Robinhood (company)

Robinhood (company)

Robinhood is a Palo Alto, California-based financial technology company founded in 2013. They offer free stock and equity trading and commission-free crypto-trading.

Robinhood is a commission and brokerage-fee free trading platform headquartered in Palo Alto, California that was founded in 2013 by Vladimir Tenev and Baiju Bhatt. The company is approved by the Financial Industry Regulatory Authority (FINRA), registered with the U.S. Securities and Exchange Commission, and a member of the Securities Investor Protection Corporation (SIPC). The SIPC provide insurance on all Robinhood accounts.

History

The Robinhood mobile app initially launched on iOS in 2013 (available only in the U.S). The earliest version of the app allowed people to track stocks and share their predictions on the stock’s performance. Users were able to follow a stock’s performance relative to their predictions; helping them improve their understanding of markets. The app had trouble gaining popularity because Yahoo Finance developed a similar mobile app and was able to gain greater interest based on their higher levels of public recognition. Instead of competing directly with Yahoo Finance's app, Robinhood pulled their app from the IOS App Store.

In order to re-launch their mobile app as a brokerage, regulators required Robinhood hold a certain amount of capital. To achieve the capital requirements of a brokerage, Robinhood raised three million dollars in seed funding from from Index Ventures (lead investor), Google Ventures and Andreessen Horowitz. In 2015, Robinhood relaunched their fee-free brokerage app with limited access to S&P 500 stocks and exchange traded funds (ETF’s). Their public launch began with a website advertising commission-free trading with a button for signing up. An unknown leak placed them on Hacker News where they launched to number one trending topic. Vladimir Tenev has talked about this moment as an exciting early momentum builder for the app’s launch.

Through the app, Robinhood paired their no-fee approach with a simple user interface which focused on ease of use for the consumer. This simple interface and fee-free approach is the most-often referenced benefit to trading on Robinhood’s platforms – which have grown to include a website, crypto-trading and a freemium model – rather than trading on more traditional platforms.

The more traditional platforms (IE: Charles Schwab, TD Ameritrade or E*Trade) where brokerage fees or commissions are the standard and often come in anywhere between five to ten dollars USD. These platforms are often cluttered with research, market indicators and advanced metrics which are useful for more advanced traders, or those who trade in volume, but which Robinhood co-founders thought would act as impediment or deemed unnecessary for the demographic they pitched their platform to: millennials – cash-strapped and market curious.

The oft-quoted “No-Frills” approach explains Robinhood’s lack of storefront offices, research reports, analytical tools and stock screening. The “traditional” brokerages offer these services to varying degrees. Furthermore, there have been complaints about wait times for customer service calls and emails which are never returned. There is no automated brokerage transfer feature on Robinhood and any transfer has to be conducted through Automated Customer Account Transfer Service (ACATS). Both often cited as a result of the small team which supports Robinhood’s operations.

Robinhood expanded their offerings to options and crypto-currencies. For an additional fee, users can trade Canadian and European stocks. The app offers a few multi-leg strategies, such as iron condors, straddles, strangles, call and put debit spreads and call and put credit spreads. They also offered after-hours and margin trading through Robinhood Gold. There are greater options on their web platform which launched in late 2017. Robinhood does not allow you to trade IPO’s, futures, mutual funds, fixed incomes nor does it allow you to place short sells on any of their platforms.

"Payment for Order Flow" Controversy

Robinhood’s business model is not a traditional brokerage business model. Robinhood’s marketing suggests their business model is made to avoid brick-and-mortar operations, large work forces, and address what they believe are inefficiencies within the brokerage industry.

Robinhood does earn interest on non-invested cash in customer accounts, as most brokerage firms do, they earn interest on their premium Gold accounts, offer broker assisted trades via telephone for ten dollars and assist in foreign stock transactions for $35-50; and engage in a practice known as Payment for Order Flow.

