The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Why Founder Mode is Dangerous & Could Encourage Bad Behaviour | Why Fundraising is a Waste of Time & OKRs are BS | Why Angel Investing is Bad for Founders to Do and the VC Model is on it's Last Legs with Zach Perret @ Plaid
Wed, 16 Oct 2024
Zach Perret is the CEO and Co-Founder of Plaid, a technology platform reshaping financial services. To date, Zach has raised over $734M for Plaid from the likes of NEA, Spark, GV, Coatue and a16z, to name a few. Today, thousands of companies including the largest fintechs, several of the Fortune 500, and many of the largest banks use Plaid. In addition, Zach is also a Co-Founder of Mischief, an early-stage venture fund in San Francisco. In Today’s Episode with Zach Perret We Discuss: 1. Founder Mode: Why “Founder Mode” will be the most dangerous blog post written in the last decade for founders? What is most misleading about it? What are “grinder problems”? Why does Zach believe that grinder problems are the best problems for startups to try and solve? Why does Zach believe that OKRs are BS and should be removed? What should be used instead? 2. Lessons from Raising $734M for Plaid: What is the worst advice that VCs give that most founders take? Why does Zach believe that angel investing is more distracting than helpful for founders to do? What are the pros of investing alongside running a company? Why does Zach encourage founders to raise money as infrequently as possible? What does this mean for the size and price of rounds Zach thinks we should see occur? 3. The $5BN Exit and the $13.4BN Round: Why did Zach turn down the $5BN exit to Visa? Was it the right choice? Does Zach regret raising at such a high price of $13.4BN when the exit did not happen? Would Zach sell the company today for $13.4BN if offered it? What did Zach not do that he wish he had done? What did he do that he wishes he had not done?
I think it's going to be one of the blog posts that is the most misused and actually causes a lot of the worst behavior in startups for a long time. OKR is another one. OKRs were built for manufacturing. We don't manufacture software. I think that raising money is like a big waste of time. So we try to raise money as infrequently as we possibly can with implied.
Angel investing actually, I think, is very distracting to founders.
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You have now arrived at your destination. Zach, I am so excited for this, dude. For me to do this in person is such joy. Also the first time we've met in person. So thank you for joining me.
Thank you so much for having me. I'm a huge fan of the podcast and amazing how long you've been doing it and how impressive all of the episodes are. And kudos to you as an amazing interviewer.
That is very, very kind of you. As I was saying, I did not start quite like this. I would love to start, though, on a little bit like the refounding moment, because Platter's had many iterations over the years. And in the last two to three years, it would seem like there's been like a refounding latest chapter. Can you just take me to that and how that's evolved?
So for those that aren't aware, in 2020, we signed paperwork to sell the company to Visa. In the intervening period, the regulators in the US had investigated it to ask the question, was Visa a monopolist? And was this a kind of monopoly-creating transaction? And the amazing opportunity we had within the business was we'd grown quite massively from 2020 to 2021.
COVID had been a huge tailwind for us. And we had the opportunity to actually walk away at the end of that deal and so elected to do so. But no, we started working on the new product expansions before that acquisition.
Was there a time when you were like, oh shit, we're growing fast again and we're locked into this acquisition?
I don't think that there was that specific question on my mind. The question that was always on my mind was, are we undershooting the long-term opportunity by being part of another company? And for every founder that's ever thought about selling their company, that's the key question that they're probably asking themselves.
I don't think that most people immediately orient on value for the acquisition. Sure, yeah, it reaches a threshold, and the dollar value starts to make sense. But I think when people really go through that agony around selling a company, it's much more about, like, am I creating the long-term impact? Am I fulfilling the mission? Am I achieving the vision that I've set out?
And for me, it was always about that. You know, making the decision to sell the company to Visa, that was one of, if not actually the hardest decision that I've ever made. Do you remember the moment you made it?
my gosh yeah yeah it was my leadership team and i it was uh right we were doing this off site because you don't want to be in the office and we were sitting in my living room and um i had them all there we were like had this offer and and we were going through like the pros and cons of it and um you know we went around we talked about what people were thinking and then i kicked them all out and i was like like i need to think like i'm making this call like at the end of the day like i've gotten all of your input and i didn't think it was like me sitting in my living room you know my wife is out of town and i'm just kind of alone sitting there
and ended up making what I think was a 51-49 call to say it's the right answer to sell the business for a variety of reasons at the time. A year later, we had that same meeting, same group of people sitting in my living room, having the same style of conversation. And that was a 99-1 decision. I was pretty certain that the right answer was to walk away.
