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Facebook episode helped me start new venture in a structured manner: Divya Narendra

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Divya Narendra seems to have picked up the name for his new venture after realising fairly early that life is a zero-sum game. His earlier venture HarvardConnection had led to founding of the gigantically successful Facebook. For many years Narendra had to fight a legal battle with Mark Zuckerberg over Facebook while simultaneously balancing his personal and professional life. Now CEO and co-founder of SumZero, a social media venture for finance professionals, Narendra says he doesn't dwell on the Facebook episode anymore, and sees his new venture becoming a standard toolkit like Bloomberg. In Mumbai to participate in the ‘ZEE Leadership Series 2014’, Narendra spoke to Ashish K Tiwari about the past, his entrepreneurial journey, challenges of doing business in the digital era and much more.

Excerpts from the interview:

An entrepreneur’s journey is always challenging and you’ve faced a whole lot of them early on. How have all the events helped you personally and professionally?

The challenges and volatility have been fun and that’s part of the draw to entrepreneurship, which is not a linear path but full of surprises, hopefully more positive than negative, but it kind of gets you up in the morning. Ideation is key for entrepreneurship and for me a lot of it is somewhat instinctual. When you see a problem the approach is to try and find a solution while not getting frustrated with it. In the process, you also start thinking whether that solution could become the basis of a business and could be potentially turn into something big. I have tried to launch two businesses since college days and with both of them I have had the challenging moments. The approach adopted was to solve the problem, build a team around it and create a solution that might impact a lot of people in a positive, effective manner.

What were the key learnings derived?

There are so many and some of the softer skills that you pick up are pretty important. Things like persistence to take on a problem / setbacks, ability to take a contrarian view, and trusting your instincts are a few key learnings. In my current business, I spend a lot of time thinking about whom to bring on to our team across operational areas and finding people who gel with the thought process. This is because team building is a very important part of launching a business small or large. Especially for small business / tech start-ups your team is everything and without a good team you will not get very far in your vision and business goals. It is important for entrepreneurs to like the team members irrespective of whether they have the immediate skill-sets required for the business. This is because if people are nice and qualified enough, skill-sets can be easily developed over a period of time thus helping the team to make meaningful contribution for the overall growth of the company.

Also read: Zee Entertainment unveils second edition of 'ZEE Leadership Series'

How do you go about business ideation? Could you share some insights into the process?

Most entrepreneurs come up with ideas based on their experiences and my first idea had to do with connecting university students. I was a junior in college when I came up with the idea of HarvardConnection to help connect students with each other over an internet-enabled platform. Similarly, after graduating from school, I worked in finance for three years, of which two years were in Credit Suisse and a year at Sowood Capital ($3.5 billion multi-strategy hedge fund). And then the financial crisis hit and everyone at this fund got fired including me, we all lost our jobs. I sensed it was again a golden opportunity to build my second business which became SumZero. It kind of captures both my experiences with social media, building HarvardConnection and investing in finance that I learned working in New York and Boston. So it was a natural by-product of my experiences.

The entire Facebook episode, was it a big drag on your entrepreneurial thought process?

When we started HarvardConnection, I’d struggled to find classmates, programmers who could devote time and focus on the entrepreneurial idea. Finally after nine months of working on the idea, I came across Mark Zukerberg who worked with us for just four months. And then I read about Facebook in the newspapers, which was very shocking. Thereafter I graduated and decided to completely shift my mindset and put aside the fact that there was a lawsuit going on and just focus on my job. Honestly, the attorneys had already taken over a large part of the litigation process and I recognised there was no point in dwelling on the past and it will be much more valuable for me to focus on the next phase of my life, which was learning about business and finance. When SumZero was started, I’d simultaneously enrolled in graduate school as there was a lot I wanted to learn in the law school and business school in addition to just pure entrepreneurship. And all this came very handy when the Winklevoss twins needed help with certain legal issues. I finished college at the age of 22 and went to graduate school at 27, so still pretty young and had tons of stuff to learn. Some of the lessons I learnt from my first business helped me start the second one in a more structured manner. Thus, with SumZero we had no legal issues and it was a much smoother business building process. I had a better understanding of how to raise capital, had a bigger network etc so the process was a lot easier for me the second time.

Businesses also have a lot to do about mutual trust and transparency. Has the Facebook episode impacted your ability to trust people with sharing business ideas and innovations?

It certainly has impacted me and I was fortunate to have got off it early. For me it matters a lot and now I am just more acutely aware of that dynamics. I think the movie and the experience I’ve had, has probably happened to a lot many people but it just so happened in our case that, that idea turned into a huge phenomenon and got publicised. In reality though, it wasn’t a unique experience and a lot of people probably had similar experience themselves and they may have also shared business ideas with someone and that person would have converted that idea into a hugely successful business opportunity.

How comfortable are students at Harvard sharing business ideas with classmates now?

