Robinhood: Vlad Tenev

Before Robinhood became one of the most loved and most hated stock trading platforms in the U. S., it was just another tech startup, launched by two mathematicians with an audacious idea: make stock trading mobile, make it fun, and make it free—with no commissions, and no minimum balances. In 2013, Vlad Tenev and Baiju Bhatt decided to pursue this idea full-time. They sidelined their first business—selling software that shaved milliseconds off high-speed trades—and began building an app aimed at anyone with a smartphone and a few extra dollars to invest. After launching in 2015, Robinhood steadily attracted users and rave reviews, but soon drew criticism for its business model, which came under even more scrutiny after the GameStop trading frenzy in January. Despite these challenges, Robinhood has grown to 13 million users and is now poised for a lucrative IPO. How I Built This Summit - information and tickets at: http://summit.npr.orgSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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• 0:00Guy Raz?

  We get support from US Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't. Say you're 18 months in. Business is growing. You've got expenses coming from six directions. Gas for the van, office supplies, your phone bill, team lunches that are actually client meetings, and you're putting it all on whatever card you grabbed in year one. You're not thinking about it. Why would you? You've got bigger problems.

• 0:45Guy Raz?

  But here's the thing. Path A, you keep going like that. End of the year, you're sorting through statements, trying to figure out what went where. You've left hundreds, maybe thousands, on the table in rewards you never earned. Money that could have gone back into the business. Path B, you pause and get the US Bank Triple Cash Rewards Visa Business Card. Now, you're earning 3% cash back on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes

• 1:30Guy Raz?

  based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2:00 AM kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one Hard question. How do we make sure AI goes well for people?

• 2:14Guy Raz?

  So they asked over 100,000 people their hopes and their fears and are publishing what they find, even the uncomfortable parts. Me? I've got my own hard question about AI. Here it is. If everyone has access to something that can help them write the business plan, build the prototype, analyze the market, maybe even come up with the idea. What separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. If you travel often, you'll want to hear about this unprecedented offer.

• 2:58Guy Raz?

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• 3:40Guy Raz?

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• 4:24Guy Raz?

  With Framer, you design on a visual canvas with responsive layouts, hosting, and a CMS built in, so the work is production-ready from day one. And you can get it done with help from Framer's AI agents. Framer is the AI website builder that helps creators, teams, and businesses ship production-ready sites faster than ever while getting every detail right. Prompt, inspect, edit, and publish in one place at a whole new pace. AI agents and humans work together. The agents bring speed and scale, and people bring taste, judgment, and control. Learn how you can get more out of your site from a Framer specialist

• 5:06Guy Raz?

  or get started building for free today at framer.com/built for 30% off a Framer Pro annual plan. That's framer.com/built. Rules and restrictions may apply.

• 5:25Speaker 01

  Venture capitalists, angel investors had concerns about many things, right? Could this team of mathematicians build this beautiful consumer product that they're talking about building? It's an extremely competitive space with gigantic incumbent competitors that spend billions of dollars a year on marketing. These guys are telling us that they can make it work not charging a commission? How's this thing going to make money?

• 5:59Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:10Guy Raz?

  I'm Guy Raz, and on the show today, how two college friends built an easy on-ramp to Wall Street by launching Robinhood, a stock trading app that even in the midst of controversy has grown to 13 million users.

• 6:27Guy Raz?

  One of the most common arguments made by promoters of social media is that these products make it easier for people to connect in a meaningful way. Whether it's Facebook, or Twitter, or TikTok, or the latest iteration Clubhouse, these are all examples of how technology has leveled the playing field, democratized it even. Now, of course, you could also argue that all of this has had a really destabilizing effect. But either way, these technologies are disruptive on a historic scale. And one of the latest entrants into this world of disruption is Robinhood. It's an app that allows anyone to trade stocks. You don't need a minimum balance to open an account.

• 7:10Guy Raz?

  There are zero fees or commissions to trade. And it's got a simple, easy-to-use interface that can instantly turn anyone with a few extra dollars into a stock trader. Robinhood is increasingly popular, but it's also a lightning rod in the world of finance, especially among those who believe that stock trading isn't an amateur sport, but a serious and risky endeavor. Any experienced investor will tell you that it is nearly impossible to pick individual stocks and win, that the vast majority of investors will do much, much better by making regular deposits into a boring index fund.

• 7:52Guy Raz?

  But over the past year, some people have made fortunes using Robinhood. And to be clear, the S&P returned 16% last year, so yeah, it was an unusually good year for stocks. The problem is what happens when the market tanks. Lots of inexperienced investors could lose their shirts. But of course, technology marches forward, and Robinhood is upending the way people, especially younger people, invest their money. And earlier this year, an army of investors, many of them who discuss stocks in places like Reddit artificially boosted the stock prices of companies like GameStop and AMC

• 8:36Guy Raz?

  Theaters by encouraging people to buy those stocks. In the case of GameStop, a retailer that sells video games, the stock reached a low of $3 in the past year and a high of $483. This is a company that hasn't turned a profit since 2017, yet hundreds, maybe thousands of people made serious money buying and selling GameStop shares on Robinhood. That is, until the app halted these types of trades. It was a decision that led to lawsuits, congressional hearings, and outrage from thousands of its users. But still, the app has grown and continues to grow.

• 9:20Guy Raz?

  And sometime in the next year, the company is expected to go public, a liquidity event that will make hundreds of investors billions of dollars. And if you think that's wild, what I'm about to tell you will blow your mind even more. Because according to Vlad Tenev, the thoughtful and cerebral co-founder of Robinhood, the inspiration for the app, its intellectual underpinning, is rooted in one of the most anti-capitalist movements in recent times, Occupy Wall Street. But we'll get there. Here's what you need to know for now. Vlad was actually born in Bulgaria.

• 10:00Guy Raz?

  His parents, both economists by training, left just as communism was collapsing in Eastern Europe. Vlad was a little boy at the time, and the family eventually settled in Virginia.

• 10:14Speaker 01

  My parents certainly took school very seriously. There was always this feeling, growing up in Bulgaria, where math and science and education were very rigorous, that they would kind of look at what I was studying. At school and say, oh, you know, this like fifth grade material would have been kindergarten or first grade material in Bulgaria. There was also, you know, in the, in the early years that I was in the country, we were quite poor, living off my dad's grad student salary in particular, and coming with essentially no savings. So there was kind of underlying

• 10:54Speaker 01

  fear that there was risk of having to go back to Bulgaria at various points. And that, you know, education was kind of the best way to, to ensure that I could have a bright future and could stay in the US.

• 11:10Guy Raz?

  Hmm. You, you went to Thomas Jefferson High School, which is really great, one of the great public high schools in the US. It's in, in Virginia. And when you were sort of approaching college, I mean, of course, you were just still a kid, but

• 11:25Speaker 01

  Yeah.

• 11:26Guy Raz?

  Were you thinking about an academic career, kind of like your, your, your dad pursued? Was that what, what was in your mind that you would maybe do something like that?

• 11:35Speaker 01

  Yeah, I was very interested in science when I went to Thomas Jefferson. And by the time I got a little bit further along in high school, I also became really interested in physics. So I would read about string theory and general relativity and special relativity. So by the time I graduated, I was pretty sure that I wanted to study physics and become a physics professor.

• 12:05Guy Raz?

  Wow. Wow. And which you did. You went on to, to Stanford to study physics across the country. And while you were there, I think maybe even in, after, you know, in your first year, you would meet the guy who would eventually become your co-founder.

• 12:22Speaker 01

  Yep.

• 12:22Guy Raz?

  Tell me, tell me how that, how that happened.

• 12:24Speaker 01

  So we met the summer after my freshman year, which was the summer after his sophomore year.

• 12:30Guy Raz?

  And this is Beju Bat?

• 12:31Speaker 01

  Yeah. Yeah. I had heard about him from some of my friends when I was a freshman because we were kind of unique in the physics department. We both had long hair, for instance. We were both fairly social and people had mentioned me to him and, and him to me. And then in the summer after my freshman year, we were both in this program at Stanford where we were doing research in physics over the summer. And it's, you take kind of the The group of people that are at Stanford filter it down to the slightly more academically oriented or nerdy, if you will, people that want to study physics, filter it down to the people

• 13:12Speaker 01

  that want to do it over the summer and do so without getting paid. And you get to a very small group of people. So the nerdiest of the nerds. And we became really good friends pretty quickly. We both had a lot of the same interests. It turns out we had a lot of the same background as well. His parents had immigrated from India while his mom was pregnant with him. And his dad was also an academic studying physics. So a lot of weird similarities. You know, we were both only children, only boys. Both of us grew up in very academic families.

• 13:50Speaker 01

  And I think the ideal of human achievement in my mind was to create, to add something to the body of knowledge, right? I mean, you read about all these great mathematicians, your Gauss, Riemann, all the great physicists. And they create these theories, taking 100% of their mental energy and putting into their work. So that was kind of, at the time, the epitome of creative work from both of our standpoints.

• 14:20Guy Raz?

