Embracing the Youth: How Robinhood Rebranded the Idea of an Investor
For years, the financial industry has been dominated by white collar businessmen who hold higher level degrees from the most prestigious institutions in the world. This façade led younger, less educated individuals to shy away from investing in even the simplest forms. Industry giants by the likes of Charles Schwab, J.P. Morgan, and TD Ameritrade maintained their pricey commissions on individual transactions, creating this high barrier of entry.
In early 2013, Vlad Tenev founded the company Robinhood, a commission-free stock trading app. This was no cake walk to success. Tenev pitched to nearly 75 Venture Capitalist Investors, denied from every single one. After 7 months of development and advertising, technology startup specialist group Index Investors became the companies first investor, totaling $3 million in seed investments in December 2013. Upon more beta testing in 2014 and 340,000 people signed up for the waitlist, Tenev and co-founder Baiju Bhatt gained an additional $13 million in Series A funding in September 2014.
Publicly released in December 2014, Robinhood became the first investment platform to prioritize ease of access, requiring no account minimums, no trade commissions, and maintaining the industry standard $250,000 SIPC Insurance. The app quickly amassed users, targeting millennials with an abundance of advertising through both mainstream mediaand social media sites like Twitter and YouTube.
Robinhood also targeted influencers as an advertising medium, doing paid promotions with popular finance related YouTubers such as Graham Stephen. Promotion codes were given out to entice people to sign up, giving them one free stock when making their first deposit. Most of the time, the stock would range between $5 and $15, however, it was advertised that there was a chance of receiving bigger stocks such as $AAPL, valued at nearly $200.
Robinhood’s rise to fame did not peak until December 12, 2019, announcing the trading of fractional shares. The app exploded, further lowering the barrier of entry for young investors. Previously, if somebody wanted to begin learning about the stock market using a small amount of money, they would be limited to very small and lesser-known companies. With this, you could buy $5 worth of Amazon, a stock valued at over $3,000. Shortly after, more conventional firms started rolling out fractional share and commission free trading, none of which amounting to the success in the younger demographic of Robinhood.
This millennial targeted approach was working and caused some very big changes to the financial world. The app has a median user age of 31 years old. Shockingly low in comparison to giants like TD Ameritrade, concluding after a survey their average age was 49 years old. However, it was not only the free trading and fractional shares that attracted young people. Studies show that people are more motivated to do things if apart of a group. This feeling of cohesiveness is not something that Tenev and Bhatt could add into the codebase. Rather, it was outside factors that influenced Robinhood’s exponential growth in 2020.
Jim Cramer, established ex-Hedge Fund manager and host of Mad Money on CNBC, has amassed a larger following through his stance on public television. For years he has given his opinions on certain stocks, and to some consistent to success. Cramer was one of the first to head the charge on accusing “Robinhood Investors” as being uneducated and reckless in the markets. This cult-like following for the app hit the mainstream, with even Warren Buffet acknowledging the power these people have in the market. Furthermore, Robinhood Investors have taken over other forms of media. The WallStreetBets subreddit became the hottest talking point of 2020, growing extremely quickly to 1.6 million users at the end of the year. The open forum provides a place for users to discuss and show off their trades on Robinhood, mostly in the form of options. Trading these highly volatile derivatives is usually reserved for the most educated professionals working at investment banks or hedge fund market makers, not the everyday man.
Millenials like simplicity, something Robinhood does quite well. As compared to competitors, Robinhood’s user interface is clean and refined, showing only the essentials. This made a large impact on the world of options trading. Prior, an options spreadsheet was old fashioned and confusing to the untrained eye. The app took a sleek, modern approach, eliminating everything overly technical. By only showing the essentials as well as “chance of profit”, it was easier than ever to dive into possible life altering trades, for better or for worse. This “one-click trading” of options caused users to flock to the app.
The end goal for Robinhood does not stop at retail trading. Founders claim that they are making strides towards being a one-stop-shop for any financial needs, “Anything that you would be able to get walking into your local Bank of America branch office, you should be able to get faster, better, cheaper, with a much better user experience, from Robinhood”. With the rapid development and lofty goals for the future, the core idea remains in place. The founders were once becoming the stereotypical “finance guy”. Their prior startup was aimed at assisting hedge funds in making money. They realized the problem they were fueling and disbanded the company, shortly after starting Robinhood. Jim Cramer stated that “Robinhood truly is take from the rich hedge funds and redistribute to the poor,” alluding to namesake of the company and English Folklore character. While this redistribution of wealth across economic sectors may not have always been the goal, the company has certainly exceeded when lowering the average age of investors. Robinhood investors have completely disrupted Wall Street and they have absolutely zero signs of leaving any time soon.
Written as apart of Professor Ash Faulkner’s Professional Communications in Business class at the University of North Florida
