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The Knowledge Project
The CEO Who Lost 80% of His Company's Value (And Built It Back): Vlad Tenev
01:50:38
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Transcript162 lines
- [00:00]
Shane Parrish
I want to come to GameStop for a moment. You need billions in collateral. You make a decision to restrict the trading. How did you make that decision?
- [00:09]
Baiju Bhatt
It was a situation which had no precedent.
- [00:13]
Shane Parrish
The narrative that came out was you were in bed with the hedge funds.
- [00:16]
Baiju Bhatt
A juicy falsehood is more powerful than a boring truth.
- [00:20]
Shane Parrish
What did you think of the movie Dumb Money when you watched it?
- [00:23]
Baiju Bhatt
I didn't see the entire thing, but I did see the clips that I was in.
- [00:26]
Shane Parrish
Wait, come on, you haven't watched it?
- [00:28]
Baiju Bhatt
I think what most companies suffer from is
- [00:34]
Shane Parrish
I want to come to GameStop for a moment. So take me back to the moment your phone rings. You need billions in collateral, maybe set the scene for us and you make a decision to restrict the trading. How did you make that decision?
- [00:51]
Baiju Bhatt
I have very fuzzy recollection of that time. You know, sometimes you talk to trauma victims or like. I've heard a lot from people that have many children, including myself. I'm more than one. It's like my wife says, you know, it's very. The pregnancy and the childbirth, very, very painful. But for some reason I don't remember it. And then that sort of like evolutionarily gives you the signal that you should do it again. And I think we're doing. Yeah, I think I was at this IPO roundtable at the SEC about making the IPOs great again. And with Robinhood Ventures, we're taking that fun public. So we're doing another ipo. And I joked that, yeah, it's kind of like that, the IPO process, I remember being painful and I didn't like it, but I don't really exactly remember why. And now I kind of want to do it again. But yeah, that's a big aside that has nothing to do with GameStop other than. Yeah, that was a very challenging time. It was towards the end of COVID and I felt like everyone was going a little bit crazy. They'd been cooped up at home for about a year without much human to human interaction. I think from a crisis management standpoint it was very difficult to deal with because doing these like conference video calls with all these different stakeholders. The regulators weren't in office. And so, yeah, basically what happened was we got this like automated file in the middle of the night and it had big numbers on it, right? It had big numbers that kept changing and it was a situation which had no precedent. And you know, we had to make a tough call to put GameStop and a bunch of other companies on position closing only, which basically meant you couldn't open up new positions, take on more risk for a period of about one day. So it wasn't even that long. But because there was this narrative that had taken over social media, this like, viral narrative that it was the retail investors taking down the hedge funds. And we were kind of the tool people wanted to put. It was like a good versus evil thing. And I think what was just what would have at any other time for any other stock, been kind of an innocuous risk management decision to control our internal risk turned into Robinhood's on the side of the hedge funds colluding against the retail investor. And I think the fact that the name of the company was Robinhood made this like a juicy false narrative that continued to go viral. So I remember in the beginning of the. In the middle of the night when I woke up, my phone was basically unusable because it was like those videos you see of what happens if a Kardashian turns off Do Not Disturb on their phone. It just is a constant buzzing thing. So that, that was. That was my morning. I was like, the phone is completely unusable. I can't even get on a zoom call because there's just random people calling me, telling me to. To turn it back on.
- [04:23]
Shane Parrish
You know, just to give people context a little bit if they're unfamiliar with the situation. The narrative that came out was you were in bed with the hedge funds because the hedge funds were trying to close their short positions on a stock that was basically going parabolic.
- [04:40]
Baiju Bhatt
Right.
- [04:41]
Shane Parrish
And it was a unprecedented situation. I've never seen it before anyway. I can't. But you also.
- [04:48]
Baiju Bhatt
That's never happened before.
- [04:49]
Shane Parrish
One of the interesting details of this story that I don't think many people know is you had given GameStop shares to people when they signed up for Robinhood, didn't you?
- [04:58]
Baiju Bhatt
That's absolutely right. So you can make the argument that we kind of started the whole thing. You know, everyone, if you were joining Robinhood in the year 2020 leading up to the whole GameStop thing, which, by the way, a lot of people joined robinhood that year. GameStop was one of the collection of free stocks that was given to customers. So, yeah, a lot of people, you know, just came in, got their free GameStop share, and maybe they weren't engaged that much, but then when they saw GameStop going up, suddenly those shares were. Were worth a lot of money.
- [05:31]
Shane Parrish
What's one thing the world still gets wrong about that time?
- [05:34]
Baiju Bhatt
I mean, I think the major thing is just that Robinhood colluded with Hedge funds to shut down trading. There was also another false narrative that I think is funnier. But yeah, Sequoia had to refute this. Someone put on the Internet that the White House actually called Sequoia Capital one of venture capital investors and got them to pressure us to shut down GameStop. So yeah, that was a particularly funny one. But if you look on Reddit, that had like thousands of reposts. So yeah, I think that, I mean, we don't really have any business with, with hedge funds. So the, the idea that somehow a hedge fund would collude to have us shut down trading of a, of a stock, I mean, always seems silly to me. But I think what we learned is a juicy falsehood is more powerful than kind of a. A boring truth. Yeah.
- [06:38]
Shane Parrish
And you can't fight story with facts. It's like so weird.
- [06:42]
Baiju Bhatt
Yeah.
- [06:43]
Shane Parrish
Like once a narrative gets any traction whatsoever, it doesn't matter how crazy or false it is. Facts do not tend to refute that. You see this in politics all the time. Right. Once somebody tells a story and the mind share goes to that story, no amount of evidence or data will ever overturn that story and they'll believe it for like 20 years. Yeah, it's crazy. One of the byproducts of that though is you got to talk to, to Mark Zuckerberg and Daniel Ek. I'm curious about what you learned during that period of time from those two. I think Daniel had talked to you about going through a PR crisis.
- [07:22]
Baiju Bhatt
Oh, yeah. Actually, I didn't talk to Daniel at that point, but I did call him when he was dealing with his Joe Rogan thing. I don't know if you remember that.
- [07:34]
Shane Parrish
Oh, totally.
- [07:36]
Baiju Bhatt
Yeah. Like Joe Rogan was in the process of getting canceled and I mean, Spotify was getting immense pressure from both sides. Right. Do they de platform Joe Rogan or.
- [07:48]
Shane Parrish
Yeah.
- [07:48]
Baiju Bhatt
Do they piss off all the people that want Joe Rogan to be deplatformed? So that, that was probably, I mean, Daniels, I'm sure dealt with his share of. Of crises, but that was probably his GameStop moment. So yeah, I called him to pay it forward, to offer whatever support I could have and hopefully that was helpful to him, but he's actually, yeah, probably wiser and better than me in these things. So I don't know if he needed it. But yeah, at that time Mark Zuckerberg called me and Elon Musk called me. Mark Benioff called me. And a nice positive side effect was these people probably wouldn't have cared about Little Robinhood at The time. And suddenly I think I got to talk with these business magnates that have built massive companies and they're giving me their perspective on the whole situation.
- [08:47]
Shane Parrish
One of the things that I love that you did during that period of time was you went on A Clubhouse with Elon. I don't know if you regret that now.
- [08:54]
Baiju Bhatt
No, no. I thought that was probably the, the best media appearance of the week, for sure. Not saying much because I, I had some bad ones.
- [09:02]
Shane Parrish
But what did you think of the movie Dumb Money when you watched it?
- [09:07]
Baiju Bhatt
I didn't see the entire thing, but I did see the clips that I was in and.
- [09:12]
Shane Parrish
Wait, come on, you haven't watched it?
- [09:16]
Baiju Bhatt
Well, I did see the parts that I was in, which was about six minutes and some of the rest I actually thought, you know, I know it didn't do very well, but I found it more or less entertaining. My favorite part, which maybe wouldn't be other people's favorite part, or maybe it would for some ladies there was that my character was played by a very good looking actor, Sebastian Stan, which, you know, I wasn't displeased about. I would have thought Adam Driver would also be good, but Sebastian Stan, maybe a slightly less good actor, but probably easier on the eyes. Right. And the thing that I enjoyed most is that in every single scene, he was shirtless. So it was like in the kitchen grinding a smoothie, talking about, you know, GameStop or in the bathroom shaving. Just the idea of me being shirtless, dealing with all these complicated business situations just made me laugh a little bit.
- [10:23]
Shane Parrish
You're going to be the first physics math person on the COVID of gq, I think.
- [10:27]
Baiju Bhatt
I mean, I see what they were doing. I'm flattered. But yeah, I wasn't solving all these business problems, grinding my smoothie, finishing my workout.
- [10:40]
Shane Parrish
Most people assume that GameStop was the hardest time for, for you and robinhood, but actually 2022 was harder. What happened?
