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Robinhood gets caught in the meme stock machine

One thing to start: Lionel Messi, the frontman of FC Barcelona’s success for over a decade, is leaving the Spanish football club due to “financial and structural obstacles”, blaming financial regulations imposed by La Liga, which runs the top two divisions in Spain, that require the team to rein in its spending.

Lionel Messi © Getty Images

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Robinhood meets its meme stock maker

When Robinhood made a disappointing public debut last week, there was a sense of schadenfreude in the air. A fall in its share price of more than 8 per cent represented one of the worst starts to an initial public offering for a company of its size.

Institutional investors were wary of the brokerage app, which has fanned the flames of the retail trading frenzy for more than a year. And its users have loved to hate the platform ever since it was forced to halt trading on GameStop — the “OG” meme stock.

Bar chart of Biggest first day declines by US listed-IPOs raising at least $2bn (%) showing Robinhood has one of the worst IPO debuts in history

But one thing we’ve come to know by now is that markets are unpredictable. 

Robinhood’s first full week of trading sent shares in the company 100 per cent higher, before nosediving again on Thursday. 

As trading in its shares was repeatedly halted on Wednesday, spectators couldn’t resist pointing out the irony. Things have officially come full circle: Robinhood is the newest member of the meme stock club.

Baiju Bhatt and Vlad Tenev, the co-founders of Robinhood, on Wall Street © AP

The sudden rally in Robinhood shares was largely attributed to investors loading up on options, which can be used to bet that a stock will either go up or down at some point in the future. They’ve become hugely popular with retail traders and are one of the main ways that Robinhood makes money. 

Yet DD would guess that “meme stock” isn’t exactly the designation Robinhood is hoping for. 

The Menlo Park, California-based company, named after the heroic outlaw who stole from the rich to give to the poor, has fought hard to pivot from disrupter to a serious financial institution.

People wait in line for T-shirts at a pop-up kiosk for the online brokerage Robinhood along Wall Street after the company went public last week © Getty Images

We saw in January how those two things can collide. Retail traders were outraged when Robinhood was forced to halt trading in meme stocks. They blamed its close relationships with market makers while Robinhood insisted that it just didn’t have the necessary regulatory capital to fund those trades. 

The trading platform has spent a lot of time cleaning up its act since then. But it may find it difficult to be taken seriously as a company if its share price continues to move on the whims of retail traders, even if it does make a ton of money in the process. 

The ex-SoftBank partner placing his own bets on tech

SoftBank hasn’t had the easiest time hanging on to partners at its massive $100bn Vision Fund.

First there was the architect behind some of its largest investments in mobility, Michael Ronen, who expressed concerns about “issues” at the fund as he exited early last year.

Then there was Ervin Tu, the partner who oversaw the Vision Fund’s stakes in Uber and China’s ByteDance who left this year to join South Africa’s Prosus as chief of investments. 

Few departures have had a larger effect on the fund, however, than that of Jeff Housenbold, the former chief executive of the photo-sharing company Shutterfly.

Jeff Housenbold © Bloomberg

Housenbold oversaw one of the Vision Fund’s most profitable bets — a $680m investment in the meal delivery company DoorDash that turned into $11.9bn by the end of the company’s first day of public trading.

He also led the Vision Fund into the dog walking app Wag, an early black eye, and the construction start-up Katerra, which recently filed for bankruptcy in the US after SoftBank invested roughly $2bn.

As an exit gift, SoftBank’s second Vision Fund now plans to invest $100m in Housenbold’s new fund, Honor Ventures, which is aiming to raise between $500m and $600m, according to this scoop by DD’s Miles Kruppa.

Housenbold told Miles he would make the same investments in companies like Katerra and Wag again, pointing the finger at poor execution despite strong “concept” and “vision”.

He also thinks he can win deals by providing useful counsel to start-up founders, at a time when firms like Tiger Global Management are dominating the market by taking a hands-off approach.

“The CEOs believe I can add more value than just capital,” he said. “If it’s just a capital raise, there are plenty of people with much larger funds.”

Private equity and labourers bond over barbecue

It’s no surprise that the Manning American football brothers are in line to profit from a pending Spac merger. Perhaps more surprising is that some ordinary line workers are set to cash in as well.

Peyton and Eli are the celebrity backers of grill retailer BBQGuys, which announced last month that it would list its shares at an enterprise value of roughly $800m. 

Brand Velocity Partners, a new private equity firm, fortuitously bought the company in 2019 for less than $200m, just before the pandemic and subsequent home goods boom.

Peyton Manning pictured in 2016 after winning Super Bowl 50 with the Denver Broncos © AP

BVP’s founders had a somewhat novel idea: why not give a tenth of their “carry” — aka deal profits — to the roughly 400 workers at the Louisiana-based company as a way to build a sense of community and even to do their part to help mitigate the gap between capital and labour?

As DD’s Sujeet Indap explored on Wednesday in Lex’s biweekly newsletter (subscribe here), a key issue surrounding private equity is its often tense relationship with workers, who in the worst instances have been brutalised by these so-called Masters of the Universe. 

A handful of firms, most notably KKR, have considered partnering with line workers not only in the spirit of generosity but also to create an ownership mentality among the rank-and-file, which could theoretically make for a win-win scenario. 

Private equity’s harshest critics won’t be easily swayed, however, believing the business model of heavy leverage and intense focus on financial returns inherently squeezes workers.

Job moves

  • Frasers is in talks about handing its chief executive role to Michael Murray, the future son-in-law of founder Mike Ashley

  • Blackstone has hired Ramzi Ramsey and Mike Kirkman as managing directors. Ramsey was previously a partner at SoftBank’s Vision Fund, while Kirkman was a director at GI Partners.

Smart reads

Courtroom drama Scarlett Johansson’s suit against Disney is poised to shake Hollywood to its core. But her bold crusade against the powerful studio raises a question — do actors have any leverage left in the streaming age? (FT)

From PE to politics Saving Virginia from economic ruin may have not been the only motivation behind ex-Carlyle boss Glenn Youngkin’s gubernatorial run. Employees of the firm say it was multiple investment missteps that made him flee. (BBG)

On a mission In 2019, H2O Asset Management made a series of bets on German financier Lars Windhorst that escalated into crisis. Over a year later, the firm is still waiting for him to buy back more than €1bn of bonds. But can he make good on the promise? (FT)

News round-up

KPMG fined £13m over Silentnight sale to private equity (FT)

Hedge fund Odey lines up bets against ‘meme stock’ favourite AMC (FT)

Bayer to buy US start-up Vividion for up to $2bn (FT)

India threatens Walmart-owned Flipkart with big fine (FT)

Daily Mail owner agrees sale of disaster analytics unit to Moody’s (FT)

Weber slashes IPO pricing in signal of cooling market (FT)

Wells Fargo and BlackRock delay return-to-office plans until October (FT)

Qualcomm bids $4.6 billion for Veoneer in battle with Magna (BBG)

Penn National to buy sports-betting firm Score Media in $2 billion deal (Reuters)

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