The Story Behind Stock Trading App Robinhood and Its One Million-Person Waitlist

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When the 2008 financial crisis hit, a lot of people went into panic mode, not knowing what had happened behind the scenes. Even during the aftermath, individuals still had very little control of the behind the scenes of the financial sector. At the same time, investment backers, traders and employees in financial firms were undergoing a turbulent time as well. People still look back at the 2008 financial crisis as one of the worst crisis of all time.

For Robinhood founders Baiju Bhatt (30 years old) and Vladimir Tenev (28 years old), the 2008 financial crisis, followed by the Occupy Wall Street movement, were a source of inspiration to create Robinhood, a mobile first zero-commission stock brokerage app, available on the iPhone with beta-tests being done for the Android version.

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The Robinhood Cofounders

It was roughly 3 months ago when Jack Randall, Robinhood’s Head of Communications first contacted me to see if I was interested in doing a story. I wasn’t sure if it was the same Robinhood that all my friends at the University of Pennsylvania had been talking about but it was; it’s the Robinhood that once had a 1 million-person waitlist. Fast-forward a month later and I had an hour long conversation with cofounder and co-CEO Vladimir Tenev, which would lead me to writing my longest feature story yet.

Because there are no human traders to pay, Robinhood doesn’t charge a commission for standard trades, working on a freemium model, where customers are only charged for margin lending. This ability to trade for ‘free’ was the feature that made Robinhood ‘revolutionary’ in the eyes of people. Of course I was excited to dig deeper into their story.

During our hour long conversation, Vladimir shared with me how everything started, the initial challenges they faced, the different milestones Robinhood has achieved, how they got a one million-person waitlist, how his role has evolved, his advice to startup founders and more. Get ready. This won’t be your typical short startup article.

How it all started

Vladimir met his eventual cofounder Baiju Bhatt in Stanford, where they both studied mathematics. Vladimir recalled, “One thing that was appealing to me was that 100% of your mental energy could theoretically be 100% productive when doing math. You only needed a pencil and paper.”

While Vladimir would end up pursuing a Math PhD in UCLA, Baiju would end up working in finance.

Right in the middle of the financial crisis, Baiju would see first-hand how the financial crisis was unfolding and the changes financial firms were quickly making. He observed how post-financial crisis, there was a rapid universal growth of algorithmic trading and markets had been going electronic.

Vladimir shared, “We thought the space was really exciting and it was in the midst of a major change so we thought why not create a trading firm of our own. We basically rented a little house in San Francisco where we got together to build trading systems.”

Of course, the ‘Silicon Valley’ magic of grouping up together in a house to work on a startup would lead to even more magic.

The team would then go on to test their products in New York, where they would realize that there was an opportunity to create a business because a lot of the hedge funds and banks were using very antiquated technologies. Vladimir and Baiju would put together a team of mathematicians and computer scientists to create software products that made it easier for banks to write trading strategies.

Vladimir shared, “Essentially what we were providing were infrastructures that connected markets all over the world, deployed trading strategies and executed them at a very low cost.”

2015-08-12-1439384818-9732337-download.png Robinhood has gone a long way since it started

Occupy Wall Street and the Birth of Robinhood

It was in 2011, when the Occupy Wall Street event would lead to the inspiration for the idea behind Robinhood.

Vladimir recalls, “A lot of people lost faith in the financial system and it was becoming an insider game, and there were these sophisticated markets. Part of the reason was because hedge fund insiders had access to tools and resources that other people did not.” He added, “We were inspired to build something meaningful and something that empowered consumers.”

The team had to ask themselves how they could take this technology that was previously only available to the wealthy and give it to everyone. Vladimir shared, “We saw an opportunity to provide a product that makes investing easy, is mobile first and dramatically reduces the cost.”

This was easier said then done.

It would take the Robinhood team over one year from the time they got the idea to the time they were able to announce the product having to get approval from the SEC and become a member of the FINRA.

The One-million-person waitlist

While it took the team over a year to go over regulations, it would also take them just one year to reach a one-million-person waitlist. Vladimir shared, “We had a very unique product that offered a clear value proposition. We view this as a revolution in the financial sector.”

This wouldn’t come without challenges.

While getting all the approvals from all the regulatory bodies was really challenging for the Robinhood team, Vladimir shared how the most complex part about their business was their reliance on a lot of third party services and how they needed to make sure that Robinhood still provided a seamless experience and integration of all hese services.

