Robinhood Raises Another $2.4 Billion, Eases Trading Curbs

Robinhood Markets’ biggest backers are plowing money into the beleaguered online brokerage at an unprecedented pace.

Investors led by Ribbit Capital have poured $3.4 billion into the firm in a matter of days, including $2.4 billion announced Monday. The cash infusions come as Robinhood grapples with outraged customers, increased scrutiny from Washington and questions about its plans for an initial public offering.

Robinhood told investors it would use the bulk of the fresh funds as collateral at the industry’s central clearinghouse, the Depository Trust & Clearing Corp., according to a person familiar with the matter. A spokeswoman for the firm declined to comment beyond the announcement.

Robinhood Raises Another $2.4 Billion, Eases Trading Curbs

Separately, Robinhood continued to ease the trading restrictions it first imposed last week.

The Reddit-fueled trading mania focused on heavily shorted stocks forced Robinhood to curtail trading in dozens of names last week, after increased capital demands from Wall Street’s gatekeepers at the DTCC. The crisis pushed Robinhood to raise emergency funding as it seeks to assuage millions of passionate users.

“We’re confident that Robinhood will emerge stronger through this phase of growth and unprecedented demand,” said Micky Malka, managing partner at Ribbit.

Iconiq, Sequoia

The financing comes in two parts. The first $2.4 billion tranche will convert into equity at a $30 billion valuation -- or a 30% discount to the IPO, whichever is lower, according to people with knowledge of the terms. A subsequent $1 billion infusion converts at the lower of the 30% IPO discount, or a $33 billion valuation, one of the people said.

The latest financing also includes Iconiq Capital, Andreessen Horowitz, Sequoia Capital, Index Ventures and NEA, Robinhood said in a blog post.

“This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform,” Chief Financial Officer Jason Warnick said in the post.

Robinhood is also in talks with banks about raising $1 billion of debt, Reuters reported.

Chief Executive Officer Vlad Tenev has tried in public appearances -- including with Elon Musk -- to explain why Robinhood halted trading in popular stocks including GameStop Corp. Still, that wasn’t enough for many customers. Despite the relaxation of trading limits -- reducing the number of affected securities Sunday to eight from 50 -- some of its more than 13 million users are angry that they were restricted at all.

On Monday, Robinhood further eased the restrictions, allowing customers to trade as much as 20 shares of GameStop, up from a previous limit of four.

Venture capital investors are key stakeholders for Robinhood, after they helped lift its valuation to about $11.7 billion in a September funding round.

The current turmoil could delay Robinhood’s IPO, planned for as early as May, a person familiar with the matter said. True to its mission, the trading platform had considered an unusually retail investor-centric offering by allocating a significant minority of listed shares to clients, Bloomberg reported last month. No final decision on that plan had been made at the time.

Stability Concerns

The upheaval at Robinhood has raised concerns for at least one of its trading partners, which last week called the DTCC with questions about the stability of the brokerage, according to a person familiar with the matter. The DTCC said Robinhood was a member in good standing, according to the person. A clearinghouse spokesman declined to comment.

Robinhood is accumulating new users even after the tumult of the past week, according to JMP Securities analyst Devin Ryan.

On Friday, there appeared to be more than 600,000 downloads of Robinhood’s app, compared with about 140,000 on its best day during the pandemic-induced volatility of last March, Ryan wrote in a note to clients Sunday.

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