A most unlikely entrepreneur

Chapter 1: The start

A V Ram Mohan.

As he was getting out of the number 1 train at the Canal Street station in Lower Manhattan, to reach the headquarters tower of a famous Bank, Vipin Mathur was admitting to a sense of some disbelief. He could not believe that a mild mannered academic like himself, not even a decade in this land of opportunities, would soon be making rather outlandish entrepreneurial proposals to the titans of the financial services industry he was about to meet. Yes, he was well-qualified to do so, being an Associate Professor of Finance at Columbia having specialised in the relative effectiveness of various trading strategies. No, he was not meeting complete strangers either, since the people he was going to meet were actively involved in his research work on trading. They were already familiar with the money generating value of his insights. Yet, he was conscious of the improbability of a man from Badaun, set deep inside the sugarcane growing regions of Uttar Pradesh, telling these financial hot shots where they were going wrong, and that made him a bit thoughtful.

All that reticence vanished the moment Mathur opened his laptop to make his pitch to two of the senior managing directors of the storied financial firm. His proposal was simple. The bank had several hundred traders who were constantly buying and selling all kinds of securities, including bonds, stocks, options, derivatives and currency trades; these traders were however not uniformly adopting one particular trading strategy or the other in their approach. In a sense it was wild west out there, and the traders used whatever strategy that worked for them at some time or the other. Most traders simply did not know their choices of all the trading strategies that were open to them for use, and the probable end-result of adopting one strategy vis a vis other in a moving market place. Halfway through his presentation Mathur looked around the table to see the reactions of participants. Knowing, even understanding, nods all around the table so far, since the MDs knew their operations well. It was at this time Mathur revealed his key point: what if he was able to give a lap-top like device which would quickly simulate the effects of adopting various trading strategies across all product markets? What if the trader was able to consult this device before the trading day, plan his trading strategy for the day after seeing the simulated results and consult this device several times during the day as trading progresses to validate his chosen approach? Would such a device not help the overall quality of trading results? Oh, we have Bloomberg terminals already giving us valuable inputs for trading, why do we need one more terminal, somebody questioned. Mathur was patiently explaining that what he proposed was a simulation device, which took the data from the Bloomberg terminal and other data bases. ‘You must know that simulations essentially require complicated trading algorithms which were essentially research based, and that is what we have. You simply cannot get them from your Bloomberg terminals; they are only meant for trading and not simulation’ Mathur said. What he was proposing was a device which will bring the benefit of advanced financial research directly into the finger tips of traders, thereby making financial products trading a thoughtful and well-informed bet. He ended his presentation by giving a version of buyer beware, saying it was the trader, and not the simulation device, who finally pulled the trigger on every trade and was thus solely responsible for the gains or losses in such trades.

The MDs were curious. Was such a thing possible at all, they wondered. Was there such a device available for field testing on the trading floor? They would be readily willing to pay for ten of such devices if they were available. Mathur was ready with his answers. No, such a device was not ready yet, it was shaping up only in his mind. He could however make it happen within six months, and he could deliver a functioning simulation device with all the known trading strategies built into them and yes, he could commit to giving them ten devices for testing when they were ready. He was in a position to gather strategic thinkers in trading algorithms as well as software jocks who could programme the machine, but he would first need a financial advance payment of one and a quarter million dollars for ten machines before he could start. The meeting ended with the MDs looking a bit doubtful at this proposal, since they knew Mathur was only a relatively junior professor of Finance, with no organisation whatsoever to back up his claims for doing the things he talked about. Mathur went home to his place uptown not knowing how it would all turn out in the end.

After a couple of days, Mathur got a call on his mobile phone. It was the assistant to Mr Tomlinson, the chief operating officer of the Bank he visited. She was inquiring if he would be free for a conference call that afternoon at 3 pm. Yes, it was convenient for him. Precisely at three, the booming voice of Jim Tomlinson came on the line. ‘You have been feeding some fancy ideas into our people, Vipin, and they seem to be excited about it, what is going on?’ Jim clarified that apart from him, he had invited the Bank’s Head of Research to join the call besides the two MDs who had the earlier meeting with Mathur. After the preliminaries were over, Jim conceded that Mathur’s idea about a device to simulate trading strategies as a valuable input to traders was essentially a good one. ‘Frankly, these trading types from the wild west could do with some thinking inputs’ was the colourful way he put it. The bank would want to green light Mathur’s proposal but there were a couple hitches before it can be blessed by the top management of the Bank. One, Mathur should first come up with a credible talent base, particularly on financial services software development and those with deep insights into trading strategies. Second, and more important, the Bank would only go with a proper organisation on an important project like this one, a company with a good bandwidth of managerial experience. ‘No offences meant, Vipin, that is the way we are’ Jim cheerfully assured him. Mathur agreed to meet the Bank’s team after one week with his proposals on how to address these two concerns of the Bank.

