Less than a year after it raised a $15 million Series B, Public, a social-focused free stock trading service, has raised a $65 million Series C.
The startup is not the only company to raise successive rounds this year. Welcome has managed the feat, along with Skyflow and others. Public’s Series C, therefore, fits into the trend of investors doubling down into startups that they think have potential.
After an initial freeze during the early pandemic months, venture capitalists and other investors accelerated the pace at which they deploy late-stage checks to upstart companies. Public’s Series C typifies the tendency, representing just over 72% of its total fundraising to date.
The Public round also exemplifies another developing venture trend, namely that of existing investors preempting portfolio companies’ proximate rounds. In this case Accel led the new investment. It also led Public’s Series A and B rounds.
But trends alone are not enough to pull any round together. So, TechCrunch got on the phone with Public co-founders Jannick Malling and Leif Abraham to better understand what investors see in the fintech upstart.
Public grew quickly in 2020, expanding its user base by a multiple of 10 since the start of the year.
According to Abraham, the company’s growth has been consistent instead of lumpy, expanding at around 30% each month. The co-founder also stressed that most of Public’s users find its service organically, implying that the startup’s marketing costs have not been extreme, nor its growth artificially boosted.
That user growth explains why Public was able to raise more. But why did it want to?
The founding duo told TechCrunch that they had plenty of cash in the bank from their preceding round, but saw the raise as a way to double-down on their model.
While competing services to Public also sport zero-cost trading, Public’s model hinges on a social focus (TechCrunch covered an element of Public’s social platform here, for example). And in the eyes of its founders, Public gets better as more people use it.
So, the startup intends to use its new capital to continue investing into product work, keeping its flywheel alive.
That self-reinforcing dynamic works something like this: Public offers a place where investors can discuss and execute trades for free. Those same investors tell their friends about Public, who later show up and take part in the conversation. Those conversations are enriched by the new participants — as Public deals with securities, it only has users who have registered as themselves, limiting trolling — and the process repeats.
So far it has worked. How much longer Public and Robinhood and M1 and Wealthfront and others can continue to accrete net-new investors to their platforms is an open question, however.
Astute readers will note that we discussed Public’s growth in the above paragraphs only from a user perspective. What about revenue?
Like other companies that offer free stock trades, Public makes money from what’s called payment for order flow. It’s the routing of trades to different market makers. Robinhood generates oceans of income from the practice, for example.
Before chatting with Public, I dug into its trading partner Apex’s filings to learn about its payment for order flow results from its recent filings. The resulting sums are somewhat modest for Apex’s collected clients. This means that Public’s revenue metrics, a portion of the aggregate sums, are even more unassuming.
Naturally, we were curious if the company had changed up its business model and thus had revenues heading into its new investment that we could not spot from external documentation. The founding team told TechCrunch that it had not changed its model, and that their company is more focused on user growth than near-term revenue targets.
This makes some sense. Public emphasized to TechCrunch that most of its users are long-term holders. The longer a user holds securities, the less they likely trade. That limits trading incomes like payment for order flow. So, trading likely won’t make a lot of money for the company.
The company’s monetization plans remain opaque. This means that the company’s new check will not only fund its product work in terms of its social experience, but also, we presume, its future revenue generation.
You can look around the fintech market and find examples of ways that Public could further monetize its user base.
This is not to say that revenue at Public has not grown. It has. I asked the company if trading volume generally scales with user growth. It’s correlated, the founders said. So, we can infer that the company’s growing user base has executed more trades over time, as a whole.
Let’s see what Public builds next, and how soon we get a taste for its future plans for generating ample top line from its users.