Plaid's Zach Perret on Visa, valuations and privacy

When Plaid won TechCrunch Disrupt 2013’s Hackathon, it wasn’t even Plaid yet. The team was building a web app that let users view their credit card 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 seeds of Plaid. Since then, the startup has taken a journey full of twists and turns, including its scuppered acquisition by Visa, followed by a funding round that put it at 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 talked candidly about all those topics.

Saying hi (and bye) to Visa

On January 13, 2020, Visa announced that it was acquiring Plaid for $5.3 billion or 2x its final private valuation. Twelve months later, the deal was over.

While it was widely reported that Visa walked away because of an antitrust investigation by the Department of Justice, Perret says, “We worked very closely with Visa on this ultimately, and it became a mutual decision, which is where we wanted to land it.”

The initial decision to sell Plaid was the hardest Perret says he's ever made. “Visa had amazing products. They had a great distribution, amazing relationships with banks. There were so many logical reasons plus the price was very, very good.”

But there were a lot of reasons not to sell, and ultimately Plaid’s leadership team was split “51-49” in favor 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 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 “the best thing for our mission and for 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 had a clause that said Visa couldn’t get out of it even if there was a pandemic.

“So we feel like we’re geniuses,” Perret says. “We’ve just done the best deal, the markets crash, we’ve got a price locked in on the pandemic clause.” The fintech market was also experiencing a boom as more people moved to digital banking.

Then the DOJ started the long process of investigating Visa for antitrust issues.

“They gave us the signals that it was going to take quite a long time to stay in it. The reality is we could have stayed in the transaction for a lot longer,” says Perret. “But when we got 12 months into it, our business was very different. We’d had this massive growth. We’ve had a huge brand moment from Visa announcing the deal.”

So in early 2021, Perret brought his leadership team back to his house (masked this time). This time the decision to call off the deal was unanimous. “Everybody said, we want to walk away. We believe that companies hit better independently. Then started the hard part. By the way, the next six months were the most sleepless six months I’ve ever had, because you have to get everyone at the company refocused on the mission, the independent path where we’re going. But that time was a really heady time.”

Hitting $13.4 billion valuation

Less than three months after the deal with Visa was called off, Plaid announced it had raised $425 million, led by Altimeter Capital, at a valuation of $13.4 billion. Perret says that Plaid didn’t need the money because of the failed acquisition. “Fortunately we had a lot of cash going into the deal and exiting the deal. We were a very efficient business, we weren’t burning much.”

Since then, however, the market has been tough on companies with high valuations.

“In terms of valuation, we don’t comment on it,” says Perret. “But frankly we don’t know what the valuation actually would be. We know what the internals of the company are, the product suite has expanded. We understand the relative growth rate that we’ve seen year on year and has continued to stay really high. We’ve seen the market continue to grow.”

Perret adds that Plaid doesn’t plan to raise again for the foreseeable future and has “quite a lot of runway, I don’t know the exact number, but our breakeven target is relatively soon.” But if the company does decide to raise, “we will raise capital at whatever the valuation.”

“I’m not egotistical about the valuation; the valuation is what it is,” says Perret. “You don’t even determine it, the market determines it. I am very egotistical about and care a lot about the long-term valuation, the 10- to 20-year valuation.”

Market turns and layoffs

In December 2022, Plaid laid off 260 employees, or about 20% of its workforce. At that time, Perret said in a letter to employees that the company hired aggressively during COVID to meet a rapid increase in usage by existing customers, a large number of new customers and “substantial revenue acceleration.” But the market changed and Plaid began to experience “slower-than-expected growth.”

Onstage, Perret says that “selling a company is the hardest decision that an entrepreneur ever makes; doing a force reduction was probably the second hardest decision for me. It certainly felt that way. Our job is to do our best to predict the future and also be realistic with the realities on the ground.”

The year 2021 was one of rapid growth for Plaid, with its customers wanting to expand into other markets, especially Europe. But that sentiment turned in 2022, and many canceled their international expansion plans, which meant the layoffs especially affected Plaid’s team in Europe.

“I’ve been energized by how the team has taken that very seriously but also moved on to think about the next phase, the next focus,” Perret says. “It’s in some sense built 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 settle a class action lawsuit by 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 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 connect your existing bank account into that loan application? Let’s say you’re applying for a loan at the Lending Club and you have a Chase checking account. How do you connect the two? That’s what we build. And the way we think about our mission is unlocking 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, so on and so forth. The core concept of protecting consumer data and ensuring that consumers are getting access to the products they want, while being protected on the back end. That’s very core to us, both from a security and a privacy standpoint. That’s never changed.”

One critic of Plaid’s data practices is Jamie Dimon, CEO of JPMorgan Chase. The year before the lawsuit settlement, Dimon specifically named the startup when talking to analysts about fintech players, saying “people who improperly use data that’s been given to them, like Plaid.”

“I deeply admire Jamie," says Perret. "I’m really impressed by the incredible things that he’s built over so many years. But the reality is that we enable competition in financial services. We enable competition for the banks.”