Sum Of Its Parts: Web Site Combines Idea Database, Networking

Mar 24 2009 | 2:10am ET

A new Web site is seeking to combine two of the more revolutionary and successful ideas in recent Internet history, Wikipedia and social networking, for the benefit of the buyside community.

At the heart of SumZero is an idea database with hundreds of reports and investment ideas covering a wide range of companies and securities. But where most idea databases are content to remain just that, SumZero is trying to build a community of buyside analysts, one which, at last count, numbered in excess of 1,600.

SumZero already boasts of representatives of just about every major investment firm in the country; the majority of the site’s users are employed in or are veterans of the alternative investment industry. Among the firms represented on SumZero are the Blackstone Group, Farallon Capital Management, Hellman & Friedman, Kohlberg Kravis Roberts and Och-Ziff Capital Management. Outside the alternative investment community, users come from all of the major Wall Street banks as well as the endowments of Harvard and Princeton universities, the Ontario Teachers Pension Plan and Fidelity Investments.

Divya NarendraDivya Narendra“We have pretty much every major hedge fund represented,” co-founder Divya Narendra says. “We have lots of people from private equity backgrounds, people who run smaller funds and spinoffs of bigger funds, financially savvy folks who managed their own money, and a whole slew of top-tier MBA candidates.”

Narendra sees SumZero as a vibrant hub where users—membership by invitation only—will “connect with each other, vet out existing investment ideas and generate new ones, get jobs and improve their investment process.”

“The original concept was to build a buyside idea database that mirrors Wikipedia,” Narendra says. “We wanted it to be user-generated, we wanted the users to be professional investors, and we wanted it to have scale and be as universal as possible.”

But Narendra quickly saw that SumZero could be much more than a simple idea database.

“Reading someone’s idea is just a starting point for conversation,” he says. “The networking element was very natural to marry to the ideas database.”

Fighting Facebook

It’s no surprise that Narendra immediately saw the value of social and professional networking to SumZero: As a Harvard undergraduate, Narendra and two friends, Cameron and Tyler Winklevoss, founded a social networking Web site called HarvardConnection, later renamed ConnectU.

They may have been pioneers, but Narendra and the Winklevosses were not computer scientists. Fellow Harvard student Mark Zuckerberg, on the other hand, was at the very least a computer scientist in training. The ConnectU three say they sought Zuckerberg’s help to build out their Web site. The younger Zuckerberg would later tell the Boston Globe that he only put about six hours of work into HarvardConnection. But he was working on something.

According to Narendra and the Winklevosses, Zuckerberg ceased communications with them in January 2004. A month later, he launched what would become Facebook.com, now the largest social-networking Web site in the world with more than 175 million registered users. It made Zuckerberg (briefly) a billionaire, and it made Narendra and his ConnectU partners very angry.

In September of 2004, they sued Facebook, accusing Zuckerberg of breaking an oral contract, as well as stealing their idea and some of the source code he had written for them. Zuckerberg denied any wrongdoing, and stressed he never had any sort of business relationship with HarvardConnection or ConnectU.

In February 2008, the two sides struck a deal, with the ConnectU partners reportedly receiving Facebook stock for their troubles. But just a month later, Narendra and his partners were back in court, this time alleging that Facebook had lied about its market value—$15 billion—when a subsequent internal valuation allegedly pegged the figure at just $3.75 billion.

Narendra declined to comment on the Facebook litigation. According to published reports, in the deal struck last February, Facebook agreed to pay Narendra and the Winklevosses $20 million in cash and award them 1.25 million shares of Facebook, worth approximately $45 million under the $15 billion valuation.

Sowood Sojourn

Narendra graduated from Harvard in 2004, joining the mergers and acquisitions group at Credit Suisse in New York. He then moved into the hedge fund world, taking a job at ill-fated Sowood Capital Management as an analyst.

Sowood was founded by another Harvard grad of a kind, Jeffrey Larson. Larson spent a dozen years at the Harvard Management Co., which runs the Ivy League school’s endowment, eventually rising to oversee foreign equities. He left Harvard in July 2004, just months after Narendra’s graduation, and founded Boston-based Sowood with $500 million in seed capital from the school.

Three years later, Narendra had a front-row seat to Sowood’s spectacular implosion. The hedge fund was one of the earliest victims of the credit crisis, as the once-$3 billion fund lost more than half of its value, forcing it to sell its credit portfolio to Citadel Investment Group. The firm closed its doors in the summer of 2007.

It was after Sowood’s untimely demise that Narendra decided to give Internet networking another go. Along with Aalap Mahadevia, a fellow Harvard alum, current Harvard Business School student and former analyst at Farallon, he founded SumZero.