- [10:48]
Baiju Bhatt
I think 2022 was harder in the sense that it was sort of like a gradual, slower burn. I mean, GameStop was acute and very painful and stressful for a short period of time. But once we resolved the situation, unlocked the shares of GameStop so they could start being purchased again, and, you know, I basically like, did my congressional hearing and did my roundtable of different podcast appearances, the acute part of it was over. Like, the acute part of GameStop was really one day. Yeah. Whereas in 2022 it was a gradual shift of all of, like, the economic trends that had been tailwinds for the business During COVID reversing rapidly into headwinds. So, for example, I mean, first the, the COVID relief stimulus checks stopped. Right. And then it became clear inflation was ticking up, and that was having a big impact on people's discretionary spending and investing. And then layer onto that, the interest rates. Government went from a long period of rock bottom interest rates to the highest interest rates in over 30 years. They went to 4 or 5%. And when that happens, actually investing becomes less attractive because you can get your average 7% rate of return from the stock market after inflation, or you could get 5% just sitting in cash.
- [12:37]
Shane Parrish
Yeah.
- [12:37]
Baiju Bhatt
So people naturally reallocate a little bit and start holding more cash and buying less stocks. And our business was first timers getting into the stock market, buying, buying stocks. So all of the tailwinds for our business turned into headwinds. And, and of course, when that happened, it was obvious to the market as well and not fair. To be fair, not just Robinhood, but our entire sector got hit hard. We went from IPOing at about a $32 billion valuation in 2021 to, in 2022, we were, we were trading at like $6 and change. So we lost 80% plus of of our market value since IPO, which, you know, a lot of times, if people were calling Robinhood a broken ipo. Right. And I was getting advice that maybe I should try to figure out how to do a buyout and go private or something. So, yeah, all of these things start coming up that don't actually have much to do with running your business and building products, they become kind of distracting. So, yeah, that was very, very tough to navigate. And I think I took some solace in the fact that it wasn't just a Robinhood specific issue. But nonetheless, I mean, we, as an entrepreneur, yeah, it's very, very competitive and you really just want to win. And so I said, you know, I'm not going to be one of these people that either gives up because a lot of founders, unfortunately, we lost a lot of great founders in that time where they just left their companies. Right. But so I'm not going to give up. I'm also not going to batten down the hatches and say, we're just going to ride this out and hope for interest rates to go to zero in the future and just like, not do anything and turn into an ostrich or a turtle. A lot of businesses were doing that. For example, the mortgage companies, A lot of the mortgage companies view, if you listen to their public statements, they were like, well, the market's going to improve at some point and people want mortgages. Again, we said, what can we give to our customers that will actually let them thrive in this particular market environment where you see high rates and cash is attractive? And that led to the birth of, or I should say, the revival of Robin Hood Gold, which started with, how do we give customers the absolute highest yield on their uninvested cash so they can put that onto the platform? We followed that up with Robinhood Retirement, which has over one and a half million accounts. I think it's the best retirement product on the market by a wide margin. We give everyone a 3% match if you're a Gold member for, for making contributions into retirement. And so we really started to think about, okay, how can we diversify the business away from trading, but also away from being sort of like a zero interest business that thrives in that environment, but maybe doesn't do as well when, when we're in a high interest rate. And so we ended up doing that. We diversified the business tremendously. And then quicker than I imagined, you know, we become a business that has 11 business lines now with over 100 million in annual revenue.
- [16:03]
Shane Parrish
I talked to somebody and they characterized this and maybe they're wrong. So correct this as you basically fired the nice version of yourself and turned on like, founder mode. I forget their exact words, but yeah. Is that true?
- [16:18]
Baiju Bhatt
I don't know if I would characterize that. I still think I'm very nice. Basically what it was was I had to spend a lot of time thinking about how to fix things. And I think that when we went through Covid, there was a lot of pressure, not just from what other companies were doing, but also just because we were doing very well during COVID and growing very, very quickly. Right. We went from, I'd say, end of 2019, we had 700 people and something like 200, 200 and change million in annual revenue to in the next year, end of 2020, we had thousands of people and close to a billion in revenue. So it's like a 3, 3 3x plus in growth. And you look around us and, you know, during COVID a lot of our contemporary companies were struggling. Airbnb, which we always to some degree, like grew alongside airbnb, we started at similar times. They were a little bit before, so that what was swirling in the air was we've got to batten down the hatches Covid, you know, but our business was booming. And in fact, what we were hearing was customer support is getting strained Our engineering systems restrained. We ended up having to hire a bunch of people during COVID just, just to keep up. I think we continued that hiring and became a big company very quickly. Things didn't really work very well together. A lot of the people that joined since we were remote had never met in person. And so it wasn't just that we were being nice or we were like coddling employees. I think that the, the inputs that led to that tremendous acceleration in the business and the headcount growth were not sustainable inputs. Like, you only have one Covid. So when that reversed, we actually, it gave us an opportunity to rethink all the changes that we made to keep up and, and reset a little bit, which I think at the time was painful, but it led to a much healthier company. It's like, it's like, not to use another weightlifting analogy, but they're so good. If you want to get really, really strong, there's one way where you just like gradually build up muscle mass and keep your fat low over long periods of time. But what, what Robin Hood did was we bulked up gigantically and also gained a lot of fat in the process. And then we did like a massive leaning out. I think that works for, for a lot of people and you end up getting to the same place. And in retrospect, I'd say. Maybe it's too much to say that I would have done it differently. I think we had to adapt to what our reality was at the time. So I don't know if we had a great. I probably would have done things differently around the edges with the culture and thought about the values and really
- [19:57]
Shane Parrish
sort
- [19:57]
Baiju Bhatt
of like enshrined them earlier. You know, the values I mentioned earlier. High performance, safety, always lean, disciplined one Robin Hood.
- [20:06]
Shane Parrish
But in practice, fixing things, everybody says that. But where it sort of like meets difficulty is that means undoing something I've already decided. And that means admitting that I was wrong. And so people sort of like, tend to, in general, not everybody, they tend to like, slowly sort of like, oh, I'll undo a little bit of it and then I don't get any of the results.
- [20:32]
Baiju Bhatt
Oh, yeah. So I have a good business suggestion. Usually things. Things get easier if you do them multiple times and you could practice doing this once and making a big show of it. Like, actually maybe you take a small thing that you were wrong about that you wanted to undo and, and just say, I want to tell you about something that I completely screwed up. It was a wrong decision. And now we're taking it back. It could be like the snacks in the office or something. Got rid of, got rid of Sichuan food catering on Wednesdays. And then, you know, see how it goes. And then you realize, well, maybe it's not so scary. Then you can do it for a serious thing. And then maybe eventually you can do it for three or four things simultaneously. I'll give you an example. During COVID we introduced a lot of. It was this thing that from the beginning I just like didn't really like the idea of, but a lot of people felt very strongly and there was just too many things happening. But yeah, we were like, we had these wellness days where entire teams would take a wellness day after working particularly hard. And at one point I was just like, let's kill these wellness days. And there was just a lot of fear. I mean, some people actually legitimately like the idea of wellness days. I was like, I don't want to be a wellness day company. We have generous pto. Take a PTO and this whole idea that an entire org or team would take the same day off, that seems like a problem. What if there's an issue and we need someone? The entire org is taking a day off. Doesn't make any sense. I think this was like one of those Covid era things that some companies probably still have. But yeah, anyway, and there was fear, like we were taking back a perk from employees. They like their wellness days. They'll complain. Well, we took off the wellness days, there was complaining for one day and then we never heard about it again. So I think once you start doing these things and you realize our deepest fears about the consequences were wrong. And yeah, you learn some things.
- [22:56]
Shane Parrish
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- [24:34]
Baiju Bhatt
Our values are high performance. So we make it clear to not just employees, but anyone applying for a job that this isn't meant to be like a cushy chill job. Like, this is for people that want to stretch and to do in one year what maybe another company would expect you to do in 10 years. So we keep a very, very high performance bar and that filters into how we compensate. Like, we reward people disproportionately based on impact, and we try to stay away from rewarding people on conventional things. Think about a typical company. People are paid generally proportional to the org size that they manage. And if you think about what that incentivizes, that incentivizes empire building. I want to have a big org with a big team because then according to traditional HR metrics, I'm more important. But really what we want to incentivize the opposite. Can you, can you have a lot of impact with the smallest possible team? So high performance is one of them. Safety, always. We have a safety, always value, which means, sure, we're going to move fast. You know, sure, we're, we're holding ourselves to an absolute performance bar, but you can't use that as an excuse to cut corners or compromise on the security of customers and, and their money. So it's a very important one. You know, regulatory compliance is very, very important to our business as a, as a trusted financial platform. So we have that one lean and discipline another one. I always ask, how can we do more with less? We scrutinize every dollar and every process as well. And yeah, I mean, I think that if I think about culture, I won't go through every single value, but those are the big ones. If I think about culture, it's. It's a few things. It's how we hire the talent that we bring in, how we performance manage and reward people and also the working environment. What's the environment like in the office? So hiring it's really top talent. I'd rather have a small team of the best people than a large team of mediocre people. And that goes, goes along with the high performance, how we compensate and performance manage. We want to make it, we want to reward people disproportionately based on impact. And also if it's not working with someone, we want to make it as easy as possible, process wise for that person to go somewhere else. Right. We don't want to spend too much time.
