For most of modern financial history, the most profitable moment to invest in a company was before it went public. That is when a business worth $10 million could become worth $10 billion. But that stage was legally off-limits to ordinary investors. Only the already-wealthy were allowed in.
Robinhood has spent the past two months dismantling that barrier. Its first fund, which holds stakes in ten private companies including OpenAI, Stripe, and Databricks, listed on the New York Stock Exchange in March at $21 a share. It now trades around $46. More than 150,000 retail investors have participated.
Now Robinhood is filing for a second fund, this one going even earlier in the startup lifecycle. The first fund focused on companies that were already mature, well-known, and likely close to a public listing. The second will include younger startups with no proven track record. The potential rewards go up. So does the risk of total loss.
This matters beyond just finance. Robinhood's CEO has said he wants retail investors to eventually participate in the very first rounds of startup funding, the kind of early bets that made fortunes for Silicon Valley insiders over the past decade. If that happens, it would represent one of the most significant changes to how private companies raise money since the rules were written.
But the picture is more complicated than the price chart suggests. These funds are structured as what is known as a closed-end fund, meaning a fixed number of shares trades on the market every day. Unlike a regular investment fund, investors cannot redeem their shares at the fund's true underlying value. They must sell to whoever is willing to buy, at whatever the market price happens to be that day.
This creates a structural risk that the current excitement is masking. The fund's share price can drift far above the actual value of the companies it holds. When market sentiment changes, the price can fall sharply, even if nothing has changed about the startups inside the fund. Research into similar products has found that the market price of these structures can be over four times more volatile than the actual asset values they hold.
The SEC noticed this too. In February, just before the first fund launched, the SEC held a formal roundtable specifically about private market valuations and what risks these new retail-accessible products carry. The regulator is watching closely.
There is also the question of Robinhood's own financial interest here. The fund charges a 2% annual management fee on assets. That fee drops to 1% for the first six months, but returns to the full rate afterward. As Robinhood launches more funds and grows the total assets under management, this fee stream becomes a meaningful and recurring business line, one that does not depend on how much trading activity happens on the platform.
The broader trend Robinhood is riding is real. The number of publicly listed companies in the US has fallen from around 7,000 in 2000 to about 4,000 today, while the estimated value of private companies has exceeded $10 trillion. Companies are staying private longer, which means more of their growth happens behind closed doors. The people who historically benefited from that growth were institutional investors and the already-wealthy.
The first fund's performance is impressive, but some caution is warranted about what is actually driving it. The underlying companies have not changed dramatically since March. What has changed is market enthusiasm for anything connected to AI. The same enthusiasm could reverse.
For the second fund targeting early-stage startups, the risk is more fundamental. Early-stage companies fail at high rates. The ones that succeed often take seven to ten years to deliver returns. Packaging them into a fund with a daily stock price does not change any of that. It just makes the ride feel faster and more liquid than it actually is.