E22: Reflecting on the Robinhood situation with Bestie Guestie Vlad Tenev

Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg https://twitter.com/vladtenev Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/MikeSylvan Show Notes: 0:00 Bestie intro, congrats to Friedberg on a big beak wet 1:44 Jason intros Vlad Tenev 2:48 Vlad fields questions on Robinhood's choice to stop the buying of $GME, his CNBC appearance, self-clearing, liquidity & more 11:02 Allowing access to margin, Robinhood's prior SEC fines, Robinhood accounts that go bankrupt, debunking conspiracy theories, WallStreetBets & more 21:57 Should there be more transparency in the financial markets? Will Robinhood's IPO shares be sold to their retail users? What will they change internally going forward, and how would they have handled the meme stocks situation differently? 31:04 Vlad tells the real story of Jason investing & signs off 33:51 Vlad's returns to answer more questions on users that lost everything, future of payment for order flow & more 41:36 Debriefing Vlad's performance

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Jason Calacanis?

  Now, wait, Vlad, you have to turn your camera off and then I'm going to do my little bit where the bestie guestie door knocks.

• 0:05Chamath Palihapitiya?

  Oh, no, Jason.

• 0:07Jason Calacanis?

  No?

• 0:07Chamath Palihapitiya?

  Let's not do that.

• 0:08Speaker 02

  This is silly.

• 0:09Chamath Palihapitiya?

  This is silly.

• 0:09Jason Calacanis?

  Here we go. I can do it. It's very easy for me. Don't worry about it. Don't worry about it. These guys don't want to do it. They don't like my, they don't like my bits.

• 0:17Jason Calacanis?

  Three, two.

• 0:38Jason Calacanis?

  Hey, everybody. Hey, everybody. Welcome to another episode of the All In Podcast. With us again, the queen of Kinwa himself, David Friedberg, the Rain Man. Definitely counting cards. Yeah. Burn baby. David Sacks with us. Chamath Palihapitiya, the dictator.

• 0:59Chamath Palihapitiya?

  By the way.

• 0:59Jason Calacanis?

  And?

• 1:00Chamath Palihapitiya?

  By the way, go ahead, J. Cal.

• 1:02Jason Calacanis?

  I'm J. Cal, AKA Baby Seal.

• 1:05David Sacks?

  J. Cal, could you take longer with the intros? I mean, this is like, this is like your one moment to shine is the intros.

• 1:11Chamath Palihapitiya?

  It's like fucking torture.

• 1:12David Sacks?

  I know.

• 1:12Jason Calacanis?

  I like to do a little branding here. I'm branding you guys as characters on the show.

• 1:17Chamath Palihapitiya?

  I do want to, I do want to give a big shout out and congratulations for David Friedberg. Wedding is beak in a big way. The story, by the way, we should actually have founder, crazy founder stories and we should have Friedberg tell the story of Metro Mile, but it closed its SPAC transaction and went public and it's doing great and congratulations.

• 1:39Jason Calacanis?

  Thank you. Thanks, guys. A little golf clap. Thanks for the support, Chamath. Yeah, thank you. Thank you. Very nice. And joining us this week as our second bestie guestie after a triumphant performance by Draymond Green on the last All In Podcast is Vlad Tenev, who is the co-founder and CEO of a new startup we wanted to introduce everybody to. It's called Robinhood. Vlad, tell everybody, what is Robinhood and what's the mission of this new startup you've, you've got?

• 2:13Speaker 02

  Thank you for having me here hanging with you guys. Robinhood's mission is to democratize finance for all. It's somewhat new. We've been around for a little bit over five years. And we have a mobile app and a website that allows customers to invest in stocks, options, cryptocurrencies. We offer a debit card and a high-yield savings product as well. Commission-free and with no account minimums.

• 2:39David Sacks?

  Vlad, I think you've done an amazing job building this company. And you guys have done an amazing job democratizing access to the ability to trade. But can we fast, let's fast forward to the issue that, I mean, this, we discussed, I guess, a few pods ago because there was intense interest in this. I think it's our highest rated pod ever was discussing the GameStop issue. So you had these traders from Wall Street Bets, these reditors, who, like you said, they perceive themselves as the heirs to occupy Wall Street. They're, they're trading for profit, also for revenge. And then, you know, you guys, I guess, get a call in the middle of the night from the clearinghouse and you have to freeze the buy side of the trade the next day.

• 3:22David Sacks?

  I guess let's fast forward to that because that was the thing that, you know, got everybody up in arms. Could you, I guess, talk to us about kind of what happened? And I'm sure you didn't want to have to freeze trading, right? But you were being compelled by this clearinghouse. Can you kind of explain what they told you and why you had to do it? And why not just ask them to give you the order in writing so you could post it on your website so everybody would know you didn't have a choice? Could, is that something you could have done?

• 3:52Speaker 02

  Well, I think the challenge was that, no doubt, we could have communicated this a little bit better to customers, right? By the time, by the time we restricted these securities to PCO, and it was 13 securities that we limited to sell only, that process is actually operationalized within Robinhood. So it's, we do it from time to time under various circumstances like corporate actions. So when Something has a reverse stock split or something like that. We can PCO it for a little bit. So there's a button in a dashboard that, you know, you can click and automated emails get sent out.

• 4:33Speaker 02

  So it's a, it's an operational process that I think in hindsight, we probably should have exceptionalized to, to make it, to make it clearer why we were doing this, just given all the swirl around all these meme stocks online. But by the, as soon as those emails went out, the conspiracy theories immediately started, uh, started coming. So my phone was blowing up with, you know, how could you do this? How could you be on the side of the hedge funds? And of course, we're not on the side of the hedge funds. I mean, we're, we're, we're building products for our customers and we just had to do what we did to meet our deposit requirements.

• 5:12Speaker 02

  Because if we didn't do that, we would be in violation and the consequences of that could have been much, much worse than simply halting buying in the 13 stocks.