Vladimir shared, “We were really the first mobile first brokerage. Prior to Robinhood, people have been using brokerage services in their laptop and computers. The hardest part was really nailing the experience on mobile and making it so someone could signup from their phone and move money from their brokerage accounts because people use their phones differently from their keyboards.”

A large part of what Robinhood had to do was make the user experience good in 20-25 second bursts, which is how long people usually use a mobile product for. Vladimir added, “This part hasn’t been easy. But this was one of the main reasons why Robinhood became the first financial product to win an Apple Design award; we’re the first financial company to be design first.”

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The Robinhood iPhone application interface

Keys to the Success of Robinhood

Vladimir believes that the main reason why Robinhood has grown so quickly is because of the fact that the concept of ‘trading’ has been around for the longest time. He also highlighted the fact that they’re not the first tool that allows people to trade stocks; they’re also not the first stock brokerage.

He shared, “Trading is one of the oldest activities humans have engaged in. So we had the advantage of tackling a problem that people are actually very interested in. People knew what it was immediately and we actually made it easier for them to spread the word to their friends.”

He added, “The way our waitlist has grown so rapidly is that people would come to our website and they would be so interested in the product that they would want to share it to their friends. We got a lot of traffic with people just posting it on Facebook and sharing it to their friends.”

All in all, more than 2/3 of Robinhood’s waitlist was a person referred by somebody else. Take note startup founders.

The ‘Banking’ Business Model

Robinhood follows a similar business model to that of banks when it comes to monetization. Just like banks, they collect the customer’s assets then they have the ability to lend these assets out and charge interest on it.

Vladimir shared, “We can do this in a variety of ways. One is if you have cash on your Robinhood account, we can put it into certain products that earn low interest rates. If you have securities, we can lend them to customers that engage with customers that do short trading. We also offer premium-trading services like margin lending. You have to wait for securities to be fully settled. You have to basically engage in and sell some stock to buy a new stock. For people that are trading more actively, it’s actually a very useful feature.”

Key moments in the Startup Journey

Vladimir starts off by talking about how important getting the approval from the regulators was. He shared, “Without that, we wouldn’t have been able to run our business and since that point, we’ve been fortunate to have a pretty good relationship with those types of people.”

The next pivoting moment was the day they initially launched the website for the product back in December 2013. The team wanted to test the actual Robinhood.io (they’ve since acquired the Robinhood.com domain name) to see how the full flow would work.

Within 30 minutes of testing, they started seeing 1 user in the first 5 minutes, then it suddenly jumped to 20 visitors and this was a Friday night. Vladimir shared, “We found out that somebody had found it and posted it on Reddit and it had showed up in the front page of the finance section and we started seeing it climb from 10th spot to 20th spot then we saw it go up to number 1.”

At that point, it was only around 30 visitors so the team went to sleep and woke up on Saturday morning at 7:30am. Vladimir shared, “I woke up and looked at the analytics dashboard and it was 400 people in the website at the same time, and I was like what’s going on here, its like Saturday morning, there must have been some sort of mistake. It turns out somebody had found the link on Reddit and put it on Hacker News and when I found it for the first time, we were like number 3 already.”

Vladimir recalled that the two other posts ahead of them on Hacker News was ‘Google Acquiring Deepmind’ and the ‘Chinese launched a spacecraft that landed on the moon’. How could an application named Robinhood out rank those two?

He added, “We were like ‘we would never past that’ then 30 minutes later we jumped and got into number one. We’re calling our parents, and we’re calling our engineers to make the emails work as well. The emails weren’t working and nobody was getting a confirmation email so we basically decided we had to launch on Saturday and everyone sort of came to the office, patched things together, and we launched that day completely unexpected.”

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The team of Robinhood has grown quite a bit since they started

Growing the Robinhood Family

A large part of the initial Robinhood team came from Vladimir and Baiju’s previous company where they were selling software to professional traders and banks. Robinhood has focused on hiring engineers who can come up with automated solutions to problems that they encounter.

Vladimir shared, “We need a lot more things than a typical financial services company. The vast majority of onboarding has been automated. Our trading activity requires no human intervention on our part so we’ve been able to grow and scale while mainly maintaining mostly engineers.”

