CNBC Disruptor 50

1. Robinhood

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Founders: Vlad Tenev (CEO), Baiju Bhatt
Launched: 2013
Headquarters: Menlo Park, California
Funding:
$5 billion
Valuation: $11.7 billion
Key technologies:
Cloud computing, machine learning, software-defined security
Industry:
Fintech
Previous appearances on Disruptor 50 List: 4 (No. 46 in 2020)

Persephone Kavallines

Robinhood experienced a whirlwind in the past year as the pandemic helped draw new retail investors to its stock trading app and into some of the market's most contested bets. But being at the center of the bull run also landed the company in hot water when it decided to restrict trading in GameStop, the highly-shorted stock that Reddit traders chose to buy in mass numbers in defiance of Wall Street short sellers.

The company, founded in 2013 by Stanford roommates Vlad Tenev and Baiju Bhatt, found itself in a position more typical for Wall Street bank CEOs: being grilled on Capitol Hill with CEO Tenev hauled before lawmakers to testify on the trading frenzy and whether new regulations were in order.

Tenev and Bhatt started in finance selling trading software to hedge funds before creating Robinhood to develop ways for everyday retail investors to buy and sell stocks without paying commissions. Robinhood gained popularity among younger crowds by making stock purchases as easy as finding an online date on Tinder. Customers quickly link their bank account information, search for a stock and swipe up to buy. It's one of several platforms that allows customers to buy fractional shares. Instead of buying a single share of Tesla for hundreds of dollars, a customer could opt to invest $5, $10 or $100 and still get a piece of the stock.

One of Robinhood's most significant moves came in early 2018, when it opened the door to crypto. Users can purchase bitcoin, ethereum and numerous other digital currencies on the app the same way they buy stocks.

The five-time CNBC Disruptor 50 company — whose says its mission is to "democratize investing" — is often criticized for its gamification of the market. Legendary investor Warren Buffett believes the app is contributing to speculative, "casino-like" stock trading activity, and benefiting from a questionable revenue model.

During the GameStop controversy earlier this year, Robinhood raked in a record amount of revenue related to customer trades in the first quarter of 2021, collecting $331 million in payment for order flow — the money brokerage firms receive for directing clients' trades to market makers. That was up from the $221 million Robinhood earned from payment for order flow in the fourth quarter of 2020 and the $91 million earned in the first quarter of 2020.

The company has taken steps to repair its reputation, at least related to gamifying the world of investing, by eliminating the confetti animation when investors make their first trade. The impact of the free trading model on the stock market and brokerage world is undeniable, with a wave of consolidation between firms in the past few years, and moves by many of the major playing including Schwab, Fidelity, E-Trade (now part of Morgan Stanley), TD Ameritrade (now part of Schwab) and Vanguard increasing their own commission-free offerings.

Robinhood counts New York-based D1 Partners, Sequoia Capital, Kleiner Perkins and Google-parent Alphabet's venture capital arm, GV, among its biggest investors. In March, the company filed confidential paperwork to pursue an initial public offering (IPO) on the Nasdaq — a highly anticipated debut that's expected to hit public markets in just a few weeks.

Contributed by Riley de León

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