Vlad Tenev - Navigating Robinhood's Evolution - [Invest Like the Best, EP.384]

28:08But I actually think that there's a huge overlap between math and art. When you talk to mathematicians and they're talking about a proof to you or some result that they really like, they sound like art enthusiasts talking about a beautiful painting. They'll use words like elegant. Oh, that's really elegant. That step is really beautiful. There is sort of a difference between different types of proofs. Some are shorter and more elegant, and they have an element of creativity to it. Others maybe are a little bit more computational. And mathematicians care and understand about this stuff. And I do think when you're solving a consumer problem, there are differences.

28:51maybe it'll get solved either way, but there's like a certain artistry in creating an interface that solves it in the best possible way for the customer. And so we obsess over that here. And we do really care about how things look and how things behave and making it intuitive for people. And I think Beiju really cared about this and I really cared about it as well. So I don't think there's necessarily a conflict. I know not a lot of people do it, but we are motivated by aesthetics and beauty and not just performance and accuracy. Maybe use like a recent release like gold or something to bring that to life.

29:34What was the process like of conceptualizing, designing, rolling that out through that lens of elegance in product? Yeah. I mean, the gold card is probably the best recent example. We announced the gold card at an event in March of this year. And the event itself, we spent a lot of time on. Not a lot of financial companies use events to launch consumer products, but we cared a lot about the vibe. We wanted to have a certain aesthetic, which was more of like this 1980s luxury vibe. So we looked at print magazine adverts as inspiration. If you look at the Robinhood Gold credit card website, it should evoke the feelings of like an old Porsche ad or like a 1980s Rolex ad that you would find in a magazine with the serif fonts, spotlight and camera features.

30:31And people at Robinhood, we have a lot of great artists and they want to build beautiful things and get excited when it's something more than just rolling out the features and meeting the requirements. So at every level of that product, There was like high quality care and craftsmanship. We spent so much time obsessing over the card itself. Got really excited about the physical card, the app experience. We acquired a company, X1, that had an existing product and it had all these great capabilities and they really cared about design as well. Some of them were, I think, buried in the product. We wanted to bring them out and surface them a little bit more.

31:13And then we asked ourselves, can we go beyond just having really good design and a great product? And can we disrupt the economics much like free trading did? And that's where we got the 3 % cashback on all categories value prop, which if you talk to customers is so shocking that they just assume we're losing a bunch of money and that this is going to be bad for the business. And it's sort of in the too good to be true category, much like free trading initially was. And then you kind of put this together. And I mean, you should look at sometimes I just read the reviews of the Robinhood credit card app before bed.

31:52Because I haven't seen reviews like this for any financial product. They're better than free trading initially. It's just all five stars, people saying this is the best credit card they've ever used. And the only one star reviews are the people that don't have it yet that wanted so that they like are leaving one star reviews on the app out of frustration. Can you do something similar as you did with the free trading for the 3 % and explain to us what you learned, what the traditional model has been, what the governing variables have been, how you're changing things and being innovative? The card itself, yeah, looks beautiful.

32:26I'm sure it's a great experience, et cetera. But like talk us through like the backend physics of this and what you learned and what you've done. One thing that has been helpful is looking at existing credit card companies and their economics. So Capital One is a great one. It's like a credit card business. They do a great job. They're efficient. If you take their revenue divided by their total transaction volume, and this is just simple surface level, they generate revenue from a variety of sources. But if you just simply look at total revenue from card divided by transaction volume, you'll get to something like 6%, which basically means there's like a 6 % revenue yield on transactions.

33:14And of that, I think they give out about 2 % to 3 % in rewards, closer to 2%. A very profitable business. They've got a healthy profit margin, gives us a little bit to play with. And credit cards are some of the most profitable businesses out there. If you can do it right, it's a great business. And so it really just came out of looking at that. So there's some profit margin. And maybe we don't want to do, can we go a little bit over the 2 %? Now, we probably don't want to go to 5%, even though that would be really, really cool, because maybe that's a little bit tight. And we don't expect to be as efficient at running a credit card business as Capital One out the gate.

34:01They've had decades of experience. But if you could give more rewards and get 3%, then there should be plenty of monetization to make this a good business to us and simultaneously put more money in customers' pockets. And I think the shocking factor is that this is like a greater reward than the interchange economics that you would typically get. So interchange is like between two and two and a half percent. That's the rebate we would get from the network on each transaction. So we're actually paying a greater reward than we get from the network. And we compensate for that in two ways. One of them, which is what Capital One has is interest on people carrying balances, so revolving activity.

