Why Investors Are Excited for a Potential Robinhood IPO in 2021

By Jemima McEvoy Monday, December 21, 2020

Headlines broke last month about a potential stock market launch from Robinhood. The seven-year-old financial services startup has reportedly started working with Goldman Sachs on an initial public offering (IPO) that could be valued at more than $20 billion. Here’s everything you need to know about Robinhood and why its potential — but unconfirmed — IPO is one of the buzziest of the new year.

What Is Robinhood?

Robinhood is a financial services company that’s helped revolutionize investing. It was founded by Vladimir Tenev and Baiju Bhatt, who met while studying at Stanford University. Both in their twenties, Tenev and Bhatt came up with the idea after spending some time building software for hedge funds and other firms that would allow high-frequency trading. Having watched the financial industry’s reckoning during the 2011 Occupy Wall Street protests, the duo wanted to make trading more accessible and appealing to younger investors.

“We realized institutions were paying fractions of a penny for trading and transactions,” Tenev told Forbes in 2014, a year after the company was officially founded, but a month before the creators launched the beta version of their mobile app. “Bhatt notes that online brokerage firms have a stronghold on investors in their 40s and 50s but fail to capture younger, less profitable investors who have less money to invest. But that's exactly who Robinhood is targeting,” explained Forbes.

Even in its nascent stages, the idea was eye-catching. By February of 2018, Robinhood had three million users, a large majority of whom fell into the “Millennial” demographic, with an average age of 26. Furthermore, the app was managing to secure repeat customers: 50% of users who have made a trade used the app daily, while 90% used the app weekly.

After other lucrative fundraising rounds, Robinhood brought in $363 million in a Series D financing round headed by DST Global. Other investors include Greenoaks Capital and Thrive Capital. Having raised a total of $539 million in venture capital funding as of May 2018, Robinhood’s valuation skyrocketed from a previous $1.3 billion to $5.6 billion.

Robinhood’s Recent History

The fundraising doesn’t end there. With its eyes on expansion to the United Kingdom, Bloomberg reported in 2019, a year after the previous fundraising round boosted its valuation, that Robinhood was on the market for another $200 million in fundraising, which would bring the company’s valuation to between $7 and $10 billion. This didn’t actually happen until May 2020, when the company announced it had raised another $280 million at a pre-money valuation of $8.3 billion, with investments led by Sequoia Capital. Then, as rumors of an IPO began to swirl, the financial services firm went in for another $200 million in a Series G funding round, led by D1 Capital Partners, in August. And yet another in September, which raked in $460 million.

You may be wondering about how Robinhood fared through the coronavirus pandemic and the subsequent stock market crash. Well, if you couldn’t tell from all the fundraising going on, the answer is pretty well. Robinhood actually saw trading increase during this period. While Robinhood traders are often subject to mocking from those engaging in more traditional investing methods, they were thrown credit from Andrew Lapthorne of Société Génerale, a financial services company. “For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March,” wrote Lapthorne in June.

That’s not to say that Robinhood hasn’t had a rocky time over the past couple of years. The platform has been accused of being almost too accessible, tricking young investors into dangerous mistakes. Earlier this year, a young investor died by suicide after a misunderstanding, after which Robinhood’s founders pledged major changes to the platform, particularly around options trading. Additionally, the company was recently targeted by the Security and Exchange Commission and the Financial Industry Regulatory Authority in a probe into its handling of a sustained platform outage in March.

The Road to IPO

This brings us to today. Robinhood is now valued at about $11.7 billion and is reportedly planning for one of the most anticipated IPOs of next year, led by Goldman Sachs. Nonetheless, the timing of the IPO will depend on market conditions. Bhatt, who stepped down from the position of CEO in November, previously signaled interest in the company going public. Tenev is now serving as Robinhood’s sole CEO, overseeing the platform’s roughly 13 million users.

About the Author

Headshot for author Jemima McEvoy

Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.

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