Robinhood's path to public listing
Eight years ago, Jan Hammer heard about a new app that wanted to let anyone buy and sell stocks without fees. At the time, though, Robinhood Markets Inc. was mainly just a business where people could trade stock tips. Hammer, a partner at the venture capital firm Index Ventures, saw the potential and set up a Google Hangouts video meeting with the founders. He wrote them a check for US$500,000.
That investment, and the others that soon followed from Index, was the foundation for a stake now worth more than US$3 billion, with Robinhood set to start trading Thursday on the Nasdaq.
Around the time of Hammer’s initial outreach, a young investment partner at Google Ventures named Blake Byers met with the guys behind Robinhood and told his more senior colleagues about them. Top brass at the Alphabet Inc. division, now known as GV, liked the startup’s idea and put in about US$250,000. Today, that stake is worth more than US$140 million.
Robinhood has created outstanding returns for many venture firms. Index is the largest, and other big investors include NEA, Ribbit Capital and Yuri Milner’s DST Global. The latter three firms hold stakes worth a combined US$7.4 billion after the initial public offering.
GV could have been on that list if it had invested at the same pace as the others (though it’s hard to get mad about a US$140 million profit). Wesley Chan, a partner at GV, had championed the early Robinhood investment but departed shortly after, leaving the startup without a firm believer among the remaining partners, said a person familiar with the situation who asked not to be identified because the details are private. Alphabet got another piece in 2018 through a separate investment arm, Capital G, but by then, Robinhood’s valuation was more than US$7 billion.
Andreessen Horowitz was another early investor that skipped some intermediate rounds. A spokeswoman for Andreessen Horowitz referred a request for comment to blog posts about two late-stage rounds listing the firm as an investor.
None of the seed backers had any idea what a phenomenon Robinhood would become, said Kittu Kolluri, a former board member at the startup who led a 2015 financing for Robinhood on behalf of NEA. “That was a spray-and-pray kind of round,” said Kolluri, now a founder of Neotribe Ventures.
Hammer had introduced Kolluri to Robinhood founders Vladimir Tenev and Baiju Bhatt. Kolluri and the entrepreneurs chatted about the business on a walk around the campus of Stanford University. Kolluri’s belief in the company grew deeper after he spoke to the former CEO of E*Trade Financial and learned how lucrative retail brokerages were, even without commissions.
In blog posts and talks, Hammer has explained how his time working at General Atlantic, a backer of E*Trade in the 1990s, gave him confidence in a no-fee brokerage. He learned they could tap many other revenue sources. For example, Robinhood has generated substantial revenue by selling trading data and routing orders to Wall Street market maker firms, a practice that got the company into some trouble in the past.
So after the seed investment, Hammer urged Index to take the lead position in Robinhood’s next round in 2014. Index kept piling in more capital as the company grew. Those bets, in the end, are what separated a great investment, like the one GV made, from a colossal one.