I just wanted to make sure that everyone else was aligned. And what had changed in that innovating period is that our business had grown quite massively. We'd reached this escape velocity. And the concept of digital finance had really taken hold as something that people couldn't really live without. Did we build products because of the acquisition? No.
Now, the one thing that I did wrong there was we launched three new business areas at the same time. MARK BLYTHEUSE- What should you have done? In benefit of hindsight, how would you change it? MARK BLYTHEUSE- One, then the next, as you would naturally imagine. MARK BLYTHEUSE- With a year in between. I think it's hard to do all the things that we did simultaneously.
So launch three new business areas. Go from being a single product to a multi-product company. That is really hard, going from one to two products, one to two major product areas within a company. Super, super hard. Because you have to figure out, how do you sell? How do you balance your sales resources across the two? How do you change your brand?
And how do you explain to your customer that you're now not just doing one thing, you're doing multiple things? Going from one to two would have been the right answer. And then maybe we could have done the next two at once. But going from one to four, it was super hard. I have this analogy that I use internally is like, it's going to be a little gross. It's like a snake that eats an elephant.
And you can see this elephant slowly digesting through the snake. The correct answer is like a snake that eats three sheep. You eat one, and then the next, and then the next. But doing one thing where you have a gigantic amount to digest within the company, super hard. MARK BLYTHER- What is the first thing that breaks?
MARK BLYTHER- Go-to-market breaks first, because- MARK BLYTHER- How does it break? MARK BLYTHER- Every one of the new things that you're doing, the product team that's working on it wants the salespeople to sell their thing. And the salespeople are getting internally lobbied, like, hey, sell my thing, sell my thing, sell my thing. And they're disappointed when you don't sell their thing.
And then the salespeople then have to go explain it to the customer. And all of a sudden, the salespeople are explaining the thing to the customer. They don't know how to sell. So they're like, all right, well, then I've got to bring the product people to the sale. And so it becomes this really complex go-to-market motion.
And you have to go from having a single sales team that knows your products in and out to having specialist sales, having technical account managers that are coming to things, sales engineers that are coming to things. It starts to become this much more complex model. So yeah, doing that all at once, I probably wouldn't have done.
We also, by the way, went international and started to go upmarket with our sales all at the same time. So sequencing. Sequencing is the feedback that I would give myself if I could.
How did you think about resource allocation between the products? Were you like, hey, split investment across all three. One's a much bigger opportunity. Let's put 80% here and 10 and 10. How did you think about that? First off, actually, that's a shit question. Do you believe that the best CEOs are the best resource allocators?
In the long term, yes. It kind of depends on the horizon and scale of the business. In the short term, if you're a founder and you're amazing at finding product market fit, actually, no, that's the best thing. Just go spend your time on product market fit. In the mid-stages, it's about can you build an effective company.
In the long term, when you look at the CEOs that are truly the best, 10, 20-year public CEOs, they're the best resource allocators.
MARK BLYTHEUSE- So when you look at the three products, how did you approach the resource allocation problem?
Well, in the early phase, it's very easy. So you build an atomic team as small as possible. You say, go off and figure out if there's something to build here. And I've done that, by the way, with tons of other product areas, too.
So an atomic team, what's an atomic team, like a generous team?
Yeah, like a product manager, whatever the smallest version of a sufficient team is. So it's a product manager, an engineer, maybe a few engineers, maybe a designer if you need it, maybe a data scientist if you need it, depending on the type of product. And you just send them off into the ether.
And as a founder, your job is you need to give them sufficient food to continue to exist, sufficient resources and attention that they can continue to exist, sufficient protection that they don't get killed by what I call the DDoS attack, where if we have a new product that we're working on, if we tell the whole company, we have 1,000 people now, 950 people are going to reach out to the team saying, I'm super excited.
How can I help? 950 messages saying, I'm super excited. How can I help? Actually, DDoS is the system, and they're thus not able to move fast. With this atomic team, you give them sufficient resources. You give them sufficient protection, which oftentimes means ignoring them or hiding them, in some sense, from the rest of the company.
And then you help them figure out how to get to their, at least in our case, to get to their first design partner. So they need one or two customers that are willing to go experiment with them. So we've done this a lot. This is how we think about a lot of new product development.
