How Robinhood became a $68B company w/ Vlad Tenev

0:00I was a founder my whole life, and I always dreamed, gosh, I wish I could go to this demo conference or this PC forum. But they were, even back then in the 90s and early 2000s,$4 ,000,$5 ,000,$6 ,000 a ticket. And back then they charged you to show your startup on stage$20 ,000. Yeah, I was like, well, that's some real bullshit. I can't even afford the ticket. So I used to do something called lobby crashing. And I would find out where these like fancy conferences were. And I would buy the cheapest ticket possible, go in through two or three cities, get the cheapest hotel possible before Airbnb.

0:38And I would just hang out in the lobby with my laptop and hope to meet famous entrepreneurs, Bill Gates, Steve Jobs. And I did actually do that, Michael Dell. I would see them in the lobby. This Week in Startups is brought to you by Eru. Unify your identity, endpoint security, and compliance into a single platform. Twist listeners get 20 % off when they book a demo at eroo.com slash twist. LinkedIn jobs, hire right the first time. Post your job and get$100 off towards your job post at linkedin.com slash twist. And deal. Founders ship faster on deal. Set up payroll for any country in minutes and get back to building.

1:20Visit deal.com slash twist to learn more. A guy named Tim O 'Reilly who had a company called O 'Reilly Publishing. Anybody read those books still? I guess you know what I'm talking about. And he saw me at one of his conferences and he's like, you're lobby crashing again? I was like, yeah, I hope I'm not in trouble. He's like, I, here. And he just took out a pass and he handed it to me. And I was like, no, no, Tim, I don't have the money for it. And he said, just don't tell anybody I gave you a free ticket. And I was like, wow, that's an incredible act of kindness. and I never forgot it because then I was in.

1:57I was in the room where it happened. I said, you know, if I ever make it, I'm going to make a conference where all the founders come for free and they don't have to pay to be on stage and I'll just pay for it myself or, you know, get some sponsors or something. Well, that's what Launch Festival is.

2:18And I couldn't do it without Backblaze and Render, two of our great sponsors, and I'll thank them a bunch of times. And also Jetro, who's helping me launch Founder University in Japan. Mercury, Goodwin, Every, Backblaze, PayPal, Render. These are all just great companies that'll help me rent spaces like this, get the AV, and maybe put out a little coffee. We try to keep it gritty. It's not pretty, but it's gritty, right? That's what I like to do at these events. Keep it gritty, keep it real. Everybody, who in the room is a founder, an active founder right now? Now raise your hand nice and high.

2:53Take a look around. It's everybody. It's everybody. You're amongst friends. This is like Professor X's Mutant Academy. That's what I always say, founders are like mutants. When I started my angel investing career, I would just walk around and I was hanging out one night at Antonio's Nuthouse, which was a bar, really the most disgusting dive bar you've ever seen in Palo Alto. and it's shut down now probably for health code violations. Really tall, good-looking guy came up to me and said, you're Jason, yeah? And I said, yeah. And he said, I want to tell you about the company I'm building. We're going to help people trade stocks.

3:35And I said, oh, what kind of people? He said, millennials. And I said, the ones who don't have driver's licenses and are on their mom's Netflix accounts? And he said, yeah, those people. And I was like, okay, how do you make money? He goes, oh, it's the best part. We're going to make it free. I said, free to trade and millennials. So your TAM is zero and your revenue model is zero. He said, gee, Jason, when you say it like that, I feel kind of dumb. And I said, I'm in. He said, can I ask you why you're in? I said, what if it works? You'll have a whole generation will grow up on this amazing app.

4:11And this is when the iPhone had recently come out. And now he's known by one name, Vlad from Robin Hood.