• 5:22Chamath Palihapitiya?

  I think that's where, you know, when you were on CNBC with Sorkin, people either thought you were obfuscating or you were lying. You know, and part of it is sort of the, the guts of your business is that at some point as well, you guys decided to self-clear. Right? And then going into self-clearing, you become liable for every single trade that happens on your platform.

• 5:46Chamath Palihapitiya?

  Like if you look back on those two weeks.

• 5:47Chamath Palihapitiya?

  Can we explain to the audience what self-clearing means? It means that, you know, typically you can work with a wholesaler to offload the risk. So Vlad acts as a transaction layer and as a UI and somebody else is responsible. At some point, these guys, for economic reasons, decided to take that responsibility on themselves. But when you do that, you take on the full-fledged liability of the value of every single trade on behalf of your customers.

• 6:12Speaker 02

  Yeah, I would think about it, I would explain it as there's like pre-trade, right? Then the trade and then post-trade. So Robinhood obviously does pre-trade with, uh, that's the app and what's called the Introducing Broker Dealer. Our market makers do the trade. So we route it to, you know, all of the firms like Citadel Execution Services, 2 Sigma. And then Robinhood Securities does the post-trade, the clearance and settlement. So we manage the exchange of cash and stocks that happens on T plus two. So two days after, after the trade is made.

• 6:45Chamath Palihapitiya?

  So. What was not, I mean, if you had to give that answer again, when Sorkin said, "You have a liquidity issue," was the answer, "Yes, we have a liquidity issue and here's why?" Or is it still the same answer it was then?

• 6:59Speaker 02

  So I stand by what I said and I'll explain it. And thank you, by the way, for giving me a chance to explain it. First of all, restricting securities, restricting the buying of securities is something that every, pretty much every broker did to some degree during this week, right? So when you say the L word in financial services, it reminds you of Lehman Brothers, where you literally are not able to operate your business. We met all of our deposit requirements. The new capital that we raised, the 3.4 billion, wasn't to meet our ongoing deposit requirements. We had met them and in order to relax them and eventually unrestrict them,

• 7:40Speaker 02

  we needed to raise some more capital and eventually have more cushion so that if we keep seeing the type of growth that we kept seeing, we didn't have to impose position limits again. So I stand by what I said. I think if you describe that as, you know, the L word, pretty much every broker would have had that issue. And I think at that point, the word kind of loses its meaning and the gotcha factor that the journalists are trying to get out of it.

• 8:08Chamath Palihapitiya?

  Do you think that the risk in the business went up when you decided to self-clear? Or would this risk have been the same if you broke through a wholesaler?

• 8:16Speaker 02

  Well, I think a lot of the, a lot of the other brokers who relied on clearing firms had the same issue, right? You know, there's, there's firms like Apex Clearing, which has introducing brokers. Cash App, for example, clears through a third party as well. And they, they all had this issue. And of course, their response was, they kind of threw their clearing firm under the bus, right? So obviously, we're not going to do that because our clearing firm is Robinhood Securities. But I think, understanding the space a little bit better, since Robinhood Securities is, you know, a subsidiary of my company,

• 8:57Speaker 02

  I realized these clearing firms had to do what, what they did. Like, there's no, it's not negotiable to meet your deposit requirements. Of course, we can ask, what can we do? Are these deposit requirements sensical? What can we do to drive change in the system? And I think that's where my... What's that?

• 9:16David Sacks?

  Who sets those requirements? That's the clearinghouse, right? Is that the DTCC?

• 9:20Speaker 02

  Yeah, it's the DTCC and a lot of this stuff is actually spelled out in Dodd-Frank. So if you look at Dodd-Frank, you'll see descriptions of the VAR charge and the various special charges there.

• 9:33Speaker 02

  But I do think, one thing that I'm very excited about is, you know, not going beyond just talking about our problems, right? We can, I've talked about our problems a lot, but talking about solutions and how we can create a better financial system in the future. And I really think if you, if you understand the underbelly of what T plus two settlement is, you immediately ask yourself, why aren't we settling trades in real time? And I wrote a post on that. I had a tweet storm. I'd also say, you know, some of the feedback that I've gotten is, you know, here's Vlad from Robinhood telling us about, you know, trying to change T plus two so that he can meet, he can lower his deposit requirements. I think there's lots of other systemic issues that fall out of that.

• 10:16Speaker 02

  In particular, right now you can short sell more stock than the shares that are outstanding, right? So, you know, some of these stocks had 140% short interest, right? So more, more shares were shorted than actually outstanding. And I just think that's pathological and it stems from the fact that, you know, these shares are tracked on pieces of paper, so they're basically not tracked. And someone can, you can, I can lend you my shares, you can short them. The person that's buying them from you can lend them again and you can do that multiple times. And you end up with this situation that could destabilize the financial markets, right? So.

• 10:56Chamath Palihapitiya?

  What, okay, so T plus, moving from T plus two to T plus zero, that's one issue. Where do you think, uh, margin?

• 11:04Speaker 02

  Yeah, that's what I was gonna ask. Where, where is your margin?

• 11:07Chamath Palihapitiya?

  What's your, what's your thoughts on margin?

• 11:09Speaker 02

  Yeah. Well, so margin wasn't involved in this particular situation. In fact, there was an escalation path, uh, not a lot of people noticed until Thursday, but pretty much all the brokers, including Robinhood, were, uh, ratcheting up the margin requirements for, for all of these securities,

• 11:29Speaker 02

  uh, until they got to 100%. So by the beginning of the week, they were pretty much all at 100%, which means you can't use margin to buy them. You have to, you have to have them 100% covered. So. Do you guys have a more specific question on margin?

• 11:44Chamath Palihapitiya?

  Well, I meant more like, I meant more like, so for example, I think it's true, but you tell me if this is not true. You guys paid like a $65 million fine to the SEC for gamifying Robinhood, right?

• 11:57Speaker 02

  It's not, not exactly true, but go ahead.

