When Plaid won a 2013 Hackathon, it wasn't even Plaid yet. The team was creating a web application that allowed users to view their credit and debit card transactions on a map. But in the process they figured out how to solve the challenge of integrating banks with the app, planting the seed for Plaid. Since then, the startup has been on a journey full of twists and turns, including its failed acquisition by Visa, followed by a funding round that put it at a valuation of $13.400 billion, to the lows of A Class Action Lawsuit Over Misuse of Private Data. Zach Perret, the founder, talked about all of those topics.
Saying hello and goodbye to Visa
On January 13, 2020, Visa announced that it would acquire Plaid for $5.300 billion or 2 times its final private valuation. Twelve months later, the deal was over.
While it was widely reported that Visa pulled out due to an antitrust investigation by the Department of Justice, Perret says that "in the end we worked very closely with Visa, and it became a mutual decision, which is where we wanted to go."
The initial decision to sell Plaid was the most difficult Perret says he has ever made. “Visa had incredible products. They had great distribution, incredible relationships with the banks. There were many logical reasons and also the price was very, very good.”
But there were plenty of reasons not to sell, and ultimately Plaid's management team was split “51-49” in favor of the decision.
“As an entrepreneur, you love building your company. There is the personal reason. There's also the business reason that we could potentially build a bigger company and we went through this intense debate. I invited our entire leadership team to my house. “We were sitting in my living room here in San Francisco having this debate and there was no clear answer.”
Perret ultimately made the decision to sell, saying it was “best for our mission and for our customers that we scale within another platform.”
Two months after the deal was announced, the pandemic hit. In a surprising act of foresight, the contract for the all-cash deal had a clause that said Visa couldn't get out of it even if there was a pandemic.
“That's why we feel like geniuses,” says Perret. "We just made the best deal, the markets collapse, we have a price set in the pandemic clause." The fintech market was also experiencing a boom as more people switched to digital banking.
The Justice Department then began the long process of investigating Visa for antitrust issues.
“They gave us signs that it was going to take a long time to stay at it. The reality is that we could have stayed in the transaction much longer,” says Perret. “But by the time we were 12 months in, our business was very different. We had had this massive growth. “We had a great brand moment when Visa announced the deal.”
So in early 2021, Perret brought his leadership team back home. This time the decision to cancel the agreement was unanimous. “Everyone said: we want to leave. We believe that companies achieve better results independently. Then the hard part began. By the way, the next six months were the six months I've had the most insomnia, because you have to get everyone in the company to refocus on the mission, the independent path that we are going towards. But that time was really intoxicating.”
Achieve a valuation of $13.400 billion
Less than three months after the Visa deal was called off, Plaid announced it had raised $425 million led by Altimeter Capital at a $13.400 billion valuation. Perret says Plaid didn't need the money because of the failed acquisition. “Fortunately, we had a lot of cash coming in and out of the deal. “We were a very efficient business, we didn’t burn much.”
However, since then, the market has been tough on companies with high valuations.
“In terms of valuation, we do not comment on it,” says Perret. “But, frankly, we don't know what the valuation really would be. We know what the internal aspects of the company are, the set of products has expanded. We understand the relative growth rate that we have seen year after year and it has remained very high. “We have seen that the market continues to grow.”
Perret adds that Plaid does not plan to rise again in the foreseeable future and has "quite a bit of runway, I don't know the exact number, but our break-even goal is relatively soon." But if the company decides to increase, “we will raise capital whatever the valuation.”
“I am not selfish when it comes to valuation, the valuation is what it is,” says Perret. “It's not even determined by you, it's determined by the market. “I’m very selfish and I care a lot about the long-term valuation, the 10- to 20-year valuation.”
Market swings and layoffs
In December 2022, Plaid laid off 260 employees, or about 20% of its workforce. At the time, Perret said in a letter to employees that the company hired aggressively during COVID to address a rapid increase in usage by existing customers, a large number of new customers and a “substantial acceleration of income". But the market changed and Plaid began to experience “slower than expected growth.”
In this scenario, Perret says that “selling a company is the most difficult decision an entrepreneur can make, downsizing was probably the second most difficult decision for me. It certainly felt that way. “Our job is to do everything we can to predict the future and also be realistic about the realities on the ground.”
2021 was a year of rapid growth for Plaid, and its customers wanted to expand to other markets, especially Europe. But that sentiment changed in 2022 and many canceled their international expansion plans, meaning the layoffs hit Plaid's team in Europe especially hard.
“I've been excited to see how the team has taken this very seriously, but also moved on to thinking about the next phase, the next approach,” says Perret. "In a sense, it's created a bit of a frugal culture within the company, a bit more of a focus culture, and I think people appreciate the long-term orientation of that kind of decision."
User privacy
In July 2022, Plaid agreed to pay $58 million to resolve a class-action lawsuit from consumers who claimed the company accessed private data from payment apps without their consent.
When asked what lessons he learned from the lawsuit, Perret says “look, we've always been very focused on creating the tools that customers need. So the thesis is that a consumer wants to use their bank account digitally, they need to apply for a loan, let's say, and how does their existing bank account connect to that loan application? Let's say he's applying for a loan at Lending Club and has a Chase checking account. How are the two connected? That's what we built. And the way we think about our mission is to unlock financial freedom for everyone.”
Perret added that “we have not changed our data practices. Our data practices have always been very focused on what is best for the consumer. We've improved, we've added features, and so on. The core concept of protecting consumer data and ensuring that consumers have access to the products they want, while being protected on the back-end. This is very important to us, both from a security and privacy point of view. “That has never changed.”
One critic of Plaid's data practices is Jamie Dimon. The year before the lawsuit settled, JP Morgan Chase CEO specifically cited the startup when speaking to analysts about fintech players, he comments “that there are people who misuse the data that has been given to them, like Plaid.”
“I deeply admire Jamie,” says Perret. “I am truly impressed by the incredible things he has built over so many years. But the reality is that we allow competition in financial services. “We allow competition for banks.”
