From Meme Stocks to Financial Futures: Vlad Tenev’s Vision for Robinhood

0:00So I think it's going to become more important to invest because if you can't rely on labor to generate money to make a living, capital becomes more important. And so we're going to have to make it easier for people to learn about investing, invest from an early age, get their kids investing. And I think it's going to be private industry like Robinhood, also the government that's going to have to step in. And I think you're seeing the beginnings of this shift with the Invest America Act. Hi, everyone. Welcome to Leadership Next, the podcast about the people and trends that are shaping the future of business.

0:37I'm Diane Brady. And I'm Kristen Stoller. And this week we have Robinhood. Yes. Vlad Tenev, the CEO of Robinhood. I remember I got my start as a financial reporter, Diane, back in 2016. and they were like the scrappy young upstart, two young guys. But they've been through a lot since then. Well, we know that many people know, of course, from the movie Dumb Money, where he is sort of the bro guy and not necessarily the hero of that story. Not a flattering depiction by Sebastian Stan. And then goes straight into a financial crisis, basically, where certainly in this period of high inflation, stocks were going down.

1:21they had gone public. There were questions about whether Robin Hood would even continue to exist. Oh, absolutely. And I think the social media and public hate on Robin Hood, on Reddit, on YouTube, on a ton of different platforms was so fascinating because of what happened back in January 2021 when they restricted trading of GameStop. In fact, in the Stoller household during the pandemic, we had to ban the word GameStop because we had to stop the debates on it and what was going on. Stop all that money flowing from the Stoller household. Well, look, now they're back. We had, we've, our colleague Jeff John Roberts did a terrific cover story on this fact.

2:01This is a company that has come back from the brink and has expanded. They're into wealth management, credit cards, crypto trading, stock trading, deposits, you name it. It's almost like they want to do everything. And you and I have talked to so many financial CEOs on this podcast. Yes. Yep. MasterCard. We had Bank of America. And all of them are fighting for kind of a piece of this, doing very similar things. Well, wealth in particular is a growth market, partly because there's this massive wealth transfer that's happening as people bring wealth to the next generation. He is going to potentially be one of the big recipients of that because he really does skew to millennials, Gen Z.

2:44And I think this is a new day for crypto, of course. And this is a man who's been to the White House several times. I can't wait to ask him about that. Absolutely. We'll be back with him after the break. Jason Garzadas, CEO of Deloitte U.S. and sponsor of this podcast, joins us now to talk about maximizing business transformation with AI agents. Great to see you, Diane. Nice to be here. So what should CEOs consider as they assess and prioritize use cases for AI agents? I think this is on the topic of every CXO conversation I'm a part of. And I think the thought process has to be looking for high impact areas that may not be necessarily the most glamorous or high profile functional areas, but are ripe for automation and use of this technology to create efficiencies as well as innovation.

3:37And over time, AI agents will be also in customer facing and growth oriented domains. In our case, Deloitte, we're using it within our finance organization, looking at very mundane processes like expense management and working capital management. We're seeing other organizations use it in call centers and with software development that can be automated. What are the key elements for successfully implementing AI agents? It comes down to intentionality. And so I think that intentionality in going functional area by functional area in concert with business and IT leadership with an enterprise, it needs to be a mainstream business planning effort that's budgeted, that's KPIs are developed, and there's real accountability for actual business outcomes and impact because of agentic capabilities.

4:27Fascinating stuff. Thanks, Jason. Thank you. Thank you. Vlad, so I got my start in business journalism as a personal finance reporter way back in 2016. So I have been following Robinhood for many years, seeing you go from like this kind of really scrappy upstart to now where you are taking on these big financial institutions. And you've had quite a ride, quite a history. You've got a lot of ups, lots of downs. And you've been really in the cultural zeitgeist, I feel like, in the past couple years, of course, with the whole GameStop thing. Then this movie comes out, Don Money. So I guess because we're a leadership podcast, I want to start off with some lessons that you took away from the last few years as a leader.

5:08So I guess my first question is looking back on, you know, January 2021, everything that happened with GameStop, restricting trading of meme stocks on Robinhood. Is there anything that you would have done differently today that you look back on and think, I wish I'd done that in that moment? I think I was in my camel stage of leadership back then. You know, the camel, I think Nietzsche talked about how in the evolution of a person, you go through many stages. And the camel is the first one. And the camel is known for taking on a big burden and seeking to, like, carry heavier and heavier weight.