- [27:30]
Shane Parrish
How quickly does that happen? Is this like, you know, somebody's there for three weeks and you're like, oh, this isn't working out or is it, do you give it six months? Which sounds like an absurdly long period of time, especially given what you're trying to accomplish.
- [27:42]
Baiju Bhatt
We want to make it. I mean, sometimes it's pretty obvious that for whatever reason we made a hiring mistake, usually that someone's not a fit. And at that point we want to make it as easy as possible. So yeah, if it's three weeks, doesn't make sense for us or for the person to, to continue, I think six months, once you know, it's not a fit, is way too long. But of course sometimes we've had people that have come in and for whatever reason they don't hit the ground running right away. But if we see potential in someone and they're extraordinarily good at a particular thing, you know, sometimes they, they actually, they get there and that could take six months. But yeah, generally speaking, I think what most companies suffer from is process getting in the way and actually making it very, very difficult for people to, to, to get rid of low performers and, and I think we try to make that very, very, very easy.
- [28:51]
Shane Parrish
If I was looking from the outside in, is there anything about your hiring process that would stand out as unconventional? That works for you?
- [28:58]
Baiju Bhatt
Well, I should say I'm not super familiar with how every company does it. Right. So I'm sure some companies do many of these things, but yeah, yeah, perhaps one thing that's unconventional, at least in financial services is emphasis on early career people. From the very beginning, we pull our company next to Stanford University. We would spend a lot of time, you know, recruiting interns and engineers from there and that was my alma mater and be my co founder as well. So we would spend time actually when we were individually hiring everyone going to career Fairs at the top tech universities. And you know, I still spend a lot of time with early career folks and interns and I think it's very, very good for the company because a lot of the companies in our space tend to get older as they get further along and the folks working there can be more disconnected from the young people. And then that puts you at risk of becoming more of a generational company in the sense that Charles Schwab serves baby boomers very well. You had E Trade coming later, that was really a Gen X company. But I think they've struggled a little bit getting the younger generation excited. And I know, you know, they try very hard to get there, but I think the best way to do it is to actually make sure that the company itself has the point of view of young people.
- [30:41]
Shane Parrish
And you're sitting with them, working with them and learning from them at the same time.
- [30:45]
Baiju Bhatt
Yeah, yeah, yeah. Sitting right next to them. You know, I always like to have some interns or early career people working on important things and I like to be around the people that are working on the key priorities as well. So yeah, we don't just stick them in the basement and have them fetch coffee. The big thing is we actually want you to have to work on projects that ship to production and do meaningful work. And what I like to say is I started off as an internal at Robinhood. I mean, I didn't have any career experience. I went straight from school into becoming an entrepreneur. And so I kind of have empathy for what it's like and you know, if I can succeed and become the CEO of, of a company from a internship and then everyone should have the ability to, to do that.
- [31:34]
Shane Parrish
How do you run your weekly leadership meeting?
- [31:36]
Baiju Bhatt
Yeah, so weekly leadership meeting is a big meeting. There's, there's a lot of people involved and I like having large groups of people involved because then everyone can sort of like hear what's on everyone's mind. I don't like having a lot of one on ones and some people are big one on one fans. But over time I've, you know, my one on ones are basically on demand when you need something critical or some important decision needs to be made. So the leadership meetings are either important information that I want to cascade like they're at the beginning of the week. So a lot of it is, you know, I spent some time thinking over this weekend about this or we should be moving faster on this or it's. We also review goals. So I like a very simple mechanism for sharing progress on goals. It's either green, yellow, or red. If it's green, we don't really have to talk about it. If it's red, I think it deserves some scrutiny. So, you know, sometimes we go through the red goals and see how we can help turn it around as quickly as possible. And that involves a little bit of ceremony. You know, I have a gavel and I hit the gavel.
- [32:56]
Shane Parrish
Do you actually. That's awesome.
- [32:58]
Baiju Bhatt
Yeah, yeah. Um. And yeah, you know, it's. I think that sometimes it's. It's really nice to lighten up some extremely serious things so that people actually enjoy talking openly about, you know, goals that things that aren't going well. Because the assumption is everyone on the leadership team is, if not exceptionally strong, at least very, very strong. So usually if things aren't going well, there's a good reason. It's usually not for lack of effort. And sometimes having the perspective of multiple people can really help us quickly improve things and turn them around.
- [33:40]
Shane Parrish
Are there any other meetings that you have on a weekly basis? I think about a founder's time being the most valuable and most highly leveraged. And then where do you get involved, uniquely as a founder, to add that leverage to the organization? And where do you sort of like it? Hands off.
- [33:56]
Baiju Bhatt
Yeah. I mean, usually I'm involved in the most critical product launches or projects that are going on at any given time. And a lot of times we are. So we do a lot of product events. I think this year we're going to have five of various sizes and scales. But. But usually the product events tend to have themes. So actually we're doing one in a couple of weeks. Well, I should probably be more explicit about the date. We're doing one on December 16th of this year. So towards the end of the year. And it's called. Yes, no. So it's an event on prediction markets and AI, and we spend a lot of time just making sure the messaging is right, the design of the event, the look and feel, of course, the products that go into it. So, yeah, there's a big component that's just making sure that the next event that we're going to do is.
- [34:56]
Shane Parrish
Are you in the weeds on that?
- [34:58]
Baiju Bhatt
Yeah. So I present at the events and I introduce the products, not just me, but with the teams that are working on them. So the event is like television show.
- [35:12]
Shane Parrish
Yeah, I'm excited to watch. What factors do you think makes your marketing communication so good? It seems so clear and crisp and on point.
- [35:21]
Baiju Bhatt
Well, thank you. It wasn't always the case, I think we have great people that think entirely about the storytelling of what we're doing, what the purpose is. I think the events themselves are a good forcing function because if you're communicating a new product to 20 million people, it really forces you to distill it into the essence of what 20 million people can understand. So I think where I tend to sometimes make mistakes in communication is I can get too jargony, too in the details, because I just assume the average person watching is in the details of the business like I am, which I think is not a great assumption. So I think, like, really thinking about it from first principles. If you're someone who has never heard of a prediction market, for example, how do you explain what a prediction market is and why it's innovative, why it's important for society for these things to exist? We start there, and then I think once you have the foundation, you try to make sure all the products plug into that foundation. You tell a coherent story. So I think it's really just about storytelling and you have to spend time and have people thinking about it. And if I don't think about it, or if the CEO doesn't think about it, then I don't think the story gets told. So as a founder and CEO, you have to spend a lot of time personally getting involved in that.
- [36:57]
Shane Parrish
I think, as you were saying that what came to mind is Steve Jobs and features and benefits. He didn't come out and say, here's 32 gigs of music capacity, he's 1000 songs in your pocket. Is that what you mean by that?
- [37:14]
Baiju Bhatt
Well, actually, yeah. You know, when we started doing this events, that was a huge inspiration. We were like, well, we should just make them exactly like the Apple events because they've perfected it. But then, you know, now we're on our fifth event this year. We started it last year, and it's really just. We don't think about the Apple events at all. I think it's almost like learning to play a new instrument, right? When you first learn to play an instrument, you know, you just have to practice and do what the other greats have composed in the past. But then once you get to a certain level, you know enough to innovate and to, like, break rules and to change things. So, yeah, now, now we really, like, try to make it different each time. Like, how can we, from first principles, make this event as good as possible? And we don't feel like we have to be tethered to the old Apple model, which some people just replicate. But to answer your Questions? No, I don't think that was necessarily a rule that Apple had for the events, actually. In a lot of their events, they get really into the technical details of the computers and they share the megahertz of the processors. And they even had Bake Offs where they would load a website with a PC and they would load it with a Mac, and obviously the Mac would load 10 times faster. And everyone would be like, oh, my God, you know, one second, 1.5 second load time versus 7.9.
- [38:44]
Shane Parrish
Well, jobs was. I mean, he had this element and you see it throughout history and showmanship. Right. Like there was a story to it, there was a presentation, there was like you were anticipating, you were like, you could feel what was going on.
- [38:58]
Baiju Bhatt
Yeah. And I think, you know, he was basically an artist. He was probably the greatest of all time at that particular element of it.
- [39:07]
Shane Parrish
How are you guys using AI internally? What would surprise me about how you're using it.
