E22: Robinhood CEO Vlad Tenev breaks down the GameStop situation

1. 0:00 – 1:44

   Bestie intro, congrats to Friedberg on a big beak wet

   1. JCJason Calacanis0:00

      Now wait, um, Vlad, you have to turn your camera off and then I'm going to do my little bit where the bestie-guestie door knocks.

   2. CPChamath Palihapitiya0:05

      No, no, Jason.

   3. JCJason Calacanis0:07

      No?

   4. CPChamath Palihapitiya0:08

      Let's not do that.

   5. DSDavid Sacks0:08

      This is silly.

   6. CPChamath Palihapitiya0:09

      This is silly. Let's go.

   7. JCJason Calacanis0:09

      Okay, here we go. Three-

   8. VTVlad Tenev0:10

      I can do it. It's very easy for me.

   9. JCJason Calacanis0:12

      Don't worry about it. Don't worry about it. These guys don't want to do it. They don't like my, they don't like my bits. (laughs) Three, two-

   10. CPChamath Palihapitiya0:18

       I'm going all in.

   11. DSDavid Sacks0:19

       Don't let your winner slide.

   12. JCJason Calacanis0:22

       Rain Man, David Sacks.

   13. CPChamath Palihapitiya0:24

       I'm going all in.

   14. DSDavid Sacks0:27

       And I said- We open sourced it to the fans and they've just gone crazy with it.

   15. CPChamath Palihapitiya0:30

       WSI.

   16. JCJason Calacanis0:31

       The queen of quinoa.

   17. CPChamath Palihapitiya0:33

       I'm going all in.

   18. JCJason Calacanis0:38

       Hey, everybody. Hey, everybody. Welcome to another episode of The All In Podcast. With us again, the queen of quinoa himself-

   19. CPChamath Palihapitiya0:47

       (laughs)

   20. JCJason Calacanis0:47

       ... David Friedberg, The Rain Man, definitely counting cards, yeah, burn baby. David Sacks is with us. Chamath Palihapitiya, the dictator.

   21. CPChamath Palihapitiya0:59

       By the way-

   22. JCJason Calacanis0:59

       And-

   23. CPChamath Palihapitiya1:00

       By the way, go ahead, J Cal.

   24. JCJason Calacanis1:03

       I'm J Cal. (laughs) AKA Baby Seals.

   25. DSDavid Sacks1:05

       J Cal, could you take longer with the intros?

   26. CPChamath Palihapitiya1:08

       (laughs)

   27. DSDavid Sacks1:08

       I mean, this is like, this is like your one moment to shine as the intros.

   28. CPChamath Palihapitiya1:11

       This is like fucking torture.

   29. DSDavid Sacks1:12

       I know. So he's like drowning it out.

   30. JCJason Calacanis1:12

       I like to do a little branding here. I'm branding you guys as characters on the show.
2. 1:44 – 2:48

   Vlad Tenev joins the show

   1. JCJason Calacanis1:44

      And, uh, joining us this week as our second bestie-guestie, after a triumphant performance by Draymond Green on the last All In podcast, is Vlad Tenev, who is the co-founder and CEO of a, uh, new startup we wanted to introduce everybody to, it's called Robinhood. Vlad, tell everybody what is Robinhood and what's the mission of this new startup you've, you've got? (laughs)

   2. VTVlad Tenev2:13

      Thank you for, for having me, uh, having me here hanging with you guys. Robinhood's mission is to democratize finance for all. It's somewhat new. We've been around for a little bit over five years, and we have, uh, a mobile app and a website that allows customers to, uh, invest in stocks, options, cryptocurrencies. We offer a debit card and a high yield savings product as well. Um, commission free and with no account minimums.

   3. DSDavid Sacks2:39

      Vlad, I think you've done an amazing job building this company, and you guys have done an amazing job, uh, democratizing access to, uh, to, to the ability to

3. 2:48 – 11:02

   Vlad fields questions on Robinhood's choice to stop the buying of $GME and other meme stocks, his CNBC appearance, self-clearing, liquidity & more

   1. DSDavid Sacks2:48

      trade. Can we fast... Let's fast forward to, to the issue that... I mean, this, we discussed, I guess a few pods ago because, um, there was intense interest in this. I think it's our highest rated pod ever, was discussing the GameStop issue. So you had these, these traders from WallStreetBets, these Redditors who, like you said, they perceive themselves as the heirs to Occupy Wall Street. They're, they're trading for profit, also for revenge and, um, and then, you know, you, you guys, I guess, get a call in the middle of the night from the clearinghouse, and you have to freeze the buy side of the trade the next day. I guess-

   2. VTVlad Tenev3:22

      Yeah.

   3. DSDavid Sacks3:22

      Let's fast forward to that, because that was the thing that, you know, got everybody up in arms. Could you, I guess, talk to us about kind of what happened? And, um, I'm sure you didn't want to have to freeze trading, right? But you were being compelled by this clearinghouse.

   4. VTVlad Tenev3:38

      Yeah.

   5. DSDavid Sacks3:38

      Can you kind of explain what they told you and why you had to do it? And, and, and why not just ask them to give you the order in writing so you can post it on your website so everybody would know you didn't have a choice? Could... Is that something you could have done?

