Would there be any limitation legally on Robinhood setting up a live stream of a giant roulette wheel and having people make futures event contracts on whether it's red or black?
Yeah, I mean, currently our policy has been to have them be backed by real events. So we don't want to do like derivative. We haven't done any derivative prediction markets. And there's different forms of that as well. Like you have like prediction markets and then you have a prediction market on how this prediction market is going to go. So like for example, Polymarket had a market where it was the coin toss at the Super Bowl and you could bet on heads or tails and it was trading at 50%.
Yeah, for the toss. And then it went to... I mean, that seems very much like gambling, right? Well, like, why even bother having the Super Bowl at that point if people are willing to, like, bet money on a coin toss? Why not just have a continuous coin toss? Why just forget the Super Bowl? Just have a coin tossing machine and let people trade on it. Is there like, is there anything actually like stopping you from doing that?
I'm not sure. Yeah. I mean, I'd have to look into that. We don't offer any of those contracts. I personally, you know, I'm a former trader. Probably wouldn't trade those.
Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal and I'm Tracy Alloway. Tracy, I think I've mentioned it before, but an idea that I've had for podcasts in general, maybe this one Monday, other podcast, I want to do everything in two parts. So yes, yeah, interview the guest. Because sometimes it's like all of the questions I want to ask are only after I've talked to a guest for an hour and have some better understanding of the situation. So on an interview, the guest think about it for a few days. Let the listeners listen to it and have their questions, and then it's like, okay, you know, we've thought about it for a few days. Come back. Also, our listeners want to know about this and then have the second part of the conversation. And just like a follow up, I want to like formula. I won't do that, but I think it's a good idea. It's also just a flywheel of content. It's a flywheel, you know, it'll be never ending that way. Yeah, I think that's a good job. Security. And we did an episode last year that was great, but it also provoked a lot of questions, so I'll just jump right into it. So we did an episode last year with Vlad Tenev, the co-founder and CEO of Robinhood, and that was about the company's tokenization efforts. So basically, its ability to create instruments that would allow users to actually trade shares, not shares, I guess, but, you know, quasi equity or equity linked instruments in private companies like, you know, an OpenAI or something like that. And then after that came out, a bunch of people, including the company, there's a lot of reaction. Yeah, they're like, what the heck we did. Since when did you know these private companies? They're like, since when the heck did like, we authorize our equity to be traded like this for all kinds of stuff. I didn't even, like, really think about that aspect of the time. So it's like I wanted to know more. I think there's a lot to talk about here. So I mean, it does feel like the I guess the trajectory of history right now is marching towards tokenizing everything and just allowing markets in everything and everything and everything from like kind of quasi derivatives to one off event. But like that just feels like the trend at the moment. But at the same time, there are so many interesting questions that this actually raises, not least of which is the safety aspect. And yeah, how much of our lives are just going to be watching lines going up or down and making bets on them? Absolutely. Right. You know, like with the prediction markets and you know, something I've been thinking about with prediction markets is you can replicate equity through that. Right. Because you could just have like prediction markets on. Will Tesla go up 1% today will go up 2%. You can just Rico up or down. Yeah. You can recreate all of these instruments and all these different formats. So it definitely feels like a jump ball, especially with a very sort of liberal regulatory environment. Anyway, I'm very excited to say we're going to get a chance to do the second half of that conversation that came out last July. So we are rejoined once again by Vlad Tenev, co-founder and CEO of Robinhood. So Vlad, thanks for coming back on a lot.
I'm happy to be here again. And I think from the guest's perspective, I'd also like this if there was an opportunity to replace any of my answers from part one with... Sorry, no, that I know the question to replace them. That's the first one is going to live on forever, but it's a very interviewer friendly format that you've created.
That's right. Of course we did. Well, let's talk about that because, like we did that episode where you talked about these tokenization efforts. And I was, I don't know why I didn't even think like other companies whose private shares are being tokenized. Are they cool with this? But apparently they weren't. What's going on with that? What happened with that? Because it does seem weird to be able to offer instruments of privately traded companies when the company is themselves. Like, just to be clear, this is not just not us.
