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Does Anyone Want To Buy Robinhood?

Jul 7, 2022

July 8, 2022 - Advertisement - Robinhood founders Baiju Bhatt and Vlad Tenev see their share price drop as the market , [+] The company’s capitalization fell by more than $50 billion. - Advertisement - - Advertisement - Rumors swirled last week that cryptocurrency exchange FTX was looking to buy Robinhood as the company’s stock price continued to drop. Despite FTX founder and CEO Sam Bankman-Fried’s denial, the idea has sparked curiosity about whether the self-directed brokerage will be acquired and who might be interested. In a report compiled by investment bank JMP Securities on a potential sale to FTX, analysts at the Citizen Financial subsidiary suggested a low likelihood of a deal, in line with a public denial from Bankman-Fried, who notably bought a 7.6% stake in Robinhood. in May. - Advertisement - That note attributed some of the interest in Robinhood to its physical drop in the stock price, which was priced at $38 for its IPO, peaked a week later at $55.01 and is currently trading at $8.97. Robinhood’s total market capitalization currently stands at just $7.8 billion, potentially making it an easy mark for a much larger financial firm like Morgan Stanley. M / s , Charles Schwab or Citadel Securities. Analysts say Robinhood is part of the overall souring of the entire fintech sector. Analysts at JMP Securities see some value in the purchase of the world’s second largest crypto exchange with the opportunity to gain a meaningful US customer base in retail, complementing its current business model despite some ambiguity because FTX is private. From a sheer stock market valuation perspective Robinhood’s 15.9 million active accounts are now worth less at $500 per customer versus $3,600 per customer for Charles Schwab. When Morgan Stanley acquired E-Trade in 2020, the price was $13 billion, which meant roughly $2,500 per customer. When presented with those numbers, Devin Ryan, JMP Securities’ director of fintech research, acknowledged that these Robinhood clients are currently worth less based on account balances for the average client than any buyer of these younger clients. They will invest in the potential to earn more and in return deposit more on the platform as they get older. The big question will be whether Robinhood can build out more services to retain those customers as their investment needs become more complex. Ryan also points out that the number at Schwab has been increased by custodial accounts for the RIAs that use the platform, the type of more advanced business Robinhood may wish to add in the future. Morningstar despite Vlad Tenev and Baiju Bhatt co-founding Morning Equity Research Director Michael Wong views Robinhood as a unique company that “many don’t have as a natural fit as a more standard retail broker” when it comes to acquisitions. However, Wong acknowledges that there may be some buyers who view that unique positioning as a truly great property. Major wealth management players on Wall Street have been coping with market downturns over the past few years through both acquisitions and in-house investments. This comes in the form of Morgan Stanley buying E-Trade in 2020, Goldman Sachs ousting Marcus over the past six years, and Bank of America. bac Investing in Merrill Edge combined with a stated desire to attract more young clients, the Robinhood acquisition may on the surface be tempting as Jim Cramer pitched Goldman Sachs as a good boyfriend on CNBC last week. “The best asset is the customer base,” says Columbia University economics professor RA Farokhaniya, alluding to Robinhood’s millions of young customers, many of whom have a vague view of financial services. “The big Wall Street firms have had a hard time attracting the younger generation and hope that as they get older, you’ll keep them as clients, and since they have more assets to invest, you’ll be able to keep up with that relationship.” can be monetized over a long period of time.” Wong points out that with very low balances, which are unlikely to transition from retail accounts to full-service financial advice accounts in any near term, Robinhood’s customer base isn’t very suitable for these major wealth management players. Asset management firms have been increasingly interested in the robo-advice space, seeking a more direct relationship with clients that is not distracted by brokers and the aforementioned money managers. However, this trading happy client base which is heavy on derivatives and cryptocurrencies is not ideal for the buying and holding world of mutual funds. The tendency to self-directed investing makes this pool of clients suitable for property and wealth management firms alike. Looking at other retail brokerages, the size isn’t enticing enough for the likes of Charles Schwab, according to Wong, especially after the acquisition of TD Ameritrade, which has 11 million active accounts at the end of 2019. Wong says the customer’s cost of acquisition for Schwab will be high. Robinhood’s tarnished reputation could also serve as a deterrent to firms wary of public, or worse regulatory, backlash. Just a year ago Robinhood paid the financial industry regulatory authority the biggest fine ever on outages and deceptive customers, and a Congress report last month detailed failures on the firm’s part in last year’s meme stock frenzy. . A potential suitor that makes sense is a high-frequency trading firm such as Citadel Securities. Despite that synergy, this type of acquisition could face the highest levels of scrutiny. Citadel is already facing criticism for its relationship with Robinhood as a buyer of Order Flow. Any deal to bring those two sides closer would likely face suspicion not only from the public but the Securities and Exchange Commission. Perhaps best suited, Wong estimates, would be a small bank with a market cap large enough to absorb Robinhood that is looking to find a retail branch or an international firm a foothold in the US. Despite its stock price issues, Robinhood has a customer base of 22.8 million funded accounts, net deposit growth of 30% through May 2022 and $6.2 billion in cash and equivalents on its balance sheet. Perhaps the answer is that Robinhood doesn’t need to sell to anyone and can use its cash reserves to get out of a tough period, which JMP analysts see as a potentially valuable strategy because of the low cost. In the event the competitors do not fulfill it. Ryan points out that co-founders Vladimir Tenev and Baiju Bhatt still hold enough equity with a unique class B voting share arrangement to control the fortunes of their company. The fact that they are not actively looking for a suitor means any purchase can come at a premium. For Ryan, it comes down to the founders who still believe in the underlying ethos of “democratic finance” under which the company was founded. He also points out that everyone has a price. For now, he and his fellow analysts have a market outperform rating for Robinhood with a $36 price target. Credit: www.forbes.com /

Baiju Bhatt Investments

2 Investments

Baiju Bhatt has made 2 investments. Their latest investment was in Atlantic Money as part of their Seed VC on March 3, 2022.

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Baiju Bhatt Investments Activity

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Date

Round

Company

Amount

New?

Co-Investors

Sources

3/10/2022

Seed VC

Atlantic Money

$5M

Yes

2

5/21/2019

Seed VC

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$99M

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10

Date

3/10/2022

5/21/2019

Round

Seed VC

Seed VC

Company

Atlantic Money

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Amount

$5M

$99M

New?

Yes

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Co-Investors

Sources

2

10

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