I do think students now are more aware of the fact that just because they are sharing an idea within a college bubble, it doesn’t mean the ideas are safe from someone looking at misappropriating it. When I was in school, it didn’t even occur to me that something like this would happen because I had no experience and was completely naive at that time.

Are you happy with the outcome of the lawsuit? You think it was justified for all the efforts being put especially considering the valuations Facebook is currently trading?

Yeah, I think at the end of the day we wouldn’t have agreed if it wasn’t a fair settlement. Looking back, I have got no regrets in terms of decisions that were made in the past. I moved on right away as there was no point wasting time thinking, what if I was running Facebook or was part of the founding team etc. Even to this day, I would never want to trade places with anybody from Facebook be it Mark or its co-founders. I am totally sort of happy being where I am at.

Did you guys interact thereafter?

No. I mean he is busy doing his own thing and obviously I have been busy working on my new project.

Did you use any part of the compensation from the Facebook lawsuit to invest in SumZero?

No. That’s because of the length of the litigation and the related stock lock-up period. So when we got our stocks, Facebook was still private. It wasn’t even till the end of 2012 that I was even allowed to sell the shares as I was subject to a 108 day lock-up. So when I funded SumZero, the initial capital was all of my savings that was built up working at Credit Suisse and Sowood Capital. At that point I was 25 with around $70,000 in my bank account. It was a small amount but enough to get started. SumZero was completely bootstrapped, and in fact I ran out of cash completely a year after it was started. It was by chance that one of SumZero’s users brought up the idea of investing in the network. But I’ve never had to go and ask for capital from my parents and friends. After the initial seed capital, we were able to raise a little bit more for the business.

Have you sold any stake in Facebook or still holding on to all of it?

No, I haven’t. I think Facebook is going to do really well hence I have held on to the majority of my stake in that business. It’s a meaningful position that I hold in the company. I think Facebook has got a long runway ahead of it.

When compared to Facebook, your second business SumZero is a very niche play. How do you see it growing in the near future? What plans have been chalked out?

Yeah, it’s niche but we are targeting very high value community. The vast majority of our members are mutual fund, hedge fund managers and analysts of these funds. What we do is give them incentives to share their own proprietary research. It’s a little counter-intuitive because you don’t normally think of hedge fund guys sharing or publishing research and we are trying to change that. As we aggregate more and more proprietary content, part of the vision is actually to disseminate and make it available to everyday retail investor. Right now, it’s not our main focus as we are still trying to figure out how we can turn SumZero into an indispensable resource for the professional investor. In the long run, however, we certainly have that opportunity once we become part of the professional investor standard toolkit like Bloomberg or Capital IQ. Right now we have a newsletter called SumZero Basic. It’s free and anybody can access it by registering on to our network. Every Friday we send out a summary of an investment idea that’s posted by one of the professionals on SumZero’s core community. It’s pretty much the only way to get access to rigorous, professional research for free. We currently have a network of a little over 10,000 professionals and it’s all vetted. In order to get into our core community you have to apply, so it’s just the opposite of networks like Facebook, LinkedIn or Twitter. Unfortunately, more than half of the applications get rejected because of the exclusive nature of the network. While we are agnostic about a person's location most of our members currently (about three-fourth) are in the US. But we have members in all of the major financial markets concentrated around a few cities outside of the US like London, Singapore, Mumbai, Hong Kong, etc. We’d love to see more folks in India who are full-time investors to be part of the network.

In terms of commercial viability, how will the SumZero model really pan out in say five years from now?

Right now, we are trying to build a subscription business wherein funds will pay us for access to the research. That itself could turn into a relatively large business enough to make us sustainable, profitable and growing. In addition to subscription research/products, there are other things we are looking at. The site also features things like ideas and performance track records of each of the members and, hence is also a very popular recruiting resource for funds. We see this part of the revenue stream growing significantly as well.

Creativity and innovation have always been crucial for entrepreneurial initiatives. How true is it with businesses launching in the digital era?

Innovation is incredibly important for an entrepreneur, society and for a country. While there are a lot of internet businesses that seem to be launching but most are kind of copycats and don’t seem very innovative. I think what you will end seeing happen is that unless those copycat businesses are brought to a place/exist in areas were the original business doesn’t care for or doesn’t market to, will probably fail. Unless you differentiate your business, it will be very hard to have sustainable competitive advantages that allow you to grow over time.

Are you seeing that differentiation in the current line of businesses being launched in India or for that matter in other developing/developed nations?

To be honest, there is a notion of ‘me too’ or concept arbitrage with a lot of businesses that we read about in India. It’s more like cut, copy, tweak and paste approach than original ideation of businesses. For network driven businesses it’s fine to have a ‘me too’ approach but they will have to execute it in a manner to be able to have that first mover advantage and that’s what companies like Flipkart seem to be doing. Such businesses will probably still do well. But are they innovative? No they are not. Having said that, I think there are entrepreneurs in India looking to do businesses that are totally original, ideas that are compelling and solving problems that are very unique to India. And those entrepreneurs will do a great job and be successful too.

