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Startup Insider: The Story Behind Stock Trading App Robinhood and Its One Million

2017-06-06 16:02 [MARKETS] Source:Netword
Guide:Startup Insider is a series of articles with the goal of helping aspiring founders and entre...

Startup Insider is a series of articles with the goal of helping aspiring founders and entrepreneurs understand the ins and outs of starting a startup. You can sign up to stay up to date with this series here. If you have any interesting stories, you can email us here.


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.


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."


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.


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