Now that he got a go-ahead from the Bank, however provisional, Mathur had no time to lose. He registered a private company with himself as the sole owner of all of its stock, giving his residence address at Broadway and West 145th Street. In an uncharacteristically fanciful moment he chose the name ‘Tradecraft Inc’ for his company, hoping no would make the connection with John Le Carre’s George Smiley character. He then put in a call to the dean of Columbia Business School, William Rogers to seek a meeting with him. Dean Rogers had known Mathur practically from the time he stepped out of a plane from India, first as a young graduate student and all the way through his appointment to the faculty, and kept a kindly eye on him. When Mathur explained the need to meet on this matter, Dean Rogers was his most expansive self ‘If this matter is as seriously important as you say, we would need the right drinks in front of us. Let's meet this evening at the Faculty Club for a drink’. At the club seated in a discreet corner, Mathur expanded on his recent activities culminating in a conditional offer from the bank to go ahead. When Dean Rogers questioned him on how he was going to meet the Bank’s conditions, Mathur came out with a surprising offer: he was willing to offer 20% of his company, the newly minted Tradecraft Inc, to Columbia in return for the unlimited and free use of the University’s talents and research facilities in finance and computer science. Furthermore he was offering Columbia the right to place its nominee as the Chairman of Tradecraft Inc. to ensure the university’s interests are protected at all times. Upon hearing this rather audacious proposal Dean Rogers said‘Oh, my, I didn’t realise there are hidden depths to you, young man. However, I can’t see why you don’t want to go to a private equity investor with this offer from the Bank. That is the traditional route most entrepreneurs take to handle such a situation, they don’t come to Columbia if there is serious money to be made’. It was at this time a good opening for Mathur make his customary lecture that usually ran down private equity players’ rapacious ways and their unlimited propensity to meddle in the companies they invest in. ‘You must know, Dean, that a man travelling alone travels much faster’ so saying Mathur handed over a folder which contained his proposals in black and white for the Dean to consider.

He got a call in his office after a couple of days. The Dean, this time joined by the Provost of Columbia, wanted to see him that afternoon in his office. The Provost was the number 2 officer of the University and usually the man to sign off on all financial and administrative matters. ‘It is an unusual proposal you got here, young man. You should know by now that Columbia does not normally get into equity ownership with anyone including start-ups, even if it comes free as in your case. Nor would we want to sit on any Boards that we don’t actually control. What we would like is to get paid for whatever resources from Columbia your company plans to make use of, at our current charge out rates. In return you may reduce our equity stake to ten percent from the twenty you offered. At this early stage of the game we will never know whether ten or twenty makes any difference at all’. Mathur could see that it was a qualified yes he was getting from the Provost, the second such tentative clearance in the week. He could also see the cost of his operations would go up if he had to pay for the use of Columbia’s research facilities, graduate students and research scholars. He was, as it happened, expecting something along these lines when he quoted one and a quarter million dollars for the prototypes to the Bank earlier in the week. He was therefore able to give an unhesitating yes to the conditions put forth by the Provost, and thanked him for his consideration. As they were leaving the Provost told Mathur with a smile ‘We don’t know about John Le Carre, but we at Columbia do care about our name being bandied about in a commercial context’ in an indirect reference to the Tradecraft name. Mathur responded ‘Oh, I should have known that we are dealing here with a learned man, Sir’ eliciting chuckles all around. The Dean and Provost agreed to Mathur’s plea that while the documents were being drawn up to capture their agreement, he was free to talk to the Business School and Computer Sciences teams about the work to be done for Tradecraft.

As the Dean and Mathur were walking back to their offices, Mathur said ‘Columbia may never know that it had given up ten percent of a very big thing, given the commercial potential of this venture’. Just then, on an impulse, he said ‘Dean Rogers, may I make a personal request to you? Will you please consider being the Chairman of our little company, however awkwardly this request is worded? I will be needing advice and guidance on several matters as they evolve, besides which your presence would have a calming influence on the Bank’s top management.’ The Dean was rather surprised at this offer of Chairmanship, but kept his counsel. They agreed to meet after a couple of days on this matter.

