Benjamin Chemla is betting big on Shares. The London and Paris-based fintech startup aims to straddle the worlds of social media and trading apps and empower netizens to confidently gamble on the stock market. However, bringing these two things together has had huge unwanted repercussions in the past.
In 2021, a perfect storm of angry Redditors, brokerage shortcomings and Covid-19 triggered the GameStop trading frenzy. The short squeeze bled Wall Street investors of billions of dollars, saw amateur traders lose their life savings and forced fintech leaders to testify to Congress. That’s a lot for a fintech CEO to worry about.
Despite recognising these concerns, Chemla is bullish about Shares’ prospects. The company was founded in early 2021, around the peak of the meme stock turmoil. The startup aims to enable people to trade shares and to discuss bets with friends – all in one app.
“Shares is the next revolution,” Chemla tells Verdict. “It hasn’t even started yet. It’s happening right now. And the revolution is called ‘social trading.'”
Chemla says this will distinguish Shares from other European trading apps. Rival platforms include UK challenger stockbroker Freetrade, which raised a $69m Series B round in March 2021 and German Trade Republic. Trade Republic rolled out its services in France a year ago. America’s Robinhood, which was at the centre of the GameStop storm, had planned to jump across the pond but postponed its UK rollout in the summer of 2020.
Like Shares, all these companies use marketing vernacular about “democratising finance” and offer similar zero or low-commission service, but they don’t emphasise the social aspect the way Shares does.
Chemla claims the social element will enable users to learn from each other and empower more people to take up stock trading.
“Most people don’t have the education [and] they don’t have the knowledge,” Chemla says. “They don’t even know what an ETF is. They don’t know where to start and that’s why they are afraid to really invest. Investing is something that right now is still pretty much exclusive to the 1%. It has changed but not enough and social trading is the only way to introduce this new wave of [retail traders].”
An ETF, or an exchange-traded fund, is a publicly traded fund. Its shares can be bought and sold on ordinary stock exchanges. ETFs can hold commodities such as gold or even bitcoin. They are usually traded close to those assets’ net value.
At a glance, people seemingly share Chemla’s optimism. Following a soft beta launch in January 2022, the first few hundred users are already active on the trading platform. More than 56,000 prospective amateur traders have signed up to Shares’ waiting list. Once the company has fixed inevitable bugs discovered during the beta phase and added new features, Shares plans to roll out the trading platform to the UK public. It has not put an exact date on the official consumer launch.
The startup currently enables users to bet on 2,000 different stocks traded on the US Nasdaq, but plans to introduce European stocks in the second quarter of 2022. Shares is also investigating the prospect of adding cryptocurrency trading to the platform at some point in Q2.
Venture capitalists have also demonstrated a willingness to back the startup. Shares secured $10m in a seed funding round in August 2021. PayPal founder Peter Thiel’s Valar Ventures led the raise. Angel investors also supported the cash injection.
Shares is also raising a Series A round that would put its valuation close to €180m mark, according to sources familiar with the raise. That would be about five or six times more than Shares’ current €30m valuation. The people speaking with Verdict believe the deal could close as early as in March. When asked, Chemla declines to comment.
However, the success of Shares depends on its ability overcome some daunting obstacles. For starters, merging the two realms of trading apps and social media means being saddled with the problems of each sector.
A plague of fake news and misinformation haunts social media companies who are fighting against antitrust suits and accusations of prioritising profits over user wellbeing.
“Increasingly, society is blaming Big Tech companies for allowing the proliferation of false narratives spread by humans and bots on the web,” GlobalData analysts wrote in a recent thematic research report on misinformation. “They stand accused of distorting the information we consume in ways that are bad for us both individually and collectively.”
Similarly, major investors like Berkshire Hathaway’s Warren Buffet have equated trading apps with gambling sites. Regulators have fined them for not taking enough care to ensure users’ financial and mental health, both on the customer support side and by not preventing service outages. US market watchdog the Financial Industry Regulatory Authority has even linked the suicide of a 20-year-old man to his use of the Robinhood platform.
So both social and trading have problems of their own: and their combined effect has already caused massive consequences. Last year’s meme stock trading chaos can easily be described as a social trading phenomenon.
The GameStop shares trading chaos
In retrospect the meme stock frenzy could seem inevitable. The pandemic forced people to stay at home, to use technology to connect with others, to be entertained and to handle their finances. Daily signups to social media platforms and to stock trading apps like Robinhood shot through the roof as the spread of Covid-19 worsened. In January 2021, these factors created a perfect storm on US stock markets.
It all kicked off on the r/WallStreetBets subreddit. The Reddit forum is a place where members can discuss how everything from the Super Bowl to Russian president Vladimir Putin can affect markets. At the start of last year, one topic became more discussed than any other: the prospect of giving Wall Street a good thumping by betting against incumbent short sellers.
They wanted to do so by triggering a short squeeze on a number of securities – such as GameStop, Nokia and AMC – which the subreddit’s members believed were undervalued. That is exactly what they did.
The push caught momentum and the stocks of these struggling companies skyrocketed. Wall Street funds lost $19bn as a result of the squeeze, in which stocks they had sold short had to be bought very high.
Several brokerages were also caught in the storm. Robinhood, in particular, faced a massive backlash after it decided to freeze trade in YOLO stocks, infuriating everyone from the Reddit community to senators.
“This is unacceptable,” Democratic representative Alexandria Ocasio-Cortez tweeted at the time, calling for an inquiry into Robinhood’s actions. Other politicians on both side of the aisle soon followed.
