Robinhood invites amateur traders to invest in its IPO

Latest salvo in company's war against hedge funds as it reserves 35% of shares for app users

Robinhood is aiming for a valuation of as much as $35 billion when it goes public. AFP

Robinhood reshaped how small-time traders buy and sell stocks in January this year when it caused Gamestop shares to surge after the US videgames retailer was shorted by Wall Street hedge funds.

Now, the maverick free-trading platform is trying to entice the same traders to invest in companies going public - including itself.

Robinhood made its case to investors of all kinds in a live-streamed presentation on Saturday. Although this type of event, called a roadshow, is typically limited to hedge funds and other institutions ahead of an initial public offering, Robinhood took the unusual step of making its presentation available for anyone to watch.

It’s the latest way in which Robinhood is defying conventions as it advances toward a public debut not quite like any other.

The company is reserving as much as 35 per cent of its shares for traders from its own app, who would ordinarily have to wait until they start trading on an exchange to buy them - potentially at a higher price than the current target range of $38 to $42.

Robinhood is expected to start trading on the Nasdaq Stock Market on July 29, according to Bloomberg sources.

”We anticipate this will be one of the largest retail allocations ever,” said Vlad Tenev, Robinhood’s chief executive officer, seated together on a white sofa with the company’s leadership team as they responded to customer questions on its business model and how it plans to grow. “This is a very special moment and we’re humbled.”

Mr Tenev added that Robinhood was open to the idea of offering retirement accounts like IRAs and Roth IRAs.

“We want to make first-time investors into long-term investors,” he said.

If a ban or other limitations on it were to be imposed, we believe Robinhood and the industry would adapt

Jason Warnick,
Robinhood CFO

Jason Warnick, the company’s chief financial officer, addressed payment for order flow - a practice in which brokerages send customer orders to trading firms like Citadel Securities to be carried out, and receive payments in return.

Robinhood earns the majority of its revenue from such payments, which are common but controversial as it’s led to questions about conflicts of interest.

“If a ban or other limitations on it were to be imposed, we believe Robinhood and the industry would adapt,” Mr Warnick said.

Robinhood’s debut will put its investor-centric messaging of “democratising finance” to the test.

If shares soar, it would enrich its traders and generate goodwill after repeated run-ins with regulators. Anything short of that could be another headache for a firm that convinced young investors to jump into stock trading.

As it stands, the Menlo Park, California-based brokerage is striving for a valuation as high as $35 billion. The company is seeking to raise about $2 billion and will trade under the ticker HOOD.