  So really, your plan was to pursue academia, to be a researcher or a professor or something like that?

• 14:30Speaker 01

  Yeah, absolutely. And the two are related. Typically, the way to pursue research would be to become a professor.

• 14:37Guy Raz?

  So you graduate in 2008 from Stanford and you go to UCLA to pursue a PhD in math?

• 14:44Speaker 01

  Yep.

• 14:44Guy Raz?

  But did you ever consider like getting like a high paying job in tech or something like that?

• 14:49Speaker 01

  Well, at the time when I graduated, I wouldn't say I was very employable, actually. I think it was before data science. So a lot of the questions that I would get from the typical employers would be, can you code? Do you have a computer science degree? So I don't think a math degree made you very employable back then.

• 15:13Guy Raz?

  So you basically go down to LA to start a PhD program in math?

• 15:18Speaker 01

  Yeah.

• 15:20Guy Raz?

  And probably with a group of really smart. Mathematicians.

• 15:25Speaker 01

  Yeah. And what I noticed was there was a group of people that immigrated to the US to actually attend this PhD program. And they worked incredibly hard, right? Basically, like, far above and beyond what the normal person would work. All weekend, every waking hour, they would do math. And it kind of reminded me a little bit of what it was like coming to the country and seeing my parents when I was five years old. And it got me thinking a little bit of, could I see this as my career? Like, would I be passionate about this? And I would kind of look at these folks and say, if I'm not willing to work that

• 16:08Speaker 01

  hard, or if I'm not actually working that hard, maybe I should think a little bit more from a first principle standpoint, what I want to do with my life. And, you know, that's kind of when I started thinking that maybe becoming a professor in math wasn't the right fit for me. Because, obviously, it's hyper competitive. You're competing against the smartest people in the world.

• 16:31Guy Raz?

  Yeah. And was it like, I'm picturing like, you know, A Beautiful Mind, or one of these, like Good Will Hunting, or something with like, equations on whiteboards and blackboards and stuff. Was it like that, where just like, people constantly working on?

• 16:43Speaker 01

  Yeah, it was exactly like that.

• 16:45Guy Raz?

  Wow.

• 16:46Speaker 01

  Just equations everywhere.

• 16:49Guy Raz?

  So you're in this graduate program, and it sounds like it's becoming clear to you that you're probably not going to make it as a professor. And meanwhile, Beijou, you're from Beijou, is working for a trading firm, doing like, stock trading, I think, in the Bay Area, right?

• 17:06Speaker 01

  That's right. So he worked at a small firm up in Marin County, doing quantitative trading. And he was the first quant hired at that firm, I believe.

• 17:17Guy Raz?

  And a quant is basically a quantitative analyst, like a super sophisticated numbers researcher, like, somebody who's using that data to make predictions, I guess.

• 17:28Speaker 01

  That's right, yeah. And this was also 2008, which was a very interesting time in the financial industry.

• 17:34Guy Raz?

  2008, when you started the program?

• 17:36Speaker 01

  Yeah, I started the program, and he started his job

• 17:39Guy Raz?

  Right.

• 17:39Speaker 01

  in finance. And about a month after Lehman Brothers went under,

• 17:43Guy Raz?

  Right.

• 17:44Speaker 01

  Right? So the financial system collapsed, and you had the financial crisis. And I think what was really interesting was I didn't know much about quantitative trading, but quantitative trading actually benefited from the volatility in 2008 because the more volatility in the markets, the wider bid ask spreads are.

• 18:08Guy Raz?

  And the bid ask spread, just to kind of explain this in layman's terms is like the

• 18:13Speaker 01

  Well, basically anytime you have a market, let's say for a stock, there's people that are willing to buy and people that are willing to sell at any given time, right? And in order for there to be a trade, basically the exchange sorts all of the buy orders and prioritizes the ones that are willing to buy at the highest price.

• 18:37Guy Raz?

  Right.

• 18:37Speaker 01

  It also prioritizes the sell orders based on who's willing to sell for the lowest price. And a trade happens when someone comes in willing to buy at greater than the lowest price that someone's willing to sell for, right? And that that becomes matched. And so what the bid ask spread is, is it's the difference between the highest buy price and the lowest sell price. And that sort of determines the market. And quantitative trading benefits from this, especially if you do low risk arbitrage. And I can go into it a little bit, is you have the same thing that's being offered in two different markets.

• 19:22Speaker 01

  So kind of the canonical historic example was the telegraph in the 1800s. There was a, you know, a cotton market between the US and the UK at the time. And the fastest way you could get information prior to the telegraph was by ship. So, you know, if you were sending commodities from, from the US to the UK, you really had no idea what people would be willing to buy in the UK would be. And by the time you get to the UK, you'd have no idea what the prices would be in the US.

• 19:55Guy Raz?

  Yeah.

• 19:56Speaker 01

  So that led to very wide bid ask spreads because the merchants had to take into account that risk, the risk that by the time, you know, the ships go back and forth, prices move and they could lose money. But the telegraph came, which allowed essentially instantaneous price information going between the two. You can see historically, the bid-ask spreads in those markets just got obliterated after the telegraph showed up.

• 20:22Guy Raz?

  Yep.

• 20:22Speaker 01

  So the modern version in 2008, I suppose, was the same stock being traded on two different exchanges. Right?

• 20:31Guy Raz?

  Right.

• 20:32Speaker 01

  So you would have, for example, Intel, which was traded in Canada and on the Toronto Stock Exchange, also traded in New York, on the New York Stock Exchange. And so when times are more volatile, those two prices can deviate. And a firm could actually make risk-free profit by buying in the market where it was lower cost.

• 20:58Guy Raz?

  The price is lower.

• 20:59Speaker 01

  And selling pretty much instantaneously at the market where the price was higher. And then actually, that would also serve to bring the prices closer together into equilibrium.

• 21:09Guy Raz?

  Wow.

• 21:10Speaker 01

  And for the next couple of years after that, there was just a much higher interest in doing electronic trading, I'd say, worldwide.

• 21:18Guy Raz?

  This is the high-frequency trading that kind of, it uses algorithms to do these very rapid trades that humans can't process fast enough, but they can instantaneously buy and sell. But it's so fast that it can make money.

• 21:35Speaker 01

  Yeah.

• 21:35Guy Raz?

  Can make a lot of money.

• 21:35Speaker 01

  Yeah.

• 21:36Guy Raz?

  Relatively risk-free.

• 21:37Speaker 01

  Yeah, and I would say the algorithms aren't necessarily very sophisticated. And some of the first ones were incredibly simple. And I guess the observation that Beijuan made, which convinced us to get into business together, was that, you know, a lot of these firms are building their software on Microsoft Windows. And, you know, a pricing signal would go through 10 or 20 machines by the time it actually resulted in an order. And all of this took tens of milliseconds. And so we kind of chatted about it. And we were like, imagine instead of a Windows machine, Just built it on Linux, wrote it in C, which was a low level language rather than Java.

• 22:23Speaker 01

  Had everything on one box rather than 10 boxes and ping ponging order information between them before getting sent out to the exchange. If everything was on one box, you could maybe shave that latency down from 10 milliseconds down to one millisecond or so. And you could have a competitive system.

• 22:43Guy Raz?

  So, so Beijiu was basically saying to you, hey, this thing is happening right now.

• 22:48Speaker 01

  Yeah.

• 22:48Guy Raz?

  There's this thing happening, except it's not actually that efficient.

• 22:53Speaker 01

  Exactly.

• 22:54Guy Raz?

  And I actually think there's an opportunity to make something more efficient, to make like, like what, like software? That you could sell to, to financial firms?

• 23:04Speaker 01

  Essentially, yes. And the first idea was, you know, we could potentially use it ourselves to do our own trading. But we ended up pretty quickly realizing that we just didn't have the resources to both build the software and build trading algorithms on top of it.

• 23:22Guy Raz?

  You didn't have the cash to, to do it, basically.

• 23:24Speaker 01

  Yeah, exactly. And, you know, I think money was reasonably tight back then, right? So there weren't a ton of options.

• 23:34Guy Raz?

  So at this point, I guess you decide to pull out of, of the PhD program and you, you and Beijiu like leave California and go to New York.

• 23:43Speaker 01

  Yeah.

• 23:43Guy Raz?

  Because I mean, obviously, New York is a, is a center of the, the financial world. And you, I guess you went there, just to be clear, you, you went there to try and build like a, a trading software that you could sell to financial firms?

• 23:56Speaker 01

  That's right. Yeah.

• 23:57Guy Raz?

  Got it. And, and what, what did you got? Like, did you guys go share like an apartment? Did you, did you get an apartment together?

• 24:03Speaker 01

  Oh, we did. A couple of friends and, and contacts let us squat at their houses for a bit. We ended up eventually settling down in, in the East Village.

• 24:13Guy Raz?

  Right. And was it, I mean, just to, just to, I mean, this is not a, I mean, you sort of a business idea, but you're not like going out and raising money.

• 24:20Speaker 01

  No.

• 24:20Guy Raz?

