Robinhood IPOs, but how will it perform in the meme stock world it created?

Share prices at the company, set to be listed on Nasdaq today under the ticker “HOOD,” now lie in the hands of Wall Street banks, institutions, and traders; but also in those of its own users—particularly at this very moment, as the company yesterday set aside up to about one-third of its stock for Robinhood customers.

Robinhood appeared to raise less than it had initially hoped for: On Wednesday, it announced it was pricing its shares at $38, the lower end of the $38 to $42 range it had planned. Robinhood may have left money on the table by pricing it at the low end of the range. That initial raise delivered $2.1 billion in funding to the company—about $100 million of which will go to pre-existing stockholders. The raise values the company at $32 billion, which is more than one-third of the total investor assets it has on its platform (around $81 billion at the end of March).

Although Robinhood is still relatively small compared with long-dominant competitors like Vanguard ($2 trillion in retail assets) or Charles Schwab ($4.1 trillion in retail assets), its IPO is a significant moment for the retail brokerage industry. Robinhood solely operates in the retail brokerage industry—not in asset management or custody like many of the other players, and an IPO is a sign of confidence in this area of the market. Robinhood has helped attract the youngest, most diverse group of investors to the markets than ever before.

Part of its success has stemmed from efforts to make investing fun, though many—including regulators—would argue that brokerages like Robinhood have turned a risky business into a game: a game investors are too eager to play before understanding the rules and just what’s at stake. Robinhood has also opened up access to the retail market, including IPOs, as the first company to allow investors to trade for free, and has enabled its investors to trade in assets like crypto.

Even in its initial offering, Robinhood made a point to keep retail investors in the loop. Somewhere between 20% and 35% of the 55 million shares Robinhood distributed on Wednesday went to retail investors—an unprecedented figure. Because IPO underwriters (think companies like Goldman Sachs or Morgan Stanley) usually get to distribute shares to their own clients, retail investors typically have to wait for shares to hit the exchange before they get the opportunity to buy. Owing to pent-up demand for a popular company, there can sometimes be a subsequent price “pop” when shares hit the exchange. Individual investors rarely get to take advantage.

“For a retail investor who was able to invest $1,000 or $2,000—that could be a game-changer,” says Scott Smith, who conducts investor behavior and advisory relationship research at Cerulli Associates.

Having retail investors in the mix can help a company gauge how pricing will play out once a stock hits the exchange—rather than just relying on what institutional investors are willing to pay, according to Eido Gal, CEO of fraud prevention tech company Riskified, which set aside up to 3% of its IPO shares for retail investors on Robinhood’s platform, ahead of it going public today.

“It’s not something that’s very common yet,” Gal says of including mass affluent investors in the pre-IPO process.

It’s still unclear how all of it will play out for Robinhood, as going public may welcome more volatile trading in its own shares—particularly if its stock warrants the attention of meme stock traders it has attracted to the platform. Most companies prefer to allocate IPO shares to investors who will hang on to them. MeridianLink, a software company for banks and credit unions which started trading on the New York Stock Exchange on July 28, intentionally made efforts to hand out its shares to investors it believed would hold its shares for the long haul.

Since Robinhood’s business model thrives on active and regular trading, it would garner revenue from volatility even within its own shares. It’s a business model that has become a point of debate across the industry as Robinhood makes more than 75% of its revenue from the controversial practice of payment for order flow, where trading firms pay brokerages small sums to execute investors’ trades. Many have argued that Robinhood has turned the mass affluent investors it says it wants to support into a product themselves.

Smith is skeptical of the company’s long-term success and its current valuation—particularly as payment for order flow has—once again—become a hot-topic issue among regulators. “To me it seems an excessive valuation and an unsustainable business model,” he says.

Just yesterday, Robinhood disclosed it had received a fresh round of inquiries from top financial regulators over employee trading and the brokerage registration status of its two founders. Good news for Robinhood: Investors don’t appear to care about any of the regulatory infractions it’s faced in recent years. About 65% of Robinhood users who are aware of the IPO say they would invest if given the chance, according to research from business management consulting company cg42.

Correction: This article has been updated to reflect Charles Schwab had $4.1 trillion in retail assets at the end of the second quarter.