Please tell me about SumZero and how has it evolved into the company it is today.
SumZero is the world’s largest community of investment professionals working at hedge funds, mutual funds, and private equity funds. With more than 16K pre-screened professionals collaborating on a fully-transparent platform, SumZero fosters the sharing of thousands of proprietary investment reports every year, and offers several ancillary services in support of that effort. These free services include capital introduction, buy-side career placement, media placement, and more. SumZero’s membership base is represented by analysts and portfolio managers at nearly all of the world’s largest and most prominent investment funds.
SumZero was founded by Divya Narendra, former co-founder of ConnectU, with the intent of changing the way professional investors shared information. The site is a reciprocity-based platform, meaning that members are required to share certain pieces of information to draw from the intellectual product of thousands of fellow SumZero members. In addition to accessing highly-differentiated investment research, the platform further enables members to build a track record, expand their networks in highly-relevant places, and identify further professional opportunities within the industry.
From when you first started to now, how did you manage to onboard investment professionals working to engage in your platform? Any challenges?
I used to work at a hedge fund called Sowood Capital in Boston, a spin-off of Harvard Management Company - the firm which manages the Harvard University endowment. While working at Sowood, I developed the idea for SumZero as a platform to connect professional investors across the globe. When the fund shut down during the credit crisis in the summer of 2007, I had a unique window of opportunity to pursue entrepreneurship instead of working at another fund as an analyst. I had also developed friendships with other analysts, many of whom became SumZero's initial beta users. The initial version of SumZero was skeletal at best but still illustrated the merit of the concept well enough for those early members to derive value from it. They eventually invited their fellow analyst friends which resulted in a greater volume of idea content, which then attracted more applications to join the community. This cycle has since repeated and represents the foundation of how the community has grown.
Founders face challenges on day 1 and every day after. I would argue hiring is the biggest challenge and it never goes away. However, one other set of challenges involves the creation of the founding team. Establishing the right ownership structure between founders isn't easy especially as responsibilities and commitment levels change. One way to address this is with clear vesting schedules based on concrete milestones, whether they be time-based or performance-based or based on some other agreed upon metric.
Why did you think that a “social network” or “Facebook for finance” was needed on Wall Street?
Investment professionals were typically calling their peers or meeting in person to better understand individual companies, often times circumventing research from Wall Street. I believed that these phone calls and meetings could be made more efficient in a centralized online platform. Many SumZero members have eventually met in person due to connections made within the platform.
How is SumZero different from other investment research companies?
SumZero research, unlike traditional Wall Street research, is contributed by analysts who have "skin in the game" and also lack the conflicts of interest typical of traditional Wall Street analysts. Because SumZero's research content comes from the buy side, it tends to be of much higher conviction and covers many small & mid-cap companies that are not often covered by Wall Street analysts at banks such as Goldman Sachs and Morgan Stanley.
SumZero focuses on buy-side research. Is there room for sell-side research organizing a similar platform?
There are many platforms already in existence for sellside professionals to connect, so for now, we are focusing on our exclusive buyside community. You could argue Bloomberg is one such service but there are others such as Symphony.
Why would ppl share potential signals/alpha on this platform, wouldn’t they want to keep it for their own?
Typically, an investment professional will take a full position on a name before publishing his or her idea on SumZero. Once the analyst has a full position, he or she has an economic incentive to tell other investors about it. To the extent other community members are convinced and buy into the author's recommendation, the stock may react in price. To your point, the other main reason contributors share research is to build their individual brand and develop a track record. SumZero tracks performance of ideas and allows fellow members to rate ideas. Often times, a high rating can help the author raise capital for his or her fund, find new job opportunities and gain valuable feedback on research.
SumZero currently conducts internal competitions, maybe you can tell me more about that and the purpose of it, and how it’s been received?
Idea contests are yet another incentive for contributors to submit ideas to SumZero, resulting in an influx of high-quality content to the platform. We typically select a panel of judges consisting of senior industry to help select the contest winners. Recently, we hosted our "Top Stocks for 2019" contest where some of the winning ideas included RRTS:US, BUR:LN, SATS:US, and FB:US. Often times, SumZero analysts make contrarian calls that differ from views espoused in the media. FB is just one example of a stock that is often times vilified in the press but is very heavily owned by professional investors and has a positive sentiment on SumZero. On the flip side, TSLA is often times discussed positively in the press but has very negative sentiment within the SumZero analyst community due to its high valuation and cash flow burn.
How do you ensure research quality and credibility?
Every contributor must apply and demonstrate a professional investing track record. Also, we review all ideas before they are published to ensure their quality meets our standards of submission. Equally as important, our members recognize that by contributing their ideas, their reputations are at stake because their real names and employer names are tied to their ideas.
What kind of attributes do you see from the top investment analysts?
Discipline regarding valuation
Willingness to do primary research including channel checks
Discipline during times of high volatility - i.e. not making emotionally driven investment decisions
A deep grasp of business and industry fundamentals - knowing what financial metrics matter the most
What are the existing inefficiencies that you see in the investment research industry today?
Language can certainly deter analysts from investing in regions that would otherwise yield significant opportunities. Obviously, the world is becoming increasingly connected but many investors still avoid investing in geographies where they don't speak the local language or have boots on the ground.
Do you think that AI will replace analysts one day?
No. I think fundamental analysts will use technology to process data faster but I think we have a long way to go before computers displace fundamental stock pickers entirely. There are so many factors that can affect asset pricing, which is why I also believe there are many vastly different investment strategies that can successfully co-exist, some fundamental, others quantitative, and even hybrid quantamental strategies.
What lies ahead for SumZero?
We aim to be the voice of the markets and a must-have resource for all professional investors globally. Right now, our team is focusing on helping SumZero members to not only access high-quality research but also to grow their own brands and ultimately raise capital. We're also seeing good traction from more quantitatively driven investors as we develop an API to help them engage with the SumZero community. At a high level, we're going to expand the scope of the community while maintaining the quality and integrity of its content.
There are more reports in the market than one can read. What kind of investment research reports do you read regularly?
I'm a big fan of ideas on SumZero which are long-term compounders that have 5-10 year+ investment horizons.