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The Road to IPO: Insights on Public Market Readiness from Robinhood’s Finance Leaders
Commission-free investing app and Founders Circle portfolio company Robinhood completed one of the most memorable IPOs on record. Robinhood Markets CFO Jason Warnick and VP & Treasurer Shiv Verma sat down with CFOs in The Circle to share their insights on IPO readiness and lessons learned along the way.
Within weeks of joining Robinhood back in 2018, Jason Warnick (CFO) and Shiv Verma (VP, Treasurer) were deep into the IPO planning process. Two and a half years – and a lot of blood, sweat, and tears later – they helped lead one of the most memorable IPOs in recent record. Fresh off their public market debut and first earnings call, Jason and Shiv were kind enough to share their reflections on IPO preparation and readiness with other CFOs in The Circle.
True to the name and legacy, Robinhood’s IPO was in large part about giving retail investors access to a meaningful stake in the company’s future success. Rather than give a large portion of IPO shares to institutional investors, Robinhood chose to set aside up to 35% of its IPO shares for its customers – individual investors on its trading platform. This was in many ways the central theme of Robinhood’s IPO: allowing customers to play an outsized role in their public market debut.
IPO Readiness: A Two and a Half Year Journey
Having spent nearly twenty years at Amazon in various finance roles and serving on multiple finance committees, Jason was the perfect person to help bring Robinhood’s IPO vision to life. Coupled with Shiv’s complementary capital markets and IR experience working many years on the buyside, the two were a powerful finance duo laser-focused on preparing for Robinhood’s IPO.
The IPO preparation process began shortly after Jason joined, with the creation of an RFP and inviting multiple firms to pitch a GAAP analysis and Sarbanes-Oxley readiness. Focusing early on the accounting and finance challenges was critical, says Jason, as there are always minor issues down the road that can either delay your IPO or add stress to the process. He gave the example of quarterly financials: while Robinhood already had over three years of audited financials before embarking on the IPO process, work was needed to break those annual financials down quarterly.
Over the next year and a half, Jason and Shiv’s team focused on setting aggressive milestones with respect to closing the books, establishing corporate governance, improve forecasting, and performing mock 10-Q’s and earnings releases. They also added three new board members towards the end of their IPO preparation.
Early in the process, the team also began crafting their growth story within an IR pitch deck. Having that growth story solidified was important for showing consistency to investors, even as the final investor deck and S-1 evolved. The team also maintained a steady communication stream with their board and major investors, sharing monthly KPIs and financials.
Reflecting, Jason feels the two-and-a-half-year IPO Readiness timeline was appropriate given the company’s rapid growth (they added more than 7 million new users in 2020 alone). He adds that private companies can theoretically be IPO-ready at around one and a half years or even six to ten months if they bring in the right consultants.
The hard work and planning, and partnership across the finance, legal, HR and other key teams within the company ultimately paid off. Six months before their IPO, Jason recalled getting a text from one of the IPO readiness consultants they brought in that simply said: “you guys are ready.”
Two Roles That Every Pre-IPO CFO Needs On Their Team
Heading into the IPO process, Jason knew that he needed a rockstar team around him. “I worked with an executive coach who helped me understand that the biggest value I can add as a CFO is influencing the strategic direction of the company. To make time to be present in critical moments of strategy, I need teams that can operate without me in the room, and that includes driving the IPO process.”
Jason credits Robinhood’s IPO success to two specific roles, which he believes every CFO needs. The first is a right-hand person that is, in many ways, indistinguishable from the CFO. This should be someone you can trust to carry a lot of the work that goes into the IPO process. Jason had Shiv, and the trust the two had built together through several financing rounds was key throughout the IPO process.
The second person every pre-IPO CFO needs is a dedicated project manager (PM) to focus on IPO Readiness. Jason brought on Robinhood’s PM (an internal hire) about a year into the IPO process. That person was tasked with, among other things, shepherding people and tasks through the aggressive milestones the team had set.
“If you don’t have a PM, you’re it. As a CFO, you don’t have time to make sure all milestones are being met or clear every roadblock; you need a PM who is fully committed to making sure you’re making steady progress against the plan.” – Jason Warnick, CFO, Robinhood
Shiv adds that having a PM take on some of the operations, HR and legal duties freed him to focus on the finance side and work with the investment bankers, investors, and outside counsel.
In terms of the ideal background for an IPO Readiness PM, accounting or finance expertise is less important than finding someone who is “smart, curious and can drive the process.” Look for someone at the senior manager level that is incredibly organized, a problem-solver, and highly autonomous. Jason chose an internal senior member of Robinhood’s Business Operations team who had expressed interest early in helping the company get IPO-ready. Another public company CFO in The Circle added that their PM was a head of strategic ops with a background in public service.
Choosing the Path to Public Life: IPO, SPAC, or Direct Listing?
Like most private company executives planning to go public, Jason and Shiv inevitably broached the subject of pursuing an alternative IPO path via direct listing or SPAC. Ultimately, the ability to raise primary capital from and establish transparency with Robinhood’s investors, banking partners, and customers made a traditional IPO the ideal path for them.
