A yr in the past, I really helpful Robinhood (Nasdaq: HOOD) to members of my flagship analysis service, Strategic Fortunes.
One of many causes I’ve been bullish on the corporate is that Robinhood CEO Vlad Tenev appears to be persistently forward of the curve.
He constructed an app that turned hundreds of thousands of individuals into traders, then he added crypto and choices buying and selling and even prediction markets to its suite of next-generation monetary instruments.
And now he’s going after non-public investments.
In response to latest reporting, Robinhood is getting ready a closed-end fund that may let retail traders purchase into among the hottest non-public AI startups on this planet.
This can give on a regular basis traders entry to the type of firms that, till now, had been reserved for enterprise capitalists and billionaires. The fund will maintain stakes in 5 or extra top-tier AI corporations and will even use leverage to spice up returns.
It’s a daring concept. However in the event you’ve adopted Tenev’s monitor file, it’s not shocking.
As a result of what he’s actually doing right here isn’t simply opening a brand new market. He’s laying the groundwork for one thing a lot greater…
Web capital markets.
Robinhood’s Tokenization Play
I’m on file that I consider tokenization is inevitable.
And for years, I’ve been telling anybody who will hear why I consider it will likely be the subsequent nice revolution in finance.
Right here’s why.
Between 2010 and 2020, the S&P 500 gained about 270% while you embrace dividends. Which means you could possibly have roughly made 3X your cash by investing in a fund that tracks this index.
However the prime enterprise funds earned returns of as much as 8X their traders’ cash over that very same interval.
The catch is, until you had been a fund insider or accredited investor, you had been locked out of the largest beneficial properties. As a result of by the point essentially the most promising firms lastly went public, their early-stage earnings had been already gone.
Simply take a look at the final IPO cycle.
DoorDash debuted in 2020, buying and selling at $182 . Inside two years, it had fallen greater than 70% from its excessive.
Supply: Yahoo Finance
Airbnb began buying and selling at $146 on its IPO date, and after a short climb the inventory dropped to $85 earlier than stabilizing.
Supply: Yahoo Finance
These had been thought of “progress” firms. However all their progress was already captured privately.
That’s the issue Robinhood is attempting to resolve by democratizing entry to non-public markets.
World funding for private-AI startups topped $70 billion in 2024, and valuations preserve climbing.
The Monetary Instances experiences that ten of the sector’s prime names added practically $1 trillion in non-public worth final yr alone.
And there’s an apparent purpose for this surge. Sovereign wealth funds, company enterprise arms and pension managers are all pouring capital into AI infrastructure as governments race to safe digital provide chains.
That’s why the median valuation for late-stage AI corporations jumped 40% year-over-year.
In a strategic evolution of Robinhood’s enterprise, Robinhood’s 23 million customers will now have a possible on-ramp into that booming market.
As I discussed final week, buying and selling volumes have cooled for the reason that pandemic growth.
Robinhood must preserve customers engaged. Giving them entry to early-stage innovation is a great technique to do it.
However I consider there’s an excellent greater motive for this launch.
When Tenev says he needs to present “regular folks publicity to the fast progress of personal AI firms,” he’s speaking in regards to the subsequent section of web capital markets.
I’m speaking a couple of world system the place anybody can fund innovation with out banks, borders or gatekeepers.
In different phrases, Tenev is organising the rails for a tokenized monetary system the place possession in startups, funds and even information facilities might be traded digitally similar to crypto is at present.
In fact, this experiment comes with some threat.
Robinhood’s new fund can be closed-end, which means traders can’t simply money out of it. It additionally may be leveraged, which might amplify each beneficial properties and losses.
And this represents a significant change for Robinhood’s present consumer base, which is used to immediate trades. As one Morningstar analyst warned: “Managing a fancy private-equity-style technique may significantly burn their fast-moving consumer base.”
But it surely’s not like this can be a utterly new concept.
In 2023, SoFi launched a private-markets fund that supplied publicity to SpaceX and OpenAI. It drew large curiosity, but in addition complaints about transparency and redemption delays.
Robinhood might want to study from that playbook if this launch is to be successful.
Right here’s My Take
Robinhood’s new AI fund is a part of the identical motion we simply talked about with Coinbase.
Each firms are constructing the early items of what I name web capital markets — a worldwide system the place anybody can fund innovation straight, with out banks or borders standing in the way in which.
Coinbase is making a regulated on-ramp for builders to lift capital from customers via blockchain-based gross sales. And Robinhood is opening up a manner for on a regular basis traders to purchase into non-public firms that had been as soon as off-limits to them.
However the endgame is identical: a worldwide market constructed on the identical digital rails that transfer data at present.
And it’s not simply me or Vlad Tenev saying this. BlackRock’s Larry Fink calls tokenization “the way forward for markets.”
And this future is coming quick. Analysts undertaking the marketplace for tokenized property to achieve $6 trillion by 2030.
That’s a twenty-fold leap from at present’s ranges.
If Robinhood’s mannequin works, hundreds of thousands of traders may someday personal early stakes in firms like OpenAI earlier than they ever hit a public trade.
That’s the way forward for capital formation.
And it’s being constructed at present one platform at a time.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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