Dear Reader,
The wandering, merry, swashbuckling, and now nefarious exploits of Robinhood – aka “Robbing the Neighborhood” – have now achieved legendary status.
Announced last night, the online broker suddenly raised an additional $2.4 billion from its shareholders. This comes on the back of an additional $1 billion raise and just after Robinhood maxed out its lines of credit to stave off a liquidity crisis.
Prior to getting its hand caught in the cookie jar, Robinhood had raised about $2.1 billion from its founding in 2013 until its Series G round last September.
And in the last five days, it has raised $3.4 billion – not counting the nine-figure sum of debt it pulled from its lines of credit.
Investors had a hard choice to make. They could let the crisis occur and see where the chips fell… or they could go all hands on deck and throw money at the problem.
At $3.4 billion, we know what their decision was. And I suspect they invested once again at very attractive terms. After all, they held all the cards.
Rightfully so, Robinhood’s users have been fleeing the online stock trading platform in droves. And they have been vocal about it.
Nearly 100,000 one-star ratings for the Robinhood app appeared in the Google Play store in the hours following Robinhood’s shenanigans last week.
This quickly resulted in the feared one-star rating for the app. It’s not surprising considering that Robinhood’s users were hoodwinked out of more than $1 billion in profits.
But what came next was far more interesting…
Robinhood Was “Review-Bombed” by Google Play Users
Source: The Verge
Google began to systematically remove negative reviews of Robinhood.
And suddenly, as if nothing happened at all, Robinhood was back at a four-star rating on the Google Play store.
Since then, thousands more negative reviews have pushed down the rating again. Of course, those reviews could easily be removed just as the previous ones were.
It sounds insane… but not when we think about who is involved.
Some of the most powerful venture capital firms in Silicon Valley are backers of Robinhood. Two of them, Sequoia Capital and Kleiner Perkins, were also early investors in Google.
But the Robinhood backer that really makes me chuckle is CapitalG – formerly known as Google Capital.
Google’s private equity arm invested in Robinhood’s Series D round. And GV (aka Google Ventures) invested in Robinhood’s first two seed rounds back in 2013.
In short, Google has a heavily vested financial interest in Robinhood’s success. By my calculations, Google’s total stake in Robinhood will be worth more than $1 billion on a successful initial public offering (IPO).
That brings us to Robinhood’s public offering. Talk about bad timing.
Robinhood had been planning to launch an IPO this spring. The moment was seemingly perfect: great equity market conditions… professionals working at home with more time to spend online… a rapid rise in Robinhood users, rivaling the best online brokerages… and a fantastic IPO market.
All these factors made an IPO a perfectly logical thing to do. Robinhood couldn’t have asked for a better setup.
But now Robinhood will be forced to access the public markets… and not on its own terms.
Its largest investors had little choice but to pony up $3.4 billion to help Robinhood avoid a liquidity crisis, potentially risking billions in investment profits.
But it will come at a price. Those shareholders will insist on an IPO in the coming months to ensure that they get their money back quickly.
I wouldn’t be surprised if the timing for the IPO is written into the deal terms of the emergency raise. That essentially guarantees a liquidity event in the very near future.
My prediction? Robinhood and its backers will try to dump shares on unsuspecting retail investors at an inflated valuation. They’ll take billions in profits off the table and call it a day.
I won’t be one of them.
Can Robinhood repair the damage that it has done to its brand and reputation? In time and with the right changes, yes.
But I see a bigger opportunity. The doors are wide open for the next accessible, mobile-first trading platform – one that provides transparency in its business model and has the financial wherewithal to avoid a liquidity crisis.
This could be another high-growth private company building a new platform. Or it may be from a company already in our midst like Square’s Cash App.
Either way, we’ll only invest in bleeding-edge technology companies that take great care of their customers. And we’ll avoid those that kick their customers down a dark alley where nothing good ever happens.
Now let’s turn to today’s insights…
I’ve been waiting for an opportunity to talk about Clubhouse, a new smartphone app that most have probably never heard of. This is a social media company that’s all the talk in tech circles right now. And for good reason.
Clubhouse was founded in January of last year. That’s when it raised an undisclosed amount of money from a few angel investors.
The company has completed two early stage venture capital (VC) rounds since then. The Series A round raised $10 million in May 2020. And the Series B round raised $100 million just last week. This valued Clubhouse at $1 billion. That’s unicorn status.
So Clubhouse went from zero to $1 billion in 12 months. That’s incredible. Very few early stage companies achieve unicorn status this quickly.
What makes Clubhouse’s social media platform unique is that it is basically an audio-only form of Zoom. Users can create “rooms” in which designated people schedule talks and presentations.
And its content offering currently includes quite a range of activities. Book clubs, fireside chats, debates, and even comedy shows are being hosted on the platform.
Anyone is free to “join” any room to listen to the speakers, but all listeners are restricted from speaking until the end of the scheduled talk. At that point, listeners can raise their hands to ask questions or engage with the speakers. It is a permissioned platform, so only those who are recognized are permitted to speak on the call.
Somewhat ironically, Clubhouse is taking a step back from videoconferencing and reverting to an old-fashioned conference call format. But there’s a great reason for this.
At this point, many people have been working remotely for nearly a year now. This often involves engaging in Zoom video calls throughout the day.
