Robinhood reportedly raises $1bn from its investors

The investors will receive additional equity in the company that plans to go public later this year, report says

Robinhood's existing investors, including venture capital firms Sequoia Capital and Ribbit Capital, will provide emergency funding. AFP

Trading platform Robinhood Markets is raising an infusion of more than $1 billion from its existing investors, having been strained by high volumes of trading this week, according to a New York Times report on Friday.

The company contacted its investors, including venture capital firms Sequoia Capital and Ribbit Capital, who then came together on Thursday night to offer the emergency funding, the report said, citing people involved in the negotiations.

Investors who provide new financing to Robinhood will receive additional equity in the company, it added.

These investors will get that equity at a discounted valuation tied to the price of Robinhood shares when the company goes public. Robinhood plans to hold an initial public offering later this year, the report said.

Bloomberg had earlier reported that Robinhood has drawn down some of its credit lines with banks, tapping at least several hundred million dollars from lenders including JPMorgan Chase and Goldman Sachs.

The Silicon Valley venture, with the wildly popular no-fee trading app, has come to a crossroads. It reined in the risk to itself by banning certain trades and unwinding client bets - igniting an outcry from customers and even the US political leaders.

“Look, it is not negotiable for us to comply with our financial requirements and our clearinghouse deposits,” Robinhood chief executive Vladimir Tenev said while defending his firm’s decisions. “We have to do that.”

The capital injection is “a strong sign of confidence from investors that will help us continue to further serve our customers,” a Robinhood spokesperson said in an emailed statement. The money will allow the firm to “continue to invest in record growth”.

Robinhood said after markets closed that it plans to allow “limited buys” to resume in affected securities. It also tried to assuage customer concerns with an email that said, “this was a temporary decision made to best continue serving you, and was not an easy one to make”.

(With inputs from Bloomberg)