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 tens of millions 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 personal investments.
In accordance with latest reporting, Robinhood is getting ready a closed-end fund that can let retail traders purchase into among the hottest personal AI startups on the earth.
It will give on a regular basis traders entry to the form 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 should even use leverage to spice up returns.
It’s a daring thought. However when you’ve adopted Tenev’s observe document, 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 larger…
Web capital markets.
Robinhood’s Tokenization Play
I’m on document that I consider tokenization is inevitable.
And for years, I’ve been telling anybody who will pay attention why I consider will probably be the subsequent nice revolution in finance.
Right here’s why.
Between 2010 and 2020, the S&P 500 gained about 270% while you embody dividends. Meaning you possibly can have roughly made 3X your cash by investing in a fund that tracks this index.
However the high enterprise funds earned returns of as much as 8X their traders’ cash over that very same interval.
The catch is, except you had been a fund insider or accredited investor, you had been locked out of the most important beneficial properties. As a result of by the point probably 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 quick climb the inventory dropped to $85 earlier than stabilizing.
Supply: Yahoo Finance
These had been thought-about “progress” firms. However all their progress was already captured privately.
That’s the issue Robinhood is making an attempt to resolve by democratizing entry to personal markets.
World funding for private-AI startups topped $70 billion in 2024, and valuations hold climbing.
The Monetary Occasions studies that ten of the sector’s high names added practically $1 trillion in personal worth final yr alone.
And there’s an apparent cause 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 hold customers engaged. Giving them entry to early-stage innovation is a brilliant method to do it.
However I consider there’s a fair larger motive for this launch.
When Tenev says he desires to offer “regular folks publicity to the speedy progress of personal AI firms,” he’s speaking in regards to the subsequent part of web capital markets.
I’m speaking a few international 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 knowledge facilities could be traded digitally similar to crypto is at the moment.
In fact, this experiment comes with some threat.
Robinhood’s new fund can be closed-end, that means traders can’t simply money out of it. It additionally could 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 posh private-equity-style technique may severely burn their fast-moving consumer base.”
However it’s not like it is a fully new thought.
In 2023, SoFi launched a private-markets fund that supplied publicity to SpaceX and OpenAI. It drew enormous curiosity, but in addition 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 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 by way of blockchain-based gross sales. And Robinhood is opening up a method for on a regular basis traders to purchase into personal firms that had been as soon as off-limits to them.
However the endgame is similar: a worldwide market constructed on the identical digital rails that transfer data at the moment.
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 venture the marketplace for tokenized belongings to achieve $6 trillion by 2030.
That’s a twenty-fold leap from at the moment’s ranges.
If Robinhood’s mannequin works, tens of millions of traders may at some point 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 the moment one platform at a time.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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