Robinhood raises $280 million in push for global expansion
The popular stock-picking app Robinhood announced on Monday it raised a Series F funding round that will see the company valued at $8.3 billion. The $280 million cash infusion is being led by Sequoia Capital and comes at a time that Robinhood is seeing a spike of new customers and trading activity during the pandemic.
According to co-CEO Vlad Tenev, Robinhood has added 3 million funded accounts since the start of the year, while its daily trading volume for March was three times higher than its fourth quarter average.
“The purpose of the capital raise is to enable us to have flexibility and be strategic, and continue to invest in the platform,” said Tenev in an interview with Fortune. “We envision that over the next few years, Robinhood will expand globally and continue rolling out more products.”
The new funding round also comes after a series of tech failures in early March that saw Robinhood customers unable to trade for hours and, in one case, for an entire day. Tenev described the episodes as a “curveball” resulting from unexpected volume, and said Robinhood has since upgraded its tech capacity. He noted the company handled massive surges in trading in April without a problem.
The $280 million Series F round comes after the company raised $323 million last July, which then valued the company at $7.6 billion. The new $8.3 billion valuation figure accounts for the Series F investment.
Rumors of the new funding round were reported by Bloomberg and others in mid-April. According to unnamed sources cited at that time by the Financial Times, the terms of the new funding include provisions that would protect the investors’ stakes if Robinhood goes public or sells at a price below the Series F valuation. The company declined to comment on this matter.
Numerous financial publications predicted last year that Robinhood would launch an initial public offering in 2020. The company, founded in 2013, is especially popular with millennials for its mobile-first design, and its no-commission trading policy, which has recently been imitated by conventional brokerages.
But despite the buzz surrounding Robinhood, questions remain about how it will make money. A portion of its revenue comes from investing customers’ cash balances but, as Federal Reserve rates have dropped close to zero, the company may be hard-pressed to earn significant money on this front. Meanwhile, a report last year said over half or Robinhood’s revenue came from so-called “order flow,” a controversial practice where brokerages receive rebates kicked back from market makers and other third parties that execute their orders.
Tenev declined to comment on whether Robinhood is profitable, but said the company enjoys diversified revenue streams and predicted “solid growth” in the coming year. He pointed to the company’s $5 a month premium service known as Robinhood Gold as an additional income source, as well as money the company collects from stock lending and from fees from its customers’ debit card use.
Tenev also noted that Robinhood’s impending launch in the United Kingdom is off to a promising start, pointing to a waiting list of more than 150,000 customers who have signed up for the service. He also cited the recent unrolling of new products like fractional shares and a cash management account as evidence the company has overcome recent missteps.
The economic upheaval related to the coronavirus also appears to have benefited Robinhood in the form of an upsurge in trading and, according to Tenev, an opportunity to expand hiring. He also noted net deposits to Robinhood in March were 17 times its monthly average.
The latest funding round also brought contributions from previous and new investors, including NEA, Ribbit Capital, 9Yards Capital, and Unusual Ventures. This is the first Robinhood round led by Sequoia.
“We’re excited to further our relationship with Robinhood, which we believe is at the beginning of its opportunity,” said Andrew Reed, a partner at Sequoia in a statement.
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