It's our truth machines.
Like we're constantly being bombarded by all this information and noise.
Anyone can be an influencer.
Anyone can have a podcast.
How do you sift through that and figure out what's actually going to happen?
Massachusetts banned their residents from buying into the IPO of Apple Computer because it was too risky.
49 other states...
You're okay.
Like no nanny state there, but Massachusetts, uh-uh, too dangerous.
And like Apple's gone up in like 10 billion times.
And by the way, they have like one of the largest and most robust state lotteries at the same time.
Which is so bonkers.
There's a funny website called WTF happened in 1971 when you decoupled from the gold standard.
Wages were kind of stagnant, but asset prices went up a lot.
If you own an asset, that's great.
You benefit from all of these amazing new things like the iPhone, right?
Like you're now an owner.
You participate in the ownership economy.
You just get paid cash.
And some people get paid a lot of cash.
They just get left behind.
I think we learned a lot of valuable lessons.
A simple lie is much more powerful than a complicated truth.
Yeah.
So, yeah, Robinhood's colluding with hedge funds.
Right.
Very compelling story.
It's like, ah, Robinhood, look, they're actually stealing from the poor and giving to the rich.
Right.
It just writes itself.
Like, if I was in charge of marketing for a competitor, I'd probably come up with that, right?
It would be a good one.
Yeah.
If you look at AI as a category, you have the fastest product adoption of any products in history.
And at the same time, it's the most hated category.
Interview people and their perception of AI is worse than social media because nobody's worried social media is going to take their jobs.
But there's this underlying fear that these companies are automating everything.
And, you know, where's my job in that list?
People are freaked out about that.
And I think We could figure out how to be a little bit more egalitarian in the ownership.
Like it shouldn't just be owned by a small fraction of VCs.
In fact, we should make sure that there's ways to distribute it.
In January 2021, Robinhood had the fastest growing financial app in America.
Number one in the App Store, ahead of Instagram and TikTok.
Then, in a single day, they had to restrict trading on GameStop and became the most hated company in finance.
Here's what almost no one understood.
Robinhood didn't have a solvency problem.
They had a collateral problem created by an antiquated clearing system that still takes days to settle trades that happen instantly on your phone.
The same system that once took five days to clear trades in the 1970s.
Vlad Tenev, Robinhood CEO, made a bet that seems obvious now, but was heretical then.
That your phone become your primary financial device.
That normal people would want to trade stocks, not just buy index funds.
That you could build a brokerage that made money without charging commissions.
It's a pleasure to join you, gentlemen.
Alex, so we at Ace & Z, we've invested in Robinhood from seed to, you know, much later stage at various stages of the company.
Alex, why don't you just give some perspective on why you've continuously found Robinhood to be such a compelling company, even through the highs and lows?
Well, I really can't take credit for the seed for two reasons.
We predated you.
Exactly.
It was Ronnie Conway.
Yes.
Number one, it predated.
And then number two, it was just like the Oprah Winfrey, like you get a car.
It was a little bit of.
We just invested in a lot of companies back then because it was a small amount of money.
But again, I would love to take credit.
So I remember we invested and I didn't really get it as an outsider.
But it turns out, like here's one thing that I'll say.
There are very, very few financial services companies.
Number one because having a financial relationship is a lot different than having like a Pinterest board.
Nothing against Pinterest, right?
Or having like a Facebook account.
But like really trusting somebody with your financial life and money.
That's a higher level of commitment.
That's like the live-in girlfriend or boyfriend kind of thing.
It's like the bar is up higher for that.
And then number two, it's very rare to see companies that just get organic traction.
Yeah.
So...
I like to say, especially in financial services, with that high bar to having a relationship, you should probably just buy Google stock or Facebook stock versus investing in most companies, because that's where all the money goes.
Like you raise an A round or a seed round, you're like, oh shoot, I need to get users.
And then you just spend like all of your money on Google ads and then you have no more money left.
Google has lots of money and then Google wins and you lose.
And I would say like Robinhood, I mean, you obviously know the story so much better than I do, but there were very, very few companies that really figured out how to hack organic distribution in a very meaningful way.
And Robinhood is probably the most successful of them all.
That's not meant to cheapen everything else that has been built around the product.
I mean the other thing that Eric and I were talking about in advance, which is a lot of really smart people in finance go into finance, but they don't go into like product finance.
So it's like I'm going to go work at a high-frequency trading firm and make lots of money as opposed to I understand the way that everything works.
I'm going to get customers for free, I'm going to build a thousand times better product and I'm going to dominate the world, and you've kind of done all three.
So that's why I think Robinhood's pretty unique.
Yeah, I think when we got started, fintech as a category didn't really exist.
I mean, you can look at the Google Trends and around the time A16Z made their seed investment, which I think was 2013, mid-2013.
Yeah. nobody was really talking about FinTech, right?
And the criticism we would get is, well, you're entering a regulated space.
You don't have your license yet.
There was a lot of uncertainty.
And we were kind of in this catch-22 situation where there was uncertainty about whether we would get the license and also uncertainty The regulators wanted us to have money, which made it very, very difficult.
They don't want a brokerage to go out of business after one year with customers.
So we were in this catch-22 situation and juxtaposed that, against the climate which was, there was skepticism that people would want to trade.
Like there was this belief by a lot of investors too that ETFs and indexing had kind of disrupted and eaten the consumer investing landscape.
And so...
We had a strong point of view that wasn't the case and that actually people were just missing good tools.
But there was no way to demonstrate that besides just doing it and showing that it could be done.
Yeah, I mean, I remember Wealthfront.
If you know the history of Wealthfront.
Oh, yeah.
It started off as a site called KaChing.
Yeah.
You know this, right?
So KaChing was kind of a brilliant idea that was ahead of its time.
So Andy Ratcliffe started this company because I think he was on the board of Penn, right?
University of Pennsylvania and they had all of these public hedge fund money managers, long short firms that would outperform the market.
And why can't you democratize that in twofold?
One is maybe Eric is an amazing money manager, but never got handed a fund.
And then number two is if he has a great fund, why not let other people just off the street go invest with him and kind of copy their trades?
And that was the original idea of Wealthfront was really kind of very, very active, like believing that people could beat the market.
And then, for a variety of reasons, that pivoted into the exact opposite, which is quite funny.
