When Plaid won the TechCrunch Disrupt 2013 hackathon, it wasn’t even Plaid. The team was building a web app that would allow 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 into the app, planting the seeds of Plaid. Since then, the startup’s journey has been full of twists and turns, including a failed acquisition by Visa, followed by a funding round that gave it a $13.4 billion valuation, to the lows of a privacy class-action lawsuit and layoffs last year. In a wide-ranging conversation at this year’s Disrupt, founder Zach Perret spoke candidly about all of this.
Saying hello (and goodbye) to Visa
On 13 January 2020, Visa announced that it was acquiring Plaid for $5.3 billion, or two times its most recent private valuation. Twelve months later, the deal was done.
While it was widely reported that Visa walked away because of an antitrust investigation by the Department of Justice, Perret says, “We ultimately worked very closely with Visa on this and it became a mutual decision where we wanted to land it.”
The initial decision to sell Plaid was the hardest one Perret says he’s ever made. “Visa had amazing products. They had great distribution, amazing relationships with banks. There were so many logical reasons, and the price was very, very good.”
But there were plenty of reasons not to sell, and ultimately Plaid’s executive team was split “51-49” in favour of the decision.
“As an entrepreneur, you love building your company. There’s 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 over to my house. We sat in my living room here in San Francisco and had this debate, and there was no clear answer.
Perret ultimately made the decision to sell, saying it was “the best thing for our mission and our customers for us to scale within another platform”.
Two months after the deal was announced, the pandemic hit. In an amazing act of foresight, the contract for the all-cash deal included a clause that said Visa couldn’t back out of the deal even if there was a pandemic.
“So we feel like we’re geniuses,” says Perret. “We just got the best deal, the markets crash, we’ve got a price locked in with the pandemic clause.” The fintech market was also booming, as more and more people moved to digital banking.
Then the Department of Justice began the long process of investigating Visa on antitrust issues.
“They gave us the signals that it was going to take quite a long time to stay in. The reality is that we could have stayed in the deal a lot longer,” says Perret. “But by the time we were 12 months in, our business was very different. We’d had this massive growth. We’d had a huge brand moment when Visa announced the deal.
So in early 2021, Perret brought his leadership team back to his house (this time undercover). This time, the decision to cancel the deal was unanimous. “Everyone said we want to walk away. We think the companies can do better on their own. Then the hard part began. By the way, the next six months were the most sleepless six months I’ve ever had, because you have to get everyone in the company focused on the mission, the independent path we’re going down. But it was a really exhilarating time.
Reaching $13.4 billion valuation
Less than three months after the Visa deal was called off, Plaid announced that it had raised $425 million, led by Altimeter Capital, at a valuation of $13.4 billion. Perret says Plaid didn’t need the money because of the failed acquisition. “Fortunately, we had a lot of cash going into the deal and coming out of the deal. We were a very efficient company, we didn’t burn much.
Since then, however, the market has been tough on companies with high valuations.
“We don’t comment on valuations,” says Perret. “But frankly, we don’t know what the valuation would actually be. We know what the internals of the business are, the product range has expanded. We know the relative growth rate that we’ve seen year on year, which has remained really high. We’ve seen the market continue to grow.
Perret adds that Plaid has no plans to raise money again for the foreseeable future and has “quite a bit of runway, I don’t know the exact number, but our break-even target is relatively soon”. But if the company does decide to raise capital, “we will raise capital at whatever the valuation is”.
“I’m not selfish about the valuation, the valuation is what it is,” says Perret. “You don’t even set it, the market sets it. I am very selfish and I care a lot about the long-term valuation, the 10- to 20-year valuation.”
Market downturn and redundancies
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 had hired aggressively during COVID to accommodate a rapid increase in usage by existing customers, a large number of new customers, and “significant revenue acceleration”. But the market changed and Plaid began to experience “slower than expected growth”.
On stage, Perret says: “Selling a company is the hardest decision an entrepreneur ever makes, and downsizing was probably the second hardest for me. It certainly felt that way. Our job is to do our best to predict the future and also be realistic about the realities on the ground.”
2021 was a year of rapid growth for Plaid, with customers looking to expand into other markets, particularly Europe. However, that sentiment turned in 2022, with many cancelling their international expansion plans, meaning that the redundancies hit Plaid’s team in Europe particularly hard.
“I’ve been energised by how the team has taken this very seriously, but also moved on to think about the next phase, the next focus,” says Perret. “In a way, it has 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 focus of that kind of decision.”
User privacy.
In July 2022, Plaid agreed to pay $58m to settle a class-action lawsuit brought by consumers who claimed the company accessed their private data from its payment app without their consent.
Asked what lessons he learned from the lawsuit, Perret says: “Look, we’ve always been very focused on building the tools that customers need. So the thesis is, a consumer wants to use their bank account digitally, they need to apply for a loan, let’s say, and how do you link your existing bank account into that loan application? Let’s say you apply for a loan at Lending Club and you have a Chase checking account. How do you connect the two? That’s what we’re building. And the way we think about our mission is to unlock financial freedom for everyone.
Perret added that “we haven’t changed our data practices. Our data practices have always been very focused on what’s best for the consumer. We’ve improved, we’ve added features, and so on and so forth. The core concept of protecting consumer data and making sure that consumers have access to the products that they want, while being protected on the back end. That’s very much at the core of what we do, both from a security perspective and from a privacy perspective. That’s never changed.
One critic of Plaid’s data practices is Jamie Dimon. The year before the legal settlement, the JP Morgan Chase CEO specifically named the startup when speaking to analysts about fintech players, saying “people who misuse the data that’s been given to them, like Plaid.”
“I am a huge admirer of Jamie’s,” says Perret. “I’m really impressed by the incredible things he’s built over so many years. But the reality is that we enable competition in financial services. We are enabling competition for the banks.