34:49And I think that's going to be enough in the long run, at least, to make the card portfolio very, very profitable on a standalone basis. But there's also another thing that basically, to be conservative, we sort of underwrite at close to zero. But if you look at Fidelity, Fidelity has this product, which is a 3 % rewards credit card that they give to their highest net worth customers. So if you have something like 2 million under management with Fidelity Advisory Services, you can get the Fidelity rewards credit card. It's a very nice green card. So you get 3 % for that card, but you have to have millions under management.

35:30Now, what that should signal to you is I don't think they're doing this out of the goodness of their hearts. It's a profitable enterprise. Their customers probably if they were there for advisory services, they would be happy with just an at-market credit card that wasn't losing money for them. So I don't think it's losing money for them. And what they're likely seeing is that the secondary effects on the rest of the financial relationship for being the primary credit card account for someone, particularly if they're a high quality, high FICO individual that's predominantly using the card as a transaction tool is accretive.

36:09And so we think the ecosystem second order effects will actually be very significant for us, where we think there's a good chance that once someone has a primary card relationship with Robinhood, they'll invest more money, they'll deposit more money in our gold offering and it'll help drive the gold flywheel that has been working very effectively for us. If you had to like ultra simplify the business as it exists today, like an understanding from an investor's perspective, let's say of the business, I'm curious how you would do it. I asked that first so that I can ask the next question, which is about this cross effect that you just described and what the vision is for all the things you might do for the Robinhood consumer customer over the longer term.

36:54But maybe you start by orienting us in the business today, just in terms of like where the revenue comes from, what the customer base looks like, however you want to do it in simple format so that we can build on that in terms of where the business might go from here. Yeah. So basically, the business is focused on three things. The first one is being number one in active trading. And these are options traders, equity traders. Active trading drives the majority of the revenue. of the business. Crypto is kind of in that category. It's being the number one place for retail trading. And then the second part of the business is growing wallet share with millennials.

37:36You can think of it as Robinhood has more millennial customers than all the major brokers combined, more than Schwab, Fidelity, Vanguard, E-Trade put together for millennial customers. And we think there's going to be close to$100 trillion in wealth passed down from baby boomers. And it's already started, but it's really going to accelerate over, say, the next one to two decades. So close to$100 trillion in wealth transfer. And so we're one of the few financial companies that actually has tens of millions of millennials who are trusting us with multiple products. And we think we can be the beneficiary of that.

38:16So it's sort of like building the tools and the capabilities and putting the incentives so that the lion's share of that ends up in Robinhood accounts over the long term. And that's what we mean when we say we want to grow wallet share with our customers, predominantly millennials. All of your money should be in Robinhood. All of your financial transactions should go through us. And that's why you see our work in retirement, the credit card, which will eventually expand into a broader neobanking offering. All of your money will eventually be best served in Robinhood accounts, high yield savings, eventually advisory.

38:54We're going to serve all of your assets and all of your financial needs. And then the third category, international, recently started. We launched in the UK and the EU, so still small. But I think over a 10 to 20 year timescale, we're going to be live in all major markets. All of our products will be available there. And I think there will benefit from the rapid wealth building in the developing world, where if you look at some of these overseas markets, Eastern Europe, Southeast Asia, Latin America, Africa, right now, they don't have very much disposable income. But over time, that will increase.

39:34The standard of living worldwide will continue to increase, and they're going to be increasingly interested in investing. So core business active trading, the second priority is setting ourselves up for this wealth transfer with products that help us build wallet share and help our customers build their wealth, and then expanding internationally. Can you double click on the active trading portion since that's the core original piece and predominant piece still today? And then we'll get into some of the future stuff. Can you just explain how it works? I feel like everyone knew the answer to this question like three years ago and payment for order flow and all this other stuff was like in the news all the time.

40:09But I would love you just explain like the model of how the business works now to understand the foundation that you're going to be building on. Yeah, for sure. So you're primarily asking in terms of revenue, what drives the revenue of that business. Options trading is a large piece of it. So options trading is annualized in the 500 million to 1 billion revenue range. If you look at the last few quarters, crypto trading, last quarter crypto trading was ballpark 150 million in quarterly revenue. So that's a big business as well. Equities trading is smaller, predominantly because the payment forwarder flow take rate that we collect is quite small.