5:47And I think that was really, I mean, up until recently, kind of how I felt. I felt like leadership was just taking on the biggest burden and showing everyone that you can like carry it without it breaking your back. And I think that's necessary, actually. I think it's like you have to eat glass and really prove to yourself and the world that you can do that before you can kind of move on to other things. I feel like a camel is a horse designed by committee. Have you heard that one before as well? Well, it depends on which one you're talking about. Is it the one humped camel or the two humped ones?

6:28I don't know, but let's go back. And I do want to double down on some of the lessons you've learned. But let's remind people what business you're in. To Kristen's point, you cover now you've got wealth management. You've got, of course, you're in the crypto business in addition to being in the trading business. Give us a full sense of what you are and what you want to be right now at Robinhood. Yeah, Robinhood's a consumer financial services company. We started, our niche was trading, self-directed trading and investing. And we really basically innovated across two axes. One was cost. So we brought down the cost of trading from around$10 per transaction down to zero.

7:21And that was a big disruptive change. Actually, the entire industry had to replicate that model. And the ones that weren't able to do it, big companies in 2019 could no longer survive as standalone entities. So TD Ameritrade, for example, big brokerage house has been around for many, many years, ended up folding into Charles Schwab. E-Trade, which was very much the poster child of retail trading during the dot-com boom, got gobbled up by Morgan Stanley and is no longer an independent company. And I think in large part, that was because they had to lower their commissions to zero to respond to the disruptive force of Robinhood entering the market from the low end and just didn't have the cost structure, the ability to compete with that as standalone companies.

8:15And the other axes was really just mobile. I think we were the first ones to adopt mobile as our primary platform. And we kind of made a bet that that would become the main tool for all of your financial needs. And I think back when we made that bet, it was contrarian, But now it just seems obvious. I mean, our phones are with us all the time. We do everything on our phones. So of course, we would do financial services as well. So I think it was those things. But over time, we've expanded and we've really built relationships with customers across broader financial needs. We've got a great credit card.

8:54Obviously, I'm biased, but I do believe it's the best credit card on the market by a considerable margin. We recently launched two reasons, 3 % cash back on all categories, which you can't even get close to with other products, and a great mobile user interface. And that's evolving into a broader banking offering, which we announced a few months ago, which I think it'll be the best banking offering on the market. It's already looking really good internally, but you won't have to go to a bank branch or an ATM. For example, the cash will be delivered to you, which I think is very awesome. And then we also announced wealth management across multiple areas.

9:39We have digital advice with Robinhood strategies. I'm trying to imagine my money is managed by Robinhood. There's something about that sentence that just makes people pause, right? Well, I do think at first it would have seemed strange to people because very much the impression was Robinhood was a newbie investing app. But I think over time, the brand becomes what people use you for. And people have been using Robinhood for more and more things. And I think we'll get to a point where it'll seem antiquated to have your money managed by anything other than Robinhood. It'll be like, oh, you know, you're still using AOL almost or, you know, you're on dial of the internet.

10:29I think that, you know, when you started, your brand was really all about young people who were really disillusioned with the way Wall Street was going and the traditional banking system was. Is that still your demographic is capturing young people or what is it? Well, we're a little bit older now, millennials. We are. I am one. Yeah. I think that to some degree, Robinhood started catering to millennials, but has adapted to Gen Z. So Gen Z does use the product quite a bit. We do well there. And part of the focus is we do always want to be relevant to the next generation because you don't want to get stuck as a generational company like our predecessors because eventually those people will not be around or, you know, maybe they will be.

11:22But that becomes a problem if you just sort of like are relevant for a period of time. So we always try to stay attuned to the needs of the next generation. What's different? I'm Gen X. Since we're talking generations here, why would I not use Robinhood? Why do you not appeal to me? I think many people from Gen X do use Robinhood. And it's not really a generational thing. It's more, are you comfortable with technology? And are you comfortable using a smartphone for all of your financial needs? I think as people get a little bit older, Gen X less so, but let's say, you know, baby boomers or silent generation, it's very difficult for them to contemplate not having brick and mortar, for example.