MARK MANDELMANN- And then you do milestone-based financing, which is like, hey, if we find sufficient product market fit, we'll open up new resources. How do you think about the next stage post-Atomic team?
Yeah, if you try to over-processize that, then it doesn't really work. A lot of people try to run an internal VC-style model, which is like, we'll fund you for a million bucks for a year, and we'll figure it out. And you want to come back and pitch for Series A style internally.
Yeah, and you can do that, but it becomes over-processized, and then everyone starts to try to hack the process as opposed to really finding the unique insight. I'd rather just let people go run at a thing for a while, and usually they'll come back and say, hey, this is not going to work. Or like, hey, there's something very real here.
They might come back in a week and say, like, there's something very real here. And like, I have a customer that's like chomping at them to buy it. Like, I really need to fund it now. I don't want them to wait 18 months to come back and ask for more resourcing. On the flip side, no one inside the company wants to go like off in a foray for like three years finding nothing.
In terms of the problems that they're pursuing, we chatted before and you said to me about a brilliant style of problem that you like called the grinder problem. Yeah. But I just wanted to ask, what is a Grindr problem? And why do you find them attractive to do as a company?
MARK MANDELMANN- Yeah, so the early history of Plaid was we needed to integrate with all the banks. And these integrations were not like flip a switch, magically integrations on. It's like a lot of work to actually set up integration with the bank. In the early days, we had to actually build screen scrapers for the banks, because the banks didn't have APIs. And every screen scraper was different.
And we had this realization, if we're able just to grind out all the integrations, we're going to be better than anyone else. We will build better technology, yes, for these integrations, but also no one else is going to do this thing that we're doing.
No one else is as crazy as we are to be willing to go grind out 12,000 bank integrations and then make them all scale and build all the software that you need to self-heal the integrations. It was just a mess. And anytime I find a problem like that, I'm like, yeah, that's it. I get excited about it.
And everyone inside the company, even though we talk about this concept, people inside the company are often like, it's gonna be so hard. It's gonna be like, you know, it's gonna be difficult. There's like a long path. It might not work. So, and so forth.
I just believe that sometimes if you're willing to grind it out, you're gonna have a unique product that no one else is willing to build or able to build. Sometimes, you know, those things that are not necessarily like, it's not about the intellectual brilliance of the strategy that you come up with. It's about your ability and desire to do the work. I love those kind of challenges.
So I was talking to actually one of my partners on the investing team yesterday, and they were saying, but there's no defensibility in the company. And it's like a seed company. It's like two customers and 400k in revenue. There's no defensibility. I'm like, I don't really think any startup has defensibility on day one.
Exactly right. On day one. That's the most important part of your statement, though.
MARK BLYTHER- Are they, if they're coming from 10 years with knowledge of the banking sector? Do you see what I mean?
MARK BLYTHER- Fine, maybe. But I guess my take is, in general, if you have two atomic teams, you throw them the same problem, if they have roughly the same skills, they're going to start from roughly the same place. And one might move faster because they have this knowledge or background or whatever it is.
That has been one of the things that I've evolved my thinking on quite a lot over the years, is the importance of experience. I think a lot of people worry too much about defensibility in the immediate term, like at the start of a new project. And they worry far too little about defensibility in the late stages.
So as long as the grinder problem, the difficult, hard hustle problem that you're going after, has the ability to be meaningfully differentiated in the long term via network effects, or brand, or scale, or whatever it is, then it's great. If it never has the ability to be differentiated, I mean, be careful with your time.
MARK BLYTHER- On the experience side, are there areas where more experience is dangerous?
MARK BLYTHER- Always. I love recruiting. I started out hating recruiting. And it was one of those things where I realized that if I didn't become good at it, and if I didn't learn to love it, I would build a terrible company. Because you read any business book, we'd do great, right? First is, do you have the right people on the bus? Second is, what the heck are you building?
But first is, they get the people right. And I realized if I didn't start to enjoy recruiting, then that would be a challenge for me. So I went deep, and I figured out to convince myself, trick myself in all these different ways to love, love, love recruiting. The key for me was I'm super competitive. I like games. And recruiting is a win-loss game.
Can I get this person to want to work at my company? Can I find the best person? And then pretty quickly, I will know, yes, they accepted an offer. They didn't accept the offer. So for me now, it's this intense form of competition with myself on can I find the person? I love the hunt. And then can I convince them to join me?