40:53That's, I think, ballpark$100 million in quarterly revenue. And then we generate revenue from these customers holding cash on the platform. So we collect a small interest rate spread on their cash. Securities lending also is an additional revenue source. And a couple of other smaller things, like if people want to withdraw money instantly to their bank account, we offer that service and charge a small transaction fee there. And if you break it down in another lens, transaction revenue versus interest revenue, a couple of quarters ago, interest revenue actually flipped transactions. It used to be very, very heavy on the transaction side.

41:34So payment forwarder flow is much bigger than net interest margin back in the zero rate environment. But now the interest rates have gone up and we've retooled our business to have more asset building products, then net interest margin actually flipped transactions as a greater contributor to revenue. And then we also have a subscription offering, Robinhood Gold, which ties all these together. And we really think of Robinhood Gold as the product version of growing wallet share with our customers. Once you get sufficiently engaged into Robinhood and you find value, you almost always end up being a gold subscriber.

42:12And then becoming a gold subscriber actually creates a strong incentive to try out all of our other products where you now get industry leading economics. And gold subscriptions are now a nine figure revenue business as well. I think the last number we announced at the quarterly earnings was 1.7 million gold subscribers, which was an all time high. And the majority of those customers are paying us just$5 a month to be gold subscribers. I love this idea in businesses. is it's just so cool. You're a public business. You've got all these segments. The numbers are big. It's great. You made it. You did it.

42:46You built a big business. On the way to doing so, I love the idea of crucible moments, like the incredibly hard choices that companies have to make or difficult situations they have to work through to get to that promised land. If you had to think of one or two that the episode of it itself was the most impactful on you, or you just feel it the most as you think back on it, which one or two pop most immediately to mind. I'd love to just like hear the story of how you processed a hard moment on the way to building a big business. A lot of people, their minds when they hear about Robinhood go to GameStop for better or for worse.

43:23And they're like, oh, that must have been very, very difficult for you. It was in a certain way, but it was difficult in an acute way. So we had this crisis. We had a certain set of steps that we had to take, make sure that we serve our customers, raise a bunch of capital, strengthen the balance sheet, and then deal with the PR fallout and the congressional hearing and all of that. Not a lot of uncertainty in how we operate there, other than how best to message what was actually happening to the press and to the public, which was challenging. I don't think we did a particularly great job of that.

44:02It's sort of like a meta problem rather than an actual problem with the product or the business. I think what was more difficult for me is navigating 2022, where we had a company that had recently gone public. The entire macro environment was reversing from very, very loose monetary policy to the tightest monetary policy in multiple decades. When that happens, when interest rates get hiked up very quickly, trading basically slows down to much, much lower levels. And so we were seeing that. And we had a business that was dependent on trading. And we were acting in 2021 like those trends would continue indefinitely.

44:46So there was a huge amount of headcount growth and lots and lots of investments in ancillary things that weren't going to generate value to the business anytime in the next five years, let's say. So huge investments in very, very long-term projects. And when the rate environment shifted and our core business was weakened, we had to basically change everything about the company. I mean, we had to cut headcount quite dramatically. We had to focus and prioritize on the core business, which was the the most active customers, less so the novice customers that were actively trading, but doing so more as a novelty.

45:33We were focusing more on prosumer, very active options traders and equity traders that were more sophisticated and driving the bulk of the revenue. And that was a big shift. We couldn't just focus on the core business because we had to diversify away from trading as well. It was clear that there wasn't going to be a huge amount of growth in the active trading segment for possibly two or three years. And we had to focus on the core while also making sure that the business in the medium term was diversified away from the core and that we had another way to grow customers and grow assets outside of active trading.

46:12That was all very tough. It played out over a long period of time. And pain inflicted was much less acute than GameStop, but it burned over a long period of time until relatively recently, actually, when the market and the public started realizing that, hey, these things that Robinhood has been doing since 2022 are actually working. And we left this company for dead, but now they've actually strengthened the core, retooled and diversified and growing and expanding aggressively like they did in 2021, but under a very different environment. Let's say tomorrow, a young entrepreneur comes into your office that you know and like a lot and you want to be helpful too.