Which is highly commoditized because there are so many other I mean Wealthfront's doing very, very well, but there are so many other people that will say I will do passive indexing for you as well, versus the idea of having a network for finding this undiscovered talent and then allowing anybody to put money behind the undiscovered talent around active investing.
That was actually a pretty revolutionary idea that probably just was ahead of its time.
Or I don't know, maybe it wasn't.
I think Robinhood did three simultaneously challenging things that helped make us successful.
I think the first thing was we actually had a pretty simple value prop from the very beginning.
Everyone else was charging $7 to $10 for a stock trade. we went to zero.
And we had that basically to ourselves for a period of three to four years before the incumbents kind of caught up and had to replicate that because they noticed they were losing all their customers and it was accelerating gap.
So that was one.
And there was a lot of technology and just it wasn't trivial to actually build a business that could make that happen sustainably.
The second was figuring out mobile.
And you know, when we started, this was actually contrarian, because Most people that you'd talk to were playing games on their phones.
And it was a little bit of a leap to imagine a world where your phone is your primary financial device.
But I remembered something, which was that when I was in high school, I was like interested in buying stuff on Amazon.
And my parents were just like, how could you put your credit card onto the computer?
It's going to get hacked.
It was just deja vu.
When I would talk to people about trading stocks on their phone, it was the same sort of feedback.
Like, how could you trust your finances with this device?
It's so small.
What if it gets hacked?
What if you lose it?
So it just didn't make sense.
So we kind of made a bet that that would actually be primary because there's so many advantages.
A lot of people trade during the working day.
You can't really have your investments on your work computer.
It's a little taboo.
So you can just have this device with you to make sure you're on top of things when things are moving.
And then I think the third thing was actually the brand.
And I'm sure you guys have heard Peter Thiel say this thing that the name of a company is very important.
He juxtaposed sort of like Uber the name and it just sounds like this company that's going to get slammed hard by regulatory scrutiny versus Airbnb, which sounds like this light airy, like they'll probably have a much easier time.
But yeah, there was this whole disillusionment with finances in the wake of the financial crisis, which is basically when I entered my professional career.
I graduated Stanford 2008 and started grad school a month before Lehman Brothers went under.
And I remember a lot of my friends who were taking their first jobs, some of them felt very secure.
The ones that had their Lehman Brothers internship leading to a Lehman Brothers return offer.
They were like I'm set.
You know, I know what my next 10 years is going to be like.
I'm going to work here for two years.
Then I might go get an MBA.
And then, you know, I'll transition to this other, you know, associate role and work my way up.
But I'm good.
The ones that felt the most secure were the first ones to be packing up their cubicles and those cardboard boxes.
And not just that, but a lot of people, especially in my circle.
You know, financial services was like the hot major.
You wanted to get into the industry back then.
It was pre- computer science and by forces outside of their comprehension and control, not just their own jobs, but their parents, their family members.
And then a lot of the folks that I knew in grad school and in college actually participated in these Occupy protests.
So this kind of set the stage for a new brand.
People were disillusioned with the state of affairs.
They thought that the financial system didn't work for them.
And I think In many ways, Robinhood was the practical solution.
We know that it works and we can't just burn the system down, and doing so would probably be quite dangerous.
But if you can make it work for more people.
We sort of offered that in a simple message with the brand.
And I think that, along with mobile, along with commission-free and the technology that enabled that, allowed us to grow very quickly.
But I imagine there was some meandering to kind of get to you all three of those almost like nested if state like they all turned out to be true.
But what was the?
I should know this, but what was the origin?
Like you decide to start a company, like what was V0?
Well, so V0 was.
We were working on a previous company, which was a software firm that provided high-frequency trading software to hedge funds and banks.
And what we noticed there, well, two things.
One was our customers were trading many yards a day, billions of dollars of trading volume and paying basically nothing.
The entire industry had moved from this heavy in-person trading pit model, where the biggest football players would have an advantage, to this massive, almost like call center situation.
And then you had high frequency disrupt this institutional trading market because suddenly two guys out of MIT or Stanford in our case who could just write code, could just disrupt everything and run the trading book of an extremely sophisticated operation at basically one-tenth or one-one-hundredth of the cost.
And so we kind of saw this playing out in institutional and we started thinking about okay, can we take the software that we've created for institutions and make it so that anyone can create a trading algorithm?
So there was a seed of an idea there.
And then we kind of played around with the idea of making it free.
And we didn't see a reason not to do it.
And simultaneously I had moved from New York, which is where our previous company was based, to San Francisco to start the West Coast Engineering Office.
And the reason for that was, We just couldn't hire engineers in New York.
I mean, they're all working.
The good ones were working for high frequency firms.
And we had this one angle, which was, we went to Stanford.
So we were kind of plugged into the community there and we would go to the career fairs.
So he said okay, why don't we, rather than trying to convince our Stanford friends to move to New York, why don't we just open up our engineering office and be bi-coastal?
And when I moved back to San Francisco, it was around the same time that Uber had launched Blackcar up in SF.
Instagram had just gotten started.
So you could tell that mobile was going to be a big thing, but it was not yet evenly distributed.
Right.
Even though it was probably like, you know, four years since the creation of the App Store.
And I think we just put these two ideas together.
We put them together at the right time.
And I think they ended up being correct.
And there was a little bit of meandering.
But I think the And there were probably things we could have done better, but the vision was pretty consistent, which is we just wanted to offer free stock trading on mobile.
John, did you ever debate just like, why not make it a dollar?
I mean, was it kind of like always obvious at the time like free is the most disruptive, even though anything would be cheaper than Schwab?
Like it's kind of you kind of embraced the zero from the very beginning, or did you debate that decision?
We didn't debate that decision.
Yeah, there were basically two pricing decisions that Beju and I made at the lunch table in our Redwood City offices.
Well, actually, the zero commissions decision was almost there at the genesis of this idea.
We're like, oh, well, what if we actually made it free?
That would be very, very powerful.
So it was almost like that one didn't change, because I think it was intuitive of clear to us that free would be much stronger to market.
Like it would be a much better hook than even 99 cents or $1.
There was a decision that we had to make about account minimums.
And this one was a little bit more complicated because most brokerages at the time had some sort of account minimum.
You had to put in $2,000.
