Steal from the Poor and Give to the VC founders
In this NYT’s piece, Robinhood is revealed as a financial predator who steals from the poor to make their VC founders wealthy.
Like all online gaming companies and a wide variety of other consumer apps (with Facebook the most notorious) which Venture Capital investors have ridden to unicorn riches, the essence of the Robinhood business is to hook users using sophisticated algorithms to give psychic rewards to those who spend money. The algorithms become more and more powerful over time as they learn more and more about each user’s individual weaknesses and hot buttons. When you dig into the financials of these “innovative start-ups” you invariably find that they get most of their revenues (call it 80%) from a minority of users (call it 20%) who are clearly addicted to the product because they spend large chunks of every day on the site and spend large amounts relative to their income.
Robinhood’s spin on this morally bankrupt model is to incentivize low-income users to frequently trade more complex financial instruments like stock options. 99% of individuals will, over the long run, lose money (and waste hundreds of hours) if they trade frequently or if they frequently buy option contracts. To make it even more evil and exploitive, users can borrow in order to lose multiples of their typically quite small balances. The founders are only innovative in that they identified a large “TAM” (total addressable market) of previously unexploited users.
If you are interested in reading more, check out this post.