4:29and whenever I asked Vlad to come talk and you know talk to founders he says yes which he's very busy he's running a giant company but but just reminiscing there about the early days you went to investors and you had to sell them on zero tan when they said to you hey Vlad you know, what company are you disrupting and how much money are these people spending already on the service so they can get an idea? What was the objection and how did you deal with that objection? Yeah, well, we were talking backstage just now about how one of the first interviews I did, and you can see this on YouTube, early records of Robin Hood, 2014 launch festival, right and at the time the question the difficult question that I would struggle with is how are you guys going to make money so everyone else is charging ten dollars you're charging zero how are you going to make money and you asked me this question and uh I looked at it I looked at my answer and it was a really stupid answer it was something like well why do we have to make money like the assumption is that financial financial companies you know exist to make money we exist to make our customers happy and then I remember you know everyone coming up to me and they're like yeah that's not a very good answer you really have no idea how you're going to make money are you and I think at that time our thought process was something like well you have Facebook Instagram Snapchat, none of these companies really started out making money.

6:04They wanted to get as many customers as possible. And then when you have 100 million, 200 million customers, then you're going to figure it out. And I think that's generally our thought process. If we get a lot of customers spending time on our product, we'll be able to make it work. And I think it pretty much ended up being correct. Now we have 11 lines of business generating$100 million or more in annual revenue. I think it does turn out that if you get customers to fund their Robinhood accounts, put actual money into your platform, and then you give them all sorts of things to do with it, you can make a really, really big business even cutting out the trading commissions.

6:51And I think the reality is the trading commissions weren't the only way financial companies or brokers made money. They were just the most visible and kind of the most painful. You know, a lot of people criticized us about payment for order flow. So payment for order flow, for those of you that aren't familiar with the brokerage industry, basically it's a rebate that you get for directing orders to market makers or other exchanges. And for a while, after it became clear that the business model worked and we could actually make money, the criticism we would get is oh it's because of this payment for order flow arrangement and it was sort of like described in kind of shadowy terms like it was some kind of yeah some some kind of like catch to to the free trading offering but the reality is uh before robin hood became popular it's not like we created payment for order flow everyone else was just charging people both ways right they were charging the customer the commission then they were also charging the market maker for the rebate.

7:57And we just got rid of one of them. And by the way, the charge to the customer was 10x bigger. Like if you look at the commission brokers before they failed or got folded into bigger players, TD Ameritrade, for instance, they made on average $11 for every time a customer placed a trade. $10 of that was the commission they charged to the customer. $1 roughly was the payment for order flow rebate. So what we did was we just collapsed that and effectively took 90 % of the margin off of the trade. So you could call that collapsing the TAM. I think the TAM was the same. We just made it a lot more competitive and we fought over that incremental margin.

8:43There were other companies that had great success doing that. When you wanted to store your photos online, Flickr charged for that. They gave you a little bit for free. It was freemium. And then you had to pay when you hit a certain number. And then Google Photos or Instagram, even when it was an independent company, made that a free thing. And Gmail had this incredible opportunity to make something, because the cost of storage was going down, free. And then that massive layer of users now has led to 11 business lines. And I remember talking to you about that early on. hey, if you get them trading and they learn about their financial future, they learn how to place those bets, well, they're going to want eventually to have a 401k.

9:25They're going to want to have a 529. They're going to need a savings account. You can just add, add, add. As you went down there, a lot of founders get caught in this trap. They try to boil the ocean. They do five products at once. You really took your time and were thoughtful about it. When did the second product come out, the third product, and how do you know you're ready to add a second product to the platform? We've got a brand new partner here at Twist. And as fate would have it, we love and use their product. If you need to hire, manage, pay, or equip your team members anywhere around the world, you need D-E-E-L.

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10:40And that's the smart way to grow now. Talent is not limited to San Francisco, the United States, or this continent. It's everywhere. That's why more than 37 ,000 startups and fast-moving companies are already using Deal to accelerate their hiring and growth. Find out more by visiting deal.com slash twist. That's D-E-E-L.com slash twist. Also, I happen to be a shareholder in the company. I got very lucky they acquired one of my startups and I am stoked. It's an amazing company. I think that we actually tried, probably in hindsight, we called a lot of things products that were features. I think we have spent our time and we really tried to market and communicate everything and what the value prop was.