Yeah. And, you know, they, I think there was various degrees of disavowal. I think a lot of these companies are very concerned about their reputations, and if they don't understand something, they don't have time to dig into it. They'll just say, we had nothing to do with this, which I think is fair. I think you talk to these AI companies and they all kind of say the same thing, which is, yeah, we'd love our company to allow retail investors exposure. Right. And we think that would be better for the world. Everyone generally agrees with this. But when you get down to the details of what that entails and it is a new thing, not a lot of companies are doing it. Nobody really wants to be the first, and no one wants to mess with the status quo. And from their perspective, they want to focus on running their business, increasing their revenues. And this is sort of ancillary. But for us, it is our business. Our business is all about helping the retail investor, making sure they have all of the advantages that institutions have. And so it's very, very important. So we've continued on this journey. Obviously the OpenAI and SpaceX stock token giveaways in Europe were kind of step one. But it's evolved like we're continuing to pursue that overseas. Okay. But of course we want to find a US solution for US customers as well. And actually this week we are taking public Robinhood Ventures Fund One, RV, on the NYSE, which is a closed end fund. So you can think of it as a venture capital firm that we're taking public. We raise capital from retail investors and some institutional as well. And we use that capital to invest in private companies, which we've already invested in, and quite a few. These are things that traditionally would be limited to accredited investors. Right. But it's non-accredited vehicle and also no carry. So actually one of the things we've been hearing is from a perspective of an LP that invests in venture capital firms and has to give up that performance fee to the manager. This is a disruptive vehicle. And for all of the Robinhood Ventures portfolio companies, and these are companies like Databricks or Revolut. I think I have to go through all of them because I don't want to pick out a particular, boom, hypersonic. Oh, yeah. We had their CEO, yeah, Macau, and Stripe, which we've signed in and not closed. And I'm probably forgetting some, but yeah, these are all companies that are excited to have Robinhood and retail be a part of the picture, and they filmed the videos explaining why they chose to be part of this. So there are people that want to be the first. And of course, this is a different product than tokenization of an individual name. And so it's like a little bit more palatable to most of these companies. But I think it ends up in the same place. I think there's going to be a gradual acclimatization to retail access to these companies. And, you know, Robinhood is going to be leading the way across all aspects of this journey. But, you know, our approach to it has evolved a little bit. You know, now we're at the point where we're actually surprised how many companies are interested in it and are engaging and view it as a differentiator. So I think at least for a bit, we're going to be less aggressive than we've been in the past and just get into these companies and make sure they want to be part of what we're doing willingly and openly.
I definitely have a lot of questions on the venture fund in particular. And you promise to answer all of our geekiest questions about, like, the technical structure of how it works. But before we go any further, I have one conceptual question, which is when you think about the difference between, I guess, investing, trading and gambling, how would you differentiate those three activities? Because I think a lot of the tension that arises from something like tokenized stocks is this idea that like, well, you know, when you buy a stock, you're buying equity. The clue's in the name, right? You're buying equity in the company that's supposed to come with certain rights. It's supposed to lead to a virtuous circle of, you know, the investors putting capital in the company and the company talking back to its investors. And so I think if we just step back for a second and talk about how you see the differences between those three activities, that would be really helpful.
Yeah. I think that the difference between investing and trading is really one of velocity. I think the mindset of someone, and by the way, it's not always different people. It could also be different activities within one person. So in fact, we have a lot of customers who have multiple accounts that they have for different purposes. So investing to me is the mental model is buying something and I never intend to sell it. Longer term. So it's sort of like accumulating assets and you intend to have them only grow. And of course, maybe you'll sell it if you actually need the money. But the intent is always holding on to this and I'm building like monotonically increasing portfolio. Trading is I'm going to move in and out because I see an opportunity. And that opportunity might not exist in one day or three months. But there's like a very particular thesis that I have that's time bound and systematic. And I think gambling is, I think gambling is like mostly emotional driven, like maybe I really like this team. Right. And they're my local team. So I'll just, you know, put some for entertainment purpose behind it.