That was a pretty common one to open up an account.
And We were like.
Well, the argument for it is if you have a bunch of people with five cents in their account, it's going to cost you some amount to service them and you'll probably never make any money.
But yeah, making money was pretty far.
It wasn't a near-term consideration at that point.
We just wanted to get something to work.
And we made the bet that hey, let's just set it at zero, see what happens, solve the problems later.
And I remember thinking well, If anything, this should force us to really look at our cost of servicing and make sure we're running a tight ship and we're automating things, because you just can't get away with it right.
Like, your cost of servicing an account has to be low enough that you can handle these you know, five cent accounts without just breaking your model.
To fast forward a bit.
Even though you had this, you know relatively early success thanks to these innovations, it wasn't always a super smooth sailing to runaway success.
Oh.
Not at all.
And so maybe we can fast forward, maybe to 2020, 2021 time Alex, when we're gearing up to make another investment in the company how you sort of viewed the company at that time and then we can tell a story from there.
Well, I definitely remember the GameStop round.
I don't know if you have like a name for that round.
That was the... Fun day of my life round, right?
Is that what it's called internally?
Exactly.
Yeah.
The round wasn't... I mean, the round was like the good part of...
I remember that whole saga quite negatively.
So yeah, we call it January 28th because to us it wasn't like oh, we had an amazing financing experience.
We remember the dates of all of our SEBs, basically all the big crises.
And to us, that's like, I mean, you have, you know, 12-12, 12-13.
What was it?
March 3rd or March 2nd, 2020, when we had a full-day trading outage.
I'm actually glad I've forgotten the exact date of that one.
But yeah, to me, it was a SEV rather than a financing.
But I remember this was when, but it was during COVID, right?
It was.
And we went from being in office to being work from home forever because that was the future, right?
Everybody's going to be in the cloud.
Yep.
But we started having monthly off-sites that happened to be on-site.
So it's kind of this business.
So we were at Ben Horowitz's house and I remember David George Ben and I were huddling around like what do we do?
But I was on.
I mean, you know this, but I was on the board of a large, high-frequency trading company called KCG, which had previously been Knight Capital, which had its own little trading issue once upon a time.
But I felt very, very confident.
The Facebook IPO, right?
Yeah.
No, it wasn't that.
It was bad code.
So Knight Capital had this issue where they kept you know if you post an order at a particular price like there's not really I mean for a brokerage customer like you're going to get the market order everything out.
But if you are a sophisticated investor or trading company, people will just...
It's kind of an adversarial process.
So they kept saying there was like this infinite loop of we'll sell something that's like 50, we'll sell it for five cents.
And guess what?
People, like in five minutes, the company completely ran out of capital.
And this was a large public company.
And then it was rescued by Getco.
If you remember Getco, which was one of the original high-frequency trading companies.
And then that became KCG.
So Knight Capital, Getco, this merger.
But as a consequence to this, I understood Reg NMS pretty well and how market making works and how payment for order flow works and why it's actually not like.
It sounds like this scary thing, but it's not because you're internalizing trades.
Like normally you would post a trade to an exchange.
But if I see the buy and the sell and I can kind of match them on the spot, you can actually offer the customer a better price than if it showed up on the exchange.
So I was just very, very confident that the business model was a good one.
The clearinghouse model was stupid and, To give you context on this, like I think in the 1970s, we were at T plus five clearing.
It took five days because if I buy a stock from you, right?
It's not like as soon as I put that order in, like I own the stock, you have the cash.
It looks like that, right?
It's like, it looks like I have the stock.
It looks like you have the cash, but actually it takes five days for that to formally settle.
And then it went to like T plus three that happened like after a decade.
Then it went to T plus two.
Now we're at T plus one, but it's just kind of comical how long it takes to settle a trade, which I think is a great way to talk about tokenization in a bit.
And by the way, it wouldn't have gone to T plus one if I hadn't pushed for T plus zero.
Well, it should be T plus zero.
It's just this absurdity.
And then because there is risk- That was one good positive consequence of the whole GameStop fiasco.
They went behind my policy proposal to shorten settlement times.
But the reason why this is ridiculous and again it's complicated to explain to people that don't get this, but I am going to sell you stock, you're going to give me cash.
But the value of the stock can change a lot in those one or two or three or five days.
So beyond just saying I'm gonna give you the stock and here's my stock certificate, I have to post collateral for that as well.
And the more success that you see, the more collateral you have to post.
But it's kind of dumb because it's all you have the underlying cash or you have the underlying stock.
And that was the part that just didn't make any sense right?
I mean, it's how the clearinghouses function, but there was no solvency issue, right?
There was no.
It's like you just need well, number one.
Hopefully, when we fast forward 10 years, this whole system will be antiquated and we'll have something much much, much better.
But this was a result of people loving and using Robinhood too much, if you will, versus anything that was wrong.
It's not like, you know, I started a firm and we had a crisis.
I would call it the march of 2020 crisis, where imagine being a lending company to consumers when everybody loses their job right, which means that they're not going to buy in the future and they're not going to pay off their loans in the past.
So that seemed like cat, like a game over, like we had an emergency round for a firm right around the same, like right around like the beginning of covid, because it's like well, nobody's going to pay their bills um, and like we're kind of on the hook for that, and then nobody's going to buy stuff, and like that's going to be catastrophic Um, but that was like a real problem with the business model, when everybody loses their job, as opposed to like if people are trading, and the way that collateral is handled is just kind of dumb.
Like that's a that can be solved.
So that, that was kind of like my analysis.
I mean, you probably had a much closer to the metal analysis.
It's like, oh wow, this is a bad day.
Um, but it was like, there's actually like, and Mickey Malka is a very close friend of mine.
I love that guy to death and, um, he's doing it.
And it's like, I trust that guy.
I trust Robinhood.
Like, it kind of was a no-brainer.
I mean, it was a large check for something where it's like, wow, this isn't good.
But in hindsight, it obviously worked out.
But it seemed like there wasn't really a systemic issue with the company.
And that's where you get a little bit more nervous as an investor.
But I love your take because you were obviously on the inside.
I mean at the time.
I think at the end of that day, it was pretty clear that we were averting liquidity and solvency risk, which is probably the biggest concern that you have.
Through our actions and also the market, I think we were able to avert that.