12:09And I think brick and mortar for us, it's not an area we focus on. I think that there's so much opportunity with digital services that it'll be a while before we have significant brick and mortar, if ever. Since we're talking about generations, let's go back to the very beginning. Vlad, your parents were at the World Bank. Tell us a little bit about what drew you to this field in the first place. What was the aha moment you and your co-founder had? Yeah. So my co-founder and I met at Stanford and we had both independently come to Stanford to study physics, actually. And the reason we studied physics was we were interested in the big questions.

12:52It's sort of like, what happened before the Big Bang? Why does the universe work the way it does? Why is there gravity? So those are the questions that appeal to us. And then we got into mathematics because to really understand physics, the underlying structure of it is just mathematics. So we had to get good at that. And I went to graduate school down at UCLA to work with a famous professor there by the name of Terry Tao. He was a fields medalist, one of the best mathematicians in the world, still is. And my first month on the job in grad school, Lehman Brothers went under. So it was the start of the global financial crisis and beiju who was uh my good friend and co-founder subsequently he was at a hedge fund in marin county north of san francisco and um he uh called me several times repeatedly and and no not enough he he was actually it was the opposite uh he was like this company that I'm at is doing really interesting stuff.

14:10They've computerized everything and they're taking advantage of all of these mispricings in the market. So when there's a market crash like 2008, most financial services companies do very poorly. The economy is tanking and the conventional wisdom is you don't want to be anywhere near finance, except if you're a financial company that's taking advantage of mispricings because there's a lot of mispricings. And they were basically, they had this one strategy where they had a network between Canada and New York. And they were trading the same exact stock in both places. And they were just buying it.

14:51Arbitrage. Yeah, they were doing arbitrage. And that was like a multi-million dollar a day strategy that would run on the close for a few minutes. So essentially, after many calls, Beiju convinced me that we could just do this business better than the firm that he was at. He was like, they're using Windows. A trade has to go through 17 machines to get to the exchange. It's slow. What if we just slimmed it down to one machine, made it really efficient, wrote the simplest code that we could possibly write, and, you know, shave the time down from 20 milliseconds to two milliseconds. seconds. And, you know, I thought that was interesting.

15:35I didn't really have too much entrepreneurial experience back then, but I also wasn't having an amazing time in grad school and I had nothing to lose really. So we decided to take a leave of absence. I asked for a leave of absence from my graduate studies to pursue this trading venture. And we put all of our stuff into this 1997 Infiniti Q45 that I had. This was like a boat of a car. It looked very much like an Oldsmobile. You were how old at this time? I was 22. Okay. Yeah. And we drove across the country to New York to start a trading venture. And yeah, that's how the entrepreneurial journey began.

16:21And that sort of, you could tie that to the origins of Robinhood because that's how we kind of understood. Ultimately, that business failed. You know, our trading venture was not successful, but we learned how the markets worked. And then later, we were able to like inhabit these two worlds where we understood trading out here. And then we came from Stanford. So we were sort of like in the middle of mobile and all this technology. And we kind of put the two together. Well, I think that's, you know, your thesis. and correct me if I'm wrong, was that you wanted to make trading more accessible to young people and those who'd never really gotten a hand in it unless they had a financial advisor or someone like that, right?

17:03Yeah, that was part of it for sure. I think the origin of it really was we were engineers, we were mathematicians, and we thought from first principles about why a trade had to cost$10. And you actually break down all the components of the trade, the clearing, the execution, the brokerage services, and you find out that you could actually offer it for pennies. And once we realized that, we were like, well, that's a pretty big opportunity. If you take something that others are charging$10 for and we can actually break it down and offer it for pennies, we probably don't have to be very good at anything else.

17:49But if we can just deliver that, it could be a pretty big company. So Kristen mentioned this at the start, and I do want to talk about where you are now and where you're going, but I want to say you're best known still for that GameStop episode. Let's remind people a little bit of, you know, I saw the movie. Let's start there. How do you feel you were portrayed in the movie version of this whole? Well, I thought that I chose a very attractive man to play me. So I was happy about that. Yeah. They had so many scenes in like three quarters of the scenes. He was shirtless in the bathroom. Yeah. There you are.

