Finance

Robinhood snags third mega-investment of the year, boosting valuation to $11.2 billion

Key Points
  • Robinhood announced its third major cash injection in just four months as its core business handles record customer trades during the pandemic. 
  • The $200 million funding round lifts its valuation to $11.2 billion from $8.6 billion.
  • The flurry of venture capital cash comes in a historic year for the U.S. stock market and a high-growth period for Robinhood and its publicly traded peers.
In this photo illustration a Robinhood Markets logo seen displayed on a smartphone.
Rafael Henrique | SOPA Images | LightRocket via Getty Images

Venture capital investors are betting big on Robinhood during this pandemic-plagued year as people stuck at home, especially younger investors, jump into trading a stock market that's experienced its fastest bear market and recovery in Wall Street history.

The trading start-up announced a $200 million, Series G funding round on Monday — its third major investment in just five months. The new cash injection boosts Robinhood's valuation to $11.2 billion, an increase of nearly $3 billion. 

The latest investment comes from a new backer, New York-based D1 Partners, just a month after Robinhood closed another late-stage round. In July, Robinhood said it was adding $320 million investment to a prior series of funding, which had been announced in April. That had boosted its valuation to $8.6 billion. D1 joins high-profile Robinhood investors such as Sequoia, Kleiner Perkins and Google's venture capital arm, GV.

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Robinhood announces $200M Series G funding round

The flurry of venture capital cash comes in a historic year for the U.S. stock market and a high-growth period for brokerage firms. Robinhood and its publicly traded peers, such as TD Ameritrade, Charles Schwab and E-Trade, have seen record customer account growth in 2020, helped by new traders' enthusiasm for retail stocks such as Tesla and Virgin Galactic. After entering a bear market in March, the S&P 500 was back within striking distance of its Feb. 19 record high this week.

Robinhood said it saw 4.3 million daily average revenue trades, or DARTs, in June, outperforming all of the publicly traded, incumbent brokers. Robinhood's DARTs in the second quarter more than doubled compared to the prior three months, according to the company. It also added 3 million new customer accounts in the beginning of 2020. 

Robinhood's revenue has surged alongside trading volume. It roughly doubled the money it makes from customer trades from the prior quarter, according to a recent SEC regulatory filing. The majority of that total came from options trading. 

This year's success has also brought growing pains. Robinhood saw multiple days of outages in March, leaving some clients unable to trade during a historic day for the markets. It attributed those, in part, to record trading volume and volatility. The start-up also made it more difficult to get access to its options offering in the wake of a customer's suicide.

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Rep. Casten: Robinhood must take action to protect inexperienced investors

Along with the trading boom, Robinhood said on Monday they are seeing evidence "people are taking time to learn more about the markets" with average unique daily visits to the company's education resources on the basics of investing up more than 250% since January. 

The Menlo Park, California-based start-up offers equity, cryptocurrency and options trading, as well as a cash management accounts. Robinhood offers most trades for free and makes money off of customer order flow and a premium, paid subscription service, but declined to say if it was profitable. Its average client age is 31.

Robinhood said the latest round of funding would go towards investing in its core product, and "customer experience."