to print out presentations to get the presentations approved and out to investor
- That process requires you to save a single file on a hard drive, share it somehow, get it reviewed
- Initially, he saw a need for a “PPM Builder” but it has important leagl information you have to handle correctly
- He was handling mostly the “marketing” information – the photo, the Offering Memorandum and the ability to click a button and say you are interested in investing
- He also spent a lot of time handling one-off investor requests for information and sending personalized emails
- He though it would be better to be able to post common questions on something like an online blackboard
- When he was working on the “waterfall model” at his first job it was a pain – managing all the Excel formulas, trying to do a dynamic amortization table in a situation where you would do re-financing or not, and how that would influence the calculations
- Jake though it would be better to have a function that could simply show investors what kind returns they could expect on a deal and do it in a professional manor and also not have to do it one-on-one with each person
- Companies with hundreds of millions or billions in equity under management can afford their own in-house software solutions
- Jake saw a strong need for small to medium sized syndicators with $10-25 million in equity under management to have better tech tools
- Not institutional capital
- Still working with friends and family
- Working with accredited investors
- Companies with 5-10 employees or less
- Jake’s company takes all the raw data and documents from new clients and converts and integrates it into their system
- They go over it with their client first before integrating it into their system
- It did not happen overnight
- They went through many different iterations before they came up with what they have today
Simplified Integration
- Their customers expect to end up with a system that has the following:
- Fully-loaded with every deal they’ve investing in
- Every distribution they’ve ever made
- Every investment that’s ever happened from their company
- Down to the account, EINs and Social Security numbers
- Every K-1
- Every subscription agreement
- All within the portal
- Larger companies (than their major target market) are also very interested in their software because of its simplicity
- Groundbreaker creates a fully-branded propriety portal for each of their customers with their own deals and investors
- Customers can use Groundbreaker in all communication functions with their investors as well
- All financial transactions, as well, are fully integrated with all of their banking accounts and investments
- Sponsor distributions also flow through the system
- Multiple deals with multiple bank accounts can be coordinated through the system with ACH
Early Mistakes and Successes
- Early on, they had a “Funding Bar” to show how much capital was raised
- Most customers really liked that
- But more seasoned people didn’t want to show where they were with the fund raising because they want the status to be completely private
- With the investment process
- Most clients want investors to go straight through without any friction – submit an offer, sign documents and even send funds
- You might not know if the signed the right offer or filled out the forms correctly but clients thought they could figure that out later
- They have since created the process with stops and approvals along the way and then build functionality on top to pre-approve and move certain people along on the process, if you already know them, and know that you can trust them
Tips for Investors Looking for Good Companies to Invest With
- It’s really important that get to know the sponsors/operators very well before investing with them
- Find out about their:
- Distribution history
- Out of all their distributions paid out, how many were “on time”
- Projected IRR vs. actual
- Projected cash-on-cash returns vs. actual
- Across various deals
- Distribution history
- Talk to sponsors’ investors
- Strong references (non-relatives)
- Talk with third-party sources
- Look at the way they store data related to my investment, especially the investor’s personal info
- Is it in Excel, “the cloud”
- How are they backing up data
- How do they store and label the records
- Will they send the investor’s K-1 to the wrong address
What’s Ahead for Groundbreaker?
- Jake has big aspirations for his company
- The world is changing
- He has a great opportunity as a pioneer in the industry
- All real estate investing is going to be online in one form or another
- More and more companies are getting websites with transactional portals
- Everyone will need this to compete with their peers and be seen as a legitimate company
- Jake wants Groundbreaker to have a foothold in the industry to be on of the leading providers in investment management software
- He wants Groundbreaker to be the household name
- Wants to provide services for their clients:
- Institutional investor mangers like to place their capital
- They look to their placement agents to place capital for them
- But placement agents don’t really have technology or data to go after – they have relationships
- Groundbreaker has access to a lot of information on deals and operators that, if operators are interested in getting access to institutional programmatic capital, structured equity and debt, they can do that on a new level
- Groundbreak can be a vehicle that helps aspiring real estate syndicators get access to programmatic equity and debt through an institutional market they helped to create
- They look to their placement agents to place capital for them
Rap-It-Up
- Favorite real estate book: The Best Ever Apartment Syndication Book by Joe Fairless
- Favorite business book: Work the System by Sam Carpenter
- Most valuable web site for success (other than your own): Saastr.org
- Favorite app: WhatsApp
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? I’d buy a plane ticket to Rio de Janeiro and say forget it!
How to Reach Jake
- Website: Groundbreaker.com
- Email: Jake@groundbreaker.com
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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