  The idea was the two of you would basically build this piece of software. Using your own knowledge, I mean, the both of you had knowledge on how to make that software, how to code it and create it?

• 24:32Speaker 01

  Yeah, well, actually, essentially, what we did was we looked at the APIs that were published online for how the exchanges distribute market data, which are stock price, it's stock price information. And, you know, there's sample data that they offer online. They'll have like one day's worth of data from 2009 or something.

• 24:54Guy Raz?

  This is one day's worth of trading data?

• 24:56Speaker 01

  Yeah, and you can use that just to validate that the system works properly and processes the messages. So we use that, that's all freely available.

• 25:06Guy Raz?

  Yeah, I'm curious, I mean, there's a whole book by Michael Lewis called Flashboys, which is kind of about this period that you both moved to New York and start working on this thing, because it really, his book is about this phenomenon, these high-frequency traders, many of them, many of them coming out of PhD programs.

• 25:23Speaker 01

  Yep.

• 25:24Guy Raz?

  And working to create ways to, you know, to speed up trades by milliseconds, like 10 milliseconds, you know, the famous story in that book about somebody who paid hundreds of millions of dollars for a fiber optic cable, you know, from Chicago to New Jersey.

• 25:39Speaker 01

  Yeah, that was a very famous thing at the time we were in New York. So before that, there was a Verizon line, which, you know, was about 12 or 13 milliseconds to get information from Chicago to New York.

• 25:52Guy Raz?

  Right.

• 25:52Speaker 01

  And then, you know, I think it was Jim Barxdale of Netscape who created Spread Networks, and the idea was to dig a straight ditch between Chicago and New York as straight as possible, put a cable down there and compete with the Verizon line. And, you know, people who knew about that line were able to get on that line, and they had a latency advantage, a speed advantage over people that were not.

• 26:18Guy Raz?

  By milliseconds?

• 26:19Speaker 01

  By several milliseconds, which is huge, right?

• 26:22Guy Raz?

  Did it feel like there was a kind of, almost like a gold rush of people like you and Beijou, like smart graduate school dropouts or other, you know, physics, maths, graduates who were coming to New York, who sort of intuitively understood the opportunity? Was it, was there like a mad dash to New York?

• 26:39Speaker 01

  Yeah, I think I think there was definitely some form of gold rush. There weren't a lot of people like us. I think we were we were probably among the youngest. But you had people leaving the big trading houses, starting their own smaller trading firms. And you had some people that typically, you know, you'd have the the PhD graduates would partner with someone from the trading side.

• 27:01Guy Raz?

  Yeah.

• 27:02Speaker 01

  So, yeah, there was a it was there was definitely a community around algorithmic trading in New York City at the time.

• 27:08Guy Raz?

  I mean, it sounds like Beijou understood and then explained to you, and you began to understand that there was a lot of money to be made. Because of your knowledge and your background, the two of you could actually really do well.

• 27:22Speaker 01

  Yeah, I think that to some degree, it was still a little bit hazy in terms of the aftermath of the financial crisis. But I think he was prescient in the sense of trading the old way was completely gone. Right? The people that were on the floor of the New York Stock Exchange, trading on PDAs, were going to disappear eventually. And all of the action is going to move to data centers. And I think 2008 had really been the turning point where you're just not competitive as a trading desk driven by by actual humans. And everything was going to turn completely automated and and algorithmic.

• 28:05Guy Raz?

  So if I met you, because you're you're a young guy, and you were like, what, 20, 23, 24, maybe?

• 28:11Speaker 01

  I would have been, yeah, 20, 22, 23.

• 28:14Guy Raz?

  If I met you in New York in 2010, and I was like, hey, I'm Guy, and you're like, hey, I'm Vlad. So what are you doing? Tell me what you're doing. What are you up to? And I knew nothing about the finance world. What would you? How would you describe what you were doing?

• 28:27Speaker 01

  I probably would have said, you know, we're we're making trading technology, extremely fast, low latency trading technology for algorithmic trading. And how, you know, we can execute a trade for 10 microseconds or under 10 microseconds tick to trade. That's kind of the industry term, tick to trade. And if you knew anything about the industry, that would kind of blow your mind.

• 28:52Guy Raz?

  Now, I'm not saying I would have said this, but maybe when I was 22 or 23, and I met you, and you told me that, I would have said, man, that. That's horrible. You're just making these like sharks and vampire, whatever bats or whatever they're called richer. You're just making, you know, what did Matt Taibbi call them? The giant sucking vampire octopus? I can't remember. You're just making these

• 29:17Speaker 01

  The vampire squid.

• 29:18Guy Raz?

  Squids, yeah. You're just making these guys richer. What are you doing? What? This is horrible. This is horrible. You should be like, you should be like fighting the power. Did anybody ever say that to you?

• 29:28Speaker 01

  Yeah, we heard that a little bit for sure.

• 29:29Guy Raz?

  And you were just like, oh, that's just, I don't care what you, or did any of that get to you?

• 29:34Speaker 01

  I think I, I went through a couple of transitions in my life as an entrepreneur, right? The first kind of transformation was becoming an entrepreneur. And what I was really excited about in the beginning was just working with my best friend, I'd say first of all, but getting to a point where the idea of like, working for yourself and working on these interesting problems, and they were very interesting technically, right? You're just trying to squeeze every ounce of performance out of these systems. And being an entrepreneur and you're taking a lot of the creative energy that you have and immediately

• 30:14Speaker 01

  producing code to solve that. And I think it got to, it was a different way to get to kind of what attracted me to math in the first place, which is that math was a way to get things from your brain to the real world with very, very high efficiency. You know, you didn't need any equipment. You just needed a couch and your brain and maybe a chalkboard and you would be good. And this was a lot like that. And I didn't have any experience with entrepreneurship, really. Like, it's not really around in Virginia to a significant degree.

• 30:49Guy Raz?

  Yeah, your parents are academics. They're like, they had, they had, they had stable jobs.

• 30:53Speaker 01

  So I was like, oh, you know, I can write this software and potentially people will pay me for producing this product. Like, that's amazing.

• 31:04Guy Raz?

  That was interesting. That was what was getting you excited. That was the thing that you... It was just a challenge.

• 31:09Speaker 01

  Just being an entrepreneur, yeah, working for yourself. I didn't really care much about making money even at that point. I was like, this is awesome.

• 31:17Guy Raz?

  But it sounds like you also weren't really thinking about... I mean, and I'm not... There's not... No judgment, because you're 23, you're 20. I'm just, you know, I interview people who say, I want... I started this to make the world a better place. And sometimes it's true, and sometimes it's a little exaggerated. But it sounds like that wasn't even on your radar.

• 31:33Speaker 01

  Well, let me tell you about... So that was one of three transformations, right? So the second transformation, I would say, happened around 2010, right?

• 31:43Guy Raz?

  You're in New York.

• 31:44Speaker 01

  Yeah, still in New York. We were living in this apartment in Williamsburg at the time, where basically it was like a shared kitchen and bathroom situation. So, very, very small, very grungy. I remember my parents visiting and, you know, crying. And they're like, what is my son doing with his life, sort of thing? Like, this is like so horrible. You know, my mom, I think, said she had a friend who was working at Macy's at the time, and maybe I could get a job at Macy's or something. So, things were bad, right, at that point. And so, at that point, it was kind of the second transformation, like, we need to figure out how to make some money, because, you know, I can't live off my savings,

• 32:29Speaker 01

  and I can't just be scraping, scraping around forever. At some point, like, I'm getting enough pressure that it's just going to become very, very distracting. And so, you know, at that point, I think we took sales a little bit more seriously. We started being a little bit more commercially oriented, which, at first, it was kind of a science project.

• 32:51Guy Raz?

  And this is all word of mouth? You were just from one... I mean, obviously, you guys are smart, you're Stanford grads, and you're building something. And I imagine you start to kind of, you know, reach out to different trading houses, and maybe connections you had from Stanford, I guess, and slowly build up...

• 33:08Speaker 01

  Yeah, exactly. All word of mouth.

• 33:11Guy Raz?

  Okay, so it's around 2010, 2011-ish, and you've got a name for this company that you're building. It's called Kronos Research. And I'm assuming you have low overhead because it was just the two of you, right?

• 33:25Speaker 01

  No, we had some employees at the time.

• 33:27Guy Raz?

  Okay, some employees. And did you get an office in New York?

• 33:29Speaker 01

  We were working out of our apartment in Brooklyn.

• 33:33Guy Raz?

  Right. In your software, who were you selling it to? Can you tell me which firms you worked with, any big ones?

• 33:40Speaker 01

  We worked with some big ones. Probably should leave specific names out of it, but it was an enterprise product. So let's say licensing fees were in the tens of thousands per month.

• 33:52Guy Raz?

  Wow. And I'm sure they got that money back in spades, right? Because did it work well? Was it effective?

• 33:58Speaker 01

  Some of them did, yeah. Yeah, some of them did. Others, unfortunately, the strategy didn't work, so it didn't work.

• 34:05Guy Raz?

