Robinhood’s guinea pig to push public offerings: Himself

San Francisco – when Vlad Tenev And Baiju Bhatt created stock trading app robinhood In 2013, entrepreneurs announced that their mission was to democratize Wall Street and make finance accessible to all. Now as they prepare to take their company public, they are taking that ethos to a whole new extreme.

Mr. Tenev and Mr. Bhatt have long discussed how Robinhood’s initial public offering It will be more open than any other offering to come before it, three people close to the company said. This week, the two founders gave details: Robinhood plans to sell a third of its offering, or $770 million shares, to customers directly through its app. The company said anyone can participate in a special livestream of its investor presentations this Saturday.

The moves are extremely unusual and outpace the traditional IPO process. No company has offered so many shares to everyday investors in the beginning; Firms usually reserve only 1 or 2 percent of their shares for clients. And investor presentations typically take place behind closed doors, with Wall Street firms having the most access to public offerings.

But Mr. Tenev and Mr. Bhatt plan to change the way they do IPOs from at least 2019, said a person familiar with the company, who was not authorized to speak publicly. Robinhood chose Goldman Sachs to lead its offering partly because of its ability to help sell pre-IPO shares — typically reserved for professionally managed funds — to thousands of everyday investors on Robinhood’s app. So, another person involved in the offer said.

“We believe this will be the first IPO for many of you to participate in,” Mr. Tenev, 34, and Mr. Bhatt, 36, wrote in Robinhood. brochure offer. He added that he wants to put clients on an “equal level” with large institutional investors.

But the risks of opening an IPO are significant. Robinhood faces the technical challenges of ensuring that orders for pre-IPO shares are processed smoothly and accurately with multiple investors. And while large professional funds maintain the stock they buy in an IPO, there’s little to stop everyday investors from immediately dumping Robinhood’s shares.

Robinhood is also letting its employees sell up to 15 percent of their shares immediately after their listing, instead of having to wait the traditional six months. This can add to volatile trading.

The company’s app includes a standard industry warning against “flipping” shares within 30 days, saying it could prevent flippers from buying them in future IPOs. Robinhood’s bankers also expect early trading to follow other offerings. would be more volatile in comparison, said a person involved in the process.

If the offering is successful, it would validate the mission of Mr. Tenev and Mr. Bhatt and potentially change the way hot companies go public. It could also help Robinhood burnish its reputation after a rocky year of tech outages, user protests, lawsuits, regulatory scrutiny and fines.

“The company is taking a huge risk,” said RA Farokhaniya, professor of business economics at Columbia Business School. “If it works out, it will be a resounding victory. If it goes bad it will be a black mark.”

Robinhood declined to make its executives available for interviews, citing rules for a quiet period prior to their listing. After initially pricing your shares $38 to $42 each, which has valued Robinhood at around $35 billion, is expected to set a final price next Wednesday and begin trading a day later.

Companies and their advisors are cautious about selling a large part of their IPO shares to retail investors. Bankers said any technical issue could invite regulatory scrutiny and investor litigation.

In 2006, phone service provider Vonage tried to sell shares in its IPO to its clients but a technical glitch left it unclear to buyers whether their trading was gone until days later, when the stock fell. Customers sued Vonage, and regulators fined the banks running the offering.

BATS Global Markets, a stock exchange, tried to go public on its own exchange in 2012, but experienced “technical issues“Had to pull the deal more on the day of its offer. Facebook’s 2012 debut”flopFollowing similar glitches in a new trading system.

Still, Mr. Tenev and Mr. Bhatt see a more open IPO as core to Robinhood’s ethos. His app has attracted millions of new investors world of stock trading, and the company has repeatedly pushed boundaries with new products, often treading in hot water with regulators.

This year, Robinhood introduced IPO Access, a product that publicly allows companies to sell pre-IPO shares directly to customers. In this way, people can make money on the stock price “pop” that often occurs on the first day of trading for the company.

One company Robinhood approached this year to allocate part of its public offering to everyday investors was Figs, a medical scrub company, its chief executive, Heather Hassan, said. Figgs eventually offered 1 percent of its offering to retail investors to “empower” health care providers who buy their apparel, Ms Hassan said.

“Our community is our brand, and our brand is our community,” she said.

But with such a small allocation, banks like Goldman Sachs were concerned about potential technical issues and injury to retail investors, said a person with knowledge of the offering. This was the first time Robinhood’s app had hosted such a deal. Fig stock has risen nearly 30 percent since its offering in May.

Robinhood’s offering is unlikely to be easily emulated because the company is unique in its size and awareness among retail investors — and in the business of promoting retail, said Josh Bonney, who at the law firm Simpson Thatcher & Bartlett. Helps to lead the capital market.

“I think they’re positioned differently than most companies pursuing IPOs,” he said.

Robinhood’s debut may have an added layer of unpredictability as its customers have shown they are willing to band together on social media to fight perceived enemies. The company alienated some of them when it stopped trading during January’s “meme stock” rally, when traders gathered on the Reddit platform sent stocks of some companies like Gamestop on a roller-coaster ride.

Investors who lost money during the trading halving were outraged – including Muhammad Hamza, a recent college graduate in Queens. He joined Robinhood in November and saw his investments in penny stocks and meme stocks balloon, then fall by nearly half during the halving in January. He said he felt cheated.

“I don’t know how to deal with it,” said 22-year-old Mr. Hamza. He now uses WeBull, a competing service, and doesn’t plan to buy into Robinhood’s IPO, instead saying he was considering shorting Robinhood stock, or betting that it would be listed. After that the price will fall.

His friends in online communities are plotting similar moves, he said, although some may not give up on the easy-to-use app. Despite the backlash, Robinhood added five million users in the past year and quadrupled its quarterly revenue.

“Many people are against Robinhood,” said Mr. Hamza, “but they still use Robinhood.”

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