An Intro to Contrary Capital


Many of the most impactful startups of the past 20 years were founded at universities. Google, Facebook, Microsoft, Yahoo, PayPal, Dell, Dropbox, Snapchat, and dozens of others got their start in dorms and classrooms.

Clearly there’s a lot of creative and hard-working students out there. Most of these amazing founders initially built their companies without the help of their school or investors. This begs the question “how many university startups could have become great with the early top-tier backing?”

That’s where Contrary comes in. We believe that university-based founders will continue to produce the most important companies of our generation and we want to help make that happen.

Who We Are

We are Contrary Capital, a pre-seed university-focused VC firm made up of a nationwide network of 100+ talented student venture partners across 50+ universities.

We are all passionate about startups and we know our individual school ecosystems better than any other investor. Many of us have started our own companies in the past so we can relate to the issues that are unique to university-based founders.

We are a returns-focused organization. Contrary isn’t a resume booster, publicity tool, or side project. We select serious entrepreneurs, remove barriers, and stay out of your way.

What We Look For

All VCs love rounding up the usual suspects: founders who are smart, resourceful, and passionate. Contrary is specifically focused on founders somehow involved in a university’s ecosystem. This means undergrads, graduate students, faculty, and even recent graduates or dropouts.

We’re industry agnostic and our investors have a wide range of interests and experiences under our belts. The most successful companies, however, make heavy use of technology to differentiate, scale, and provide meaningful value.

How We Can Help

Beyond a SAFE investment between $50k and $200k, the support of Contrary comes with some handy perks:

  • Access to our nationwide network of 100+ venture partners. Our students have experience in everything from deep learning, to private equity, to medical research.
  • The backing of our LPs, 80% of which have cofounded $1bn+ companies. This includes cofounders from Tesla, Twitch, MuleSoft, SoFi, and more.
  • Connections to VCs. We have relationships with most Tier 1 Seed/A investors. If we invest, we’ll connect you to whatever top VC is the best fit.
  • An intensive, hands-on summer program to get you to viable product and fundraising as soon as possible.
  • Access to tools like Stripe Atlas so you can skip some red tape.

How To Get Started

There’s probably a Contrary Investor at your school! We’re a friendly bunch, don’t hesitate to reach out (hint: check out our website).

We’re often the first investor in a company so we don’t necessarily expect founders to have experience pitching their startups. Check out this post or this post to make sure you communicate as productively as possible!

What do you optimize for?

Advice depends on context, assumptions, and what you’re trying to optimize for. Much of it boils down to “this is what worked for me so take it with a grain of salt and try to calibrate it for you.” Useful advice either tries to account for differences between people or include generalizable principles for how you should think about something.

People will try to make these adjustments doing something  like “focus on what you like the most and are best at.” Although I think that spirit is right, it frames the problem in a counterproductive way. “Focus” is often understood as “follow a set plan towards this goal and do what you think you should be doing to succeed.”

I think this is the wrong type of optimization.

There are two things I optimize for which I’d like to explore here: interestingness and serendipity.

First, “interesting.” You may have noticed that what’s interesting to you has changed over time. Why is that? Keep in mind that interests are distinct from talents. Do interests change for the same reason that mathematically-inclined minds tend to be interested in formal logic but not painting, while artistically-inclined minds tend to be interested in Broadway but not software engineering? Is what we’re generally curious about related to things that give us happy fulfilling lives?

My take on this is that “interesting” is a heuristic for all of the things we need: usefulness, novelty, personal fulfillment, etc. Not only do interests change over time, we seem to jump between intense focuses and binge something until we suddenly stop caring about it. Our brains need some way to choose what to learn about. This idea has been studied in a more in-depth and rigorous way than I’ll argue here — check out this paper for instance.

You can probably relate to this real life anecdote: in high-pressure situations, I’m intensely interested in specific problem-related information and career-focused things like how to deploy code with Docker to save me time. It’s critical to note that I’m genuinely interested in that sort of stuff and I don’t explore it for external reasons. I’m just inexplicably more curious in that moment. When I have more free-time and no responsibilities, however, I find myself thinking much more about food, politics, my next workout, philosophy, music, or stand-up comedy. All things that don’t accomplish any specific goal but still enrich me as a person (a fact my humanities professors are always so ready to remind me of!)

The point is, interests aren’t just a luxury. They serve a useful purpose that you should consciously consider when organizing your life.

Second, “serendipity.” This is a major theme of Reid Hoffman’s The Startup of You  and Marc Andreessen’s career guide. The thinking is that breakthrough opportunities usually present themselves through random chance. Maybe you happen to stumble across the right problem at the right time and think “hmm, why hasn’t anyone solved it this other way?” or your friends decide to go to Denny’s at 3am to discuss a business idea. Seemingly small and innocuous moments lead to truly exciting opportunities.