Juxtapose that with also, we were number one in the App Store, and not just number one in the finance section, but number one overall, ahead of Instagram and TikTok.
I think that was a pretty potent combination.
So the third thing that probably you had to consider at the time as an investor was the brand impact.
Like you have a lot of people who are mad at what they did.
There was a looming congressional testimony that they ended up doing.
But yeah, and actually the brand thing was a real thing because when the dust settled on our acute issue, I probably spent the next two to three years And it was very, very clear.
You know, they always say that trust can be lost in a day and takes a long time to earn.
You can earn it rather slowly.
I think we experienced that.
Even now, when we post, when I tweet, you'll have the people saying oh, but you know, we'll always remember January 28th.
And most of them don't get into the details of clearing mechanics and settlement.
And most of them were probably not even affected directly.
Like they weren't trading it.
GameStop or AMC, but they just heard something from someone who heard something from someone that Robinhood's like, in cahoots with hedge funds and going against the little guy.
And so that's been the hard part to navigate.
And I think that, you know, there was a lot of adrenaline.
We had to solve the immediate issues on January 28th, which we got past.
And then after that there was just a two-year period of slowly clawing our way out of this brand hole that I think we're now mostly out of.
I think we, just a couple of months ago, were able to say that if you look at our NPS, we were sort of like ahead of where we were pre-GameStop.
So that was a momentous occasion.
Besides time, what do you think are the actions that contributed most to the brand getting back to where you want it to be?
Yeah, I mean really there's very few spikes upward.
Gamestop was like a downward spike, right.
Um, i think time is by far the biggest element people forget.
You know, you have new young people, new users coming in replacing the ones that were really upset, and then it's just looking at what things people complain about, that you can resolve and addressing those.
And then, i think a couple of years ago, we started doing these product events, which i think had not just practical value but also, I think that they cultivated a community of shareholders and customers.
And I think around our events, we noticed there was actually a pretty big increase.
Like, if we do get mini spikes of a couple of points, it's around those events.
But also, like, every other brokerage paused trading in GameStop and AMC, right?
Pretty much, yeah.
I think there were a few that didn't.
Because even the ones that did, I feel like, I remember Interactive Brokers, like, they probably...
Oh yeah.
Like they all.
They eventually got there and it wasn't because, but it's just, it's hard to explain to somebody who's not a lay person, because it's like well, wait a minute, I sell you stock right.
I get cash, you get stock.
Well, it's done.
Well, it's like, no, no, no.
There's this like deposit trust clearing corporation.
It's like, what are you talking about?
You crazy conspiracy theorist.
No, no, no.
This is how it works.
And it's just.
It's so complicated to explain because there's all.
It's like the duck that paddles furiously behind.
You know, underneath the surface.
Like I have the cash, you have the stock.
What are you talking about?
And it's like, no, no, no, there's this other stuff happening, and that's the hard part to explain.
I think we learned a lot of valuable lessons.
A simple lie is much more powerful than a complicated truth.
So, yeah, Robinhood's colluding with hedge funds.
Very compelling story.
It's like, ah, Robinhood, look, they're actually stealing from the poor and giving to the rich.
It just writes itself like it's good.
If I was in charge of marketing for a competitor, I'd probably come up with that, right?
It would be a good one.
And this whole thing about collateral and Dodd-Frank and financial solvency and protecting the financial system.
It's a complicated truth at best, right.
It's an order of magnitude more time to refute bullshit than to produce it.
That's the other one.
Yeah, yeah.
And everyone, the simple, I think the simple antidote would be to just point the finger at someone.
It's like oh, this thing, that's the enemy, which a lot of the other brokers were able to do by pointing the finger at their clearing firms or Apex Clearing, or you know, one of the other folks saying, you know we disagree with their decision, but they did this.
So that was also a learning.
Probably find someone to blame who isn't us a little bit earlier.
But of course, we're very chivalrous folks.
We don't like to... I don't like the idea of blaming someone.
And I prefer to take... responsibility for everything, even if it's not my fault.
So that ended up biting me a little bit, I guess.
But it feels like you're getting even now, because it's like going back to the whole, like it took five days to settle a trade, then three, then two, then one.
Yeah.
Right.
Versus the future that you're helping build, which is, if you tokenize everything, like there is no more of this middleman that can.
Oh, you got a post-collateral bond, but wait a minute.
Why am I posting collateral on top of the stock that I'm giving you or on top of the?
Well, because the stock price can change by 50.
That's why there's always a logical reason for it.
But, like, why is it that in 2025, it takes one whole day to settle a trade, right?
Yeah.
I think you're totally right.
And, I mean, there are... There are strange things that happen in the crypto world, right?
I mean...
Actually probably.
If you look at solvency and liquidity issues, you had the Celsius and BlockFi and that whole liquidity crunch there, culminating a few months later and the collapse of FTX.
A couple of weeks ago, you had forced liquidations.
I mean, even when Bitcoin dropped below 100000 a few days ago, it was just a torrent of forced liquidations.
It's a little bit more niche, right?
It wasn't.
The products that are experiencing this, whose customers are experiencing this, aren't number one in App Store overall, getting millions of new customers a day.
So I think it's contained.
And so we shouldn't make it sound like crypto is just a panacea, but certainly moving forward and improving with technology can solve a lot of these problems.
Yeah, with tokenization, I think certainly if done right, you can prevent that specific issue.
You also get 24-7 trading through holidays and weekends, which is very cool.
There's also something that I probably it's not in my interest to talk about, but in some ways it is.
If you self-custody your stocks, you're immune to outages from the broker.
You can just sort of like easily replace one brokerage for the other, and you don't have to.
The blockchain would have to be down for you to lose the ability to trade, which I think is very powerful.
Not to mention something you're probably familiar with the securities lending landscape, which is a huge source of revenue for brokerages and counterparties, is very opaque and very inefficient.
A lot of these trades are still happening over Bloomberg Messenger.
You know counterpart like peer-to-peer.
If you do it tokenized, then you have these like liquidity pools, which just makes that a very simple thing.
Like you imagine, lending and borrowing your stocks on Aave or some equivalent would be much more efficient and much better for the end user than the current morass of securities lending.
That's, you know, evolved to be this way after multiple decades.
Is it inevitable that the most popular private companies' stocks will be tokenized?