Without losing any time, Mathur arranged for a lunch meeting with two professors of Columbia, one a specialist on Trading Strategies and the other in developing specialised software dealing with large data bases. Over a pasta lunch at Pisticci, a restaurant popular with the Columbia crowd, he rolled out his action plan. He needed ten top brains in trading strategies, who would work closely with ten computer jocks to develop the first batch of simulation packages for trial at the Bank. It was going to be a six months project, and these resources would be well compensated at the usual rates. What more, they might even get academic credit for the work done with Tradecraft, since they were talking about cutting edge application of trading research there. At the mention of the company’s name there were a brief display of eye rolling and muffled snickering by the professors, but they did promise to select a crack team for this work. Mathur had no doubt they had enough bandwidth to spare in their departments, and the promise of more work and money to come from Mathur would enable them to offer more fellowships in the coming academic year. He felt a little better that the team for the grunt work would be lined up soon, leaving him with the problem of managing technical and conceptual complexities in creating a mammoth software product for the first time. He was clear that the task was very much beyond him and he needed two first-class coordinators; he knew just the right guys for the task, but was very much doubtful if they would be interested in such work. He decided to woo them with a bit of dazzle, but he needed to find them first since they were the most elusive characters known to him.

The name Igor Sokolov was not known to many people. But to those who inhabit the small world of trading options and derivatives he was closer to the Gods than anyone. Coming from the interiors of a recently broken up USSR, Igor found his metier in the complex intersecting world of differential calculus, multi-variate regression analysis and Bayesian statistics. There was only one place in the world where such a combination was valued and soon Igor found a welcoming home in the Wall Street. The typically over-used phrase, rocket scientist, did not do justice to his subtle math oriented brain and its ability to understand and interpret various simulation possibilities. While all the Wall Street firms loved him for his skills, his formidable temper stood in the way of long term permanent employment with any of them. Having cycled through most well-known financial firms, Igor was now content to remain a consultant on contract whenever a complex problem needed to be solved. The only challenge for Mathur, was where and how to find Igor in this urban agglomeration known as New York City. Mathur knew Igor slightly through one of the projects they worked on together, and came to admire his subtle mind. Furthermore, he remembered Igor hung out in the Brooklyn Chess Club at all hours of the day, when he was not doing any serious consulting work. He put in a call to Brooklyn Chess Club and was fortunate to get a number for Igor. Later that evening Mathur and Igor were seated in a Starbucks discussing the role Mathur had outlined for Igor in the project. He would be the one to vet the ten or so simulation strategies developed by the financial research team, validate them for their practical use in the field, and work with the software coordinator to ensure the fidelity of the developed software to reflect the simulation logic properly. It was on offer to Igor on two conditions, one he should devote the next six months exclusively for this work and two, he should restrain his fearsome temper. ‘Dont, under any circumstances, piss into our soup, Igor’ is the colourful way Mathur put it. Not to be let down, Igor came up with a question himself on the WIFM factor: that is, what is in it for me? Mathur named a sum about thirty percent over typical charge out rates for such consultants, and Igor seemed pleased.

Tracking down the other top resource was relatively easy. Mathur knew Narayan Swami well, and he knew he was a long term resident of International House on the Riverside Drive. Swami was a post doc in computer science, was in between research positions, trying to do some free lance work. He was a nerd to top all nerds in computer science, both in programming languages as well as his grasp of hardware developments. Swami had a quixotic reputation for practically always being the first man for breakfast in the I-House common dining room, at 6 30 am when he was in town. So that was where Mathur went next morning to find Swami taking his first sip of coffee. Without much preamble he went into his spiel about his project, and the role he had in mind for Swami, that was to coordinate all the ten programmers writing simulation algorithms, to ensure a common approach, common syntax and uniform coding and testing standards. Ultimately he would be the one signing off on these simulation software for the first batch of ten cases. Mathur however cautioned him that Swami would be working closely and in parallel with Igor Sokolov, and they would have to work well as team for the success of the project. Swami was unfazed at this, since he was used to handling all kinds of characters in his past work, and Igor was yet another difficult colleague for him. Mathur mentioned a sum similar to the one offered to Igor earlier for six months work, and that seemed acceptable to Swami. He was ready to block off the next six months of his work calendar for Tradecraft, starting immediately.

It was with some sense of accomplishment that Mathur strolled into his tiny office in the B-School later that morning. After all in the past ten days he had lined up the a solid bench of talents: Igor, Swami and a phalanx of trading and software minds to work on his project. There was a voice message waiting for him from Dean Rogers, to call him when convenient. ‘What is wrong with right now?’ Mathur thought cockily as he placed the call to the Dean. They decided to meet for a sandwich lunch later in the day, that being a fine autumn day, in the Morning Side park located just east of the Columbia campus.

