Robinhood raises $280m Series F round on the back of a tumultuous year

Stock trading app Robinhood has secured $280m in new funding after a year mired by service outages, software bugs and cancelled banking plans.

The new Series F round sees Robinhood achieve a valuation of $8.3bn. It aims to use the money to scale the platform, build new products and expand its operations by sourcing more talent to join its team.

Existing investor Sequoia Capital led the round. “Robinhood has made the financial markets accessible to the masses and, in turn, revolutionised the decades-old brokerage industry,” said Andrew Reed, partner at Sequoia. “We’re excited to further our relationship with Robinhood, which we believe is at the beginning of its opportunity.” The venture capital firm has previously backed companies like Razorpay, LianLian Pay and Whatfix.

The Series F round was also supported by a smattering of existing and new backers, including NEA, Ribbit Capital, 9Yards Capital and Unusual Ventures.

Robinhood was founded in 2013 and has continued to grow since, boasting having over ten million customers by the end of 2019. So far in 2020 alone, the company has added over three million funded accounts to its userbase. “Amid challenging times and market volatility, we’re humbled that people are turning to Robinhood to participate in the markets and build their financial future,” said Robinhood in a statement.

This is Robinhood’s second investment round in less than a year. The company raised a $323m Series E round in July 2019 at a $7.6bn valuation.

However, the new Series F round also comes after a year of setbacks for the Menlo Park-headquartered FinTech unicorn.

The most recent issues happened in March this year. As markets were sent into a tailspin, many of its users found themselves locked out of their Robinhood accounts, unable to trade. This caused outrage among the users, with some of them calling for a class action lawsuit against Robinhood, although several experts said such a suit was unlikely to succeed.

Co-CEOs Baiju Bhatt and Vladimir Tenev publicly apologised for the problems people had had, blaming it on a system overload caused by “highly volatile and historic market conditions, record volume and record account sign-ups.”

It didn’t help that history repeated itself one week later with another service outage, with several users again being unable to access the services and saying they’d swear of from using Robinhood again.

However, the weren’t Robinhood’s first gaffes. Another tech issue arose in July last year when Robinhood revealed that it had stored users’ password in plaintext on its servers. Usually, this type of information is left encrypted for maximum security in case of a hack attack. When Robinhood contacted affected users, it told them that there was no signs of any outsiders having accessed the passwords, but still advised users to update their details.

The digital setbacks continued in November when people used a glitch in the software to tap into unlimited investment money. The bug was shared on social media platform Reddit. The so-called “infinite money cheat code” enabled traders to borrow money through the Robinhood Gold service, which was then added to their capital. That essentially meant that they could borrow money to be able to borrow more money.

While Robinhood was quick to update the software to remove the bug and banned users who participated in using it, the glitch was not just massively embarrassing, but it also reportedly attracted regulatory scrutiny.

In November, Robinhood withdrew its application to open a bank charter from the US Office of the Comptroller of the Currency. The tech venture had submitted its application to open a federally insured bank in April 2019.

About a month before rolling back its banking plans, Robinhood did, however, launch a new cash management tool. The new accounts were insured by the federal government and giving users more freedom in how they use their money – enabling them to invest, spend and earn interest.

The new service was the company’s second attempt. In 2018, it had made a first bungled attempt to launch what it referred to as a checking and savings account with a 3% interest rate. The problem was that Robinhood had not been approved by the regulators to launch such a service, with the CEO of the Securities Investor Protection Corporation warning that it would not insure the accounts Robinhood planned to offer. As a consequence, Robinhood rolled back the service.

In December, FINRA slammed Robinhood with a $1.25m fine for best execution violations related to its customers’ equity orders and related supervisory failures that spanned from October 2016 to November 2017.

Copyright © 2020 FinTech Global

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