Payment for Order Flow is a controversial, although common practice in the current finance industry, where a brokerage firm will sell their orders to a High Frequency Trader (HFT) or Market Maker such as Citadel Securities, Two Sigma Securities or Virtu Financial. The High Frequency Trader will take those orders and sell at market for a profit. Usually these profits are tenths of a penny per share which present real value in scale.

Most brokerages which use HFT’s strive for Price Improvement, meaning they want to reduce the spread of the HFT and get their user the best price possible. For example, if a user wanted to purchase a share for $200, the market order might be placed at $200.20 and the HFTs may wait to fill the order at $200.30. Whereas it seems Robinhood, who seem to be paid much higher than their peers, do not seek price improvement. In the above example, it seems orders through Robinhood at the $200.2 valuation are filled in at $200.5, for the sake of this example, individual shares are small but scaled to the roughly 6 million users on the platform, and the $150 billion in volume traded since the companies founding, the company is making a profit on their trading activity.

There is some confusion through the Securities and Exchange mandatory filing on Payment for Order Flow as Robinhood reports their earnings in a different manner comapred to other brokerages, such as E*Trade or TD Ameritrade, which makes a direct comparison of overall earnings difficult.

The biggest critic of Payment for Order Flow is the Securities and Exchange commission (SEC). SEC has advocated for a “trade-at” rule to combat the behavior of High Frequency Traders.

Further, the criticism of Robinhood’s relationship with HFTs comes from their no-fee approach, and the income derived from the practice, which suggests the investor is not the customer but the product. Robinhood has denied such allegations, and said their price performance is equal to their peers and better than what those users would see were they to take their orders to the market themselves.

It is important to note that not all trading platforms, such as apps, websites or brick-and-mortar, use HFT’s. Some will even allow the investor the ability to pick which markets their orders are routed to; an ability Robinhood lacks.

Robinhood Gold

Robinhood expanded in late 2016 with Robinhood Gold, a “freemium” portion of the app behind a paywall, where, for a fee, Robinhood offered market research and news, tools to see live bids and Nasdaq Level II Market Data, after-hours trading, instant deposit and the ability to trade on margin. There are no account minimums to start a Robinhood Gold account. There is a base monthly fee of five dollars. Otherwise trades through Robinhood Gold remain commission and fee-free.

To trade on margin, the account does need a minimum deposit of $2,000, which is a regulatory requirement for all brokerages offering margin. There had been criticism of Robinhood’s handling of their margin accounts, where they assessed an interest charge on the amount of margin available rather than the amount of margin used — which is the industry standard. They have since changed this practice. The five-dollar fee gives a user access to $1,000 margin, and margin loans exceeding $1,000 dollars are assessed an annual interest of 5% — which is below industry average.

Even with the new tools, more detailed graphs and market data, Robinhood Gold does not offer the detailed analysis, reports or educational resources found on other trading platforms.

Robinhood's involvement in the cryptocurrency industry

In 2019, Robinhood opened a new service on their application called Robinhood Crypto. Users from California, Massachusetts, Missouri, Montana and New Hampshire were initially able to trade Bitcoin and Ethereum without paying commission fees.

Since its initial launch, Robinhood Crypto has expanded to trading seven different cryptocurrencies, which include: Bitcoin, Bitcoin Cash, Bitcoin SV, Ethereum, Ethereum Classic, Dogecoin and Litecoin. Their platform offers real-time market data on a ten more ryptocurrencies, and the service has expanded to thirty-nine states.

In late 2018 the co-founder of Robinhood, Vladimir Tenev, went on record with CNBC saying "Robinhood was not looking to expand their platform to trade cryptocurrencies". Less than a year later, their stance changed, and they introduced Robinhood Crypto.

Furthermore, critics have noted the language around Robinhood Crypto is different than around their traditional equities trading platform; on their traditional platform, trades are marketed as free – although the payment for order flow scandal does place free in invisible quotation marks – whereas trading cryptocurrencies is marketed as “commission-free”. This small semantic difference is important in the volatile cryptocurrency markets.

