Robinhood Rewrites the Rules for Going Public

Big risks, big rewards?

Robinhood, which touts its mission as “democratizing finance,” is trying out a new kind of I.P.O.: The online brokerage plans to sell as much as a third of its offering to customers through its app. What could go wrong?

It’s the most a major company has offered to ordinary investors in an I.P.O. Most businesses — including the hospital-scrubs maker Figs, which used a Robinhood program to sell stock to retail investors as part of its offering — have set aside roughly 1 percent of shares for retail investors.

The big risk is volatility. Underwriters traditionally worry about letting retail investors have an outsize allocation in I.P.O.s because they are considered more likely to immediately dump their shares. And many of Robinhood’s customers are active traders, as shown when it became the brokerage of choice during the meme-stock frenzy. Robinhood is also letting its employees sell up to 15 percent of their shares immediately upon its listing.

Robinhood’s bankers expect early trading to be choppier than other offerings, people involved in the process said. That could anger customers, prompting lawsuits and regulatory scrutiny. And if the stock falls after its debut, its investors will also have less money to trade on the platform.

“If it works, it’s going to be a fantastic win,” said R.A. Farrokhnia of Columbia Business School. “If it goes badly, it will be a black mark.” A smooth offering could help burnish the company’s reputation, which has been marred by regulatory fines, technical outages and complaints about customer service. We’ll see what happens next Wednesday, when Robinhood is set to price its shares, and on Thursday, when it is expected to start trading. At the high end of its expected price range, the company would be valued at $35 billion.

There are plenty of cautionary tales in I.P.O. history. Here are a few of the big ones:

Google in 2004 tried using a Dutch auction, in which investors submit individual bids for shares and the I.P.O. price is set at a level that would sell the most stock. The tech giant was forced to cut the size and price of its offering. (Dutch auctions never really took off after that.)

Vonage, a phone service provider, tried to sell shares to its customers as part of its 2006 I.P.O., but a technical glitch left buyers unclear over whether their trades had gone through until days later, by which point its stock price had plummeted. Customers sued Vonage, and regulators fined the banks that ran the offering.

BATS Global Markets sought to go public on its own exchange in 2012, but a series of “technical issues” forced it to halt trading in several stocks, including its own, and eventually pulled its offering. (It later went public in 2016.)

HERE’S WHAT’S HAPPENING

A debt ceiling showdown looms. Senator Mitch McConnell said it’s unlikely that Republican lawmakers would vote to increase the U.S. debt limit, citing Democrats’ spending plans. Democrats criticized his threat as endangering America’s fiscal health, with the government expected to run out of cash by November.

Johnson & Johnson joins a $26 billion opioid settlement. The deal, which also includes three major distributors, will give billions to ravaged states and cities and end years of litigation against the companies. Thousands of lawsuits against others — including manufacturers and drugstore chains — remain unresolved.

President Biden predicts vaccines will get final approval this fall. At a town hall in Ohio, Biden said the F.D.A. would probably provide official signoff on Covid inoculations — all are currently authorized on an emergency basis — and ease the concerns of some vaccination holdouts.

Banks urge Chinese businesses to move their I.P.O.s to Hong Kong. Wall Street underwriters are telling clients to pivot to the territory, after Beijing’s crackdown on domestic tech companies listing abroad, The Financial Times reports. But many won’t be able to, given Hong Kong’s strict eligibility requirements.

PG&E will spend tens of billions to bury power lines. The California utility said it would put 1,000 miles a year underground — up from 70 miles planned this year — to help prevent wildfires. The move came after a report that found PG&E equipment was most likely responsible for the 30,000-acre Dixie Fire. Culpability for wildfires pushed the company to file for bankruptcy in 2019.

Exclusive: KKR’s big solar bet

KKR will announce today that it’s making a “significant” minority investment in Sol Systems, a U.S. renewable energy company that helps finance solar projects. The buyout giant, which has $367 billion in assets under management, is also committing to spending up to $1 billion in projects with Sol.

“Almost all large corporate customers, including many of the traditional oil and gas companies, have goals to go 100 percent renewable by 2030 or 2040,” said Yuri Horwitz, Sol’s C.E.O. Those commitments come amid regulatory and investor scrutiny that is expected to intensify in the coming years.

Latest Updates

Private equity is racing to invest in renewable energy during the Biden administration, driven in part by expectations of increased public investment as the White House aims to cut the country’s fossil-fuel emissions by 80 percent by 2030. Yesterday, Carlyle announced it was forming a renewable energy infrastructure unit. KKR, for its part, brought on Tim Short and Benoit Allehaut this spring to help steer renewable investments in its $18 billion infrastructure division. Among its recent deals was a $1.4 billion investment last year in the wind and solar company NextEra.

But KKR is still betting on fossil fuels. “Natural gas is still a very important aspect of the energy transition until we have technology solutions that allow otherwise,” Short said. And last month, the firm announced a $5.7 billion deal to create a vehicle that consolidates shale oil companies.

“I might pump, but I don’t dump.”

