20VC RobinHood's Baiju Bhatt on The Importance Of Design in Fintech and Having A 10X Better Product

Summary Notes


In this episode of Founders Friday on the 20 minutes VC, host Harry Stebbings interviews Baiju Bhatt, co-founder of Robinhood, the commission-free stock trading app that has disrupted the financial industry. Bhatt delves into Robinhood's origin story, tracing back to his Stanford days with co-founder Vlad Tenev and their shared passion for democratizing finance, which was further fueled by the Occupy Wall Street movement. Despite regulatory hurdles and a silent period pre-launch, Robinhood amassed a 1-million-person waitlist and has since captivated a younger demographic with its intuitive design—a key factor in its success, alongside its revolutionary fee structure. Bhatt emphasizes the importance of product-market fit, illustrated by Robinhood's rapid and unexpected growth, and shares his aspirations for the company's international expansion and mission to provide global access to premium investment opportunities.

Summary Notes

Founders Friday Introduction

  • Harry Stebbings hosts Founders Friday on the 20 minutes VC podcast.
  • Harry encourages listeners to follow him on Snapchat for insights into the world of VCs and founders.
  • Baiju Bhatt, the co-founder of Robinhood, is the guest for this episode.
  • Robinhood is noted for its commission-free stock trading app and has received investments from prominent firms.
  • The app has won an Apple design award and had a pre-product launch waitlist of 1 million people.
  • Robinhood was nominated for the best mobile app at the Crunchies by TechCrunch.
  • Matamot provided data and analysis for the podcast episode.
  • Harry promotes the Twentyminutevc.com newsletter.

This is Founders Friday from the 20 minutes VC with your host Harry Stebings.

Harry Stebbings introduces the Founders Friday segment on his podcast, the 20 minutes VC.

And I'm so stoked to have an incredible founder joining us today.

Harry expresses excitement about the guest for the episode, Baiju Bhatt, co-founder of Robinhood.

They were able to build 1 million people waiting list pre product launch.

Harry highlights Robinhood's achievement of garnering a waitlist of 1 million people before launching their product.

Baiju Bhatt Introduction

  • Baiju is welcomed to the 20 minutes VC podcast.
  • He is recognized as a co-founder of one of the hottest fintech startups.

You have now arrived at your destination. Baiju, awesome to have you on the 20 minutes VC.

Baiju is warmly welcomed to the podcast, indicating the start of the main interview segment.

The Founding of Robinhood

  • Baiju Bhatt shares the origin story of Robinhood and his collaboration with co-founder Vlad.
  • Both founders were Stanford students during the summer of 2005, participating in a research program.
  • Baiju and Vlad bonded over shared backgrounds, interests, and their studies at Stanford, eventually becoming roommates.
  • After graduating, they worked together on various projects before starting Robinhood in 2012.

So I'll tell you a little bit about how my co-founder Vlad and I first became what is now like ten plus year collaborators, and how a lot of the things for Robin had started.

Baiju provides background on his long-term collaboration with Vlad and the early days leading to the creation of Robinhood.

Inspiration for Robinhood

  • The Occupy Wall Street movement served as a significant inspiration for Robinhood.
  • Baiju and Vlad were previously working in New York on a company called Kronos, which provided technology for financial firms.
  • They felt compelled to leverage their finance knowledge and privileged education to create something impactful, leading to the concept of Robinhood.

That motivation definitely came from the Occupy Wall street movement, I would say.

Baiju cites the Occupy Wall Street movement as a key motivator for the ethos behind Robinhood.

Development and Regulatory Hurdles

  • The journey from the initial idea of Robinhood to announcing a product took over a year.
  • Baiju describes the delay due to regulatory hurdles as challenging, with the process to become a broker-dealer being particularly time-consuming and expensive.
  • They refrained from speaking publicly about their plans during this period to avoid prematurely soliciting customers.

It was a lot of waiting through the darkness because we knew we wanted to be able to offer a free stock brokerage.

Baiju explains the difficulties faced during the regulatory process to establish Robinhood as a free stock brokerage.

Regulatory Approval and Initial Silence

  • The team faced challenges with regulatory approval for their financial services product.
  • They couldn't discuss or promote the product without the necessary licenses, which hindered early traction.
  • The uncertainty around getting approval meant they had to convince people of the product's potential without any user base.

"So we had to kind of just bite our tongue and wait until we got our licenses and hope we did at the time because it was definitely a question mark and had to convince a lot of people that the idea was good even though we had no traction."