18:25Working out again. I was not solving these complex business issues shirtless in the bathroom or like making a smoothie. Yeah. You know, in my in my in my very, very elegant kitchen. But, you know, could be worse. Yeah. They could have. Yeah. They could have picked an unattractive actor. You could have been a slob doing cocaine or something like that. I think they also kind of portrayed you as like this bro-y person. How did you feel seeing that? Let's see. There was that scene where I got the call that I think they depicted Norm, our chief compliance officer, calling me from New York in his office.

19:08And I was at some party talking to, you know, some females. As one does. Yeah, that was not what I was doing that night because it was January 2021. So nobody, at least in San Francisco, was going to parties. I was like in bed with my children. So that was inaccurate. But I think they got my mannerisms right. Obviously, they'd studied all the press interviews that I've gotten. So it was this thing where on the surface, it did sort of resemble me. but I think the substance of what was said was just completely fictional. Let's remind, what was the role that you played? So GameStop, that is one, like the whole sort of meme stop phenomenon.

19:55Talk a little bit about the role that Robin Hood played, because in some respects the platform was vilified during that period. Was it fairly or unfairly? Unfairly. Okay, so tell us about that. Yeah. Well, so the origins of this entire thing was, you know, during COVID, people were cooped up at home. And, you know, a lot of them actually weren't working, like they didn't have jobs. And so the government actually had multiple rounds of stimulus. So not only were the interest rates zero, which actually stimulated the economy and the market, but there were just multiple rounds of helicopter money sent directly to people.

20:46And I think this had an effect of actually stimulating a lot of trading and a decent amount of speculation. And you saw that reflected across the entire market. I mean, January 2021, February 2021, I think was either the last or the second to last round of significant stimulus injected. And I think a lot of people were going a little crazy because they'd been cooped up at home for a year. I think at first there was some euphoria in 2020. People were like, oh, my God, I'm at home. The wisdom of the crowds becomes the stupidity of the crowds. Yeah, I mean, I wouldn't maybe go that far, but it was definitely a strange time.

21:37So essentially, you know, people on social media were talking about individual stocks and just sort of like buying them up. And one of those was GameStop. There was also, you know, Nokia, I think was very popular. AMC, of course, it tended to be these sort of like names of these companies that had been disrupted by technology to some degree. um and and i think there was an element of nostalgia uh about it there was also a narrative of okay well maybe the government is not stepping in to um protect these companies so retail could come in and sort of like keep them keep them going while the pandemic runs out so anyway uh there were probably multiple causes and effectively it got so extreme that all of the risk controls market-wide that were instituted actually many of them many of whom are were instituted in 2008 to prevent another financial crisis um they they sort of like fired on this game stop thing and that led to Robinhood and pretty much every other brokerage enacting trading restrictions.

23:03And those restrictions basically allowed customers to close their existing positions, but not open up new ones. And those were both options positions, stock positions. It was basically like risk reducing trades only. And I think on social media, which as I mentioned before, people were already getting a little crazy. This was sort of portrayed as a ploy by the government and these companies to, you know, shut down trading and prevent the little guy from making money. And you got some really violent backlash, I feel like, from people. That must have been scary. How did you handle that personally?

23:47And were you looking at it as more of like, I wish I communicated with the users more about this? Or what was going through your mind at the time? I think it was a very tough point because, first of all, this was a very unique situation. Nobody was working in an office. Everyone was remote. Even the central clearinghouses and the regulators were working remotely. And there was a delay. Anytime you had to figure out what was going on, there was a delay because you had to place these calls into people and wait for them to reply. And so even us just like wrangling the situation, it's like, where did this file came from?

24:32Who sent it? Oh, the person is not in the office yet. When do they get in? So there was a delay in just like getting things figured out, which I think reflected was reflected in a delay to communicate all the details to customers. By the time we communicated them, you know, the narrative that, you know, this fake narrative that we were colluding with hedge funds had kind of gotten out. So it was a big lesson definitely in how social media can take these false narratives and make them go like wildfire. And it took us a long time to actually clamp that down and clarify it. So I think in hindsight, if we would have gotten the information out earlier, that would have been better.

