Ribbit came to Robinhood’s rescue. Will its bet pay off?

When Robinhood needed cash quickly, it didn’t turn to its oldest or largest financial backer. It called on Micky Malka, a Venezuelan venture capitalist known for his Rolodex in the heady world of fintech.

Within hours, Malka’s firm, Ribbit Capital, agreed to lead a new round of convertible debt financing, wiring its investment that same day. Other investors piled in, giving Robinhood more than $1bn in funding commitments by the next morning.

The deal’s speed and size drew attention to Malka, a low-key figure who has parlayed a career as a financial services entrepreneur on three continents into a timely wager on the global boom in fintech.

Malka’s investment came at a low point for Robinhood, which was forced to limit trading in popular stocks such as GameStop after facing demands for potentially billions of dollars in deposits from its equity clearinghouse amid a Reddit-driven market frenzy.

Now, his conviction will be tested as Robinhood prepares for a politically contentious public listing.

“Because of his authority, he was able to put it together very quickly,” said Yuri Milner, head of the venture firm DST Global, a large Robinhood shareholder that frequently invests alongside Ribbit in fintech start-ups. 

The risks ahead

Ribbit invested more than $500m in the Robinhood financing, including money it raised from its own investors solely for the purpose, according to people familiar with the deal. The investment, which was Ribbit’s largest to date, was also the biggest portion of the $3.4bn total Robinhood raised over the course of four days.

In exchange for the rapid infusion of cash, Robinhood agreed that Ribbit and other investors would be able convert the debt into equity at a discount to the company’s future initial public offering price. 

The deal could prove lucrative for Ribbit if the company can pull off a successful IPO. But Robinhood still faces plenty of risks. Following the backlash on Reddit, lawmakers have trained their attention on the trading app, whose chief executive Vlad Tenev is expected to testify in front of Congress later this month. 

Regulators have also begun scrutinising how brokers like Robinhood sell client orders to big market-makers, a practice known as “payment for order flow” that makes up the bulk of the start-up’s revenues.

People close to Malka said he has a keen sense for risk — and the possibility of losing money. Growing up in Venezuela during the oil collapse of the 1980s, Malka developed “an intrinsic understanding of money supply, money demand and how money works”, said Marcos Galperin, founder of the Latin American ecommerce site MercadoLibre.

After raising his first fund in 2013, Malka became an early proponent of cryptocurrencies, investing some of the money directly in Bitcoin. Later, he provided early backing to new start-ups founded by Mike Cagney and Renaud Laplanche, two fintech executives who had left their previous positions following public controversies.

In the UK, Malka found himself involved in the backlash surrounding Wonga, a heavily criticised payday lending start-up whose board he joined before founding Ribbit. Malka, who declined to comment for this article, stepped down as a director in 2014.

Wences Casares, a close friend of Malka, said the two received a chilly reception from venture capitalists when they moved to Silicon Valley to start the payments company Bling Nation in 2007. Investors had soured on financial services businesses, believing that companies like PayPal could only be built with large amounts of capital.

“The fintech world was invented when all of this became fashionable again,” Casares said. When Malka raised the first Ribbit fund, “it wasn’t fashionable”, he said.

Casares said Malka has since expressed some worries about “the hype around fintech”, as a flood of capital into the sector pushes valuations higher.

Reaping rewards

The new interest also means Malka’s early bets have begun paying off. Ribbit’s main funds over two years old have each produced annual returns of more than 30 per cent before fees and expenses, the firm said in a filing for a blank cheque vehicle last year.

Ribbit’s first fund, which raised $100m, has surged even more from investments in Bitcoin, the cryptocurrency exchange Coinbase and the personal finance company Credit Karma, which Intuit acquired last year in an $8.1bn deal, people familiar with its performance said.

Malka has also begun broadening Ribbit’s reach. Last year, it raised more than $400m for a special purpose acquisition company, becoming one of the first venture capital firms to capitalise on the boom. In January, it struck a partnership with the retailer Walmart to create a new fintech company, while revealing few details about the start-up.

People close to Malka said he can provide blunt advice to company founders, while also facilitating introductions to a broad network of contacts.

Galperin said Malka advised him to reject a roughly $5bn acquisition offer in 2013 after he joined MercadoLibre’s board. Though the offer appeared rich at the time, the company’s market capitalisation has since soared to $95bn during the pandemic-era boom in online shopping. “That was an inflection point,” Galperin said.

Malka made Ribbit’s initial investment in Robinhood in 2014, during the company’s first main round of funding but after an earlier seed financing. Until this month, he had not made the largest investment in any of the company’s rounds of fundraising.

“Venture capital is a very competitive space, including in fintech, and it is not enough now to win a deal just to provide capital,” Milner said. “It is important to be with a founder in the good times and the bad times.”

Additional reporting by Nicholas Megaw in London