What about discoverability? And what I mean by that is I think recruiting is like a search for the truth. And that sounds super lofty and like I've just swallowed a Jay Shetty book. But it's like win-loss assumes you want them.
Yeah, of course.
And actually, for me, the challenge is determining true greatness. Yeah.
I mean, that's a crucial part of it as well. Finding them, making sure that you're right, and then kind of winning.
Okay, let's start on finding them. I heard you are amazing, actually, in terms of your outreach. If you find great talent, what have been your biggest lessons on how to do outreach well? Just be yourself and do it.
One of the things that someone told me really early in my career is that the best thing that you can do is go learn from other people that are willing to talk to you. So I got really good early on at just sending cold emails to people saying like, hey, I love this thing that you do. I'm super, super impressed by it. Will you talk to me on the phone for 15 minutes and tell me about it?
And people were shockingly willing to do that early in my career. And it applies the same way for recruiting. So, by the way, exactly what I just said, you can do just to get people that you kind of want to recruit but aren't recruitable. But in general, just saying like, hey, I'm Zach. I started this company called Plaid.
I've been super impressed by, you know, whatever you're impressed by for that person. And just say, hey, we're hiring for this job. Are you willing to talk to me about it? And, you know. They ignore you a bunch of times. They say no a bunch of times. But some people say yes. If you do it enough, then it starts to work.
And the same thing you can do over email, you do it over the phone, you get introductions. But it's the same process of like, hey, I'm genuinely interested in you. And I have an opportunity that you might be interested in. Can we have a conversation?
Yeah, I totally agree. I think short and succinct is really important. Totally. I get a time where they're like four pages and that's long.
This is related to recruiting, but sort of not. Earlier on in the company, I had a five sentence rule, which is if you write an email with more than five sentences, no one's ever going to read it. So write them with less than five sentences.
Okay, so we get on the call or we get in a process with this person. In terms of talent assessment, how have you changed your approach, mindset, appreciation towards talent assessment?
So we have a couple of these core philosophies, and one or two of them have evolved. One of them is hire for spikes. This one hasn't really changed. We look for people that are incredible at some things, even if they have glaring weaknesses in other areas. So long as we have a team that can balance that out, we would rather have the spiky person.
Because it turns out, a well-rounded person that maybe doesn't have any really tall spikes, if you build a team of those, you'll have one certain, you can imagine a level, if you were to chart this out, you can imagine there only reach a certain max on the vertical axis.
But if you have spikes and you make the spikes all work together, then the level of the reach on the vertical axis is far higher. So higher for spikes is a big one for us. It also means that we like people that are weird, that have unique experiences, that are different, that have a different background or a different way of thinking about the world. So that's been a big one for us.
One that I've changed was there's this thing internally called the experience trap, where we basically thought that anyone that had been doing a certain thing for more than 15 or 20 years kind of wasn't a fit for Plaid. We just had this bad assumption that people that had been doing a thing for that long weren't going to hustle.
This was based on our own experience, meaning we'd interviewed a bunch of people and either seen friends or ourselves made some hires of people that had been really experienced but weren't willing to work that hard or were really jaded in their thinking. So we kind of avoided that early on in the company. But also, there was a time when experience didn't matter as much. Hustle mattered a lot more.
Now that we're getting later into the company and as we're going to these more specialized fields, finding someone that's been a machine learning fraud engineer for 20 years, they're going to make a huge difference on your fraud product. You just have to filter for mindset. You have to filter for hustle.
You have to filter for the values that we actually really think are important within the company. And so we've shifted our thoughts on experience quite a lot. We do still want this balance, though. We're in financial services. We want a 70-30 split. 70% of people on our team should not have come from financial services. 30% should have.
What has been the biggest hiring mistake that you've made and how have you changed as a result of it?
sometimes you get really annoyed with a search that's been going on for a long time. And you're like, I just need to hire someone. And sometimes that's actually true. And often that will lead you to make a mistake. But let's imagine I'm an early stage company. I can't find the right accountant, but I just need an accountant. At some point, you're actually right.
Yeah, you actually do just need an accountant. Chances are that hire that you're going to make is not the right one. And you have to dig yourself out of that later. So usually it's been the, I really actually just need this job to get done for a little while. And I know I'm going to have to go back and fix it later, but that's okay. How do you feel about
Obviously, PG's essay went completely viral. How did you feel about it? I was surprised how viral it went, and it clearly struck a nerve for a lot of people. So I think there's a lot of aspects of it that are really good. Why were you surprised by how viral it went? It's just the speed of it. Every Founder chat I'm in, we're talking about it.
