- Many investors want a piece of the fintech unicorn Plaid now that it’s abandoned plans to sell to Visa.
- Former Plaid employees say they’ve been “inundated” with offers to buy their shares for up to $1,200 apiece.
- Such offers are problematic for shareholders in a private company like Plaid. They told us they wouldn’t sell.
- Visit Fintech Zoom’s homepage for more stories.
Former Plaid employees have been fielding multiple offers to buy their stock for as much as $1,200 a share, meaning some investors were bidding more than four times what the company’s would-be acquirer Visa was willing to pay, several of them told Insider.
“Every single person who has Plaid on their LinkedIn who is no longer there has gotten messages,” said one former employee, who spoke on condition of anonymity because he wasn’t authorized by Plaid to speak with the press.
Former Plaid employees are being “inundated” with emails and messages on LinkedIn from family offices and private-equity brokers seeking to buy their shares, according to four former employees, who all spoke on condition of anonymity and whose identities we confirmed.
Visa’s offer valued Plaid at $5.3 billion a year ago, before the pandemic hit. But after regulators blocked the deal, both parties agreed to walk last week. The consensus among investors is that Plaid’s business got a lift from pandemic tailwinds in fintech and is already worth much more, though Zach Perret, Plaid’s cofounder and CEO, told Insider he was not working on any other exit.
At quadruple the share price, prospective buyers are valuing the fintech startup at about $20 billion.
Now current and former Plaid employees who thought they would soon sell their shares to Visa for a handsome profit will have to wait awhile longer to sell.
But there is a faster route to liquidity even for shares of a private startup, insiders said, and that’s why some investors are approaching former employees directly.
The former employees started sharing information about the bids they were getting in a private
group for Plaid alumni to help each other avoid lowball offers.
“If someone has received an offer, and they’re in the group, that information is immediately shared and is collected,” one of the former Plaid employees said. “We want to avoid a situation where someone is not in the know.”
Employees can’t just sell, but there’s a ‘sketchy’ loophole
In general, startup employees who already own their shares may choose to sell them in a private sale, what’s known as a secondary-market transaction.
Typically, the employee sells their stake back to the company. That’s because most people, when they take a job offer that includes shares, sign an agreement that gives the startup the right of first refusal, meaning an employee can’t sell their shares to a third party without offering to sell their shares to the company first.
Employees have another option known as a forward transaction. In this type of deal, the buyer pays the employee a sum of money they agree on, and the employee pledges to transfer the shares to the buyer just as soon as there’s a liquidity event like an initial public offering or an acquisition.
“It’s sketchy,” said a former Plaid employee who received such offers, including some for $1,000 apiece. “You promise to give this person the share once it becomes liquid. You’re not actually transferring the shares.”
Former employees said the bids were coming from brokers who work for unnamed family offices and high-net-worth people, which made it “hard to know who’s on the other side of the transaction,” the Plaid alum said.
This person said he had no plans to accept because he preferred to sell his stake back to Plaid. Others said the same.
In the recent past, selling to a third party was difficult. The buyer and seller have to agree on a price based on whatever information about the company’s prospects is available to them. Then they have to get approval from the company’s board, which isn’t inclined to say yes because the company wants to decide who its shareholders are.
The secondary market is changing with the entry of companies like Liquid Stock, which lets startup employees borrow money using their stock as collateral. They don’t have to pay it back until the shares become liquid.
Greg Martin, the founder and managing director of Liquid Stock, says a startup employee who owns stock should be able to find a quality buyer and sell as companies eschew going public in favor of raising venture capital.
“Because companies are staying private longer, these liquidity needs become more acute,” he said. “If you started with a company, and it’s eight years later and you haven’t been able to cash out, that becomes a problem.”
Former employees said Plaid told them it was not sure what the company’s plans were for facilitating an authorized secondary transaction, which would give them a company-sanctioned alternative besides these “forward-transaction” third-party sales that sidestep the company’s approval. A Plaid representative declined to comment for this article.
The startup is expected to raise new financing in the coming months, The Information’s Kate Clark reported. And it’s a common practice for a company of its size to allow the founders, employees, and early investors to sell their shares to new investors as part of the fundraise, particularly in a situation like this, where an exit is now delayed.
Read more: Plaid investors say they are happy the government killed its $5.3 billion sale
An authorized secondary sale may also happen with Plaid because, Clark reported, several Plaid investors have received a flurry of texts, emails, and calls from other investors offering to buy their shares too.
A pandemic boon
Besides the concerns about their signed agreements with the company about their shares, employees have another reason for not selling to these mystery buyers. They are “extremely bullish” on Plaid, one former employee told us.
“The pandemic was the greatest thing that ever could have happened to Plaid’s business,” he said.
The fintech sector exploded during the pandemic as people turned to apps that help them manage their finances from their smartphones. Plaid was a clear beneficiary. Its software pipes data between banks and consumer apps like Venmo, Coinbase, and Chime, and the company said its customer base jumped 60% to 4,000 companies in 2021.
Plaid’s valuation could officially triple to $15 billion in its next funding round, several investors told Clark, and investors told Insider they couldn’t even predict how big the upside would be in years to come.
Still, former employees said they understood some people didn’t want to wait for Plaid’s payday. They might use the profit from selling their shares to buy a house, pay for private school, or even start a business of their own.
“It would be life-changing for a very large group of people,” one person said.
Are you a Plaid insider with insight to share? Contact Melia Russell via email at firstname.lastname@example.org or on Signal at (603) 913-3085. Open DMs on Twitter @meliarobin.