11:24So we first rolled out a pretty vanilla offering. It was just trading stocks and there was no margin, right? So it was just every stock was backed by cash. And there was a three-day settlement period, which meant that every time you sold a stock, you had to wait three days before you could take the proceeds from your sale and use it to buy more stock. And at the time, we were getting criticized for this. Like Robinhood feels slow. Why do I have to wait at the other brokers? I don't have to do that. Of course, we were the only ones that were charging zero dollars, so people put up with it. But then we rolled out Robinhood Instant.

12:07So we basically made a product out of what you could argue was us just like catching up with a table stakes feature. We were like, okay, well, people have this pain point on Robinhood. They have to wait three days after selling a stock before they could use the cash to buy another one. Can we create something called Robinhood Instant. Oh, but can we make it a little bit better than just this table stakes feature? And we decided we would also add the ability to, when you're onboarding to the platform, immediately buy stock. So there was also a delay. And this is something that every other broker at the time had.

12:46You had to wait for your application to get approved. You had to wait for your bank account link to be established. And then if you submit a transfer, you had to wait for it to land. So because we were kind of starting from scratch, we basically figured out that we could automate the account approval. We could also essentially front that capital for you to buy your first stock. And so Robinhood Instant became a more feature-filled product. It wasn't just about settlement, but it was also, can we get you from downloading the app to placing a trade in three minutes? So that was like our second product launch.

13:25and it was incredibly successful. I think our volume basically tripled in a span of a few weeks. You took a limitation and celebrated the release of that product. And that's one of the things you've done very well is like celebrating and really packaging the next product, taking your time, making it very thoughtful, and also... And also launching multiple times. Explain that, yeah. Well, for right around the time you interviewed me at launch, This was, I think, December of 2014 was our first time when we rolled out Robinhood on the App Store. But it was gated, right? There was a wait list, so not everyone could use it when they downloaded the app.

14:08But we did a big launch anyway. And then a couple of months later, we removed the wait list. And I think one of our team members had the idea that we should just launch again. And we kind of looked at ourselves, we're like, but we just did this two months ago. Can we do it again? It turns out there's no reason not to. I mean, if people are willing to cover it and you're willing to go on CNBC and, you know, people have short memories. Most people didn't even remember that we launched the first time. Most people didn't know you existed. Do it again until it works, right? If your first launch doesn't work, just keep doing it.

14:47It's a really great insight. Finding the first customers. This is something also founders, a lot of in the room who have new companies. Getting those initial customers, defining who they are, ICP, that ideal customer profile, beachhead, who are we going to try to get first? What was your thinking there? Did you have a thesis of who would be the first or did you just put the idea out in the world and then in retrospect figure out who they were? I think one thing we did really early was we actually talked to customers. We tried to create this user research motion where our office was right next to Stanford University.

15:29So we would have Stanford students coming to our office and trying our prototypes at the point where they were not even working at all. So, you know, it's like we were a little bit embarrassed to have these students coming in and using our stuff because it was just completely broken. We'd have to tell them, well, just, you know, pretend like it's part of it. Imagine the trade happened. Imagine you were on the screen and there was like a trade. Yeah, exactly. Or that, you know, this is Apple stock and not some fake thing that we made up, right? But, yeah, you learn a lot of things. And I think we were fortunate maybe in two ways.

16:06One was we did this. And then the second is we kind of built the product for ourselves. I mean, we were people are in our 20s, millennials. We were smartphone native. We were sort of like among the first group of people that could imagine. I mean, I was a senior in college when the iPhone came out and then one year out of school when the app store came out. So at that time, this was like 15 years ago, doing finances on a smartphone for most people was kind of taboo. I don't know if you, I have this like memory from the 90s of when Amazon came out. And I was kind of like looking around and seeing what kinds of books I could buy.

16:49And my parents were just like, stay away from that. You know, we're not putting our credit card number on this website. It's just going to be stolen by the hackers on the other side. And of course, it took probably 10 or 15 years for people to get used to the idea that actually Amazon's probably a more secure place to put your credit card number than... Your local bookstore where somebody could just dumpster dive and take the receipts out of the back. Yeah. The carbons. But the same thing happened for mobile where people were like, well, this can't be right. This is like a device for playing games or taking phone calls.

