Robinhood

Robinhood cuts trading fees, grows profits with in-house clearing

Posted by | Apps, eCommerce, Finance, Mobile, Robinhood, Startups, stock trading, TC, Vlad Tenev | No Comments

As zero-commission stock trading app Robinhood starts preparing to IPO, an engineering investment two years in the making could accelerate its quest for profitability. Most stock broker services have to pay an external clearing house to reconcile trades between buyers and sellers. Now with 6 million accounts up from 4 million just 5 months ago, that added up to a huge cost for Robinhood since it doesn’t demand a trading fee like the $7 to $10 that incumbent competitors E*Trade and Scottrade charge. Relying on outside clearing also introduced bottlenecks around its innovation and user sign ups, limiting onboarding to business hours.

But today Robinhood will start migrating accounts to its new in-house clearing service over the next few months. That will save it from paying clearing fees on stock, option, ETF and cryptocurrency trades. In turn, Robinhood is eliminating or reducing some of its edge case fees: $10 broker assisted trades, $10 restricted accounts, $50 voluntary corporate actions and $30 worthless securities processing will all now be free. Robinhood is meanwhile cutting its margin on fees passed on by banks or FedEx, so ACH reversal fees will drop from $30 to $9, overnight check delivery from $35 to $20 and overnight mail from $35 to $20.

“What’s really interesting is that this is the only clearing system built from scratch on modern technology in at least the last decade,” Robinhood co-founder and co-CEO Vlad Tenev tells me. Most clearing services ran mainframes and terminal-based UIs that aren’t built for the pace of startup innovation. Going in-house “allows us to vertically integrate our business so we won’t have to depend on third-parties for foundational aspects. It’s a huge investment in the future of Robinhood that will massively impact our customers and their experience, but also help us out on building the kind of business we want to build.”

There’s a ton of pressure on Robinhood right now since it’s raised $539 million to date, including a $363 million Series D in May at a jaw-dropping $5.6 billion valuation just a year after raising at $1.3 billion. Currently Robinhood earns revenue from interest on money kept in Robinhood accounts, selling order flow to exchanges that want more liquidity, and its Robinhood Gold subscriptions, where users pay $10 to $200 per month to borrow $2,000 to $50,000 in credit to trade on margin. Last month at TechCrunch Disrupt, Robinhood’s other co-CEO Baiju Bhatt told me the startup is now actively working to hire a CFO to get its business ready to IPO.

Whoever that CFO is will have an easier job thanks to Christine Hall, Robinhood’s Product Lead for Clearing. After stints at Google and Udacity, she was hired two years to navigate the regulatory and engineering challenges of spinning up Robinhood Clearing. She explains that “Clearing is just a fancy word for making sure that when the user places a trade, the price and number of shares matches what the other side wants to give away. In the less than 1 percent chance of error, the clearing firm makes sure everyone is on the same page prior to settlement.

Robinhood Clearing Product Lead Christine Hall

Forming the Robinhood Securities entity, Hall scored the startup the green light from FINRA, the DTCC and the OCC. She also recruited Chuck Tennant, who’d previously run clearing firms and would grow a 70-person team for the project at Robinhood’s Orlando office. They allow Robinhood to clear, settle (exchanging the dollars and shares) and ensure custody (keeping records of asset movements) of trades. 

“It gives us massive cost savings, but since we’re no longer depending on a third-party, we basically control our destiny,” Tenev says. No more waiting for clearing houses to adapt to its new products. And no more waiting the whole weekend for account approval as Robinhood can now approve accounts 24/7. These little improvements are critical to Robinhood staying ahead of the pack of big banks like Charles Schwab that are lowering their fees to compete, as well as other startups offering mobile trading. The launch could also blossom into a whole new business for Robinhood if it’s willing to take on clearing for other brokers, including fintech apps like Titan.

Clearing comes with additional risk. Regulatory scrutiny is high, and the more Robinhood brings in-house, the more security work it must do. A breach could break the brand of user trust it’s been building. Yet if successful, the launch equips Robinhood for an ambitious future beyond playing the markets. “The mission of the company has expanded a lot. It used to be all about stock trading. But if you look at Robinhood five years from now, it’s about being best-in-class for all of our customers’ financial needs,” Tenev concludes. “You should be able to get everything from Robinhood that you could get from walking into your local bank.” That’s a vision worthy of the startup’s epic valuation.