“We thought it was pretty important to have the opportunity to get to know our public company investors, to share our story and answer their questions,” said Jason.
Shiv added IPOs do not necessarily have to stick to a purely traditional structure. Companies can always leverage variable terms that they like from the Direct Listing or SPAC approaches, such as adjusting the length of the lockup period or adding in features that accommodate earlier investor or employee liquidity. Jason cautioned that adding in too many custom features can potentially upset or alarm future investors; however, it’s all about working directly with your underwriters to explore the possibilities.
Above all else, choose the path that aligns with your company’s core values. Early in the IPO process, Jason and Shiv took a peer’s advice and wrote out a “first principles” document that mapped out the primary goal of their IPO. This was an invaluable north star that helped guide them through questions like whether to pursue an alternative path to public life.
Embracing Transparency Throughout the Process
Traditionally, secrecy surrounds the IPO process; private companies sometimes choose to keep information close to the chest until right before or immediately after their public market debut. Jason and Shiv took the opposite approach, embracing transparency with their underwriters, investors, and key constituents early on.
“Instead of taking the approach of, ‘why do we have to share this information and other companies don’t?’ We went back to our first principles approach and said, ‘why would we not share this?’” – Shiv Verma, VP & Treasurer, Robinhood
Transparency began with three full weeks of “testing the waters” meetings with underwriters, helping them to understand Robinhood’s business model and growth story. Though initially it may have seemed like overkill to some, that groundwork proved invaluable in obtaining signals on valuation and identifying top questions among prospective investors. Furthermore, it helped create deeper trust between all the parties involved in the IPO process.
Similarly, providing greater detail on Robinhood’s financial performance in their S-1 was incredibly important for establishing transparency with regulators and investors. It’s essential to set that precedent, said Jason, and ultimately that has bled through into their 10-Q process and enforcing greater discipline around company spending.
Robinhood took transparency to a new level when they hosted a virtual roadshow for the public before the IPO. The leadership team got together on Zoom (at their underwriter’s office) and spoke directly to thousands of Robinhood customers and members of the general public about the upcoming IPO. It was a highlight for both Jason and Shiv because it underscored Robinhood’s core values and commitment to democratized investing.
Displaying Confidence in “Unprecedented” Times
Planning an IPO in the middle of a pandemic, a massive growth cycle, and waves of media buzz around retail investing, Jason joked that he heard the word “unprecedented” more times than he could count. There were numerous instances where the underwriters, prospective investors, and even business counterparties might have shaken their confidence. In those situations, Jason and his team needed to project transparency and confidence.
“In the middle of a crisis, you don’t tell your investors, board, or bankers to back off; you lean into it and make it your priority.” – Jason Warnick, CFO, Robinhood
Jason underscored that one of the most critical responsibilities of a CFO is to own timely, direct, and clear communication with investors, board members, and bankers – especially during uncertainty or crisis. The ability to do this well is incredibly important for building trust, and the Robinhood team believes it’s always best to have these conversations 1:1 via phone or email.
“It was really important that our investors and partners knew they could count on us,” said Shiv. “Even if we started at 7:00 AM and went to midnight, having those one-on-one conversations with our top counterparties did go a long way.”
Jason added that it’s also important not to over-promise because “the future always comes.” In other words, don’t rush to paint a rosy outlook because you will be held accountable at some point.
Scaling Your Back Office for Growth
Outside of the IPO preparation, Jason knew they would have to quickly grow their compliance, legal, and finance teams to support the company’s rapid growth. He described this process as a major cultural transition from “celebrating lean” to “getting big fast.”
It’s important to “invest ahead of the curve” when pre-IPO and empower your teams to hire against future growth. Start by looking 12 months ahead at the areas where you are potentially short-staffed both at the senior or junior level. Don’t be afraid to “invest in the recruiting function and set some ambitious goals” so that growth and headcount are aligned to future initiatives.
As a public company CFO, Jason is shifting back to focus on ensuring that rapid growth scales as he advises teams to hire and flex their budgets methodically.
Leadership Advice for CFOs Preparing for Public Company Life
Jason and Shiv concluded by recommending CFOs three years or more out from IPO to start developing the skills and mentality of a public company CFO. The most important traits are honesty and communication. A CFO must be good at delivering news (good or bad) to the CEO and board and confident when explaining their rationale for business decisions.
Jason added that a telltale sign of an IPO-ready CFO is their ability to “hire big.” If they are willing and able to make big hires for important positions, like the controller or VP of Finance, that demonstrates good judgment and a willingness to trust other highly capable people.
As Jason and Shiv continue their post-IPO journey, transparency continues to be a central theme of their approach. In that spirit, all the CFOs and leaders in The Circle were so grateful they chose to take the time to share their IPO story with us.
If you’re a growth stage CFO and would like to be part of future conversations like these, we encourage you to apply to join The Circle.
Robinhood Disclaimer: Trades of stocks, ETFs, and options are commission-free at Robinhood Financial LLC. Other fees may apply. Please see Robinhood Financial’s Fee Schedule to learn more. Robinhood Financial LLC (member SIPC), is a registered broker dealer and a subsidiary of Robinhood Markets, Inc. (‘Robinhood’).