We're talking about the dynamics there.
Yeah, for sure.
Yeah, that's definitely happening.
And even if they don't want it, how is it going to happen?
I think eventually they'll want it, but there will be an adjustment period.
And they'll want it because their customers will want it?
I'll give you an analogy that I think is actually pretty close.
So in 2021, we launched this product, IPO Access.
And the idea is pretty simple.
IPOs have been dominated by institutional investors since the dawn of time.
And we're going to just make it so that retail can participate in IPOs and not just private wealth but actual mass market retail.
And we had this big chip, which was we were going public.
So we at the very least could guarantee that they'll get access to ours.
And so we at the time had the largest retail location, I think certainly of any IPO of our size.
It was between 20 and 25%.
And then of course we had built all this great technology for ourselves.
Let's get everyone else to do it.
So we got a bunch of other firms to participate in retail IPO.
Most of them, we kind of had to ask for favors or strong arm a little bit or use our bankers because they didn't get it.
They were like, this is a strange thing.
I'm just trying to get my company public so I could focus on running my business.
Everyone's telling me this is a bad idea.
We weren't really in the room to advocate for retail allocation, much like the bankers were.
So it took a lot of work and the allocations we got were also quite small.
It was like, okay, well, we'll make these guys happy.
Let's give them one or 2%.
And then the market shut down at the end of 2021.
Nobody was going public anymore.
And then something interesting happened in the middle between the reopening of the IPO market.
It started becoming clear that stocks that had retail followings were actually being rewarded with higher multiples.
I mean, you had Palantir, you had some others.
Someone put us in that category as well as a big retail following stock.
And so people started calling me to ask about their retail strategy.
And now you look in the past couple of months, pretty much every IPO of consequence is on Robinhood and with increasing allocations.
You know, we had Bullish that gave 20% of their IPO to retail.
I think Gemini was very similar and we were fortunate to get a big chunk of that.
So it went from this being this weird thing that was a little bit, I mean, we had to be annoying to get people to participate to now everyone kind of gets it and wants it and is like interested in even doing more post-IPO.
So I think when you ask, private markets access has very similar properties.
If you talk to these CEOs of private companies, they generally are aligned with the intent and the mission.
Everyone's like yeah, I would love normal people to be shareholders and not just these like three layer SPBs.
It's at least better than the three layer SPB.
So they kind of agree with it.
They're like oh yeah, power to the people.
You know, at least not very many people with a straight face have told me no, I just wanna hold the equity and give it to just the big institutions.
And I think it's genuine.
Most people don't actually love that.
And so it's the practicalities that get in the way.
Like this is a new thing.
I don't wanna be an innovator in giving private access to retail.
That's not the point of my business.
I don't want to be a guinea pig, which makes me very confident it's going to evolve in the same way too, where they'll start to see it a little bit.
It'll become normalized.
And then the advantages will become clear.
Like, you'll have retail fans as a private company, many of whom could be your customers or at least your advocates.
And then it'll become much more clear.
And I actually think for AI companies It's the most critical because if you look at AI as a category, you have the fastest product adoption of any products in history with chat, GPT and all these you know cursor, and all that fastest revenue ramps.
And at the same time, they're kind of the it's the most hated category.
You interview people and their perception of AI is worse than social media.
Because nobody's worried social media is going to take their jobs, right?
But there's this underlying fear that you know these guys, these companies are automating everything.
And, you know, where's my job in that list?
Is it easy to automate?
Is it hard?
People are freaked out about that.
And I think we could end up in a very bad place if we don't figure out how to be a little bit more egalitarian in the ownership.
Like, it shouldn't just be owned by a small fraction of VCs.
In fact...
We should make sure that there's ways to distribute it.
Because the best way to not fight against something as we've seen in public markets with these retail stocks if you're an owner of it, you'll defend it.
Not a lot of people are defending the AI companies in the public markets.
It's like... It's the VCs.
The VCs are defending them because they own them.
But it's offensive defense, right?
Because I mean to your point.
You have this virtuous cycle where it's like how many people that bought Tesla stock, how many of like?
This has become almost I don't want to call it a meme stock, but it's become a very, very popular retail stock.
Absolutely.
Right.
And a lot of the people that bought Tesla and like the Tesla bulls are all people that own the car.
Right.
And like, there's a virtuous cycle there.
And the flip of that is exactly as you said, it's like, hey, you know what?
Everybody's going to be an owner of these things.
And I think it's a little bit of a back to the future thing, which is, I think when Amazon went public, they had like a 600 million market cap.
Like 25 years ago or 30 years ago, like the normal, like there was no such thing as a Series D right.
Series D was called an IPO.
And it's funny, there's a company in our portfolio that just raised a Series K. Oh, yeah.
And H-I-J-K, right?
It's like, you know, like Series I. You got to go public by the Series I, right?
Like that's IPO.
We felt a little funny.
I think we did a Series G portfolio.
Yeah, it's like that's when you're getting up into the upper letters, the upper consonants of the alphabet.
The GameStop round was really a series eight.
Yeah, I mean, it's like that's a lot of consonants.
And you're better off, like you get that, like this is so counter conventional wisdom.
I love it when conventional wisdom is wrong or experts are wrong.
And this is a big one, right?
Which is like to your point.
It's like oh, you got to have like T-Row and Fidelity, like buy into your IPO.
And that's what's going to give you like a great multiple.
And actually, no, no, no, that's completely false.
Like-
The fact that Palantir is like a runaway tech favorite or sorry, retail favorite and trades at a very high multiple.
And like, it's not just about like trading at a high multiple.
Like that's beneficial.
If you're a CEO of a company, you want to hire and reward talent.
Yeah.
Right.
If you want to retain people like and you want to buy a company, having a high currency is actually very, very valuable to you.
And retail is actually part of that.
And by the way, retail actually benefited from all this stuff 30 years ago.
But then when Series Gs and Hs and Is and everything else kind of started staying in like the private domain and accessible only to accredited investors,
One of my favorite stories is from, I think it's 1986 in the Wall Street Journal.
You know this one?
You might remember in a second.
Massachusetts banned their residents.
Oh, yeah. from buying into the IPO of Apple Computer.
The Apple IPO, yeah.
Because it was too risky.
It was a little earlier, right?
1981.
Oh, yeah.