Within the company, multiple people brought it up to me. I brought it up to our exec team. It was just this really fast set of conversations. Did you not find it obvious? I think it's going to be one of the blog posts that is the most misused and actually causes a lot of the worst behavior in startups for a long time.
And I think for the people that truly get to the level of having all the contacts that he does, then it'll actually be a huge unlock for a lot of these people. The reason I think it's going to be misused is a few fold. First is, one way to read it is to deeply undervalue great execs. And I think that that's totally wrong. The second way to read it is the founders should micromanage everything.
And while I am a fan of micromanagement or actually said differently, I'm a fan of like sweating the details, which is one of our core values in certain areas. And if you try to micromanage everything, it's never going to work. And I think he like didn't hit the nail on the head of like like the whole point is like delegate effectively.
If you delegate something and it really matters, you got to stay close to it. If you delegate something, it doesn't matter. You stay a little further away from it. Don't overdelegate. Because I think that that's the mode that it seems like a lot of people at companies that we're talking about a lot were in. And I've certainly seen that. We certainly made mistakes with over-delegation.
But I do worry that it's going to be a little misinterpreted.
I totally agree, and it's used as a justification for a lot of bad behavior to happen. And you have people like Ryan Peterson at Flexport, who is a phenomenal CEO, and you, who are a phenomenal CEO, but not everyone is Ryan or Zach. And that doesn't mean they're bad CEOs, but it just means it's maybe not as applicable.
Totally. I think people are going to see that there's Steve Jobs top 100 offsite that did it. People are going to see that and say, I should do a top 100 offsite, or top 50 offsite, top 20 offsite. That's actually horrible in a lot of companies. He did it for a specific reason. And I don't know what the specific reason was, but he had a specific reason in mind.
And the way that he applied it and used it was incredible for Steve Jobs at Apple at the size that they were at the time that it was that thing. It doesn't mean that that practice is universally applicable. I also think that building a philosophy off of Brian Chesky, who's one of the most amazing leaders, yeah, everyone can learn a lot from Brian. But not all of us are Brian.
I totally agree. I mean, Fred Wilson did this blog post on reserve utilization and the importance of reserves in early stage portfolios recently. He said basically everyone needs them and how you can use them to effectively drive DPI. And it's like, yes, if you're a brilliant picker like Fred Wilson is, who is legitimately one of the best investors of the last two decades.
But most people are not very good pickers and concentrate capital into the wrong companies. What other things are very common beliefs which many agree with in Silicon Valley echo circles that you're like, I don't agree with that?
I do think that a lot of the advice given, quote unquote, is really applicable narrowly and not broadly. Every founder needs to, for the big important things, make a decision on their own of what really works and then be willing to go back and remake those decisions time and time again.
I will say, I think that for 80% of the things in a company, you can literally just copy what's been done before. And 20% of the things, you need to be unique and spend all your effort in being really, really unique. But there are some of these things like, I'll take, for example, sales.
One of the most common early stage things that people will tell small companies is you need to go hire a VP of sales. If you're an enterprise company, if you're able to do founder-driven sales, I think that's actually totally wrong. For me, I didn't want to hire a VP of sales for a long time. I hired this group of these amazing young people that would just help me do sales.
I was driving sales, and they were around me making it more efficient. They were ghostwriting my emails, all the stuff. I was overseeing it. And that scaled us for quite a long time, way longer than it should have. But in doing that, I learned way more about our customers and way more about how to build a great product for our customers. than it could have in any other way.
And so don't hire the VP of sales early if you don't want to, like if you don't think that's right for you. OKR is another one. OKRs were built for manufacturing. We don't manufacture software. We're not running an assembly line to create software. Goals are important, but do it your own way.
Don't just read the Andy Grove book and try to apply this thing that worked for Intel to your business if it doesn't actually fit to your business.
MARK BLYTHESONE- Is speed the single most important thing for companies going from zero to one? MARK MANDELMANN- No, being right is, and then speed. MARK MIRCHANDANI- What does that mean, being strategically right on the problem that you're solving and then acting with the extreme execution speed?
MARK MANDELMANN- Yeah, so one of our company values is move fast. But you have to be careful when to apply move fast. Once you've found product market fit, move fast. That's absolutely the right thing to do.