The quote emphasizes the difficulty of gaining support for a product that couldn't be legally discussed or promoted due to the lack of regulatory approval.

Launching the Waitlist

  • Robinhood received regulatory approval in October 2013.
  • The team debated how to manage the waitlist and whether to display user positions.
  • They considered hiding the list size if it was under a certain threshold, to avoid appearing unpopular.
  • An accidental website launch led to unexpected traffic from Reddit, which kickstarted the waitlist's growth.

"Yeah, we got our approval from the regulators. Believe that was in October of 2013. And we're like, all right, we can finally do this thing."

This quote marks the turning point when Robinhood received the green light from regulators, allowing them to start building their user base.

Viral Growth and Design

  • The waitlist's growth was unexpected and spurred by an unplanned website reveal.
  • The product's value proposition, offering zero commission fees, was a significant factor in its virality.
  • Robinhood aimed for a tenfold improvement over existing products, focusing on trading commissions as a key differentiator.
  • The product's design also appealed to a younger demographic, contributing to its popularity.
  • Robinhood won an Apple design award, highlighting the importance of design in their product strategy.

"Well, I think that's definitely a big part of it. But I think the bigger thing is that Robin Hood is one of the products that crosses the ten x better threshold."

This quote explains the philosophy behind Robinhood's success: creating a product that is significantly better than existing options, which in their case, was achieved by eliminating trading commissions.

The Importance of Design in Robinhood's Product

  • The team's passion for design led to a product that was simple, elegant, and communicated trustworthiness.
  • The focus on design was not just a strategic choice but stemmed from a genuine love for creating beautiful things.
  • The design of Robinhood was a key aspect of the product's appeal and helped differentiate it in the market.

"Having a very simple and elegant design communicates a deliberation in the product that we make, and in turn, communicates trustworthiness to our consumers."

This quote highlights how the design of Robinhood was not only about aesthetics but also played a crucial role in building consumer trust and conveying the deliberate craftsmanship of the product.

Mass Market Phenomenon

  • Trading is considered a mass market phenomenon, though smaller than some other phenomena.
  • The number of US residents with brokerage accounts suggests a significant portion of the population is engaged in trading.

I would say it's a mass market phenomenon. I think it's smaller than some mass market phenomenon, but it definitely is.

The quote indicates Baiju Bhatt's agreement that trading is widely adopted, qualifying it as a mass market phenomenon despite being smaller than certain other widespread activities.

Design and Accessibility

  • Design improvements have made trading platforms simpler, more beautiful, and easier to use.
  • These enhancements are believed to enable greater accessibility to demographics that were previously less engaged in trading.

Absolutely. Absolutely. I mean, I think that in the US, if you look at the number of US residents that have brokerage accounts, the number is like, I think, 30 to 40 million people in the US.

Baiju Bhatt confirms that design changes in trading platforms have contributed to making trading more accessible to a broader audience.

Demographic Shift in Trading

  • Robinhood is popular among younger users, which is a departure from the industry norm.
  • Younger demographics approach trading with a different mindset, focusing on the stock market's appeal rather than long-term retirement savings.
  • Robinhood users are generally not as concerned with the potential losses due to their longer earning potential.

Like the people that use Robinhood are in their 20s. They're young people. They're people that are not thinking necessarily about retirement today.

Baiju Bhatt describes the younger demographic of Robinhood users and how their approach to trading differs from the traditional, retirement-focused clientele of other brokerage firms.

Risk Perception Among Young Traders

  • Young traders view the risks associated with trading through the lens of their long-term earning potential.
  • The comparison to losing a significant sum in the market versus a minor loss, like dropping a phone in the toilet, is used to illustrate their risk tolerance.

So it's how much money are they really losing in this situation? Well, even if you assume, like, they lose all of their money, that's about as bad of an outcome as that same person dropping their iPhone in the toilet.

Baiju Bhatt uses an analogy to explain the perceived risk of trading for young investors using Robinhood, suggesting that their potential financial loss is seen as a minor setback compared to older investors with more at stake.

Challenges in Scaling a Company

  • Building a world-class team and maintaining quality as the company grows is a significant challenge.
  • The company has expanded rapidly in headcount, which requires careful management to maintain standards.

Well, I think that the challenge of actually building a company is one that's new to us and one that we're really excited to do, but just building a world class team and keeping a very high quality of people that join the company as we grow...

Baiju Bhatt expresses the challenges faced when scaling a company, emphasizing the importance of assembling and maintaining a high-quality team.

