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The amount that Robinhood raised far exceeds any money the company has made since its inception in 2013.
Robinhood Markets Inc has raised $2.4B from investors in just four days. The Menlo Park, Calif.-based online broker raised an initial $1B last week. The platform was under pressure last week from high trading volumes caused by the surge of trading by retail investors in stocks like GameStop Corp (NYSE GME) and AMC Entertainment Holdings Inc (NYSE: AMC).
Robinhood turned to investors for additional cash to aid in paying clients owed money from trades and posting cash to its clearinghouse – The Depository Trust and Clearing Corporation – to protect its trading partners from potential losses.
Brokers are, by law, expected to meet certain deposit requirements by clearinghouses. Last week’s trade frenzy resulted in a high trading volume that necessitated Robinhood put a short-term limit on access to 13 equities. The company also had to draw on a line of credit of about half a billion US dollars.
It was reported on Monday that the broker had managed to raise a further $2.4B bringing the total to $3.4B. This is an amount that far exceeds any money the company has made since its 2013 inception. In a February 1 statement, the company asserts that the investment is a testament to the confidence investors have in Robinhood. Part of the funding is also expected to be used in intensifying the platform’s financial literacy programs. The company wrote:
“This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we’ve seen this year. We’re witnessing a movement of everyday people taking control of their own financial futures, many investing for the first time through Robinhood. With this funding, we’ll build and enhance our products that give more people access to the financial system”
The financing was led by long-term Robinhood investor Ribbit Capital and backed by other investors like Iconiq Capital, Andreessen Horowitz, Sequoia Capital, Index Ventures and New Enterprise Associates.
In a clubhouse session with Tesla CEO Elon Musk, Robinhood co-founder Vlad Tenev insisted that the move to limit trading was for the protection of the platform and its users. He stated that the company had no choice but “to conform to our regulatory capital requirements.”
He revealed that on Thursday morning, his them received a request from the National Securities Clearing Corp for a $3B security deposit to back trades. The amount was later negotiated to $1.4B but the company still had to limit trades.
As to whether there would be further limits in the future, Tenev replied that “there’s always going to be some theoretical limit. We don’t have infinite capital”.
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