Robinhood's Startup Idea Was Rejected 75 Times; Now, Robinhood Stock Market Is Worth More Than $8 Billion

Obtaining capital for your startup can be difficult. It would be even more difficult if your startup’s product does not yet exist. Add to that a lack of regulatory approval, and you have the situation that Robinhood faced a few years ago.

This was a different startup idea that no one believed in and seventy-five ventures rejected it. Robinhood has currently developed its business model and is ranked among the unicorn startups.

Baiju Bhatt and Vlad Tenev, the creators of the well-known stock trading app Robinhood, are now each worth $2.9 billion and $2.1 billion, respectively. This is despite the somewhat disappointing to some investors IPO of Robinhood.

Let’s take a look at their career in charge of the business that consistently rocks Wall Street.

THE EARLY LIFE OF THE ROBINHOOD FOUNDERS

– Vladimir (Vlad) Tenev was born in the Bulgarian coastal town of Varna and moved to the United States with his parents when he was five years old. He was raised in Fairfax, Virginia, by parents who both worked for the World Bank in Washington, DC.

He attended Thomas Jefferson High School for Science and Technology before being accepted to Stanford University.

– Baiju Bhatt was born in the United States to Indian immigrants. Bhatt was raised in Poquoson, Virginia, and after graduating from high school, he earned a bachelor’s in physics from Stanford University and a master’s in mathematics.

The origins of the Robinhood story can be found at Stanford University in Stanford, California, where co-founders Vlad Tenev and Baiju Bhatt studied Physics while sharing a residence hall.

THE TWO GOT ALONG WELL AND DECIDED TO WORK TOGETHER

The two pals moved to New York City following graduation. They set up two finance companies, Celeris and Chronos Research, which sold trading software to hedge funds.

They learned from their newly acquired financial experience that large Wall Street firms effectively pay nothing to trade stocks, whereas most Americans were charged a commission for each transaction.

Tenev and Bhatt both supported the Occupy Wall Street protest in 2011, which drew attention to social and economic inequality, greed, and corruption in the financial sector, as well as the power that large corporations wield over policymaking.

THE BEGINNINGS OF ROBINHOOD

Tenev and Bhatt returned to California with the goal of “democratizing finance for all” after living in New York City for two years. They decided to create “Robinhood,” a free, user-friendly app named after the fabled outlaw who robs the rich to give to the poor.

Innovating commission-free trading, Robinhood was the first, to shake up the entire brokerage sector. The unique idea and the slick, effective app interface made what was once a mysterious industry to many feel more like a game.

This action eventually prompted well-known firms like Schwab, E-trade, and TD Ameritrade to reduce their fees in unison.

Through the use of the company’s smartphone mobile app, Robinhood enables individuals to invest in publicly traded companies and exchange-traded funds listed on the American stock exchange without paying a commission.

Robinhood’s iPhone and Apple Watch apps received the prestigious Apple Design Award at the 2015 Worldwide Developer Conference (WWDC). There were only 12 apps that year that won this prize.

WITH SO MANY AVAILABLE FREE SERVICES HOW DOES ROBIN HOOD GENERATE REVENUE?

– Method 1 The interest on the funds in your account is one way to generate income.

Let’s assume that you have $1,000 in your Robinhood account and that you are earning 3% interest. Robinhood would charge you $30 a year to keep your money in their account.

The sum may not appear to be significant until you consider the app’s 4 million active users and the ever-growing waiting list. As the interest rate and the accounts listed on the application rise, they are making a fortune.

– Method 2 Robinhood also provides its users with a wide range of services. The company’s Premium Gold subscription plan is its additional source of income generation.

– Method 3 The other way Robinhood makes money is through margin interest. The interest that is owed on loans made between a user and their broker regarding the assets in their portfolio is known as margin interest.

To increase their potential earnings when a stock rises, Robinhood allows users to borrow money. It’s no secret that a user has a greater chance of earning potential income the more money they invest.

Users of Robinhood can take advantage of the service of margin interest. Users need to have at least $2,000 in their bank account to buy margins.

