Despite user backlash and negative attitudes generated by Robinhood’s protracted technical hiccups, investors are still confident in Robinhood’s future as it provides a unique set of financial services. A $200 investment round is currently in the works, with Sequoia Capital leading the charge.
Robinhood Nears Another $200+ Million Raise
Although borrowing its name from the English folklore that depicts an outlaw who steals from the rich and gives to the poor, the formation of Robinhood, the FinTech company, is not perfectly analogous. In fact, its existence is entirely owed to wealthy investment funds. They have been regularly endowing Robinhood in the following chronological order, from first to last:
1. Kingsley Advani
2. Thrive Capital
3. Kortschak Investments, L.P.
4. New Enterprise Associates (NEA)
5. Ribbit Capital
6. Terrence Rohan
7. DST Global
8. Sequoia Capital
9. Victor Koch
10. DST Global
DST Global is the lead investor, next to Sequoia Capital heading its reported current investment round within the $200 – $250 million range. This puts Robinhood at an estimated $8 billion valuation, an uptick from the $7.6 billion valuation since its last raise of $323 million in July 2019.
How Robinhood Quickly Amassed Global Popularity
Where Robinhood deserves its name comes from implementing a platform that removes costly fees and intermediaries. As on online brokerage platform, Robinhood’s formula for success was simple:
Democratize financial markets by facilitating users to trade ETFs, options, and U.S. stocks — with zero commission.
A very enticing proposition that attracted millions of new users. So many users turned to Robinhood’s commission-free trading app that surprisingly, the firm couldn’t handle recent increases in trading volume. In essence, Robinhood became a victim of its own success. The platform experienced a period of outages which understandably angered many people who relied on short trades. Undoubtedly, many lost large sums of money for Robinhood’s unpreparedness to deal with its global popularity.
Some customers have already filed a lawsuit, but Robinhood ensures its user base that all investors who have been negatively impacted by shortages will be compensated. This will be an ongoing, case-by-case, process.
Outages are not the only problem that Robinhood faced. An audit by the U.S. Securities and Exchange Commission (SEC) found that the novel FinTech platform had been selling its customers’ orders at huge premiums to high-frequency trading companies.
Nonetheless, you can’t beat zero-commission trading, and they have likely learned the hard lesson of keeping their software up to date, alongside securing backup systems. It is unknown at this time how Robinhood will utilize its newly acquired funds.
Have you personally taken a financial loss from the bout of Robinhood’s technical failures? We want to know what you think in the comments section below.
Image courtesy of The Observer.