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Robinhood aims at IPO as the fintech startup seeks CFO

Posted by | Apps, baiju bhatt, cryptocurrency, disrupt sf 2018, Exit, Fundings & Exits, initial public offering, IPO, Mobile, Robinhood, Startups, TC | No Comments

Now valued at $5.6 billion, zero-fee stock trading app and cryptocurrency exchange Robinhood is starting preparations to go public. Just a year and a half ago, it was still largely under the radar. But then it raised a $110 million Series C at a $1.3 billion valuation in April 2017 and then just a year later scored a $363 million Series D, both led by Russian firm DST Global. Combined with the growth of its premium subscription for trading on margin called Robinhood Gold, the startup now has the firepower and revenue to make a viable Wall Street debut.

Today during Robinhood CEO Baiju Bhatt’s talk at TechCrunch Disrupt SF, he revealed that his company is on the path to an IPO and has begun its search for a chief financial officer. It’s also undergoing constant audits from the SEC, FINRA and its security team to make sure everything is kosher and locked up tight.

The CFO hire could help the five-year-old Silicon Valley startup pitch itself as the cheaper youthful alternative to E*Trade and traditional stock brokers. They’d also have to convince potential investors that even though cryptocurrency prices are in a downturn, allowing people to trade them for cheaper than competitors like Coinbase is a powerful user acquisition funnel.

Robinhood now has 5 million customers tracking, buying and selling stocks, options, ETFs, American depositary slips receipts of international companies and cryptos like Bitcoin and Ethereum. That’s twice as many customers as its incumbent competitor E*Trade despite it having 4,000 employees compared to Robinhood’s 250.

The startup has raised a total of $539 million to date from prestigious investors like Andreessen Horowitz, Kleiner Perkins, Sequoia and Google’s Capital G, allowing it to rapidly roll out products before its rivals can react. This rapid rise in valuation can go to some founders’ heads, or crush them under the pressure, but Bhatt cited “friendship” with his co-CEO Vlad Tenev as what keeps him sane.

The startup has three main monetization streams. First, it earns interest on money users keep in their Robinhood account. Second, it sells order flow to stock exchanges that want more liquidity for their traders. And it sells Robinhood Gold subscriptions which range from $10 per month for $2,000 in extra buying power to $200 per month for $50,000 in margin trading, with a 5 percent APR charged for borrowing over that. Gold was growing its subscriber count at 17 percent per month earlier this year, showing the potential of giving trades away for free and then charging for extra services.

But Robinhood is also encountering renewed competition as both startups and incumbents wise up. European banking app Revolut is building a commission-free stock trading, and Y Combinator startup Titan just launched its app that lets you buy into a  managed portfolio of top stocks. Finance giant JP Morgan now gives customers 100 free trades in hopes of not being undercut by Robinhood.

Over on the crypto side, Coinbase continues to grow in popularity despite its 1.4 percent to 4 percent fees on trades. It’s rapidly expanding its product offering and the two fintech startups are destined to keep clashing. Robinhood may also be suffering from the crypto downturn, which is likely dissuading the mainstream public from dumping cash into tokens after seeing people lose fortunes as Bitcoin and Ethereum’s prices tumbled this year.

There’s also the persistent risk of a security breach that could tank Robinhood’s brand. Meanwhile, the startup uses both human and third-party software-based systems to moderate its crypto chat rooms to make sure pump and dump schemes aren’t running rampant. Bhatt says he’s proud of making cryptocurrency more accessible, though he didn’t say he felt responsible for prices plummeting, which could mean many of Robinhood Crypto’s users have lost money.

Fundamentally, Robinhood is using software to make the common but expensive behavior of stock trading much cheaper and more accessible to a wider audience. Traditional banks and brokers have big costs for offices and branches, trading execs and TV commercials. Robinhood has managed to replace much of that with a lean engineering team and viral app that grows itself. Once it finds its CFO, that could give it an efficiency and growth rate that has Wall Street seeing green.

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Titan launches its mobile ‘not a hedge fund’

Posted by | Apps, BlackRock, eCommerce, Finance, hedge fund, Mobile, Robinhood, Startups, TC, titan, Wealthfront | No Comments

What Robinhood did to democratize buying individual stocks, Titan wants to do for investing in a managed portfolio. Instead of being restricted to rich accredited investors willing to pour $5,000 or even $500,000 into a traditional hedge fund that charges 2 percent fees and 20 percent of profits, Titan lets anyone invest as little as $1,000 for just a 1 percent fee on assets while keeping all the profits. Titan picks the top 20 stocks based on data mined from the most prestigious hedge funds, then invests your money directly in those with personalized shorts based on your risk profile.