17:24So I think there was a five-year period. It happened faster than the dot-com revolution, but people were very nervous, I think, doing serious things. This is serious insight, I think, for folks in the audience who are entrepreneurs. A lot of the new technologies come out, and they're kind of toys, or they're kind of dismissed. People might say that about OpenClaw today or agents. For sure. And just like, ah, that's not really a serious thing, and it just doesn't actually work. It's kind of broken like your early iPhone app was. And then very quickly, things can go from being toys and hobbies to being actually the default platform.

18:03So if you take the leap of faith and say, well, it's obviously going this way. People are going to trade on their phone. You will learn faster than them. You will get the insights faster than them, and you'll build that trust with consumers. Yeah. Yeah, I mean, sometimes, though, you do get counterintuitive things that surprise you, right? And the old model can have more durability than you'd expect. I'll give you an example that I thought was fascinating. How much of the book market right now would you say is like digital, like e-books or Kindle, if you had to guess? 30%. Oh, so you're, see, I talk to most people.

18:43They're like, oh, it's got to be 90%. You know, the vast majority of books have to be digital. I think you're pretty close. So the vast majority of books are still people buying physical books. Because it turns out the thing that's valuable about the book is not the content on the pages. It's actually the physical thing that you can put on the bookshelf and kind of show off. It's the virtue signaling of the book. It's happening. In fact, I know this to be true. And I was kind of thinking that when you were queuing up the question, because I know people who will buy the audio book and buy the physical book to put on their shelf, but they listen to the audio book.

19:21And then there's some sort of shame about like, I didn't actually do the painful reading, which is hard in an ADHD era where you've got TikToks waiting for you and emails and your open clause asking you what it can do next. Yeah. Some things are sticky. I want to talk about growth because once you do have product market fit, and you got that pretty early, like people really love this idea of trading and doing it quickly and doing it on their phones. And man, you had great design. I want to talk about design as well and the impact that has on trust and gamification and getting people to use the app.

19:59But you had a really interesting growth strategy. Uber had done it first, and I think Dropbox did it before them. Maybe talk a little bit about give to get and the impact that had on the business. For startups, every single hire matters, but posting an ad and sorting through all the applications, it can be a huge drain on your time and resources. Don't I know it? But thankfully there's LinkedIn hiring pro. That's right. Our friends at LinkedIn are going to help you hire with confidence faster than ever before. For example, we're hiring new editors here for the pod and reviewing all these reels and applications.

20:32This can get overwhelming very quickly. We know what we're looking for. It's just a matter of tracking them down. Hiring pro streamlines the entire process, helping us quickly draft a perfect job post, then using AI to shortlist candidates and even conduct initial interviews so we can zero in on the best overall applications right away. Nearly 60 % of companies find a quality candidate within their first week. So hire right the first time and get$100 off your first job posting by going to linkedin.com slash twist. Terms and conditions apply. I think what you're referring to is the Robinhood wait list, which basically had this referral mechanic where if you invite friends and they successfully join the wait list, you move further ahead in line.

21:20So it was like prioritized based on number of people you invite. And I think that we look at the wait list, I think something like 20 to 30 % of our growth came from referrals, maybe a little bit more. I think the core of it is really you have to have a product that people talk about. You know, for many years after we did this, everyone was launching their own version of the waitlist and they think that, okay, well, if we have this growth hack or if we, you know, engineer it correctly, I'll be able to grow a mediocre product with no differentiation or value proposition. I think you can get a lot of the waitlist stuff wrong and the growth stuff wrong.

22:03And if you have a great product, it grows like wildfire, right? You look at early chat GPT, no waitlist, no mobile app. It didn't really work well. It was just on web, right? And it got to what? 100 million users. People were still like, this is unbelievable at summarizing things or getting me a better answer than Google. But I was actually, I had forgotten about the waitlist. You got to have a great product. You You can't pour gasoline on like a log and expect that to be a great fire. Got it. But then there was also, hey, I invite you. You fund your account. I get a share of a stock and you get a piece of a stock.