Robinhood co-founder and CEO Vlad Tenev was subsequently dragged to testify to Congress, explaining the company’s actions.
He later apologised for Robinhood’s “unacceptable” actions, but denied “conspiracy theories” that the company had been pressured by big hedge funds to cut out the little guy with its trade freezes.
The Robinhood head honcho maintained that the fintech had been forced to pull the plug on trading. If it hadn’t, then Robinhood would have risked being unable to meet its commitments to clearing-houses.
Clearing-houses collect and distribute payment and transfer ownership of stocks. Their main goal is to reduce risk. When the risk rose during the meme stock frenzy, Robinhood’s clearing-house partners demanded higher margins of up to $3bn.
At the time, Robinhood couldn’t cover that step increase and had to halt YOLO trading until the company had raised more money, according to Tenev.
It is against this background that Chemla now wants to mix the worlds of social media and fintech. He is confident Shares can avoid the issues raised during the meme stock trading frenzy.
“First of all, what happened with GameStop was quite unique and surprised everyone,” Chemla says. “Now people are more prepared for these type of situations.”
He adds that Shares’ US-based broker partner Alpaca has organised itself “in a way so that things like this would never happen,” which includes it splitting its capital flow between “many clearing houses and many custodians.”
“What happened with Robinhood was probably linked to their organisation and the business model,” Chemla continues, adding that the US rival’s structure meant they were “expecting a kick back from the execution of the auditors.”
Shares started amidst the chaos
The pandemic also inspired Chemla to launch Shares. When the Covid-19 crisis hit, Chemla found himself stuck living in the US. Around that time, Chemla first tried his hand at using trading apps. The only problem was that he didn’t really know what he was doing.
“I never knew what to invest in,” he recalls.
But instead of betting blindly, he relied on two things: insights learned on online forums and his future Shares co-founder François Ruty’s knowledge and advice.
“He started to send me screenshots of his portfolio and I was like, ‘Wow, that should be normal. That should be the standard,'” he recalls. “I mean, why shouldn’t I see my close friends’ portfolios and share my portfolio with them?”
He realised adding a social aspect to trading could benefit others like him who were interested in trading, but who lacked knowledge. Armed with this insight he founded Shares in early 2021. Chemla and Ruty were later joined by Harjas Singh as a third co-founder.
The way he sees it, amateur investors are already taking to social media platforms to hedge their bets. Chemla has a point. When Reddit announced its most recent $700m funding round at a $10bn valuation, it attributed some of that cash to how the GameStop chaos had been a huge way to promote the brand.
However, relying on social media means running the risk of getting some really bad advice. The 10 most mentioned stocks on r/WallStreetBets in 2021 generated negative monthly returns at least 59% of the time during the year, with an average weekly loss of 1.6% and a monthly loss of 6.7%, according to research from Capital.Com. And not all advice on social media will be given in good faith: it’s not as though strangers online can safely be assumed to have the best intentions.
“There is so much information right now [when] you go online. It’s loud,” Chemla says. “You see people posting on YouTube, Instagram, Twitter, Reddit, Discord and it’s really hard to understand who to trust. There is a lot of fake news.”
Chemla claims Shares has reduced the risk of fake news and bad advice spreading on the social media aspect of the app. He says that the company has created strict ID verification processes to ensure that everyone using the Shares trading app is who they claim to be.
The Shares CEO adds that the company has a dedicated compliance team who ensure that everything is done to comply with anti-money laundering regulations. Users can report suspicious or bad behaviours to this team.
Shares also limits the number of users in each group to avoid creating big influencers that affect the trading of the entire community.
“It’s impossible to have more than 20 people in our chat groups,” Chemla says. “So you cannot create a group chat with a million people and have one person giving advice to millions of people.”
The only way to influence others outside of that group would be to literally put your money where your mouth is. Every transaction and trade can be seen on the public activity fields. Once a transaction has been made, then the person making it can leave a comment to explain their thought process. Others can then comment on that post.
“We cannot be sure 100% that people won’t follow other users and end up losing money,” Chemla says. “But what we have created is a positive and safe environment where at least [you] can go on my profile and see what I’ve been doing over the last few months, what kind of investor I am and if I’ve applied what I’m advising you to do, which at least lets you check whether or not I’m fake.”
Much like cryptocurrencies, trading apps are struggling with a bad reputation. Investment giants like Buffett have likened apps like Robinhood to gambling. However, Chemla is confident that he could sway the Berkshire Hathaway tycoon to change his mind.
“I think if you give me the chance to speak to [Warren Buffett] for just an hour, I’m sure I will convince him that Shares is different than a gambling app,” he says, adding that he would also lean into their mutual love for ETFs.
While Buffett is famously not a fan of other assets that will be traded on the Shares app such as cryptocurrencies, Chemla would also point to the different features of the platform encouraging users be careful with their money. These features would include pop-up warnings to not put all their capital in risky assets like cryptocurrencies.
“All these things show that we really want to protect our users, we want them to learn,” Chemla says.
Apart from finally rolling out the full Shares trading platform some time soon, the startup also plans to double its staff by adding another 150 employees by the end of the year. These new hires will include team members in Germany, Eastern Europe, Spain, Italy and France in anticipation of expanding the app’s reach to these markets in Q2.
“So it’s quite ambitious,” Chemla concludes.
Verdict deals analysis methodology
This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.
GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.
More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.