46:56And they say, look, I'm in a situation that sounds like the one you just described in early 2022. And you know that lots needs to change, but nothing's changed yet. And it's like all in front of you. What would you tell that person in terms of like how to start biting away at that problem piece by piece? Like what were the good elements of the methods that you use to get through 2022 that you think might be portable to other entrepreneurs, all of whom, if they're going to build something huge, go through hard trying times? What worked and what would you do differently? A couple of entrepreneurs have asked me this.

47:29And one exercise that I found useful for myself was to sit down and imagine what the company would look like if a new CEO came in to run it and a new CEO who's very, very good. This might be a great chat GPT or Claude prompt too. And at the time, what I used was Frank Slootman. He was kind of like the business book CEO who everyone pointed to as hard ass, came in and fixed companies and got them right on track. He's my archetype of central casting CEO coming in to fix things and turn things around, even though I've never met the guy. I would ask myself, all right, if Frank Slootman came in here to clean this place up, what are like the 10 things that he would do?

48:15I came up with a list. And for us, it surfaced these obvious things that we weren't doing, but that we, for a variety of reasons, maybe we were like clinging on to decisions that we had made in the past that we wanted to be consistent with. And those are the most dangerous because it's very, very difficult to go up in front of the company and say, Hey, this thing that I just told you that we were going to do three months ago, I was wrong. That was the wrong decision. We're just going to completely reverse that. Much easier for a new CEO to come in and do something like that. Because all you have to do is say the old guy was an idiot and everything they did was wrong.

48:52So we're just going to change it. So I think that was the usefulness of the thought exercise. And it's like, what was the answer to that? You're going to have to cut headcount, focus on the core of the business. At the time, we had very few people actually working on options trading, which was driving a ton of our revenue. And so we looked at that and said, a smart capital allocator would put more and more people on options trading, make sure those customers are very, very happy with the service they're getting because they're generating the lion's share of our revenue. And we were in a situation where you look at the numbers, the more active a trader you were on Robinhood, the more revenue you're generating for us, the less satisfied you were with our product.

49:35there was an inverse relationship between revenue and NPS. And when we kind of grok that, we were like, this is a five alarm fire. We have to solve this problem immediately. And we did. We solved that problem within a couple of quarters, much, much faster than I thought possible because we just put our best people on it. Yeah. What did they literally do? What were the changes that were made to make those customers happier? A lot of those changes were like incredibly simple. So for example, one thing that was a source of a lot of problems was that if you were trading a lot, you were marked pattern day trader.

50:18And if you were marked pattern day trader, for a while, we basically would not let you trade options. Because we hadn't built the mechanisms to like softly off ramp you into other products, you just basically had to turn to a competitor once you became a pattern day trader. And the solve for that was building cash accounts, which is a different account type, non-margin. And once someone became a pattern day trader, we had a simple ramp to off-ramp them into a cash account and they could continue trading with us. And that alone was both solving a pain point, increased NPS for customers, and led to them staying on the platform.

51:02And these were some of our most active people. And this was below the line before because we just had a very small team of people working on this. And so little paper cut improvements, even significant ones, were just not getting prioritized when you have a handful of people working on options, which was a multi-hundred million revenue business. So from a revenue per engineer standpoint, before we did this, it looked great, but we were very nomadic in how we built. People would build the old things, then they would move on to new things. And we had lots and lots of projects that weren't gonna generate revenue for the next two or three years at least.

51:44And we basically had to cut all of those and make sure we fed the core that was driving the business first and expand outward from there. So there's huge changes in the service model, huge changes in the product roadmap. And I guess the other advice I'd give entrepreneurs is it can seem kind of daunting if you see a lot of things that you have to fix, but it really is true that you tend to underestimate what you can do in a year. Everyone wants things done in two weeks. You can do a lot of stuff in two weeks, but pretty much all of these problems can be fixed if you give yourself a long enough time horizon.

52:20And one benefit we had at Robinhood is we had a very large balance sheet because of all the capital that we raised in 2021. And so we did have some leeway and we wanted to turn things around quickly. But we had six billion dollars of cash in the bank, which can also solve a lot of problems. It's pretty ironic that the one crisis led to help solve the solution for the next crisis. It's pretty interesting. Interesting silver lining I hadn't considered before. I had never really thought of it that way, too. But yeah, we navigated the GameStop crisis and left it with a reputation that we had to repair, but also a lot of capital because that crisis led to us growing a lot and we grew our users and revenue tremendously.