ROBINHOOD BEGAN TO GROW

Millions of people, primarily millennials, who had never traded before have now been able to do so thanks to Tenev and Bhatt. According to their estimates, Robinhood accounts have made up nearly half of all new US brokerage accounts over the next five years.

Like Clubhouse, Tenev and Bhatt drew users in by appealing to their desire for exclusivity. They limited access by creating a waiting list of 50,000 people. Then, potential customers were instructed to recommend their friends to advance on the waitlist.

Robinhood had a million-person waitlist by the time it was launched on the Apple App Store in 2014, with no marketing budget. On the platform, trades worth more than $2 billion had been executed without paying commission as of 2016.

The Playstore has received over 10 million downloads of Robinhood.

In 2016, Robinhood introduced its subscription service, Robinhood Gold. For $10 per month, users could trade just before the market opens and just after it closes and receives instant deposits (there is no three-day waiting period).

This perk is intended to attract more experienced traders away from competing brokerages. Through a collaboration with Baidu, the business also expanded into China, giving Chinese citizens access to an app integration that enables the buying and selling of American stocks.

After raising $1 billion in funding in January, the trading startup raised $3.4 billion in February to continue investing in record customer growth. CrunchBase reports that throughout 25 rounds, Robinhood has successfully raised $5.6 billion in funding.

Robinhood came out publicly on the Nasdaq exchange in July 2021 with a $32 billion valuation. Additionally, a record number of new trading accounts were opened in the US in 2020 as a result of the COVID-19 pandemic’s wave of enthusiastic first-time investors. Since Robinhood had over 21 million active users at the time, things were undoubtedly looking even better.

HOWEVER, ROBINHOOD LATER FOUND HIMSELF IN DIRE STRAITS

Despite the company’s success as a result of the COVID-19 pandemic, there have been some hiccups. When GameStop’s stock prices suddenly rose, the company failed to meet users’ expectations, resulting in some serious issues.

The share price of GameStop doubled in just 90 minutes on February 24 before averaging around $200 for the following month. Following the release of earnings and the company’s announcement that it would be issuing a fresh secondary stock offering, GameStop’s stock price dropped 34% that day, to $120.34 per share. The stock experienced a sharp recovery on March 25, increasing by 53%.

To maintain its Capital, Robinhood stopped trading in GameStop. The goal of Robinhood’s founding was to “democratize” the stock market, but when trading was suspended, the company violated this goal by preventing its investors from buying Gamestop stock.

Investors had sued Robinhood, claiming they had lost money because they were unable to sell their shares of GameStop and other companies. Due to customer misinformation and system outages, Robinhood has assessed a $70 million fine.

A TRADER’S SUICIDE LANDED ROBINHOOD IN HOT WATER.

Alex Kearns, a 20-year-old Robinhood trader, was reported to have killed himself in June 2020 after discovering a negative $730,000 balance on his account as a result of options trading.

The founders of the business reacted quickly and committed to limiting who could use the app, providing more educational materials, and improving the user interface for those who were trading options.

The Alex family still filed a wrongful death lawsuit against Robinhood. However, The settlement was announced by Robinhood, but the terms were not disclosed.

FOLLOWING SETUPS, ROBINHOOD WAS ALWAYS BACK WITH BETTER PLANS TO AVOID THEM IN THE FUTURE.

Some might counter that these are just unavoidable side effects of being a pioneer, which entails coming up with a novel idea, making mistakes along the way, and picking up new skills as you go.

Still, the history of Tenev and Bhatt’s business is undoubtedly one of remarkable expansion and tenacity. Despite the bumps, the Robinhood revolution is still going strong, and its creators are still around to reap the benefits.

This story demonstrates that if you have a great idea, you should always be able to improve on it no matter how many times you are rejected. That doesn’t mean you have to stick with your flawed plan even after you realize it’s flawed. It implies that once you realize the potential of your idea, you shouldn’t be concerned about falling short of well-established large corporations. Maintain your perseverance, and you will succeed.

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