Robinhood Markets Inc.’s offer to revolutionize initial public offerings has instead lost investors after one of the year’s much-anticipated listings failed.
In an official filing in early July, the trading platform’s co-founders said they would open their IPO to clients on the same terms as institutional investors. They said they realized this could be the first public offering many would get involved in and pledged to “never sacrifice the safety of our clients’ money.”
It now appears that Robinhood’s commitment to “democratize” the IPO process played a role in Thursday’s big initial stumbling block. An innovative auction system has created some confusion among investors, many of whom have already been suspicious of valuing a company that has drawn regulators and customer criticism, people involved in the process said.
The stock, which originally traded at $ 38, the lower end of the target range, is below that. This is a disappointing result at a time when IPOs are booming and investor appetite for new issues is robust.
Robinhood proudly tore up the traditional IPO playbook. It insisted that a large chunk of its stock – up to 25% in the end – go to its retail investors, compared to the normal retail allocation of well below 10%. Employees could sell some of their shares immediately instead of being locked up for six months. And in determining the price to go public, Robinhood opted for a hybrid auction process that attempts to allot investors based on their willingness to pay, regardless of who they are.