Robinhood Founders Are Worth Over $ 5 Billion As Fintech IPOs Pile Up

Vlad Tenev and Baiju Bhatt, co-founders of Robinhood.

Mark Neuling | CNBC

Fintech is minting billionaires per month.

Already this year, Coinbase co-founders have joined the ranks of billionaires, along with the founders of Affirm and Marqeta. For years, Silicon Valley has faced banking operators with promises of a better customer experience, but it is only now that emerging business apps, payment upstarts, and online lenders are achieving high valuations in the public market.

Now it’s Robinhood’s turn.

Vlad Tenev and Baiju Bhatt, who were roommates at Stanford nearly a decade ago, are poised to be worth about $ 2.6 billion on paper when their business app debuts on Nasdaq later this month. That’s based on the $ 40-a-share midpoint of the company’s price range listed in its updated IPO prospect on Monday.

CEO Tenev and chief creative officer Bhatt will each own 7.9% of the company’s outstanding shares, according to the document. They are also selling $ 50 million worth of stock in the offering.

It’s been a banner year for tech charts, with at least 12 companies going public through an initial public offering, direct listing, or special purpose acquisition company (SPAC) achieving a market capitalization of $ 10. billion or more. Among those companies and a few others with lower valuations, the tech industry has minted 16 billionaires in 2021.

Fintech is capturing a large chunk of the profits.

Coinbase CEO Brian Armstrong owns shares in his cryptocurrency app worth roughly $ 8.7 billion after the company’s direct listing in April. Fred Ehrsam, who co-founded the company with Armstrong in 2012, owns a $ 2.7 billion stake. Marqeta CEO Jason Gardner is worth close to $ 2 billion after taking his payment technology company public last month, while Max Levchin of Affirm owns more than $ 1.5 billion worth of stock in his online lender, which conducted its IPO in January.

Coinbase Founder and CEO Brian Armstrong attends Consensus 2019 at the Hilton Midtown on May 15, 2019 in New York City.

Steven Ferdman | fake images

SoFi, a provider of college loans, home loans, and a variety of investment and insurance products, went public through a SPAC in June and is now worth $ 12 billion. To be sure, no single holder owns a $ 1 billion stake.

That’s before diving into companies that are still private. Payments company Stripe was valued at $ 95 billion in a funding round in March, giving co-founders Patrick and John Collison a combined $ 23 billion stake, according to the Bloomberg Billionaires Index. Klarna, a Swedish payments company, is now worth $ 46 billion on the private market. Klarna CEO Sebastian Siemiatkowski has a net worth of $ 2.2 billion, according to Forbes.

The list goes on. Chime, which offers mobile phone banking, is worth $ 14.5 billion, while Plaid, which provides back-end technology that connects apps to bank accounts, is valued at $ 13 billion after Visa was forced to scrap the planned acquisition of the company.

“Our market is undergoing a sea change, with consumers who we never thought would be embracing digital finance by engaging with it in a big way,” Plaid CEO and co-founder Zach Perret told CNBC when the latest funding round was announced in April.

Robinhood said it plans to sell shares at $ 38 to $ 42 apiece before its long-awaited Nasdaq debut next week. That could value Robinhood at as much as $ 35 billion, up from a private market valuation of $ 11.7 billion in September.

Users flocked to Robinhood in the first quarter as cryptocurrency trading volumes surged and the popularity of meme stocks like GameStop and AMC Entertainment brought millions of new traders to the app. At the end of March, Robinhood had 17.7 million monthly active users, up from 11.7 million at the end of 2020.

Robinhood co-founders will retain control of voting

Tenev, 34, and Bhatt, 36, have grappled with their share of troublesome headlines this year en route to what will likely be one of the biggest IPOs of 2021.

While the increased activity was a boon to Robinhood’s revenue, the company had to stop trading GameStop and other stocks in January because the unexpected increase in volume created a liquidity crisis.

“To protect the company and protect our clients, we had to limit the purchase of these shares,” Tenev told CNBC’s Andrew Ross Sorkin after the restrictions were implemented.

Robinhood eventually raised $ 1 billion from investors to shore up its balance sheet, but the incident raised questions about the company’s business model, known as pay-per-order flow. Robinhood allows users to buy and sell for free and charges market makers like Citadel Securities or Virtu for the right to transact with clients.

The Financial Industry Regulatory Authority said in June that Robinhood will pay approximately $ 70 million in penalties for system-wide disruptions and deceptive business and communication practices. The company faces dozens of proposed class action lawsuits, as well as examinations or investigations by regulators, state attorneys general, the Securities and Exchange Commission, FINRA and the US Department of Justice.

In its initial prospectus earlier this month, Robinhood revealed that Tenev’s phone was seized by federal attorneys as part of the GameStop investigation.

Still, Robinhood’s co-founders, who are board members, are positioned to make huge profits when the company goes public and will control the vast majority of decisions from here.

Tenev and Bhatt will own all of Robinhood’s Class B shares after the offering. Those shares have 10 times more voting power than Class A shares, according to the prospectus, giving Tenev control of 26% of the voting power and control of Bhatt of 39%.

They have already cashed in tens of millions of dollars in shares.

In 2018, they each sold $ 55 million in stock to investment firm DST Global in a side transaction, and the following year the co-founders participated in a $ 67.6 million public offering available to “some of our employed shareholders,” according to the presentation.

Robinhood is a CNBC Disruptor 50 company that topped this year’s list.

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