25:15But also there is a risk that you get out the incorrect information and then you have to retract it. And that also causes problems. So our colleague Jeff John Roberts did a piece earlier this year, and it's really about the remarkable. I wouldn't say turnaround, but you have been on a tear lately, in a good way, of course. And talk about what, you know, where have been the best sources of growth for you? And I'm really curious, you know, this is a, I don't want to say Prague Spring, because that implies it's temporary, but crypto is having a moment right now, thanks to Washington and such. But what do you think have been the real drivers of the business in the last year or two?

26:00Yeah. I mean, I know we talked a lot about GameStop. I think if I look back over the past five years, that actually wasn't the most difficult time because GameStop was sort of like this acute issue that we had to navigate. But it was kind of over in a couple of days. Yeah. 2022, the market downturn was actually much rougher because that was a prolonged decline that lasted, you know, over a year. And right after you went public, too. Yeah, pretty much we snuck in there. We right at the end of the IPO window in 2021. Right. I think it was we went public and then there was Rivian. I remember maybe like a month later and then the doors were just shut for many, many years.

26:47And basically what happened was all of that stimulus that entered the economy during COVID had worked its way into the system, through the system. There was very high inflation because obviously stimulus without increase in productivity led to just more money that was worth the same. And so then we had the biggest reversal in monetary policy in decades. You know, we went from zero interest rates to some of the highest interest rates we've had in 30 years. And what happens is as interest rates go up, the desire and actually the rationale to invest in the market goes down. Because if you can get a, you know, risk-free 5 % and just holding your money in cash and, you know, the market appreciates by 10 % on average, that's, you know, cash becomes very attractive.

27:45So basically we had to, we had to, all of the tailwinds turned into headwinds. Our business actually declined in revenue. We were very focused on first-time investors coming into the market. And first-time investors were not interested in stocks for that period. So we had to essentially rebuild the entire business and reconstruct it to not just survive, to initially survive, but eventually kind of thrive in the new environment. And that's where we sort of like asked ourselves these difficult questions of, you know let's say a new ceo came in and you know a ceo from central casting like a frank sleutman from snowflake or something like that eric schmidt for google yeah some like real elder statesman the the ceo that uh people write about um what would they do you know if if they were unburdened by decisions that we had made and we had a list of things we were like okay well They would probably get people back into the office as much as possible, unwind this remote work stuff.

28:52They would unfortunately have to cut expenses. They would allocate all of our resources to our highest revenue, most valuable initiatives. And I think our new business strategy came out of that. And our business strategy now is we have sort of like these three pillars that act on three different time horizons. In the short term, we're going to be the number one platform for the active trader market. And that's just, you can think of that as almost like our Tesla Roadster. It's a niche market, active traders, but they generate a lot of revenue and they like to be at the forefront of technology and innovation.

29:34So these are the people that have their six screens. Maybe, you know, you can think of them as having Bloomberg terminals, lots of information, and they're just like plugged in. All in, day traders. They're plugged into the mainframe. They are trading. And they're, you know, semi-professional. So it's an important market for us, but not everyone is a trader, which brings to our second arc, which we call number one in wallet share for the next generation. And that's really about serving the totality of your financial needs. Can we do your banking? Can you deposit your paycheck in Robinhood? Do all of your spending with us?

30:11have your retirement savings, your long-term savings, and of course, your discretionary investing. And that also serves to diversify the business. So that's where Robinhood Gold, which is our subscription offering, came in. $250? That's the cap on what you get. Well, Robinhood Gold is$5 a month. So less than that, less than a cup of coffee in New York. But we have a Robinhood Strategies offering, which actually, so you get some amount managed free, but there's a cap. And so what we saw with typical financial advice offerings is they get more expensive the more assets you have managed. But actually the service is the same.

30:58So you're basically paying more and more for the same thing, particularly for the digital solutions where it's literally just the same software with more money charging you more fees. So we thought we'd invert the model and cap it at$250 for$100 ,000 managed, which is a great deal if you have$1 to$10 million or more. So yeah, the second arc, we diversified the business and grew wallet share. And I think that the biggest example of that was the growth of Robinhood Gold, which itself has become a nine figure revenue subscription business from, you know, very, very small baseline a few years ago.