- [39:13]
Baiju Bhatt
Yeah, I think we haven't talked too much publicly about it, but we're doing a AI event on December 16, which is our first. Our first big event focused on AI as well as prediction markets. But AI is going to be a big part of it as well. I think that when we talk about internal operations, what we told the team from the very beginning is, look, there's two areas where we want to start with and be absolute best in class in our space, and that's customer service and software engineering. Because if you think about what really moves the needle, those are the big teams that have multiplicative impact. Customer service interacts with, you know, all of our customers that are having issues or need help with the platform. And traditionally that's been a big cost center for our peers and competitors because it scales with number of customers on platform. And so we've done so much innovation there. By and large, if you interact with customer service on Robinhood, you're interacting with our AI agents. And I think we are best in class on that side. On the software engineering side, you can think of it as accelerating product velocity and development. So we've seen tremendous increases in product velocity from our engineering teams because from a very early point, we've made it as easy as possible to use every AI tool. It started with a GitHub copilot because that was the only game in town. And then of course, Cursor and Windsurf until that got acquired. And then of course, Claude Code has been very popular command line interface tool recently. I think the important thing about AI adoption is you have to track the Right. Metrics and actually look at them very, very carefully. And I think the great thing about software engineering and customer support is the metrics are pretty easy. Right. For customer support you have to look at AI deflection rate, how many, what percentage of tickets that would otherwise be going to an agent are actually being fully self served by AI. And you want to drive that up as high as possible. And for software engineering you're looking at percentage of code commits generated by AI. But you also want to check that with is the total engineering velocity. Are the total monthly commits per engineer continuing to increase? Because you want to make sure that it's not just AI is doing a larger and larger percentage of the software engineering contributions, but that in aggregate you're making more contributions and being more productive. And so I think we started with those internally and now we're, we have it baked into the process where we almost think of it as headcount. Okay, how much, how much compute do you need next year instead of this headcount? How hard have you tried to like use AI agents in the workflow for every team? And, and I think the next frontier where we're going to see really interesting stuff is on creative and marketing. So you can imagine to create really high quality advertising collateral would have taken a lot of like deep work over a long period of time by, by great artists. But if you can empower those artists with the best tools. 11 labs mid journey Runway. You know the, the total amount of creative can increase by 100 or a thousand X and you can actually make them much more personalized. So I think that's the next frontier that companies aren't really talking about. But I think we'll get to the point where next year you'll see a big step change.
- [43:13]
Shane Parrish
So what does that mean though? Walk me through the second and third order effects of that. Like if you can do that, that means anybody can do that. And if anybody can do it, well all of a sudden like what is the consequence of that?
- [43:24]
Baiju Bhatt
I actually don't think anybody can do that. I think these are really hard problems to, to, to get right. Yeah. Because it's not just. Of course most people don't even have metrics to track this stuff, which is I can give them the metrics. Hopefully they're, they're useful to, to listeners. But thinking about, let's just say customer support for example. I like to break down customer support progress in AI into three stages and you'll, you'll see or more, more phases than stages. I should say phase one, phase Two and phase three. Phase one is a company puts the help center into the AI chatbot. And so the chatbot can answer any question from the help center. Most companies doing AI for customer support are in this phase. Right. Where it's just. That's pretty easy to get going. Most people just.
- [44:28]
Shane Parrish
It's almost like a better search function.
- [44:30]
Baiju Bhatt
Yeah, better. Well, you know, and it's better than actually having links to the help center that you'd have to navigate, which actually I think probably still most companies aren't using AI for customer support and they're still pushing you towards just navigating a help center. We were there too, probably five years ago. Five to ten. Phase two is all right, you're getting a little bit more sophisticated. You're not just taking the data from your help center and feeding it into the AI, but now the AI can actually go into the database. They can say, okay, I can see Shane's account. He's got, you know, $50,000 in there, and he just deposited some money yesterday from Chase Bank. Okay, so you can pull that data and you can use it to provide better contextual support. But it's still read only. Yeah, right. So I'm rough numbers. Let's say 90% of companies are in phase one. 90% of the ones that aren't in phase one are probably in phase two. Then you have phase three, which is okay. Now I can actually do non read only actions. I can change stuff. Maybe I'll refund you. If, you know, you're not happy with your purchase, you can refund your gold subscription fee. So that involves actually some pretty deep work, deep integration into all of like the back end systems. So you can imagine the utility goes up as you get deeper, but the cost also goes up. And so actually I think very few are in phase three. That's where Robinhood's in. Um, and yeah, it's, it's, it's actually not easy. And I, I think that most companies are vendoring this and this is the thing that vendors are hard at because, you know, vendor's not gonna be able to save you much time in the actual process of plugging into all your systems. That's gonna be work that your engineers internally are gonna have to do. But I think what made it easier is from a pretty early point, we wanted to make our data easily queryable internally because we wanted to run good analytics to understand what was going on. And so once your data is queryable, it makes it so that you generally have good systems hygiene. It's in one place it's got clean interfaces. You spend time making sure that it's correct. And I think the work that we did, not really thinking about AI made it a little bit easier to plug in these models and actually run inference and build agents. And that's just the stuff we do internally in the product. We have Robinhood Cortex, which is our AI model. And the most visible use case of it in Robinhood right now is stock and crypto digestion. So if you go to a stock that's moved, it'll give you a real time view of what's actually driving it. I think some of our competitors have done this as well, but I think what makes our offering especially compelling is it updates basically every minute. It updates whenever new information comes in. Whereas, you know, I think most companies do it once per day. And it's just, it's basically stale for companies in which lots of news happens.
- [47:57]
Shane Parrish
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- [48:16]
Baiju Bhatt
And.
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- [50:06]
Baiju Bhatt
Yes, that's right.
- [50:08]
Shane Parrish
Talk to me about the limitations of how we train the models and what the implications are. I think about this in the sense of the models are trained on the whole Internet. There's a lot of garbage out there. They're predictive in the sense of. They're really. Walk me through maybe the prediction versus reasoning. Pure reasoning from first principles up and how you think the current limitations are and where we're going with this and what the alternatives are.
- [50:35]
Baiju Bhatt
Sure, yeah. And basically, the company that I started a couple years ago that I'm chairman of is called Harmonic, and it's building mathematical superintelligence, which is AI that can solve math problems at a level exceeding humans, the best human mathematicians. And it's not quite at a level exceeding all of the best human mathematicians, but it certainly exceeded my level, which I didn't think it would do so so quickly. But, yeah, earlier this year, we actually achieved gold medal performance at the International Mathematical Olympiad, which is the world's most prestigious mathematics competition. These are like cracked high schoolers. Like five people got perfect scores in the International Mathematical Olympiad. And just to contextualize, I say high school, but I bet you I would struggle solving a single IMO problem. Yeah, yeah. Right now. So Aristotle, which is our model, solve five out of six. And the bet always was that this would actually generalize to other things. So if you're good at math as a human, I felt this because I was a math major. If you could figure out how to solve a math problem, you could solve pretty much any problem that could generalize to general problem solving could be better at making business decisions. For instance, we've tested that actually over the past few weeks. They released a product for mathematicians and researchers, and it's been used to solve unsolved math problems.
- [52:21]
Shane Parrish
I saw that.
- [52:22]
Baiju Bhatt
You saw the. The Erdos problem?
- [52:24]
Shane Parrish
Yeah, yeah, yeah.
- [52:25]
Baiju Bhatt
So Paul Erdos, I didn't understand it.
- [52:27]
Shane Parrish
I just saw that. You solved it.
- [52:29]
Baiju Bhatt
Yeah. I mean, yeah, the problem itself is too complicated for me to understand and solve, but Paul Erds was this, like, very prolific mathematician. He would actually travel around the world, stay at people's houses and work with them for a week or two weeks at a time solving math problems. And so there's like a collection of articles and books of problems that Erdos conjectured. They're usually conjectures. Like, it seems like this thing is true mathematically, but I can't prove it. And so now there's websites that collect these things. There's something like 1100 Erdish problems. About half of them are open unsolved. And yeah, harmonic solved at least one of them. There's always some debate like, is it solved somewhere else on the Internet? And nobody found it. So, you know, there's always some controversy around these announcements. But I mean, it's solving an unsolved problem that people care about is a big deal. And you've seen making the jump from competition math to solving unsolved erds problems in a couple of months. And the goal is to ladder that up to unsolved problems that everyone cares about that are of like, massive importance. And actually yesterday they released an update that Aristotle learned to write computer code too. So on a software verification benchmark, it hit a new state of the art of something around 97%.
- [54:02]
Shane Parrish
Amazing. What's different about how you're training that versus how somebody like anthropic or OpenAI. Like what's different about the model itself?
- [54:12]
Baiju Bhatt
Yeah, two things. One is they tend to train. So I mean, they do a lot of little things to train these models. And I think these models used to be like a monolithic LLM. Now they're actually a network of agents, which, which Aristotle is. It's actually a network of agents that are optimized for slightly different things. I guess at the highest level. The interesting thing about math is you can pose a math problem as computer code, and if you pose it as computer code, there's actually a way to machine check the validity of the proof. Oh yeah, yeah. So it can be checked automatically. And what that allows you to do is to create a synthetic data pipeline. And so all of the data that the vast majority of the data that trains Aristotle is actually data that we generate. It's not Internet data. And what happens is you ask a question, the model reasons about it, it tries to solve it, and on the way to solving it, it solves, it generates some lemmas and facts that are proved. And because you can machine check them, you know that they're correct. And if they're correct, you sort of like put them into the training. And so as it, as it solves problems it gets smarter and smarter, and that's basically the idea. So there's similarities. It's probably closer to training a model to play chess really, really well than it is to training just like a English language LLM. But I think the, the fundamental techniques tend to overlap. I mean there's a lot of reinforcement learning and post training, there's pre training as well. But yeah, the main difference is this, this ability to machine check the results, which gives you a good reward signal for your reinforcement learning.