• 12:01Chamath Palihapitiya?

  Okay. Do you want to, do you want to just tell us what the truth is?

• 12:05Speaker 02

  Yeah. Well, so the, the fine wasn't for gamifying Robinhood. It was for, um, payment for order flow and business model related, uh, related things. Um, the gamification one is the, um, Massachusetts Securities, uh, Securities one, which is a separate thing. And look on the SEC thing, um, we're a fast growing company. We obviously scaled a lot between the period in question. Um, obviously, uh, the, the Securities and Exchange Commission, uh, felt like we could have done things better and, and I own that. I think that we're fine being held to higher standards. We have to hold ourselves to higher standards.

• 12:48Speaker 02

  And what we can do is just do some of the things we've done. Staff up our compliance team, staff up our legal team. We brought on a new chief legal officer who's a former SEC commissioner, two new chief compliance officers for Robinhood Securities and Financial who had decades of experience and the level to which we're investing in compliance. I mean, the goal is to build the finest legal and compliance team that the financial industry has seen.

• 13:14Chamath Palihapitiya?

  Let me tie it back flat to what, to what we were talking about before. So, do you think that it's okay? If we're trying to build a generation of investors, to give them access to margin as easily as some apps, including Robinhood does, and then separately allows them to trade highly transactional, high vol instruments like options? On top of that with margin? What do you think about that? Just as a general philosophy? Forget business building for a second.

• 13:45Jason Calacanis?

  Well, and then also can you say what the margin you allow is for a new account? Cause I don't think people understand what that is. Maybe a little definition there.

• 13:51Speaker 02

  Well, there's a couple of things I want to clear up. Number one, you can't trade options on margin. So options are all fully paid for, right? Margin is not suitable for everyone. I'll admit that you have to understand it. And you also have to be a Robinhood Gold customer, which means you have to sign up and pay $5 a month. Most brokers don't gate margin behind a premium offering. So we're already a little bit more restrictive on that front. You have to have $2,000 in your account before you can borrow. And in December, we did lower our margin rates to 2.5%, which is a very competitive low rate. But let me tell you a use case for margin that I actually think is quite powerful.

• 14:36Speaker 02

  So obviously, one use case is kind of the typical one of buying more stock with your money. But if you build a large portfolio, you can actually use margin as a line of credit. And we offer this feature with our debit card. You can turn on what's called margin spending. And what that means is if you invest in your portfolio, you can borrow collateralized by your portfolio at a very low rate, which is 1/10 of what you would borrow through a credit card. So I actually think it's a powerful tool. Certainly, customers have to understand it and be suitable for it. But it unlocks a type of borrowing, not just for buying stocks, but for meeting your daily purchasing needs

• 15:21Speaker 02

  that I think is very useful.

• 15:23Jason Calacanis?

  If somebody puts $2,000 in blood, can they trade $4,000, $6,000, $8,000? And does it matter what equities they're holding? How does it work?

• 15:33Speaker 02

  Yeah, the actual calculations are... There's no blanket formula I can give you because it does depend on the securities that you buy. So the example I gave was, for example, GME and some of these other meme stocks. We raised the requirement on those to 100%. So those have to be fully paid for. Other stocks have an initial requirement as low as 25%. If it's one that is deemed by the operational staff and our processes as not being super volatile. And it can go in between. So 25% initial requirement all the way up to 100%.

• 16:11Jason Calacanis?

  So you can trade 4x your money if it's a really blue-chip, secure stock?

• 16:17Speaker 02

  More or less, yeah, with some nuance around that.

• 16:21David Friedberg?

  You know, time and again, Vlad, there's studies that show that it's really difficult to beat the market and make money, you know, trading in an efficient market. Like the market we have for stocks or options or what have you. There's a lot of players, there's a lot of liquidity, there's a lot of people with information. It's, you know, these great fund managers, over time, underperform just the S and P, right? And, you know, I think I mentioned this when we had that pod a few ago, that I was involved in a Forex trading company and 60% of accounts eventually ran out of money. Can you share with us what percent of Robinhood accounts run out of money? And, you know, do we mask generally, and I'm not accusing Robinhood specifically of this,

• 17:04David Friedberg?

  but do we mask the idea of investing in businesses as, you know, a way of kind of highlight, of a way of hiding that people are really just using this to trade in and out and try and make money in the short term? And ultimately, the majority of them end up losing most of their money because the fees and the spread and the margin or whatever it is that kind of adds up, you know, wipes out the account. That's what I saw at this Forex company I was involved in. Can you share with us, you know, in a very candid way, like how many accounts do eventually go bankrupt at Robinhood and how much of that do you really see?

• 17:37Speaker 02

  First of all, I'd say Forex is a little bit different because the leverage you get in Forex is like orders of magnitude higher.

• 17:43David Friedberg?

  Yeah, I'll admit to that. It was like 10 to 50 to 1 leverage. So you're totally right. Yes, 100%.

• 17:48Speaker 02

  So I do think the businesses are a little bit different. Most of our customers don't use leverage. Most of our customers aren't active traders or trading options. And if you look at some of the features that we've rolled out, the theme of this year has been how do you turn a first-time investor into a long-term investor? So fractional shares, recurring investments, drip. These tools allow someone to create a diversified portfolio of individual stocks and recurrently buy into them over time.

• 18:20David Friedberg?

  But is that the majority of users today or the minority? You know, how many accounts do you see kind of cycle down to zero over what period of time?

• 18:30Speaker 02

  I think a very small percentage of accounts have that have that property. I mean, I think if you look back in 2020, we had a huge increase in growth and interest in investing right at the bottom of the market crash in March, right? And I think people have taken advantage of that. And our customers in general have benefited from the recovery very, very significantly. So I wouldn't, I would reject the memes that, you know, Robinhood customers are active traders that are just, you know, churning their accounts and losing all of their money. That's, that's just simply not what we're seeing.

• 19:11Jason Calacanis?

