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SAN FRANCISCO — When Vlad Tenev and Baiju Bhatt created stock trading app Robinhood In 2013, entrepreneurs announced that their goal was to democratize Wall Street and make finance accessible to everyone. Now they are taking these values to a new extreme as they prepare to take their company public.
Mr. Tenev and Mr. Bhatt have been discussing how it happened for a long time. Robinhood’s initial public offering Three people close to the company said it would be more open than any other offer that has come before. This week, the two founders revealed details: Robinhood plans to sell a third of its offering, or $770 million of its stake, directly to customers through its app. The company added that anyone can attend a special live stream of investor presentations this Saturday.
The moves are highly unusual and upset the traditional IPO process. No company has initially offered so many shares to day traders; firms usually reserve only 1 or 2 percent of their shares for customers. And investor presentations often take place behind closed doors with the Wall Street firms that have long had the most access to public offerings.
But Mr. Tenev and Mr. Bhatt, a person familiar with the company who is not authorized to speak publicly, said they have been making plans since at least 2019 to change the way public offerings are conducted. Robinhood also chose Goldman Sachs to lead its bid, in part because of the bank’s ability to help sell pre-IP shares normally reserved for professionally managed funds to thousands of day-to-day investors on Robinhood’s app.
In Robinhood’s, Mr. Tenev, 34, and Mr. Bhatt, 36, wrote, “We are aware that for many of you this will be the first IPO you have a chance to attend.” offer a prospectus. They added that they want to put clients on “even ground” with large institutional investors.
But the risks of taking an IPO are significant. Robinhood faces the technical challenges of ensuring that pre-IP stock orders are processed smoothly and accurately with a large number of investors. And while major professional funds tend to hold stocks they buy in an IPO, there’s little to stop casual investors from abandoning Robinhood’s stock right away.
Robinhood also allows its employees to immediately sell up to 15 percent of their shares as soon as they are listed, instead of having to wait for the traditional six months. This can contribute to volatile trading.
One person involved in the process said the company’s practice includes a standard industry warning against “converting” shares within 30 days, which could prevent pallets from purchasing future IPOs.
If the proposal is successful, it will confirm the mission of Mr. Tenev and Mr. Bhatt and potentially change the way hot companies go public. It could also help Robinhood polish its reputation after a rough year of technical outages, user protests and lawsuits. regulatory review and fines.
“The company is taking a huge risk,” said RA Farrokhnia, a professor of business economics at Columbia Business School. “If it works, it will be a great win. If it goes bad, it will be a black mark.”
Robinhood refused to make its executives available for interviews, citing silent-period rules before being listed. After initially pricing their shares $38 to $42 eachThe company, which has set Robinhood’s valuation at around $35 billion, is expected to set a final price next Wednesday and begin trading a day later.
The companies and their advisors have been cautious about selling the bulk of their IPO shares to retail investors. Any technical issues could invite regulatory scrutiny and investor lawsuits, the bankers said.
In 2006, telephone service provider Vonage attempted to sell shares to customers in its IPO. But a technical glitch left it unclear whether buyers’ trading continued until days later, when the stock fell. Customers sued Vonage, and regulators fined the banks that executed the offer.
BATS Global Markets, a stock exchange, tried to go public on its own stock market in 2012, but “technical issues” the day he proposed and he had to pull the deal. Facebook’s debut in 2012 “flop“After similar glitches in a new trading system.
Still, Mr. Tenev and Mr. Bhatt saw a more open IPO as the core of Robinhood’s values. Its apps attract millions of new investors. day trading world, and the company has repeatedly pushed the limits with new products, often getting into hot water with regulators.
This year Robinhood introduced IPO Access, a product that allows public companies to sell pre-IPO shares directly to customers. That way, people can make money on a company’s stock price “pop” that usually occurs on the first day of trading.
Figs, a medical gown company, a company that Robinhood has applied to allocate a portion of its IPO this year to day-to-day investors, said Heather Hasson, CEO. Ms Hasson said Figs ultimately provides 1 percent of the products it offers to retail investors to “empower” healthcare providers who buy their apparel.
Our community is our brand, and our brand is our community.”
But even with such a small allocation, banks like Goldman Sachs are concerned about potential technical problems and harm to retail investors, one person familiar with the proposal said. This is the first time Robinhood’s app has hosted such a deal. Fig stock has risen nearly 30 percent since its May supply.
Josh Bonnie, who helps manage capital markets at law firm Simpson Thacher & Bartlett, said Robinhood’s offer is unlikely to be easily spoofed because the company is unique in its size and awareness among retail investors and is in the business of promoting retail business.
“I think they are in a different position than most companies that pursue IPOs,” he said.
Robinhood’s debut may have an added layer of unpredictability, as customers show their willingness to band together on social media to battle perceived enemies. The company alienated some when it halted trading during the “meme stock” rally in January, when traders gathered on its Reddit platform sent shares of certain companies like GameStop on a roller coaster ride.
Investors who lost money during the trading halt were outraged, including Mohammed Hamza, a recent Queens graduate. He had joined Robinhood in November and had watched his investments in penny stocks and meme stocks bubble, then fell in half during the January pause. She said she felt betrayed.
“I don’t know how to handle this,” said Mr. Hamza, 22. It now uses a competing service, WeBull, and does not plan to buy Robinhood’s IPO.
His friends in online communities are planning similar moves, but some just can’t put down the easy-to-use app. Despite the backlash, Robinhood added five million users last year and quadrupled its quarterly revenue.
“A lot of people are anti-Robinhood,” said Mr. Hamza, “but they still use Robinhood.”
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