I’ve already directly observed this in my own limited experience. I attribute pretty much every major success of mine to pure luck (with the prerequisite of hard work pouncing on an opportunity when I see it):

  • 100k-download Android app: I spent months toying around with different programming tools and just happened to stumble upon a great tutorial and project idea I liked. I also randomly played around with a bunch of different marketing techniques for fun.  Only one of many happened to stick and things just naturally snowballed from there. It was a low-quality app that I happened kill it because I had failed at plenty of other projects before it.
  • College: originally I could only see myself at a some “elite coastal school” (staying in the Midwest, I’ve since been telling myself it’s more like “coastal-elite school.” Hah!) but luckily I decided to serendipitously apply to a bunch of schools I didn’t really care about. If I didn’t go out of my way to stir some up random luck, I wouldn’t have gotten an offer from UIUC that put me in a top CS program and saved my a quarter-million in tuition over my next-choice option.
  • Contrary Capital: I randomly saw a Facebook post and decided to make a cold email.  If I hadn’t been on my phone that night or if I hadn’t decided to spontaneously email the founder, I wouldn’t have gotten the amazing and humbling chance to help lead a venture fund.
  • Friends: My sophomore year I went on a trip to Silicon Valley organized by my school. I wasn’t super excited and had actually turned down the chance to go the year before, but I decided I could use a little more serendipity in my life. There I made a great friend. Through her, I made some more friends. One of them became my roommate. He introduced me to many other cool people. Again, the original trip was just serendipity at work — there was no goal or process involved, but super valuable relationships grew out of it.

I’m sure everyone has similar stories of pure chance turning into something incredibly meaningful. Yet most people would probably have taken the above examples and focused on some sort of process or execution that made the most of the opportunities.

Think of it this way: we spend most of our lives doing things. Working towards goals. Learning. Talking. We do a great job of carrying out whatever it is that we’re trying to optimize for. We really don’t give ourselves enough credit. These two heuristics help you broaden the opportunities you come across and choose which ones matter most. That’s at least half the challenge — the rest comes naturally.

Existential Risk and Effective Altruism

The Effective Altruism movement is a philosophy and social movement that applies evidence and reason to determine the most effective ways to benefit others. In recent years, organizations like GiveWell and the Bill & Melinda Gates Foundation have helped to popularize the core concepts of Effective Altruism.

They support the idea that charity should be done with a strictly analytical mindset. Under the assumption that all living creatures have some level of sentience, Effective Altruism tries to minimize the sum of all conscious suffering in the long-run. Pretty straightforward.

This problem usually reduces to some basic number crunching on the ways in which people suffer and the cost necessary to mitigate that suffering. For example, it costs about $40,000 to train a seeing eye dog to help a blind person live their lives. It also costs about $100 to fund a simple surgery which would prevent somebody from going blind. It should be self evident that resources are limited and that all people’s suffering should be weighted equally. So choosing to spend limited resources on a seeing eye dog is considered immoral because it would come at the cost of ~400 people not getting eye surgery and losing their vision.

This sort of utilitarian thought is fairly intuitive. To help quantify reduction of suffering across a diverse set of unique actions, health economists and bioethicists defined the Quality-Adjusted Life Year (QALY), a unit measuring longevity, discounted for disease. A perfectly healthy infant may expect to have 80 QALYs ahead of them, but if that child were born blind, they may have, say, 60 QALYs ahead of them (in this made-up example, blindness causes life to be 75% as pleasant as a perfectly healthy life).

Traditional charity tends to be locally focused—you’d deliver meals for elderly people in your town or support a soup kitchen for the homeless. Considering Effective Altruism principles, however, you’d probably come to the conclusion that you can almost always save more QALYs from disease by funding health problems in impoverished African or Asian areas. In general, the more analytical you are in your giving, the more you choose to spend on this sort of giving opportunity.

As philosophers become more and more rigorous in their approach to Effective Altruism, you’d expect them to continue tending towards provably high-impact spending opportunities. But many moral philosophers actually argue that we should instead focus our attention towards mitigating existential risk, dangers that could potentially end human civilization (think doomsday asteroid collisions, adversarial AI, bio-weapons, etc.).

Here’s the basic argument: when trying to maximize the sum of positive sentient experiences in the long run, we need to consider what “long run” could actually mean. There are two cases. 1) humanity reaches a level of technological advancement that removes scarcity, eradicates most diseases, and allows us to colonize other planets and solar systems over the course of millions/billions of years and 2) humanity becomes extinct due to some sort of catastrophic failure or slow resource depletion.

In the first case, humans would live for millions/billions of years across thousands of planets, presumably with an excellent quality of life because of the advanced technology allowing this expansion. Call this 10²³ QALYs (1bn years * 1k planets * 1bn people per planet * 100 years of life per person). Of course this scenario is unlikely—a lot of things need to go right in the next several thousand years for this to happen. But no matter how small the odds, it’s clear that the potential for positive sentient experience is unfathomably large.

It’s worth noting that in the second case, the upper limit is likely on the scale of thousands of years. Philosophers argue that by that time we’ll have colonized other planets which significantly decreases the risk of any given disaster affecting the entire human race. So our second case future-QALY estimate is about 10¹⁶ (10bn human lives * 10k years before extinction * 100 years per life).