  I know Sacks has a question, but one question I had with the conspiracy theories that I would just love to hear like a yes, no to.

• 19:17Speaker 02

  Sure.

• 19:18Jason Calacanis?

  Did Citadel call you and say, stop this madness because they had exposure through one of their hedge funds with GameStop? And did Sequoia call you and say, hey, stop this madness?

• 19:28Speaker 02

  Or Joe Biden, you forgot, you forgot the White House one. No, no, this was a formulaic decision made by Robinhood Securities.

• 19:37Jason Calacanis?

  So Citadel didn't call and ask. Sequoia didn't call and ask. Did the SEC call you and say, this has to stop?

• 19:45Speaker 02

  No.

• 19:46David Sacks?

  But the clearinghouse did, right?

• 19:47Speaker 02

  Yeah, well, they called and they said, here are the deposit requirements. And we worked with them to lower the risk so that we could meet the deposit requirement.

• 19:56David Sacks?

  Got it. And so just let me pick up on that. So at the same time that was happening, and I know this wasn't Robinhood, this is not your company, but Discord and Reddit were receiving reports that the Wall Street Bets forum was engaged in hate speech. And there was an organized effort to get them censored and taken down. And Discord basically fell for it and took down Wall Street Bets, Reddit, to their credit, did not. Do you have a take on, you know, what happened there? And I mean, I assume you don't think Wall Street Bets was engaged in hate speech.

• 20:31Speaker 02

  Well, so that happened Wednesday, I believe. And yeah, we were watching it. It was first, it was like, oh, wow, Discord, Discord shut down. And then I think Wall Street Bets went dark on Reddit for a little bit as well, but I'm not quite sure of the reasoning behind that. Look, I mean, I disavow hate speech, misinformation. I'm not, you know, judging which of the posts are hate speech or not. I think that's the social media companies that, that, that should take a look at that.

• 21:04Chamath Palihapitiya?

  The mods, I think the mods closed down Reddit for like a little bit and then turned it back on.

• 21:09Speaker 02

  Yeah.

• 21:10Jason Calacanis?

  Yeah, I mean, a lot of these things get triggered if 10 people reported at the same time. It just, it sets off a circuit breaker.

• 21:17David Sacks?

  Yeah, it seems to me that, and certainly this is, if you want to call it a conspiracy theory, it seemed like you had this Wall Street Bets group, they were on one side of the trade. You had these Wall Street hedge funds are on the other side of the trade. And there was an effort to weaponize the speech rules of Reddit and Discord to cut off the lines of communication of Wall Street Bets. Because the only way that Wall Street Bets, as a decentralized group of millions of traders, can, can stick together and compete with these hedge funds is if they can communicate with each other via these services. And so, you know, it seems like there was an organized effort to try and take them down at the exact same time that, that they were frozen out of the buy side of the trade.

• 21:57Chamath Palihapitiya?

  Vlad, do you think that there should be more transparency in the financial markets? Meaning, everything from payment for order flow, how much money companies make lending out their stock, how, which company is short, which stock, which company is long, which stock on a more frequent basis, how much margin people are running? Do you think like we should move to perfect transparency in the financial markets?

• 22:20Speaker 02

  I do think that there should be more transparency. And I'm glad you, you brought up payment for order flow because it's something that I'm trying to take on. You guys might've noticed, I, I published a post on payment for order flow. I started a tweet storm that is meant to just start the conversation around it. I want to Understand kind of the misconceptions and the theories and and knock them out one by one. And I think that'll lead to some positive discourse around it. And there certainly might be things that'll have to change. And I think the the first step is actually engaging in the conversation and kind of connecting the people that understand the details with the people that have issues with it. And I don't think that's been happening enough. So for sure.

• 23:06Chamath Palihapitiya?

  But what about stuff like margin shorting, you know, short like, do you think that we should move all of this stuff so that it's just out out front for everybody to see?

• 23:15Speaker 02

  Well, I think I think if we if we migrate to a better settlement infrastructure and move to real time settlement, you get a lot of that stuff for free. Right? So you do get, and I know a lot of the crypto people came out after I published my post and said, you know, crypto solves this, you could just put it on on a blockchain and everyone could see publicly what's going on and which share which shares are are being being held short, where they are, who's owning them. So I think I would be in favor of of more transparency. I'm not sure at what point there's sort of like negative secondary effects. I haven't kind of unspun the thread fully, but I think we can we can keep taking it one step at a time and and see more transparency generally, I think, is much better.

• 24:01David Friedberg?

  Hey Vlad, when you guys go public, you've talked about having a listing at some point here soon. Why would you not have all of your shares sold in the IPO through Robinhood to your retail users? Why would you sell any shares to institutional investors?

• 24:18Chamath Palihapitiya?

  Wow, good question.

• 24:20Speaker 02

  It is an interesting question. It's it's one that I probably that that's probably the one I can't give too much detail on. Hopefully you guys understand.

• 24:30David Friedberg?

  My recommendation, if you're going to democratize access, do it all the way. Fuck the hedge funds and the big guys. If that's the if that's the point and you give retail equal access, you know, in all these transactions, as you know, institutions get get all the access and the retail is paying the price.

• 24:45Speaker 02

  Well, here's something interesting, right?

• 24:46David Friedberg?

  Have your entire listing done through retail. It would be a it would be a game changing transaction.

• 24:52Speaker 02

  Yeah, so I mean, a lot of this, it's really interesting that this turned into, you know, individuals versus hedge funds, because I think that's a really powerful story. But you also have large institutions like Fidelity that are holders of all these stocks, right? You have individuals on a lot of platforms that were short selling them as well. Not Robinhood, because Robinhood actually doesn't, doesn't allow short selling by individuals, but a lot of the other brokers do. And you have, you had statistics, statistics coming out that actually show retail versus institutional and, you know, there were some counterintuitive results. So I think if you actually look deep into the plumbing, the story of, you know, long

• 25:33Speaker 02

  individuals, short institutions on opposite sides, I think there's a little bit more nuance to it than that.