Tokenization specifically. Just to go back to this question, you mentioned that you're through the regulatory environment or you're able to move a little bit more aggressively in Europe than us. But like I said, Europe or US, if someone buys something that on the Robinhood platform is called an OpenAI token. Yeah. What are they getting? Is it, is there, do you have equity that has been like backing it? Is it a sort of swap where the only thing backing it is your promise to like redeem the token at some price? Like what does the, what is the token?
Yeah. So all of the tokens that we have offered in Europe, including the SpaceX and OpenAI giveaways. So those haven't been unlocked for trading. It's basically just we gave our customers a gift that they hold in their accounts. And that's because, or actually private markets, even in Europe for tokenization, we're sort of like working through since we're the first to do this, at least that I'm aware of. We're working with the regulators. Okay. Make sure that when we unlock those for trading, the product is safe. And is sort of like meets all the answers, all the questions and meets all of the requirements for making sure customers are clear on how it works. So the intent is for that to happen later this year. So we're working on it. But as of now, private stock tokens aren't tradable. They're just gifts. And all stock tokens are backed by underlying equity or like equity equivalent position in, for example, OpenAI doesn't have traditional equity because okay. But there is. So just to be clear, someone acquired some equity at some point in a VC round or whatever it is. And when someone buys an OpenAI token that exists, that link exists to an actual asset and someone has with the caveat that nobody's buying the OpenAI token through Robinhood, currently it's just been given. Okay. So the holds those tokens are they've been gifted, but those are the token holder doesn't have the equity. It's in the like special purpose vehicle I assume. So yeah. Technically the way this works is it's kind of similar to a stablecoin. Yeah. So you have your bag of traditional assets that are governed by traditional rules and legal covenants and whatnot here. And then you mint and burn tokens against that. But yeah, as of now in Europe, it's a derivative product. And that's also subject to change. You can think of this as kind of the paperwork around the technology. The technology is the same. But what we have been hearing from customers that, hey, they're a little bit concerned, you know, with traditional stocks in the event of bankruptcy of Robinhood or something. It's very clear what happens. Yeah. And so in V1, I think a lot of those questions were ambiguous. But since then we've continued working and we're going to have a V2 and eventually a phase three of this offering where we believe we'll have a path to actually addressing all those concerns. So now you're at the point where if you buy something that's tokenized, maybe it's a little clunky and it is slightly worse as a product than if you have the traditional equity. Right? If you have access to that, some people don't have access to it. So it's actually much better for them. But I think you're going to get to the point within the next year where it's superior in all practical ways. And I think that's where things really start to get interesting.
And just on the ventures fund, I know you said it was a closed end fund, but is that like a 48 thing or it's a 4040? Okay. Yeah. The other thing I'm thinking when I hear all of this is, you know, I find financial engineering interesting and it certainly gives us a lot to talk about. But on the other hand, it seems like so much work. Would it not just be simpler to try to lobby for the accredited investor rules to actually be changed? Like, how are you making the decisions to we're going to create all these new products, which I assume are a lot of work for you guys. Take a lot of discussion with the regulators versus just lobbying for these old rules to actually get overhauled.
Yeah, I think we're doing that as well. I think the accredited investor rule needs to go. Frankly, it doesn't make any sense. But I don't think that answers all of the problems that people have with private market investing. The other problem is just liquidity. Like, I don't even myself, right? Who has access to these things? I don't want to have my capital locked up for ten years or possibly more for these companies to go public. And some of them might never go public, right? So there's liquidity. There's also just access. And I mean, Robinhood, part of what we're doing here is we're out there hustling, getting into these deals. Because I'm in Silicon Valley, our team is there. Unlike most of these financial companies that are here in New York. So we happen to kind of be in the epicenter of where deals are getting done and where the companies are based. The no carry, obviously, and the accreditation, you know, if we could solve that through other ways, that will become interesting. But, you know, Chairman Atkins of the SEC actually specifically called out closed-end funds as the preferred vehicle for having access to private. So, you know, we're doing our part working with the regulators to try to open this up. I think they agree that it's a problem. And, you know, I don't think that it's going to be the end state necessarily. I think this thing will evolve. But we want to serve customers and work with regulators at all stages of it. So, and, you know, you do this once, the fact that it's hard is also kind of attractive because it makes it so that we're unique, like we figure it out. We have qualities that we can bring to bear that not all of our competitors can. For example, you really need to have both sides. You need retail to actually be on the platform and to be serving customers who are interested in these products. You also need to get the supply. And I think Robinhood is somewhat unique in being able to actually do both of these things simultaneously. And we figure it out once and then we turn the crank. So, you know, you notice we named the RV Robinhood Fund One. We do anticipate there will be other funds. We already have lots of ideas of unique products we can offer. So it's really just the first step.