Titan has more $10 million under management after quietly spinning up five months ago, and this week the startup graduates from Y Combinator. Now Titan is ready to give upscale millennials a more sophisticated way to play the markets.

This startup is hot. It refused to disclose its funding, likely in hopes of not tipping off competitors and incumbents to the opportunity it’s chasing. But it’s the buzz of YC, with several partners already investing their own money through Titan. When you consider Stanford-educated free stock-trading app Robinhood’s stunning $5.6 billion valuation thanks to its disruption of E*Trade, it’s easy to imagine why investors are eager to back Titan’s attack on other financial vehicles.

“We’re all 28 to 30 years old,” says co-founder Clayton Gardner about his team. “We want to actively invest and participate in the market but most of us who don’t have experience have no idea what we’re doing.” Most younger investors end up turning to family, friends or Reddit for unreliable advice. But Titan lets them instantly buy the most reputable stocks without having to stay glued to market tickers, while using an app to cut out the costs of pricey brokers and Wall Street offices.

Titan co-founders (from left): Max Bernardy, Joe Percoco, Clayton Gardner

“We all came from the world of having worked at hedge funds and private equity firms like Goldman Sachs. We spent five years doing that and ultimately were very frustrated that the experiences and products we were building for wealthy people were completely inaccessible to people who weren’t rich or didn’t have a fancy suit,” Gardner recalls. “Instead of charging high fees, we can use software to bring the products directly to consumers.”

How Titan works

Titan wants to build BlackRock for a new generation, but its origin is much more traditional. Gardner and his co-founder Joe Percoco met on their first day of business school at UPenn’s Wharton (of course). Meanwhile, Titan’s third co-founder, Max Bernardy, was studying computer science at Stanford before earning a patent in hedge fund software and doing engineering at a few startups. The unfortunate fact is the world of finance is dominated by alumni from these schools. Titan will enjoy the classic privilege of industry connections as it tries to carve out a client base for a fresh product.

“We were frustrated that millennials only have two options for investing: buying and selling stocks themselves or investing in a market-weighted index,” says Gardner. “We’re building the third.”

Titan’s first product isn’t technically a hedge fund, but it’s built like one. It piggybacks off the big hedgies that have to report their holdings. Titan uses its software to determine which are the top 20 stocks across these funds based on turnover, concentration and more. All users download the Titan iOS or Android app, fund their account and are automatically invested into fractional shares of the same 20 stocks.

Titan earns a 1 percent annual fee on what you invest. There is a minimum $1,000 investment, so some younger adults may be below the bar. “We’re targeting a more premium millennial for start. A lot of our early users are in the tech field and are already investing,” says Gardner.

For downside protection, Titan collects information about its users to assess their risk tolerance and hedge their investment by shorting the market index 0 to 20 percent so they’ll earn some if everything crashes. Rather than Titan controlling the assets itself, an industry favorite custodian called Apex keeps them secure. The app uses 256-bit encryption and SSL for data transfers, and funds are insured up to $500,000.

How have its bets and traction been doing? “We’ve been pleasantly surprised so far,” Gardner beams, noting Titan’s thousands of clients. It claims it’s up 10 percent year-to-date and up 33 percent in one year compared to the S&P 500’s 2 percent year-to-date and 22 percent in one year. Since users can pull out their funds in three to four business days, Titan is incentivized to properly manage the portfolio or clients will bail.

But beyond the demographic and business model, it’s the educational elements that set Titan apart. Users don’t have to hunt online for investment research. Titan compiles it into deep dives into top stocks like Amazon or Comcast, laying out investment theses for why you should want your money in “the everything store” or “a toll road for the Internet.” Through in-app videos, push notifications and reports, Titan tries to make its users smarter, not just richer.

With time and funding, “Eventually we hope to launch other financial products, including crypto, bonds, international equities, etc.,” Percoco tells me. That could put Titan on a collision course with Wealthfront, Coinbase and the recently crypto-equipped Robinhood, as well as direct competitors like asset managers BlackRock and JP Morgan.

“If we fast-forward 10 to 20 years in the future, millennials will have inherited $10 trillion, and at this rate they’re not equipped to handle that money,” says Gardner. “Financial management isn’t something taught in school.”

