Opening the Private Market to Individual Investors—ARK and Robinhood Discuss a New Form of Private Equity Investment
When Amazon, Apple, and Google went public, their valuations were in the hundreds of millions to billions of dollars. Today, however, it is not uncommon for high-profile companies to remain private for years, reaching valuations of hundreds of billions of dollars by the time they go public. The vast majority of that value creation has been enjoyed only by a select group of wealthy individuals known as institutional investors or accredited investors.
The conversation between Cathie Wood, CEO of ARK Invest, and Shivbir Dhillon, CFO of Robinhood and head of its private market business, was a candid discussion about how they intend to change this unequal structure.
1. Why have individual investors been shut out of the private market?
1-1. The barrier of the "accredited investor" system
In the United States, investment in private companies is generally permitted only for "accredited investors." The requirements are $1 million or more in net worth, or an annual income of $200,000 to $250,000 or more.
Dhillon expresses a clear concern regarding this system.
"When this system was first established, asset size was considered an indicator of investment sophistication. However, today, access to knowledge and information is widely available. This standard is outdated."
While the wealthy invest early in private companies to further increase their assets, individual investors are excluded from that opportunity—this is the status quo that Robinhood is trying to change through policy. Dhillon also proposed an alternative: qualification based on a knowledge test rather than assets.
1-2. The reality that the number of public companies has halved
Wood points out the fact that the current public market has about half the number of listed companies compared to 25 to 30 years ago. The reasons companies choose to remain private lie in the complexity of disclosure requirements and regulations. As long as this trend continues, individual investors will remain structurally excluded from the early stages of value creation.
"SpaceX's valuation is now said to be $1.5 to $2 trillion at the time of an IPO. However, non-accredited investors have had almost no access to this growth."
2. The problem with SPVs—"nested structures" without transparency
2-1. Overlapping fees and lack of transparency
As demand for the private market grows, investment products using SPVs (Special Purpose Vehicles) are surging. However, there is a major problem with this structure. A "multi-layered structure" is created where the initial investor enters an SPV, sells the rights to that SPV to another investor, and then puts them into another SPV, leading to overlapping fees.
Wood states that ARKvx adheres to the principle of "direct cap table participation," where they invest directly in the target company (over 95%), and RV1 takes a similar approach. This transparency is the core of both companies' differentiation.
"There have been cases where management teams were not aware that their company's shares were buried inside an SPV within an SPV. That is a problem for everyone," Wood said.
3. Two fund structures—interval funds and closed-end funds
3-1. Robinhood's RV1—design of a closed-end fund
RV1 is a closed-end fund listed on the New York Stock Exchange. It can be traded like an ETF or individual stock, is accessible to non-accredited investors, and offers daily liquidity.
Its main features are as follows: listing eliminates the need for accreditation requirements, it offers daily liquidity allowing for trading at any time during the day, capital is raised only through a one-time offering at inception with no further additions generally accepted (closed), and the trading price may be at a premium or discount to the NAV (Net Asset Value).
Mr. Verma acknowledged the latter point as a challenge and indicated a policy of addressing it through education and disclosure. Additionally, he presented a solution for cases where a significant premium (a state where the market price is significantly higher than the NAV) occurs: suppressing the premium through dilution via additional capital increases.
3-2. ARK's ARKvx—Designing an Interval Fund
ARK's venture fund, ARKvx (currently around $750 million in size), is an interval fund. It has the characteristic of always trading at NAV, but its liquidity is more restricted than that of a closed-end fund.
Capital inflows are accepted daily, but withdrawals (redemptions) are quarterly and capped at 5% of NAV. In other words, even if you want to redeem, you may not receive the full amount if there are many applicants at that time. Ms. Wood explains, "This is consistent with the long-term nature of private assets and sends a clear message to investors."
The fund's composition is approximately 80% private (unlisted) assets and 20% public (listed) assets.
3-3. Which is better?
Both Ms. Wood and Mr. Verma stated that both structures are effective for individual investors and that choosing between them depends on each investor's situation and priorities. In summary, they are as follows.
The advantages of a closed-end fund are daily liquidity, exchange listing, and no accreditation requirement, while the disadvantage is the risk of divergence from NAV. On the other hand, the advantage of an interval fund is that it always trades based on NAV, while the disadvantage is the limitation on liquidity (quarterly, 5% cap).
4. Redefining the Individual Investor—Data That Overturns the "Dumb Money" Theory
4-1. The Real Image of Individual Investors Shown by Robinhood
Mr. Verma introduced the image of the individual investor that emerges from Robinhood's customer data.
"The median Robinhood customer is 36 years old, married, has two children and a dog, and is distributed across the United States. They are long-term oriented and technology optimists."
Data particularly worth noting is that they tend to "buy more" when stock prices fall. Based on over $300 billion in assets and 10 years of data, Mr. Verma says that individual investors act by buying when stock prices fall and selling a little when they rise, actually functioning as a "volatility stabilizer" for the market.
4-2. Long-term Holding Even on IPO Day
Data from approximately 50 IPOs in which Robinhood was involved shows that individual investors act as "net buyers" on the first day and tend to hold them longer than institutional investors thereafter. This is a reality that differs from the common view that "individual investors are flippers (short-term speculators)."
5. Building Relationships with Companies and Founders—"Providing Differentiated Value"
5-1. ARK's Approach of Openly Providing Research
According to Ms. Wood, what ARK brought with them when first accessing private companies was not money, but research. ARK's annual "Big Ideas" report was reportedly cited by many startups in their pitch decks as the basis for their market size.
"Even in the days when we were writing small checks of $25,000 to $50,000, founders welcomed us. That was because they were already using our research."
5-2. Robinhood's Network of 27 Million Customers
In the case of Robinhood, their "distribution power" to 27 million customers is the core of their differentiation. For consumer-facing companies, it becomes a way to reach customers who are also users of their products directly, and for B2B companies, it offers a brand halo effect in terms of increased awareness and recruitment.
Summary—The Democratization of Private Markets Has Only Just Begun
The conversation between ARK and Robinhood demonstrates the reality that individual investor access to private markets is steadily advancing through a combination of changes in systems, fund structures, and technology. While structural barriers such as the opacity of SPVs and accredited investor regulations still remain, legal means to bypass them are being put into place.
The practical implication for investors is to understand the structural differences between interval funds and closed-end funds, and then choose an access method that matches their liquidity needs and investment time horizon. Both formats share the commonality of "holding private assets for the long term," and in that sense, decision-making on a different time scale than traditional public stock investing is required.