The Exchanges

Q uh, Who committed suicide. Alexander Kearns, who was a college student who was under the impression somehow that he made a terrible trading error and owed like 700,000 dollars. Um, and he took his own life. Um, it turns out he didn't apparently owe anything, but what did you, um, when that came to light and you found out about that, what did you, what did you make of that?

A Um, I think the passing of Mr. Kearns was a tragedy. You know, it was devastating to me and to everyone at Robin Hood. Um, so our hearts go out to the family, and I'm deeply sorry for, for the loss of his life. Uh, right after that happened, Beju and I sent a letter outlining the changes that we were committing to, to make in the wake of the tragedy. So, uh, changes to the user interface, uh, More criteria for how you access options in the product. Uh, more education. So we hired an options education specialist. And then we actually created a callback customer service number so that you could speak to a live agent on the phone.

AI assessment note: “it was devastating to me and to everyone at Robin Hood.”

Q And did you let everybody go, because you had staff, or did you keep them on?

A No, we kept the staff, and, um, there's still some people at Robinhood today that were originally working for Kronos on our trading software. For institutions, and we basically got everyone together in this little conference room once Beiju and I had kind of settled on this direction, right? And we were like, hey guys, we know you came here to build this algorithmic trading software for banks and hedge funds. We have this other idea that we're more excited about that I think has a lot more potential, and it's to take this sophisticated technology that we've built and Make it into a consumer product. And we kind of thought a lot of people would leave, but nobody did.

AI assessment note: “No, we kept the staff, and, um, there's still some people at Robinhood today”

Q All right, so you guys are grinding away for what, two, almost two years to build this thing, and were you getting... Were you getting anxious? I mean, I don't know. We gotta get this thing off the ground already.

A I think at times, certainly, yeah. There were moments of extreme elation, you know, like, um, I remember raising the first 250,000 dollars from Google Ventures, right? And I remember, like, dropping my phone. I was like, I can't believe Google wants to invest in, in my company. Like, four years ago, I, I wasn't even able to get an interview at Google, you know. Um, Now they're investing in my company. You know, then a year later, it was kind of difficult. That was probably the hardest time in middle of 20 13 when we had filed for the license and we were getting close to our pre-membership interview. And part of that process to kind of get approval was to show that we had enough capital to operate for a year after becoming a brokerage. And the, the amount was a little bit In flux, we had to actually model out what it would take for us to operate for a year, and we settled on something like a million dollars, and it was very hard to come by.

AI assessment note: “I think at times, certainly, yeah. There were moments of extreme elation”

Q I'm just, I'm just foreshadowing here. Um, how did you and Beju divide and conquer? How did you guys operate? I mean, did you, was one of you the CEO, or were both of you the, just kind of did, did everything? How did that work?

A He was more focused on design and And I think he had the talent for that from when we were in, in college, you know, he had a very nice sense of aesthetics and he cared a lot. And, you know, he's in another life. He probably would have been an artist. Right. And I was kind of more on the engineering side. So I wrote a lot of code code for the backend platform for the iOS app. I taught myself how to code iOS apps by watching, uh, Watching the free courses from Stanford that were available online and I'd be on the Caltrain going between San Francisco and Palo Alto and I'd watch them at two X speed and just learn about developing that way.

AI assessment note: “He was more focused on design and... I was kind of more on the engineering side.”

Q of this company, right? You were inspired by Occupy Wall Street protests, but at the same time, does any part of you, or did any part of you wonder, well, A lot of people who may, may not really be fully educated on, on, on how this stuff works might lose a lot of money. Did it, does that ever cross your mind, or did it ever cross your mind?