Given these rough estimates, we can do some quick algebra to find the probability threshold that would make it worthwhile to spend money mitigating existential risk: 10¹⁶ / 10²³ = 0.0000001. So if the chance of some catastrophic disaster is more than one in ten million, it’s more cost-effective to mitigate that risk than support the lives of people currently suffering.

So how do the best-estimate numbers actually work out? The Oxford Future of Humanity Institute guessed there’s a 19% chance of extinction before 2100. This is a totally non-scientific analysis of the issue, but interesting nonetheless. The risks of non-anthropogenic (human caused) extinction events are a little easier to quantify—based on asteroid collision historical occurrences and observed near-misses, we can expect mass (not necessarily total) extinction causing collisions to happen once every ~50 million years.

A compelling argument supporting a non-negligible chance of extinction is the Fermi Paradox. If intelligent life developed somewhere else in the galaxy, it would only take a few million years to travel across the entire galaxy and colonize each livable solar system. That’s not much time on cosmic and evolutionary scales, so where are the aliens? Either we’re the first life form to civilize, or all the others died out. Many astronomers studying this topic think the latter case is more likely and we have no reason to say we’re any different.

Regardless, there’s an uncomfortable amount of uncertainty surrounding the likelihood of existential global catastrophes. Although the philosophical and mathematical underpinnings of this idea are well understood, nobody knows how to pick the right numbers. Since it’s so hard to imagine what the right probabilities are, it can be argued that we should hedge against the worst-case downside. Traditional charity focuses on eliminating poverty and health problems which only accelerate the course of human development. This choice can be visualized:

Spending on Existential Risk has a very small chance of avoiding a huge downside

Traditional charity spending only shifts the human development curve

These pictures are good at explaining the magnitude of risk involved and the sentiment of those that argue for funding Existential Risk research over traditional charity.

So how should you choose to effectively allocate your resources to do good? That’s still a tough question. I’d highly recommend reading The Most Good You Can Do. Most folk involved in the Effective Altruism movement (myself included) would suggest supporting GiveWell or The Centre for Effective Altruism. But if the idea explained in this essay is powerful enough, consider the Centre for the Study Of Existential Risk.


Thoughts? Tweet me at @whrobbins or find my email at willrobbins.org!

Impact of Blockchain: Smart Contract Based Incentive Compensation

Most examples of potential blockchain applications focus on making something more efficient. OpenBazaar is like eBay but without fees. Edgeless is an online casino with no edge (duh). That’s all great, but I’m always on the lookout for ways in which blockchain tech can make a more structural impact on the way we do things. Here’s an idea that I’d love to hear some thoughts on:

Problem: incentive plans in finance are hard

Performance based compensation for traders and portfolio managers is, in theory, a great way to align everyone’s incentives and reduce the overall system’s risk. But the problem with bonuses and incentive schemes is that they often look short-term and reduce downside risk to traders but leave the upside unlimited.

Say you’re a trader who has a $100k base salary with an annual performance bonus that increases by some amount for every percentage point that the trader beats the market index. This is a common scheme and it generally works alright.

But unethical and careless traders can game the system by taking on excessive risk. If you invest $25mm in risky assets (like investing in cryptocurrencies, ironically) that have potential for huge upside and huge downside, there are two possible outcomes:

  • The investment a huge success. You make $100k salary and a $2mm bonus. The company you work for makes $20mm+.
  • The investment a huge failure. You still make $100k salary (still not bad!). The company you work for loses $20mm+.

Say the asset you invest in will plummet in value with 0.9 probability and skyrocket with 0.1 probability. Then the expected value of making the trade is about $300k from your perspective, but about $-20mm from the company’s perspective.

Clearly this is massively unbalanced and will incentivize risky behavior that could have rippling effects in the firm as well as the overall economy.

Potential solution: smart contracts that track true long term performance

The ideal incentive compensation plan would track a trader or portfolio manager across their entire career and between employers and pay based on the true long-term performance of their trades/portfolio. There are a few obstacles to this:

  1. There’s no mechanism for a firm to effectively compensate people who no longer work for them
  2. Employees don’t want to wait until the end of employment to get a bonus
  3. It’s hard to track the performance of a portfolio over long time periods and compare it to an index (there’s too much noise from changing interest rates, inflation rates, economic cycles, etc.)

Making investments through a smart contract or DAO token would enable companies and employees to pay out based on some arbitrary function of investment performance. Instead of just cashing out on an investment’s performance with an annual bonus, the value of a smart contract / DAO token could accurately, easily, and securely be pegged to the investor’s performance across an entire career. This could help solve problems 1 and 3 listed above.

Traders could work knowing that a series of short-term risky plays would absolutely not be in their interest. Incentives of the firm and individual would be aligned much more effectively and this could help mitigate financial crises.

Problem 2 is more tricky to address. One potential solution would to create a market of these bonus contracts/tokens. Users could look at a portfolio, assess it’s risk spread instead of value, and make bets on whether the bonus plan is likely to be stable. Of course this market would be effectively facilitated by a smart contract or DAO! I don’t know if this idea has been explored before by existing financial institutions—please let me know if you’re familiar with it!