The fine print of the user agreement for Robinhood Crypto mentions the volatility of the cryptocurrency marketplace and the lack of controls or customer protections. Furthermore, they state in the same fine print that any fees, charges or fines levied at Robinhood through cryptocurrency purchases are passed on. These aren’t clearly shown in the app unlike on similar platforms such as Coinbase. The fees are hidden in the cost of the coin. There is also a lack of clarity over whether cryptocurrency bought through Robinhood is owned by the purchaser, or if Robinhood owns the cryptocurrency. This is different from other cryptocurrency platforms where a purchase of cryptocurrency is represented in keys which appear in a cryptocurrency wallet and owned by the user.

Checking and saving accounts

On December 13, 2018 Robinhood’s co-founder Baiju Bhatt announced their plans to launch a checking and savings account in the US with a Mastercard debit issues through Sutton Bank. These accounts were going to be fee free (no monthly fee, no overdraft fee, no foreign fee and no card replacement fee), without a minimum deposit and offer a 3% interest. This would have been the highest interest rate for a bank account in the U.S. Furthermore, they offered, through Mastercard and Sutton Bank, more ATM’s across the U.S. without fees than any other bank. And Bhatt and Tenev assured those interested the accounts would be insured and fully protected by the SIPC for up to $250,000.

Robinhood Checking and Savings is offered through Robinhood Financial LLC. Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account. The Robinhood Debit Card is issued pursuant to a license from Mastercard International, Inc.

It turned out the SIPC would not cover their Checking and Savings accounts. Rather, as they did appear and were intended to act as bank accounts, they needed to be protected under the FDIC and Robinhood needed to go through more regulatory hurdles. They pulled the announcement, removed any mention of the Checking or Saving accounts and published an apology for the misunderstanding on their blog. There has been some outcry against Robinhood for what some have seen as willful misunderstanding which cumulated in a letter to congress expressing outrage at their actions.

Cash Management account

Robinhood does plan to launch what they are calling a Cash Management account which they clarify is not a bank account. The account will be a feature on users existing accounts. It is so far unclear what their Cash Management account will be aimed at, although Robinhood COO Gretchen Howard commented on Robinhood’s plans to expand their brokerage business. They have also filed for a Federal Bank Charter.

Funding

Seed

On December 1, 2013 Robinhood completed their seed funding round with $3 million in funding from Index Ventures (lead investor), Susa Ventures, Rothenberg Ventures, QueensBridge Ventures, Local Globe, IT Ventures, Tim Draper, Kevin Moore, and Howard Lindzon.

Series A

On September 23, 2014 Robinhood completed their series A funding round with $13 million in funding from Index Ventures (lead investor), Susa Ventures, Social Leverage, Slow Ventures, LAUNCH, Snoop Dog, Nasir Jones, Lee Linden, Jordan Mendell, and Jared Leto.

Series B

On May 7, 2015 Robinhood completed their series B funding round with $50 million in funding from New Enterprise Associates (lead investor), Vaizra Investments, Susa Ventures, Social Leverage, Machine Shop Ventures, Index Ventures, Nurzhas Makishev, and Jordan Mendell.

Series C

On April 26, 2017 Robinhood completed their series C funding round with $100 million in funding from DST Global (leading investor), Thrive Capital, Thirty Five Ventures, New Enterprise Associates, Index Ventures, Greenoaks Capital, and Arrive.

Series D

On May 10, 2018 Robinhood completed their series D funding round with $363 million in funding from DST Global (lead investor), Sequoia Capital, Kleiner Perkins, ICONIQ Capital, and CapitalG.

Series E

On July 22, 2019 Robinhood completed their series E funding round with $323 million in funding from DST Global (lead investor), Thrive Capital, Sequoia Capital, and New Enterprise Associates.