53:10And it kind of propelled us to go public as a company right as the window was closing. I mean, I think we were kind of at the tail end of the time companies could even go public. So if we'd waited a couple more months, we probably still would be private. What are the keys to repairing a reputation? I think it really is true that reputations can be lost very, very quickly. We see this in our data. GameStop obviously had a negative effect. And you saw that in NPS. It took a dive pretty much immediately in our NPS survey that we ran right after the GameStop events. It was at the bottom. And then you could actually kind of see it gradually increasing over the next several years.

53:54So it got to like a decent level. The biggest increases were right after GameStop. You saw it go from very negative to like slightly less negative. But really, you do good things, roll out good products, those have a gradual effect on NPS. And so it's been three years. We're probably now at the point where we're pretty much on par with pre-GameStop Robinhood. So it's been a journey. And obviously doing good things can speed it up marginally, but I think the biggest thing is time. And particularly in our space, if you're handling someone's money, There's no getting around the fact that time is important.

54:40And the timescale that you've been a company, particularly a public company, it factors into people's decisions for where to put their very serious finances. One advantage that the incumbents have on us, they've been around for multiple decades. Customers have more confidence that they'll continue to be around for decades since they already have been. And that's a uphill battle that we have to climb. But the benefit is it gets easier over time. So there's just this tailwind behind us where our brand and reputation and trust, provided we don't have missteps, knock on wood, time actually helps us in financial services.

55:21And now we can say we've been around for 10 years. We've been public for three and look at what we've been able to accomplish. And we have seen that reiterating that message does itself build trust. One of the interesting things about your business is the data set that you sit on top of. You just see what people do in investing and active trading. And if you go back to when Robinhood started, around the same time was this crop of robo-advisors. They were called venture-funded like Robinhood was and had big, exciting, addressable markets. And the reality is, I think the pitch of those firms was this is really simple, low cost, easy, responsible way to invest for the long term.

56:00And you shouldn't be actively trading. You should just set it and forget it. And it's interesting to me that like those firms, there isn't like a big dominant one. They didn't really achieve venture scale outcomes. Robinhood did. What does that teach us about how people are with trading, with their money, with investing? What have you just learned on sitting on top of watching all this trading for a long time now? just about people and the nature of trading and markets? Robo-advisors are interesting. Robo-advisors were kind of the original application of AI to investing. At least that's how it was marketed.

56:37But they really weren't doing anything sophisticated in terms of AI. And I think the reason that those products have failed to gain significant market share or grow super quickly is that automating the actual asset allocation is the easy part. And I think that's a commodity service. And even if you have a human advisor, they spend a very, very small percentage of their time doing investing, yeah. Automating your portfolio, yeah. And the value is in all of these other things, helping you consider your financial situation holistically, helping you with your will and inheritance and trust and estate planning, giving you advice on your budgeting situation, doing your private banking, so helping you file your taxes.

57:32And I think that there's so many different services that registered investment advisors and financial planners and private bankers provide to customers outside of just the portfolio allocation that AI was misapplied there. I think what people really want is the experience of a private wealth manager or a private banker delivered to them digitally in a lower cost so that many, many more people can access it. And I think that that's the really valuable and really interesting application of AI to our industry and one that Robinhood can really help drive. Robo-advisors themselves have some advantage here relative to the incumbents.

58:17They also utilize technology. But yeah, I think you're going to start to see generative AI and this new intelligence applied to advisory in the next couple of years. And I think that's going to be a big transformation in the wealth management industry. Do you think that you'll play a big role in that? Do you have ambitions to play a big role in that? We do. Yeah, I think there's two big technology trends that could affect financial services. One is crypto. The other is AI. And Robinhood will be a leader in both. I mean, we're already a leader in crypto and we're making lots and lots of investments to make sure we're the leader in AI.

58:57I don't think the competition is particularly formidable, but I also think that's not an excuse to get complacent. So yeah, I do think we're going to be doing a lot. And we also just recently announced an acquisition of Pluto, which is basically an AI-based investment research product. So you can put in information about companies and investments, and they built a very sophisticated system that can pull public filings, synthesize the information, and answer questions and help you with investment research. So we're going to be looking to integrate that capability and actually build awesome tools for customers, both self-directed and in the managed account space with advisory.