What’s next?

I think it’s way too early to begin building something similar to what I’ve described. There’s no way to effectively track the performance of generic assets over time because most trades take place on private/opaque platforms. This would become feasible if DAOs and blockchain marketplaces become far more common. Hopefully that’ll be the case and someone will pursue this concept—it’s important to think more about financial risk and stability as economies and (crypto)currencies become more globalized.


Thoughts? Tweet me at @whrobbins or find my email at willrobbins.org!

Analyzing Venture Opportunities Part 1: The Product and Market

I spend a lot of time talking about business opportunities through my work with Contrary Capital. I’ve noticed that many student founders forget to cover certain topics in meetings and pitches. If you’ve been thinking about a startup for a long time, non-obvious ideas become can so ingrained in your head that it’s hard to articulate the assumptions you’re making. This is a list of things that VCs consider when analyzing a venture opportunity’s product and market—make sure to touch on each when talking with a VC.

  • Why now? Think about where this product/market is on the S-Curve. Company should have recently become possible (but not prevalent) because of a new market trend or tech innovation. Unfilled niches are short lived but being too early is very costly.
  • What’s the initial niche? No valuable market is entirely unfilled. There must be some specific niche that can be won over. It’s important that the company provides something 10x better than existing products/services. (Side-note: the degree to which the startup has to be better is directly related to how much they have to change existing customer behavior). Example: Amazon originally focused just on books and made the customer experience convenient and low-price in a way that bookstores fundamentally couldn’t match.
  • Can you grow from that initial niche? Remember that the initial niche is just part of the plan to solve a bigger problem in a bigger market. Example: Amazon used its bookstore cash, workforce, technology, and processes to expand into other retail markets.
  • Is the product/service defensible? There should be something that prevents competition from changing their product or using their resources to create a new product. This is often legal (patents), social (network effects), economies of scale, informational (data that’s valuable across different products), or strategic (example: Facebook struggles to take on Snapchat partly because everything FB contradicts Snap’s core privacy values).
  • What metrics and KPIs will show that you’re growing? Metrics are necessary to make sure growth is on track, and execution should be focused on improving the most important metrics. (How did the company decide which metrics to focus on?)
  • What de-risks your assumptions and bets? Assumptions are pretty much the entire foundation of an early-stage startup’s game plan. Being able to quickly prove or disprove assumptions will give founders a more clear picture of reality.
  • How are you going to make money? There should be some sort of exit strategy or long-term profitability goals. Is the revenue stream recurring, network/data based, etc?
  • Why are competitors doing X and not Y? There should be some analysis of how competitors’ strategy and execution interacts with available market opportunities (related to Peter Thiel’s Secrets — things you know but no one else does).
  • How is the market growing? Both growth rate and change in growth rate are important for a founder to know.
  • What are your current bottlenecks / resource constraints? This ties in to your roadmap and execution strategy. Have you thought deeply about what’s important to get done and what can wait?

Note that every answer to these questions does NOT have to be perfect. Part of analyzing a business is finding the flaws (there’s always at least one) and thinking about how it can be overcome or compensated for. Don’t sweat it too much if you can’t find a great answer to some of these questions.


You can find me on Twitter @whrobbins or the web at willrobbins.org.

If you’re a university-based founder who actually read this post, hit me up. I’d love to hear what you’re up to!

If you work in VC I’d also love to talk! I have a separate document about evaluating answers to the above questions that I’d enjoy discussing.

The Flawed Economics of Robinhood: Why Users Are Better Off Without It

Robinhood has been getting more traction and press coverage recently. It’s catching on with some of my friends from school and I’ve gotten into interesting conversations over Robinhood’s value as a business. The purpose of this post is to explain why I think Robinhood will hurt its own users despite its well-intentioned mission to “democratize access to the financial markets.”

Note: this post ballooned into a 2000 word essay. Skip to the TL;DR at the bottom if you don’t want to spend 4–8 minutes going more in depth.

A Random Walk Down Your News Feed

Retail investors (non-professionals) can’t beat the market in the long run. This phenomenon has been well documented and I am not aware of any compelling evidence contradicting it. Active retail investors also tend to perform worse than passive investors in the long run. This doesn’t mean that everyone will lose money—it means that if an investor’s portfolio grows 5% in a year, it’s highly likely that they could have made more (say 8%) just by buying a simple index fund and holding it.

Most traders use some mix of a few common trading strategies:

Fundamental Analysis

This refers to the idea that traders should focus on the intrinsic value of a security when making decisions. If a company is selling stock at $5 per share, you should only buy if you can expect to earn $5 in dividends over the entire course of the company’s lifetime.

Famous investors like Warren Buffet don’t buy anything that isn’t priced cheaper than the underlying asset’s value. This is the only rule you as a consumer need to follow unless you really know what you’re doing. The hard part is determining what the true value of an asset is.

Technical Analysis

This refers to the idea that quantitative indicators, historical market data, and social/psychological/political analysis can help you predict where the price of a stock is going. If you can tell when the right time to buy and sell is, the actual price and valuations of an asset don’t matter.

