August 9, 2021

A Good Story Always Wins — Robinhood’s IPO Pivot

The app sticks to its story by defying Wall Street traditions.

Staying true to the legacy of its namesake outlaw hero, Robinhood reallocated shares, traditionally reserved for institutional stalwarts, into a halo of beaming retail investors, still bedazzled from the virtual confetti that the app sprinkled on them. In defiance of Wall Street tradition, Robinhood sold as much as 25% of its shares to retail investors who traded on its app.

As the Wall Street Journal explained, “for all the sway that amateur investors have over meme stocks like GameStop Corp. and AMC Entertainment Holdings Inc., they have been largely shut out of the IPO party. Companies tend to allocate well under 10% to individual investors, according to brokers, and much of that supply is gobbled up by banks’ wealthy, well-connected clients.”

There is a story we tell ourselves when we gravitate towards a brand. This story is influenced by what the brand tells us to tell ourselves. The landscape of the narrative is unlimited — it can talk about how the brand solves a problem, while daring to venture inside ours heads by alluding to internal problems or goals. In his book Building a Story Brand, Don Miller wisely notes that companies tend to sell solutions to external problems, but people buy solutions to internal problems.

Robinhood’s founders were inspired by the Occupy Wall Street movement, and eliminated trading fees while most brokerage firms charged $10 or more for a trade. Robinhood named themselves after the English outlaw who stole from the rich and gave to the poor.

Democratization of investing is part of a broader trend that is redefining ownership

The GameStop saga proved that retail investors imagined themselves in a David vs Goliath battle against the big guys. They believed that big Wall Street traders speculated in ways that destabilized markets, making unseemly profits at the expense of the rest of us. As the Guardian observed, “at a time of extreme wealth inequality, the GameStop investors are far more sympathetic figures, with everyone from the US representative Alexandria Ocasio-Cortez of New York (on the left) to the US senator Ted Cruz of Texas (on the right) taking their side. Despite incurring huge losses, the hedge funds remain wealthy.”

Democratization of investing is part of a broader trend that is redefining ownership, as new waves of startups have made it possible for more retail investors to participate in private and alternative markets previously restricted to elites. Startups like Republic, Party Round, Otis, Masterworks and OpenSea have created platforms and tools that open up previously inaccessible markets.

Robinhood’s stock opened Thursday with the $38 IPO price and closed down 8% at $34.82. It did slightly better on Friday, closing up about 1% at $35.15, which was still below the initial IPO price. The big win, however, was that the everyday investor got to play a bigger role in the IPO market. Robinhood’s story has always been about access. If you look at the IPO debut from this lens, the absence of the IPO pop doesn’t matter — the debut was still on brand

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