With an estimated Assets Under Management (AUM) of $20 billion, Robinhood Markets, Inc. is one of the best startups that have ever happened in the history of the American economy. Based out of Menlo Park, California, Robinhood is a US-based financial services firm. As of 2020, there are 13 million active users of Robinhood. Here’s how they did it.
How it all started
Robinhood Markets, Inc. provides specialized services on commission-free buying and selling of stocks and ETFs via a mobile app launched in 2015. Vladimir Tenev, a Bulgarian-American billionaire business tycoon, and Baiju Prafulkumar Bhatt, an Indian-American billionaire business magnate founded it on April 7, 2013.
Robinhood is a broker-dealer regulated by FINRA (the Financial Industry Regulatory Authority) and it is also listed with the US SEC (Securities and Exchange Commission). The company earns from three principal sources:
- Interest netted on the cash balances of customers
- Selling order details to high-volume traders
- Margin lending
Robinhood is also a listed member of the SIPC (Securities Investor Protection Corporation). As of 2020, it has 1281 employees.
The startup has become quite famous after bagging 13 million users within a short period.
How Robinhood Markets, Inc. Achieved It
Set up in April 2013, the goal of Robinhood since the time of its inception has been to “provide everyone with access to the financial markets, not just the wealthy”. Bhatt and Tenev had earlier developed high-volume trading platforms for financial services companies in New York. Vladimir observed that carrying out a deal incurs brokerage firms “fractions of a penny”. However, they usually billed payments of $5-10 for each transaction together with necessary account minimums of $500-5000.
Robinhood first demonstrated its mobile application to the general public at LA Hacks, a student-organized hackathon held at the Pauley Pavilion of the University of California, Los Angeles (UCLA). It takes place every year. Besides, Robinhood featured the app on AppStore in December 2014.
Subsequently, the formal launch of the app materialized in March 2015.
As of Jan 2015, approximately 80% of the clientele of Robinhood are part of the Generation Y demographics or Millenials and the mean age of their customers is 26. Almost half of their customers who have transacted at least one deal utilize their app on an every-day basis and 90% of the customers utilize the app weekly. Within just seven years, the stockbroking and electronic trading firm has achieved 13 million active users.
Robinhood was able to collect $110 million in April 2017 at an estimation of $1.3 billion spearheaded by Greenoaks Capital, Thrive Capital, and Yuri Milner of DST Global.
On 10th May 2018, Robinhood sealed a deal of a Series D $363 million funding bout spearheaded by DST Global. As of May 2018, the gross amount gathered by Robinhood in terms of venture capital financing was $539 million and the final estimation was $5.6 billion, higher than the earlier estimation of $1.3 billion.
The firm proclaimed in February 2018 that their headquarters were going to be shifted to the earlier head offices of the Sunset Magazine in Menlo Park, California.
There was public coverage from Bloomberg and other news channels in May 2019 about the quest of Robinhood of a surplus of $200 million in the financing, which could set the valuation of the firm in the $7-10 billion range. The official declaration of its growth to the United Kingdom came in November 2019.
When the 2020 stock market crash took place, the transaction volume of Robinhood went up. The ensuing market surge was in part accredited to the dealers of the firm. However, research showed that Robinhood dealers had minimal influence on the principal stocks on an everyday basis.
There was a declaration in May 2020 that Robinhood via venture capital financing had collected $280 million at a pre-cash estimation of $8.3 billion spearheaded by Sequoia Capital. After three months, on August 17, 2020, the firm reported a Series G financing bout of $200 million from D1 Capital Partners, a fresh capitalist (investor).
What was the secret behind the success of Robinhood Markets, Inc.?
Both the co-founders, Vladimir and Baiju were classmates at Stanford University. The story of Robinhood started there. Completing their graduation, Baiju and Vlad packed their bags and left for New York City. They sold their personal stock trading software for hedging funds. Subsequently, they found out that prominent Wall Street agencies were paying peanuts against buying and selling stocks. At the same time, the majority of US investors were asked to pay a commission for every single deal. Therefore, Baiju and Vlad became determined to amend that. They went back to California for creating a financial product that would allow every investor, not only the affluent but also the middle-class people, to get accessibility to the financial markets.
“We’re on a mission to democratize finance for all.”
Both the Co-CEOs at Robinhood had the conviction that the financial infrastructure should be workable for everybody. That’s the reason why they tailored products that let people begin investing at their convenience and according to their terms and conditions.
They have a segment called Robinhood Snacks on their official website where investors can get all the latest news about the financial markets innovatively.
Commission-free trading, along with the user-friendly investment tools the investors require to get their funds moving, is their USP. Once they register, they will receive their first stock complimentarily. Obviously, there are certain terms and conditions.
Salient benefits offered by Robinhood to its investors are as follows:
They launched fractional shares where you will have the opportunity to make investments in thousands of stocks with a minimum of $1.
1) Investors can invest any amount
They can pick how much they wish to invest, and the firm switches from dollars to fragment of an entire share.
2) Develop a balanced portfolio
Investors can tailor their portfolios with segments of various assets and companies to aid in cutting down volatilities.
3) Real-time transactions
Deals put during market hours are implemented at that moment. Therefore, investors constantly get information about the stock price.
4) Learn as you flourish
The sole objective of Robinhood is to make investments in financial markets more inexpensive, more natural, and more exciting, regardless of the years of experience people have (or don’t have).
5) Handling portfolio
Robinhood always helps investors keep tabs on their portfolios. They will offer all that is required to handle their assets in an exclusive app.
6) Keep an eye on your funds
Investors have the option to install tailor-made notifications and news updates to remain on top of their investments as informally or as uncompromisingly as they prefer. Handling the flow of data is up to the investors.
Besides, they have a steadfast dedication towards preserving the best possible security standards. They compensate for 100% of direct losses as a result of illegitimate actions in the investor’s accounts.
Controversies
Of late, there were some controversies related to the operations of Robinhood. The firm sells order details to high-volume dealers, an exercise for which the Securities and Exchange Commission started a probe into the firm in September 2020. Barring these controversies, Robinhood has been grossly compliant with the prevailing investment rules and regulations in the US.
