Robinhood's CFO on Refounding & the Art of Capital Allocation | Shiv Verma

Shiv Verma (0:00)

We cut about 40% of the company, from 4,000 people to about 2,500, surprisingly allowed us to go faster. It seems really counterintuitive by having less people, you have less bureaucracy. Capital allocation is something I obsess about. It is one of the most important goals for the CFO and also the CEO. And so we think about it in a couple different ways. The first, the macro and then the micro.

At the macro level, there's only three things we can do with our capital. We can do organic growth, we can do M&A, or we can do shareholder return. No loss leaders, every single product has to have positive unit economics. Now we're okay working for thin unit economics, but I don't believe in, oh, we're going to lose money on this product and then we'll make it up on somewhere else. That is a recipe for disaster.

CJ Gustafson (0:42)

I heard you say you don't like variable costs. Where does that philosophy come from?

Shiv Verma (0:45)

I will put it even stronger, I hate variable costs. And so I say this to investors, I say this to our employees. The reason I don't like it is, if you scale a business, which is our whole goal, it increase your cost base.

CJ Gustafson (0:58)

Is this thing on?

Shiv Verma (1:01)

Yesterday's price is not today's price.

CJ Gustafson (1:13)

Welcome back to Run the Numbers. Today, I'm joined by Shiv Verma, the CFO of Robinhood. Robinhood today looks very different from the company that went public a few years ago. And one of the things I wanted to understand was, what actually changed?

Shiv calls that period Robinhood's re-founding, a fundamental rethink of how the company operates. We get into why they significantly reduced headcount and actually started moving faster, why they replaced some committee decisions with directly responsible individuals, and why Shiv himself is the final decision-maker on all headcounts.

But what I found especially interesting is how that operating philosophy carries into capital allocation. Shiv walks me through how a new idea earns investment at Robinhood, why products need to stand on their own economically, the logic behind their 100 million business threshold, and why some teams are measured on market share instead of revenue or profitability. We also get into forecasting a business exposed to everything from interest rates to crypto, what happens inside Robinhood's monthly operating reviews, and naturally, what Shiv learned working for the Oakland A's during the Billy Beane Moneyball era. There's a ton in this one. Let's get into it. Here's Shiv Verma. Shiv, thank you so much for joining me on the podcast today.

Shiv Verma (2:26)

Thanks for having me. Excited to do it.

CJ Gustafson (2:27)

I've been a long time fan of Robinhood, not just the company in the sense of what it does, but how you monetize the product, its business model. I wanted to start out with maybe looking back a bit because you're now part of the S&P index. You have a market cap of roughly called 100 billion depending on the day.

But looking back four years ago, you described the company as going through a refounding. I thought that was a pretty remarkable thing to say for a company that had already gone public and had so much success. What did you realize needed to fundamentally change then?

Shiv Verma (2:59)

In 2022, we had been public for about a year. What we realized is some of the magic of Robinhood we had lost, and through a whole variety of different things. We had been in hyper growth mode, we had done a ton of hiring, we had some macro events that happened.

When we looked at 2022, when we were in hyper growth mode, the old beauty of Robinhood was we grew really fast, we never burned cash, and we shipped incredibly fast. In 2022, for the first time ever, we started burning a little bit of cash, our shipping velocity had slowed down, and we looked around and we didn't recognize the company. I give a lot of credit to Vlad, our CEO and co-founder. We were public, we were in the spotlight, our stock had IPO at 38, and we were down to sub $10 for a few times trading at cash value, and we made the hard decision to redo the company. What did that mean? The first thing is we looked at our customers.

A lot of our most engaged and active customers actually were the least happy, and that was counterintuitive because we had stopped building for them. So we said, okay, we're really, really going to focus on those customers, in particular, the active traders. Second, our shipping velocity has slowed, and one of the things was we had just gotten too big. We had 4,000 people across multiple different functions, and we went to a GM model, which has been fantastic. So each of the GMs now control their engineers, their product managers, designers, ops, compliance, etc. We got rid of as many centralized teams as we could, and that really accelerated the product velocity. One question we get asked a lot is, how do you ship so much? And this is one of the reasons. We have great GMs and great engineers, but then you stay out of the way. And so that was one of the things we did.