• 25:40Chamath Palihapitiya?

  Flat, if you had to do it over, or actually, forget about the past, think about the future, what do you change inside the company?

• 25:48Speaker 02

  Well, let's see, I think the 3.4 billion in extra capital certainly helps. I think I'm very proud of the transition that we made between Thursday and Friday. So Thursday, we had the blunt hammer of PCOing these stocks, right, which obviously was not ideal. By Friday, we had moved to a much more sophisticated system where intraday, we adjust the position limits in, it was up to 50 stocks, and we published that on our website. So that, that gave us a lot more granular control over it and is a better system, and we're going to only improve that and kind of take the learnings to other parts of the business.

• 26:29Speaker 02

  So I think the great thing about, you know, these sorts of crises is sort of months and years worth of work get compressed and people are just like super aligned on the key priorities we need to do to, to move the business forward, and we saw that. And then the third thing I'd put is just... Maybe you guys have seen, you know, I feel like I've evolved as the chief executive and as a leader. I didn't used to be on social media telling our story very much, but I'm out there trying to encourage more transparency.

• 27:03Jason Calacanis?

  I would say much better today than with Elon, much better with Elon than Sorkin. So progress has been made. I have just a basic question. I know we got to wrap soon. When things get superheated and you have this viral momentum where I don't know how many people tried to sign up on that day, but maybe you could give us an idea on that Wednesday or Thursday, was it, you know, five figures, six figures or seven figures worth of new accounts? Why not throttle the new accounts and say, hey, we're, you're on the waitlist, we onboard 10,000 people a day, your day is going to be next Thursday? So that you don't get caught in this, you know, everybody uses the fact that it's friction free to sign up to do an emotional bet in a, you know, let's call it mob behavior,

• 27:45Jason Calacanis?

  right? Like this turned into a mob and I guess some people believe it's a good mob to go up against the hedge funds, but it could have equally been something, you know, something more deranged and even more edge cases going to happen. So when that does happen and a million or 10 million people sign up, can't you just pause it and say, we're not going to do any new accounts today? We've reached our limit?

• 28:07Speaker 02

  We actually did do that. So we have been pausing new account approvals off and on, depending on, on the load and, you know, customers have been experiencing in some cases, short delays with account approvals. Obviously not an ideal solution from our standpoint, but you know, if, if we have to do that, we will do it and we have done it.

• 28:29Jason Calacanis?

  How many people signed up on that Wednesday? Like just ballpark? Like was it hundreds of thousands, millions?

• 28:33Chamath Palihapitiya?

  Jason, are we, are we running an ad for Robinhood? Stop.

• 28:36Jason Calacanis?

  No, I'm just curious what the scope of it was.

• 28:38Chamath Palihapitiya?

  None of us cares. None of us cares. Vlad, last question.

• 28:40Speaker 02

  Hit me.

• 28:41Chamath Palihapitiya?

  Hey, listen, if you had to pick two different CEOs reactions to how you dealt with it, let's say Tim Cook on one end of the spectrum and Zuck on the other, how do you think they would score what Robinhood did and what they are doing?

• 28:53Speaker 02

  Ooh.

• 28:54Chamath Palihapitiya?

  Tim Cook, Zuckerberg?

• 28:59Speaker 02

  You know, I'm not sure. I think that I think I'm proud of how the firm navigated this. I think obviously there's ways to improve upon it. I think that, you know, anytime you get a phone call in the middle of the night saying you have to put up $3 billion, all sorts of things run through your head, right?

• 29:21Chamath Palihapitiya?

  I've had it happen. I know.

• 29:26Chamath Palihapitiya?

  That was just money from the cage for poker.

• 29:29Speaker 02

  I got a lot of people reaching out to me, which was amazing.

• 29:33David Sacks?

  If you had to do it over again, why not just post a blog that morning saying, hey, we got a call in the middle of the night. We have to do this. Is that, is that the thing you'd do over again?

• 29:44Chamath Palihapitiya?

  No, because he'd be throwing his own company under the bus. He'd have to say Robinhood Securities is telling Robinhood, the broker, to post this money because Robinhood Securities is being told by their downstream clearing. So it's like you're, you're, you're in a, you're in a possible situation.

• 29:58David Sacks?

  But you're saying it now, so better to say it at the time it all happened and it would have diffused the whole crisis, right?

• 30:04Speaker 02

  Well, first of all, I'm not throwing anyone under the bus. We did, the team did what they had to do. I don't think there was any way to navigate that differently. I think the automated emails that went out to customers saying, your stocks are, you're restricted from buying these stocks. Probably could have been handled a little bit better. We probably could have offered more detail into that with the foresight that maybe customers would think that a hedge fund forced us to do it or something like that. So certainly, certainly there's areas we can improve upon across the board.

• 30:40Speaker 02

  And when an early investor called me throughout this and said, hey, chin up, you know, navigating a crisis successfully unlocks the next level of value creation for the company. And I've had that in mind the entire time and I'm just doing what I can to make that future a reality. Both for Robinhood and for the financial system, I think that this could lead to some really positive change industry wide.

• 31:04David Sacks?

  Yeah, and I'll just this one last softball here. This is not about what happened with GameStop. We've had a debate on this pod. It got kind of heated between Chamath and Jason about the nature of Jason's investment in Robinhood. Can you tell us, can you tell us your side of the story of what happened at Antonio's Nuthouse?

• 31:24Speaker 02

  Okay.

• 31:25David Sacks?

  And how much, how much stumbling was involved precisely?