In practice, this is extremely difficult to do well. The vast majority of day traders lose money trying to predict how other people will make trades. But for certain (highly advanced) firms, this strategy is amazingly profitable. This philosophy also plays a part in how bubbles form—if speculators think that they can make money with an investment, they’re often willing to overlook prices that are way above the true value of whatever it is that they’re buying.

Throwing Darts

Alternatively entitled “buying Apple, Berkshire Hathaway, and whatever company I like seeing on my Facebook News Feed.” Needless to say, this is a losing strategy. But a non-negligible number of people still run their portfolio this way.

Throwing darts has been especially tempting the past several years because markets have been doing so well overall. It’s easy to be encouraged by modest returns but equally easy to forget that putting money into an index fund would be at least as profitable and less work.

Which of These Strategies Works Best With Robinhood?

Two of these strategies (not the third) are valid investment theories. There is a lot of debate over which is more viable, and real-world professional investors sit somewhere on the spectrum between fundamental and technical analysis.

But all three strategies are doomed to underperform using Robinhood Remember the fact that retail investors already can’t beat market indexes. Robinhood doesn’t provide any information or systematic advantage to reverse users’ predisposition to poor performance. I’d guess that it’s even harder to make informed decisions because there will always be lower quality information available to users on a mobile-only platform.

The lack of quality financial information will let users rely more on irrelevant news seen on social media, their friends, and their guts to make decisions. That’s not good.

Robinhood’s Product and Strategy

“Democratize access to the financial markets.” What does that mean? Are markets not already accessible to the masses? There are plenty of brokers who let you set up an account for free with low minimum balances and small trade fees. Does Robinhood’s beautifully designed mobile app and free trades policy really democratize things? There are two groups who seem to think that it does:

Retail Investors: Millennials and Generation Z

Robinhood is one of most elegant and aesthetic apps on the market right now. It has smartwatch companion apps, a fun intro video, and creating an account takes less than 4 minutes.

Robinhood as a company is clearly in touch with modern product expectations. People my age want to go through the full user experience on mobile, start to finish, with as few exceptions as possible.

The actual features are similarly streamlined. The premium account option, Robinhood Gold, gives users access to more advanced trading options and margin lending (loans from the broker that amplify the profits or losses you’ll make).

So do these features help people access financial markets? Sure they do. But that’s not necessarily a good thing knowing that retail investors underperform averages.

Robinhood markets their margin lending as a way to “get up to 2x your buying power.” There’s no mention of risk or the financial mechanics of margin lending. It just sounds like a great way to make more money—“buying power” is such a positive and harmless descriptor. People without the proper experience will get burned by this unless the loans are better explained.

I’ll ignore the lack of tools available to users (Quicken integration, export to Excel, ability to easily manage many diversified holdings) because they can be easily implemented in the future. But even that wouldn’t solve the underlying issue with mobile-first stock trading: it’s too hard to fit all the relevant information into a 5″ screen. The charts are overly simplistic and making an informed investment decision requires more detailed research. Of course users could do research on a computer and just execute the trade on their phones, but that defeats part of Robinhood’s value proposition. So it’s in Robinhood’s interest to convince users that they can get by with mobile alone (again, this will make it easy for users to under-educate themselves and speculate).

Low Table Stakes Investors

A quick Google search found data showing that the average Millennial saves less than 8% of their income and has a net worth between $-20k (debt) and $20k.

Zero commission on trades and no minimum account balance is clearly an advantage for these users. It removes the biggest barrier to entry. Robinhood markets itself as a way for low stakes consumers to get started in investing.

As a quick aside, there’s even doubt that the free trades are a net benefit for users. Slippage is the difference between the price of a trade as it’s ordered and the true cost of trade as it’s executed. Paid trades with larger firms are generally thought to be executed more efficiently and more likely to trade at the the best price. So over time, depending on trading volume and portfolio size, users could theoretically be better off just paying for each trade at with a different broker. But Robinhood could definitely improve this over time if it is a real problem now so I don’t hold it to them.

It’s hard to get more into this topic without making hand-wavy judgements about what people should or should not be able to do. I know for sure that users attracted by the low fees and lack of minimum balances are likely to have a weaker financial safety net. This is why the SEC requires that investors be accredited before investing in risky unregulated securities like startups. Since part of Robinhood’s success depends on people taking out loans (more on this later), I feel that appealing to low-stakes consumers approaches a grey area, especially when the product is designed to be as easy as possible (you only need to tap your phone 3 times to make a trade!)

Anyone who can’t afford fees or minimum account balances simply should not take the risk of trading stocks. There are cheaper and safer investment opportunities out there. Again, people should be able to do whatever they want. But I think it’s worth speaking out to prevent Robinhood from convincing these potential users to actively trade.

Even the name “Robinhood” makes users feel like they’re empowered to take control of their own financial future and able to beat the pros at their own game. At risk of sounding like a broken record, this is impossible (well, highly unlikely on average, to be more accurate.) Of course Robinhood makes all of the appropriate disclaimers crystal clear but the brand seems to signal that active trading is a good idea.