- [56:20]
Shane Parrish
What do you think the limitations are on the way that we're sort of like doing the large scale language models now in the sense of training on huge data sets and being more predictive than I would say bottoms up first principles, if that makes sense.
- [56:35]
Baiju Bhatt
Yeah, I mean I think that we've already shown an ability to create new knowledge and I think that's going to continue. So you know, right now let's say you can easily, at low cost produce a proof that's 10 pages long and actually we can produce longer ones. But just as an example, per unit cost and time, you can produce a 10 page proof. Well, in a year it'll get to 100 pages, in three years it'll get to 100,000 pages. And then you can say, okay, what type of problem has 100,000 page proof? That's probably some of the deepest problems in mathematics. And at the same time that same thing is not just going to happen in mathematics, but all dependent fields, physics, computer science, and what's the equivalent of a really deep result in physics? We can understand the fundamentals of unification, which has been a big problem for it's been the problem in theoretical physics for 50 years. Like how do you align the theories of gravitation with the other, with the other forces? And we haven't had much progress in that. And probably I could help with that. And then if we can figure that out, the consequences for building new engineering are profound.
- [58:06]
Shane Parrish
Do you think AI is going to be like one model, sort of like takes all, or do you think it's going to be fairly like you're going to have multiple models that maybe are slightly nuanced, a little bit better at different things? How do you see this playing out in the next five or 10 years?
- [58:22]
Baiju Bhatt
I think it depends on, I think there's going to be multiple models and it's really going to depend on the data that is used to feed them. So for example, one thing that's great about Aristotle, which is harmonics model, is you've got mathematicians that are using it to ask very complex math questions. So if you, if you've got all the mathematicians using the model, then you basically have an advantage with mathematics data. And I think that's true in other domains. I think that generally people tend to use ChatGPT as a first crack, but it's, you know, it's a, it's a good general model. It'll probably give you a reasonable answer, but I don't think they're going to spend the time to go deep on every single domain and I think that's why you're already starting to see a little bit of specialization. Anthropic has a very good coding model and they've basically done very well in the enterprise for software engineering. They've kind of specialized. There's Google obviously, very, very strong model in general reasoning. Gemini 3 came out and surprised some people though. If you were looking at the Robinhood Prediction market, we had a prediction market for the majority of the year on what's going to be the top AI model by the end of the year. I think it became pretty clear mid year that Gemini was going to take it.
- [59:47]
Shane Parrish
Interesting. I mean they should based on the data access they have. They have probably the highest quality data source in the world and full access to it with very few restrictions and
- [59:59]
Baiju Bhatt
limitless compute and big printing, lots of net income to fund it. Yeah, they've got some advantages for sure.
- [60:06]
Shane Parrish
I would say ChatGPT and they, and
- [60:08]
Baiju Bhatt
they actually compete with Harmonic. So they have a similar mathematics model called Alpha Proof.
- [60:16]
Shane Parrish
Oh, interesting.
- [60:17]
Baiju Bhatt
Yeah. Which is again, it converts mathematics from English into a programming language and you get that reward signal. And actually, interestingly enough, Alpha Proof was the first AI model to get a silver medal to achieve silver medal performance at the IMO last year.
- [60:36]
Shane Parrish
Okay.
- [60:37]
Baiju Bhatt
But Alpha Proof, they did not announce a gold this year. So yeah, we were, we were, the Harmonic team was excited about that, that, you know, in a year we were able to surpass Alpha Proof capabilities.
- [60:50]
Shane Parrish
I will say Gemini has far passed on my usage of just in the last two weeks. Like it blows away ChatGPT.
- [61:00]
Baiju Bhatt
A lot of people have been saying that.
- [61:01]
Shane Parrish
Yeah, yeah. And I love the race as a consumer. Like it's, it's great and you know, better technology for everybody is sort of like. And competition is good for everybody. Like it pushes everybody to be better and work harder and get ahead.
- [61:14]
Baiju Bhatt
Absolutely, yeah. I mean I, I heard there was reports of OpenAI calling a code red and it's funny because when ChatGPT came out in 2022, Google called a Code Red Yeah, right. And they said, this is a existential threat to Google Search. And then at that time everyone was counting them out. They're like a big, slow company. How are they ever going to catch up? They're just getting disrupted. Look at the Google search market share. So it's just amazing how quickly the narrative can shift. But yeah, I think Sundar and Sergey and the team have done an amazing job. You know, you got to tip your hat off to them.
- [61:54]
Shane Parrish
I want to come back to something you said earlier about how math helps you make decisions at Robinhood and just decisions in general.
- [62:03]
Baiju Bhatt
Yeah.
- [62:04]
Shane Parrish
What's the connection there?
- [62:05]
Baiju Bhatt
I think math is a good way to train your brain into doing hard things. Right. And it's almost like if you can deadlift 500 pounds, then picking up your crawling baby from the floor is very, very easy. Right. So no business problem is as complicated as solving a really, really hard math problem. So if, if, if you, if you get used to the pain and the suffering and like the mental stress of beating your head against the wall for 12 hours on one single math problem, which Baiju and I did very, very often when we were in college, we would like pull all nighters working on these problem sets. Um, they think that's really, really good training. It's like going to the gym for, for business problems.
- [62:59]
Shane Parrish
What are you obsessed with lately?
- [63:02]
Baiju Bhatt
I am obsessed with the business world. I, the thing that I'm most focused on right now in sort of my, my life as Robinhood founder and CEO is getting more people into the markets and in particular giving access to private markets. I think that's the biggest iniquity in capital markets today. And I think it's very important because you see all of these companies who are building AI models. We're in the midst of possibly the greatest technology revolution, not just of our time, but of all time. And there's going to be disruption, there's going to be large scale dislocation, and it's simultaneously the fastest growing technology and product out there. But among the least popular. People are worried AI is possibly going to take my job. Do I really like it? And of the majority of AI companies out there are private companies, even though some of them are in valuations of tens of billions or even hundreds of billions of dollars, which means retail investors can't invest in them. And juxtapose that with the fact that going public as a company keeps getting more challenging. There's more process, less companies are doing it, there's more opportunities for institutional capital to fund private companies and you get an inadvertent situation where retail investors are shut out of some of the most important companies. And it's not just AI, I think AI is the most important, but there's also space technology. Right. You look at SpaceX valuation in the hundreds of billions, it's basically the largest and most impactful private space company. Retail has been shut out from the, from the very beginning there. And so I'm trying to figure out how to correct that and reverse it. Give people exposure to these companies and make it so that everyone's an owner of our industry. And if we make sure everyone is an owner, if you own something, you want to protect it. And I think we're more likely to have a stable and prosperous future.
- [65:31]
Shane Parrish
Well, I was going to start with how you operate internally, but let's dive in right here about tokenization and how we sort of allow retail access to private, otherwise private investments. But maybe the way to talk about that. So we have space, which is arguably one of the most important technologies. Over the next, we can anticipate over the next 50 years, we have AI probably in the same bucket. And then we have real estate, which is another one that people sort of talk about in tokenizing. How do you think about all three of those different types of assets where I would imagine AI and sort of space are the same. You're tokenizing a private asset that you need to own the underlying shares.
- [66:11]
Baiju Bhatt
Yeah.
- [66:12]
Shane Parrish
What about real estate?
- [66:13]
Baiju Bhatt
I think real estate is incredibly meaningful, especially now that most people are unfortunately at a point where they're having difficulty buying their first home. And I think that could be attacked from multiple angles. One is by breaking it up into little pieces and making it so that, okay, maybe I don't want to take on a mortgage and own my own home, but maybe I want to be an investor and be exposed to either one or multiple homes and areas that I think will do well. So I think that'll happen. But my priority, I think is late stage privates. We launched this thing in the US called Robinhood Ventures, which aims to solve this problem. And we have our first closed end fund which we filed to go public, which is in the quiet period right now. So I can't talk in much detail about the mechanics of that. But I think the biggest opportunity and the biggest problem is in private markets. And I think there's also opportunity in early stage venture. We want more people to be exposed to companies at the earliest possible stages, even though the risk is greater because the opportunity for upside is also greater. So I think there's interesting opportunities and products there. And if we can streamline the capital markets aspect and make it easier for entrepreneurs to raise money on the other side, then we could lead to more entrepreneurship and innovation too. Yeah, and real estate is interesting to us as well. And I think the way real estate's been done is not amazingly inspiring. I mean, it's sort of like generally low quality properties in random parts of the world, commercial properties. So I think that real estate is so visual. The purchasing experience of just going on a Zillow or Trulia and browsing has gotten really good. And I think it's far ahead of the experience of actually investing in real estate. And I think those don't exactly overlap. So I do think there's room for a real estate investing product that is actually legitimately good and low cost and easy to understand.
- [68:40]
Shane Parrish
So how would that work? Would Robinhood buy the real estate and then sort of tokenize percentages of it, almost like shares? What would be the mechanism for that?