The Web site got off the ground almost a year ago. Narendra is the company’s CEO, while Mahadevia balances his work at the Web site with his position as an associate at Leucadia National Corp. in New York. In addition, two of SumZero’s more senior members serve on its SumZero Council. Spencer Capital Management founder Ken Shubin Stein and Lane Five Capital Management’s Lisa Rapuano advise Narendra and Mahadevia on marketing and other issues facing the Web site.

A Place For Professionals

All SumZero members provide a resume and a pair of concise investment write-ups as the price of admission to the club. Narendra, who says he has personally contacted some three-quarters of the site’s users, says the exclusivity is necessary to keep SumZero useful.

“There’s a lot of research out there, coming from lots of different sources: sellside research, independent research, the blogging community, companies like Seeking Alpha, all sorts of platforms that allow retail investors to upload their investment ideas. But there aren’t very many, if any, platforms that allow professional investors to express their views,” he says.

Those professional platforms that do exist, such as the Value Investors Club, do not have the ambitions that Narendra has for SumZero.

“Value Investors Club is very exclusive and it’s all anonymous,” Boston Avenue Capital’s Eric Wolff, a user of both sites, explains. “SumZero is the exact opposite.”

Alan Schram, founder of Wellcap Partners and another user of both SumZero and Value Investors Club, also favors the transparency offered by the former.

“Value Investors Club offers something similar, but this is better in several ways: It’s not only the social networking, but that the ideas posted there are not anonymous, and that helps the credibility of the ideas.”

“What’s great about SumZero is, because it’s transparent, you know who you’re talking to,” Narendra says. “It lends itself to credibility; it gives that analyst credibility. It furthers a more honest, open environment to discuss research.”

Personal Touch

The openness of SumZero is par for the course for a social networking Web site. But where MySpace or Facebook users offer up information on their favorite musicians and blog about the more mundane aspects of their daily lives, SumZero members get down to business, literally: Profiles include such salient information as where a member works, how much money they manage, and their coverage universe and investment style, along with the more prosaic information, such as where they went to school.

Members are able to communicate with one another right on SumZero, ensuring an active conversation about the ideas listed in the database, offering critiques and comments to their authors. And taking the lead from that other recent Web revolution, blogging, SumZero users can rate the ideas posted on the site.

“The social network that I built in college was dedicated to the university community. People were able to exchange information based on shared interest that were academic or social: shared classes, shared dormitories, things that mattered to you as a student,” Narendra says. “SumZero is very analogous to that, except that it’s tailored to investing.”

One of the hallmarks of social networking Web sites is the creation of a visible roster of contacts, and SumZero is no different. Narendra says it’s a good way to break the ice in building out one’s own network of fellow buyside analysts. And it’s all part of building the credibility of the ideas gathering in SumZero’s database.

“These are the best ideas from some of the best people in the business,” Schram says. “The insights offered there are invaluable in gauging the landscape of the industry.”

“It gives you a leg up on the research process,” according to Nitin Sacheti, an analyst at Ampere Capital. “You can figure out very early on what the bull and the bear thesis is on a particular company.” Sacheti, for one, says he likes to first check an investment idea against his own network, “to see if there’s anyone I know who’s listed the idea that they’ve extensively researched.”

Hunting The Headhunters

SumZero is seeking to capitalize on its growing stable of pre-vetted analysts with its newest feature: a job vault.

“The recruiting database has a lot of potential, because SumZero can be a platform that allows portfolio managers or employers to evaluate analysts because they have access to their ideas,” Narendra says. “That’s something that headhunters don’t do; a headhunter is not in a position to evaluate their ideas.”

“We’re trying to set up a mechanism by which a PM could just cut out headhunters completely.”

Narendra says he envisions turning the job vault into a money-maker for SumZero in the future. And the nascent feature already has several job posts, and a few job seekers have applied.

Given the miserable economic climate, there aren’t likely to be many jobs on offer at SumZero over the next few months. But when things turn around, the site’s loyal user base is ready to make use of it.

“If I needed a hire right now, I would definitely go to the job board as a first step,” Schram says.

For the time being, Narendra is happy to build out the site and build up its roster of analysts.

“It’s unfortunate the fundraising environment is very weak,” he says. But he adds that he’s pleased with the success the site has had in its first year, given that “we haven’t spent a dime on advertising, and the only person making phone calls on behalf of SumZero is me.”

The word-of-mouth nature of SumZero’s growth is backed by the endorsement of some heavy-hitters in the value investing world. Whitney Tilson, the founder of T2 Partners and the editor of Value Investor Insight, calls it “a worthy addition to the value investing community” and recommended it to the readers of his weekly e-mail.

“With Wikipedia, you can search for literally anything. Ultimately, we’d like SumZero to be similar to that, where you can look up any company or any security and find information about it,” Narendra says. “That’s a very ambitious goal. But even if we get 10% of the way there, that’s still thousands of research reports. And if we can get thousands of analysts together, they will put together that content.”

Related Site:

www.SumZero.com


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