   6. VTVlad Tenev3:52

      Um, well, I think the challenge was that, uh, no doubt we could have communicated this a little bit better to customers, right? Um, by the time, um, by the time we restricted these securities to PCO, and it was 13 securities that we, uh, limited to sell only, um, that process is actually operationalized within Robinhood. So it's, uh, we do it from time to time under various circumstances, like corporate actions. So when something has a reverse stock split or something like that, we can PCO it for a little bit. So there's a button in a dashboard that, you know, you can click and automated emails get sent out. So it's a, it's an operational process that, I think, in hindsight, we probably should have exceptionalized to, to make it, to make it clearer why we were doing this, just given all the swirl around all these meme stocks online. Um, but by the... As soon as those emails went out, the conspiracy theories immediately started, uh, started coming. So my phone was blowing up with, you know, "How could you do this? How could you be on the side of the hedge funds?" And of course, we're not on the side of the hedge funds. I mean, we're, we're building products for our customers and we just had to do what we did to meet our deposit requirements, because if we didn't do that, we would be in violation and the consequences of that could have been much, much worse than simply halting buying-

   7. CPChamath Palihapitiya5:21

      So I think-

   8. VTVlad Tenev5:21

      ... in the 13 stocks.

   9. CPChamath Palihapitiya5:22

      I think that's where, you know, when you were on CNBC with Sorkin, people either thought you were obfuscating or you were lying, um, you know? And part of it is sort of the guts of your business, is that at some point as well, you guys decided to self-clear, right?

   10. VTVlad Tenev5:39

       Yes.

   11. CPChamath Palihapitiya5:39

       And then going into self-clearing, you become liable for every single trade that happens on your platform. Um, like if you look back on those two weeks-

   12. JCJason Calacanis5:48

       Can you explain to the audience what self-clearing means?

   13. CPChamath Palihapitiya5:50

       It means that, you know, typically you can work with a wholesaler to offload the risk. So Vlad acts as a transaction layer and as a UI, and somebody else is responsible. At some point, these guys, for economic reasons, decided to take that responsibility on themselves.... but when you do that, you take on the full-fledged liability of the value of every single trade on behalf of your customers.

   14. VTVlad Tenev6:12

       Yeah, I would think about it, I would explain it as, there's like pre-trade, right, then the trade, and then post-trade. So Robinhood obviously does pre-trade with, uh, that's the app and what's called the introducing broker-dealer. Our market makers do the trade, so we route it to, you know, all of the firms like Citadel Execution Services, Two Sigma. And then Robinhood Securities does the post-trade, the clearance and settlement, so we manage the exchange of cash and stocks that happens on T plus two, so two days after, after the trade is made.

   15. CPChamath Palihapitiya6:45

       So, what was not... I mean, if you had to give that answer again when Sorkin said, "You have a liquidity issue," was the answer, "Yes we have a liquidity issue and here's why," or is it still the same answer it was then?

   16. VTVlad Tenev6:59

       So I, I stand by what I said, and I'll explain it. And thank you, by the way, for giving me a chance to explain it. Um, first of all, restricting securities, uh, restricting the buying of securities, uh, is something that every, pretty much every broker did to some degree during this week, right? So when you say the L word in financial services, it, it reminds you of Lehman Brothers, where you literally are not able to operate your business. We met all of our deposit requirements. The new capital that we raised, the 3.4 billion, wasn't to meet our, our ongoing deposit requirements. We had met them, and in order to relax them and eventually unrestrict them, we needed to raise some more capital and eventually have, uh, more cushion so that if we keep seeing the type of growth that we kept seeing, uh, we didn't have to impose position limits again. So I stand by what I said. I think if you describe that as, you know, the L word, every, pretty much every broker would have had that issue, and I think at that point, the word kind of loses its meaning and the, the gotcha factor that, uh, the journalists are trying to, to get out of it.

   17. CPChamath Palihapitiya8:08

       Do you think that, um, the, the risk in the business went up when you decided to self-clear? Or would this risk have been the same if you'd worked through a wholesaler?

   18. VTVlad Tenev8:16

       Well, I think a lot of the, um, a lot of the other brokers who relied on clearing firms had the same issue, right? Um, you know, there's, there's firms like Apex Clearing, uh, which has introducing brokers. Uh, Cash App, for example, clears through a third party as well, and they, they all had this issue. And of course, um, their response was, um, they, they kind of threw their clearing firm under the bus, right? So obviously we're not gonna do that because our clearing firm is Robinhood Securities, um, but I think understanding the space a little bit better since Robinhood Securities is, you know, a subsidiary of, of my company, um, I realize these clearing firms had to do what, what they did. Like, there's no... It's not negotiable, uh, to meet your deposit requirements. Of course we can ask, "What can we do? Are these deposit requirements sensical? What can we do to drive change in the system?" And I think that's where my-

   19. DSDavid Sacks9:15

       Who sets those?

   20. VTVlad Tenev9:15

       What's that?

   21. DSDavid Sacks9:16

       Who sets those requirements? That's the clearing house, right? Is that the DTCC?