- [68:50]
Baiju Bhatt
I think, I think tokenization as a underlying technology can be done, but it's not really permissible in, in the US and the reason for that is what you'd be. Tokenizing is essentially a company. And so when you tokenize a company it goes into security regulations. And security regulations have an established framework that is not currently compatible with decentralized finance and crypto technology. So that's one of the things that is being worked out. But there's another mechanism in the US using sort of traditional rails, which are called 40 act fund structures. And I think there's been. Well, there will be a flurry of innovation in this space, partly because the current administration has declared that they're open to using these vehicles to provide access to alternatives and privates. And the limitations currently are that it's hard to take an individual asset, like if it's real estate, an individual property or an individual private company in the sense of late stage privates and make that tradable. But you can do a portfolio of things.
- [70:14]
Shane Parrish
So.
- [70:14]
Baiju Bhatt
So at least as a passive investment vehicle, we can give people that type of exposure.
- [70:18]
Shane Parrish
So you're buying access to a whole bunch of late stage. Maybe there's sector specific like AI or space or just broadly speaking.
- [70:26]
Baiju Bhatt
Yeah, and tokenization will work outside of the US So you might have seen a couple of months ago we did a crypto event for a crypto business in Europe and there we tokenized hundreds of public equities and also did a tokenized giveaway of, of OpenAI and SpaceX, which was very popular. And so I think similarly to how stablecoin has evolved, tokenization will be the primary vehicle for X US investment until we get regulatory clarity. And you'll see tokenization of privates seep into the US as well. And the US already has robust structures for traditional finance that Robinhood will work to make more digestible and accessible to retail investors.
- [71:15]
Shane Parrish
So if that's the first step, what do you see as the second and third order, the intended and unintended sort of consequences of that?
- [71:23]
Baiju Bhatt
I think it depends on the asset class. So for example, for privates, I think the second order consequence is that for entrepreneurs, the other side of the market, you'll have an easier time raising capital. So rather than going through this opaque process of spending a lot of time meeting investors one on one, pitching in person, you could imagine a digital fundraising process where you're plugged into, you know, an electronic market and you can push a button and you, you get the capital to, to run your business. I think that'll happen not just for crypto companies, but for all types of companies. Secondary liquidity will be much easier. So if you're a early employee of a company or an executive and you have quite a bit of shares locked up, you'll be able to sell easily on a transparent market without the complexity of dealing with paperwork or waiting till ipo. So I, I think those are the things and I think the third order consequence will be an explosion of entrepreneurial activity. Like if it's easy to get, if it's easier to get funding for an early stage venture, for example, and you don't have to spend full time as CEO raising capital, I think there will be you much more, much more capital for startups and consequently much more startups.
- [73:00]
Shane Parrish
Are there unintended consequences to a company like Stripe where you're, you know, they're, I would say by and large controlling the price, like it's fairly stable. Whereas if it goes to retail and it gets marked by the day, that price could change dramatically. And then employees who are getting option. I'm just trying to think through the chain here. If employees are getting options, but they, those options are highly variable because if you're the company, you want to tie the employee's tenure to the growth of the business. And you can kind of distort that, couldn't you, with secondary marks? Because they would have to consider those marks when they're valuing the company internally for options or no, I don't know,
- [73:39]
Baiju Bhatt
it really depends on the vehicle. So for example, there's Tender offer vehicles in the US that allow trading only at the nav, the net asset value, which is sort of like the price that these assets are priced by independent valuation bodies. The problem with that is if you're a company that hasn't done a round of financing in four to five years, the NAV is not necessarily reflective of the true cost of the asset. And so there's other vehicles that allow for real time pricing. And I think that the platonic ideal is for the price of the asset to be driven by supply and demand and willing buyers and sellers in a transparent market. I think that's where everyone gets the best outcome. Because in any other scenario someone could be taken advantage of, right? Like if, if you know one side has more information than the other, you know, you could, you could end up in situations that aren't fair. So I'm generally a proponent of price being discovered transparently through two sided markets. Now again, that's not necessarily the world we live in today with private assets. And so there'll be a transition period and not, not all companies are going to like the changes. But I do think it's inevitable to some degree that this happens because what'll happen is there's going to be active derivative markets on these private shares. I mean, you've already seen that. There it is. Yeah. And the data is getting out. And I think that's a hard genie to put back in the bottle. If the price is out and then the company is doing a round of financing anyway, it's like, well, why are the derivatives here and you're pricing the round at this price. Why don't I just hedge my exposure? So I think that it's going to be tough increasingly in a global market to have as much control over the price as maybe private companies have historically had.
- [76:07]
Shane Parrish
One of the other impacts of that that I can think of off the top of my head is LPs selling their interests in a fund or a vehicle that they have where that is not a liquid market these days. And if it is to the extent that it is liquid, there's often huge discounts or haircuts on LPs trying to exit early.
- [76:25]
Baiju Bhatt
There's been a lot of activity in this space and I think it'll continue particularly for LP interests and special purpose vehicles that are highly concentrated in one or two companies. I think those are in many ways becoming an alternative to direct investments in companies. I think our preference and how we approach access to privates is we always would prioritize coming through the front door. Right. And making sure that the company wants exposure to retail. And we want to work with companies who actually see this. And I think in the case of the OpenAI and SpaceX tokenization, we were sort of running an experiment and we wanted to be the first. If there was a Guinness Book of World Records for the first tokenization of OpenAI and SpaceX, I wanted to claim that, but, you know, it was a small giveaway in the grand scheme of things. I think the scaled solution is best when actually the companies are involved. And what I've seen in the past few months as we've gotten Robinhood Ventures off the ground is that great companies do want to be a part of this and do see the value of retail. We made a number of investments that have actually been public about how much they love the model and how they think this is the future. And we saw the same phenomenon for our IPO access offering. So we have a great IPO access offering, which is the number one retail channel for IPO participation. And we started this in 2021, around the time that we went public. And we've done, I think, roughly 50 IPOs since the beginning. And around the beginning of this program, generally, we got a skeptical reception from companies. They didn't understand why they would want to do it. Their bankers would kind of talk them out of it. So we had to ask for favors, and we really had to elbow our way into getting even small allocations into some of these deals. And this year there's a complete, profound change where the best companies that are going public are coming to us and asking for feedback about their retail strategy. And you see the CEOs going on national television and talking about how, you know, they want to contribute to the disruption of the traditional IPO model and giving retail larger and larger allocations as time goes on. So people are embracing it. And I think the same thing is going to happen for. For private retail access. It's just going to go earlier stage, but the benefits are so strong that I think that it'll be standardized as time goes on. And I think also we could make it easier for companies to go public. There was actually a roundtable that I was part of here in New York two days ago. It was called Make IPOs Great Again. We had the red Hats and everything at the New York Stock Exchange. And I think that there's improvements. The IPO process has gotten so ossified and the branding of it is bad at all stages that you can really just like, systematically make improvements across the board. So I Think we should do that as well and make it improve the brand of being a public company and also make it easier to get public. And at that point we'll really be attacking the problem from multiple angles.
- [80:05]
Shane Parrish
How do you think about what to expand in next? Like what goes into that decision? What are the factors, the variables that you're thinking about in your head as you're looking towards the roadmap in the next 10 years? There's all these things we could do. How do we allocate what we are going to do next?
- [80:20]
Baiju Bhatt
Yeah, I think our North Star is really just maximizing equity ownership, direct equity ownership from retail across the world. Right. And you know that that's what we get into. How do we get more people invested in public stocks? Can we start at a younger age? And which is why we're excited about initiatives like Invest America with the Trump accounts. Can we get people outside the US Plugged in as well and make that as easy as possible? Can we do private markets which are inaccessible to people? Like, I think that if we, if we maximize equity ownership and actually the, the percentage of, of it held directly by retail, we'll end up in a more stable and prosperous society. That, that's more. And, and that's a future that I feel much more confident in. So we kind of think through that and that's why we care so much about Robinhood Ventures, the Trump accounts. I've been talking a lot about multi generational financial services. How do we make Robinhood work really well for you, for your whole family and make it work better if your spouse or your parents or your children are on Robinhood? And I think that there's a huge wealth transfer coming. So over 120 trillion are going to change hands and go from the old generation into the young. And I think that's a big opportunity to actually accelerate our goals. And I think if we do that, Robinhood itself as a business should benefit as our customers benefit.
- [82:05]
Shane Parrish
One thing I love, and you might have a unique opinion on this can, given your background, your family's background, is giving people a stake in the American economy, the Canadian, whatever economy, giving people ownership in that as a means of fending off communism. But you came from a communist country. I mean, your father was there. And walk me through how you think of that and how important it is to actually sort of fend that off and fight up front against that.
