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Summary
- Robinhood has raised funding to support the growing customer base.
- The investors are confident about the online trading app's growth and future and opine it gives a better trading platform than the American finance system.
Online trading app Robinhood had an exceptional run during the pandemic as it experienced exponential growth last year. To invest in its growing customer base, the fintech company raised USD 3.4 billion through a private placement. The funding comes in 2 tranches. The company stated it would invest the raised capital to build and enhance the products, providing more people with financial system access.
Image source: Shutterstock
Robinhood started with the aim to democratise finance and make investment accessible to all instead of keeping it confined to a few elites. Its interface and appeal are to attract young traders, mostly first-time investors.
Robinhood has been, of late, enjoying a soaring popularity as more and more users are downloading the application. The app had a field day on 29 January 2021, when it witnessed a whopping 600,000 downloads, leading to a meteoric growth in its user base. To meet this growing demand and support the increasing client base, Robinhood needs more money.
The idea of democratising trading has been embraced by youngsters, which is evident from the app's growing popularity.
The addition of new users has not stopped even after the company found itself in choppy waters last week.
Also read: The rise of Robinhood in 2020 amid controversies
Investors show confidence in Robinhood
The funding round was led by Ribbit Capital, along with the participation of the existing investors including NEA Sequoia, Index Ventures, ICONIQ Capital, and Andreessen Horowitz.
The company maintains that the funding shows investors' confidence in the app, and it is planning to invest more in expanding access to financial literacy.
While supporting Robinhood's platform, Micky Malka, Managing Partner, Ribbit Capital highlighted that the fintech startup had helped many people access trading, especially the ones who could not carry out trading in the traditional American financial system. The company would come out stronger from this phase of unprecedented demand, he added.
Is Robinhood risky for its users?
The company rewards frequent and risky trading and feeds the market demand for easy investment for wealth creation, especially during a pandemic. While the company is claiming to make trading easy and accessible, it is facing several severe allegations against it. The app is commission-free coupled with a game-like interface that attracts the users and encourages them to participate more in the trading. However, the app can prove to be a trap for the novice users, who do not know the financial risks they are exposed to.
Another allegation against the company is that it is making money by selling the clients' trade to the third party. Robinhood has never been very transparent about its source of income, but the SEC lawsuit says it is getting paid for order flow.
Despite these allegations, the app continues to be downloaded and used by many. Market experts are keeping an eye on how it will steer clear of these allegations to continue its success.
Robinhood has also raised an additional line of credit request for US$1 billion as the US stock brokerage app finds itself wrestling amid the Reddit-powered trading mania.
Do Check: Robinhood Rally Under the Spotlight; All that You Need to Know!
