Business

Robinhood, Under the Gun, Raises $2.4 Billion

Robinhood, the trading app at the center of a frenzy over GameStop and other stocks, raised $2.4 billion from its investors over the weekend, adding to the $1 billion cash infusion it took last week as it tries to steady its finances.

The extraordinarily high volume of trading by amateur investors in recent days, many egged on by social media and determined to challenge Wall Street hedge funds, had put a strain on Robinhood’s balance sheet. As an online brokerage firm, the company is required to keep a certain cash cushion to insulate against potential losses, and the required cushion can grow quickly when trading volume and volatility are spiking.

“This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform,” Robinhood’s chief financial officer, Jason Warnick, said in a post on the company’s website on Monday. The investment was led by Ribbit Capital, a venture capital firm, and included other existing investors including Sequoia Capital, Robinhood said.

The $3.4 billion that Robinhood raised over the last five days — more than it has raised in its eight years of existence — was more than it needed to stabilize its operations, according to a person close to the company, who called it “a buffer to a buffer to a buffer.” Over the past year, Robinhood has raised $1.3 billion from venture capital investors, raising its market value to $12 billion. The company intends to go public this year, two people close to the company said.

Although the cash infusion by investors will ease Robinhood’s financial stress for now, going public would give it access to more sources of capital to make its finances durable, one of the people said. Privately held companies don’t have access to the same funding markets that public companies do.

Robinhood’s sudden and enormous need for cash came about on Thursday, a day after an online battalion of small investors — many who congregate on the WallStreetBets forum on Reddit — drove the price of GameStop shares up 135 percent. These investors had targeted shares of the troubled video game retailer, determined to drive up its price to put the squeeze on hedge funds that had “shorted” GameStop, betting that the shares would fall because the company’s future was grim. Robinhood customers also pushed up the share prices of some other stocks that hedge funds had shorted.

GameStop vs. Wall Street

Let Us Help You Understand

    • Shares in GameStop, the video game retailer, have soared because amateur investors, starting on Reddit, have bet heavily on shares of the company.
    • The wave gained momentum in response to large hedge funds short selling GameStop stock — basically they were betting against the company’s success.
    • The sudden demand has driven up the share price from less than $20 in December to around $300 on Monday. On paper, anyway.
    • It’s not just GameStop. Amateur investors have backed other companies that many big investors had shunned, such as AMC and BlackBerry.
    • This bubble around GameStop forced big investors to raise money to cover their losses, or dump shares of other companies.

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