As they were seated on a bench, and opening their brown bags, Mathur outlined the progress at his end, details of his conversations with Igor, Swami and the two professors of Columbia. For his part Dean Rogers agreed to Mathur’s request to be the Chairman of Tradecraft, and to help him whatever way he could. Mathur was deeply touched by the Dean’s gesture, particularly when it came without any conditions or financial demands attached. The Dean went on to say that as Chairman he expected to be involved in all matters of decision making, though it was only a part time position, while allowing that Mathur would have the final say being the majority owner of the firm. ‘I just don’t want to be blindsided by surprises of any kind’ were the very words he used. Mathur thanked Dean Rogers for the faith he had placed in him, particularly when the company was at that time only a concept on paper. He offered the Dean a choice between owning ten percent of the company or a fixed annual compensation far more generous that what he offered Igor and Swami. He also explained to the Dean that he expected no other shareholders to come into the company as he was curious to see how far it could go on its own steam with their limited resources. Such a long term thinking appealed to the Dean and he unhesitatingly chose the ten percent ownership option, rather than a fixed pay. Now that Dean Rogers was firmly on board, Mathur had no hesitation in requesting him to accompany him for the crucial meeting with the Bank to be set for the following week. He also requested the Dean if he knew anyone in the Silicon Valley with connections to the top man in Silicon Graphics, a high end computer hardware maker, for Mathur to be able to explore some hardware configurations. Of course the Dean knew the dean of Stanford business school who would know everyone who is anyone in the Valley, and he promised to speak to his friend in the West Coast.

Now for the final face off with the Bank. Mathur was ready with a full blown proposal in Tradecraft letter head, with details of the organisation and people he had lined up for this project, and some glimpses of their CVs. When one of the MDs saw the address of the company he let out a mock exclamation ‘Oh, my, I didn’t know that there were 145 streets off Broadway’, to which Mathur responded ‘Not everyone can be on Park Avenue, buddy’ to the great amusement of everyone within earshot. As soon as Jim Tomlinson and the head of research joined the meeting, he introduced Dean Rogers of Columbia as the non-executive chairman of the company, which caused some sharp intake of breath. He then rolled out the names of Igor Sokolov, Swami and the twenty members of the software and trading research teams from Columbia. With this kind of heavy artillery on display there was no question of Tradecraft not having the bandwidth to execute the project. To round off the team, Mathur wanted two full time resources from the Bank as part of the Tradecraft team to ensure that there would be perfect alignment between theory and practice. It will also ensure that the trading strategies being proposed were not completely out of whack with what was happening on the trading floor. It was a reassuring touch from the Bank’s point of view, as they get to keep an eye on what was going on with the project.

It was now the Bank’s turn to respond to Mathur’s somewhat unorthodox proposal. After some moments of thoughtful silence Tomlinson spoke up. ‘that is an impressive line up you have got there, Mathur, let me give you that. We will be happy to go with this project, but on one condition, that only our Bank gets exclusive access to this trading simulation technology, and no one else gets their hands on it’. Such a restriction would of course limit the potential market for this innovative product, and there was no way it could be accepted without some discussion. Such an exclusivity would place severe limitations on Tradecraft’s potential market, and it could spell the end of their project if the Bank insisted on it. At this time it was then Dean Rogers came up with a Solomon like settlement saying ‘What if your Bank gets the first crack at the supply of these machines, and all other banks get their turn only after we complete fulfilling your orders?’. It was indeed a sensible compromise from the Bank’s point of view as well, as they would be at least six months ahead of all other competing banks in this respect. At this point it was clear that all pending issues had been addressed properly, and all that was left to do was to complete the legal paper work to get the money flowing into Tradecraft account. While the meeting was breaking up in good humour, Mathur raised the point about Bank’s connections with Silicon Graphics senior management. Jim promised to speak to the CFO of Silicon Graphics to tell him to lend all required assistance to the Tradecraft team when approached.

Back on the number 1 train getting back to Columbia, Dean Rogers was in a celebratory mood. ‘You seem to have pulled off a coup of sorts, Mathur. These guys are on board now, and it is up to us now to deliver what we promised them. We have no time to lose now’. He also named a lawyer friend of his who had an independent practice who would be able to assist them in all legal matters. ‘Josh Saxbe from the law firm of Saxbe, Ross and Dunbar is a lawyer who keeps his clients’ interest foremost and that is the kind of guy we can do with in our team, why don’t you meet him in the next couple of days?’

They got off at the 116th station and went their separate ways.