Before you have product-market fit, sure, maybe you should move quickly through ideas, but also spending the time to think about what the right thing is, gathering the signals, gathering the data, understanding what you need to do. Be right and then move fast.
Ryan at Flexport told me very wisely, I think he said, velocity is the most important thing. It's speed in a given direction. And I'm like, that's a good one.
Well, velocity is correct, speed in a given direction. The direction also should be right. It should be the correct direction.
Do you feel like we've got in a manufacturing line on venture funding companies? And what I mean by that is like it feels like so many founders get on this production line of I'm going to hit a million in ARR and then I'm going to raise my A and then I'm going to hit five million and raise my B and then 20.
And it just feels a little bit over manufactured and almost forgetting the fact that we build products for customers who give us money.
My take is great entrepreneurs are going to apply their unique lens to what they do. We have this weird philosophy. I think that raising money is a big waste of time. So we try to raise money as infrequently as we possibly can within Plaid. So we go two and a half, three years between funding rounds.
And in the early days, some people would call us and be like, oh, is the company dead because you haven't raised in the last 12 months? And we're like, no. Revenue's growing. Everything looks great. We just didn't want to raise money.
How do you think about that? Because if you want to raise money every three years, say, for example, you're going to have to raise a chunky round. You're going to have to either take a lot of dilution or you're going to have to have a really inflated price. How did you think about that?
We kind of did what felt natural for the company and what felt right for us. My dig is money is a resource. When you need the resource, you should go get the resource. And you should do it, yes, of course, in the most efficient way that you possibly can. But for a certain amount of time, we just didn't need the resource. We weren't spending a ton. Our business was profitable in the early days.
Not intentionally, it just happened to be. And so we were like, oh, we don't need the money resource. Money is not the tool that we need to use in order to solve the next challenge. Then later it became the tool, so we wanted to raise more money.
There's a brilliant statement, always be raising. Do you disagree with that?
That seems like I would have wasted a lot of time. What was the hardest funding round? Our seed round was horrible.
Why?
Oh, my gosh. We have this crazy story. I don't think I've told this publicly. We started out first building a consumer app. So this was kind of post-2008 financial crisis. There's this movement called Occupy Wall Street. And it was like people moved tents in and lived in Wall Street. And the big takeaway from everyone was consumers are really frustrated with financial services.
They don't think that the banks are building the products they want. So being 23-year-old entrepreneurs, we set out and said, we're going to go build a better budgeting tool for consumers, because that's going to help consumers live a better financial life. So we had this whole story for a year. We built a bunch of these. They all failed.
And then we pivoted to build this infrastructure piece, which was basically the back end to our previous product. And that was actually a really good idea. But when we were trying to raise from people, everybody said no to us. We actually lined up this early funding round. It's a 500K funding round at a $2 million valuation. And the lead investor for this funding round backed out.
And he was investing $100,000 or something like that. And then the rest of the funding round fell apart. And we were out of money. We were basically dead as a company. And so we went to all the investors that had been planning to invest. And we were like, hey, look, the lead has backed out. We'd still love to take your money. But the lead is gone. And we just want to be transparent about it.
We don't want it to be a surprise. So we did it, and everybody walked away from that, except for these three people, all named Justin. And they invested a collective $60K in the company. It kept us alive. They invested $60K, maybe $2.5 million valuation. That was the lifeline we needed to sustain until we could get to some customers that were actually using it.
We had a late-stage contract with Venmo. Then it was maybe six or eight months later that we went back and raised a seed round. It was valued at $11 or $12 million, so an actual good step up. Did you think you were going to die? Yeah. But I mean, we hadn't paid ourselves in six months at that point. We were like, whatever. At some point, we're going to actually run out of money.
My co-founder was living on a friend's couch. I'd moved in with my girlfriend because I couldn't pay rent anywhere. And I had a moderate amount of credit card debt, which I don't advise to any other founders. But we thought we were going to die. But we also had nothing to lose. So you just keep going.
How did you think about secondaries and money as you progress through the company? Like, again, I don't want to be a one sided journalist versus founder. Like for me, making a little bit of money really enabled me to think differently. And I actually super pro secondaries for founders. How do you think about it? And did it change your mindset at all?
When we did the sale to Visa that ultimately didn't go through, we raised a funding round afterwards. One of the most complex things to do in that funding round was I wanted to try to max the number of people that could participate in the secondary. We couldn't get to 100% of employees, but we got to the large majority of employees that were able to participate in that secondary.