  But I thought it was kind of foolproof, though, right? If you know that in a millisecond you can quickly buy low and sell high, isn't it, is that foolproof?

• 34:16Speaker 01

  Well, it depends. No, I wouldn't say it's foolproof because in the early stages of anything, and very few people are doing it, then more simple things work. But people rapidly figure it out and catch up, right? And there's a lot more competition. So 2011, there was actually a ton of consolidation in the space because it got so competitive. So definitely not foolproof.

• 34:44Guy Raz?

  But in the midst of all this, I think you guys are actually doing pretty well, right?

• 34:48Speaker 01

  Yeah, it was profitable, got up to a few million in revenue. We saw a path to growing our customer base, improving the technology. Maybe we could get to 10 million in annual revenue at some point in the not-too-distant future. But that's where my third

• 35:06Speaker 01

  The third thinking that I had, the third transformation as an entrepreneur that we went through comes in, you know, we started thinking about if we were to do this for a really long time, is this something to be proud of? Like, is this something you can get back from a hard day's work, worth of work and hang your hat on the, on the hook and say, you know, I'm really doing awesome things for society.

• 35:31Guy Raz?

  But what prompted that thinking? I mean, what, what, what do you remember that happened, if anything, that would lead you to that?

• 35:38Speaker 01

  Well, I think, I think it's, it's actually being able to survive prompted it, right? Because it's sort of like the hierarchy of needs in a way. The first thing you gotta do is feed yourself. You're not, you're not getting to self-actualization until you can actually feed yourself and actually survive.

• 35:58Guy Raz?

  And almost nobody gets to it. Let's just be honest.

• 36:00Speaker 01

  Yeah, exactly. So we got to that point and when you can feed yourself, you have the luxury of thinking about other things. And, and so in this case, we had started thinking about whether the technology and our learnings could be applied more broadly beyond just institutional. We also saw the Occupy Wall Street movement, right? That, that started really in full swing in New York City in 2011, right? When we were working on our business. And, you know, I remember walking through the tent cities in lower Manhattan. We had some friends or, you know, people that we knew that were very, very upset and were participating

• 36:42Speaker 01

  in some of the protests there. And, you know, they were kind of like, what are you guys doing? And there was a lot of frustration that essentially the financial system wasn't working for, for everyday people. We certainly felt that. And we also decided right around that time to move the company back to California. Because we figured out pretty quickly, we're a software company. We needed to hire software engineers. It didn't really help us a ton to be in New York. It was more expensive to hire there and the people that we were getting were largely people moving from California, who we knew from Stanford in the first place.

• 37:22Guy Raz?

  So the two of you decide in 2011 to move back to California and to basically continue the business there?

• 37:31Speaker 01

  Yes, and I think the interesting thing, the first thing I remember when we're moving into the office there is the Occupy tents, right in front of our office on Market Street in San Francisco, going all the way down to the Ferry Building. So, I mean, this was like everywhere. It was following us around, right? People were just very pissed off at the establishment and didn't feel like the system was working for them.

• 37:56Guy Raz?

  And did you, did you have sympathy for that, for that movement?

• 38:00Speaker 01

  I mean, I definitely understood the frustration and empathized with it. You know, I wasn't part of, I wasn't doing like the protesting. But my feeling was, I believe in technology and innovation. And I think that we can address some of these problems, right? And I think that movement was an input to a great degree in the idea behind Robinhood. And there were a couple of other inputs. One was just our knowledge of the space, which I think was unique. And we kind of understood exactly how a trade was executed, settled and cleared and a decent amount of like the compliance aspects of that.

• 38:43Speaker 01

  We realized there was very little cost in the system for it. And you could make it work for free. And in fact, that's how institutions were trading millions of times a day. They couldn't do that if, if there was a lot of cost to doing these things. So that was one. The Occupy Wall Street movement and the disillusionment with the financial system was another. And the third was a very San Francisco one, although we saw it in New York as well. And that's mobile technology. So in New York, there was this product called Foursquare.

• 39:14Guy Raz?

  Sure. It was a check-in app. You could check in.

• 39:16Speaker 01

  It was a check-in app, but imagine like you're 20 years old, you're going out in New York, and you don't stay in one place like in most cities. You start out at a restaurant, you go to a bar, then you go to like several places usually in a night and you're ending up like texting people. Like people are getting off work at different times. They meet up with you. So you have these text threads with like 30 or 40 people, right? And then this product came out. All you do is check in and it cuts out all of that communication and people just know where you are.

• 39:50Guy Raz?

  Yep.

• 39:51Speaker 01

  And so we kind of put these three things together, our knowledge of the space, the Occupy Wall Street movement and mobile technology and got the idea for Robin Hood.

• 40:01Guy Raz?

  Wow. I think, and, and if you, if you know me and you listen to the show, you know, I'm not cynical. I'm really not.

• 40:08Speaker 01

  Yeah.

• 40:09Guy Raz?

  But my God, I, I can imagine somebody hearing that who was part of the Occupy

• 40:16Guy Raz?

  movement, thinking, our movement inspired them to build Robin Hood?

• 40:21Speaker 01

  Yep.

• 40:22Guy Raz?

  Wow. But, but I think that they would not be happy about hearing that.

• 40:26Speaker 01

  I don't know. I think a lot of them actually would. And I think if they see it, they would understand that, you know, you can protest, but you can actually go out and build a product that lowers the barrier to entry and gets people to benefit from what I think is fundamentally an awesome system. And if we plug more and more people into it, then it's, it's such a powerful tool of wealth creation that I think more people participating is, is better than not. And I think there was a conversation that Beju and I had, he was in New York on a sales trip. We had been batting around a few of these ideas, but on that phone call, I floated the idea of free trading.

• 41:08Speaker 01

  It's like, what if we just make something that lets people trade for free? Our customers, our institutional customers are trading for free.

• 41:17Guy Raz?

  Right.

• 41:17Speaker 01

  Why can't everyone do? Why does it cost $10 for you to trade?

• 41:22Guy Raz?

  On E-Trade or whatever.

• 41:24Speaker 01

  Yeah, so we were kind of asking ourselves, are they still using manual traders? Like, why is it so expensive?

• 41:30Guy Raz?

  Right.

• 41:30Speaker 01

  And why can't the software that we're building for an institutional purpose be used in the same way to offer the same type of amazing pricing and high-frequency execution to retail consumers as well?

• 41:47Guy Raz?

  So you have this idea, and the idea is, let's make a platform to allow people to trade for free. And at that time, 2012, was the idea to do it as a website?

• 42:01Speaker 01

  Uh, no, I think the, pretty quickly, we pretty much knew that it would be mobile first. You know, if you're on the go and you need to check your portfolio, you're not in front of your, your trading workstation or your, your computer. That's an advantage that only mobile would, would give you.

• 42:21Guy Raz?

  And presumably, you know, you guys could not fund this with the, the cash flow from your previous business, which, which, did you just kind of fold that business into this idea? Or did you, did you kind of sunset that? Or did you sell it? Or what, what happened to that business?

• 42:37Speaker 01

  We just wound it down, basically.

• 42:39Guy Raz?

  Okay.

• 42:39Speaker 01

  Yeah.

• 42:39Guy Raz?

  And did you let everybody go because you had staff? Or did you keep them on?

• 42:44Speaker 01

  No, we kept the staff and there's still some people at Robinhood today that were originally working for Kronos on our trading software for institutions. And we basically got everyone together in this little conference room once Beijou and I had kind of settled on this direction, right? And we were like, hey, guys, we know you came here to build this algorithmic trading software for banks and hedge funds. We have this other idea that we're more excited about that I think has a lot more potential. And it's to take this sophisticated technology that we've built and make it into a consumer product. And we kind of thought a lot of people would leave, but nobody did.

• 43:30Guy Raz?

  When we come back in just a moment, how on the way to launching their trading platform, the two founders confronted a catch 22. You can't get approval from regulators unless you have money in the bank. And you can't always get money in the bank unless you have approval from the regulators. Stay with us. I'm Guy Raz and you're listening to How I Built This from NPR.

• 43:59Speaker 02

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• 44:34Guy Raz?

  Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 2013 and Vlad and Beju are hard at work building a trading platform that will let people buy and sell stocks on their phones. And they managed to pull together $3 million for their seed round. But it doesn't come easily. It takes like a year and a half to get it.

• 44:58Speaker 01

  We had a lot of challenges. You know, at the beginning, we didn't know any venture capitalists. We were mathematicians, so we weren't part of that community, the startup community when we were in college.

• 45:09Guy Raz?

  Yeah.

• 45:10Speaker 01

  And actually, the advice that we were given at the time was to stay away from venture capitalists, which ended up being obviously completely wrong, but...

• 45:18Guy Raz?

  Not wrong for everybody, but maybe wrong, wrong. Just for people listening.

• 45:22Speaker 01

  Wrong for this business, but everyone was like, you don't want to go anywhere near venture capitalists because they're just going to take your business away.

• 45:28Guy Raz?

  Right.