59:47Where do you think it all might go with both crypto and AI? Like I'm interested in both separately and maybe they intersect or overlap or whatever, but it It seems like the pace of change of this stuff is just hard to wrap one's mind around. If you think not just two years hence, but five or 10 or 15 years hence, where do you think these two categories bring us? What does financial services look like that's most different from today as a result of these two technologies? I think that with crypto, the short term thing that has happened and I think has led to maybe some sullying of the brand of crypto is that people see all the meme coin activity and lots and lots of things that don't have any fundamental backing being created just because it's very easy to create a new token on a blockchain.

1:00:36And so that's, I think, distracting a lot of people from the underlying potential of the technology. Now, at the same time, here's what we can see. So abroad, outside of the US, if you look at transaction volumes on crypto blockchains, they've been going up. And what's driving that increase is largely dollar stablecoin volume on low cost networks. So for a while, USDT, which is a tether stablecoin on Tron, was a huge amount of actual crypto transaction volume outside of the US. And this is people that want to hold US dollars. They want to hold US dollars. In a lot of cases, they're in local markets where their currencies aren't doing very well.

1:01:25They're rapidly depreciating. The dollar has been a safe haven for a long time. They'd rather hold that than Bitcoin because they trust it more. And it's got a great brand and perceived stability. And so the best way that they found to do that is to use crypto. So they're using custodial wallets and getting dollar stable coins because it's cheap, it's efficient, it's easy, it's available on any blockchain. It's rapidly surpassed the kind of traditional financial infrastructure. I think that you can extend that to stocks. You'll see tokenization of stocks, and that'll get very, very interesting.

1:02:03And you'll see tokenization of pretty much any asset. What I think about a lot is I started thinking about this when there was that whole ICO mania that happened in 2017 where companies were ICOing and the SEC came in and cracked down on that. And Robinhood was a small startup at the time and we were kind of looking at what could happen in the space. I think a very disruptive force in capital markets is companies starting out and issuing tokens upon their formation. So imagine you're a software engineer and you're considering two different companies. One has traditional cap table. Maybe they're using Carta or something and they've got their traditional legal docs and you get stock that vests over four years and you get liquidity either when the company gets so big that they can do a tender offer or they go public.

1:03:00And you tend to discount the value of that equity as someone that's applying for jobs because you just never know if it's actually going to materialize. And you have a choice. On the other side, it's a startup doing a substantially similar thing, but they've been incorporated and they have a crypto token and they're crypto native. And maybe their business doesn't have anything to do with crypto. It's the same business, but you just get a token right away and they can tell you, hey, our token is liquid. once it vests periodically, you can just exchange it for dollars or whatever you want. I think that if that were possible, pretty much everyone would choose the latter option.

1:03:42And that's going to be a force that changes how startups incorporate and manage their equity. And then if you see that continuing in a large portion of new startups doing that, there's going to be less companies going public in the traditional way. And companies will do ICOs instead. And that could fundamentally change the equity markets. Now, the unfortunate thing is there's regulation that doesn't want this to happen and a lot of embedded special interests. So it looks like that might happen outside of the U.S. first. But as the U.S. tends to do, it will eventually catch up and you will see crypto infrastructure getting more and more embedded into non-token, non-crypto native projects.

1:04:28There's clear benefit. Look at the dollar stablecoin analogy. We see the efficiency gains of using crypto infrastructure because we have a crypto business and a traditional brokerage business. The cost of offering those services is dramatically lower on the crypto side. I think it's very, very likely that we move off of mainframes and onto blockchains. And there's like a efficiency benefit outside of all of these things that I've mentioned. I think it's inevitable and Robinhood can help drive that both on the product and technology side and the policy side, because we want the US to be a leader here and for us to benefit from all this technology and not clutch our pearls because we are the market leader already in traditional finance.

1:05:16So how does AI then play a role in some of this and or drive totally different things for your product roadmap, your future, the future of financial services in general? Crypto's impact is going to be more on the market. Infrastructure. On the market side. AI's impact is likely going to be a little bit different. I think that when you think about the impact of AI, you should think about what are the types of things that a human is doing for me in financial services that I'm paying a decent amount of money for? I think there's a lot of distraction in the AI realm. There's speculative technologies, things that people aren't really doing.

1:05:56And some of those might work and there might be new behaviors. But the things that I know will work are things that you're paying a human a decent amount of money for already that could be done by AI. And that's both on the company side, where are we investing our CapEx, where are we spending money on things that could be automated, But also on the customer side, what are services that are provided by humans that could be automated by this technology? Or if they're not automatable already with a bunch of elbow grease, and you can trace the curves and assume the technology is going to be better and make less hallucinations and less errors, what's going to be automatable in two years?