It was, like, in the 80s.
But you can just Google, like, dangerous Massachusetts Wall Street Journal Apple IPO.
So 49 other, like, states...
You're okay.
Like, no nanny state there, but Massachusetts, uh-uh, too dangerous.
And, like, Apple's gone up in value, like, 10 billion times.
And, by the way, they have like one of the largest and most robust state lotteries at the same time.
Which is so bonkers.
And it's just sad that you used to be able to, like companies would go public so much earlier.
And Dodd-Frank.
Actually, that's odd, Frank.
Sarbanes-Oxley made this a little bit harder.
It's like coming out of Enron, it's like, okay, we have to have more controls.
It's expensive to be a public company.
So you don't want to go public until you get to a certain level.
And therefore nobody goes public until probably conventional wisdom right now is like 300 million 400 million minimum revenue.
And then it might be worth it.
And actually for the best companies it's a bit of an adverse selection because the companies going public at 300 million, 400 million, are actually probably lower than the ones that are at a billion.
The ones that are just like growing like crazy, they're incentivized to stay private longer.
It's why I have this volatility.
Like my favorite way of framing what private equity firms do I won't say venture capital firms, I'll say private equity firms is they launder volatility?
Because every day, what is the price of an asset?
It's like whatever anybody will pay for it.
But if you're an investor in a private equity firm, it's like wow, like this crash happened on this day.
I'm like, my value in this private equity fund didn't fall at all.
It's like, that's not really true.
And there's actually a benefit to having these things be liquid and not launder the volatility.
Yeah, but it's compelling.
And that's actually one of the reasons why companies like to stay private and don't like the idea of a real-time price, which is an element if a stock is tokenized.
But we're working to solve this problem through tokenization in the EU.
And also through Robin Hood Ventures in the US, which is a closed-end fund that we're going to be taking public.
And the idea there is yeah, using whatever means we have necessary, can we get, through our retail channels, exposure to these assets?
And I think I'm personally very involved in this and, like, driving it forward.
I'm going and giving companies term sheets.
That's great.
Because I think it's so important.
And I think it's not just important for us as a business.
We'll undercut, we work to undercut fees across anything.
So it's not just you know that it will be a business for us, but I think it'll make technology, adoption of these frontier technologies, go much more smoothly.
We don't want to be, we don't want the people to be against AI because ultimately, regulation follows the will of the people.
And so I think that if we can get them on board with the technology, we'll just have better outcomes as an industry.
Yeah, have everybody be an owner.
I mean, there's a funny website called WTF, Happened in 1971, which is kind of when you decoupled from the gold standard, amongst other things.
But wages were kind of stagnant, but asset prices went up a lot.
So you would say, I mean, people agreed that there was inflation in 2022.
That's why we had all the, you know, the Fed kept raising interest rates.
But that was like inflation for like milk and eggs, like things you can buy every day.
But meanwhile, for like dozens of years, the price of assets have been inflating massively, which is great if you're on the side of that.
If you own an asset, that's great.
But if you just get paid cash, I did a.
I wrote a little blog on this.
Where do you think home prices in the Bay Area have gotten more expensive or cheaper in the last 25 years?
Would be your guess.
In the last 25 years since 2000.
Have they gotten more expensive or less expensive?
Or call it 20 years even.
Yeah, that's a good question.
I feel like it must be a trick.
It is a trick.
They've gotten nominally more expensive.
They've gotten cheaper if you price it in a basket of tech stocks.
Not gold.
Gold, they've still gotten more expensive.
But how many shares of Apple stock does it take, you know, split adjusted?
So I built like an index of every single Bay Area employer market cap weighted.
Yeah.
How many shares does it take to buy a house today versus 2005?
It's a lot less today.
Yeah.
Which is kind of this like and unfortunately- Well, Apple stock is a unique benchmark to use there, right before iPhone came out right.
Sure, but this is important for the same reason that you mentioned, I think, which is, if you are paid in assets right, or if you own assets, you benefit from all of these amazing new things, like the iPhone, right.
Like you're now an owner, you participate in the ownership economy.
Yeah.
If you're not, if you just get paid cash and some people get paid a lot of cash but like they just get left behind versus people that are able to own assets.
And it turns out like all like.
If I just owned stock, you know, pick a different day 2009 2002, like you, these other assets have gotten cheaper.
Yeah.
And that's the thing that ideally, as a society, we want to.
It's not like a fix, but you want everybody to be invested.
Like, I love this thing.
You were participating in this, right?
Like the new, what's the new, the $1,000 when you're born as a kid?
The Invest America Trump accounts.
That's awesome, right?
It's like give everybody $1,000, get them invested.
So now they're an owner.
This compounds so much.
There's another chart that I love that shows the Delta and like Social Security, basically that earns nothing and is kind of quasi Ponzi scheme versus if you would just put money in the SP 500 right.
What does that turn into over the next 50 years?
It's just like these things really compound and you want people invested in capitalism.
Otherwise, they're not going to like capitalism.
Totally.
Yeah, capitalism has kind of become a controversial word.
Yes.
But yeah, people need to have skin in the game and own this stuff.
And that'll just lead to a more stable society.
Agreed.
Alex, we wanted to ask about company strategy.
I know you had a question you wanted to ask about going deep versus going broad.
Maybe I'll tee you up for it.
I kind of think of when you were building this.
Maybe this goes back to the origin story of Swords, but Robinhood is effectively like a bank account for a lot of people now, which is not the origin story.
A lot of people think about it.
It's like I have a Robinhood card, which I use, my little green card, right?
Well, I don't even have the physical card.
I just use it on my Apple wallet.
I'm going to hook you up with the gold one.
I got to get the gold one.
It's on my to-do list.
But You started off with this kind of narrow thing and then you've built a deeper financial relationship with customers.
That's kind of how I thought about it, which is, I can now direct deposit my paycheck into my Robinhood account.
I can use it as effectively a bank account, but it's much, much better.
It's cheaper.
But also, there are different types of traders.
Like you, could go very, very broad in terms of the types of products that you offer in the trading space.
And I guess how have you navigated depth versus breadth?
Like, go deep with the customer, all the customers that you currently have right now, or concentrically expand to different types of customers.
Yeah.
Yeah, it's a great question.
And the answer is we're trying to do both.