- [82:36]
Baiju Bhatt
Yeah, I mean, the year that my father left Bulgaria, he had an opportunity to study at the University of Delaware. So in Bulgaria he was a professor of economics in tourism on the Black Sea coast, which is our warm weather summer capital, they call it. So anyway, the. The Berlin Wall fell, the Iron Curtain was lifted, and suddenly folks from Bulgaria could leave. People from the west could come in and we could leave. And so my dad was given an opportunity to go to the University of Delaware to pursue a master's degree. And the year he left was 1991. So we weren't in a position where my whole family would go because we didn't have the resources for that. And we also weren't sure at the time whether it was gonna work out in. In America, where there's a future there. So my dad went. In 1991, the inflation rate in Bulgaria was over 100%. So we talk a lot about, you know, 5% inflation here, but literally it was like triple digit percentage inflation. And I remember my mom would look out the window. We lived in an apartment in Varna. And I still remember the line for the grocery store. Like you had to actually get there at the right time or otherwise there were no eggs available, no milk available, you know, and the milk would be in these, like big plastic bags. So. Yeah. And there was also power rationing. So, you know, when inflation hits that high, you get all kinds of problems. Not just food shortages, but also electricity and power shortages. And so they would have these rolling blackouts. So I remember being huddled around the radio, and the radio was like battery powered. And, you know, the power would go out pretty much every night. So we would just be like listening to the radio with, with my grandparents. And then we came to the country, to the U.S. my mom came about a year after my dad. I came six months after her. And I remember I was five years old, so I could still. I still remember some things. Like it. It was very clear. You know, I have memories from childhood in Bulgaria. And then when I came to the US and one thing that shocked me was that there were bananas in the grocery store. Like, you go to the grocery store and you'd see the big thing of bananas. And in Bulgaria, bananas were like a crazy gold. Well, because you had to get them from Cuba. Yeah, right. That was, that was our. I think that was the banana trading partner. So it's like bananas or what, 20 cents? So, yeah, that, that seemed crazy. And then I also remember when I was a little bit older, so this was 1996, 1997, five years after I came, Bulgaria had the unfortunate distinction of having the highest inflation rate in the world because at 1800% in one year. So you had the currency essentially collapsed, and they kept having to add zeros to it. It used to be two Bulgarian leva to $1, and I think it got to 2,000. So they kept having to recycle all the bills and add more and more zeros. And at that point, I was actually looking at this earlier. My parents had the bank statements for my initial savings account, so my grandparents opened up a savings account for me when I was born. And you see all their deposits, and it was like, you know, 10 leva, 20 leva. It got up to 2,000 leva in the mid-90s, and then the next one, it was like basically zero. Yeah, they had to do all sorts of crazy things. My grandfather would invest in copper cookware, so he had. We had this closet in his apartment that was just full of copper pots and pans. They would hold value better than the currency. And I think that if there was an easy way to invest and to protect your wealth, it would have been much better for the country at the end of the day, because, you know, the. The country got set back. It was sort of like the year I was born, 19, 1987 maybe. The time around that was. Was the heyday of the country. And then for a long time it was just a gradual decline and. And I think now there's promising signs. But, you know, I think that so much of it starts from the will of the people and, and how optimistic they are about the future, being able to raise children, the economy. And I just saw the impacts of having a market system that just didn't work. So it made me appreciate what we have in this country and wanting to make it more global, export it to everyone else, and just making it easier for people to own companies that are producing stuff.
- [87:59]
Shane Parrish
I love the idea of owning a part of the American dream in that sense. Is there another leading sort of indicator of that that can change things? Like, is it housing affordability? Is it optimism? What can be done in a way to sort of give people a rung on the ladder, if you will, if you want to think about it in that way, so the ladder's not out of reach. And I think about that in terms of, like, how do we get more people invested in capitalism? And one of the ways is ownership of assets and tying that. I love what they're doing with tying that back to education in schools and the portfolios and stuff. What's the other one? What is the next big thing that we could do to sort of give people a stake in capitalism?
- [88:44]
Baiju Bhatt
Yeah, I mean, we talked about real estate. We've definitely talked about real estate in the past. And I want to, you know, I'm, I'm a, I'm a proponent of a diversified portfolio. I don't want to say one asset is better than another asset. I think that if we make it easier to. I think the general approach that we have is look at what wealthy folks have access to. What are the tools they have to protect their wealth and grow their wealth. And you know, they have access to all sorts of things that are not easily accessible. A lot of alternative investments, real estate, private credit, private equity, venture capital. And if, if we're in a world where it's easy for, for the mass market to have access to these, then I think we'll be in good shape.
- [89:45]
Shane Parrish
How do you think about something like bitcoin?
- [89:49]
Baiju Bhatt
I think bitcoin has been in hindsight, the top performing asset of the past decade and you're starting to see it becoming more institutionalized. I mean, not, not just with the DATs, but companies putting bitcoin on, on the balance sheet, institutions and asset managers embracing it. I mean, for a long time Vanguard, one of the largest asset managers, said we're not going to offer bitcoin on our platform. But you know, even companies like that are changing their tune and, and offering it. And yeah, I think you should expect that to accelerate. I mean, bitcoin as the original crypto asset is always going to be singular. Nobody else is going to be the first or original. And I think that's why so many people, that's why there's such like a mystique and aura about it. Right? Because you go to these bitcoin events and there are believers and they'll tell you it doesn't matter what's going to happen. It goes up, I buy more, it goes down, I buy more. I'll tell everyone I know to buy it. So yeah, at this point I would, I would definitely not, I would definitely not be a long term bitcoin bear.
- [91:22]
Shane Parrish
If trading retail assets and allowing easy access to that, you guys offer no fees on that. How do you make money on that? You still have people to pay. You get an organization to run. If I can go buy a share of Tesla or SpaceX or Stripe or whatever through the app, how do you make money on that?
- [91:41]
Baiju Bhatt
Well, we do have fee based products. I think that in the beginning, yeah, Robinhood was a simpler business. We offered equities trading. At the very beginning we didn't make money. And eventually it became payment for order flow and margin lending and interest on balances. But now Robinhood is a financial super app. We have 11 business lines as of the last earnings call that generate 100 million in revenue or more. And I think the general principle is we make money in all of the standard ways. Transactions, interest on assets, lending based revenue. But we like to compress the margins and operate much more efficiently. So through our use of technology, we can offer our services at much lower cost and we can actually give to our customers the difference so that you're actually at a financial disadvantage using any other product than Robinhood. So yeah, I think unfortunately it's not as simple as like, oh, free trading or not commissions. We do make money in other ways, but generally using Robinhood should be cheaper, higher value, more cost effective across our entire product suite than any of our competitors.
- [93:08]
Shane Parrish
Why do you think your credit card was so successful? Like, everybody has a credit card, there's a hundred different ones. It's almost like when I saw how simple yours was, in a way, I was like, oh my God, this is like Steve Jobs coming back to Apple taking 400 product lines and making like, no, we're doing four computers. We're simplifying everything.
- [93:27]
Baiju Bhatt
It's easy to explain the value Prop 3% cash back on all categories. Right. And if you're a credit card nerd, which many people are, if you're like one of those people that follows the points guy, there's some businesses like, related
- [93:42]
Shane Parrish
to just optimizing points.
- [93:45]
Baiju Bhatt
Yeah. But a lot of people don't want to play that game either. They want to say, okay, I don't want to spend my time working in spreadsheets and figuring out, okay, if I spend this much on travel, I use this one card, and for my groceries I use that. And for my gas, I use this. So this very, very compelling value proposition to say 3% on all categories. Because what that allows you to do as, as a spender is to say, this is just my default card. I'm just gonna, I'm just gonna, this is gonna be at the top of my wallet. Sure, I have the opportunity, the ability to do more work. If I wanted to do more work, maybe I'll pull out some other cards for other scenarios. But I also know that if I don't want to think about it, this card is really good in general as a default. And I think in some cases, if you look at the really successful e commerce companies like in Amazon, what they've been able to do is do such a good job that they've become the default place. You Go to buy stuff. And sure, maybe at this point, if you want a comparison shop and you want to buy a new belt and you really wanted to like, save on, on the belt, you could probably find it cheaper somewhere else. But they do a good enough job and they serve you well for such a large majority of things that they become the first option. I think that's what we've been able to achieve with the credit card. And, you know, even though it's still, even though it's still not completely generally available, we do have over half a million card holders and we're among the fastest growing credit cards. And, you know, more people keep joining. It's like credit card companies typically have had to really think about cost of customer acquisition because they have to pay for customers to come in. But we have such strong word of mouth that customers are coming faster than we can let them off. And that's just entirely from peer to peer reviews. Existing happy customers posting about how much they love it on social media. I think that's been a huge driver of its success.
- [96:04]
Shane Parrish
Two questions. Why do you think somebody like Amex just doesn't copy that? Can they not. Because it's a structural problem. They can't do it from. Their cost structure is different than yours. Like, what prevents them from doing that?
- [96:18]
Baiju Bhatt
I think it's a cost structure problem. You look at the big credit card companies and they have tens of thousands of people, tens of thousands of people that are manually servicing these accounts and they spend a ton of money on marketing. So, yeah, I think the actual economics of the card program itself are dwarfed by the economics of like the large headcount needed to operate the businesses. I think those are very, very painful decisions because not only, I mean, not only are you talking about like shrinking headcount, but also in order to do that, you actually have to have the technology to be able to automate the entire servicing process and the underwriting. And I think we had an advantage because we were able to build this from scratch so you could start from first principles. So I think, yeah, I think it's very, very challenging problem to solve. I don't envy them.
