CC#25: Fintech startup Plaid's whirlwind of a journey over the past 18 months

Founder Zach Perret shared the story of how a $5b acquisition by VISA fell through and why it was the best thing that could've happened

If you’re in the tech world, it’s quite likely you’ve heard of Plaid, one of the most well known FinTech companies to come from the past decade that has built the infrastructure to allow for ecosystems to be created around traditional financial institutions.

On Monday evening, the founder of Plaid, Zach Perrets, joined the Good Time Show (GTS) and shared why the past 18 months have been quite the roller-coaster for the company.

“It’s been a wild ride. In December of 2019, we made the difficult decision to sell the company to VISA. Then the Department of Justice (DOJ) got involved. The pandemic hit and people could no longer go into banks, so they started using digital financial tools a lot more.”

In March 2020, the DOJ began investigating the transaction on the grounds that it could potentially be a violation of antitrust laws. The pandemic caused this investigation to move very slowly. Zach recounts:

”Selling Plaid was an incredibly difficult decision for myself and the rest of us. We’d build the company for 8 years, and we thought that VISA could help solve some of our largest challenges of working with the banks. We didn’t have the team to work with the bank. VISA could’ve also helped us grow internationally pretty quickly. We were so happy to close this deal in January 2020. Then in March 2020, regulators stepped in to investigate. As the pandemic ensued, we went into a very long delay period. The hardest part was going through the latter half, where our market had reached a massive inflection point. Our business was growing tremendously and trying to deal with a lot of customer issues. We expected to have a decision from the DOJ far sooner.”

In January 2021, Plaid was told that the investigation could go on for another 18 months. Zach realized that the contract with VISA only offered 1 year of exclusivity, so they could suddenly walk away from the deal without any problems. After terminating the contract, they immediately raised another round of funding. Zach added

”Even though we believed selling to VISA was the right decision in December 2019, we also believe that the right decision for Plaid now is to not sell the company. Our company had grown so much and it made sense not to sell. I’m so proud of our team for staying so focused during this time.”

Sriram Krishnan, one of the co-hosts of the GTS and a GP at Andreessen-Horowitz, followed up: “How challenging was it to keep the team focused during that time?”

Zach: “It was hard. The hardest 2 meetings I’ve ever done, was the one when I told everyone we were selling the company, and the one where I said we were not selling the company. I think as a founder, you’re trained to feel a set of emotions and not act on them. But at the same time, I couldn’t be more excited about the future of our company.”

Aarthi Ramamurthy, another co-host of the GTS and a former startup founder, asked: “What has it been like to be a founder in digitized finance over the past 9 years?”

Zach: “As a founder, you learn to not be too excited about the direction where anything is going to go. In the early days, we were working on a series of consumer apps and we pivoted to building the infrastructure we needed to build these consumer apps. At the end of 2013, we raised a $500,000 seed round on a convertible note with a $3m cap. We had put together this round and 2 days before this was supposed to move forward, the lead investor pulled out. Everyone else pulled out except these 3 folks, all of whom were named Justin, who had invested a total of $60,000, which kept us afloat at the time. Then we went to raise a Series A and we were being sued by a competitor. I gave this talk 2-3 years ago—it was supposed to be startup advice, and the only advice I had to give was don’t die. Don’t give up, somehow things will work out if you survive long enough.”

Another guest joining on the show was Alex Rampell, a former serial entrepreneur and current GP at Andreessen-Horowitz. Sriram asked: “Alex, you’ve been in the fintech world for a while. What trends do you believe made Plaid successful today?”

Alex: “Not to take anything away from the team, but timing is always a key component behind every successful startup. When I first met Zach in 2015, I was building TrialPay. You know it’s a bad company if as a developer, you go to use the product and it says “click here to talk to one of our representatives” and you hear back 2 weeks later and need to sign an NDA to use it. There are thousands of people who want to build things that use this. In order for that to happen, you can’t put up this artificial sales wall. In 2010, most people had internet access but it was way too much of a pain in the butt to access this. I remember I literally coded something on the Plaid ecosystem in 2014 and it was so much better than their competitor Yodlee. Then Venmo and these other companies popped up. Often times, ideas sound terrible long before becoming great companies. When I grew up I was told don’t get in a car with a stranger. And people are always advised to keep their banking information confidential and not trust anyone with that information. When I see the plaid network, that logo, I immediately know it’s ok to hand my bank account to e-trade (or another platform). Just like I was raised being told to not get in a car with a stranger, and now we have Uber.”

