Inside Robinhood’s capital allocation framework

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When brokerage and financial services platform Robinhood launched its IPO in 2021, Robinhood’s CFO Shiv Verma says the company had a lofty goal: “We want to be the financial super app.”

“To be honest, we didn’t know what that meant. We were still figuring it out, we were seeing ‘What does this actually mean? What do we want to do?’ Now, you can see the pieces coming together, and it’s focused and it’s disciplined,” Verma told CFO Brew.

Verma’s been at Robinhood since 2018, recently as its SVP of finance and strategy before his promotion to CFO earlier this year. He worked on several big projects along the way, including building the company’s treasury team.

He also joined Robinhood six weeks before now-former CFO Jason Warnick, whose mentorship helped Verma become the next in line for the finance chief role.

Verma’s got big ideas to help Robinhood achieve its super app dreams via its “North Star”: profitable growth. He also explained to CFO Brew how he plans to get there via a balanced investment strategy that keeps sights on the company’s long-term future.

This interview has been edited for length and clarity.

What are your priorities as Robinhood’s new CFO?

The first and foremost is just capital allocation…We spend a ton of time on, “How many developers do we have? Are they productive? Are we giving them the right tools? Are we shipping fast enough? Are we obsessing about speed and velocity?” My second main priority is very similar to what Jason [Warnick] had: We need to keep growing. We are a growth company, and how do we enable the business to do that? There’s two ways you can do it: one is the meat and potatoes, and two is the frontier technologies. By meat and potatoes—we grew so fast, sometimes we forget we’re not even barely 10 years old, we just don’t even have all the asset types and account types. So we need [to] keep investing in the core business, but then also pushing the frontiers, on new products. Then the third thing is making sure we keep our focus, and our financial discipline. It is really easy in good times to over-invest, and it is really easy in bad times to pull back, but [we need to make sure we’re] not doing either of those, making sure that we have our plan.

How do you and your team balance large scaling projects while making sure to maintain the revenue and cash flows that allow you to do that?

In 2022, we made a shift, and we restructured the firm, and there was a couple things that we did. The first is we went to a GM model. So we have three business lines today: we have brokerage, we have crypto, and we have what we call money, which is banking and the credit card. What that did is, it allowed us to go fast in each of these verticals, they all control their own destiny—so each GM has their own engineers, their own product managers, their own compliance, their own ops, and you're not dependent on a central team. The other thing you can do is you can now capital allocate to each of these businesses, and let them run. Now, how do we balance between “Hey, what we can do today that generates cash flow?” or “What do you do things that may take longer?”

So we put investments into three buckets. First is the core business, this is our bread and butter, things that are doing cash flows today. If you put all your investment there, you would have more cash today, but in one to five years, we regret it because you didn't make future investments. The second bucket we put it in is what we call the scaling bucket. These are things that we build, but you can’t just ship it and forget about it, you have to keep adding features, you have to keep doing it and keep making them better and better. Those usually take one to five years to see returns on them. The last bucket is the five- to 10-year long-term investment bucket. You have to make sure you’re still investing there, because that’s where you’re going to get your future cash flows.

What obstacles do you see ahead for Robinhood and how are you thinking about tackling them?

70% of global GDP is consumption, particularly in the US, and so anytime there is [anything] going [on] in the backdrop, you have to make sure the consumer is healthy. We are also an investment platform, and so we are beholden to what is going on with the equities markets. We build a business to be diversified, and to be able to withstand any periods of volatility, but it's not lost on us. That’s a long way of saying,”What is the customer health? What is the economy health, and how does it impact our business?”

One of the biggest obstacles I want to make sure we do [tackle] is we don’t under-invest. It is really important to me that we are building for the next five, 10, years. We want to be a multi-generational company. The only way to do that is invest, you can’t oversteer. But the converse is, you’ve still got to be disciplined, you still have to make sure that—we are public, we’re reporting every quarter, so how do you balance that? The biggest obstacle I foresee is I don’t want to oversteer either way.