1:06:36And I think what you come up with is near-term customer support. The global customer support market is going to see a major dislocation. I mean, not just in finance, but across the board. I was looking at this market. It's one of the biggest markets. I think something on the order of$500 billion is spent annually on call center. And that's going to be reallocated in the next 10 years. You can kind of see that happening very, very directly. Those folks, their jobs are fundamentally changing. They're going to have to do different things. And then in the long run, the really interesting opportunity in finance, I think, is private banking and private wealth management.

1:07:15and advisory. If you look at the dollars and the revenues, it's quite dramatic. And I think there's a user experience issue on both sides of the barbell of this product. So on the one side, if you're not a high net worth individual and you have$50 ,000 or less, and you're going to your local Edward Jones or something of that sort, you're paying a very high percentage, 2%, 3 % on that capital, because it has to be worth it to have a human helping you with this. And you're getting not the best service. It doesn't take much to be a financial advisor at one of these firms, and you're not getting elite quality service there.

1:07:59And so you're unhappy. And then on the other side of the spectrum, if you're a high net worth individual, and you have hundreds of millions of dollars with a financial advisor, and your wealth is growing over time, you're being charged a fixed percentage. So basically, the service you're getting isn't going to be very much different at all. If you have$10 million,$100 million, or$1 billion, but you're just paying 10 times more. And so the more money you make, the more dissatisfied you are with your financial advisor relationship. And it really should be the opposite. The more money you have, the more you're utilizing that product, you should be happier.

1:08:41It's inverted in a very strange way. So I think the whole space is going to be disrupted. And I think AI will play a big role in that. If I re-invoke Slootman again, and he storms into your office and spends a week tearing apart your business, what do you think he would say is the worst part of the Robinhood business today, after all this improvement that happened after 2022? to? I mean, I think there's a lot of things that are still not perfect and we're on the journey of making them better. Yeah. For example, there's probably still a little bit too much bureaucracy, a little bit too much process, or maybe like 25 % of the way to building the company that I want to build from a culture standpoint.

1:09:30And maybe I should articulate what that is. So some things, I believe we want to have a relatively small number of the highest quality people. I would rather have a small number of just elite people that I pay more. It sounds obvious, but not a lot of people in my space believe this. And actually, a lot of the incumbents and public companies, if you look at it, they invest heavily in offshoring, which is having large and large numbers of low cost, mediocre people. And there's a benefit to that to a certain extent. But my preference would be small number of amazing people that are elite in their fields that we compensate very, very well.

1:10:13And I just think for me personally, I would have more fun being in that environment. I think people around me will have more fun. And if you're in small groups of elite people, they kind of like push each other and the end result is better than what they could do individually, which I don't think is the case for people that are less talented. So that's one thing. I want as little bureaucracy as possible. Things should be effortless to do here. It should be a joy to deploy code and get products to customers. And I want compensation to be sort of close to perfectly tied to performance. So it's very, very clear who's getting promoted and who's not based on how well you're achieving your goals and doing the things that you're supposed to be doing and setting out to do.

1:11:02And in particular, I want to deemphasize, I think a lot of times when we think about promotions and leveling and recruiting outside people, one of the common things that people look for is the scope of their existing role, which translates into how big of a team did they lead. Oh, if someone has led a team of 1000 people, surely they're good enough for Robinhood where they can lead a team of 500 people or more. I think at a lot of companies, that creates an incentive to hire empire builders that are inefficient. And what I instead want is someone that's done big things with as few people as possible.

1:11:46Those are kind of the North Stars, a culture of high performance, top talent, in person. I think in person is valuable. And I'd say I'm remote tolerant, but I don't think the future is fully remote and distributed companies, at least while humans are involved. I mean, maybe if we get to mathematical super intelligence, things will look different. I think there's a huge benefit. And I think if Frank Slootman came in, I don't know exactly what he would say, but I'd say we're maybe like 25 or 30 % along these journeys and there's still ways we can improve. I don't think there's anything major that hasn't been started yet.

1:12:23If you could know anything that you don't know the answer to, like what question would you have answered just like in general about any of the stuff we've talked about or what answer would you get? I don't really even have to think very much. I'll tell you what got me really interested in physics and in math in the first place was I would read these books about the Big Bang and string theory. And it's all getting to the fundamental question. First, what are the rules of the universe and how did they arise? what is that fundamental theory that explains the laws of physics and why the forces and the subatomic particles are the way they are.