Aarthi: “Where do you see this going?”

Zach: “We started Plaid in this tiny office just off Union Square in NYC. On our way to work, multiple times per week, we’d walk through these occupy Wall Street protests. It made us think—how do we allow people to interact with their bank account in a way that they want to. Back then there wasn’t much to do online. Banking with a 3rd party was not an option. Consumers only had one mortgage option. There had to be other options. We started working on these consumer platforms and we were telling consumers to spend less money, and the automatic response for consumers was to delete the app. Around this time, consumers had made this massive shift—they went from banking at a branch to being comfortable with the idea of doing everything digitally. Consumers now have 4-5 different bank accounts, it’s becoming more complex. We are really in this exciting time and obviously covid helped accelerate this quite a bit. What Plaid has done is it has essentially unlocked competition. All of a sudden instead of trying to get a $5000 loan from a banker, you can go online and find a bunch of lenders where you can get a better rate. That was really our goal, to help unlock financial freedom for as many people as possible.”

Sriram: “Back when me and Aarthi first met, the bank we saw down the street was the one we picked. These days, most of my interactions with a bank are with products that were not built by banks. What is a bank going to be in 10 years?”

Alex: “There are 2 pigs in a barn—one of them says its awesome, it’s heated, and it’s comfortable. If you are not the customer you are the product being sold. You either sell ads (attention of customer) or your selling a subscription to the customer. The 3rd thing, is fintech - this product is free, it’s great, they just want you to use their credit card or bank. Now with the Durbin amendment, if you are at an institution of under $10b, the amount you make on credit cards is not regulated by the big guys. You can’t have a rewards card where you only get .01% rewards - Chime is the leading Neo bank in the US, if they were bought by Chase tomorrow their revenues would be zero. They’re getting .5% on debit cards. Chase gets 5 basis points. You have plaid on one side allowing them to read info, and then other tools like Marketo and Galileo. Which is a long-winded way of getting back to the “2 pigs joke”. When it comes to things like basic debit card swipes, and another thing, David Haber had a claim to fame with this viral diagram of Craigslist he made while he was an associate at Spark Capital. Craigslist is terrible. There was a transportation thing on Craigslist, but it wasn’t very reliable. And now you have Uber. There were people renting out their places, but there was limited options and you didn’t know exactly what you were getting. Now you have Airbnb. You could build a David Haber thing of Wells Fargo. This is why Plaid is such an amazing company, because they are the connective tissue for this entire ecosystem. This is what the future of banking looks like.” 

Zach: “David was actually the associate at Spark Capital who introduced us to Spark and we ended up getting funded by them. So David should get a lot of credit for that.” 

Aarthi: “What role is plaid playing to help creator economy? How do you think about Fintech for creators?”

Zach: “I know very little about the creator economy. However, we’ve seen a lot of these financial services that help creators finance their work. Often times they create a ton of content up front and they don’t actually get paid for a while so they have this cash flow problem. This concept of embedded finance is going everywhere. There could be a Neo bank created for this, loans for creators and a lot of companies that have delayed accounts receivables. A Neo bank is just a bank built for the internet. They essentially create this entire experience that would make it appear like a bank, but it’s actually operating on a traditional bank.” 

Alex: “Theres a joke that neo is latin for not. These Neo banks popping up, now the custody of the assets are with the actual bank not the Neo banks. So it’s a nada-bank.”

Aarthi: “You have all these offices around the US, what does the future of distributed work force look like for Plaid?”