Timeline

July 22, 2019

Commission-free stock trading startup Robinhood said on Monday it has raised $323 million in a new round of funding that values the company at $7.6 billion.

July 22, 2019

Robinhood raises $323 Million Series E

The round brings the valuation of the company to $7.6 billion, post-money.

DST Global led the Series E financing as a returning investor; the firm, founded by Russian tech billionaire Yuri Milner, led both Robinhood's Series C and Series D rounds.

Funding rounds

Funding round
Funding type
Funding round amount (USD)
Funding round date
Investment
Robinhood series E funding round
Series E round
323,000,000
July 22, 2019
DST Global
Robinhood (company) Series B round Funding Round 2015
Series B round
50,000,000
May 7, 2015
Jordan Mendell
Robinhood funding round, April 2017
Series C round
110,000,000
April 2017
DST Global
Robinhood (company) Series F round, July 2020
Series F round
320,000,000
July 13, 2020
TSG Consumer Partners
Robinhood funding round, October 2019
Series E round
50,000,000
October 2019
DST Global
Robinhood seed round
Robinhood Series F round May 2020
Series F round
8,300,000,000
May 2020
Sequoia Capital
Robinhood (company) Series G round, August 2020
Series G round
200,000,000
August 17, 2020
D1 Capital Partners
8 Results
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Products

Product
Description
Launch date
Website
Industry
Robinhood Crypto

Robinhood Crypto is a cryptocurrency investing product developer by Robinhood Markets Inc. to complement their investment platform for investing in companies on the U.S. public stock exchanges. Robinhood Crypto is designed to be a zero commission-free platform.

Cryptocurrency
Robinhood Gold

Market research
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People

Name
Role
LinkedIn

Baiju Bhatt

Co-Founder

Gretchen Howard

COO

Jason Warnick

CFO

Vlad Tenev

Co-Founder

Further reading

Title
Author
Link
Type
Date

DST Global leads $363m round in Robinhood, valuation soars to $5.6b

Aparajita Saxena

Web

May 10, 2018

Free stock trading app Robinhood raises $323M at $7.6B valuation

Kate Clark

Web

July 22, 2019

Robinhood App Will Offer Zero-Commission Stock Trades Thanks To $3M Seed From Index And A16Z

Josh Constine

Web

December 18, 2013

Robinhood raises $110 million for stock trading app

Kia Kokalitcheva

Web

December 15, 2017

Robinhood Raises $13M To Democratize Stock Market With Zero-Commission Trading App