For Vladimir, his role has evolved as Robinhood has grown from a tiny startup to the one of the most used financial applications on the app store today. He emphasized how as the company grows, the goal of the startup founders is to find people who are better than them in each of the functional areas that they used to do.

While Vladimir started out by writing a lot of the initial code, overtime, he has hired engineers who are way better than him in writing code. He shared, “It can be a little bit hard to let go every single aspect of the business and I think that this is the biggest challenge at the early stage when you go from 2 people to 5 people to 30 people.”

He added, “Things that are required of you as a 5-person team is completely different from a 20-person one. When you’re a 5-person team and there’s a leak in the bathroom, you have to go fix it. And when we’re a 20-person team and I’m fixing it, people look at me like I’m a weirdo.”

Hardest Part about Starting a Startup

For Vladimir and the founding team of Robinhood, the hardest part was the earliest stages where nobody cared about what they did except for themselves. People initially thought that the Robinhood team was crazy and that what they were trying to do was impossible.

Vladimir recalled, “It was probably a full two years since we got this idea before people actually said that it’s something that they want. It was very hard to listen to that feedback for two years and not get discouraged.”

He added, “I think that’s where people really fail. Most people rarely fail when something is working and things are moving along. The vast majority of people fail before they’re even able to prove their concept.”

However, it was the team and the support that the cofounders gave each other that allowed them to plow through the challenges. Vladimir shared, “Knowing that you’re in it with people that care as much as you do, and not thinking about what you have in front of you, and instead, thinking about what’s in your head and what if it actually made it to the real world helped us overcome the initial challenges.”

Vladimir shared how, every time he thought about Robinhood, he didn’t think about it like it was code in his computer, a year away from production, instead he thought about it as ‘what would it be like if someone was using it, tapped on a button and bought any stock they wanted?’

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You can now invest in stocks using your Apple watch

Advice to Startup Founders

Vladimir’s first advice to founders was to focus, “I think early on it’s really important to focus and really do one thing. A lot of people get kind of sidetracked doing three things at once. At a certain point, that becomes impossible to do. You’ll never be as good doing three things at once rather than just doing one thing. The products that tend to be super successful tend to solve one specific problem in a very deep way as opposed to several smaller problems.”

His second piece of advice was, “To the extent possible, you want to test your ideas and concepts as cheaply as possible.”

Vladimir highlighted the importance of doing all the iterations early on when you have a smaller team with fewer stakeholders because it gets harder once your team has grown and once you start to have investors and a board of directors. He added, “Do the most iteration at the early stages and keep experimenting until you find something that works.”

At the same time, in retrospect, the best advice Vladimir received during the early days of Robinhood was when people told them to figure things out by themselves. He recalled, “I think that was really the best advice. Nobody really knows exactly what the right solution is. I think the best advisers are people that understand the things that you’re good at and understand strategically that you don’t have the answers for all the cases.”

Future Plans for Robinhood

A big goal for Robinhood in the next few months and years is to expand internationally and grow their user-base.

They hope to remove the barriers for people outside of the US to be able to invest in the US market and eventually, across different countries. They’re also now doing the beta-launch for the Android version of the application.

Company Spokesman Jack Randall also shared with us relevant numbers about Robinhood:

• Average customer is 26, 25% are first time investors
• $500 million transacted so far on platform
• $12 million in commissions saved by the community
• $66 million capital raised to date – main investors are NEA, Index Ventures, but also Google Ventures, Andreessen Horowitz, Aaron Levie, Snoop Dogg, Jared Leto

Check out this Wall Street Journal video featuring Robinhood Cofounder Baiju Batt:

—About the Author—

David Ongchoco is a student entrepreneur and avid storyteller from the Philippines studying at the University of Pennsylvania majoring in what he likes to call, LIFE. He is currently working on expanding his for-purpose organization YouthHack. It’s David’s goal to make an impact in the lives of as many people possible while constantly learning new things every single day. If you have any interesting startup stories, David can be reached via Twitter @DOitChoco.

David Ongchoco is a student entrepreneur and avid storyteller from the Philippines studying at the University of Pennsylvania majoring in what he likes to call, LIFE. He is currently working on expanding his nonprofit organization YouthHack. It’s David’s goal to make an impact in the lives of as many people possible while constantly learning new things every single day. David can be reached via Twitter at @DOitChoco.

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