Worryingly, when I ask what they see as the top threats to Titan, the co-founders exhibited some Ivy League hubris, with Gardner telling me, “Nothing that jumps out…” Back in reality, building software that reliably prints money is no easy feat. A security failure or big drop could crater the app’s brand. And if its education materials are too frothy, they could instill blind confidence in younger investors without the cash to sustain sizable losses. Competitors like Robinhood could try to swoop in an offer managed portfolios.

Hopefully if finance democratization tools like Titan and Robinhood succeed in helping the next generations gather wealth, a new crop of families will be able to afford the pricey tuitions that reared these startups’ teams. While automation might subsume labor’s wages and roll that capital up to corporate oligarchs, software like Titan could boost financial inclusion. To the already savvy, 1 percent might seem like a steep fee, but it buys the convenience to make the stock market more accessible.

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Free stock trading app Robinhood rockets to a $5.6B valuation with new funding round

Posted by | Apps, dst, etrade, Fundings & Exits, Kleiner Perkins, Mobile, Robinhood, sequoia capital, Startups | No Comments

Robinhood started off as a dead-simple stock trading application that had no transaction fees — but since it’s continued to grow, and especially as it starts to dive into cryptocurrency, investors are getting pretty excited about its prospects and are pouring a ton of new funding into it.

And it’s that tantalizing prospect of creating a next generation way of trading assets and cryptocurrency that is now sending Robinhood to a $5.6 billion valuation in a new financing round that the company is announcing today. Robinhood says it’s closed a $363 million Series D financing round; DST Global led this new round and Iconiq, Kleiner Perkins, Sequoia and Capital G participated. Robinhood had a $1.3 billion valuation last year when it had around 2 million users, and the company says it now has 4 million users and has passed $150 billion in transaction volume.

“It’s the only place right now where you can trade crypto, stocks, and options all in one place,” CEO Vlad Tenev said. “For us to construct an experience that feels seamless and natural for customers, that for example want to sell an equity and use the proceeds to buy crypto, seamlessly, that’s been challenging not just from a product and design standpoint, but also infrastructure standpoint. There’s complexity under the hood, and our goal is to make it as seamless as possible in the process and make that complexity go away.”

Those 4 million users — and that valuation — indicates that Robinhood has clearly exposed a lot of demand for an easier way for users to dip their toes into financial services without having to work with firms that have trading fees like Scottrade or E*Trade. And while there are a lot of services that offer robo-advisory services like Betterment and Wealthront, which make it easier to start investing small amounts of money, Robinhood offers users the opportunity to do these things at a more granular level.

And, of course, there’s the cryptocurrency aspect that is clearly spurring a lot of interest in the company. At the time, 1 million users waitlisted for access in just the five days after Robinhood Crypto was announced. Robinhood has premium services like Robinhood Gold, where the company can find additional ways to generate revenue that offset the requirements of running a system that allows users to trade stocks for free. Robinhood has raised $539 million to date, as diving into financial services can be an expensive prospect, as well as getting enough users on board to the point that it can scale to a level that the business starts to increasingly make sense.

Robinhood’s crypto trading service came out in February and by today, the company says it’s available in 10 states. The company also rolled out a web version and stock option trading, trying to become a more robust financial services company that’s still tuned to a younger generation that wants an easier way to get into investing without needing a big balance to invest. Most of Robinhood’s users, too, aren’t so-called “day traders” and are instead holding stocks for a while after they buy them.

“If you look at the data and the statistics, people that are active day traders are actually a very small percentage of our space,” Tenev said. “People that are actually transacting on that cadence are the minority of our customers. Most of our customers engage in more of these buy and hold accumulation strategies. We really see a lot of unique things because we don’t charge trading commissions. There are customers that deposit money regularly twice or once a month and then buy stocks as soon as those deposits come in. We don’t see a lot of customers that are doing rapid buying and selling.”

Still, as it tries to further expand — especially into products like crypto and new regions — it’s going to increasingly find itself trying to jump hurdles that financial services companies find when going abroad. And there’s always a chance that the trading platforms will try to become a little more competitive (and companies like Square are even getting into Bitcoin trading). That’s going to require a robust amount of funding to try to outmaneuver well-capitalized companies that might already have those relationships in place to more easily expand.

“The political climate is uncertain, it sort of affects everyone, it doesn’t affect us uniquely,” Tenev said. “We’re a crypto business now. Not a lot of people have a ton of clarity on what that’s gonna look like in the future, it’s a new space that’s evolving really rapidly. I think that we’re confident we can adapt and evolve, and we’re operating the business in a responsible way. There’s only so much you can do, but I feel like we’ve done a lot to address any concerns.”