The Fundamental Flaw

As I mentioned above, Robinhood doesn’t earn revenue by executing trades. It makes money through interest on users’ uninvested funds, “Robinhood Gold” which includes access to margin lending and advanced trading features, and interest on margin loans.

Putting the advanced features aside (I imagine that a subscription to after-hours trading access and instant deposit of funds is relatively cheap and only scales with respect to the numbers of users), Robinhood’s success is dependent on maximizing (a) the amount of money left in accounts as cash, and (b) margin loans.

Knowing that Robinhood users are highly likely to underperform the market or even lose money, Robinhood’s success metrics are inversely related to users’ success metrics. The more cash users store in their accounts, the more interest they are losing out on. Worse, users will lose more and more money in aggregate as they increase leverage on their investments using margin lending.

I consider this to be a fundamental flaw in Robinhood. I just don’t see a way for both Robinhood and its users to be financially successful under this business model.

Robinhood’s Long Term Vision

A world where Robinhood succeeds in fully “democratizing access to the financial markets” is a world that’s less stable than the one we live in now.

Frankly, I’m surprised that most Robinhood users aren’t more cautious of participating in the stock market. Millennials (Robinhood’s core audience) were hit hard by the recession. I suppose that several years of recovery has erased memory of previous bubbles — markets have maintained strong, steady recovery growth between Robinhood’s 2013 launch and now.

If playing the stock market from the comfort and convenience of your iPhone became common, markets would become more volatile and susceptible to bubbles. I haven’t met any Robinhood users who express this concern which is even more worrisome, in a way.

Most people think that bubbles are caused by banks and the government. In some cases this may be true—consumers weren’t the ones giving out subprime mortgages and building complex financial instruments in the 2000s. But bubbles are definitely possible in the broader economy. Look at the Japanese bubble in the ’80s for example. The Japanese real estate market was valued at just over $20 trillion. That’s just over one fifth of all the world’s wealth at the time. Clearly an island that’s 5% the area of the U.S. could not possibly have that much intrinsic value. Yet the bubble continued to inflate.

A more recent and fitting example is Bitcoin. Cryptocurrencies are interesting to me because they seem to be used and understood most by consumers. Banks and governments weren’t particularly interested or involved in blockchain tech until recently. It was mostly speculative consumers who drove the price of BTC over $1000 in 2014. About a year later, after a peak and crash cycle, BTC was priced around $350. Luckily Bitcoin was (and still is) too small to affect the overall economy.

The point is that people en masse aren’t always rational. Only a small fraction of the population can spend the time to read up on finance, economics, and current events. So an economy where every college kid, lawyer, salesperson, Uber driver, and stay-at-home parent is encouraged to actively invest is bound to experience the unreal highs of a bubble and, of course, the disastrous crash of the pop.


TL;DR

  • It’s widely accepted that the average investor cannot beat market averages in the long term.
  • Many studies have shown that index funds and passive investing are the most successful strategies for users. This is the opposite of what Robinhood encourages.
  • Robinhood markets itself to consumers with the least financial experience and risk tolerance.
  • Robinhood’s success is largely dependent on users taking out margin loans that amplify the profits or losses of a trade.
  • Because we know that the average retail investor is not likely to succeed actively trading, Robinhood’s margin lending will hurt users in aggregate.
  • This means that Robinhood’s value proposition and incentive structure are fundamentally misaligned with the best interests of users.
  • Robinhood’s vision is to “democratize access to the financial markets”
  • But a world where everyone uses Robinhood to make their own investment decisions would be less stable and more prone to speculation/bubbles. History has shown that the masses are unable to see when prices are too disconnected from the intrinsic value of an asset.

A Clever Malware Tactic and Why There’s Nothing You Can Do About It

As the owner of a mildly successful Android app, I sometimes get emailed about advertising, marketing, or acquisition opportunities. The messages usually propose some sketchy advertising partnership or pitch me some SEO work, and they’re pretty easy to weed out and ignore.

How I found a scam

I recently had an interesting encounter. It started off with another cold email. For context, I’m trying to cash out on my app by selling it.

Hi Will

I would like to purchase your brick breaker app listed on https://play.google.com/store/apps/details?id=com.RobbinsDev.Brick_Breaker

http://www.selltheapps.com/source/app/2614.php

My offer would be USD$500

Please let me know if this acceptable

Thank You,

Gabriel

Interesting. Not too many red-flags popping up yet. I responded quickly. School’s about to start and if there’s opportunity for a deal, I want to get it done ASAP (so don’t judge my utter lack of negotiation!).

Yes, I can accept that offer.

What information would you like from me?

A couple hours later:

Hi Will,

Great!

Do you have screenshots for

1. Total lifetime installs

2. Current installs by user by country breakdown

3. Total current installs

So I send the screenshots and get this back:

Hi,

Thanks for the screenshots.