22:41Yeah. And it had the game mechanic. Does that still exist in the app? It does. It does exist. Back in 2022 or 2021, we made some changes to it where we removed a little bit of the gamification. You know, back then gamification was a little bit more of like a negative connotation. It was spicy. You got a little spicy there for a minute. We'll talk about that. Yeah, yeah. But yeah, still referrals through Robinhood are one of the leading ways customers get it. I know I broke the system because anytime I invest in a, you can always tell like what startup I've invested in by the frequency of my tweets.

23:15And like after Robinhood came out, I was like, this is the greatest thing ever. Here, use my referral code. and then I got to 250 stocks in like a week or two. And then I emailed you because they turned it off. And I was like, I actually, I still want people to get their share. So just, I don't need my share. But it was also getting a little annoying because then I was trying to trade stocks and I would have stocks show up in my portfolio for$5 or$12 or$6. And I didn't even know what they were. And I was like, did I trade that? and so I just had to keep selling them to get them out of Fort Bullock and it just got a little bit absurd and somebody a friend of mine did the same thing to Uber Uber had you know get a ride give a ride yeah so he was like uh you know he's a really smart hacker a literal hacker from like the old school 2600 days so he bought ads in like the top two or three cities Uber was in and it was like get a free Uber ride in New York get a free Uber ride in Brooklyn get a free Uber ride in Queens.

24:17And it was his referral code. And he wound up getting like 500 rides for free in Uber. Yeah. And he was just literally bawling through Los Angeles. They turned it off on him. And then he emailed me, can you ask Travis to turn it back on? I was like, I'm not going to Travis with that request. I had to tell him the story. And he didn't have a problem with it because he thought, hey, growth is growth. But actually, since you did get a little headwind there and a little bit of bad press about gamification the confetti hey it's great maybe take us through like dealing with um and the press was super negative at that time as like the backdrop like if you were doing something in tech you were a bad person if you were growing if the company's valuation was going up you were like a bad human being for creating something that worked in the world it was like really weird and you got caught up in it hey you're gamifying people buying stock.

25:13How did you deal with that? And maybe how would you deal with it today if you take it differently now because it's not a moral panic? I think this was really interesting because how many of you are first-time entrepreneurs here? Okay, so it looks like a good portion of you. Yeah. So as a first-time entrepreneur, like mistakes or bad things that happen can feel existential. I remember when we had our first technology outage, right, where, you know, I came into work one morning and at market open, the system was down. And we were like, that's it. Company's dead. Nobody's ever going to come back.

25:51Game over. Right. And of course, this was early days and now we're much better. But, you know, 17 outages later, you're like, okay, well, I'm thick skinned about this. Obviously, we want to improve it, but it feels a little bit less existential. I think in the same way, the first time you get bad press, because usually if you have, if you're a first-time entrepreneur and you start a new company, you don't get bad press right away unless you really screw something up, right? Because people are rooting for you to succeed. Nobody wants to like, not a lot of journalists want to like rag on this, you know, first-time founder with a small company.

26:30It's much, much more compelling to, go after the big guys that are making tons of money. So I think for us, our press and our relations with the media were kind of overwhelmingly positive for at least the first three years. And then 2019 came around and we were at$7 billion valuation. And then the press started turning negative. And we kind of, I think, started panicking a little bit like, oh, is this the end of the company. Now the press is negative. Every time someone wrote something about us, we felt like we had to war room it and have a response. And, you know, it ended up turning into kind of a non-authentic response usually.

27:13And then we just ended up being pulled in all these different directions. And I think if I had one major learning, it's that relatively few things are existential. You know, some things are. You could get some bad press. Consider it a sign that your company matters. And every big company that actually gets past a certain point is going to get its arrows. And I think like, I know this sounds strange, but if I had to do it again, I'd probably have a little bit more fun with it, right? It's like, oh, well, the bad press is coming. Here it is. How can we turn this into something good for the company?