• 31:27Speaker 02

  Okay, I'm very glad you brought this up because I've been meaning to call Jason out on it. He has this great story of how, you know, we met at Antonio's Nuthouse and he wrote a check. I think the, the real story is that on, on Robinhood launch day, which was a Saturday, and we violated every rule of PR and marketing by launching inadvertently on a Saturday. I got to reach out from, from Launch, who, who was one of the first, one of the first outlets to cover our launch on Saturday. And Jason's, Jason's friend,

• 32:07Speaker 02

  Simon, ex-employee, who ended up running social for us for a bit, was a big fan of Robinhood. So he joined us as kind of our first social person. He introduced me to Jason. I met Jason at Sequoia, Jason, where you agreed to invest. And then six months later, we met at Antonio's Nuthouse when we were raising our Series A. And I think you, you gave me the advice to go with Index Ventures.

• 32:36Jason Calacanis?

  No, I know. I said Sequoia all the way. Don't get me in trouble. I promised Michael Moritz, Doug Leoni, whoever's watching, I told him to go Sequoia.

• 32:45Speaker 02

  Sequoia was great. They, they unfortunately passed on our Series A, as, as did a lot of other funds.

• 32:51Jason Calacanis?

  Yeah. All right. Listen, thanks for coming on the pod. We really appreciate you taking the time and continued success. And

• 32:59David Friedberg?

  Glad. I'm really glad we didn't give you a job offer back in 2008. Sounds like it was the right move for you.

• 33:04Speaker 02

  Funny how things word out.

• 33:06David Friedberg?

  Yeah, well, apparently I interviewed him in 2008 for a job and he didn't get the job.

• 33:10Speaker 02

  It was you and Alex, Alex Michalka was my, was my, my main interviewer. But it's funny, I graduated with a math degree, right? I was, I was doing pure math, which in 2008 made me unemployable.

• 33:25David Friedberg?

  We were the only people hiring at that point. Yeah.

• 33:27Speaker 02

  You were the only people that would interview me.

• 33:30David Friedberg?

  Yeah.

• 33:30Speaker 02

  Everyone else was like, where's your computer science degree? Can you code? So I ended up going to math grad school, which was one of the few options that I had and ended up dropping out and, and here I am. So funny how things work.

• 33:43David Friedberg?

  Well, good for you.

• 33:44Jason Calacanis?

  All right. Continued success and thanks for coming on the pod. We'll see you soon.

• 33:47David Friedberg?

  Thanks, Vlad.

• 33:48Speaker 02

  Thanks for having me.

• 33:51Jason Calacanis?

  Wait, Vlad's back? Wait, Vlad's back?

• 33:54Speaker 02

  Sorry, I, I, I accidentally, I thought I was supposed to leave. I didn't know if you guys wanted me.

• 33:58Chamath Palihapitiya?

  No, you, you could stay. I was saying, you can stay. I was saying after a year of Jason asking us to run ads, he's found a way of trying to make this a 45 minute infomercial for Robin.

• 34:09Jason Calacanis?

  Absolutely. I, listen, I'm ride or die. Vlad, you know that. I'm ride or die of my founders.

• 34:14Speaker 02

  For that and I, I don't need it. We're just trying to keep, uh, keep everything up and let all the people safely in who have been banging on our door.

• 34:22Jason Calacanis?

  How, how much have you been sleeping, Vlad? Have you been able to sleep? I mean, this has got to be exhausting.

• 34:28Speaker 02

  Uh.

• 34:29Chamath Palihapitiya?

  Oh my God, really? Can you ask him something like at least semi fucking challenging? Honestly, that's not my job. That's why you guys are here.

• 34:37David Friedberg?

  If you're walking down the road and a Robinhood customer, this is a tough one. I'm sorry. You thought you were over this, but you logged yourself back in. So, and a, and a Robinhood customer that lost all this money when they got locked out of trading that day, comes up to you and screams and cries. I lost all my money. What do you say to them? You know, I got completely destroyed. My life savings is wiped out. I mean, I've read a bunch of these comments on different boards and so on. Like, what do you say? Cause I, I know that's a tough one to swallow and I know that, you know, we've heard the, the, the story around what happened, but, but what do you say to that person?

• 35:10Speaker 02

  Well, first of all, I'd be very, very empathetic. Um, I'd probably want to understand how someone could lose money. Um, when they couldn't buy a stock at the all time high. So I think the details around that, I mean, if you look back, uh, and obviously this had nothing to do with the decision, right? But Thursday was the all time high.

• 35:31David Sacks?

  Yeah, yeah. But, but that's, but the reason for that is because the ability of Wall Street Bets to continue the trade was, was basically interrupted, right? They were, they were engaged in a short squeeze against these big hedge funds. And in order for this, to keep driving the squeeze up and up and up, they needed it basically to, to be able to buy. And then once they got frozen out of all the online broker accounts, not just you guys, but all of them, that was, that, that, that, that broke the trade. Right?

• 35:59Speaker 02

  Maybe.

• 36:00David Sacks?

  That's when it crashed.

• 36:01Speaker 02

  Hypothetically.

• 36:02David Sacks?

  But that's what they're so upset about is because they got locked out of the buy side of the trade. They weren't locked out of the sell side, right? They got locked out of the buy side and that allowed the big hedge funds 24 hours to regroup and cover the trade. The price went down and that basically cracked the whole thing.

• 36:23David Sacks?

  Right?

• 36:23Speaker 02

  Well, I'm not sure about the exact details there on the hedge fund side or what happened. Look, what I can say is we're going to do our best to make sure that we get better and we serve our customers whenever they want to buy stocks and we'll do that and we're going to get better and better every day.

• 36:42Jason Calacanis?

  And the truth is, if you had had the money in the bank account for DTCC to be compliant, you would have been. Like you weren't trying, I mean, you're in the business of letting people trade.

• 36:53Speaker 02

  Without question, yeah.

• 36:55Jason Calacanis?

  You make nothing if people stop trading. You need people to trade. It's the core of the business, right?

• 37:01Speaker 02

  Yeah, this wasn't a value judgment or some kind of moral stance and we weren't pressured into doing it by anything other than our regulatory deposit requirements.

• 37:12Chamath Palihapitiya?

