SPAC fundraising is up an insane 2,000% from a year ago


The controversy swirling round Robinhood is a textbook instance of the kind of consideration startups search to keep away from earlier than launching an IPO. But the market is so scorching that it might not matter and Robinhood seems to be forging forward with what might be one of many highest profile IPOs of the yr.

“You would be negligent not to take the company public now,” David Weild, the previous vice chairman at Nasdaq, informed NCS Business. “This is one of the greatest markets of all time. That stuff doesn’t hang around long. So, full steam ahead.”

SPAC fundraising is up an insane 2,000% from a year agoSPAC fundraising is up an insane 2,000% from a year ago
The willpower to go ahead with the IPO highlights Robinhood’s surging consumer development — and the increase on Wall Street that is enticing a parade of companies to go public.

Best begin to a yr for IPOs ever

The SPAC market is getting a lot of the eye lately due to its insane growth and the doorway of celebrities into the sector. US-listed SPACs have raised about 2,000% extra money this yr than on the similar level final yr, in accordance to Dealogic.

But old style IPOs are on fireplace, too. US-listed conventional IPOs have raised $34.9 billion to this point in 2021, practically 5 occasions what they raised by means of the identical interval final yr, Dealogic reviews. That’s the best for this level of any yr since 1995.

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The common first-day pop for US-listed IPOs is 44%, the best for the reason that dotcom bubble in 2000, in accordance to Dealogic. Over the previous six months main corporations together with Coupang, Bumble, Snowflake, Airbnb and DoorDash all have surged of their first day of buying and selling.

In quick, the market is welcoming high-growth corporations with open arms. And traders are unlikely to be scared by Robinhood’s baggage — particularly in this interval of rock-bottom rates of interest.

“What are the alternatives? There is massive liquidity in the market,” stated Weild, who is now the CEO of funding financial institution Weild & Co.

Valuation haircut for Robinhood?

Some of Robinhood’s rivals are additionally going public.

Fast-growing brokerage eToro announced this week a $10 billion merger with a SPAC, sending the blank-check firm’s inventory surging. And final month, cryptocurrency alternate Coinbase officially filed to go public as effectively. (In addition to shares and choices, Robinhood customers should purchase and promote bitcoin and different cryptocurrencies.)
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“The Robinhood IPO process is underway,” Kathleen Smith, principal at Renaissance Capital, wrote in an e mail.

Smith, whose agency runs an ETF targeted solely on the US IPO market, predicted “strong interest” amongst traders and an in the end “successful IPO” for Robinhood. But she warned that obstacles, together with regulatory scrutiny over Robinhood’s enterprise mannequin, “may cause investors to put a haircut on its valuation.”

Robinhood has reportedly chosen funding bankers to run its IPO and tapped the Nasdaq as its listing exchange. It’s not clear if Robinhood will go for a standard IPO or a direct itemizing. But the corporate could not obtain the identical lofty valuation it had hoped for earlier than the GameStop controversy. Both Robinhood and Nasdaq declined to remark.
The saga drew consideration to the controversial means Robinhood makes cash with out charging up-front commissions: fee for order circulation. Robinhood will get most of its income by routing orders to market makers comparable to Citadel Securities — a follow Robinhood CEO Vlad Tenev repeatedly defended at a Congressional hearing last month.
Robinhood is additionally being sued by the parents of a college student who died by suicide final summer time after he noticed a destructive stability of $730,000 in his buying and selling account and mistakenly believed that was the sum of cash he owed.

In truth, the destructive stability would have been erased by the train and settlement of choices he held, the lawsuit stated. Robinhood stated it was “devastated” by the suicide and that it has made a collection of enhancements to its platform, together with stay voice help for some clients and offering further steering.

Booming consumer development could trump PR nightmares

Still, traders are possible to be impressed by how quickly Robinhood is rising — regardless of, or even perhaps due to — the corporate’s controversies. Its zero-commission enterprise mannequin remodeled the web buying and selling trade, forcing established rivals comparable to TD Ameritrade and Charles Schwab to observe go well with and search merger companions to survive.

“I don’t think the market will punish [Robinhood]. Their growth is strong. Their business model is strong,” stated Robert Le, fintech analyst at PitchBook. “Even in January, with customers angry, they still had over 1 million customers sign up.”

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Robinhood has beefed up its government ranks over the previous yr by hiring former SEC commissioner Dan Gallagher to lead its authorized crew in addition to former compliance executives from Fidelity and Wells Fargo.
And the corporate introduced this week the hiring a Google executive as its first chief product officer. That transfer might assist the agency make the case that it’s not a one-trick pony, however a diversified fintech juggernaut.

“Robinhood has the potential to be a much larger financial institution than some discount brokerages of the past,” Le stated, including that it has the model recognition to push into new areas together with checking accounts, retirement merchandise and credit score.

“They won’t end up like E*Trade: a slow-growing brokerage comfortable in their space that just chugged along after their IPO,” Le stated. “I don’t see Robinhood going that route.”

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