Plaid: How the $13B+ FinTech API has "made money easy"
Highlights from ✨Hot Deal Time Machine✨⏳ -- On Clubhouse
Below are highlights from last week’s Clubhouse episode featuring Rick Yang, GP at NEA and early investor in Plaid.
Sign up for show reminders about ✨Hot Deal Time Machine✨ here and listen in on June 29th to hear the Hopin story with early investor, Paul Murphy.
⏳ The Origins: Two founders and a dog
A classic start-up origin story often references “two founders and a dog,” tinkering away at some pet project. Turns out, Plaid fit that archetype. The two founders, Zach Perret and William Hockey, were recent grads (with a dog) initially working on a consumer FinTech app. In fact, that early app was even named after that very dog. Fortunately for everyone, the company evolved beyond their dog days. In working on the initial consumer app, Perret and Hockey quickly realized interacting with banking services and banking infrastructure was fundamentally broken. They soon set out to solve this infrastructure problem that they had encountered themselves as developers. They created Plaid and demonstrated the power of the Plaid API by building an app, Rambler, during the 2013 TechCrunch Disrupt Hackathon, in which they won first place.
💡The Lightbulb Moment: Pattern-matching from the NEA portfolio
Yang shared that he was able to recognize positive signals in Plaid, even at the seed stage, based on winning patterns from 3 companies within the NEA portfolio: Braintree, Cloudflare, and MuleSoft. Like Braintree, Plaid had a developer-first platform within FinTech that was enabling the next generation of ecommerce and mobile commerce. From Cloudflare, Yang internalized the importance of strong network effects, of which Plaid had early promise. And finally, there was Mulesoft, which had demonstrated the demand for developer-centric infrastructure platforms. In drawing a venn diagram of these three macro-trends (developer-focused fintech + network effects + developer centric infrastructure), Plaid was squarely in the center, making it a compelling bet for Yang at the seed.
🚦The Early Signal: Customer Mindshare
When Yang invested in Plaid’s seed round, the company was still pre-launch. So what signal gave him the conviction to invest? Customer mindshare. While Plaid didn’t yet have official customers, they were in early discussions with several, including a number that Yang and NEA knew well. These early customer interactions demonstrated that there was a real need for something like Plaid, and a lot of excitement from these customers to implement it. And at the Series A, 18 months later, the type of signal was similar, though even stronger. Nearly every FinTech that Yang spoke to had either heard of Plaid or was excited to connect with them. Customer conversations led to robust discussions on what Plaid did - and quick timelines to deploy the Plaid API for a variety of use cases. And while Plaid had good traction at the Series A from a financial metrics standpoint, it was the buzz amongst the FinTech community - and a palpable ramp up in terms of Plaid’s recognition - that made it clear this was the beginning of a movement.
🥫The Secret Sauce: Recruiting
Yang described Perret and Hockey as mission-focused founders who were relentless when it came to building. But one thing that particularly stood out from day one was their hyper-focus on recruiting. Across the entire journey of the company, Perret and Hockey maintained a high bar for talent and invested tremendous resources, on a relative basis, into recruiting talent, cultivating the internal culture, and driving retention. As first time founders, this was a real point of leverage. Perret and Hockey didn’t just rely on themselves to figure it all out. Instead, they brought on highly experienced and talented individuals to solve the problems where the founders themselves were not experts. This enabled Perret and Hockey to focus on strategic differentiators: establishing security parameters, defining the customer experience, and maintaining strong relationships with all of their banking partners. All critical elements to allow Plaid to deliver on its mission to “make money easy.”
🤦The “Oh Shit” Moment: Getting sued by your biggest competitor
When you’re on to something big, you can almost always expect a lawsuit to come. In some ways, it’s a sign that you’re doing things right: you’re putting competitive pressure on the market and challenging incumbents. But as an early stage company with limited resources, it’s the last thing you want to hear. In late 2014, in the midst of Plaid’s Series A process, Yodlee filed suit against Plaid for patent infringement. While the case eventually settled, the process took two years and a lot of resources, at a time when Plaid was still in the early days of building the product. As Plaid has continued to grow and innovate, they have continued to jump over legal hurdles - including the recent and highly publicized DOJ case with the attempted Visa acquisition. As Yang pointed out, these processes are a huge distraction for founders, especially those like Perrett and Hockey who are so focused on company building. But perhaps the lesson to take-away is that persistence and consistency in execution, even in the midst of such huge distractions, are what allow tremendous breakthrough in innovation to emerge.
👉🏼 Up next on June 29: Hear the story of how Hopin scaled its virtual events platform to power the world through a global pandemic - featuring Paul Murphy, Series A investor in Hopin.
👉🏼 ✨Hot Deal Time Machine✨⏳ is a 30-minute bi-weekly Clubhouse show where we travel back in time to the early stages of some of today’s hottest deals. Hear from founders and investors on the original pitch and thesis…and how things actually played out