A You know, we think about that, uh, that problem a lot, and we care a lot about safety. And in a lot of cases, our products are more restrictive than the products of our competitors. I'll give you a couple examples. You can't short sell on Robinhood. Short selling is one of the main ways that someone could lose more money than they put in. We don't offer undefined risk options trades either. So you can't sell naked calls. A lot of customers want to do that. And we deal with the effects of, um, you know, customers that say, Hey, I should, I really want to be able to sell naked calls. I want to be able to short sell and you're not letting me do it. I have to move to a different platform as a result. So, you know, we, we bear some costs for, for this and it's, it's challenging because you have to put these guardrails without being Overbearing or annoying to customers. So they're hard to get right, but we've, we've been working on it and we're committed to continuing to offer people the safest experience around all of our products. And not to say that we won't offer some of these things in the future that people are asking for, but we want to make sure that if we do offer them, we have like strong guardrails in place that prevents customers from getting into Uh, situations that are unexpected and very tricky for them.

AI assessment note: “You know, we think about that, uh, that problem a lot, and we care”

Q And did you, did you have sympathy for that, for that movement?

A I mean, I definitely understood the, the frustration and empathized with it. You know, I wasn't part of, uh, I, I wasn't doing like the, the protesting. Um, but my feeling was, I believe in, in technology and, and innovation. And I think that we can address some of these problems. Right. And I think that movement was an input to A great degree in the idea behind Robin hood. And there were a couple of other inputs. One was just our knowledge of the space, which I think was unique. And we kind of understood exactly how a trade was executed, settled and cleared and a decent amount of like the compliance aspects of that. We realized there was very little cost in the system for it and you couldn't make it work for free. And in fact, that's how institutions were trading millions of times a day. They couldn't do that if, if there was a lot of cost to doing these things. Right. So that was one. The Occupy Wall Street movement and the disillusionment with the financial system was another. And the third was a very San Francisco one, although we, we saw it in New York as well. And that's mobile technology. So in New York, there was this product called Foursquare.

AI assessment note: “I definitely understood the, the frustration and empathized with it.”

Q But in the midst of all this, I think you guys are actually doing pretty well, right?

A Yeah, um, it was profitable, uh, got up to a few million in revenue. We saw a path to growing our customer base, improving the technology. Maybe we could get to ten million in annual revenue at some point in the not-too-distant future, but that's where my, my third, uh, the third thinking that, that I had, the third transformation as an entrepreneur that we went through comes in, Um, you know, we started thinking about if we were to do this for a really long time, is, is this something to be proud of? Like, is this something you can get back from a hard day's work worth of work and hang your hat on the, on the hook and say, you know, I'm really doing awesome things for society.

AI assessment note: “Yeah, um, it was profitable, uh, got up to a few million in revenue.”

Q How did, I mean, this was, this was basically, it was an unanticipated surge of users. You just, that's what it was. You, you just weren't prepared for the surge, and, and, and, you know, simple as that?

A Yeah. I mean, it was, it was something, um, very simple ended up failing and taking out our system, right? It was a DNS system failure, which was a failure by a system that we didn't even write ourselves, right? Open source software for some of that. Um, but yeah, I mean, it was painful for our customers. Also for me as an engineer, like you never want To have system issues. Right. It's sort of like it hits me to my core to a certain degree because like I'm responsible for it. Right. And what you saw is Robin hood learning from that, making a lot of investments, which you probably don't see. Cause how can you see reliability? You only really see it if you're up and your competitors are down.

AI assessment note: “It was a DNS system failure, which was a failure by a system”

Q Well, but okay, let's not use that word then, but I mean, is that, could you argue that's an unintended consequence of the platform that, that, that can now happen very quickly?

A Well, I think that we certainly didn't anticipate that people on social media would coordinate and all buy the same stock at the same time. I, I just, I just don't think the markets were built with that Idea in mind to support that. Like March of last year, right, when the entire market was down, and clearly there was like a broad-based, um, broad-based stress on the system, deposit requirements and collateral goes up in those situations, and that's kind of what it was built for, right? And that makes sense to, to everyone. In this case, you know, you could argue this is concentrated on a small number of stocks, but the system wasn't built for People on the internet banding together, millions of people to buy the same stock or small group of stocks, and I think it kind of broke the system to some degree.

