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Robinhood forced to raise USD 1 bln from investors

Friday 29 January 2021 11:57 CET | News

The no-fee trading app Robinhood has been strained by the high volume of trading in stocks such as GameStop, prompting the company to seek additional funding.

As a result, Robinhood is raising an infusion of more than USD 1 billion from its existing investors. The firm has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.

Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between USD 500 million and USD 600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.

Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading. Robinhood, which is privately held, contacted several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, who came together on 28 January 2021 to offer the emergency funding.

Investors who provide new financing to Robinhood will receive additional equity in the company. The 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 in 2021.


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Keywords: Robinhood, trading, funding, investment, stocks, GameStop, banks, line of credit, equity, public offering
Categories: Banking & Fintech | Payments General
Countries: World
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