So you mentioned being in Silicon Valley and being able to source these deals. And this is the other thing I wanted to ask you because getting into a hot private tech company at the moment seems incredibly competitive. And Joe and I, we go out and we talked to a lot of venture capital funds, and they always give us the same pitch, which is, well, we're different. We build long-term relationships with our investments. How is Robinhood actually competing in that space? And what I guess differentiates you from the sort of classic VC?
Yeah, I mean, a big one is we can say that there's no carry on these funds. And what that means is it's just the more, we believe a more investor-friendly vehicle. Right. Typical venture capital firm will charge the management fee. There's also a carry on top, which means every dollar past a hurdle rate, 20% of that goes back to the fund manager. So it's a more investor-friendly product. The other thing is, I think a lot of these companies are interested in retail and no other venture capital firm can say, hey, actually, RFPs de facto, not technically LPs, but the people investing in your company and who will get the underlying exposure through this fund are normal people. Mom and pop. And I think that's something that nobody else is offering. So that's a unique differentiator. And some people don't like that, to be fair. But other people really, really like it. And for those people, and I think in the future, less people will not like it because of the uncertainty. And that'll just make it more attractive. So the headwinds are receding headwinds, right? It's never going to be as difficult as it is right now to get companies interested in it. And I think it'll actually get substantially easier. We kind of went through this with IPO access, actually. So we have the largest retail platform for access to IPOs, where we function as a selling group member. And, you know, we first rolled this out slightly before our IPO. The intent was Robinhood's IPO would be a big retail offering. And I think at the time it was the largest for its size. It was north of 20% retail allocation. The other companies that allowed us access to their IPOs that year, I mean, they were early adopters. They saw the vision. We also just had to scratch and claw and bang on a lot of doors and ask a lot of favors. Right. There was some skepticism. Then the IPO market shut in 2022. And then when we reopened, an interesting thing happened. Now everyone's coming to us and asking us about retail strategy. Pretty much all of the IPO names are coming to us to talk about retail. And so we saw that shift in just a few years. I think this will be even faster for privates.
I want to ask. So okay, you mentioned the advantages is okay, there's no carry. There's things like that. That all sounds nice. I foresee a potential conflict of interest that I'd like you to talk to me about. In a traditional VC fund, it's pretty obvious. Like the goal is to make a lot of money, right? You make investments and you want them to go up. It strikes me, and especially when hearing the names of the companies in RVI, it's like they're very sexy names, right? They're the kind of household names to the extent that that exist within private companies and boom and Databricks, etc. It seems to me like, okay, the traditional VC fund, like you're going to optimize for making the most money, the best returns, including names that no one has ever heard of. Why should I not think that Robinhood's portfolio has been optimized for retail awareness? Not for the best returns, but for the collection of companies that will spark the most triggers in people's heads to get them to invest because they've heard of them and they're sexy and not necessarily the best options out there in terms of investing.
Well, I mean, first of all, we are incented to make this firm perform well, right? We, everyone will see it. It's going to be highly public. The returns will just be out there. And, you know, we have a fiduciary obligation. We've got a great fund manager that we've hired, and we're underwriting all of these deals extremely rigorously. I think the biggest worry that you have with things like this is actually adverse selection, right? Is are you just going to get into the deals of the companies that need the money and are desperate for it.
Right, right. This is what you run into with like new things typically it's like, yeah, when am I going to start looking this like, what I think because I've got like I mentioned this on another episode, someone that was like, Joe, someone is selling some Anthropic shares that this interest you. I'm not investing in companies I cover in private markets. I'm not gonna do it. But like, I always have the thought, like, you know, if someone's offering to sell it to me, they must really want it. When they're asking us. They're asking when they're like offering the equity to Joe. Like, that's like a bad sign. I know that's a bad sign, but that adverse selection of like by the time it's getting allocated to retail, like a bunch of people have decided to part with it.
