Vlad Tenev has been lying low in a hotel, seeking sanctuary from angry clients threatening his life. He will soon emerge to face the angry U.S. lawmakers threatening his business.
The chief executive officer of Robinhood Markets, who turned 34 over the weekend, must somehow calm critics across the political spectrum as he seeks to keep his Silicon Valley startup on track for a stock listing this year. He’s set to testify at a congressional hearing Thursday about the epic January rally in stocks such as GameStop Corp. that ended shortly after Robinhood temporarily restricted certain trading.
In recent days, Tenev has been avoiding going home after receiving death threats, according to a person with knowledge of the situation. Privately, the CEO has been making grim jokes about feeling hated, a nod to the tough audience of lawmakers who could make life harder for his firm.
“In every congressional hearing, in every news story, there’s a victim, villain and a vindicator,” said Gene Grabowski, a partner at crisis communications firm Kglobal. “He’s going to go in there automatically being the villain.”
A spokesperson for Robinhood declined to comment.
In a sense, Tenev has sped up the early life cycle of an emerging Silicon Valley darling displaying the now-familiar pattern of “build it first, beg forgiveness later.”
It wasn’t until Facebook Inc. was 14 years old that Congress first summoned founder Mark Zuckerberg for a grilling, in that case over a data-privacy scandal involving Cambridge Analytica. Tenev cut that time to about eight years, underscoring the heightened responsibility of handling customer investments.
Unlike Zuckerberg, who faced Congress solo, Tenev may take comfort in appearing virtually before the House Financial Services Committee with a group that includes billionaire Ken Griffin, whose firms — a market maker and a hedge fund — played different behind-the-scenes roles in January’s mania.
But Tenev is defending a less mature company. Robinhood has yet to stage an initial public offering, direct stock listing or merger with a blank-check investment vehicle — the three most likely ways that Robinhood could become a publicly traded company and pay off early backers.
Pressure for Listing
The need to do so became all the more acute during last month’s market mania. A campaign launched by retail investors on Reddit sent beaten-down stocks soaring, inflicting billions in losses on hedge funds shorting them. But Robinhood, one of the campaign’s preferred brokerages, proved ill-prepared for a $3 billion collateral call from the stock market’s main clearinghouse on Jan. 28. Robinhood abruptly limited bets on dozens of hot stocks, and after talking with the clearinghouse, met a reduced demand for $700 million.
Meanwhile, the firm drew hundreds of millions from bank credit lines and raised $3.4 billion from venture-capital firms to weather the storm. Iconiq Capital, which helps manage Zuckerberg’s fortune, was among those that threw Robinhood a lifeline.
“No doubt we could have communicated this a little bit better to customers,” Tenev told the “All-In” podcast last week. He noted that even before the fundraising, Robinhood met its deposit obligations. “And in order to relax them and eventually unrestrict them, we needed to raise some more capital,” which will help the brokerage keep growing.
Now, lawmakers in Washington are compiling lists of questions, as they prepare to examine how Robinhood handled the chaos of that volatile stretch. Another focal point in recent days has been how Robinhood generates revenue from sending client orders to market makers such as Griffin’s.
So far Tenev’s explanations haven’t beaten back online conspiracy theories or quelled users’ frustrations. He tried to demystify the role high-speed traders play behind the scenes, and he faulted the two-day process it takes to settle trades, proposing Wall Street adopt a real-time settlement system that would probably take years to develop.
Despite the continuing upheaval, Tenev has remained the public face of the company, while co-founder Baiju Bhatt remains largely outside the fray. Bhatt had a bumpy appearance on CNBC in 2018, when the firm unveiled a checking product that was later overhauled after concerns over how it would be insured. He stepped down from his co-CEO role last year, but remains at the company.
The founders’ dynamic is said to be similar to that of Apple Inc. in its early days. Colleagues compare Bhatt to Apple’s affable but socially uncomfortable Steve Wozniak, with Tenev playing the smoother Steve Jobs, a person with knowledge of the company said.
One rule of thumb Robinhood employees live by, said the person, is that when you do something wrong it’s better to tell Bhatt, who’s less likely to come down hard. When you do something right, tell Tenev.
Tenev’s deep understanding of technology has long impressed Robinhood’s partners, though his grasp of the highly regulated brokerage industry has been perceived as foggier, another person with knowledge of the company’s relationships said.
Indeed, Tenev isn’t licensed with the brokerage industry’s main watchdog, the Financial Industry Regulatory Authority. That’s a contrast with Walt Bettinger, CEO of larger rival Charles Schwab Corp., who is licensed with Finra and therefore exposed more directly to its oversight. As CEO of Robinhood’s parent company, Tenev isn’t required to hold such licenses. Other senior Robinhood executives do.
Tenev and Bhatt, who met as students at Stanford, ran a hedge fund using high-frequency trading strategies, and later a software company that catered to algorithmic traders, before founding Robinhood in 2013. Its ascent was stunning.
The firm began with a 25-person skeleton crew, touting an engineer-focused workforce, and grew to become one of the biggest trading platforms in the country. One of its key innovations — beyond its friendly, app-first design — was to demystify the realm of investing, offering a trading portal that broke everything down to plain English.
That approach helps Robinhood attract a younger demographic, often new to financial markets investing. The company has said its median user age is about 31. The founders once considered naming the app CashCat, after cashcats.biz, a site that showed felines lounging among stacks of $100 bills. The founders cultivated celebrity investors such as Snoop Dogg and Ashton Kutcher.
Another person who’s done business with the company said it’s been a relief to see Robinhood hire entrenched industry professionals in the past year — such as former U.S. Securities and Exchange Commission member Dan Gallagher — to enhance the company’s understanding of finance beyond its millennial engineers.
Robinhood has tackled some ambitious engineering feats in its short history, including a decision to start clearing its own trades in 2018. When it unveiled its new clearing-broker status, Robinhood highlighted that this was the first time in a decade that such a system had been built from scratch.
Developers at the firm have since complained that it slowed them down in some ways, requiring new capabilities to be assembled from the ground up, including pipes to transfer securities holdings from rival brokerages to Robinhood, for instance — something Robinhood has yet to offer — according to one person with knowledge of the firm.
That decision also reverberated in the GameStop episode, putting Robinhood directly in the crosshairs of the Depository Trust & Clearing Corp. and its equities-clearing subsidiary.
Tenev has demonstrated an interest in at least one fellow entrepreneur who blazed a trail in a competitive industry. He wrote on Bloomberg’s list of Best Books of 2017 that one of his favorites was “Shoe Dog,” the story of Nike Inc. by Phil Knight.
In his summary, Tenev wrote that Knight shows the “path to building a global behemoth is not straight and narrow,” and that he enjoyed the portrayal of “how his team of misfits bumbled along and nearly failed year after year before figuring out how to run a company.”