Let’s proceed with the purchasing with the agreed price of USD500

I have the following payment methods available

1. Bank transfer/wire

2. Credit card

3. Skrill

4. Paypal

Let me know which method is comfortable for you and we can proceed with payment and app transfer

Thanks

Gabriel

Hmm, it feels like we’re jumping the gun. Any competent businessperson would ask about IP rights or obligations. I forwarded the email chain to a friend with some comments:

But their website is a shell and was registered on Aug 7 [actually it was registered 2.5 yrs ago, I misread the record] through DomainProxy according to the whois

Can’t find any info on the leadership of this company

The time zone places them in Asia. But the names on the website/emails are gabriel, calvin, and tony which aren’t Asian

The wire transfer requires my acct numbers which is a bit sketchy

The other payment options can be reversed super easily

I think that finding apps then offering to buy them is an uncommon scam strategy

I’m not sure what their desired endgame is. Steal the app by reversing payments? Get my acct. number for the wire, then print checks with it?

I start doing more in depth research on this guy. Not much comes up when I scour the web for his personal information and business records. I manage to convince him to chat over Skype, and we talk about his background and what he plans to do with the app.

I can’t get a single substantiative answer to my questions. As far as I can tell, everything he told me was a lie. Clearly this guy’s not legit. But at this point I’m too curious. What’s he up to?

A few more back/forth inquisitive emails accomplished nothing. I finally responded:

Hi Gabriel,

I’ve decided to not move forward with the deal.

You said that your company has been around for 10 years [on the Skype call] when it’s only been around for about a month. I’m not sure what exactly is going on (swapping the app out for malware?), but I can’t be a part of it.

Will

He sent back a few emails weakly defending himself and offering a different shell company to try and back his reputation. Here’s the smoking gun (emphasis mine, of course):

Could you enlighten me as well what is the real concern about? As the app purchase does not reveal any of your personal information and it is alright if you don’t wish to provide the original source code.

What’s going on, and what this means for broader security risk

Here’s the scammer’s game-plan:

  1. Find an Android app with a lot of users
  2. Purchase that Android app
  3. “Update” the app with malware (you don’t even need to buy the original source code!)
  4. ???
  5. Profit

This concerns me for two reasons.

I’ve had 3 “online advertisers” with non-existent reputations contact me in the past couple of months looking to buy Brick Breaker Free. I never had a problem with that previously, so it looks like this strategy is catching on. This also implies that it’s profitable.

Second, users can’t do anything to fight this scam. One day, you’re playing a fun game on your phone. The next day, you update to the latest version (I’m sure it’ll mention “bug fixes” or something similarly innocuous) and BAM! Malware.

From the development side, I know how tempting it is to just sell an app without due diligence. It’s not hard to see through these people’s shenanigans, but what if someone doesn’t know what to look out for, or what if they just don’t care? What if the scammers become more sophisticated and well-versed in business etiquette?

I just don’t see any way to easily prevent this from occurring.


Thoughts? Tweet me at @whrobbins or find my email at willrobbins.org!

My App Marketing Story: 0 to 100k Downloads

Last week I saw a post on Hacker News called “How to get your app noticed on Google Play.” If you’re interested in that type of stuff, go check it out.

I started messing around with Android when I was 15. Writing a few one-feature apps (think soundboards and tip calculators) got me familiar enough with the platform to have a go at a market-ready product. As a kid I loved playing Brick Breaker on my dad’s Blackberry, so I decided to build a clone called Brick Breaker Free (BBF).

Reading the article brought back some great memories of high school where I faced similar challenges bringing an app to 100,000 downloads. Luckily I know some tricks that the author didn’t mention, enough to kickoff my first blog post with some sort of story/tutorial hybrid. Here’s the rundown:

My story may not help you

Let me take a moment to say that there are many, many different types of mobile applications. The marketing tactics that work for one app may be wholly ineffective or even harmful for others.

I had known from the start that I wouldn’t make much money. Android developers get more downloads on average than iOS devs, but they earn about 1/5 as much money per download. Furthermore, being able to say “100k people have used my software” can provide returns far greater than the cash upside (think college admissions, scholarships, and job applications). I highly recommend keeping this in mind — often times, the number of downloads you can get is inversely related to how much you monetize your app.

First Principles

Lets think about the steps leading up to a user downloading an app.

  1. User goes to the Play Store with the intent to browse/download
  2. User finds an app through browsing or, much more likely, searching
  3. User looks at screenshots, perhaps looking at the description or reviews, and makes the decision to install.

Your goal as a developer (in addition to building something you personally enjoy and learn from!) is to make each step in the process as frictionless as possible and to widen the sales funnel. One of my favorite things about Android is the size of the platform (hint: it’s huuuge!). If all three of the above steps are facilitated, you’ll be in a good place.

Step 1: Understanding Intent

As it turns out, a lot of people like Breakout style games. Although I wish I had the foresight and market understanding to intentionally choose such a lucrative genre, I just got lucky on this one. I wanted to recreate a childhood favorite and BBF was simple enough that I could actually build it given my amateur coding skills.

