Faced with an onslaught of demands on its cash amidst stock market turmoil, online trading app Robinhood said Thursday it is raising more than 1 1 billion in revenue from its existing investors.
Robinhood, one of the largest Rob online brokerages, has suffered from an unusually high volume of trading this week as individual investors have flocked to stocks such as Game Stop. That activity has put a strain on Robinhood, which owes customers money from the trade when they post extra cash at its clearing facility to protect its trading partners from potential losses.
On Thursday, Robinhood was forced to stop customers from buying as many stocks as the heavily traded Game Stop this week. To continue operating, it has led a line of credit from six banks between 500 million and nding 600 million to meet the needs of its central clearing facility for stock trading, known as banks, or depository trusts and clearing corporations.
Robinhood still needs more cash to make sure he doesn’t put more limits on consumer trading, said two people who provided information about the situation who insisted on remaining anonymous because negotiations were secret.
Rob Binethood had privately approached several investors, including venture capital companies Sequoia Capital and Rebit Capital, who had gathered on Thursday night to offer emergency funding.
“This is a strong sign of investor confidence that will help us serve our customers better,” Robinhood spokesman Josh Drobneck said in an email. Sequoia and Ribit declined to comment.
Investors who provide new financing to Robinhood will receive additional equity in the company. Investors will get that equity at a closed discount valuation with the Robinhood share price when the company goes public, the two said. Robinhood plans to hold an early public takeoff later this year, the two said, citing plans.
Robinhood’s crisis-raising fund is a recent indication of how the stock market has traded up this week.
An army of investors on a mission to challenge Wall Street’s dominance quickly bids on stock prices, such as gas stops, in which large money hedge funds bet on stocks. Some of these individual investors have made huge profits, while at least one large hedge fund had to post bail after facing heavy losses.
Robinhood, located in Silicon Valley, is key to empowering online investors. Acceptance of the app has led to an increase in epidemics as the stock market booms and people start day trading in the zero of other entertainment. The company has attracted millions of young investors who have never traded before by offering no-fee trading, and critics say buying the shares feels like a game online game.
Without a fee, Robinhood makes money by trading clients at large brokerage firms such as Citadel, which pays Robinhood for the opportunity to fulfill its client’s transaction fulfillment order.
In May, Robinhood said it had 130 million users. This week, it became the most downloaded free app in Apple’s App Store, according to data provider TopPotia.
Critics have accused the company of encouraging people to gamble on stock market movements and risking big losses. T. Brokerages including Row Price, Schwab and Fidelity have emulated Robinhood by reducing their trading fees from zero. Many of them were also affected by the trade crush this week.
Robinhood had no trouble raising money last year, drawing હતા 1.3 billion in venture capital backing and valued it at about 12 12 billion. Its other investors include venture capital firm DST Capital, New Enterprise Associates, Index Ventures and Anderson Horowitz.
Yet the company has faced a number of issues, including fines from regulators who mislead consumers. Last March, after its app went down and left customers trapped and with huge losses, it raised more money, which is still an ongoing case.
By Hedge Funds In recent weeks, many investors have used Robinhood to make bets for online investors who have slashed the prices of Gamestop, AMC Entertainment and other stocks drastically – or bet on it – through hedge funds. That changed on Thursday after the company cut consumer trading in the most popular stocks.
“As a brokerage firm, we have a lot of financial needs,” Robinhood said in a blog post on Thursday. “Some of these requirements fluctuate depending on the volatility in the markets and may be significant in the current environment.”
In protest, hundreds of thousands of users joined the campaign to give Robinhood’s app the lowest one-star review and lower the company’s rating. Some investors sued Robinhood after the company cut off trading in some stocks, and many lawmakers urged regulators to investigate the company further.