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Stock trade app Robinhood raising at $5B+, up 4X in a year

Posted by | Apps, coinbase, cryptocurrency, cryptocurrency exchange, DST Global, Finance, funding, Fundings & Exits, Mobile, Robinhood, Startups, stock trading | No Comments

By adding a cryptocurrency exchange, a web version and stock option trading, Robinhood has managed to quadruple its valuation in a year, according to a source familiar with a new round the startup is raising. Robinhood is closing in on around $350 million in Series D funding led by Russian firm DST Global, the source says. That’s just 11 months after Robinhood confirmed TechCrunch’s scoop that the zero-fee stock trading app had raised a $110 million Series C at a $1.3 billion valuation. The new raise would bring Robinhood to $526 million in funding.

Details of the Series D were first reported by The Wall Street Journal.

The astronomical value growth shows that investors see Robinhood as a core part of the mobile finance tools upon which the next generation will rely. The startup also just proved its ability to nimbly adapt to trends by building its cryptocurrency trading feature in less than two months to make sure it wouldn’t miss the next big economic shift. One million users waitlisted for access in just the five days after Robinhood Crypto was announced.

The launch completed a trio of product debuts. The mobile app finally launched a website version for tracking and trading stocks without a commission in November. In December it opened options trading, making it a more robust alternative to brokers like E*Trade and Scottrade. They often charge $7 or more per stock trade compared to zero with Robinhood, but also give away features that are reserved for Robinhood’s premium Gold subscription tier.

Robinhood won’t say how many people have signed up for its $6 to $200 per month Gold service that lets people trade on margin, with higher prices netting them more borrowing power. That and earning interest on money stored in Robinhood accounts are the startup’s primary revenue sources.

Rapid product iteration and skyrocketing value surely helped recruit Josh Elman, who Robinhood announced yesterday has joined as VP of product as he transitions to a part-time roll at Greylock Partners. He could help the company build a platform business as a backbone for other fintech apps, they way he helped Facebook build its identity platform.

In effect, Robinhood has figured out how to make stock trading freemium. Rather than charge per trade with bonus features included, Robinhood gives away the bare-bones trades and charges for everything else. That could give it a steady, scalable business model akin to Dropbox, which grew by offering small amounts of free storage and then charging for extras and enterprise accounts. From a start with free trades, Robinhood could blossom into a hub for your mobile finance life.

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Robinhood rolls out zero-fee crypto trading as it hits 4M users

Posted by | Apps, Bitcoin, coinbase, cryptocurrency, ethereum, Finance, Mobile, Robinhood, Robinhood Crypto, Startups, TC | No Comments

 Coinbase has some serious competition. Today, Robinhood starts rolling out its no-commission cryptocurrency trading feature in California, Massachusetts, Missouri, Montana and New Hampshire. Users there can buy and sell Bitcoin and Ethereum with no extra fees, and everyone can track those and 14 other coins in its sleek app. Read More

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Robinhood adds zero-fee cryptocurrency trading and tracking

Posted by | Apps, Bitcoin, coinbase, cryptocurrency, ethereum, Finance, Mobile, Robinhood, Social, Startups, TC | No Comments

 No-commission stock trading app Robinhood will let you buy and sell Bitcoin and Ethereum without any added transaction fees starting in February, compared to Coinbase’s 1.5 to 4 percent fees in the US. And as of today Robinhood will let all users track the price, news, and set up alerts on those and 14 other top crypto coins, including Litecoin and Ripple. “We’re planning… Read More

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Robinhood stock-trading app confirms $110M raise at $1.3B valuation

Posted by | Apps, Fundings & Exits, Mobile, Robinhood, Startups, stock trading, TC | No Comments

 Zero-fee stock-trading app Robinhood has joined the unicorn club. That’s thanks to it reaching 2 million total monthly users, and 17 percent month-over-month growth of its revenue-driving Robinhood Gold subscription product. The startup confirmed to TechCrunch that it’s raised a $110 million Series C at a $1.3 billion valuation. Read More

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Robinhood preps for zero-fee stock trading launch in China

Posted by | Apps, China, eCommerce, Finance, fintech, Government, Mobile, Robinhood, Startups, stock trading, TC | No Comments

Robinhood China Robinhood will bring its free U.S. stock trading app to the world, and just announced one of the first countries will be China. To prepare, today it launched a Chinese-language version in the U.S. and began asking users to invite friends and family in China to its waitlist. Robinhood previously launched a waitlist for Australia, but has otherwise only been available in the United States. For… Read More

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