   22. VTVlad Tenev9:21

       Yeah, it's the, the DTCC and a lot of this stuff is actually spelled out in Dodd-Frank. So if you look at Dodd-Frank, uh, you'll see descriptions of the VAR charge and the various special charges there. Um, but I, I do think, um, one thing that I'm very excited about is, you know, not going beyond just talking about our problems, right? We can... I've, I've talked about our problems a lot but talking about solutions and how we can create a better financial system in the future, and I really think if you, if you understand the underbelly of what T plus two settlement is, you immediately ask yourself, "Why aren't we settling trades in real time?" And I wrote a post on that, I had a tweet storm. I'd also say, you know, some of the feedback that I've gotten is, you know, "Here's Vlad from Robinhood telling us about, you know, trying to change T plus two so that he can meet, he can lower his deposit requirements." I think there's lots of other systemic issues that fall out of that. In particular, right now you can short sell more stock than the shares that are outstanding, right? So, you know, some of these stocks had 140% short interest, right? So more, more shares were shorted than actually outstanding and I just think that's pathological and it stems from the fact that, you know, these shares are tracked on pieces of paper, so they're basically not tracked and someone can... You, you can, I can lend you my shares, you can short them. The person that's buying them from you can lend them again and you can do that multiple times and you end up with this situation that could destabilize the financial markets, right? So-

   23. CPChamath Palihapitiya10:56

       What... Okay, so T plus... Moving from T plus two to T plus zero, that's one issue. Um,

4. 11:02 – 21:57

   Allowing access to margin, Robinhood's prior SEC fines, Robinhood accounts that go bankrupt, debunking conspiracy theories, WallStreetBets & more

   1. CPChamath Palihapitiya11:02

      where do you think, uh, margin resp-

   2. DFDavid Friedberg11:05

      Yeah, that's what I was gonna ask. Where, where is your margin limits today, Vlad?

   3. CPChamath Palihapitiya11:07

      What's your, what's your thoughts on margin?

   4. VTVlad Tenev11:09

      Yeah. Well, so margin wasn't involved in this particular situation. In fact, there was an escalation path not a lot of people noticed until Thursday, but pretty much all of the brokers, including Robinhood, were, uh, ratcheting up the margin requirements for, for all of these securities, um, un- until they got to 100%. So by the beginning of the week, they were pretty much all at 100%, which means you can't use margin to buy them. You have to, you have to have them 100% covered. Um, so do you guys have a more specific question on margin, like margins was a-

   5. CPChamath Palihapitiya11:44

      Well I meant, I meant, more like, I meant more like, so for example, I think it's true, but you tell me if this is not true, you guys paid like a $65 million fine to the SEC for gamifying Robinhood, right? And-

   6. VTVlad Tenev11:57

      It's not, not exactly true but go ahead.

   7. CPChamath Palihapitiya12:01

      Okay, do you wanna, do you wanna just tell us what the truth is?

   8. VTVlad Tenev12:05

      Yeah, well, so the, the fine wasn't for gamifying Robinhood. It was for, um, payment for order flow and business model-related, uh, related things. Um, the gamification one is the, um, Massachusetts, uh, securities, uh, securities one, which is a separate thing. And look, on the SEC thing, um, we're a fast-growing company. We obviously scaled a lot between the period in question. Um, obviously, uh, the, the Securities and Exchange Commission, uh, felt like we could have done things better, and, and I own that. I think that we're fine being held to higher standards. We have to hold ourselves to higher standards. Um, and what we can do is just do some of the things we've done, staff up our compliance team, staff up our legal team. We brought on a new chief legal officer who was a former SEC commissioner, two new chief compliance officers for Robinhood Securities and Financial who had decades of experience. And the level to which we're investing in compliance, I mean, the goal is to build the finest legal and compliance team that the financial industry has seen.

   9. CPChamath Palihapitiya13:14

      Let me tie it back, Vlad, to what, to what we were talking about before. So do you think that it's okay if we're trying to build a generation of investors to give them access to margin as easily as some apps, including Robinhood, does, and then separately allows them to trade highly transactional, high vol instruments like options on top of that with margin? What do you think about that just as a general philosophy? Forget business building for a second.

   10. JCJason Calacanis13:45

       Well, and then also, can you say what the margin you allow is for a new account? 'Cause I don't think people understand-

   11. VTVlad Tenev13:50

       Sure.

   12. JCJason Calacanis13:50

       ... what that is. Maybe a little definition there.

   13. VTVlad Tenev13:52

       Well, there's a couple of things I want to clear up. Number one, you can't trade options on margin. So options are all fully paid for, right? Um, margin is not suitable for everyone. Um, I'll, I'll admit that. You have to understand it, and you also have to be a Robinhood Gold customer, which means you have to sign up and pay $5 a month. Most brokers don't gate margin behind a premium offering. So we're already a little bit more restrictive on that front. You have to have $2,000, uh, dollars in your account before you can borrow. And in December, we did lower our margin rates to 2.5%, which is very, a very competitive low rate. But let me tell you a use case for margin that I actually think is quite powerful. So, uh, obviously one use case is kind of the typical one of buying more stock with your money, but if you build a large portfolio, you can actually use margin as a line of credit, and we offer this feature with our debit card. You can turn on what's called margin spending, and what that means is if you invest, uh, in your portfolio, you can borrow collateralized by your portfolio at a very low rate, which is 1/10 of what you would borrow through a credit card. So I, I actually think it's a, it's a powerful tool. Certainly customers have to understand it and be suitable for it, but, um, it unlocks a type of borrowing, uh, not just for buying stocks, but for, for, for meeting your daily purchasing needs that, um, I think is, is very useful.

