Social network Commonstock aims to harness retail investor energy and verify ‘YOLO’ trades
- Commonstock is a relatively new social media platform dedicated to financial markets. It requires traders to link to their brokerage account to verify the investments they post about really happened.
- The San Francisco-based start-up announced a $25 million Series A funding round Tuesday. Hedge fund managers Bill Ackman, Dan Loeb and Stanley Druckenmiller are among Commonstock's early strategic investors.
- "The ability for anybody to prove they own Tesla or Peloton by percentage, and show their skin in the game, weeds out a lot of the grifters who might say they had a 1,000% return," says David McDonough, Commonstock's founder and CEO.
A new social network is betting that enthusiastic retail traders are here to stay and that they want more transparency than what's offered on Reddit.
Commonstock is a social media platform for talking about trades and financial markets. It features a Twitter-like news feed, with users ranking and commenting on investment strategies. But unlike Reddit's popular WallStreetBets forum, it's not anonymous. Traders to link to brokerage accounts in order to verify the investments they post about are real.
"The ability for anybody to prove they own Tesla or Peloton by percentage, and show their skin in the game, weeds out a lot of the grifters who might say they had a 1,000% return," Commonstock's CEO and founder David McDonough told CNBC in an interview. "There's no lying about it — you can see somebody's performance in real time."
The San Francisco-based start-up announced a $25 million Series A funding round on Tuesday, led by Coatue along with QED, Floodgate, Upside Ventures and others. It did not disclose a valuation. Hedge fund managers Bill Ackman, Dan Loeb and Stanley Druckenmiller are also among Commonstock's early, strategic investors.
The company uses software known as an API to let traders link to Fidelity, Robinhood, E-Trade and other brokerage accounts. Profiles feature a user's stock picks and performance. Instead of total followers, the feed shows the aggregate dollar amount of people following someone.
The platform officially launched in August 2020, a few months before the stock market went viral. In late January 2021, a group of retail traders banded together on social media to buy GameStop and inflict pain on the hedge funds betting against it. McDonough, who left Google in 2017 to start Commonstock, said there was an immediate user boost from the meme-stock saga. The client base was doubling month over month without marketing, he said.
The Roaring Kitty effect
GameStop aside, the past few years have brought a renaissance in retail stock trading. An estimated 10 million new traders entered the market this year alone, on pace with last year's record, according to JMP Securities. The ubiquity of zero-commissions, fractional trades and the availability of stimulus checks, combined with people looking for new entertainment during the pandemic, have helped fuel new interest in investing.
"It sounds counterintuitive, but Roaring Kitty, AMC and GME probably did more to educate a generation of people than any of the financial textbooks and classes before," McDonough said. "Investing is now interesting, and it's part of the social discussion."
Some of that frenzy has already faded, with retail trading volume down from the peak in January. Still, McDonough said the platform is seeing elevated levels of engagement and "stickiness." Commonstock users who may have been lured in by the entertainment of GameStop have kept their money in the markets, according to McDonough. For the most part, he said younger traders are not placing "YOLO" or "you only live once" bets. Their investments tend to follow Fidelity fund manager Peter Lynch's adage of "invest in what you know."
That's often internet culture and meme stocks, or brand names like Peloton or Nike, and Tesla.
"They know that when Elon Musk tweets, it's going to drive a lot of attention to Tesla, or they love their Peloton bike so they'll buy a share of Peloton — when you have 10 million more people doing that, it creates a new purchasing power in the market that can move prices," McDonough said.
Frank Rotman, co-founder and partner at QED Investors, was one of Commonstock's early backers. Having an "all signal, no noise" social media outlet led them to double down in the Series A, he said.
"On Reddit, everyone is willing to raise their hand and show you what to trade, but you don't know who these people are and why they're giving you the information they are," Rotman said. "It's devolved into high-fiving each other and memes, and it's not about stocks or the companies themselves."
Commonstock hasn't started monetizing yet. McDonough said he plans to follow Facebook, Twitter, Snapchat's playbook of growing the network and user engagement, and making money down the road.
Eventually, McDonough said Commonstock would consider a subscription service, advanced features, and aggregating and anonymizing data. But he said they would never sell data to hedge funds, or other third parties, and instead plan to offer that data as a resource to retail traders.