Involvement in Company Operations

  • Baiju Bhatt stays involved in various aspects of the company to keep in touch with day-to-day operations.
  • Close involvement helps in understanding the growth and changes within the company.

I like to be very involved in all the different things that we do and make sure that I'm not too far removed from our engineering, or I'm not too far removed from our product development, or I'm not too far removed from our customer support.

Baiju Bhatt stresses the importance of staying connected to different facets of the company's operations to effectively manage growth and changes.

Advice for Young Founders

  • Achieving the right product-market fit is crucial for startup success.
  • Product-market fit can be indicated by unexpected, fast-paced growth and customer retention.

Yeah, there's one definite thing, which is get product market fit just right. Okay.

Baiju Bhatt's advice to young founders is to focus on achieving a precise product-market fit, which he deems critical for a startup's success.

Assessing Product Market Fit

  • Product market fit is challenging to quantify but is indicated by rapid and unexpected growth.
  • Nonlinear growth is a positive sign of product market fit.

If there is unexpectedly fast growth, people are sticking around. That's a really good indication that there's product market fit.

Baiju Bhatt describes how unexpected growth and customer retention are key indicators of achieving product market fit, which is essential for the success of a new product or service.

Product Market Fit

  • Robinhood experienced a significant sign-up surge with 100,000 people in the first 12 hours after announcement.
  • This unexpected growth is a strong indicator of product market fit, especially for founders and entrepreneurs.

In the first 12 hours after we announced it, we had about 100,000 people that had signed up to use it.

The quote emphasizes the immediate and overwhelming user interest in Robinhood, suggesting a strong product-market fit.

Investor Relationships

  • Robinhood's investors were acquired through persistent pitching.
  • The investors include notable firms and celebrities, with Index having domain expertise in financial services.
  • Celebrities contribute to Robinhood's cool factor and publicity.

The way we met most of our investors was from pitching them and pitching them and pitching them and pitching them.

This quote describes the relentless effort that went into securing investors for Robinhood.

We're very fortunate to have some world class investors.

The quote reflects gratitude for having high-caliber investors supporting Robinhood.

Having a few of them saying, yes, we'll give you a little bit of money to play around with.

This quote indicates that initial investment commitments were modest, suggesting a gradual build-up of investor confidence.

Getting a shout out from Snoop and Jared Leto on Twitter every now and again is definitely, like, that's a highlight.

The quote highlights the marketing and publicity benefits of having celebrity investors.

Personal Preferences and Tools

  • Favorite reading material is TechCrunch.
  • The highlight of the Robinhood journey was the day it went viral on Reddit.
  • Slack, Apple's Notes app, and traditional paper and pen are favored productivity tools.
  • "The Case for Mars" is cited as a favorite book.
  • Aspirations included becoming a physicist or an astronaut.

Probably TechCrunch.

The quote indicates a preference for TechCrunch as a source of tech and startup news.

That day that it blew up on Reddit.

This quote refers to a significant event in the company's history that confirmed product market fit.

Slack. Pretty awesome tool. The notes app by Apple. Also quite awesome. And I tend to also really like paper and a pen.

The quote lists the productivity tools that the speaker finds most effective.

I really liked the case for Mars.

The quote shares a personal favorite book, indicating interests outside of the financial tech industry.

Future Plans and Expansion

  • Robinhood aims to become an international financial services company.
  • Regulatory challenges and procedural matters are part of entering new markets like Europe.
  • The broader mission of Robinhood is to democratize access to investment products globally.

There's definitely gears that are in motion to make that happen.

The quote indicates ongoing efforts to expand Robinhood into European markets.

I would like to see Robinhood become an international financial services company.

This quote outlines the long-term vision for Robinhood's expansion and influence.

Robinhood is to act as an equalizing force by allowing everybody in the world to be able to invest in the best investment products.

The quote encapsulates Robinhood's mission to democratize finance by making investment opportunities accessible worldwide.

Show Promotion and Appreciation

  • Greylock week is announced for the next week on the 20 minutes VC podcast.
  • Listeners are encouraged to sign up for the newsletter and follow on social media.
  • The host expresses gratitude for listener support and promises to respond to feedback.

I'm thrilled to announce that we have Greylock week next week.

The quote promotes an upcoming feature week on the podcast, highlighting a venture capital firm.

Your support really does mean the world to me.

This quote conveys the host's appreciation for the audience and their engagement with the show.

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