1:13:06That's what got me interested in physics to begin with. I don't think string theory provides a very compelling answer. I think there's probably something simpler, but I think that's really the fundamental question. Why these rules of physics? what really happened before the Big Bang. If we can figure out the rules of the machine that we live in, I think that's inherently useful and valuable. And that's kind of what drives me. Yeah, ultimately, it's not long before you write questions about a creator. It's amazing how the deeper into science and physics you go, the closer you get to that fundamental question and trying to glean the nature of or existence of a creator.

1:13:47It's a bizarre search. There's a lot of other related problems like the Fermi paradox. Where are all of the advanced civilizations? Why can't we see any? See all of these stars and all of these planets and humanity has been around for not that long. There should be civilizations that have had the benefit of billions more years of evolution. And you'd think in that amount of time, they would leave their solar system. Think about what we've done in 100 years. We've gone from basic airplanes to sending Voyager out of the solar system in less than 100 years. So if you add a billion years of that, we should be populating the entire galaxy, right?

1:14:27We don't see any civilizations populating entire galaxies. Hopefully the answer is not AI kills us all. No, that's one of the explanations, right? I've read too much Nick Bostrom, probably for my own good. But Vlad, this has been so much fun. I feel like we could talk about just about any topic. And you're obviously a super curious guy. Every time I interview someone, I ask the same traditional closing question. What is the kindest thing that anyone's ever done for you? Oh, well, I'm sure many, many people have done kind things. One thing that I found myself reflecting on recently is when I left my PhD program, I left my PhD program in 2008 to start my first business.

1:15:13And I remember being quite nervous about it because I had to go into the office of the department vice chair, who was this guy, Dmitry Shlatenko. This is at UCLA. And Russian guy, which means intimidating in his own right, but he was a very nice guy. And I had to ask for permission to take a leave of absence. And at that point, I didn't really have any safety net. Of course, my parents could support me, but I was very prideful. And to me, having my parents have to support me was just not very acceptable. and I didn't have money and I was a grad student and I had this idea that was very risky of starting a new business with my partner.

1:15:56I wanted to ask for a leave of absence and I was like sweating. I was preparing for this meeting for a long time. What am I going to say? And I thought that there was a pretty good chance you'd say, yeah, you can leave, but taking a big risk and you're not going to come back. But this guy was so encouraging. He's like, oh, well, you'd like to become an entrepreneur, I wish you well. And by the way, if it doesn't work, we love you here, we'd always welcome you back. And that made me feel so good. And it sort of like empowered me to feel comfortable leaving just knowing that I could come back and that they wouldn't make it difficult for me.

1:16:36And so a year later, they sent me an email and I had to figure out whether I was going to try to extend my leave of absence. But they're like, are you coming back? And a year later, nothing was working. I was an entrepreneur. My first business was failing. Everything was in disarray and on fire. But I had loved being an entrepreneur so much. And I knew it's what I wanted to do that. I was just like, I'll figure it out. I'm not going back. This is it for me. I'm an entrepreneur, and there was no going back. But over that year, a lot of learning about myself and growth had to happen for me to get to that point.

1:17:18And I just think that conversation was absolutely defining for me because I was still very uncertain about whether I should even do it. And then about 10 years later, I was invited to give the commencement at UCLA Math. So I was invited to give a talk in front of the students. And they invited me to this dinner where I think Dmitry Shlatenko was there. And we talked about this thing. And he remembered the meeting very fondly too. He was like, I remember you came into my office, you asked for a leave of absence, you said you were starting a business. Very, very few people actually from the mathematics department start businesses.

1:18:02And I always use it as an example to people. You don't have to be a mathematician, everyone thinks like it's a dead end career because if you're not a mathematician, it doesn't make sense to do the major. And one of the reasons we invited you is very few people actually start businesses and we want more people to do that. I thought that was just very, very nice. And he remembered it. Yeah, I think sometimes you have to ask for stuff and you'll be surprised what happens. What an incredible, cool closing story. I don't think we've had a story quite like that in 400 of these. So thanks for the story and thank you so much for your time.

1:18:36It was a blast. I really appreciate it. Thank you for taking time. If you enjoyed this episode, check out joincolossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.

1:19:16Outro Music