Josh Constine

Web

September 23, 2014

Zero-Fee Stock Trading App Robinhood Nabs $50M From NEA To Go Global

Aparajita Saxena

Web

May 7, 2015

Documentaries, videos and podcasts

Title
Date
Link

This Is Success

Companies

Company
CEO
Location
Products/Services

News

Title
Author
Date
Publisher
Description
Walter Thompson
August 25, 2020
TechCrunch
It goes without saying that tech alone won't change deeply embedded structures, but it sure can open a lot of doors.
Gearoid Reidy and Ayaka Maki | Bloomberg
August 24, 2020
@bsindia
The stock added another 4.8% on Monday, the biggest gain since March 19, with Daiwa Securities Co.s Eiji Kinouchi citing the impact of the stocks popularity with US retail investors
AlleyWatch
August 22, 2020
AlleyWatch
The Pulse of New York Tech
Alex Wilhelm
August 17, 2020
TechCrunch
Robinhood announced this morning that it has raised $200 million more at a new, higher $11.2 billion valuation. The new capital came as a surprise. Astute observers of all things fintech will recall that Robinhood, a popular stock trading service, has raised capital multiple times this year, including an initial $280 million round at an [...]
Alex Wilhelm
August 6, 2020
TechCrunch
Robinhood's huge, two-part Series F round came partially in Q2 and partially in Q3. The app-based trading platform announced the first $280 million in early May, valuing the company at around $8.3 billion, up from a prior price tag of around $7.6 billion. Then in July, Robinhood tacked on $320 million more at the same [...]
Frank Chaparro
July 28, 2020
The Block
Robinhood will likely scale back on its aspirations for its crypto trading unit, a development that comes amid a troubled period for the firm.
Iain Withers, Anna Irrera and Tom Wilson | Reuters
July 29, 2020
@bsindia
Signs of stress among even relatively well established fintechs are starting to emerge, say analysts
Alex Wilhelm
July 25, 2020
TechCrunch
Welcome to The TechCrunch Exchange! I'm incredibly excited that this newsletter is finally in your hands. There's so much to chat about, dissect and grok. We're going to be very busy.
Steve O'Hear
July 21, 2020
TechCrunch
Robinhood, the U.S.-based stock trading app, is postponing its U.K. launch "indefinitely," more than a year and a half after the company begun executing on plans to cross the pond. It now intends to refocus its efforts on its home market. In November last year, a U.K. waitlist was opened up, garnering 250,000 signups. That's [...]
AlleyWatch
July 18, 2020
AlleyWatch
The Pulse of New York Tech
Natasha Mascarenhas
July 17, 2020
TechCrunch
The venture capital world is constantly changing, and its evolution can sometimes flip pieces of conventional wisdom on their heads. For example, a recent flurry of extension rounds from Silicon Valley's hottest startups like Stripe and Robinhood seem to signal that the investment type has suddenly become cool. Extensions evolving from unloved to hot is [...]
Samantha Hurst
July 13, 2020
Crowdfund Insider
Click HERE to find out ⭐ Robinhood Reportedly Secures Additional $320 Million Through Series F Funding Round; Brings Valuation to $8.6 Billion. | Crowdfund Insider: Global Fintech News, including Crowdfunding, Blockchain and more.
Alex Wilhelm
July 13, 2020
TechCrunch
The stakes keep getting higher for American discount brokerage Robinhood, which today disclosed that it has added hundreds of millions of dollars to its previously disclosed funding round. Including the $280 million that the company had already announced, Robinhood said that it was "pleased to share" that it "raised an additional $320 million in subsequent [...]
Nathaniel Popper
July 8, 2020
www.nytimes.com
Its users buy and sell the riskiest financial products and do so more frequently than customers at other retail brokerage firms, but their inexperience can lead to staggering losses.
Omar Faridi
July 5, 2020
Crowdfund Insider
Global Fintech funding declined during COVID-19, investors now focused on mature Fintechs like Robinhood and Stripe: report.
Natasha Mascarenhas
June 29, 2020
TechCrunch
The next iteration of fintech is upon us, according to Inspired Capital's Alexandra von Tobel. "Fintech 1.0 was very much, 'Let's take what already exists and let's do it better,'" she said in a recent appearance on Extra Crunch Live. Consumers are shifting away from Chase Bank and migrating to no-fee trading platforms like Robinhood; [...]
Eric Eldon
June 27, 2020
TechCrunch
While the US tech industry relentlessly tries to do business with the rest of the world, this week it became further embroiled in national politics. High-skill immigration visas have been suspended until the end of the year by the Trump administration, precluding thousands of present and future startup employees and founders from coming to the US and building companies here.
Alex Wilhelm
June 23, 2020
TechCrunch
For a startup valued north of $8 billion, Robinhood's investors are betting that it will quickly scale as a business, something the famous unicorn appears to be doing in recent quarters and years.
Samantha Hurst
June 20, 2020
Crowdfund Insider
Click HERE to find out ⭐ Robinhood Makes Commitments to Improve Options Offering Following Customer's Suicide. | Crowdfund Insider: Global Fintech News, including Crowdfunding, Blockchain and more.
JD Alois
June 18, 2020
Crowdfund Insider
Click HERE to find out ⭐ Going Down? Robinhood Experiences Another Period of Platform Outages. | Crowdfund Insider: Global Fintech News, including Crowdfunding, Blockchain and more.
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References

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