- [97:26]
Shane Parrish
No, it's hard. When you're the incumbent and you're faced with it, you can run up. I think of this as like, you know, if you're, you don't have the resources, maybe as like American Express in some sense you do now, but I mean, when you started, you didn't.
- [97:40]
Baiju Bhatt
Yeah.
- [97:40]
Shane Parrish
And what do you want to do? You want to run upstairs because they're like fat and happy. And so it's going to suck to run upstairs, but they can't chase you because it's going to be. They're going to be out of breath, they're going to be panicking, they're going to have heart attacks. Like they can't keep up with the velocity that you can move at.
- [97:55]
Baiju Bhatt
Yeah. And by the way, I think that if we can put pressure on the credit card companies to start modernizing, that'll be good for them and for the consumer. So.
- [98:07]
Shane Parrish
But you don't get 3%, like, in a transaction fee. So, like, how is that from balances? Is it from, like, you're only paying that out once a year, so you get to keep that during the. And earn interest on it. Like, how does that work?
- [98:19]
Baiju Bhatt
Yeah. So here's the great thing. The other thing that we have that at least the pure play credit card companies don't have is a brokerage business that ties into it. So in order to get the 3% cash back, you actually have to deposit the funds into your brokerage account. And so we've created this flywheel through Robinhood Gold where by using the credit card, you also use the brokerage product. And of course, at, at the beginning, it was mostly the other way, so existing brokerage customers would adopt the credit card. But increasingly we're seeing people coming to us for the credit card, and then we, we, we actually get them to use brokerage and our wealth management offerings as well. And what we've seen is that the more products you use of Robinhood, the more engaged customer you are. It lifts all boats, so each of our other product lines benefit. And I think that's what's really pushed us to more rapidly diversify and add new adjacent product lines rather than just getting deeper and deeper into, into, into brokerage. So basically, and we saw this with retirement as well, if someone uses the credit card as their primary card, they put more of their wealth into Robinhood, more of their money into it, and they become a more profitable customer to us. And that allows us to close the gap between the rebates we get from the Networks and the 3% we pay back to customers.
- [99:51]
Shane Parrish
If you had to rank sort of the three products that matter most when it comes to transferring my financial institution, making you the primary financial institution, what would they be?
- [100:03]
Baiju Bhatt
Yeah, I mean, making us your primary financial institution is really about coverage. And the goal is for Robinhood to be not just your secondary, but also your primary account. We want to be both. We can be your secondary account and Your primary account, your backup and your, and your main. Most of the time when you actually ask people what's your primary financial account, they'll talk about where their paycheck lands up their bank account. And you know, for a while we weren't really playing in that space. But you might have noticed a couple weeks ago we started rolling out Robinhood Banking. And if you look on social media, Robinhood Banking is a hit. I mean people love everything about the product experience. We've really, the team there has really done a nice job sweating the details and building a comprehensive banking offering. And it's a combination of things that you won't get anywhere else, like real time cash delivery which is available in New York. So if you're actually here domiciled, you can try that out. That's rolling out more broadly as well, but also just the bread and butter, child savings accounts, joint accounts so that you can have shared finances with your spouse. A family first experience where you can actually manage the finances of the whole family in one place. So it's yeah, combination of differentiated features you won't find elsewhere. Amazing economics where you have the opportunity to earn a high rate of interest not just on savings but also on checking, which by the way is a huge annoyance for people that the banks play this game of like your money goes in and out of your checking and of course will penalize you if you try to take money in and out directly of your savings too many times for no reason other than to collect the high spread on, on checkings. So it's basically a little bit of a stupid tax where they try to penalize you for doing wrong things and I think that, or sorry, penalize you for doing the right thing. So I think, not to be too pejorative, they're running their business and people are, they provide valuable services for people. But I think that's an opportunity for us to differentiate.
- [102:19]
Shane Parrish
It's almost like the run for the institution versus the customer. That's how I think about it whenever I deal with a bank and they do this thing where it's like, oh, if you want to earn interest, you have to open a savings account. It's like, are you incentivized by me opening a savings account? Because even if it makes it harder for me, so there's a bit of friction and you get a little bit more float because of that. That's oriented around you as a bank. That's not oriented around me as a consumer. Because me as a consumer, I, I don't want another bank statement I don't want another PIN card. I don't want another thing that I have to keep track of. I just want one account. Just pay me the interest on that account.
- [102:56]
Baiju Bhatt
Yeah, I think that's right. And I think sometimes, to be fair, there's a delicate line between these things because they have all kinds of safety and soundness constraints and all of that.
- [103:12]
Shane Parrish
We'll go deeper on that for a second because I would really love to understand why legacy is not adapting quickly to a changing world, perhaps in the most optimistic sense, or it just remains that way.
- [103:24]
Baiju Bhatt
I mean, I think at one point there was a rule, I think this was. I didn't study this, so you might have to look it up and we might have to correct it. But I think for a long time banks were actually prevented from paying interest on savings. And the fear was that, you know, if they start competing over paying interest or, sorry, they were prevented from paying interest on checking. And the fear was if, if there was a ton of competition over paying the highest rate on checkings, it would affect the safety and soundness of banks and it would lead to more bank failures. And, and so the, you know, the, the FDIC or OCC came in and they said, you know, no, no interest on savings. And I think that was later repealed. But, you know, by that time, of course, the interest you collect from, from the checking accounts was such a big line item, part of the P and L, that it's hard to part with that. Right. And so they sort of like became structurally reliant on it. And, you know, how do you, how do you adapt if you have trillions of dollars in checking that you're used to paying, to earning 5% on, and you suddenly are talking about giving the majority of that back to the customer and taking no profit. You do that very, very quickly and your earnings go down, profitability goes down. If you're public, that could have an impact on the stock price and suddenly it becomes a safety and soundness concern.
- [105:00]
Shane Parrish
I was thinking about this driving here this morning. I was like, I wonder if the ultimate end game is like, the mortgage ties people to financial institutions in a way, because they can tie the mortgage to other products, they can tie it to your paycheck gets deposited. And then I was thinking, well, open Door wants to enable one click buying of a house. And if they were to integrate with Robinhood or somebody else or a financial institution, you could literally enable that on the spot. You can enable like, oh, your mortgage is granted, it's approved, and it seem it'd Be like seconds.
- [105:35]
Baiju Bhatt
Yeah. And we have a mortgage partnership with Sage Home Loans that gives you 75 basis points off of the national average.
- [105:44]
Shane Parrish
Because you have better information about people too. Right. So you have history, complete history information and you can use that with AI, I would imagine to actually probably generate better predictive outcomes than humans.
- [106:01]
Baiju Bhatt
Yeah. I think the hard part about the, the mortgage business is very rate dependent. So I don't think we necessarily want to get into the mortgage underwriting business or holding mortgages, but we, we want to get, we want to help people with all of their financial needs. And I think for that one, being a network and allowing different banks to compete over who can offer you the best possible rate as a consumer is probably the road we're going to keep going on.
- [106:33]
Shane Parrish
But ultimately doesn't that come back full circle a bit to the tokenization? So you might pool those mortgages. At the risk of sounding like 2007 here. Pool those mortgages and allow people to retail investors to partake in those mortgages.
- [106:49]
Baiju Bhatt
No, I haven't thought deeply about whether we would securitize mortgages. My feeling is that, I mean at the end of the day we just want, we'll just enable what offers customers the, you know, lowest cost. Whether it, whether tokenization enables that or you know, you can connect directly to a network of banks that can compete over your mortgage. Traditionally, I think remains to be seen. You could argue actually tokenization at first would have a disadvantage because the banks won't be tokenizing and so you probably have to meet them where they are and give them the information in ways that they can support. But yeah, over time that's likely to shift if, if they, they tend to be laggards of, of technology. So if you know, five to 10 years they're doing Morgan mortgage originations and on chain, then you can imagine it, it being the, the primary market for that.
- [107:57]
Shane Parrish
We always end these interviews with the same question, which is what is success for you?
- [108:03]
Baiju Bhatt
For me personally, I think is creating dramatically more value for the world than you create for yourself. So yeah, I think I would feel good if the aggregate impact on the rest of the world and I think obviously it should be positive. I think it is much bigger than what, what happens to me personally and I think that's what's pushing me to as you said, further ownership. Make it so that everyone has skin in the game. Because I think that if, if, if I can play a part in doing that across privates, publics, all post IPO and make it so that more people own the great industries of this country will lead to not just smarter and more well off individuals, but also a more stable and prosperous society. And I think that's a legacy that I would get excited to tell my grandchildren proudly about when they're huddled around the fire on Christmas.
- [109:27]
Shane Parrish
It's a great answer. Thank you so much for taking the time today.
- [109:30]
Baiju Bhatt
Thank you. It's been fun.