A lot of my peers in the media are writing about Robinhood’s IPO today, which caused me to republish this column I wrote when Robinhood got caught holding the bag back in February, and it stopped GameStop trading. As it launched the enormous IPO, Robinhood got a $70 million slap on the wrist from financial regulators. One outcome of the IPO: the media will probably quit referring to the company as a startup.
You often see the phrase:
Robinhood is a Silicon Valley start-up promising to democratize investing.
Let’s deconstruct this.
First, the company’s name: Robinhood. The irony is that the name exactly describes what the company does, but in reverse. Robinhood of Sherwood Forest stole from the rich to give to the poor. Robinhood of Silicon Valley took from the poor – at least, the little people, individual investors — to give to the big institutions. Robinhood offered commission-free trading. It made money (admitting this only after regulators fined it for not being transparent) by packaging its orders and selling them to bigger institutions.
“Is a Silicon Valley startup” A company that is seven years old and can raise $3.4 billion in a week to build up its capital reserves (according to CNBC) does not deserve the scrappy, underdog patina that comes with the word “startup.”
Robinhood doesn’t have any tech innovations that I can see, not in software or hardware, so using the Silicon Valley connotation of tech innovation isn’t appropriate. But today’s Silicon Valley is defined by the venture capital finance mechanism that propels fast-growth companies, so it could be called a Silicon Valley company, or a new Silicon Valley giant.
“Promising to democratize” Promising is a reporter’s way of saying “I doubt it.” There’s never been a doubt here, however. Robinhood made trading easier and free. But its clients never had a say in the rules that governed its system, as became obvious last week when the company pulled the plug on their ability to trade some stocks.
“Investing.” Since when is trading investing? Young people, especially young men, are highly susceptible to the addictive hubristic pull of stock trading. But it’s almost inevitable that you’ll lose money over time because you’re trading against computer algorithms. This is not investing. This is gambling.
Typical of the recent history of Silicon Valley, Robinhood has been brazen from the beginning, with its language, business model and marketing. That makes it easier to throw to the wolves – er, U.S. Treasury Secretary Janet Yellen — now. Meanwhile, the Wall Street companies Robinhood serves, many of them as apt to take advantage of individual investors, will remain safely in the background.
— Elizabeth MacBride, founder, Times of Entrepreneurship