• 45:29Speaker 01

  So, you know, once we got past that.

• 45:31Guy Raz?

  And, and you had to get regulatory approval, I'm assuming, to do to be a trading platform, right?

• 45:38Speaker 01

  Yes, and to market that we were offering the service. So I think the lean startup methodology, if, if you're familiar with that. Basically, Eric Ries wrote this book, The Lean Startup, about how to market consumer products.

• 45:54Guy Raz?

  Right.

• 45:54Speaker 01

  And the number one piece of advice was basically that before you actually build anything, test the concept.

• 46:00Guy Raz?

  Yeah.

• 46:01Speaker 01

  You know, put together a splash page, a landing page that basically has the value proposition and see how it does. And that's like a very cheap way to test whether your idea has legs. And we weren't allowed to do that because as a broker dealer, you can't actually market investing services without having the appropriate licenses.

• 46:22Guy Raz?

  Right.

• 46:22Speaker 01

  So the lean startup thing.

• 46:24Guy Raz?

  Didn't apply to you.

• 46:25Speaker 01

  Didn't work for us. And venture capitalists, angel investors had concerns about many things, right? Number one, could this team of mathematicians and backend engineers build this beautiful consumer product that they're talking about building? Like, we haven't seen any evidence of that, right? Regulatory approval was uncertain. Not a lot of companies were, were doing that. And then you kind of look at the space and say, let's say they build something, let's say, you know, they got the regulatory approval. How's this thing going to make money? Like, the tax, the cost of customer acquisition is in the thousands of dollars.

• 47:05Speaker 01

  It's an extremely competitive space with like gigantic incumbent competitors that spend billions of dollars a year on marketing. And, you know, these guys are telling us that they can make it work not charging a commission and where the cost of customer acquisition is in the low single digit dollars. So not a lot of people bought that idea.

• 47:28Guy Raz?

  Yeah, I mean, this, the thing, like, the way TD Ameritrade and, and E-Trade and all these made money was by charging four or five bucks per trade, right?

• 47:38Speaker 01

  Yeah, or seven to 10 at that time.

• 47:40Guy Raz?

  So if I'm an investor, I'm going to say, well, your trades are not free. Somebody, somebody has to pay for it at some point down the line. So how are you going to make money?

• 47:50Speaker 01

  Well, our statement, we got a little bit better at this, but at the beginning, we were like. Well, we actually don't think it's a big problem because look at Instagram. How are they making money, right? You have to pay for the costs of of trading. You have to pay for the servers and the staff, obviously. But we didn't really think too much about the revenue model. We were just focused on can we build something that customers could actually want?

• 48:17Guy Raz?

  So the answer was, hey, let's not worry about that now. Let's just get a bunch of let's just onboard as many users as we can. And then we'll figure out the business model.

• 48:25Speaker 01

  Exactly.

• 48:27Guy Raz?

  So you guys get the funding, $3 million, to start working on this app. And now, the difference here is that it's not just about building the app. Because that probably, in some ways, was the easy part. There was all of these regulatory hurdles you had to overcome, right? Because from what I understand, it took it would take almost two years from the time you raised your seed round until you actually debuted.

• 48:51Speaker 01

  Announced.

• 48:52Guy Raz?

  Yeah, the app, right?

• 48:53Speaker 01

  Yeah.

• 48:54Guy Raz?

  So what was going on those two years? Why did it take so long? Can you can you kind of break that down?

• 48:59Speaker 01

  Oh, yeah. So there were a couple of parallel streams. One of them was building and designing the the product and the technology.

• 49:06Guy Raz?

  Yeah.

• 49:06Speaker 01

  And then the other was getting the licensing. So we brought on board our chief compliance officer, Scott Friedman, who joined us in 2012.

• 49:15Guy Raz?

  It's interesting because a startup at your stage at that point would not have focused on a chief compliance officer. You would have been looking for a CFO and, you know, and other, right? Because it's a little different. You had to have a you had to have a compliance officer.

• 49:27Speaker 01

  That's right. I think most startups would have just been hiring engineers exclusively. But yeah, we we were always considering operations. We needed the license. We knew what that process kind of looked like. And, you know, Scott made an extremely, I think, difficult choice to leave a very good job and join us as our founding chief compliance officer because he had just gotten married. His wife was pregnant with their first child. They had their entire support system. The family was in Chicago. And he came to meet us and we were working out of a garage. And we were just these disheveled 20-somethings.

• 50:08Guy Raz?

  And so he clearly was impressed.

• 50:10Speaker 01

  Yeah, that was a big thing. We wouldn't have been able to make it happen if he had not made that that choice.

• 50:16Guy Raz?

  Yeah, he'll do OK in the end. But then he didn't know.

• 50:19Speaker 01

  Yeah.

• 50:20Guy Raz?

  I'm just I'm just foreshadowing here. Um, how did you and Beijou divide and conquer? How did you guys operate? I mean, did you, was one of you the CEO or both of you that just kind of did, did everything? How did that work?

• 50:33Speaker 01

  He was more focused on design. And I think he had the talent for that from when we were in, in college. You know, he had a very nice sense of aesthetics and he cared a lot. And, you know, he was in another life, he probably would have been an artist. Right? And I was kind of more on the engineering side. So I, I wrote a lot of code, code for the backend platform for the iOS app. I taught myself how to code iOS apps by watching, watching the free courses from Stanford that were available online. And I'd be on the Caltrain going between San Francisco and Palo Alto. And I'd watch them at 2X speed and just learn about developing that way.

• 51:17Guy Raz?

  Wow.

• 51:18Speaker 01

  And I think from time to time, we, we would have fights and, and arguments and disagreements, mostly on like small things. But I think by and large on the big things, we were, we were pretty aligned. And there was, there's always been a high level of trust because we became friends in college when we were both taking extremely difficult graduate math and physics classes. And we would just be banging our head against the wall, doing these difficult problem sets all night. So you go through that, it's, it's kind of like starting a startup to some degree.

• 51:55Guy Raz?

  All right. So you guys are grinding away for what? Two, almost two years to build this thing. And were you getting, were you getting anxious? I mean, I don't know, we gotta get this thing off the ground already.

• 52:06Speaker 01

  I, I think at times, certainly, yeah. There were moments of extremalation, you know, like.

• 52:14Speaker 01

  I remember raising the first $250,000 from Google Ventures, right? And I remember like dropping my phone. I was like, I can't believe Google wants to invest in in my company. Like four years ago, I wasn't even able to get an interview at Google, you know. Um, now they're investing in my company. You know, then a year later, it was kind of difficult. That was probably the hardest time in middle of 2013 when we had filed for the license and we were getting close to our pre-membership interview. And part of that process to kind of get approval was to show that we had enough capital to operate for a year after becoming a brokerage. And the the amount was a little bit in flux.

• 52:59Speaker 01

  We had to actually model out what it would take for for us to operate for a year. And we settled on something like a million dollars. And it was very hard to come by.

• 53:10Guy Raz?

  You needed a million dollars in in an account in order to get that approval?

• 53:14Speaker 01

  Yes, we needed a million dollars. And we needed it before our pre-membership interview.

• 53:19Guy Raz?

  So you needed the money just to get considered for regulatory approval, but you had to raise money from people who were like, well, you're not approved yet.

• 53:27Speaker 01

  Yeah, it was a catch 22 situation completely. And, you know, made things very difficult. And we actually didn't didn't have it in time. So we were like, one or two days before the pre-membership interview and we were short about $500,000. And we were like, oh, we're gonna have to go to this meeting and I don't know what's gonna happen. And then fortunately, Scott's wife went into labor.

• 53:53Guy Raz?

  This is your chief, chief compliance officer?

• 53:55Speaker 01

  Yes. So we, we, we were able to postpone it. We had a great excuse to postpone it. And then we pitched Tim Draper, the venture capitalist, and he asks us how much we're paying ourselves. And I don't remember what it was. I think we were paying ourselves either modest, modest salary, I want to say $80,000 or something at the time for Silicon Valley. And he thought it was, it was very high. And we end up negotiating on that a little bit. And I talked to Beijou and I'm like, listen, this is going to be kind of tough. But we just say we're, we're all in and you know, we're so committed to making this happen

• 54:39Speaker 01

  that we're not going to pay ourselves until we get the brokerage license application approved. And so we email him and we say, look, we're willing to do this. Hopefully that shows you that we're, we're super committed to this. And he said, you know what? That put me over the top. I'm in for 250K or 300K. And after that, people saw that as a, as a really strong signal, you know, his participation.

• 55:04Guy Raz?

  Sure.

• 55:04Speaker 01

  We were, we were able to get a lot of angels and I went to Scott. And every time this conversation with Scott, our chief compliance officer was, you know, Vlad, do we have the money? How are we looking on the fundraising? You know? And then, and then I was like, Scott, how much do you need? And we had a nice little laugh about that because that was the first time it went from how little can you make the one year requirement to how much do you need?

• 55:31Guy Raz?

  Wow. Did you guys, I mean, the name Robin Hood, right? I mean, it, we know who he is, what he did, right?

