Plaid’s $5.3 billion sale to
is expected to spur M&A activity, but don’t expect a flood of venture-backed fintech sales.
Visa (ticker: V) surprised many when it announced its $5.3 billion purchase of six-year old startup Plaid on Jan. 13. Founded in May 2013, Plaid provides technology that eases consumer payments. The company’s platform lets users connect their bank accounts to finance apps and transfer money. For example, Plaid’s technology lets Venmo’s customers pay their friends and family. Plaid works with other well-known fintechs, including investment platform Robinhood; Transferwise, which offers international money transfers; and Coinbase, a digital currency exchange.
Plaid raised more than $309 million in funding through four rounds, according to Crunchbase. It was the last round that spurred the sale to Visa, people familiar with the matter said. Plaid collected $250 million in a Series C in Dec. 2018. Visa invested in the C round, as well as
are also investors of Plaid but didn’t invest in the C round.) Plaid in 2019 succeeded in nearly doubling its revenue. The San Francisco company, as it was gearing up to raise another round, reached out to a limited number of strategic buyers.
This prompted an auction that began last fall, people familiar with the matter said. Plaid tapped Goldman Sachs (GS), which invested in the company’s $44 million B round in 2016, to run the process. By Thanksgiving, Plaid had entered into sale discussions with Visa, which was advised by
The sale of Plaid could spur more acquisitions of venture-backed financial services companies, people said. “There are just too many fintech companies and they’re all trying to chase market share,” a banker said.
During the first three quarters of 2019, global venture fintech funding totaled nearly $25 billion spread across 1,387 deals, CB Insights said in its Global Fintech Report Q3 2019. More important, as of Nov. 11, there were 58 fintech unicorns—including Plaid, Stripe, and Hippo—valued at a combined $213.5 billion, the New York research firm said.
Kathleen Utecht, a managing partner of Core Innovation Capital, said she hoped the Plaid deal would lead to the sale of VC-backed fintechs to “not just banks and other financial services companies but to nonfintechs as well.”
Not everyone is so enthusiastic. Plaid’s sale could “spur some activity but nothing like an avalanche,” a second banker said.
Highflying fintechs were once seen as likely displacing banks that had been weighed down by too much regulation. Banks, after the 2008 financial crisis, became “inwardly focused,” people said. This gave entrepreneurs the opportunity to create their own digital platforms to compete with large financial services companies, people said.
Many fintechs have proven their technology is viable and have gained market share. “They just haven’t developed scale or revenues to survive profitably on their own,” the first banker said. Fintechs are now seen as more partners to banks or, as Plaid has shown, acquisition targets.
One viable candidate for M&A is Marqeta. Smaller than Plaid, Oakland, Calif.-based Marqeta provides API technology that helps companies like Square, Instacart and DoorDash issue cards and process payments for their customers. Marqeta has raised $378 million in funding from investors including Visa, according to Crunchbase. This includes a $260 million round in May 2019 that valued Marqeta at nearly $2 billion. “We continue to be focused on going after the massive card issuing space globally and enabling our customers’ innovation,” a Marqeta spokesman said, declining to comment on whether it is a candidate for acquisition.
Another possible seller is Credit Karma, which provides financial education and lets consumers check their credit scores for free. The San Francisco company has raised $868 million via eight rounds of funding, Crunchbase said. In 2018, Silver Lake secured a minority of Credit Karma after buying stakes held by existing equity holders. Credit Karma is also a possible IPO candidate, people said. Credit Karma doesn’t comment on rumor or speculation, a spokeswoman said.
On Deck Capital may also be in play. The online lender to small businesses raised more than $400 million in funding before it went public in 2014, PitchBook said. On Deck surged more than 30% during its first day of trade but has struggled since then. On Deck, of New York, is trading at $4.15 a share, off nearly 80% from its $20 IPO price. With a $300 million market cap, On Deck could be a seller but it also wants to be a buyer. The company is considering pursuing a bank charter de novo or through a transaction, according to a November 2019 investor presentation. “On Deck may solve its funding problem by buying a small bank,” the second banking source said. An On Deck spokesman declined to comment.
Spokespeople for Visa, Goldman, and Plaid declined to comment.
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