  What do you think is the future of payment for order flow and revenue sharing on sort of like the ways in which, like meaning, how much do you think of that payment for order flow revenue should you share with customers?

• 37:27Speaker 02

  Yeah, that's a good question. I mean, this is all highly regulated and it's become the industry standard business model, right? So I'm not sure. We're excited to have a conversation about it. I do think exchanges are here to stay. Market making is here to stay. Market making is a profitable enterprise and so some level of revenue share between the market maker and the broker makes sense. And it is regulated, so I'm not quite sure what, if any, changes need to come, but hopefully this will be part of the conversation that. That we can we can help create and and work through.

• 38:08Jason Calacanis?

  And you.

• 38:09Speaker 02

  I think part of the problem is just the opacity of it, you know, it's it's kind of like interchange. Does anyone know that interchange is this sort of like hidden piece of revenue every time you transact with a debit card or a credit card? It's it's sort of analogous in a way, right?

• 38:25Chamath Palihapitiya?

  Well, I think I think more people do just because the technology companies that have come around like, you know, Stripe and others will eventually just try to take it to zero. Um, and so if anything, I think what the the business model, or at least the business strategy of all these companies is when you find, to your point, these opaque pools of revenue, um, the innovation is just to give consumers power by taking these costs to zero.

• 38:50Jason Calacanis?

  If you Vlad decided tomorrow to do um, Robin Hood Pro, you know, higher level than gold and charge 50 bucks a month for 50 trades, and then $5 each trade after, that would solve anybody's misgivings about this, right? You could just offer both options.

• 39:09Speaker 02

  Well, I think it's it's payment for order flow enable commission free trading, right? It helps cover the costs of the business that uh, that that leads to our ability to offer commission free trading. And moreover, it allows um, smaller investors to participate. So certainly, I think that model would work, but the the consequence would be smaller investors would uh,

• 39:36Jason Calacanis?

  Yeah, just give people the option, right? If the option is there, it'd be like Facebook saying, we have an option for you to pay and not see ads and be tracked, right? It would just be great option.

• 39:46Chamath Palihapitiya?

  What do you think is the difference between investing and trading? And what do you think has to happen so that, you know, back to where you started, if you want people to close the inequality gap, how do you allow them to do it? Trading versus investing?

• 40:01Speaker 02

  Well, I think the difference between trading and investing, investing is a little bit more about accumulation. So typically you're buying more stock and building up positions over time. Trading comes into play, I think, when you're selling, right? When you're selling sort of strategically and you're doing it not driven by outside needs for the capital, but more for for sort of like intrinsic needs. So I think the question is, would we, would we ever prevent people from selling? Ideally, not. I mean, people have various needs that, that they could have

• 40:45Speaker 02

  for getting out of positions. And I think as a platform, we have to allow for that.

• 40:51Jason Calacanis?

  Awesome. Your PR people are literally going to come breaking your glass in your house. She, your PR person is literally running from HQ. She's going to be start banging on the back window. You cannot be on this pod. Great job, Vlad. And remember, use the order code BESTY and get your first free month.

• 41:17Speaker 02

  Well, thanks for having me, gentlemen.

• 41:18Jason Calacanis?

  All right. Thanks, man. Great job. Take care. Thanks. Thanks for answering our questions.

• 41:23Chamath Palihapitiya?

  Yeah, thank you for coming.

• 41:24Speaker 02

  You're going to log back in in two minutes, right?

• 41:27Jason Calacanis?

  Come back for the chess of Buden and Gavin Newsom recall news. Your PR people will be delighted if you comment on that. Are we going to do a debrief?

• 41:38Chamath Palihapitiya?

  The debrief, from my opinion, is that I think that they have to really tighten two things. One is they need to make a decision, how do they want to make money? Because I think this is the third time these issues have come up. It's probably not going to be the last then, because there's going to be more market volatility, not less. And so you just got to decide how you want to make money, because there is no amount of money that's possible if you're going to build a successful business and run into these margin constraints, right? You can't, there's just no amount of money that you could have. Meaning, if you look at the folks that didn't get called, were folks that had like Schwab accounts. Why? Because Schwab is investing. And if you look at the folks that did have these margin issues, because Robin Hood wasn't the only one, they're all the trading and, and sort of like high-frequency shops. And so,

• 42:23Chamath Palihapitiya?

  you know, that's a decision. And then it's back to what David said, which is like, once you make a decision, you have to be able to tell people like, this is what you want to stand for. And you have to have the right internal controls and governance. And so, you know, if he gets these things right, maybe they can be on the other side of it. Otherwise, they're just going to continually step on this stuff. And I think that the, you know, if folks lose enough money, they're going to be pretty upset, I think.

• 42:48Jason Calacanis?

  Sounded to me like David Friedberg, you had a good point about offering the, the Robin Hood consumer base the ability to buy the shares.

• 42:57David Friedberg?

  I think 100% of it should go to the, the retail investors.

• 43:01Jason Calacanis?

  Well, he didn't say no, and he kind of, I kind of got the inclination that he was going to do that.

• 43:06Chamath Palihapitiya?

  100% he will not.

• 43:08David Friedberg?

  Yeah, this came out in the past where he said they were going to offer some of the IPO shares to Robin Hood customers. And so that was a few months ago. I, I think I said publicly on Twitter, why don't you offer all your shares to IPO customers? Like, why take any of them direct to the institution?

• 43:23Jason Calacanis?

  Well, I mean, could he technically become a clearinghouse and IPO people?

• 43:27David Friedberg?

  But then what I said was like-

• 43:27Jason Calacanis?

  Would it be like a partnership in it?

• 43:28David Friedberg?

