A yr in the past, I advisable 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 constantly forward of the curve.
He constructed an app that turned thousands and 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 keeping with current reporting, Robinhood is getting ready a closed-end fund that can let retail traders purchase into among the hottest non-public AI startups on the planet.
This can give on a regular basis traders entry to the sort of firms that, till now, have been reserved for enterprise capitalists and billionaires. The fund will maintain stakes in 5 or extra top-tier AI companies and will even use leverage to spice up returns.
It’s a daring thought. However if you happen to’ve adopted Tenev’s monitor file, it’s not stunning.
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 larger…
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 is going to be the subsequent nice revolution in finance.
Right here’s why.
Between 2010 and 2020, the S&P 500 gained about 270% once you embody dividends. Meaning you may 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 have been a fund insider or accredited investor, you have been locked out of the most important positive factors. As a result of by the point essentially the most promising firms lastly went public, their early-stage earnings have been already gone.
Simply have 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 quick climb the inventory dropped to $85 earlier than stabilizing.
Supply: Yahoo Finance
These have 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.
International funding for private-AI startups topped $70 billion in 2024, and valuations maintain 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 companies 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 increase.
Robinhood must maintain customers engaged. Giving them entry to early-stage innovation is a brilliant approach to do it.
However I consider there’s a fair larger motive for this launch.
When Tenev says he needs to offer “regular folks publicity to the fast progress of personal AI firms,” he’s speaking concerning 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 establishing the rails for a tokenized monetary system the place possession in startups, funds and even information facilities could be traded digitally identical to crypto is as we speak.
In fact, this experiment comes with some danger.
Robinhood’s new fund might be closed-end, that means traders can’t simply money out of it. It additionally is likely to be leveraged, which might amplify each positive factors and losses.
And this represents a serious change for Robinhood’s present person base, which is used to immediate trades. As one Morningstar analyst warned: “Managing a fancy private-equity-style technique might significantly burn their fast-moving person base.”
However it’s not like this can be a utterly new thought.
In 2023, SoFi launched a private-markets fund that provided publicity to SpaceX and OpenAI. It drew big curiosity, but additionally complaints about transparency and redemption delays.
Robinhood might want to be taught from that playbook if this launch is to be a hit.
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 instantly, with out banks or borders standing in the way in which.
Coinbase is making a regulated on-ramp for builders to boost capital from customers by blockchain-based gross sales. And Robinhood is opening up a manner for on a regular basis traders to purchase into non-public firms that have been as soon as off-limits to them.
However the endgame is similar: a worldwide market constructed on the identical digital rails that transfer info as we speak.
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 mission the marketplace for tokenized belongings to succeed in $6 trillion by 2030.
That’s a twenty-fold leap from as we speak’s ranges.
If Robinhood’s mannequin works, thousands and thousands of traders might in the future 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 as we speak one platform at a time.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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