   14. JCJason Calacanis15:24

       If somebody puts $2,000 in Vlad, can they trade $4,000, $6,000, $8,000? And does it matter what equities they're holding? How does it work?

   15. VTVlad Tenev15:33

       Yeah, the, the actual calculations are, um, uh, there, there's no blanket, uh, formula I can give you because it does depend on the securities that you buy. So the example I gave was, for example, GME and some of these other meme stocks, we raised the requirement on those to 100%. So those have to be fully paid for. Um, other stocks have an initial requirement, uh, as low as 25% if it's one that, you know, is deemed by the operational staff and our processes as not being super volatile, and it can, it can go in between. So 25% initial requirement all the way up to 100%, which is-

   16. JCJason Calacanis16:11

       So you can trade four times your money if it's a really blue chip secure stock.

   17. VTVlad Tenev16:17

       Um, more or less, yeah, with some nuance around that.

   18. DFDavid Friedberg16:21

       You know, time and again, Vlad, there's studies that show that it's really difficult to beat the market and make money, you know, trading in an efficient market, um, like the market we have for stocks, uh, or options or, or what have you. There's a lot of players. There's a lot of liquidities, a lot of people with information. It's, um, you know, these great fund managers over time underperform just the S&P, right? And, um, you know, I, I think I mentioned this when we had that pod a few ago that I was involved in a forex trading company and 60, 60% of accounts eventually ran out of money. Can you share with us what percent of Robinhood accounts run out of money and, and, you know, do we mask generally, and I'm not accusing Robinhood, uh, specifically of this, but do we mask the idea of investing in businesses, um, as a, you know, a way of kind of highlight, of, of a way of hiding that people are really just using this to trade in and out and try and make money in the short term, and ultimately the majority of them end up losing most of their money because the fees and the spread and the margin or whatever it is that, that, that kind of adds up, you know, wipes out the account? That's what I saw at this forex company I was involved in. Can you share with us, you know, in a very candid way, like how many accounts do eventually go bankrupt at Robinhood and how much of that do you really see?

   19. VTVlad Tenev17:37

       First of all, I'd say forex is a little bit different 'cause the leverage you get in forex is like orders of magnitude higher, right?

   20. DFDavid Friedberg17:43

       Yeah. Yeah. I'll, I'll admit to that. It was like 10 to 50 to 1 leverage. So you're totally right. Yes. 100%.

   21. VTVlad Tenev17:48

       Yes. So, um, I, I do think the businesses are a little bit different. Most of our customers don't use leverage. Most of our customers aren't active traders or trading options. And if you look at some of the features that we've rolled out, the, the theme of this year has been how do you turn a first time investor into a long term investor. So fractional shares, recurring investments, drip, um, these tools allow someone to create a diversified portfolio of individual stocks and recurringly buy into them over time. So, um-

   22. DFDavid Friedberg18:21

       But is, is that the majority of users today or the minority? You know, are you... How many accounts do you see kind of cycle down to zero, um, over what period of time?

   23. VTVlad Tenev18:30

       I think a, a very small percentage of accounts, uh, have that, have that property. I mean, I think if you look back in 2020, we had a huge, uh, increase in growth and interest in investing right at the bottom of the market crash in March, right? And, uh, I think people have taken advantage of that. And, uh, our, our customers in general have benefited from the recovery very, very significantly. So, I, I wouldn't... I would, I would reject the, the meme that, you know, Robinhood customers are active traders that are just, you know, churning their accounts and, and losing all of their money. That's, that's just simply not what we're seeing.

   24. JCJason Calacanis19:11

       I, I know Sax has a question, but one question I had with the conspiracy theories-

   25. DSDavid Sacks19:16

       (laughs)

   26. JCJason Calacanis19:16

       ... that I would just love to hear like a yes-no to, like-

   27. VTVlad Tenev19:18

       Sure.

   28. JCJason Calacanis19:18

       ... did Citadel call you and say, "Stop this madness," because they had exposure through one of their hedge funds with GameStop? And did Sequoia call you and say, "Hey, stop this madness"?

   29. VTVlad Tenev19:28

       Or Joe, Joe Biden-

   30. JCJason Calacanis19:29

       Was there pressure?
5. 21:57 – 31:04

   Should there be more transparency in the financial markets? Will Robinhood's IPO shares be sold to their retail users? What will they change internally going forward, and how would they have handled the meme stocks situation differently?

   1. DSDavid Sacks21:57

      Vlad, do you think that there should be more transparency in the financial markets? Meaning everything from payment for order flow, how much money companies make lending out their stock? How, what, which company is short which stock? Uh, which company is long which stock on a more frequent basis? How much margin people are running? Do you think like we should move to perfect transparency in the financial markets?

   2. VTVlad Tenev22:21

      I, I do think that there should be more transparency, and I'm glad you, you brought up payment for order flow, because it, it's something that I'm trying to take on. You guys might have noticed, I, I pub- I published a post on payment for order flow. I started a tweet storm that, um, is meant to just start the conversation around it. I want to understand kind of the misconceptions and the theories and, and knock them out one by one. And I think that'll lead to some positive discourse around it, and there certainly might be things that'll have to change. Um, and I think the, the first step is actually engaging in the conversation and kind of connecting the people that understand the details with the people that have issues with it. Um, and I, I don't think that's been happening enough, so for sure.