Elon Musk, speaking on a panel about his habit of talking up Bitcoin but denying that he does so to earn a quick profit. He also revealed that he personally owns Ethereum, in addition to Bitcoin and Dogecoin, and that his rocket company, SpaceX, owns Bitcoin. (Tesla bought $1.5 billion worth of Bitcoin this year.)

Summer Olympics Essentials

    • Olympics Guide: It’s been an unusual lead-up to this year’s Olympics. Here’s what you need to know about the Games.
    • Athletes: These are the competitors you’ll be hearing a lot about. Pick a few to cheer for!
    • Sports: New sports this year include karate, surfing, skateboarding and sport climbing. Here’s how every Olympic sport works.
    • Schedule: Mark your calendars for your favorite events to watch.

    Exclusive: Fanatics plays offense on online sports

    Fanatics, the sports apparel retailer, is going beyond hats and hoodies. The company, which was last valued at $12.8 billion, has tapped IAC’s former C.F.O., Glenn Schiffman, to help oversee its efforts to break into new industries as it eyes an I.P.O., DealBook hears. (Mich Chandlee, the company’s current C.F.O., will continue to oversee its merchandise unit.)

    Fanatics sees itself as more than a retailer. In June, it started a digital collectibles firm called Candy Digital, which has partnered with Major League Baseball to introduce a series of NFTs. Fanatics is also considering forays into ticketing, betting and gaming, drawing on its ties with major sports leagues through its licensing deals.

    It is branching out after the pandemic disrupted the sports industry, forcing leagues to look for new sources of revenue. That has upped the value of analytics about fan behavior, an industry expected to be worth nearly $4 billion by 2023, according to Deloitte. Fanatics made its name by taking a fast-fashion approach to sports merchandise, setting itself up to sense shifts in fan demand and quickly produce the hottest items.

    A new C.F.O. isn’t the only big new hire. Fanatics has also tapped Tucker Kain, the former president of the Los Angeles Dodgers, to be its chief strategy and growth officer, and Matt King, FanDuel’s former C.E.O., to lead its gambling and gaming division.

    Olympics win ad gold despite setbacks

    It’s hard to imagine how things could be going worse for the organizers of the Tokyo Olympics. But despite a spike in coronavirus cases, a lack of spectators and a year’s delay, skipping the Games is not an option for advertisers in the U.S., The Times’s Tiffany Hsu reports.

    The situation is “not ideal,” said the marketing chief of Chipotle. But the company, like many others, is buying ad time anyway. (The story is different in Japan, with large sponsors like Toyota pulling local TV ads because of the public backlash surrounding the Games.) NBCUniversal, which is airing the Olympics in the U.S., expects to make $2.25 billion in ad revenue from its broadcast. That’s up 20 percent from the Games in Rio five years ago.

    Large companies have adjusted their campaigns to fit the mood, but they are still going forward with them.

    United Airlines scrapped “Visit Japan”-themed ads for ones that promote travel in general.

    Visa canceled its on-site events, but is still running an ad during the opening ceremony as part of its effort to reposition itself as more than just a credit card company.

    Microsoft is leaning into the fact that few will be able to watch the Games in person with an ad that features people who had to cancel their plans to attend the Games connecting with Tokyo residents via its videoconferencing software.

    NBCUniversal is charging an average of $1.25 million for a 30-second prime-time TV ad, up 15 percent from the Rio games. For such a large audience at a time with few competing events on the schedule, that is seen as worth it for many advertisers. (NBC is reportedly seeking $6 million for a 30-second ad during the next Super Bowl.) And with the Winter Olympics set to take place in Beijing, where human-rights issues could make brand associations fraught, the Covid-interrupted Games this year may still end up being an easier sell than the next time around.

    THE SPEED READ

    Deals

    MoneyGram, the money-transfer service, has reportedly received takeover interest from Stellar Development Foundation and Advent International. (Bloomberg)

    Shares in the private equity firm Bridgepoint jumped over 20 percent in their London debut. (Reuters)

    Clearview AI, the face-recognition start-up that is the subject of lawsuits, has raised $30 million from undisclosed investors. (NYT)

    Policy

    Jay Powell is likely to be renominated for another term as Fed chair in February — but insiders say that’s not guaranteed. (WSJ)

    A bill to force companies to report cyberattacks is gaining steam in Washington. (MarketWatch)

    The Biden administration picked David Cohen, a senior executive at Comcast and longtime Democratic donor, as the U.S. ambassador to Canada. (WSJ)

    The outing of a Catholic priest using information from his cellphone raises big questions about U.S. data privacy laws. (NYT)

    Best of the rest

    Richard Branson beat Jeff Bezos to space, but the buzz around Bezos’s rocket trip beat Branson’s on social media. (Pulsar)

    “The Amazonification of Space Begins in Earnest” (NYT)

    How TikTok’s algorithms figure out what you like to watch. (WSJ)

    Content creators are turning to A.I. to compose music on the fly that matches the mood of their videos. (Wired)

    The National Labor Relations Board ruled that unions’ giant inflatable rodents are protected by free speech. (NYT)

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