We have to flip that on its head. And actually all of the deals that we've gotten into have been competitive deals, like we've had to work for these allocations. You know, I have a lot of friends that are venture capitalists. Yeah. And I think some of them, like I've been talking about this for a while, this general idea of we want to get in and actually start competing with you guys, you know, and they never took me seriously. But then we started, you know, getting allocations and deals that they wanted allocations in. And I've started getting calls and they've been telling me, hey, this Robinhood Ventures real thing, I have to contend with you now. So I think we're very proud of the companies that we've gotten thus far.
I think you made the point that one of the drawbacks is liquidity, which is always going to be a phenomenon in private markets. Another drawback to this is that you don't, the investor doesn't know anything. There's no 10-Ks, there's no earnings calls or anything like that. And okay, you own some tiny slice of a private company, whether via a token or whether via RV. You don't really know what the share count is. You don't know, like how much have they like allocated to employees this quarter because they're under no obligation to think. Then are we heading towards a world, do you think, in which the trade-off is like, okay, investors can get access to almost everything via some instrument, but are we heading to a world where the flip side is and they're going to know a lot less about the companies that they've invested in?
I don't think so. I don't worry about that. And in fact, one of the innovations that we're putting out there with the launch of this offering is private company detail pages. So you'll actually be able to search for the private companies themselves in Robinhood and see all of the information that's got like their revenues, like earnings, like all the traditional, like they're not, it's publicly available information, what they've chosen to share. But it's all in one place. And you know, you get a lot of useful stuff in there. You see the valuation history. All right. So you can see like, you know, the chart of companies like Databricks, for example. Yeah. And I think there's just a lot of information out there. I mean, if you think about investing in a private company today versus a retail investor investing in a public company, say, in the 80s, I'd venture to say there's more information. You have like App Store analytics data for consumer products. There are out there a lot of these late stage privates are doing public company like disclosures and audits on a regular basis, because this isn't, you know, these aren't $100 million companies. These are, yeah, some of them are in the hundreds of billions of valuations, tens of billions probably 15 years ago. These would have gone public a while ago. So, I mean, we've generally started with household names, with some exceptions that are already established at the frontiers of the industries. And these are like the companies that would be closest to being public. So if you think about, you know, public company IPO access candidate Robinhood Ventures, Robinhood Ventures is filling. It's like gradually extending backward. Actually, the thing I'm most excited about, if I had to point to something, it's eventually getting to the earliest possible stages. Like I think retail should be funding seed rounds, like the first capital in a company should have retail participation. And I think we hear from the customers. One of the concerns is, well, these companies are fairly late stage. How do I get exposure to something that's earlier so I can get in on the ground floor? And I think that's something we're excited to dig into and work on.
Would that be like a GoFundMe competitor or something? Because there are some good Kickstarter. Kickstarter. That's what I want to do, not GoFundMe.
Well, the difference is with those products you don't actually get any ownership. You're giving, you're making it. Sometimes you get early products, I guess, but that's about it. Yeah, but what they want is ownership. They want to invest in something when it's at a valuation of say, 10 million. Yeah. And if it gets to 10 billion, that's, and then they'll learn that 99% of those companies go to zero. But they have to learn that lesson for themselves. It sounds like, well, you know, that's where we come in, right? And we think that we can, like, we can figure out what the right deals are. And what we intend to do is offer great companies to customers.
Well, on this note and just going back to the ventures fund as well. I mean, one other issue I foresee is that, you know, you see a lot of flow and information in the market, and you can imagine some of your competitors potentially thinking that, you know, maybe some of that flow would inform how the fund is actually managed. I mean, in some respects, like you're starting to get a little bit investment bank where you have this huge flow business that you can glean market insights from, and then you also have managed funds. How are you sort of hiving off those two activities, or how are you thinking about how, like the data and the flow data that you see, how will that actually inform management?