   3. DSDavid Sacks23:06

      But what about stuff like margin, shorting, you know, uh, short, like do you think that we should move all of this stuff so that it's just out, out front for everybody to see?

   4. VTVlad Tenev23:16

      Well, I think, I think if we, if we migrate to a better settlement infrastructure and move to real-time settlement, you get a lot of that stuff for free, right? So you do get, um... And I know a lot of the crypto people came out after I published my post and said, "You know, crypto solves this." You could just put it on, on a blockchain and everyone could see publicly what's going on and which share, which shares are, are being, being held short, where they are, who's owning them. Um, so I think I would be in favor of, of, uh, more transparency. I'm not sure at what point, uh, there's sort of like negative secondary effects. I haven't kind of unspun the thread fully, but I think we can, we can keep taking it one step at a time and, and see, uh... More transparency generally, I think is much better.

   5. DSDavid Sacks24:01

      Hey Vlad, when you guys, um, go public, you've talked about having a, a listing at some point here soon. Why would you not have all of your shares sold in the, uh, IPO through Robinhood to your retail users? Why would you sell any shares to institutional investors?

   6. JCJason Calacanis24:19

      (laughs)

   7. DSDavid Sacks24:19

      Wow, good question.

   8. VTVlad Tenev24:20

      Yeah, uh, it, it is a, an interesting question. It's, it's one that I probably... That, that's probably the one I can't give too much detail on. Hopefully you guys understand.

   9. DSDavid Sacks24:30

      My recommendation, if you're gonna democratize access, do it all the way.

   10. DFDavid Friedberg24:33

       Fuck the hedge funds and the big guys. If that's the, if that's the point and you give retail equal access, you know, in all these transactions, as you know, institutions get, get all the access and the retailer is left paying the price.

   11. VTVlad Tenev24:44

       Well, here's something interesting, right?

   12. DFDavid Friedberg24:45

       Like, give, give a... Have your entire listing done through retail. It would be a, it would be a game-changing transaction.

   13. VTVlad Tenev24:52

       Yeah. So I mean, a lot of this, it's really interesting that this turned into a, you know, individuals versus hedge funds, because I, I think that's a really powerful story. But you also have large institutions, like Fidelity, that are holders of all these stocks, right? You have individuals on a lot of platforms that were short-selling them as well. Uh, not Robinhood, 'cause Robinhood actually doesn't, doesn't allow short-selling by individuals, but a lot of the other brokers do. And you have, you had statistics, um, statistics coming out that actually show retail versus institutional and, you know, there were some counterintuitive results. So I, I think if you actually look deep into the plumbing, the story of, you know, long individuals, short institutions, uh, on opposite sides, I think, uh, there's a little bit more nuance to it than that.

   14. CPChamath Palihapitiya25:41

       Vlad, um, if you had to do it over, or actually forget about the past. Think about the future.

   15. VTVlad Tenev25:46

       Yeah.

   16. CPChamath Palihapitiya25:46

       Um, what do you change inside the company?

   17. VTVlad Tenev25:50

       Well, let's see. Um, I think the 3.4 billion in extra capital certainly helps. Um, I think I'm, I'm very proud of the transition that we made between Thursday and Friday. So Thursday, we had the blunt hammer of PCOing these stocks, right, which obviously was not ideal. By Friday, we had moved to, uh, a much more sophisticated system where, intraday, we adjust the position limits in, uh, it was up to 50 stocks, and we published that on our website. So that, that gave us a lot more granular control over it and is a better system, and we're gonna only improve that and kind of take the learnings to other parts of the business. Um, so I think, um, the great thing about, you know, these sorts of crises is, um, sort of months and, and years worth of work get compressed and people are just like super aligned on the key priorities we need to do to, to move the business forward, and we saw that. And then the third thing I'd put is just, maybe you guys have seen, um, you know, I, I feel like I've evolved as the chief executive and as a leader. I, I didn't used to be on social media telling our story very much, but, um, I'm out there trying to encourage more transparency and openness.

   18. JCJason Calacanis27:03

       I would say much better today than with Elon. Much better (laughs) with Elon than Sorkin.

   19. VTVlad Tenev27:08

       (laughs)

   20. JCJason Calacanis27:08

       So progress has been made. I have a, just a basic question. I know we gotta wrap soon. When things get superheated and you have this viral momentum where... I don't know how many people-

   21. VTVlad Tenev27:17

       Yeah.

   22. JCJason Calacanis27:17

       ... tried to sign up on that day, but maybe you could give us an idea. On that Wednesday or Thursday, was it, you know, five figures, six figures, or seven figures worth of new accounts? Why not throttle the new accounts and say, "Hey, we're, you're on the wait list. We onboard 10,000 people a day. Your day-"

   23. VTVlad Tenev27:33

       Yeah.

   24. JCJason Calacanis27:33

       ... "is gonna be next Thursday," so that you don't get caught in this, you know, everybody uses the fact that it's friction-free to sign up to do an emotional bet in a, you know, let's call it mob behavior, right? Like this turned into-

   25. VTVlad Tenev27:47

       Yeah.

