Want to Invest in YC Startups? Robinhood Has a New Fund for That

**Jennifer Sanasie** (0:00)
Robinhood Ventures Fund II began trading on the New York Stock Exchange this morning. The fund giving investors access to early stage private companies. I'm joined now by Shiv Verma, Robinhood CFO and Robinhood Ventures President.

**Shiv Verma** (0:12)
Hey. Hi, thank you for having me.

**Jennifer Sanasie** (0:14)
Of course, thanks for being here. We're on the floor. You rang the bell this morning. Of course, the fund began trading. Talk to me about how the whole team's feeling.

**Shiv Verma** (0:20)
No, this is great. We're so proud. So this is our second fund, Robinhood Ventures Fund II. This is focused on early stage companies. We were just here six months ago doing Robinhood Ventures Fund I for late stage companies. Now, we have both. We're so excited that customers now have two options participate.

**Jennifer Sanasie** (0:34)
Okay. We talk about the two funds, one for late stage companies, one for early stage companies. What do investors need to know about early stage companies, especially when it comes to risk?

**Shiv Verma** (0:43)
Yeah, absolutely. So these are earlier stage companies. We're partnering with YCY Combinator, one of the largest seed incubators in the world. There's typically two founders with an idea. So you are investing at a much lower valuation with much more upside. There is risk, but for us, we wanted to provide access. We didn't think it was right that everyday investors could not invest in these companies. So, fund one, later stage, probably lower upside.
Here, fund two, earlier stage, more upside, but more risk. And again, we stand for access and ownership, and so excited to get that out there.

**Jennifer Sanasie** (1:11)
Talk to me about valuation. When you're evaluating these companies, they are private, different than public companies. I know we can think of evaluation when funds are raised, but if there's no raise in recent history, how do you value these companies and how can investors be confident in the value that's been assigned?

**Shiv Verma** (1:29)
It's a great question. So typically, what we invest in is what's known as a safe.
It means when they raise their next round, it will then convert to the valuation there. So we aren't setting the valuation. You also put a cap on it, so that if they raise at a higher price, you get to invest lower. We have a third party audit firm that does all the valuations they invest in. We also have a committee internally that looks at it. So we spend a lot of time focused on how to do it. At the end, these companies will be worth what they are worth, but we want to make sure in the interim, we're doing our best to evaluate them properly.

**Jennifer Sanasie** (1:56)
Are we making maybe a little bit of a bet that Robinhood can identify the next Airbnb or DoorDash?

**Shiv Verma** (2:02)
That is the hope. And so as you mentioned, Y Combinator, Airbnb, DoorDash, Stripes, the most iconic companies came out of that. We actually hired a portfolio manager, Rich Averman, who was a YC founder and then a YC partner who joined us full-time at Robinhood, who manages the fund. And so we go through there. There's about 250 companies per batch. We talked 125 of them and roughly we invest in 40 per batch. And we're hoping that these founders will be the future next generation companies.

**Jennifer Sanasie** (2:25)
Talk to me a little bit about the fee structure.

**Shiv Verma** (2:27)
Yeah. So in typical venture capital, the fee structure is 2% and 20% upside. And so for this fund, we did a very similar thing. There's a 2% managed fee. Very importantly, the 20% upside is only on realized gains. So if a company does well, becomes the next Airbnb or DoorDash, and they have a realized gain, then we take a small profit on that. The rest goes back to the customers. And so this is very much similar to traditional venture. The main difference is we also provide daily liquidity. So anybody can invest and you can trade it daily, and you don't need to be accredited. So you get the best of both worlds, and we think it's a great product for customers.

**Jennifer Sanasie** (3:00)
Now I want to talk about that a little bit. The underlying investments are highly liquid private companies. We've talked about that, but now trading publicly on the New York Stock Exchange. How do you create daily liquidity here? Just talk to me a little bit about that.

**Shiv Verma** (3:11)
Yeah, it's a great question. So these are registered Fortiac funds, which means they're exchange traded. We're listed on NYSE here as you mentioned. And what happens is on any given day, people can choose to buy it the same way they would on an ETF. So for us as the portfolio manager, we actually don't need to sell the underlying assets. It trades separately and it can trade at a premium to NAV. And so you get the best of both worlds. You have a vehicle that can hold private assets, but since it's exchange listed, it can trade at a premium or discount, and you don't need to sell anything. So it's a pretty innovative structure. These vehicles have been used for a lot of illiquid assets before, and now we're pushing the frontier. First with the fund one and now with fund two.