Zach: “If you figure out what the answer should be, please let us know. Only time will tell. We are a pretty efficient company working in person, I so appreciate our culture. We’re leaning towards finding ways to come back as soon as we can. Before the pandemic we were 85-90% in office, and we’ll probably end up being around 70% in office. And we’ve also grown significantly during this time. Maybe we’ll have 3 days initially in the office and a bit more flexibility on the back end of that. We found that all hands were really efficient virtually, so we do plan to keep certain aspects like that remote.”

Sriram: “Just curious, over the last year, outside all hands, what has become better and what has become worse?”

Zach: “The things that have become better—I think the speed of solving problems has gone up. Getting people to get together is a lot easier. There’s less scheduling issues, people aren’t dealing with commutes. The downside is that people are almost always working, or they feel like they’re on longer. Most of it is by choice. We’ve started doing these synchronous days off and that has worked really well for us. What’s become worse—well, Conflict resolution does not work as well. In a hard charging company there’s gonna be conflicts. That’s been harder. One thing I do love is seeing the inside of people’s houses, I learn a ton about who they are through seeing the painting in the background and the cat walking across the screen.”

Sriram: “Marc - a couple months ago, we were talking to you a lot about what you thought about remote work. What do you think now?”

Marc: “We’ve surveyed our portfolio, 8-9 months ago and then another time 1-2 months ago. We actually saw a pretty dramatic shift during that period. Companies went through a phase 1 of system shock and then phase 2 of maybe this is actually working. The most recent survey, over 90% of 200+ companies plan to continue working remotely. Generally speaking, it feels like the train is leaving the station, the world is changing in a fundamental way. What I’m wondering about is what will be the result when we redo the survey 6-months from now. I could imagine people getting even more enthusiastic about working remote. They’ll have built management techniques and culture in remote setting. But I can also see, “OMG we get to be around the office, we get to be around people. Covid sucked. It turns out we actually love being around people, we love going to dinner.” I don’t know how to guess which way it’s going right now.”

Zach: “The majority of people want to go back and want that interaction. We have around 650-700 people right now. I’m sure there will be multiple iterations of what coming back to the office looks like.” 

Sriram: “A hybrid approach may be unstable. If you have employees spending a few days a week in the office and a few days at home. The first set of employees who show up in the office are likely going to get all the promotions.”

Marc: “That or companies are going to get really good software to make remote run smooth. And they’re gonna get really good at off-sites. Performance evals, networking, etc. all that stuff is gonna happen in a more organized way remotely. There will be distributed offices. Maybe every month a large all hands at a hotel.”

Paul Davison, the co-founder of clubhouse, jumped on stage to greet his long-time friend: “Hey Zach! Zach and I used to share a hallway together when I was working on Highlight. I remember they just kept growing really fast and they had to move out.”

Zach: “Hey Paul! Yeah, I remember we played trivia a couple times.” 

Sriram: “One last question: “Zach & Marc, what are a couple books you’ve read during the pandemic”

Zach: “7 Powers; Good Strategy, Bad Strategy.

Marc: “Medici Money. It’s the best explanation of how they combined business and art into culture. It’s so relevant today with everything happening with blockchain and NFTs.”

Sriram: “For those who don’t know, Marc’s profile pic is Lorenzo Medici. Marc, what is your interest with the Medici’s?”

Marc: “Well it was like 1000 years of dark ages and then suddenly this explosion of art, philosophy and science in the 15th century. Why did 3 of those fires get lit all at the same time. The entire city of Florence at the time, through that period was about 50,000 residents. It’s humbling, it’s 50,000 people in the middle of Italy and look at everything they did? I want to understand, what is the activation energy that causes this? It should be happening all over the place all the time, but thats a topic for another time.”

“If you think of all the huge tech companies in San Francisco / Silicon Valley, there should be a lot more tech campuses. What happens that causes them to tap out? I’ve been talking in terms of cities, but what is the new cities, the internet. Maybe where this kind of creativity, and business development, and development of economic opportunities will all happen online?”

The show concluded here.

After terminating their contract with VISA, Plaid went on to close a Series D of $425m at a $13.4b valuation, which just closed last month—making the company worth more than 2.5x what they had originally tried to sell it for in early 2020.