   26. JCJason Calacanis27:47

       ... a mob, and I, and I guess some people believe it's a good mob to go up against the hedge funds, uh, but it, it could have equally been something, you know, something more deranged and even more edge case is gonna happen. So when that does happen and a million or 10 million people sign up, can't you just pause it and say, "We're not gonna do any new accounts today. We've reached our limit"?

   27. VTVlad Tenev28:07

       We actually did do that. So we-

   28. JCJason Calacanis28:09

       Huh.

   29. VTVlad Tenev28:09

       We have been pausing new account approvals off and on, uh, depending on, on the load and, um, you know, customers have been experiencing, in some cases, short delays, uh, with account approvals. Obviously not an ideal solution from our standpoint, but, you know, if, if we have to do that, we will do it, and we have done it.

   30. JCJason Calacanis28:29

       How many people signed up on that Wednesday? Like, just ballpark. Like was it hundreds of thousands, millions?
6. 31:04 – 33:51

   Vlad tells the real story of Jason investing & signs off

   1. VTVlad Tenev31:04

   2. DSDavid Sacks31:04

      Yeah. And I, I, I'll, just, just one last softball here. Uh, this is not about what happened, uh, that, that, with GameStop. Uh, we've had a debate on this pod that got kind of heated between, uh, Chamath and Jason about the nature of Jason's investment in Robinhood.

   3. VTVlad Tenev31:19

      Ah, okay.

   4. DSDavid Sacks31:19

      Uh, can you tell us, can you tell us your side of the story-

   5. VTVlad Tenev31:22

      Yeah, yeah.

   6. DSDavid Sacks31:22

      ... of what happened at, at Antonio's Nut House?

   7. VTVlad Tenev31:25

      Okay.

   8. DSDavid Sacks31:25

      And how much, how much stumbling was involved, precisely? (laughs)

   9. VTVlad Tenev31:27

      Okay. I'm, I'm very glad you brought this up because I've been meaning to call Jason out on it.

   10. DSDavid Sacks31:32

       (laughs)

   11. VTVlad Tenev31:32

       He has this great story of, uh, how, you know, we met at Antonio's Nut House and he-

   12. DSDavid Sacks31:38

       Yes.

   13. VTVlad Tenev31:38

       ... he wrote a check. I think the, the real story is that, uh-

   14. JCJason Calacanis31:42

       Oh.

   15. VTVlad Tenev31:42

       ... on-

   16. JCJason Calacanis31:43

       Oh. Oh, oh.

   17. DSDavid Sacks31:44

       (laughs)

   18. JCJason Calacanis31:45

       (laughs)

   19. VTVlad Tenev31:46

       ... on Robinhood launch day, um, which was a Saturday and, um, we violated every rule of PR and marketing by launching inadvertently on a Saturday, I got a reach out from a, from Launch, who, who was one of the first, uh, one of the first outlets to cover our launch on Saturday. And, uh, Jason's, uh, Jason's friend, uh, Simon, ex-employee who, uh, ended up running social for us for a bit, um, was a big fan of Robinhood so, um, he joined us as kind of our first social person. He introduced me to Jason. I met Jason at Sequoia, Jason, where you agreed to-

   20. JCJason Calacanis32:26

       Yeah.

   21. VTVlad Tenev32:26

       ... invest. And then six months later, we met at Antonio's Nut House when we were raising our series A and I think you, uh, you gave me the advice-

   22. JCJason Calacanis32:34

       Oof.

   23. VTVlad Tenev32:34

       ... to, to go with Index Ventures.

   24. JCJason Calacanis32:37

       No, no I said Sequoia all the way. (laughs)

   25. DSDavid Sacks32:38

       (laughs)

   26. JCJason Calacanis32:38

       Don't get me in trouble.

   27. DSDavid Sacks32:39

       (laughs)

   28. VTVlad Tenev32:39

       (laughs)

   29. JCJason Calacanis32:39

       I'm Team Sequoia. I, I promise. Michael Moritz, Doug Leone, whoever's watching, I totally was Sequoia.

   30. VTVlad Tenev32:45

       No, Sequoia was great. They, they, they-
7. 33:51 – 41:36

   Vlad returns to answer more questions on users that lost everything, future of payment for order flow & more

   1. JCJason Calacanis33:51

      (laughs)

   2. DFDavid Friedberg33:52

      Wait, Vlad's back? Wait, Vlad's back. (laughs)

   3. VTVlad Tenev33:55

      Sorry. I, I, I accidentally... I thought I was supposed to leave. I didn't know if you guys wanted me to stay.

   4. JCJason Calacanis33:58

      No, you, you can stay. I was saying, you can stay. I was saying after a year of Jason asking us to run ads, he's found a way of trying to make this a 45-minute infomercial for Robinhood.

   5. VTVlad Tenev34:10

      Yeah.

   6. JCJason Calacanis34:10

      Absolutely. I, listen, I'm ride or die of Vlad. You know that. I'm ride or die with my founders.

   7. VTVlad Tenev34:14

      I didn't ask for that and I, I don't need it.

   8. JCJason Calacanis34:15

      (laughs)

   9. VTVlad Tenev34:15

      We're just trying to keep, uh, keep everything up and let all the people safely in who have been banging on our door.

