The flourishing zero-fee stock trading app Robinhood is now part of the unicorn club after it raised a $110 million Series C at a $1.3 billion valuation, as TechCrunch reports.
The latest funding round was led by DST Capital, according to TechCrunch, along with other existing investors NEA, Index Ventures and Ribbit Capital. The funding round also attracted new investors Thrive and Greenoaks.
Launched in 2013 by Vlad Tenev and Baiju Bhatt, the Palo Alt0-based startup has raised $176 million in total funding, TechCrunch reports. The app has about 2 million users today, up from 1 million in October.
Chart via Robinhood
The biggest game changer that Robinhood has offered is its no-fee structure, setting it apart from other online brokerages like E*TRADE and Scottrade, which both charge between $7 to $10 per trade. So Bhatt explained to TechCrunch exactly how Robinhood actually makes money, pointing to the the app's Gold subscription, which allows users to "borrow up to double the money in their account to trade on margin with leverage, plus skip the three-day waiting period for deposits and make trades instantly."
The Gold subscription costs $6 to $15 per month for smaller accounts - with less borrowing power - and can go up to $200 per month, letting users borrow up to $50,000.
Robinhood also earns money from rebates its gets for directing its order flow to broker dealers, though, Bhatt insists, “We do not sell data to anyone. We have never sold data to anyone. We just do not do that.” There have been misconceptions that Robinhood sells high-frequency traders its data to help them trade against the startup’s customers. But, Bhatt says, “the rules around this stuff are so tight. We’re not a social media company. If we even step slightly out of line with anything we all go to jail.”
Meanwhile, Robinhood earns money on the interest of cash sitting in its users’ accounts, which could get a boost if the Fed raises the interest rate.
“It’s gone from ‘we want to see where the revenue is going’ to ‘wow that’s really strong, ‘” Bhatt relays.
Robinhood is launching a referral program so that when a user gets someone else to sign up for the app, "both get one share of a randomly selected company from a set that includes Facebook, Apple, Rite Aid, Ford and General Electric," TechCrunch reports.