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Plaid, the fintech innovator, has announced a new funding round that values the company at $6 billion, a significant decrease from its previous valuation of $13.4 billion in 2021. This funding aims to provide employees an opportunity to cash out.
The latest round raised $575 million and was spearheaded by several new investors, including Franklin Templeton, Fidelity, and BlackRock. Existing investors, such as NEA and Ribbit Capital, also took part in this funding initiative.
Zach Perret, CEO and co-founder of Plaid, indicated that the startup has experienced a considerable growth phase, achieving record revenues and positive operating margins, though he refrained from disclosing specific figures. He attributed the lowered valuation to prevailing market trends.
“Our business is fundamentally stronger, and we’ve seen significant revenue growth,” Perret stated in an interview. “Despite improvements in profitability, market multiples are influencing our valuation as they are for many firms.”
As for an initial public offering (IPO), Perret conveyed that Plaid is not yet prepared to make that transition but affirmed that this funding round would be the last before pursuing public markets.
“An IPO is definitely on our agenda for the future. However, we have not established a precise timeline, as we still need to address internal preparations,” he added. “Right now, we are focusing on readiness.”
Emergence of Secondary Funding Rounds
The latest funding will provide employees with the opportunity to liquidate restricted stock units that are set to expire at year’s end. A fraction of the received funds will facilitate an employee tender offer.
“This is fundamentally the reason for this funding round,” Perret explained. “It’s crucial to provide our team with options to sell and access liquidity, especially considering the duration of Plaid’s private status.”
Plaid joins a growing list of late-stage private companies opting for similar funding strategies to allow employee liquidity. Recently, companies such as Ramp, DataBricks, OpenAI, and Stripe have also engaged in secondary financing to enable staff to cash out. Many firms appear hesitant to enter public markets amid recent stock market fluctuations and the underperformance of various IPOs, like that of CoreWeave.
“Market volatility will certainly play a key role in our decisions,” Perret remarked, noting that it remains too early to evaluate the IPO landscape for Plaid.
Since its establishment a decade ago, Plaid has seen a turbulent path in private markets. In 2020, the company was on track for a $5 billion acquisition by Visa, a deal that ultimately fell through due to regulatory hurdles. The following year, Plaid achieved a $13.4 billion valuation, which marked the peak of growth for many tech firms prior to the Federal Reserve’s interest rate hikes.
Plaid serves as a crucial connector for consumer bank accounts to various financial applications. Its APIs enable users to link their bank accounts with services like Venmo, Robinhood, and Coinbase, while also expanding into areas like direct bill payment, cybersecurity, and data analytics, partnering with significant banking institutions in the process.
Cybersecurity is emerging as one of Plaid’s primary areas of growth, according to Perret. He highlighted the alarming trend of financial fraud, which has been increasing by 20% to 25% annually, exacerbated by the rise in artificial intelligence capabilities.
“We are actively working on developing tools to counter deep fakes and other AI-driven financial crimes,” he stated. “While this represents a vast market opportunity, we would prefer it to be smaller; nevertheless, it has become a significant focus for our growth.”
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