Commonstock aims to verify YOLO transactions and receives new round of funding
David McDonough, Founder and CEO of Commonstock
A new social network is betting that enthusiastic retail marketers are here to stay and 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 should log into brokerage accounts in order to verify that the investments they post are for real.
“The ability for anyone to prove they own Tesla or Peloton as a percentage, and show their skin in the game, eliminates a lot of scammers who might say they had a 1000% return,” the CEO said. and Commonstock founder David McDonough at CNBC in an interview. “There is no lie about it – you can see someone’s performance in real time.”
The San Francisco-based startup on Tuesday announced a $ 25 million Series A funding round, led by Coatue with QED, Floodgate, Upside Ventures and others. He did not disclose an assessment. 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 allow traders to connect to Fidelity, Robinhood, E-Trade, and other brokerage accounts. Profiles show a user’s choice of actions and performance. Instead of the total number of followers, the feed shows the total 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 came together on social media to buy GameStop and inflict pain on hedge funds betting against it. McDonough, who left Google in 2017 to launch Commonstock, said there was an immediate boost for users of the meme-stock saga. The customer base was doubling month by month without marketing, he said.
The Roaring Kitty effect
GameStop aside, the last few years have brought a renaissance in retail stock trading. An estimated 10 million new traders have entered the market this year alone, keeping pace with last year’s record, according to JMP Securities. The ubiquity of zero commissions, split trades and the availability of stimulus checks, combined with people looking for new entertainment during the pandemic, have helped fuel a new interest in investing.
“It sounds counterintuitive, but Roaring Kitty, AMC, and GME have probably done more to educate a generation of people than any finance textbook and course before,” McDonough said. “Investing is now interesting and part of the social debate. “
Some of that frenzy has already faded, with retail trade volume declining from January’s high. Still, McDonough said the platform is experiencing high levels of engagement and “stickiness.” Commonstock users who may have been drawn to GameStop’s entertainment kept their money in the markets, according to McDonough. For the most part, he said young traders don’t place “YOLO” or “you only live once” bets. Their investments tend to follow the adage of Fidelity fund manager Peter Lynch that “invest in what you know”.
It’s often internet culture and the actions of memes, or brands like Peloton or Nike, and Tesla.
“They know that when Elon Musk tweets, it’s going to get a lot of attention on 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 one. purchasing power in the market which can cause prices to vary, ”McDonough said.
Commonstock Social Media Interface
Frank Rotman, co-founder and partner of QED Investors, was one of Commonstock’s first funders. Having “all signal, no noise” social media led them to double down in Series A, he said.
“On Reddit, everyone is ready to raise their hand and show you what to trade, but you don’t know who these people are and why they are giving you the information that they are,” Rotman said. “It’s about exchanges between friends and memes, and it’s not about stocks or the companies themselves.”
Commonstock has yet to start monetizing. McDonough said he plans to follow Facebook, Twitter, Snapchat’s playbook to build network and user engagement, and make money on the go.
Eventually, McDonough said Commonstock would consider a subscription service, advanced features, and data aggregation and anonymization. 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.