And that was hugely meaningful to me, hugely meaningful to the team on the other side. Keep in mind, we'd said, hey, we're selling the company for $5 billion. The price was $13. Well, let me finish the whole story. First, it was like, we're selling a company for $5 billion. Then we got the end of a year, and everyone was like, oh, OK.
They don't spend the money practically, but they spend the money in their hat. They do. They've got that number. Exactly, exactly. Who am I to say that they shouldn't get mentally locked in on a thing? We said we're going to sell the company for this amount of money. Visa's a very legitimate buyer. There was real cash coming in. And I told them there was risk. But you spend the money in your head.
Then we had to get to the end of the transaction, and we walk away. And I was like, this is going to be better for the company in the long term. But all of a sudden, they couldn't spend the money. There's a very different aspect of liquidity that was real for them. And then we said, look, we're going to go raise money, and we hope that we're going to let you participate in a secondary.
And that was a pretty hard thing to say, but I also couldn't. I didn't want to guarantee anything, because I couldn't. Then we got to the secondary. Then we did as much as we could. MARK BLYTHESAUER- Did they respond badly to that? MARK BLYTHESAUER- Some of them did, yeah. But not selfishly. Just people plan to buy a house, for example. Then we do the next round, which was a big step up valuation.
And we let people sell us because we wanted to create a rational amount of sale. We let them sell as much as we could rationally. But it wasn't this full amount. Instead of buying a house, maybe something larger than a car but less than a house, a chunk of what they could sell wasn't the whole thing.
That, I think, was a hard thing for them, good outcome, because they could see the light of the future and the growth of Plaid and so on and so forth. But definitely a hard, whiplashy thing. But I think that was really great that we let our employees participate there. And as we're able to do more secondaries in the future, really focusing on the team, that would be the goal.
Are you pleased that you raised a $13.4 billion valuation?
BRIAN DORSEY- That's a good question. The true value of a private company is impossible to tell. The true value of a private company is what someone is willing to pay to buy an incremental share of that company. And that's why you see valuations being all over the place with private companies.
In a lot of instances, I wish we had a real-time mark-to-market because that would make it much simpler to do things like compensating employees and doing acquisitions and so on and so forth. The reality is we raised money in the situation and in the environment that we were in at the time. Plus, valuation has gone down since then.
Frankly, the valuation of every tech company has gone down since then.
And by the way, as a founder, your job is to raise money and dilute in some cases as little as possible.
Yeah, so there's a fiduciary thing that pushes you towards the raise at max valuation, and then the investors that invest be darned. My view is different. I feel a deep responsibility to the investors that invest in Plaid. I want every one of them to make a lot of money on Plaid.
And that means that my expectations for the company are really, really high, because I know I have to get back to a high hurdle rate that we've had in the past. Now, I believe that we'll do it. I believe it'll take some time, but I believe that we'll do it. The underlying fundamentals of the business look way better now than they did whenever I invested.
But the reality is that the multiples have changed. You know, we're on a long journey. I got work to do. We got to we got to make sure that everyone makes a bunch of money on their investment where they invested. And if we're lucky enough that the investors continue to hold through that entire period, like I really believe they'll be able to do it. But that takes patience.
Did it enable you to do things that you couldn't do alone? Because that's the only thing that is cool. Like Instagram and Facebook, everyone's like, oh, what a mistake.
I can't comment on Instagram and Facebook. The structure that we set up with Visa was that we were running as an independent entity. We had access to all the tools internally. I was the CEO of the independent company. We could run as fast as we wanted to in the direction that we wanted to. And we got a boatload of funding to go do it. That's not the worst setup.
Now, I like the independent path better. No answer is my answer.
It was a hard question. When we look at M&A more broadly, you know, I'm an investor. We think about liquidity now or never. And there is no fucking liquidity. There's no liquidity for LPs. They're choked up to their neck with lack of liquidity. And I look at M&A first and it's just completely shut. Is that a fair representation? And do you think M&A is completely shut one?
What do you think will lead to it opening?
So far as I can tell, I think the large M&A transactions are mostly getting deeply investigated and oftentimes blocked by the regulators. That political environment will change eventually. We did see some of these odd acqui-hire large AI acquisitions, which have been fascinating.
But I don't think that works with a company that has tons of contracts that they actually want to transfer over to the acquired company. I can't predict the future, but I do think that it's pretty hard to do large M&A right now.
