In January 2020, Zach Perret agreed what seemed like the deal of a lifetime.
He would sell his Silicon Valley start-up Plaid to Visa for more than $5bn, netting fortunes for himself, his employees and a roster of blue-chip investors. But a global pandemic and the US government quickly upended his plans.
Plaid and Visa terminated the deal due to antitrust scrutiny from regulators 12 months after agreeing it. In the meantime, the Covid-19 crisis had turbocharged Plaid’s business as customers stuck at home increasingly relied on the sort of digital banking services the company helped facilitate.
Plaid enables customers to connect their bank account to an outside application and share required data, be that with an online mortgage lender, a money transfer app or a digital trading platform. In return, these finance apps pay Plaid a fee.
By April 2021, the company had closed a round of funding that valued it at $13.4bn, more than double the price Visa had planned to pay. Looking back, Perret describes the 18 months in which he made the decision to sell the company he had spent almost 10 years building, then backtracked while also navigating the onset of the pandemic as “by far the hardest period of my life”.
“I learnt so many things,” said the 35-year-old, who has been Plaid’s chief executive since he founded the company in 2013 with a colleague, William Hockey.
A significant challenge was juggling rapid growth in the business with the uncertainty for employees, already coping with a health crisis, over whether or not the Visa deal would go ahead.
Perret said he realised the need for communication — and at times “over-communication” — was critical to get through such a period of turmoil. He launched company-wide town halls twice a week where staff could ask any questions they had.
“There are times when your team needs to hear from you every single day. They need a leader that’s front and centre. Things are changing really rapidly. They need direction and they just need really clear decision-making,” Perret said.
“While some might call that not the most efficient form of leadership, for us it was by far the best,” he added. “Keeping the team focused on the right things and the actions they needed to take by over-communication in that period was absolutely the right decision.”
Crucial as well was the clarity that the company’s aim — to “democratise financial services through technology” — had not changed.
“The mission barely changes,” said Perret. “The goals though, they might be modified based on the fact that Covid happens. Or the fact that we have a deal that doesn’t end up going through.”
Perret grew up in Clemmons, North Carolina, which he describes as “in the middle of nowhere”. It was there he saw the inefficiency of the US banking industry, with neighbours turned away from the town’s small handful of local lenders.
“They had to drive an hour or more into a big city just . . . to try to get a mortgage or car loan,” he said.
After graduating from Duke University in 2010 with degrees in chemistry and biology, he took a role in consulting for Bain & Co, where he met Hockey.
Working with financial institutions, the two men identified an unmet demand to help consumers better manage their financial lives; in a world where iPhones were revolutionising almost all aspects of everyday life, banking and financial services remained stubbornly analogue.
When they set up Plaid in 2012, initially in New York before later moving to San Francisco, it was shortly after the Occupy Wall Street movement. “The sentiment came through that consumers were frustrated with the quality and prevalence of financial products they were able to have access to,” Perret said.
After building a few consumer finance apps that never got off the ground, they decided to focus on the technical infrastructure that could enable other burgeoning fintech apps to interact with their customers’ bank accounts.
Perret had initially expected to sell this software to the banks themselves but lenders showed little interest in helping third parties sell products to their customers. So Plaid started to work with the fintech companies. Venmo, a popular money transfer app, became one of its early flagship clients and Plaid now has more than 8,000 customers, including PayPal, Shopify and Google.
Plaid shares data either by connecting to a customer’s bank account through an API (application-programming interface) which is built to allow two websites to easily communicate with each other, or by logging into a bank account and scraping the necessary data.
This “screen-scraping” has attracted legal scrutiny and criticism from a number of bankers, including JPMorgan Chase chief executive Jamie Dimon. For Perret, it has been a delicate balancing act between two stakeholders, with continued access to the banking platforms central to Plaid’s business. Again, he said communication has been vital.
“It’s not lost on us that allowing consumers to connect their bank accounts to other applications could generate competition for a given bank,” he noted. “But on the flip side, what we’re actually seeing is that frequently when a consumer links their bank account to something new, they’re actually more loyal to the underlying first bank.”
Plaid now counts several large banks as customers as well as investors, including the asset management arms at JPMorgan, Goldman Sachs and American Express.
After the sale to Visa fell through, Plaid capitalised on its rapid growth during the pandemic by securing $425mn in new funding from investors including Altimeter Capital Management, Silver Lake Partners and Ribbit Capital.
Since then, the environment has turned again, with fintech valuations plummeting as central banks have lifted interest rates to combat inflation. For Plaid, that has meant reining in some projects, including parts of its international expansion. The company cut 20 per cent of its workforce in December.
“In this case, we’ve gotten a few too many steps ahead and that’s a hard reality to face,” admitted Perret.
He is still convinced, however, that staying as an independent company through the pandemic, and capitalising on the growth that brought, was the best path.
He is now prioritising an eventual initial public offering for Plaid, rather than attempting another sale. “We’re not in an immediate rush to get there. But that is certainly the direction,” he said.
For any entrepreneurs considering selling their businesses, Perret has one piece of advice: “Talk to everyone you can. If people are considering big acquisitions, I hope they call me. I’d be happy to help.”
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