Things Fall Apart

things fell apart

In late 2019, Visa offered to buy Plaid for $5.3B.

2020 was another great year for the company; with physical bank branches closed, the digitization of finance accelerated. It also helped that retail investors drove demand for platforms like Robinhood and Coinbase, which in turn, led to more money for Plaid.

What does Plaid do?

• The company is a B2B abstraction layer that provides seamless integration between financial tech platforms (Robinhood, Coinbase, Venmo, etc) and banks (BofA, Chase, Wells Fargo, etc).

• The business model is a freemium usage based model that allows companies to pay more as they grow

Back to the Visa acquisition.

2020 was such a great year for the company that Plaid leadership started to reconsider selling. In January 2021, Zach Perret, Plaid’s founder and CEO, called a meeting at his house to reevaluate the deal, which Plaid had previously agreed to.

Perret & co talked about the improved potential that had been realized during COVID. A $5.3B price tag now seemed more like a bargain for Visa than a win for Plaid. It also didn’t help that the DOJ sued to block the merger by labeling Plaid as a nascent competitor. On the other hand, employees were already banking on the merger and expected large checks.

After the meeting, everyone left Perret’s living room with newfound clarity.

Plaid would not be sold to Visa.

After saying no to $5.3B, Plaid secured a new round of funding at a $13.4B valuation. (2021)

• The deal valued Plaid at 60X revenue

• Perret became a paper billionaire

• Raised $425M in a Series D led by Altimeter

Unfortunately, this high did not last long. FinTech startups experienced a frigid climate in 2022, as discussed in the last memo. Plaid missed its revenue target by more than 8% and laid off 20% of staff at the end of the year. To add insult to injury, the company paid a $58M fine to settle a data privacy class action lawsuit related to screen scraping.

Considering the 50%+ cuts to valuation a lot of FinTech companies took post-2021, it’s likely Plaid is closer to the Visa price tag than $13.4B.

Earlier this year, Caplight estimated that Plaid was worth $4.2B based on secondary trades. A Plaid spokesperson implied that the rumored valuations were misleading.

Today, the company is honing in on a cash flow underwriting product to improve credit access for consumers. The amount of data in Plaid’s network of products gives the platform great insights into consumer cash flow.

Theoretically, this data could then provide credit card companies with tons of value by allowing them to underwrite more consumers. Plaid could make around $5/analytics on a single consumer, compared to $1/consumer on their flagship API product.

The biggest obstacle is Plaid’s soured relationships with banks. Plaid has historically treated the banks as just a source of data, while prioritizing relationships with FinTech startups. Now, their underwriting product is trying to repackage the data they got from banks and resell it to the banks at a premium…

Despite the setbacks, Plaid is still targeting an IPO when things make sense. Various sources estimate a public offering around late 2025 or 2026, as Perret himself has said an IPO is out of the question for this year.

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Headlines

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