What Robinhood got right (and wrong)

INC. THIS MORNING What Robinhood got right (and wrong) Good morning, If Robinhood got one thing spot on, it's that free sells. Prior to setting off a stock market firestorm last week, investors in Robinhood, the Menlo Park, California-based trading platform that offers commission-free trades, were only too happy to keep fueling its growth. Now, they have no choice: Practically overnight, Robinhood faced crippling cash demands brought on by a Reddit subgroup named WallStreetBets, which was driving up the stock price of companies, including GameStop and AMC, that had been targeted by well-known short sellers. The volume of orders pushed Robinhood into tricky territory with its cash position. To stabilize itself, the firm then turned to early investors to raise more than $1 billion in a matter of hours, on top of the $1.7 billion in funding it had previously raised. On Monday, the company raised an additional $2.4 billion from shareholders. But even deep-pocketed investors have limits. The experience may drive yet another nail into the coffin of the freemium business model--or at least make startups and their VC investors seriously consider (or reconsider) how they disclose information and communicate with their users. That’s what Robinhood may have gotten wrong. Like many other companies operating in a digital marketplace, Robinhood makes some money from users who buy premium or upgraded versions, but the bulk of its revenue comes from third-party clients willing to pay for access to Robinhood’s users. It seems retail investors had a different understanding, as was apparent when the WallStreetBets crowd cried foul on social media. Ultimately, the company’s shakiness over the past week highlights the difficulty of getting caught between your platform’s users--without whom, you’d be out of business--and the clients who help you keep the lights on.  The dramatic saga has ramifications aplenty for the future of Robinhood, and any other entrepreneur involved in a similar freemium business model. Read our story to learn how the 8-year-old company got here and what it’ll take to repair last week’s damage. Inc.’s Best Workplaces. Apply today! Inc .’s Best Workplaces awards the company cultures that thrive in the face of adversity. Cultures that in response to a pandemic redefine the workplace and continue to enrich it. Cultures that foster employee growth and advancement at all levels. Apply today to be recognized as a place where people love to work, one that sets the standard for excellence in company culture. Deadline to apply: February 5, 2021. Apply Now. HERE'S WHAT ELSE I'M READING TODAY: New research shows that executives are split on whether to require Covid vaccines before returning to the office. --Inc. Here’s how the best leaders rethink and unlearn what they know, according to Wharton organizational psychologist Adam Grant. --Inc. Some economists say the Paycheck Protection Program’s $500 billion of small-business aid hasn’t been as useful as other forms of Covid relief. --The New York Times On Sunday, Verizon is throwing a Super Bowl post-game concert to raise funds for U.S. small businesses. --CNBC Here’s how business travel could be impacted by the Biden Administration’s crackdown on the Covid-19 pandemic. --Inc. ONE MORE THING: This is the one question every leader should ask, according to Apple CEO Tim Cook. --Inc. --Cameron Albert-Deitch Reporter, Inc. How are we doing? Send me ideas and feedback at calbertdeitch@inc.com, and sign up for daily text messages from me. Become an Inc. Unlimited subscriber. Click here to forward to a friend. This email was sent by: Mansueto Ventures 7 World Trade Center, 29th Floor New York, NY, 10007, Unsubscribe • Update Profile • View in Browser • Privacy Policy