What is your take on the quality of entrepreneurship in India? Have you had the opportunity to speak with any of them? What sense do you get about their abilities?

I have had the chance to talk to a few of the more established entrepreneurs and folks in private equity who are a little bit older in the business. I haven’t really had the chance to talk to the younger folks here. I was in Italy not too long ago talking to some younger folks who were sort of complaining about access to capital and I think that seems to be problem here as well. Access to capital is kind of a global problem. On the quality and ability, I think the folks in India are as sophisticated as any other part of the world. Entrepreneurs here are well versed with financial specifications, business implications, understanding of the macro environment, what’s going on in the US and how is it going to impact India. In fact, it always amazes me how much people here follow what’s going on with Feds and what impact that might have on the Indian markets.

Does it also happen vice-versa, do people in the US follow what’s happening in India?

No. People in the US don’t follow international politics as much. Having said that, I think Narendra Modi is an exception and he’s been hitting the papers in the US a lot. The coverage has been relatively positive overall. The Indians in the US are all excited about the shift in the government and the non-Indians or Americans are very intrigued and curious because it’s such a major change in politics and they are also kind of excited about the business ramifications. Modi has like some word of negative rep from a social stand point in way, which we read about it in the papers, but overall I think people are pretty much excited.

How active are you on social networking sites? Are you also logged into Facebook most of the time?

I use Facebook and LinkedIn a lot more than Twitter. I use Twitter mostly for SumZero and not for me personally. LinkedIn I have used a lot for recruiting purposes and I think it’s a very experience because you don’t really need a resume anymore. While people do send us resumes, but a lot of time I just look at what their LinkedIn profile says. At work we use GitHub a lot, which is a network for computer programmers. I use Instagram, WhatsApp and all those standard tools that are popular these days.

You think you would have done things differently, from the way Facebook has changed over time and is likely to change in the years to come?

I don’t think too much about Facebook anymore. But in my opinion, their goal should be to build the most useful tool possible. I think, a lot of people think about networks vis-a-vis how cool they are but I don’t. I don’t need a tool to be cool I just need it to be useful. What makes a community useful are things like: are the people you want to reach out to on that network, search capabilities something Facebook should continue to improve and there is a huge amount of work they can do and probably are doing to make it easier to find the right information, messaging is another big initiative for them. Businesses in the US have realised that if they have to build stickiness with consumers outside and third world countries, they need to build tools that are easily accessible on a mobile device because not everyone outside the US uses an Apple product/device.

We keep reading in the international media about the death of Facebook. What are your views?

I think it is total nonsense. People who think that are usually the folks who fall into the camp of, it’s not cool or teens aren’t using Facebook. I think it’s just not even true.

While SumZero progresses in its journey, is there some other business idea that you might be working on simultaneously?

Not right now. I have only finished school in 2012 and have been completely occupied working on SumZero since the last two years and we have a long way to go. I have a pretty long-term mindset in terms of starting something and seeing it through. Some entrepreneurs have short attention span and they tend to juggle too many things at once. I think, that’s a very poor recipe for success. You will never be able to build something meaningful if in one year you start something and next year you start another thing and in the third year you’ve got two things going on. That’s not how you build successful businesses.

Do you visit India very often? What do you like about India?

I was here twice in 2011 and this is my first time since. Before 2011, I haven’t been to India for 18 years. I used to come as a child every summer and it all stopped in the fifth grade. While things have changed significantly, it still feels very much the same to me. Indian people and the culture is very spongy. People here seem to like the west in a way and every time I come back I see more western brands either on billboards or in the stores.

You like Indian food? What’s your favourite?

Indian food has really taken off in America, certainly so in New York. I particularly like South Indian food, dosas and uttapams are my favourite.

People ask me if your family roots are in south India.

Not really. Our family in India is rooted in Delhi. I don’t remember the town but my dad’s family is from Uttar Pradesh but he grew up in Chennai and speaks Tamil fluently. My mother’s side of the family is from Kamla Nagar in Delhi.

Would you at any point in time set up base in India for your businesses?

I would hope so. With my current business, I am not sure right now is the best time for us to be in India because as a management business India is very small. The mutual industry here is about a $140 billion in total assets but split between only a few big funds. In the US it is $12 trillion, it’s totally a different order of magnitude. But I think over time that will change as Indians are still not comfortable with equity markets despite the fact that returns have been significantly higher over the long-term. Equity markets this year have been totally under fire and at some point when that mindset shift happens we could look at opportunities in India. In the long term, when I get older, it would be good to visit India just to give back, try and see what I could do to help out with more of the fundamental issues in the country like education, water supply, etc.

What is that one thing about India that you’ll never forget?

The Delhi, Gurgaon, Noida belt has changed significantly from the time I’ve seen it during childhood days. This happened during one of the visits to Noida from Delhi. With so much infrastructure developments in and around it looked so very modern when I was on the highway. And then, I saw guy riding an elephant on the highway... I was like this can’t possibly be legal. This was so very India and I’m sure will never see something like this anywhere else in the world.

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