• 55:38Speaker 01

  Yeah.

• 55:39Guy Raz?

  The legend, right? He stole from the rich and, and gave to the poor. Was that what you were trying to signal with the name Robin Hood?

• 55:48Speaker 01

  Actually, my wife came up with the name, or girlfriend at the time, now wife. And the working title was actually Cash Cat. And I think we kind of liked Cash Cat, but there was a feeling that it wasn't powerful enough. Right? It was kind of, kind of jokey. And so the way my wife would introduce me to her friends and other people is, you know, this is my boyfriend Vlad, he's in finance. And then there would be like a groan, right? Like, oh, you know, because they thought I was some investment banker or something. But so then she would say, oh, no, no, no. But they're the Robin Hood of finance. They're, you know, building something for the little guy. And so the name Robinhood kind of stuck and Bejo and I both really loved it.

• 56:31Speaker 01

  And some of the other early folks at the company didn't like it as much. But I think the fact that it was a little polarizing made it made us really excited to use it because it stood for something, right? And the last thing you want in a name is one that's boring and people forget about it.

• 56:48Guy Raz?

  So, all right, let's talk about, I mean, the app is being developed and eventually it launches in 2015. And one of the ways or the main way that you figure out how to build revenue is through something called payment for order flow. So we should explain this because it's complex, but I'll sort of do a basic explanation of this. But basically,

• 57:13Speaker 01

  Sure.

• 57:14Guy Raz?

  it's when a like a third party firm compensates a brokerage firm like yours to get access to the orders. So basically, if I trade to Robinhood, that has to be executed by a third party. That trade Robinhood goes to a third party.

• 57:31Speaker 01

  Yeah.

• 57:32Guy Raz?

  And they make money through the spread.

• 57:35Speaker 01

  Yes.

• 57:35Guy Raz?

  Where I'm willing to buy it for a certain price. Some people are willing to sell it at a certain price and whatever's left over, that's how that third party makes money. And you guys get a cut of that and that's how you make money.

• 57:47Speaker 01

  Yep.

• 57:48Guy Raz?

  All right. So this is the idea from the beginning, which was a pretty smart way to make revenue, to build revenue.

• 57:56Speaker 01

  Yeah, I would say we didn't create this.

• 57:58Guy Raz?

  Right, no, we didn't create it, it existed.

• 58:00Speaker 01

  Yeah, it existed and a lot of other brokers were doing it. And I wouldn't say at the very beginning, this was the idea because we saw that it was a fairly small portion of the revenue of other brokers. They were making more money in margin and interest on cash and obviously commissions. So it wasn't like when we saw the payment for order flow item in the 10K, we were like, oh, that's it. This is like the undiscovered thing. It so happened to become a large source of revenue for Robinhood because we lacked commissions. So it was a larger percentage of our revenue and, you know, people were always kind of looking for the catch with Robinhood.

• 58:42Guy Raz?

  Right. Does Robinhood make more money if the more people trade? Or do you actually, does it depend on the kind of trade? Is it, I mean, if you're getting higher volumes, I'm assuming you're making more money, right?

• 58:56Speaker 01

  Yeah, generally, that's the case. So for payment for order flow, the way it works is it's a percentage of the bid ask spread. So the more trading that happens, generally, the more total revenue there. And to some degree, I think some people assume Robinhood was a nonprofit and, you know, we're not making any money and we're billing ourselves as a nonprofit, which we never claimed to be. So generating revenue in and of itself is perhaps viewed as a bit of a catch with the product, which, you know, obviously I disagree with. It was a for-profit product and a business from the very beginning.

• 59:35Guy Raz?

  Yeah, but you've come under a lot of criticism from different sectors, from economists, from Capitol Hill, even from competitors or competitors who are trying to do a version of what you do, who say, we don't do these kinds of trades.

• 59:50Speaker 01

  Yeah.

• 59:51Guy Raz?

  What about the criticism that Robinhood works with these third-party firms that are going to pay the highest dollar amount, which is not always in the best interest of the customer who's making the trade? Is there, is there any truth to that?

• 1:00:05Speaker 01

  Well, I mean, I would first say they all pay the same rate. We work with the largest firms. And, you know, the stuff is all highly regulated. And I think it kind of gets back to the idea of we have to generate some revenue, right?

• 1:00:21Guy Raz?

  Yeah.

• 1:00:21Speaker 01

  So the sort of like conflict of interest idea seems to be the same generic conflict of interest that exists. When you're a business selling any type of product, it's like I could make revenue or I could just use that revenue and pass it back in the form of lower prices for my customers in the products that I sell. And actually, I'm all about crushing profit margins. A lot of people said that the business model couldn't work the way that it's working for us and that it would be so tight and the profit margins would be so narrow that other people weren't able to make it work. And I think you also saw that play out when the incumbents replicated

• 1:01:05Speaker 01

  our business model in 2019. You know, every major competitor

• 1:01:10Guy Raz?

  Went to zero commissions.

• 1:01:12Speaker 01

  Which was crazy. I mean, I'd never seen anything like that. You see some of these stocks are dropping overnight, led to a wave of industry consolidation because presumably a lot of those firms couldn't make it work independently without that revenue stream. So make no mistake about it. It's never been a better time to be a retail investor in this country. Like what Robinhood has come in and done is obliterated a large part of the profit margin in this industry and the difference has gone into customers' pockets.

• 1:01:43Guy Raz?

  You know, and I say this as full disclosure because I have a Robinhood on my phone and I play around in it.

• 1:01:50Speaker 01

  Good to hear.

• 1:01:50Guy Raz?

  Now, I think that the great innovation that you introduced wasn't necessarily no fee trades, but this super easy interface, right? Because most people, this is my view, and I think a lot, and I'm not a financial broker or I'm not accredited or any of that, don't take my advice, but I think for most people, it makes most sense to put your money in a no or low fee index fund and just, you know, put it there and don't touch it. And so, and so I say this as somebody who does it a little bit because it's, it is, there's an addicting quality to it, you know, to see, you know, oh my gosh, I just made 10 bucks or 15 bucks, whatever it might be. You have created this incredibly

• 1:02:31Guy Raz?

  simple way and have, you know, we could argue have democratized the ability to, for anybody with, because there's no minimum, you don't have to have a minimum balance to go into Robinhood. See, anybody can go in who's got a phone, a mobile phone, and do this with a little bit of money.

• 1:02:45Speaker 01

  I think you should also mention fractional shares, which I think that's kind of the dark horse.

• 1:02:49Guy Raz?

  Right.

• 1:02:49Speaker 01

  Like, what we've done with fractional shares, I'm incredibly proud of.

• 1:02:53Guy Raz?

  Like with Amazon, Amazon shares $3,000. No, very few people are going to be able to afford one share of Amazon, but you buy a fraction of it.

• 1:03:00Speaker 01

  Yeah, and you buy it in real time, and you get really great pricing on that trade.

• 1:03:06Guy Raz?

  OK, but let me ask you my question here about this, because, again, like, you talked about the idealism that was connected to the founding of this company, right? You were inspired by Occupy Wall Street protests. But at the same time, does any part of you, or did any part of you wonder, "Well, a lot of people who may not really be fully educated on how this stuff works might lose a lot of money." Does that ever cross your mind? Or did it ever cross your mind?

• 1:03:41Speaker 01

  You know, we think about that problem a lot, and we care a lot about safety. And in a lot of cases, our products are more restrictive than the products of our competitors. I'll give you a couple of examples. You can't short sell on Robinhood. Short selling is one of the main ways that someone could lose more money than they put in. We don't offer undefined risk options trades either, so you can't sell naked calls. A lot of customers want to do that, and we deal with the effects of, you know, customers that say, "Hey, I really want to be able to sell naked calls. I want to be able to short sell, and you're not letting me do it. I have to move to a different platform as a result."

• 1:04:26Speaker 01

  So, you know, we bear some cost for this. And it's challenging, because you have to put these guardrails without being overbearing or annoying to customers. So they're hard to get right. But we've been working on it, and we're committed to continuing to offer people the safest experience around all of our products. And not to say that we won't offer some of these things in the future that people are asking for, but we want to make sure that if we do offer them, we have, like, strong guardrails in place that prevents customers from getting into situations that are unexpected and very tricky for them.

• 1:05:05Guy Raz?

  When you, when the app went live, it did get some attention and attracted some users, but it wasn't, it wasn't like a tsunami right away, right? I mean, it was, it was successful, but not overwhelming. Am I, is that fair to say?

• 1:05:21Speaker 01

  I think that's fair. I mean, we were, well, how should I put this? I think it was pretty clear. The success surprised us at the beginning. So we had, obviously, a waitlist before we went live and that waitlist got up to about a million people before we started rolling out, which, which I believe was the largest pre-launch demand of its kind for any financial product. I think we knew pretty early on, once we announced the waitlist and announced the service, that, that people would want it. But yeah, it's, it's not like we were adding millions of customers a week.

• 1:05:56Guy Raz?

