As 2021 began, investors stuck at home in sweatpants kept signing up for the firm’s popular no-fee trading app, even plowing U.S. stimulus checks into fresh bets on ever-rising stocks. People close to the brokerage said it was planning to hold an IPO around May. The timing would be fortuitous: before summer and widespread vaccinations let droves of users return to pre-pandemic hobbies.

But now, Robinhood is at the center of a storm over its emergency move last week to limit bets on a list of volatile shares such as GameStop Corp. Price swings in the stocks forced the brokerage to raise billions of dollars in funding to keep up with clearinghouses’ rising demands for collateral. As customers cried foul, lawmakers and regulators vowed to examine Robinhood’s decisions, threatening to fuel legal and compliance costs.

A swift public listing would let the company capitalize on its rapid growth of the past year — and provide a potential windfall for investors who stepped in to support the firm during its crises at hand.

Indeed, people close to Robinhood said the startup plans on moving ahead with an IPO. And alternatively, one person said, the brokerage could pursue a debut via direct listing or a deal with a publicly traded “blank-check” firm, known as a special purpose acquisition company. Unicorns including online lender Social Finance Inc., or SoFi, and real estate venture Opendoor Technologies Inc. have agreed to merge with SPACs in recent months. The maneuver avoids a cumbersome IPO process that includes a roadshow, where the response from investors can dramatically reset a company’s valuation.

No matter how it goes public, two people said, a stock listing could make it easier for Robinhood to muster financial resources in the future to help meet any regulatory requirements.

Nora Chan, a spokeswoman for Robinhood, declined to comment.

Pandemic Pastime

Robinhood has been planning for a May debut since at least late last year, according to people familiar with the matter, who asked to not be identified because the deliberations aren’t public. While that plan hasn’t changed, the firm has yet to make a final decision on timing, so it could still be adjusted, the people said. Executives have been so focused on dealing with the current crisis in recent days that going public hasn’t been the top priority, the people said.

Successful market debuts are often a matter of showing well-timed momentum to the investing public — and at the moment, Robinhood has that in spades. The company signed up millions of users after the pandemic locked down commerce last year, leaving people looking for ways to make extra money while passing time indoors. The firm is still building out its customer-service, compliance, legal and lobbying operations to handle the influx. In other words, its costs have yet to catch up.

The spring-loading of new customers may prove attractive to public investors willing to bet that Robinhood can use the funds to mature. But after Robinhood’s customers picked a fight with hedge funds in January by sending shares of GameStop and other beaten-down companies into the stratosphere, the brokerage felt the strain of unexpectedly steep collateral calls.

Chief Executive Officer Vlad Tenev recalled how his firm received a demand for about $3 billion around 3:30 a.m. on Thursday. The amount was “an order of magnitude more than what it typically is,” Tenev told Elon Musk over the weekend on social-conversation app Clubhouse. The brokerage, which by that point had raised about $2 billion dollars from venture capital investors among others, saw the clearinghouse’s collateral call fall to $700 million, Tenev said.

Robinhood had more than $1 billion on hand to cover it, but Tenev and the firm’s investors were so alarmed that the call might herald a wave of demands that executives set out to raise more funds quickly, according to a person with knowledge of the situation. The concern was that the social media phenomenon driving spikes in stock prices might continue.

“I don’t think they ever anticipated that they would end up being the battleground for a showdown between traditional Wall Street and the individual investor, but that’s really what they are right now,” said Cait Lamberton, a professor of marketing at the University of Pennsylvania’s Wharton School.

Convertible Notes

Investors led by Ribbit Capital have since poured $3.4 billion into the firm in a two-part convertible note issuance. The first $1 billion disclosed last week morphed into a $2.4 billion tranche and will convert into equity at a $30 billion valuation — or a 30% discount to an eventual valuation in a public listing, whichever is lower, according to people with knowledge of the terms. A subsequent $1 billion infusion converts at the lower of a 30% discount, or a $33 billion valuation, one of the people said.

Some participants in the financing, seeking to reduce their exposure to the company, have begun syndicating out portions of their stakes, people with knowledge of the matter said.

To investors, the convertible notes offer the allure of potentially mammoth returns in a public listing, which could put additional pressure on the company to maintain its May timeline.

Once public, the company would be better positioned to quickly issue equity or secure additional credit, if there ever is another emergency.

–With assistance from Matthew Monks, Sarah McBride and Katie Roof.