What I would have done if I were a little more deliberate is gather key metrics on the idea’s genre/space. If you wanted to build, say, Uber for dog-sitters (update: it turns out this actually exists!), make a list of keywords and search for the common permutations on Google Play. Then look at the top 20 apps, get an estimate of how many users they have (look for the range that Google gives).

Select a search-term namespace that already has over a million users because it’s quite difficult (and often expensive) to organically generate demand/intent. Unless you’ve got unique insight into the direction that user demand is going, breaking into an existing market segment will be a lot easier.

Step 2: The dirty growth-hack that set the wheels in motion

When I published BBF, only a few people happened to stumble upon my app each day. It’s hard to stand out when there’s 50 other games with a similar name and purpose. I tried the default tactics like posting to websites and sending links to friends. Nothing really caught on. Driving growth through posting online is time consuming and hard.

Luckily, I had turned 16 and gotten my driver’s license a few months before publishing the app. I drove to Best Buy, the AT&T store, and anywhere else I could find android-powered smartphones. Then I installed my app on each available demo phone, bookmarked a link to the Play Store page, and rearranged the home screen to favorably display my app’s icon. Supposedly this caused random customers to see the app and install it themselves.

Originally, BBF was nowhere to be found if one were to search with the words “brick,” “breaker,” “breakout,” or any similar phrase. After Google’s algorithm saw some growth and a sudden bump in it’s popularity, BBF consistently appeared in the top 12–36 results for relevant searches.

Given the sheer volume of Google Play searches, that ranking did wonders for my discoverability. I can’t give a hard number on how many people viewed my app, but it got hundreds of thousands of eyes on the store listing. That got the snowball rolling.

Unfortunately the trick that worked for me probably doesn’t work anymore. Last time I checked, retail stores got sick of people like me and restricted the demo settings/permissions, so you’ll just have to get creative when building a critical-mass user base.

If you don’t mind sifting through the results of such a buzzword, try Googling “growth hacking” and think about the tactics that you may find to be effective.

Step 3: Design

Once a user has stumbled across an app (meaning they completed the first two steps in the process I outlined earlier), they need to see enough potential value to hit the install button.

I say “potential” because you don’t need to prove that you’re the perfect fit to the user’s needs — that’d be a pretty high bar to meet. It’s easy enough to test out an app and uninstall it when boredom hits, so you’ll just need to show that your app has some social proof and looks like it could be good.

Given my acute laziness and lack of artistic skills at the time, I searched the web for a generously-licensed design package. This set of sprites by Kenney Land looks great:

‘Puzzle Pack’ sprites used in Brick Breaker Free

Once I had elegant art to use as building blocks, I designed a playful and colorful home screen:


Then I gave special thought to photoshopping an app icon, as they are first impressions and the face of your application until a user clicks on the store listing. Take care to design a bright and simple icon — which one of the following apps stands out at first glance?


Finally, I cherry-picked some of the most colorful and symmetrical levels to represent gameplay. Here’s the final Google Play store listing. Clean, colorful, and to the point (at least enough so!):


Results

This is the growth chart of my app over time. Clearly I’ve hit the ceiling set by my app’s engineering quality, design quality, Google Play reviews, and the number of people in the market for a Brick Breaker clone.


Overall, I’m very happy with BBF’s performance. I do have one regret, however, and that is not diving deeper into analytics or A/B testing. It wasn’t easy finding information on Android’s metrics (questions like “what does it mean if my users have older versions of Android installed?” were left unanswered) and I bet there’s a lot of valuable insight somewhere out there. If anyone reading this is aware of good resources on the topic, let me know!

That’s all I’ve got for today. If you’ve read this far, follow my blog for more in the future!

(By the way, if you’d like to purchase a nifty app called Brick Breaker Free, contact me. I’m looking to cash out on this project)

Bonus anecdote: a failed experiment

Towards the beginning of this post, I mentioned that I didn’t try or even want to make money with my app. Although that’s true for the most part, I did explore monetization options after the app had caught on.

At the time, the mobile game dev community was having a vigorous discussion about the future of mobile app business models. Freemium, Tiered-Service, and DLC strategies were being fleshed out and tested on large-scale platforms by different companies. And it didn’t help that Zynga’s stock had crashed and was showing no signs of recovery.

Since my opportunity cost was so low, I decided take the contrarian route and perform a little experiment: give away my app for free, no strings attached. I simply added a page that said something along the lines of “I am a high school student who works hard to maintain this app. If you feel that I deserve it, click here to donate an amount of your choosing.”

It seemed to me that AdBlock was successful with this model (which I later learned is called Donationware) so I figured I’d give it a try. The mobile game industry had to be so laser-focused on their bottom line that it could easily overlook such a strategy. After all, if anyone could pull off the Donationware scheme, it’d be the high school student who politely asks for money to spend on software and education.

So what happened? The experiment successfully produced evidence relating to my hypothesis. And by that I mean it proved my ideas were completely wrong. Out of the tens of thousands of people who installed my app, I think I convinced 4 of them to donate a total of $5.

Oh well, now we know without a doubt that people truly do prefer things to be free! Who could have guessed?


Thoughts? Tweet me at @whrobbins or find my email at willrobbins.org!