It’s rare that I hear something like this from an entrepreneur:
"When we go live, we can really test to see if it works."
But that’s exactly what co-founder Vladimir Tenev tells me while we talk about his startup’s upcoming iOS app, Robinhood. The best way to describe his software might be one-part Twitter, one-part Yelp, and one-part Mad Money. It’s a social network for investors, in which users prognosticate stock prices and the most successful users float to the top. Theoretically, all of us who are less financially inclined can learn from those with great track records, so that in the future maybe we can make some dough, too.
Theoretically. Because while social networks are pretty well understood, fraud still runs rampant. And fraud mixed with investment advice is an inevitable disaster.
"There are already social finance networks, like StockTwits," Tenev explains. "One of the complaints people have is, there are some people telling me what they’re buying, selling, and thinking, but generally I have no idea if this person is full of shit."
In response, the Robinhood team designed the app for as much profile transparency as possible. While you can technically invent a fake persona, all of your predictions are recorded along the way. So your score card becomes part of your identity, and while your name might not be real, that doesn’t really matter, because your predictions were right or wrong, period.
But there’s another problem. Consider when a link goes viral on Twitter and there’s exponential attention on a single story. Generally, that’s a pretty neat by-product of the Internet, and it means your grandma eventually watches the same video that you just did. But when you mix that idea with the possibility of pump-and-run stocks (artificially inflated stocks destined to plummet) or just very quick bubbles, you have to wonder, isn’t Robinhood designed at its core for disaster?
"It can be very dangerous when combining social networking with finance," Tenev admits. "[Viral investments] can be very good for the first people to hop on, but the people in the end just get destroyed."
So that brings us to the "when we go live, we can really test to see if this works" point. Tenev acknowledges that Robinhood’s Stanford-based algorithms might have to be tweaked, that they may have to develop strategies to recommend investors to follow for reasons beyond profitability (and in worst cases, that may even lead to a manual intervention). In short, the app may have to throttle the excitement of its own product for the health of its own financial ecosystem.
Then again, the app does have a pretty smart ace in the hole. While Robinhood will eventually allow you to buy and sell stocks from within the app, it’s launching with a natural limiter: It’s an advice-only social network for now.