  Yeah. But you were able to attract investors pretty soon after you launched. I think you just raised like $65 million pretty soon after you launched from some of the big, biggest investment firms and even got celebrities on there, which is now kind of par for the course. Celebrities are looking to invest in everything now.

• 1:06:15Speaker 01

  That's true.

• 1:06:16Guy Raz?

  It sounds like in the fall of 2015, by the time you guys were out, out in the world, I would imagine you're starting to feel confident, like this thing is going to really work.

• 1:06:24Speaker 01

  I think we always felt confident, but we always felt a sense of urgency. Right? It's always sort of the healthy paranoia of are you moving fast enough? Are you building for customers? Are you meeting their needs? I, I wouldn't say that I can pick a time in Robin Hood's history where I felt, you know, altogether very comfortable about how things are, are going.

• 1:06:47Guy Raz?

  When we come back in just a moment, how Vlad's comfort level was severely tested when the stock market went through a wild swing. Struggling company called GameStop suddenly became the hottest stock on Wall Street. Stay with us. I'm Guy Raz and you're listening to How I Built This from NPR.

• 1:07:17Guy Raz?

  Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So we're fast forwarding our story a bit to February of 2020 because you remember February of 2020, right? The US had just gone into lockdown and the stock market cratered. But then, a few weeks later, it bounced back. In fact, in early March, stocks made some of their biggest gains in a decade. And there was so much frenzied trading that Robinhood couldn't handle it. It crashed. I remember this because I have the app and I use it.

• 1:07:52Speaker 01

  Did you use it on March 2nd or March 3rd?

• 1:07:55Guy Raz?

  Well, I could, right? Because that was like the day where it was crashed. You couldn't... What happened?

• 1:08:02Speaker 01

  You know what's funny? March 3rd is Bulgaria Liberation Day as well, when we were liberated by the Russians from the Ottomans.

• 1:08:10Guy Raz?

  There you go.

• 1:08:11Speaker 01

  Funny how things work, right? There's also this thing in Bulgaria called Baba Marta, where on the 1st of March, you get these little red and white threads. And you can wear them as a bracelet, or you can hang them on something. And they're supposed to bring you good luck. And then at the end of the month, you nail it to a tree. And I remember that year, I felt really guilty because I didn't do it. And then, obviously, on the first day of the month, we had this outage. So things like that make you a little superstitious. So now I'm looking at my Baba Marta thing and touching it as we're having this conversation.

• 1:08:50Guy Raz?

  And the outage was because too many people were trying to trade and it crashed the servers?

• 1:08:56Speaker 01

  Yeah, I think we were dealing with unprecedented growth. And it had started on, really, at the beginning of the year. We tend to have a step function in growth just from people doing New Year's resolutions.

• 1:09:10Guy Raz?

  Dogs the Dow and things like that.

• 1:09:12Speaker 01

  Yeah, so you know, they start the new year, they say, okay, this is the year where I'm actually

• 1:09:16Guy Raz?

  Going to start investing.

• 1:09:17Speaker 01

  Become an investor and take it, take it more seriously.

• 1:09:20Guy Raz?

  Right.

• 1:09:20Speaker 01

  So you had the New Year's resolutions, then you had the market crash, the rates went to zero, people were at home, and there was a scarcity of spending. So the number of things that you could spend money on decreased. You couldn't spend money as easily going out to restaurants, going to movie theaters.

• 1:09:42Guy Raz?

  Right.

• 1:09:43Speaker 01

  So there's a shortfall of spending activity and the difference, if people aren't spending their money, there's a couple of ways it could go. They could save it in a savings account, or they could invest it. Well, savings accounts aren't paying any interest because the rate went to zero. So it goes to the market. And I think we became synonymous with retail investing in the market. We kind of became the default choice through 2020. You know, you heard this term Robin Hood traders or Robin Hood investors, which basically refers to anyone investing individually at this point, as far as I can tell, or at least the common person. And then you had the stimulus checks, which were unprecedented themselves, and some portion

• 1:10:25Speaker 01

  of that was allocated to saving and investing as well.

• 1:10:30Guy Raz?

  So how did you, I mean, when that happened, right, in March of 2020?

• 1:10:36Speaker 01

  Yeah.

• 1:10:37Guy Raz?

  When that happened and people were really mad, right? Because they were like, that's my money. I can't trade.

• 1:10:41Speaker 01

  Yep, yep.

• 1:10:42Guy Raz?

  Had, I mean, this was, this was basically, it was an unanticipated surge of users. You just, that's what it was? You just weren't prepared for the surge and, and, you know, as simple as that?

• 1:10:55Speaker 01

  Yeah, I mean, it was, it was something very simple, ended up failing and taking out our system, right? It was a DNS system failure, which was a failure by a system that we didn't even write ourselves, right? Open source software for some of that.

• 1:11:13Speaker 01

  But yeah, I mean, it was painful for our customers. Also, for me, as an engineer, like, you never want to have system issues, right? It's sort of like, it hits me to my core to a certain degree because like, I'm responsible for it, right? And what you saw is Robinhood learning from that, making a lot of investments, which you probably don't see, because how can you see reliability? You only really see it if you're up and your competitors are down.

• 1:11:44Guy Raz?

  Yeah.

• 1:11:45Speaker 01

  So, we're certainly, we certainly have new problems, but they're at least original problems.

• 1:11:52Guy Raz?

  There's a lot of moments, and, and look, you're a big target, because you're very successful. And lots of people use you, and lots of people like what you do, but, but as a result, you're a big target, you know that.

• 1:12:04Guy Raz?

  And you kind of weathered that, that challenge in 2020, and then throughout the year, there were several others, one in particular that is heartbreaking, is the story of this, this young man who committed suicide. Alexander Kearns, who was a college student, who was under the impression somehow that he made a terrible trading error and owed like $700,000. And he took his own life. It turns out he didn't apparently owe anything, but what did you, when that came to light and you found out about that, what did you, what did you make of that?

• 1:12:43Speaker 01

  I think the passing of Mr. Kearns was a tragedy, you know, it was devastating to me and to everyone at Robinhood. So, our hearts go out to the family, and I'm deeply sorry for, for the loss of his life. Right after that happened, Beijou and I sent a letter outlining the changes that we were committing to, to make in the wake of the tragedy. So, changes to the user interface, more criteria for how you access options in the product, more education, so we hired an options education specialist. And then, we actually created a callback customer service number, so that you could

• 1:13:28Speaker 01

  speak to a live agent on the phone.

• 1:13:30Guy Raz?

  Yeah.

• 1:13:31Speaker 01

  But, you know, It certainly was devastating and I think we vowed to learn from it and to make it so that the product has many, many more safeguards in place from something like that happening.

• 1:13:47Guy Raz?

  Vlad, I know that just a few months ago, I think in November of last year, Faiz you stepped down as your co-CEO and from sort of the day-to-day operations of the company and you are now the sole CEO. And now, of course, presumably all the firepower is aimed at you.

• 1:14:07Speaker 01

  Yeah.

• 1:14:08Guy Raz?

  In that position. Has that been challenging to do that without him? Or is it ultimately in the best interest for you, for the company, for, I don't know, that he stepped aside?

• 1:14:21Speaker 01

  Well, I should first clarify that he hasn't left day-to-day. So he stepped down as co-CEO, but he's chief creative officer at the company, very much involved day-to-day. Just in a role that he's more passionate about, where he drives products and product strategy and we chat on a daily basis and we talk through strategy. And, you know, we just felt that the best way to serve the company would be to go to a more standard structure.

• 1:14:56Guy Raz?

  Right.

• 1:14:57Speaker 01

  Centralize the day-to-day leadership, making sure, you know, the lines of decision-making are clear. And it allows us both to focus on the things that we're passionate about.

• 1:15:06Guy Raz?

  You got the last, last time you were in the hot seat, and it's not going to end, you're going to be in it again, it was in January of 2021, the GameStop controversy, the AMC. But, you know, you have all these traders coming in through Reddit and trying to trade and you guys had to halt that trading, which led to a lot of people.

• 1:15:30Guy Raz?

  Furious members of Congress, I mean, I think Democrats and Republicans were in agreement about how angry they were. And it took you a couple of days to explain what happened, which was essentially, from what I understand, there were regulations that required you to have enough cash in the bank to back up these trades. And you didn't. You didn't have that cash. Is that more or less the explanation of why you had to put a halt to those trades?

• 1:15:57Speaker 01

  Yeah, essentially, Robinhood Securities can't use customer cash to fund net purchases of securities. It uses corporate cash as collateral.

• 1:16:08Guy Raz?

  Money that you had to have in the bank.

• 1:16:10Speaker 01

  Money that we had to have at the clearinghouse. Yeah. And so people ask the question, like, I don't understand why I can't buy. I have this money in my account. You know, it's enough to buy the stocks that I want to buy.

• 1:16:22Guy Raz?

  Right.

• 1:16:23Speaker 01

  Why can't you just use that? Well, it's because the trade settled T plus two. So the trade is actually settling two days after the person purchases it. And in that two-day period, we have to post collateral in case the transaction fails or gets reversed, and that can happen for a variety of reasons. And we can't actually use the customer's money. We have to use corporate cash for that.