   10. JCJason Calacanis34:23

       How, how much have you been sleeping, Vlad? Have you been able to sleep? I mean, this has got to be exhausting.

   11. VTVlad Tenev34:28

       Uh-

   12. JCJason Calacanis34:29

       Oh my God, really? Can you ask him something, like, at least-

   13. VTVlad Tenev34:32

       Yeah.

   14. JCJason Calacanis34:32

       ... semi-fucking challenging?

   15. DSDavid Sacks34:34

       (laughs)

   16. JCJason Calacanis34:34

       Honestly.

   17. VTVlad Tenev34:35

       It's not my job.

   18. JCJason Calacanis34:36

       Vlad if any-

   19. DFDavid Friedberg34:36

       That's why you guys are here. If you're walking down the road and a Robinhood customer... This is a tough one, I'm sorry. You thought you were over this, but you logged yourself back in. So, and a, and a Robinhood customer that lost all this money when they got locked out of trading that day comes up to you and screams and cries, "I lost all my money." What do you say to them? You know, "I got completely destroyed. My life savings is wiped out." I mean, I've read a bunch of these comments on different boards and so on. Like, what do you say? 'Cause I, I know that's a tough one to swallow and I know that, you know, we've heard the, the, the story around what happened, but, but what do you say to that person?

   20. VTVlad Tenev35:11

       Well, first of all, I'd be very, very empathetic, um. I'd probably want to understand how someone could lose money, um, when they couldn't buy a stock at the all-time high. So, I think the details around that... I mean, if you look back, uh, and obviously this had nothing to do with the decision, right? But-

   21. DSDavid Sacks35:29

       Well, I mean-

   22. VTVlad Tenev35:29

       ... Thursday was the all-time high.

   23. DSDavid Sacks35:32

       Yeah. Yeah, but, but that's... But the reason for that is because the ability of WallStreetBets to continue the trade was, was basically interrupted, right? They were, they were engaged in a short squeeze against these big hedge funds and in order for this... to keep driving the squeeze up and up and up, they needed it to basically to, to be able to buy. And then once it got frozen out of all the online broker accounts, not just you guys, but all of them, that was... That, that, that, that broke the trade, right?

   24. VTVlad Tenev35:59

       Maybe. I mean, hypothe- hypothetically.

   25. DSDavid Sacks36:00

       That's when it, that's when it crashed. But that's what they're so upso- but that's what they were so upset about is because they got, they got locked out of the buy side of the trade. They weren't locked out of the sell side, right? They got locked out of the buy side and that allowed the, the big hedge funds 24 hours to regroup and, uh, and cover the trade. The price went down and that basically cracked the whole thing. Right?

   26. VTVlad Tenev36:23

       Well, I'm not sure about the, uh, the exact details there on the, on the hedge fund side or what happened. Look, what I can say is, uh, we're gonna do our best to, uh, make sure that we get better and we serve our customers, uh, whenever, whenever they want to buy stocks and we'll do that and, and we're gonna get better and better every day.

   27. JCJason Calacanis36:43

       And the truth is if you had had the money in the bank account to, for DTCC to be-... compliant, you would have been. Like, you weren't trying... I mean, you're in the business of letting people trade.

   28. VTVlad Tenev36:52

       Oh, without question, yeah.

   29. JCJason Calacanis36:54

       Yeah. You, you make nothing if people stop trading. You need people to trade. It's the core of the business, right?

   30. VTVlad Tenev37:01

       Yeah. This wasn't, you know, a value judgment or some kind of, uh, moral stance, and we weren't pressured into doing it by anything other than our regulatory deposit requirements.
8. 41:36 – 49:37

   Debriefing Vlad's performance

   1. CPChamath Palihapitiya41:36

   2. JCJason Calacanis41:36

      Are we gonna do a, uh, debrief?

   3. CPChamath Palihapitiya41:38

      The debrief from my opinion is that, um, I, I think that they're have, they have to really tighten two things. One is they need to make a decision, how do they wanna make money? Um, because I think this is the third time these issues have come up. It's probably not gonna be the last. And because there's going to be more market volatility, not less. And so you just gotta decide how you wanna make money, because there is no amount of money that's possible if you're gonna build a successful business and run into these margin constraints, right? You can't... There's just no amount of money that you could have. Meaning, if you look at the folks that didn't get called were folks that have like Schwab accounts. Why? Because Schwab is investing. And if you look at the folks that did have these margin issues, because Robinhood wasn't the only one, they're all the trading and, and sort of like high-frequency shops. And so, you know, that's a decision. And then it's back to what David said, which is like, once you make a decision, you have to be able to tell people like, "This is what you wanna stand for." And you have to have the right internal controls and governance. And so, you know, if he gets these things right, maybe they can be on the other side of it. Uh, otherwise, they're just gonna continually step on this stuff. And I think that the, you know, uh, if folks lose enough money, they're gonna be pretty upset, I think.

   4. JCJason Calacanis42:48

      Sounded to me like, David, uh, Freiberg, you had a good point about offering the, the Robinhood, uh-... consumer base the ability to buy the shares?

   5. DFDavid Friedberg42:58

      I think 100% of it should go to the sh- the, the retail investors and-

   6. JCJason Calacanis43:01

      Well, he didn't say "no" and he kind of, I kind of got the inclination that he was gonna do that.

