The Robinhood IPO Platform — Disruption 2.0 or Same Old Game?

On Thursday, March 25th, Reuters reported that Robinhood is building an IPO platform and plans to offer its customers IPO access.

The first IPO will be its own — the Robinhood IPO could arrive as early as May. 

This is exciting news for retail investors and the IPO investing community. 

I predicted the possibility of a Robinhood IPO platform and shares for customers on my other site back in December 2019 because it made sense.

What better way to reward loyal customers for making the company what it is today?

It’s not a bad PR move either.

Robinhood has more than 13 million customers, many of whom are salivating to own and trade Robinhood stock.

We already knew Robinhood was considering offering IPO shares to its current customers, as reported in January by Bloomberg. 

The new report confirms they’re taking it a step further, perhaps to disrupt one of the most inefficient processes in finance — IPOs.

Democratization

According to the report, Robinhood is building a platform. Details are thin. 

There is no indication if the company is building from scratch or partnering with a third party to integrate IPO access. 

ClickIPO has already integrated with TradeStation and Webull to offer IPO shares to their customers and can do the same for Robinhood. 

The Reuters article quotes a source that says Robinhood aims to “democratize” IPOs with its platform. ClickIPO often uses democratize in articles and press releases.

Though, Robinhood has used the phase before and it’s part of their mission, “to democratize finance for all”.

A partnership would finally give ClickIPO the clout it needs to attract more high-demand IPO shares from underwriters (who would still wield all the power).

If Robinhood is doing this in a hurry before the IPO, the ClickIPO partnership makes sense.

But if they’re looking for a new revenue stream, Robinhood could use their vast resources to build a platform from scratch that disrupts the IPO process altogether.

The company disrupted the entire brokerage industry once before, making commission-free trading the industry standard.

Its advocacy for retail investors is unparalleled. 

Robinhood’s 13 million customers can attract large allocations to the Robinhood IPO platform, perhaps in partnership with willing underwriters. 

But maybe they have something bigger up their sleeves. 

Disruption 2.0

The IPO process is ripe for disruption and improvement.

The SEC requirements won’t change, but the lack of transparency in the underwriting process, share pricing, and broker allocations can improve dramatically.

The IPO process is so demanding that we’re witnessing SPACs (special purpose acquisition companies) become the preferred method for going public. 

IPO filings are expensive. And IPOs disproportionally benefit Wall Street underwriters and their wealthiest clients.

Robinhood is the opposite of Wall Street, and their customers are nowhere near as wealthy.

As the biggest advocate for retail investors, Robinhood could have greater ambitions than to beg legacy underwriters for a handful of shares for high-demand IPOs (same old game).

Then carry the burden of deciding which of their 13 million customers receive allocations.

Perhaps there’s a better way to direct IPO shares to the masses instead of the affluent. 

I don’t understand the inner workings of Wall Street banking and the IPO process to understand how Robinhood could rattle things even more. But maybe there’s a lucrative business model hidden in IPO complexities. 

Motif and Loyal3 made some headway to get IPO access to ordinary retail investors. 

But they’re both gone.  

If there’s another broker in the industry that can disrupt the IPO status quo, it’s Robinhood. 

Robinhood has the cash, technology chops, and customer base. Now all they need is a platform, and they’re working on it.