• 1:16:45Guy Raz?

  Right.

• 1:16:46Speaker 01

  And the collateral requirement, as I've said in a lot of these news shows, started off at $3 billion in the morning of January 28th.

• 1:16:56Guy Raz?

  And you didn't have $3 billion in cash, because why would you?

• 1:16:59Speaker 01

  Yeah, at the time, we had $700 million on deposit at NSCC. So the request was a 4X increase in our deposit requirement.

• 1:17:09Guy Raz?

  Wow. But you just explained to me, you could not, essentially, it sounds like you could not explain that quickly to frustrated customers.

• 1:17:18Speaker 01

  Yeah, I think we evolved. I evolved as a communicator throughout this process. And I would say we explained it, I think, that day. We said, hey, we're subject to these deposit requirements and these capital requirements. Those requirements can go up. And I think there was a lot going on. We were trying to... Keep our systems up amidst being number one on the App Store, which was always the number one concern to make the systems up for all trading. We were raising the capital to make sure we could relax the requirements. You know, I went on television that night, Wednesday, the 28th. I was kind of running on fumes after what was a very stressful day.

• 1:18:02Speaker 01

  And I think I hear the feedback that my TV interviews, you know, left a lot to be desired. Hopefully, the subsequent ones gave more information and kind of people understand what happened better and understand the NSCC deposit requirements to to the degree which it makes sense to understand these highly technical things.

• 1:18:28Guy Raz?

  Fred, I'm curious, you know, I wonder if, I mean, you know, when you hear people like Mark Zuckerberg or Jack Dorsey, when people say, well, you know, I mean, look at these platforms you've created and there's so much toxicity in social media. And oftentimes, you know, they'll essentially, what they'll say is it was an unintended consequence, if they even acknowledge the toxicity on their platforms. And, and look, I mean, it's not your doing that, that all these investors came in and manipulated the prices of GameStop or AMC. And many of them were really kind of countering the manipulation that professional traders were already doing. But I wonder, I mean, is that an unintended consequence of the platform

• 1:19:10Guy Raz?

  that you've put out into the world, that it actually makes it much easier for stocks to be manipulated, the price of stocks?

• 1:19:18Speaker 01

  Um, well, I think that the M word is a little bit of a tricky one. It means very specific things, right? And I'm actually not sure that that's, that's what's happening, either by retail consumers or otherwise.

• 1:19:34Guy Raz?

  For GameStop to go from $2 billion to $24 billion valuation in a matter of day, a day?

• 1:19:39Speaker 01

  Well, yeah, it's certainly, there's a, there's a price move, but I don't think I should opine on whether that's market manipulation or anything like that.

• 1:19:47Guy Raz?

  Well, but okay, let's not use that word then. But, I mean, is that, could you argue that's an unintended consequence of the platform? That, that, that can now happen very quickly?

• 1:19:56Speaker 01

  Well, I think that we certainly didn't anticipate that.

• 1:20:01Speaker 01

  People on social media would coordinate and all buy the same stock at the same time. I just don't think the markets were built with that idea in mind to support that. Like March of last year, right, when the entire market was down and clearly there was like broad-based stress on the system, deposit requirements and collateral goes up in those situations. And that's kind of what it was built for, right? And that makes sense to everyone. In this case, you know, you could argue this is concentrated on a small number of stocks, but the system wasn't built for people on the internet banding together, millions of

• 1:20:43Speaker 01

  people, to buy the same stock or a small group of stocks. And I think it kind of broke the system to some degree.

• 1:20:50Guy Raz?

  Yeah. Do you think that, I mean, you say that you couldn't have anticipated the social media side of this, and I think that, I believe that, I think that you can't anticipate every eventuality. But it also means that this can happen again and again and again, right? And I understand that you don't want to weigh in on whether that's good or bad, but it can happen. I mean, this may be par for the course going forward, that you may just have an army of individual investors who decide to just go for it on one stock or just

• 1:21:21Speaker 01

  Absolutely.

• 1:21:22Guy Raz?

  kill another stock. And I know it happens, professional investors have been doing it, but this may now be driven by consumer investors.

• 1:21:29Speaker 01

  And I would say some people still argue that with these meme stocks, it's still happening, like it's not, it hasn't concluded, the story's not over, right?

• 1:21:39Guy Raz?

  And is that, I don't know if that's good or bad either, but as a, as somebody, and I don't really invest in many stocks, as I said, just sort of play around, but I mean, God, I'd be freaking out if it was my stock that they decided, I don't know, I just put some money into, I don't know, Coca-Cola or something, and people decided to go after that one, you know? I don't know, it can happen.

• 1:22:01Speaker 01

  Yeah.

• 1:22:01Guy Raz?

  And there's no way to prevent it, I guess, unless there's some kind of regulatory regime here, right?

• 1:22:07Speaker 01

  Yeah, or, you know, it's also not clear whether, what aspect of it, if any, needs to be prevented. I think certainly, you know, we're pushing for faster settlement because that's in service of the financial system and making sure that the system operates smoothly and there's less need for money to be put up as collateral because, because the risk would correspondingly be reduced. And, um, yeah, I'm not sure whether the, this idea that individuals investing in the same stock, um, I don't really know if there's a way to, to reverse that or whether it's, it's a good thing. People should be able to make their decisions and, uh, invest in whatever they want to,

• 1:22:49Speaker 01

  subject to all of the, you know, suitability requirements and other regulations.

• 1:22:55Guy Raz?

  When you hear criticism from people who say, "Yeah, you know, the customers aren't, the, the people are making the money out of this are these trading firms and Robinhood, and actually the customers are losing out." Do you get frustrated? I'm just curious. I mean, do you think that, that some of the media criticism and coverage of you has been superficial, unfair? I mean, what, do you get mad or frustrated? What do you think?

• 1:23:20Speaker 01

  Well, I think that, I was watching this interview with Jeff Bezos a couple of years ago, and he mentioned a few things that resonated with me. One of them is you gotta have thick skin, right? People are gonna take shots and, you know, it doesn't hurt them to take shots and potentially millions of people can do it. So the only way to survive that is to actually just listen to the criticism and understand it, but otherwise have thick skin. And I think, uh, you have to tolerate being misunderstood. Obviously correcting the, the narrative and making sure that the facts are out there. But I think if you're, if you're trying to do something important...

• 1:24:03Speaker 01

  You're going to be misunderstood and I think that resonated with me and you know, around some of these specific things, just have to get the facts out there, you know, the fact that Robinhood customers had at the time of the congressional hearing 35-plus billion more in unrealized and realized gains, equities in crypto on top of money that they deposited. I think it's a pretty good fact that no, it's not just Robinhood and our market makers that are making money. Customers have done quite well and benefited from the markets as well.

• 1:24:41Guy Raz?

  When you think about your journey, growing up and getting to go to Stanford and pursuing math, but then meeting Beijou and starting this business and founding it and then taking it to where it is today, how much of that do you think has to do with how hard you worked and how smart you are and maybe, you know, how much do you think it has to do with luck or maybe privileges that you had that maybe others don't have? I don't know. What do you think?

• 1:25:14Speaker 01

  Yeah, or maybe we all live in a simulation and this is just one of infinite number of realities that I ended up picking, right?

• 1:25:24Guy Raz?

  I like that answer, actually. I never got that answer to this question.

• 1:25:29Speaker 01

  Yeah, I do think that I look at everything around me and there was a big realization at one point when you just realize that everything around you, the world that exists is built by people, a lot of whom aren't much smarter than you or more capable. And I think a big step is just deciding you're going to do it. You know, you're going to actually try to drive something and change something rather than merely becoming, merely being like a passive participant in the world. So I think the decision to do something, I think, is a very powerful one. And at that point, you know, you can break down Robinhood into a

• 1:26:10Speaker 01

  series of small steps, the first one being start Robinhood and then every subsequent one being some variant of don't stop and keep going, right? And you end up where we are today.

• 1:26:25Guy Raz?

  That's Vlad Tenev, co-founder and CEO of Robinhood. And by the way, while everything else was going on this past year, the company was also getting ready to file for an IPO, which they did just recently. And according to Forbes, their valuation, which was somewhere around $20 billion last year, has gone up, perhaps even doubled, to $40 billion.

• 1:26:51Guy Raz?

  Hey, thanks so much for listening to the show this week. If you're not a subscriber to the podcast, please do subscribe wherever you get your podcasts. If you want to write to us, our email address is [email protected]. If you want to follow us on Twitter, we're @HowIBuiltThis or @GuyRaz. Our Instagram is @HowIBuiltThisNPR, and mine is @Guy.Raz. This episode was produced by James Delahoussaye, with music composed by Ramtin Arablouei. Thanks also to Liz Metzger, Farah Safari, Dareth Gales, J.C. Howard, Julia Carney, Neva Grant, and Jeff Rogers. Our intern is Janet Wu-Jung Lee. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.