We're probably the only company that is looking to go broad.
But as we're going broad, we're looking to deepen in each of those things.
So, you know. equities trading, we're very deep in.
We do 24, we were the first to introduce 24-5 trading.
We went self-clearing, so we literally built our own clearing stack.
And we actually innovate on the infrastructure there.
Same with options trading.
Same with crypto.
You know, it's not just spot crypto trading like many of the neobanks or folks that are just adding crypto as an asset.
We're doing perpetual futures in the EU.
We've got crypto futures in the US.
We've got staking, tokenization, right?
So we're looking to go deep as well.
And I think the reason it works is we can't go deep everywhere simultaneously, but we have to kind of pick the areas where it's most accretive and highest leverage for us, which is active traders.
Active traders like the engineering or the business.
It's where new product features translate to revenue most quickly.
And you know, if you improve the active trading product by half of a percent, you immediately see that in the bottom line.
And then we can use that as a engine to make further investments.
So, yeah, active traders very much we're going deep.
But then you know, if we look at the end goal of getting all of your assets into the platform, there's a kind of an algorithm that we run, which is how do we make it as easy as possible to deposit and remove all reasons you would have for withdrawing your money?
And then we can kind of look at why are people withdrawing money?
Where is it going?
How easy is it to actually bring that in Robinhood?
And the great thing about our industry is there's so much to do that even though you see this great product velocity and we're shipping new stuff, you'll sometimes be surprised at the basic things that we don't have.
Like up until a couple of years ago, you couldn't actually do an ACAT transfer.
We added that in 2022.
We had one account type individual brokerage account up until a couple of years ago, when we added IRAs.
We still don't have trust accounts and custodial accounts.
And so you know, when I talk to high net worth individuals and this is, by the way, a new thing it used to be that when I'm on the phone with our best customers, it was someone that had maybe a couple hundred K or maybe a million in their accounts.
Then it went to talking to customers that have tens of millions.
And nowadays I'm routinely talking to customers that are looking to move hundreds of millions and have that in Robinhood.
And so, you know, for a high net worth individual, there's just tons of things that we have to do.
But the goal is if you have a family office, you should be able to run that family office on Robinhood, Or we can automate the running of that for you.
And you can have tens of billions on there and feel like you're actually at a disadvantage using any other brick and mortar or other brokerage-based solution.
So I have a question.
Would you give Elon Musk a deposit bonus if he put all of his Tesla stock on Robinhood?
How much does he have?
I think he has $200 billion.
He did reply to my tweet.
Oh, he did?
Okay.
He did reply to my tweet with a little fire emoji, which I thought was very nice of him.
I think we'd have to have a couple conversations with him.
We'd have to see, you know, how much he trades.
And yeah, see, make sure we can make money from that.
But I would try.
I would definitely work with him to figure out something that works.
Duly noted.
Yeah.
Elon, if you're listening.
Yeah.
A few billion dollars you'd make right there.
Well, actually, there's a little bit of a strange thing.
I'm sure as a public company, you have like your RSU provider, your 10b51 manager.
And one of the things that pains me is we don't offer those services.
So if you're under a 10b51 or you have employee stock rewards, we have to use one of our competitors.
Those products are so bad.
I mean, this is why I asked the question around, like kind of breadth versus depth of I'll never forget this conversation that I had with do you know who Dan Rose is?
He had a BD at Facebook.
Yeah.
Kind of around like the mega growth period of Facebook.
And I ran this payment company called TrialPay.
I'm pitching something to Dan.
And what Dan says to me is like Alex, that's a great idea, but you're pitching me a gold brick.
That's like all the way on the other side of the room.
And I have all these gold bricks like right around me.
And I love what you're talking about.
That sounds great, but I got to pick up the gold brick here and here and here.
And like come back to me in five years for that gold brick.
I've heard you say this, I think, and I've been using it in conversations with people.
Yeah, the reality is there's so many things to choose from.
And sometimes there's great uncertainty.
Like who would have guessed two years ago that prediction markets would be our fastest growing business.
So you know, a lot of this is just conversations with me and the GMs and the leadership team, where we make decisions about whether we prioritize something over something else.
And it's like, do we have the right person to take on this thing?
How much conviction do we have?
And, you know, there's the easy stuff that we know we're missing, the product gaps.
But you can't just build product gaps.
You also have to have things that are available uniquely on Robinhood.
Because if we're just building to product gaps, we'll probably never catch up fully.
And then we'll always be behind.
But I like to make sure across some of the product portfolio areas or just doing things you can't find elsewhere.
Because you can point to those things like 24-hour market, like prediction markets, like tokenization.
And you know that's a strong incentive to try Robinhood if you can't get our offering anywhere else.
It just feels like that's like by starting with product, I mean, there is this giant divide going back to assets, right?
There's this giant divide of like the baby boomers have all the money.
Yeah.
Right.
But eventually they won't have all the money and you have this millennial generation that they're going to use the best product and I'm not just saying this because I'm a proud owner of like it's like, try using Schwab.
Like, I'm on the board of a company where I get my stock grant in Morgan Stanley E-Trades.
It's like they bought E-Trade, but the Morgan Stanley site doesn't interoperate with the E-Trade site.
It's just, it's so comically bad.
So the younger generation are going to use these things.
They're going to pick the better product and you have the better product.
But now it's like you got to get the assets.
Yeah.
And, by the way, I talk a lot about the great wealth transfer 120 trillion moving into the hands of younger generations from the baby boomers and silent, which I think we can be the prime beneficiary of.
But that's not our only strategy.
Also, I think we can get the baby boomers while they're still alive.
And we're working very hard towards this.
And I think we're actually quite successful because I mean you look at customers in their seventies and eighties who use Robinhood.
They're super happy.
And to them, it's like magic.
Like they're used to crappy brick and mortar experiences.
Your Gen Z or Gen Alpha customer, they're used to Instagram and TikTok.
And they're like, why is this app clunky?
It should just like instantly load.
And I should, you know, they're, they're to some degree, uh, Their expectations are much higher, which makes it so that we have to work hard to serve them.
But if we get someone in their 70s who actually gets over the hump to use Robinhood, that's a great customer for us.
And we have more tools.
So one is we're really leaning into family finance.
If you use our banking app, the family is like a first-class tab, which makes it really easy to manage your partner, your children all the finances in one place.