But with Zoom calls, we constantly have to worry about what we look like and what the environment around us is like. Is our background presentable? Will background noise cause problems? This can be stressful.
What’s more, videoconferencing takes up far more bandwidth than audio-only calls. For this reason, the quality of Zoom calls tends to be lower. Sometimes the video freezes or the audio cuts out.
For these reasons, Clubhouse’s audio-only platform is quite attractive. Participants don’t have to worry about what they look like. The call quality tends to be better because the calls don’t eat up as much bandwidth. And the format prevents another pervasive problem on Zoom – people talking over one another.
This is also why I am a big fan of artificial intelligence (AI)-enabled avatars of ourselves. We can capture and record ourselves in a variety of different outfits and backgrounds. Then we can choose which avatar we want to display depending on the Zoom call. AI can be used to reflect our facial expressions and “insert” our voice over the avatar without the need to actually be seen.
Currently, Clubhouse is an invite-only platform. That means a current user must invite you to be able to join. But that hasn’t stopped Clubhouse from experiencing explosive growth. Starting from zero last year, the platform now has about one million daily active users (DAUs). That is impressive.
And if we compare this to Facebook’s almost 1.85 billion DAUs, it’s clear there is plenty of room for growth.
In fact, the demand Clubhouse is seeing is why it had to do its Series B funding round so shortly after the Series A. The company needed the money to build out the network infrastructure to support all the users coming in.
So what we are looking at here is a new social media giant on the rise. Let’s add Clubhouse to our early stage watchlist. This company has the potential to become the next Snap or even Facebook.
Elon Musk just put up $100 million in prize money to start a competition to see who can develop the best carbon-capture technology. This is technology that can capture carbon emissions and convert them into a useful product.
I love this. Prizes that incentivize innovation are so much more effective than government handouts. They are great motivators for entrepreneurs and early stage companies. Prizes encourage crazy “moonshot” ideas to solve challenging problems.
Musk is taking a page out of Peter Diamandis’ XPRIZE Foundation… and upping the ante.
The XPRIZE Foundation consistently issues challenges to incentivize the development of breakthrough technology to solve specific problems. It has even issued its own carbon-capture challenge. The typical purse for these XPRIZE challenges is around $10 million. The XPRIZE purse for the carbon capture challenge is $20 million.
Musk just went five times bigger. And that has the potential to attract even more radical innovations. After all, a shot at $100 million is a reason to go all out.
I see this as a smart move. And it is completely consistent with the brand Musk has built at Tesla. Electric vehicles, solar power, and energy storage all have the potential to reduce carbon emissions dramatically.
So I can’t wait to see what comes from this.
It could be something as simple as automating the planting of trees. Or it could be a new design for carbon dioxide scrubbers. Maybe it’ll be a new application of genetic engineering technology. Or maybe we’ll see some space-bound innovations.
With $100 million at stake, the possibilities are endless.
And even if this is a winner-take-all competition, it doesn’t mean the ideas that don’t win will go away. On the contrary, companies and teams that demonstrate promising approaches to the challenge almost always receive funding from angel investors and the venture capital community.
Now that 2020 is finally behind us, we can look back and see the impact COVID-19 had on consumer behavior.
And one of the most interesting dynamics was how the pandemic affected the less technologically savvy part of the population. This is predominantly made up of people in their late 50s and older.
And the numbers show that consumers over 65 years of age spent an average of $1,615 online from January to October 2020. The raw dollar amount doesn’t jump off the page at us.
But get this – that was a 49% increase from the prior year. It is remarkable to see this big of a jump in such a short time.
This shows us how the pandemic essentially forced the older segment of the population to adopt online commerce.
Since those who are 65 or older and not in good health are the most at-risk part of the population, many had to work with e-commerce technology for the first time to avoid the virus.
This likely would not have happened without the pandemic. It’s just hard for us to change habits that have been developed over decades… except when doing so becomes a necessity.
And this is behavior that will persist going forward. Many older consumers have learned for the first time how easy and convenient it is to shop online for the products they use daily, including groceries. And now that they are past the learning curve, most will continue the new habits after COVID-19 is a distant memory.
I can tell you that the technology industry loves this. The pandemic was a radical catalyst that pushed people to go through its channels to transact. This was the biggest challenge that the tech industry had to solve, and the virus solved it for them.
The numbers are only going to increase this year as governments around the world nonsensically continue to impose restrictions on society.
This has wide-ranging implications for tech investments. Amazon is the most obvious one. But digital retail will benefit across the board, as will cloud-based service providers.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. I want to remind readers to join me next Wednesday evening at 8 p.m. ET for what could be the most important tech prediction of my 30-year career. We are calling it the Investment Accelerator event.
At the event, I am going to pull back the curtain on one of my most ambitious projects to date. We’re going to talk about a rare opportunity to join an elite group of investors for the chance to share in $1 billion in tech profits.
We will also discuss what I see as the five best investment opportunities that could 10x our money over the next five years. And we will talk about a brand new way to use AI to get the jump on Wall Street by identifying short-term trading opportunities that no one else can see.
So please mark your calendar for our Investment Accelerator event on Wednesday, February 10. We’ll get started at 8 p.m. ET sharp. I can’t wait.
Just go right here to reserve your spot.
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
