The Menlo Park, Calif.-based broker phenom's $140-million purchase of the NYC-based startup gets young investors to collaborate in chat, show up with questions in Fortune 5000 c-suites and use proxies -- and even class-action suits -- like pitchforks
Brooke's Note: I keep wondering how Robinhood will compete once investors wake up to the fact it is really just a slim Schwab headed by a guy with long hair. But maybe CEO Vlad Tenev read my mind. His very first acquisition out of the flush-from-IPO gate is Say Technologies. It builds on an area where the Charles Schwab & Co. has made little if any noise -- becoming a social media platform with teeth. I don't know just how developed Say Technologies is only four years into its existence. But it doesn't seem like a stretch that if its chat function gets traction en masse from Robinhood investors, it could be very powerful -- and that it could draw people away from Reddit. Tenev hinted that post-IPO his firm could bring outsourced services in-house. Robinhood didn't exactly outsource to Reddit, but in effect some of that was going on.
Robinhood Markets just spent $140 million to buy a company that can radically increase its chief asset--albeit one it doesn't carry on its balance sheet -- Robinhood investors.
The Menlo Park, Calif., brokerage is buying Say Technologies for $112 million, a giant premium over Say's previous $28 million valuation. But the acquisition amounts to pocket change from the $2 billion it raised in its IPO.
Say's hidden asset may be its chatroom and Q&A forum that mimics much of what Robinhood investors do on Reddit.
The potential for Robinhood to exploit its investors own proven powers toward the emerging ESG movement is monumental, according to John R. Crittenden, strategic advisor for Stealth Mode, an Los Angeles financial wellness platform.
"Imagine some new corporate governance environment that has to deal with meme-driven activist shareholders momentarily aligned in a soup of the day way, yet can count in the millions and significantly impact shareholder voting and other rights," he says.
"For contextuality, look at the GameStop and other Reddit-driven trading disruptions. Multiply that by orders of magnitude effecting M&A issues etc."
Indeed, the New Yorker magazine article 'Robinhood's Big Gamble' reported on a number of hedge funds including Melvin Capital that bludgeoned by ill-advisedly shorting stocks that Robinhood-Reddit investors pumped up in price beyond fundamental valuations.
Pitchfork rebellion
Certainly executives at Robinhood and Say Technologies are lending support to such a concept.
Robinhood announced the deal in a blog post that begins: "One of our core values is Participation is Power. We think there’s room for everyone in the financial markets and we’re always working to help first-time investors become long-term investors."
Alex Lebow, co-founder and CEO of Say Technologies, shares that vision.
"As part of the Robinhood family, we’ll be able to further our goal of creating a new ecosystem of ownership and engagement to benefit all investors and companies,” he said in a statement provided for Robinhood's blog piece.
Robinhood has about 18 million users, up from 13 million in 2020 and 1 million in 2016. Over the winter it reported having as many as 600,000 per day downloading its app, albeit not all with financial assets on deposit.
"Exposing voting rights to individual investors is right around the corner." he said in an earlier RIABiz interview.
"Once there's sufficient consumer awareness, then there's a market to deploy the curation technologies that can make proxy voting a thrilling experience. I also expect financial advisors, influencers, and other intermediaries will play a big part of that on-platform curation," he adds.
Governance power
Yet for all the talk of social media and governance, the capability is also a wealth creation machine, says Lex Sokolin, head economist, decentralized protocols, for ConsenSys.
"Robinhood is the consumer investment megaphone, amplifying retail investment through access, leverage, and voice.
"Say Technolgies does the latter — giving community actual governance power. That fits well on this idea of an engaged financial community being a self-reinforcing wealth creation machine."
The idea that Robinhood can fund a purchase as a social media force is not so farfetched -- and it may harness tremendous power, Sokolin notes
"Public markets are reflecting all sorts of underlying mechanistic distortions, from asset inflation to venture capital subsidies," says the London-based analyst. "So then, social capital and the ability to wield it into power matters more than money."
"We are in the age of mega crypto videogame growth, and not cash flow based accountant fundamental value," he explains.
Geared to retailers
What Robinhood gets immediately is a way to bring in-house its ability to handle shareholder services -- read proxies -- currently handled by Mediant Communications Inc., a New York City investor services company.
The gain for Say Technologies will be a loss for Mediant, which hasn't had a good partnership with Robinhood, says Apex CEO Bill Capuzzi.
"I think this is a very interesting acquisition," he says. "Proxy vote is something that is crappy across the industry and the say product is geared specifically towards the retail investor.
Mediant was founded in 2002 but had its biggest funding round last July -- about $18 million after raising only $10 million in its first 18 years.
CEO Artthir Rosenzweig declined a request for comment sent via LinkedIn. The company's website's 'Contact' page has readily visible email or phone number.
Reddit, the 16-year-old San Francisco social news aggregation site, just got valued yesterday (Aug. 11) at $10 billion after an estimated $700 million funding round. The valuation, at least in good part, is because of its users' connections to Robinhood.
Fidelity Investments was the chief investor in the round -- albeit using cash in mutual funds rather than ,making a strategic investment.
The $10 billion valuation was a leap of $6 billion from a $250 million raise that valued the company at $4 billion six months ago.
Fidelity made us an offer that we couldn’t refuse,” Steve Huffman, Reddit co-founder and chief executive, said in an interview with the New York Times.
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Robinhood tilts business model toward 'social media capital' with purchase of Say Technologies, which has a Reddit-like chat function and proxy software to execute rebellions - RIABiz
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