Earlier today, the news leaked that Visa was to acquire fintech startup Plaid for $5.3B. Plaid is known within the startup and VC community as a strong company, but it is also a relatively quiet company in terms of its own PR and social media chatter. Startup exits are rare, and as the number of startups increase, large exits will become even more rare percentage-wise. So, when a major public financial services company plunks down over $5B to acquire an asset, everyone in startup land takes notice. Windfall events are almost required to extend one’s lifespan in the Bay Area these days, and this acquisition certainly qualified as one for those involved. It’s late tonight and this armchair correspondent hasn’t eaten dinner yet, so let’s briefly unpack the key takeaways from this event:
1/ The FinTech is already red-hot. Now it’s scorching. By now, folks realize how hot the sector is. Arguably, after the rise of Facebook and social networking, fintech has been the biggest consumer and enterprise trend within startups — consider hyper growth companies ranging from Square to Coinbase, from Robinhood to LendingClub, from Affirm to Faire (Lightspeed portfolio companies), and so many more. FinTech valuations have already been on the rise in private markets, most recently with breakouts like Chime, and we should expect that trend only to intensify given this exit size. Consider recently PayPal paid $4B for Honey; Prudential bought Assurance for $3.5B; and Fidelity paying $35B for Worldpay.
2/ API FTW. There are folks within the startup world who know this secret as obvious, but it is not as widely-accepted. How could Twilio become a public company with an API-driven business model? Could Stripe grow that big with its architecture? As we have too many browser tabs open and are inundated with more SaaS applications, it would only make sense that going a bit deeper in the stack and empowering developers to build the next suite of solutions, as well as doing the heavy lifting of building thousands of integrations to help add value (much like Slack did for its platform). Plaid fit into this category broadly, and timed things perfectly as more and more fintech companies would use their services to help onboard their own users.
3/ Strategic fit trumps financials. I saw a tweet lamenting the acquisition price of Plaid as “crazy” because it was 35x revenue. What the journalist doesn’t appreciate is that as the private markets have expanded and given companies like Plaid more runway to stay private longer, it affords these companies the chance to maximize their value in this manner. The value of Plaid is totally different: Consider a platform which connects fintech developers, financial institutions, and consumers. That’s valuable. Visa values Plaid more (or to keep out of the hands of competitors) than public market investors might, and startups and their investors have and will continue to take advantage of that dynamic. For a company like Visa, owning Plaid gives them even more surface area to tap into new transaction streams.
4/ Lightning strikes twice for Spark GP. A small point and not central to the story, but this appears to be the second company where Spark Capital’s Santo Politi was on the board as an early investor that’s generated a multi-billion exit (previous one was Oculus to Facebook). To get one deal like this in a VC career is statistically almost impossible — to get two in a few years is a dream.
5/ The Haves And The Have-Nots. We ended 2019 with questionable performance from new public tech companies, and we’ve started 2020 with very public layoffs announced at big private startups. Influential folks are warning others on Twitter about the tide going out. This bull run can’t last forever. But, then there’s Plaid. The others were have-nots. They did not have enough runway or enough strategic value. The startup was also relatively capital efficient, raising less than 10% in venture capital of the final exit value it received from Visa. Plaid may have looked at that environment, looked at their cap table (which includes Visa, MasterCard, and Goldman Sachs, among others) and smartly whispered to them about what it would take to join forces with another company — and given their strategic value, their API-first strategy, the weight of the fintech sector, and the smart minds around the table — they engineered an incredible exit with impeccable timing.