And then these matches that we're running because we have better economics and we can split more with our users is very compelling to someone with a lot of money in their account.
You imagine, you know we offer you a 3 match and you're someone that's five years away from retirement and you have 10 million in your IRA, that's 300K.
Like you could buy a nice new Corvette immediately that we instantly give you.
So that's been a very strong value proposition to, you know, our customers' parents, their grandparents in some cases.
Or Elon Musk.
Yeah.
I mean, he could get a nice McLaren F1.
Yeah, exactly.
If he moves some shares.
He could buy an F1 team.
Exactly.
You know a small subset of people, we'll say this argument.
I think it's a lazy argument, I think it's an anti-capitalist argument, but I'm curious for the best comeback to it.
They'll basically say things like prediction markets, things like crypto, things like trading, especially among younger set.
They'll call it something like a financial nihilism or something.
It's small subset.
What is sort of the best comeback to, it's not nihilism, but what is it?
Do you remind me what financial nihilism is defined as?
I remember I looked into this a while ago.
I think they're sort of making this argument that young people, because they don't have options elsewhere, are getting into sort of you know, either prediction markets or crypto.
And is this kind of like make money, make money.
But I don't know.
They're sort of accusing this pool of activities as like evidence of some nihilism in some form.
Yeah.
I mean, the first thing I would say is everything is growing.
Like we're seeing record growth in retirement too.
I think a lot of people sort of like look at this as two different users.
Like you have your active traders, or nihilists, or degenerates, and then the folks that are doing respectable things.
But in reality, um, the most engaged users actually use more of our products and have more accounts.
So the path uh, The path that someone takes when they use Robinhood, typically they come in because they want to buy one stock or one crypto.
And then some of them are more active, others are not.
But the active ones are the ones that paradoxically, adopt retirement, adopt products like strategies.
And the way they grow with us is not necessarily more trading, but just expanding into more accounts and putting more assets onto the platform.
So we don't see it.
I think there's not a huge trend where you know the percentage of our assets as an economy that are margined or in high risk investments is growing.
The whole pie is growing.
And I think that takes with it the speculative activity.
Now, a lot of people will say, well, you know, there's a lot of speculation.
And is this good?
Is this bad?
So my take on that and prediction market is probably a great example where the big debate now is well, wait a minute.
This is just gambling that we get asked all the time.
It's been asked about every new financial asset that gets traded.
There was a big debate when futures was created as an asset, whether people are just speculating here.
And it's because speculation is just critical to the functioning of every financial market.
You can't have a working market without speculation.
And I'm not to say that everyone should speculate with all of their money, right?
I think that probably most of it should be either passively managed or retirement or in sort of lower risk, lower volatility investments.
But I think you should have a bucket.
And most people do have a bucket where, you know, they invest and they exercise discretion.
And I think for that one we compete over who can offer the highest diversity of products, product for you that allows you to sort of like trade, your precise point of view.
I think prediction markets are a great example of that, because if you had a view that you know Trump was going to win the election before prediction markets, you would have had to maybe buy equities and crypto right.
You'd say okay Trump, I believe Trump's going to win the election and Trump is pro-crypto, so Bitcoin's going to go up.
And that somewhat worked.
But it's a little bit indirect and a lot of people have the same view on companies with earnings.
They think okay, i'm pretty sure tesla is going to blow out for example, blow out their deliveries in a given quarter, so i'm going to buy the stock.
But then you have weird things like they blow out their deliveries, maybe a company beats on eps and revenue and the stock goes down right and and to me, for a trader, this is an inefficiency, because i have a point of view I want to trade that
And these proxies make it a little bit less efficient.
And prediction markets solve that, which is why I think for traders it has the potential to become a really big market.
And for mass market consumers, it could be a better source of news and forecasting.
Like I came out with a statement a couple months ago about how I think prediction markets are truth machines.
Like we're constantly being bombarded by all this information and noise.
Anyone can be an influencer.
Anyone can have a podcast.
How do you sift through that and figure out what's actually going to happen?
Well, prediction markets actually take advantage of all of these sort of like forces to consolidate into a more accurate forecast.
That's not a guess it's, it's not a poll, it's yeah, you know, a price formed by people with real skin, and we remember that.
Uh darpa pioneered this 25 years ago.
You know this?
No.
So DARPA is the Defense Advanced Research Projects Agency.
So the internet came out of, it was originally, it was DARPANET, and then it became ARPANET became the internet.
Right.
At the Alpine Inn, they have the plaque, right?
Right.
So DARPA was like, how do we get good at knowing who's going to win this foreign election?
Well, we could hire lots of CIA agents that like go bribe people and all this kind of stuff.
But you know what?
Let's have a prediction market.
And they designed this in 2002.
Was that the Iowa?
They eventually shut it down because there was just too much controversy.
Like you don't want to have the government go build something.
And part of it is.
I think this is the interesting thing with prediction markets, although of course, it's true for the stock market as well.
Like if I have a prediction market for like, will something bad happen to Eric tomorrow?
Yeah. and it pays out $1 if true and $0 if false, well, I could do something bad to Eric tomorrow.
And now I can change the market.
It's like the insider trading version of prediction markets, which is not relevant for the weather.
Well, maybe it is, like you could do cloud seeding or something.
But that was part of what DARPA wanted to know, was like they wanted a truth machine.
And this is a much more efficient truth machine than like, the Central Intelligence Agency, if you think about it.
Right.
For exactly, because like markets are efficient.
I remember Google- The truth will get out.
Google had an internal prediction market where people would speculate on which products would actually ship on their ship dates.
And it was a much more accurate- Yeah, it's always more accurate.
Yeah.
But it's good to see it live in practice now.
Yeah, and there are real questions like, how granular are these contracts gonna get?
And how do you ensure safety?
Yeah.
Which, you know, they're regulated.
And I think that's the best argument for doing prediction markets inside a regulated framework, because if we don't, they could go offshore, much like a lot of the crypto business.
And, you know, if it's offshore, it's much difficult to contain the negative externalities.
Yep.
Yep.
Yep.
I love the idea of speculation as curation, as accountability.
Vlad, thanks so much for coming on and talking to us about the story of Robinhood.
Thank you, guys.
Thank you, Vlad.
It was fun.
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