Robinhood’s startup fund stumbled in its New York Stock Exchange debut

Retail investors are notoriously locked out of the startup world. Robinhood is trying to change that by allowing the general public to invest in a portfolio of what it calls “some of the most exciting private companies operating today.”

To do this, the company that pioneered the commission-free brokerage model secured access to eight startups — including Databricks, Stripe, Mercor and Ora — and pooled them into a vehicle called Robinhood Ventures Fund I. The fund, which also includes Ramp, Airwallex, Revolut and Boom, launched last month with an ambitious $1 billion goal, but demand for this new way of investing in private companies has been lower than expected.

On Thursday, Robinhood announced the fundraising $658.4 million – which could reach $705.7 million if the underwriters exercise their full allocations. Shares, priced at $25, began trading on Friday and closed the day at $21, down 16%.

RVI’s reception on Wall Street stands in stark contrast to another attempt to give retail investors exposure to buzzy startups. When Destiny Tech100 — a publicly traded closed-end fund that holds stakes in 100 venture-backed companies including SpaceX, OpenAI, and Discord — listed directly on the New York Stock Exchange in March 2024, its shares rose from a reference price of $4.84 to an opening trade of $8.25, eventually closing its first day at $9.00.

Destiny Tech100 has continued to climb since its public debut. The fund closed trading Friday at $26.61, a 33% premium to its net asset value of $19.97, meaning its shares are trading well above the actual value of its underlying holdings.

So what explains why retail investors aren’t as excited about the Robinhood fund as they are about the Destiny Tech 100? The most likely explanation is RVI’s lack of exposure to companies widely expected to go public at massive valuations: OpenAI, Anthropic, and SpaceX.

Robinhood is looking to address this. RVI intends to add more startups to the fund, and ultimately aims to retain what Sarah Pinto, president of Robinhood Ventures, described to TechCrunch as “15 to 20 of the best late-stage growth companies out there.” The company’s financial directorShiv Verma told Axios Pro on Friday that Robinhood is looking to get exposure to OpenAI.

But securing access to these prominent companies is not easy at all. Robinhood aims to hit its cap tables directly through seed capital raises or secondary stock sales — a tall order even for a company with deep roots in Silicon Valley.

The cap table — the official record of who owns shares in a company — is closely guarded at most high-profile startups, and winning a place at one of these companies requires either an invitation from the company or the purchase of shares from existing investors with the company’s blessing.

“It is very difficult to get into any of these companies, and the investment rounds are very expensive,” Pinto admitted.

This is just one of the reasons why the democratization of private markets is easier said than done, and why the companies that most individual investors want to own remain a distant reality for now.