   7. DSDavid Sacks43:06

      100% he will not.

   8. DFDavid Friedberg43:08

      Yeah, this came out in the past where he said they were gonna offer some of the IPO shares to Robinhood customers and so that was a few months ago. I'm, I, I think I said publicly on Twitter, "Why don't you offer all your shares to IPO customers?"

   9. JCJason Calacanis43:21

      Yeah.

   10. DFDavid Friedberg43:21

       Like, why take any of them direct to the institutions?

   11. JCJason Calacanis43:23

       Well, I mean, could he technically become a clearing house in IPO people?

   12. DFDavid Friedberg43:27

       But then what if they said was like-

   13. JCJason Calacanis43:28

       Would there be like a partnership in it?

   14. DFDavid Friedberg43:28

       ... yeah. Like why don't you just take, um, you know, if, if Fidelity wants to buy shares, let them buy shares on the open market like all the retail customers are forced to do. And then the Fidelity argument is, "Well, we're buying $50,000,000,000,000 blocks at a time, so we don't wanna have to be in the market doing that." But the marginal cost of buying a single share versus the marginal cost of buying a million shares is much, much higher. And, you know, that's the, that's the challenge with, um, you know, with retail access in financial markets that Robinhood has set out to solve, um, as have many others. And it would be a really powerful statement if they said, "You know what? We're gonna show the world that the market can all go direct and be efficient," and actually make all of their IPO shares available. And then, you know what? If the big block trade guys want to buy some, go ahead and buy it from the retail guys in the open market and part-

   15. JCJason Calacanis44:12

       Or do 50/50.

   16. DFDavid Friedberg44:14

       ...icipate.

   17. JCJason Calacanis44:14

       You know, offer everybody who's a Robinhood shareholder if they-

   18. DFDavid Friedberg44:17

       I just think that they would, if they could fill their demand, their demand on their book for their IPO from retail, do that, and let anyone else ... Let Fidelity sign up for a Robinhood account and buy their shares through Robinhood, you know. Like, um, the, the fact is the big, uh, uh, block buyers always get a discount, right? They pay wholesale pricing in these markets. Um, and that's also part of why it's so difficult for retail to actually find the footing, um, and so it would be a really powerful statement for them to kind of go all the way. Sure, I think it's almost certain they're gonna give some of the shares (laughs) available in the IPO through, to Robinhood customers. It's a great, uh, it's a great kind of, uh, you know, publicity point. But, um, but it would be really powerful if they shifted the whole, the whole thing. I mean, f- years ago when I was at Google and we did the IPO, I don't know if you guys remember this, but it was the first time we tried to do this Dutch auction so it was a reverse pricing.

   19. JCJason Calacanis45:02

       Yeah.

   20. DFDavid Friedberg45:02

       So anyone, any individual, any retailer, uh, retail customer, and any institution could bid on Google shares and then there was a clearing price that was hit and everyone got their shares at the same time. So there wasn't this order book that was built by going to the big guys that the banks all know and love like Fidelity and T Rowe and so on selling them big discounted shares. It was a, it was a, it was a true market auction. And the direct listing is the new model for this that totally democratizes access to the shares, creates fair and transparent pricing for everyone, and so you don't end up with these, like, discounted shares that pop 80% on day one.

   21. JCJason Calacanis45:32

       Okay. Sax, what is your debrief on the Vlad appearance?

   22. DSDavid Sacks45:36

       So I think Vlad, uh, did a pretty good job handling our, our questions, um, answering them-

   23. JCJason Calacanis45:41

       B+? B-?

   24. DSDavid Sacks45:43

       ... d- answering some, deflecting some. I think that, uh, look, I, I think, I, I, I don't think Vlad's a, a, a bad guy. I think he's a good guy. I think Robinhood wanted to do the right thing. I don't think they had any reason to want to freeze their own users out of their accounts. Uh, I don't think they wanted to do what they did. I think that there was a little bit of a blind spot there on his part in terms of understanding the consequences of that freeze out, right? Because it did break the buy side of the trade for WallStreetBets and then that, that basically allowed the hedge funds to recover and that was that moment, you know. And so, um, that, that was, that was a big deal. I think the consequence of that decision were a big deal. Um-

   25. JCJason Calacanis46:21

       But it's a counterfactual, right? We don't know, we'll never know if that was-

   26. DSDavid Sacks46:24

       I think, I think we know. Of course, look, it was, it was that Thursday where the short squeeze ended because WallStreetBets couldn't keep buying. They couldn't keep engineering their side of the trade.

   27. JCJason Calacanis46:34

       Right.

   28. DSDavid Sacks46:34

       Obviously, that's why it cracked, right? And Robinhood was a big part of that whole thing collapsing. Now, it was gonna collapse at some point. There's no question that the air was gonna go out of the balloon, but-

   29. JCJason Calacanis46:44

       Right, but would it-

   30. DSDavid Sacks46:44

       ... have gone to 5 or 600 is the question. Yeah, but, but, but how much money the hedge funds were going to lose, whether they were gonna get busted out of the game for good and who was gonna get left holding the bag, those were all questions that got answered in a completely different way because Robinhood did what it did. Now, I, I don't believe that they had a choice. I think they did it 'cause they were forced to do it, um, but it did have huge consequences.

Episode duration: 49:37