  Yeah, like, why don't you just take, um, you know, if Fidelity wants to buy shares, let them buy shares on the open market, like all the retail customers are forced to do. And then the fidelity argument is, well, we're buying 50, 100 million dollar blocks at a time. So we don't want to have to be in the market doing that. But the marginal cost of buying a single share versus the marginal cost of buying a million shares is much, much higher. And, you know, that's the, that's the challenge with, um, you know, with retail access in financial markets that Robin Hood has set out to solve, um, as have many others. And it would be a really powerful statement if they said, you know what, we're going to show the world that the market can all go direct and be efficient and actually make all of their IPO shares available. And then you know what, if the big block trade guys want to buy some, go ahead and buy it from the retail guys in the open market.

• 44:12Jason Calacanis?

  Or do 50/50, you know, offer everybody who's a Robin Hood shareholder.

• 44:16David Friedberg?

  I just think that they would, if they could fill their demand, their demand on their book for their IPO from retail, do that. And let anyone else, let Fidelity sign up for Robin Hood. Account and buy their shares through Robinhood, you know, like the fact is the big block buyers always get a discount, right? They pay wholesale pricing in these markets. And that's also part of why it's so difficult for retail to actually find a footing. And so it would be a really powerful statement for them to kind of go all the way. Sure, I think it's almost certain they're going to give some of the shares available in the IPO to Robinhood customers. It's a great, it's a great kind of, you know, publicity point, but, but it would be really powerful if they shifted the whole, the whole thing. I mean, years ago, when I was at Google, we did the IPO. I don't know if you guys remember this, but it was the first time we tried to do this Dutch auction.

• 45:00David Friedberg?

  So it was a reverse pricing. So anyone, any individual, any retailer and retail customer and any institution could bid on Google shares. And then there was a clearing price that was hidden. Everyone got their shares at the same time. So there wasn't this order book that was built by going to the big guys that the banks all know and love, like Fidelity and TRO and so on. Selling a big discounted shares. It was, it was, it was a true market auction. And the direct listing is the new model for this that totally democratizes access to the shares. Creates fair and transparent pricing for everyone. And so you don't end up with these like discounted shares that pop 80% on day one.

• 45:31Jason Calacanis?

  Okay, Sax, what is your debrief on the Vlad appearance?

• 45:36David Sacks?

  So I think Vlad did a pretty good job handling our, our questions, answering some.

• 45:41Jason Calacanis?

  B plus, B minus?

• 45:42David Sacks?

  Answering some, deflecting some. I think that, look, I, I think, I, I don't think Vlad's a, a bad guy. I think he's a good guy. I think Robinhood wanted to do the right thing. I don't think they had any reason to want to freeze their own users out of their accounts. I don't think they wanted to do what they did. I think that there was a little bit of a blind spot there on his part in terms of understanding the consequences of that freeze out, right? Because it did break the buy side of the trade for Wall Street Bets. And then that, that basically allowed the hedge funds to recover and that was that moment. You know, and so that was, that was a big deal. I think the consequences of that decision were a big deal.

• 46:21Jason Calacanis?

  But it's a counterfactual, right? We don't know. We'll never know.

• 46:24David Sacks?

  I think we know. Of course. Look, it was, it was that Thursday where the short squeeze ended because Wall Street Bets couldn't keep buying. They couldn't keep engineering their side of the trade. Obviously that's why it cracked, right? And Robinhood was a big part of that whole thing collapsing. Now it was going to collapse at some point. There's no question that the air was going to go out of the balloon.

• 46:43Jason Calacanis?

  Right. But would it have gone to 500 or 600 is the question?

• 46:46David Sacks?

  Yeah, but, but, but how much money the hedge funds were going to lose, whether they're going to get busted out of the game for good and who is going to get left holding the bag? Those were all questions that got answered in a completely different way because Robin Hood did what it did. Now, I, I don't believe that they had a choice. I think they did it because they were forced to do it. Um, but it did have huge consequences.

• 47:07Jason Calacanis?

  I thought he did. He's, he's doing a better and better job explaining this highly technical stuff. And, uh, you know, obviously if they can't talk about their IPO, that does tell you certain things. I don't have any inside information, but he obviously there's thing, what I get from this is there are things he can talk about and there are things he can't talk about. There might be either things with the IPO or things with confidentiality between them and some of these parties. Like I have a feeling people are not allowed to talk about this DTCC and what goes on there because there might be some-

• 47:37David Sacks?

  Well, yeah, I would have liked, I, that, that was an area where I really wanted to hear more details and get more clarity because, I mean, I believe, look, the order came down in the middle of the night from the DTCC, right? And so that's why I kept asking, why wouldn't you just say to the DTCC, give me that order in writing-

• 47:52Jason Calacanis?

  I don't think it's allowed to talk about them.

• 47:53David Sacks?

  Okay, fair, fair enough.

• 47:54Jason Calacanis?

  That's what I'm reading into it. And I don't think, I think it might be one of these non-disclosures where you can't mention the non-disclosure, which we've all been involved-

• 48:01David Sacks?

  Maybe, maybe, but, but, but, but see, that was the heart of my question is if you're ordered by somebody in the middle of the night to take an action that is, you know, adversarial to your own users, well, I would ask them for that in writing and post it on your website, post it on your blog so to show that you don't have a choice. I mean, I believe that he didn't have a choice, but why didn't he say that from the very beginning? Right? I mean, that's what caused all the problems for them.

• 48:24Jason Calacanis?

  Yeah. All right. There you have folks. Everybody go to the syndicate.com slash all in.

• 48:29Chamath Palihapitiya?

  Boys, I love you. I gotta go.

• 48:31Jason Calacanis?

  Great job. Talk to you soon.

• 48:33Chamath Palihapitiya?

  Talk to you guys later. Love you guys.

• 48:34Jason Calacanis?

  Love you, bestie. All right. We'll see you all next time. Bye-bye.

• 48:59Speaker 05

  Besties are gone. That's funny how a dog can get a no to your driveway sex.

• 49:09Chamath Palihapitiya?

  We should all just get a room and just have one big huge orgy because they're all just... It's like this sexual tension that we just need to release somehow.

• 49:17Speaker 05

  What your... B... What your... What your B? B? What? We need to get merch. Besties are back.