AI assessment note: “we certainly didn't anticipate that people on social media would coordinate”

Q yeah, you know, the customers aren't, the, the, the people are making the money out of this are these Trading firms and Robin Hood, and actually the customers are losing out. Did you get frustrated? I'm just curious. I mean, do you think that that some of the media criticism and coverage of you has been superficial, unfair? I mean, what do you get mad, frustrated? What do you think?

A Well, I think that I was watching this interview with Jeff Bezos a couple of years ago, and he mentioned a few things that resonated with me. One of them is you got to have thick skin, right? People are going to take shots and you know, it doesn't hurt them to take shots and potentially millions of people can do it. So the only way to survive that is to actually just listen to the criticism and understand it, but otherwise have thick skin. And I think Uh, you have to tolerate being misunderstood. Obviously correcting the, the narrative and making sure that the facts are out there. But I think if you're, if you're trying to do something important, you're going to be misunderstood. And, uh, I think that, that resonated with me. And, you know, around some of these specific things, just have to get the facts out there. You know, the fact that, uh, Robinhood customers had, uh, At the time of the congressional hearing, 35 plus billion more in unrealized and realized gains, equities in crypto on top of money that they deposited. Um, I think it's a pretty good fact that, no, it's, it's not just Robinhood and our market makers that are making money. Customers have, have done quite well and benefited from the markets as well.

AI assessment note: “One of them is you got to have thick skin, right?”

Q version of, of, of what you do, um, who, who, who say we don't do These kinds of trades. Um, yeah. What about the, the criticism that Robin Hood works with these third party firms that are, that are going to pay the highest dollar amount, which is not always in the best interest of the customer who is making the trade? Is there, is there any truth to that?

A Well, I mean, I, I would first say they all pay the same rate. We work with the largest firms and you know, the stuff is all highly regulated. Um, and I think it kind of gets back to the idea of we have to generate some revenue, right? So this sort of like conflict of interest idea seems to be the same generic conflict of interest that exists when you're a business selling any type of product. It's like I could make revenue Or I could just use that revenue and pass it back in the form of lower prices for my customers in the products that I sell. And actually I'm all about crushing profit margins. A lot of people said that the business model couldn't work the way that it's working for us and that it would be so tight and the profit margins would be so narrow that other people weren't able to make it work. And I think you also saw that play out when The incumbents replicated our business model in 2019. You know, every major competitor went to zero commissions, which was crazy. I mean, I never seen anything like that. You see some of these stocks are dropping overnight, led to a wave of industry consolidation because presumably a lot of those firms couldn't make it work, uh, independently without that revenue stream. So make no mistake about it. It's never been a better time to be a retail investor in this country. Like, What Robinhood has come in and done is obliterated a large p…

AI assessment note: “I would first say they all pay the same rate.”

Q And you were just like, oh, that's just, I don't care what, or did any of that get to you?

A I think I, I went through a couple of transitions in my life as an entrepreneur, right? Um, the first kind of transformation was becoming an entrepreneur. And what I was really excited about in the beginning was just working with my best friend, I'd say, first of all, but getting to a point where the idea of like working for yourself and working on these interesting problems and They were very interesting technically, right? You're just trying to squeeze every ounce of performance out of these systems and being an entrepreneur and you're taking a lot of the creative energy that you have and immediately producing code, uh, to solve that. And I think it got to, it was a different way to get to kind of what attracted me to math in the first place, which is that math was a way to get things from your brain to the real world with, uh, Very, very high efficiency. You know, you didn't need any equipment. You just needed a couch and your brain and maybe a chalkboard and you would be good. And this was a lot like that. And I didn't have any experience with entrepreneurship, really. Like, it's not really around in Virginia to a significant degree.

AI assessment note: “I went through a couple of transitions in my life as an entrepreneur”