On IPOs, another form of liquidity. How do you think about IPO markets today? It's something, again, that as a late stage founder, you always have to be alert and awake to. How do you think about IPO markets today?
The viability and the excitingness and the value of an IPO changes a lot for a lot of founders. Look in the long term, and we said this before, in the long arc, we would like to be a public company. We're not in any specific rush to do so. And generally, I think of an IPO as a meaningful, important milestone in a fundraising event.
When you need the capital, when you need the milestone, when being public is really useful to the company, then you should go do it. But now would be inherently unattractive time for you to go public. Yeah, it would be for a variety of reasons. I'm sure that'll change in the next, I don't know how long.
But like your Bill Gurley's of the world would say companies, he hasn't said this, but like companies of your profile should go public, should take the hit on valuation and they will grow into great companies in public markets.
Well, I definitely believe that we'll grow into a great company if we're not there already. And I would love to have that increased rigor that being a public company brings. I think that's actually probably a really useful thing for companies. Certainly, all the public CEOs that I've talked to, or many of the public CEOs, I shouldn't say all because that's not true.
But many of the public CEOs that I've talked to said, the rigor is a really good thing. It's helpful, so on and so forth. But on the flip side, you know, it is a milestone and is a very useful tool for us to do at some point in the future. But that day is not today. And that day will hopefully be in the next couple of years.
Someone said a great statement to me the other day. They said the heaviest things in life are not iron or gold, but unmade decisions. What unmade decision weighs on your mind most?
Philosophically, I have a very hypothesis-driven decision-making model, which is you ask me a question, I have an answer. It's not a deeply held answer always, but I always start with a starting point. Within the company, we push this really hard. So if there's a decision to be made, there's always a straw man of what the decision is. I'm not sure I have a specific unmade decision.
Does that not get you in trouble with your wife? All the time. Yeah. It gets me in trouble with my wife because she's like, why are you so confident in this thing that you've never thought about? I'm like, I'm not confident. I think you were planning to ask this question later, which is like, what's the question that no one ever asked you that they really should?
For me, the question that no one ever asked me is how confident are you and how much do you care? So if you ask me, hey, is the answer red or blue? Red, how confident are you? 0% confident. How much do you care? Not at all.
Those three need to go strongly together. Okay, so I'm exactly the same as you, but someone said to me wisely the other day, what you forget, Harry, is the weight of your words. And you said that with real confidence, and the team just went with it because of that. And I'm like, oh, shit. And so do you worry that actually your words carry a lot of weight?
And because you do say things with great confidence, it's like, shit, Zach said that. I mean, fuck, let's do that.
Yeah, I do worry about that. That's why I wish people would ask me the question, how confident are you and how much do you care? What's your biggest flaw as a CEO? One of my biggest flaws as a leader is I'm not great at recognition of progress if the outcome is not excellence.
Let's say we have some problem with my company and currently we're operating at a two out of 10 going from a two out of 10 to a four out of 10. You've just made something twice as good. My CEO tells me this all the time. He's like, you got to celebrate that. That is good progress.
And yes, you can say there's another horizon that we got to go to, but you got to celebrate going from a two to a four out of 10. Sometimes that matters quite a lot. Personally, I am like never, never okay celebrating that because my answer is like that's a 4 out of 10. It's like we're still horrible. And objectively, that is the correct answer if we stay a 4 out of 10.
But oftentimes, the trajectory is you go from 2 out of 10 to a 4 out of 10 to a 6 out of 10 to an 8 out of 10, and then eventually you get to a 10 out of 10. Finding a way to celebrate those interim milestones that are not yet perfect, it's been really hard. And it definitely discourages people within the company. Giving the internal praise of, hey, you made progress there.
Let me cheer you on and be the cheerleader to help you go from a 4 out of 10 to a 6 out of 10 to an 8 out of 10. That's really hard. I do feel strongly that you should never celebrate something that just factually isn't good. If we're delivering something at a 4 out of 10, that is factually bad.
We should not be celebrating that we're delivering a 4 out of 10, but we should celebrate the progress that we're making and the trajectory that we're on. And so finding a way to support the team through that terrible to good to great process.
I do think in the early days people don't talk about kind of manufacturing wins, which is like often there's just not much to celebrate. It just doesn't look that great. And I think your job as CEO is to kind of manufacture almost fake or small wins and to alleviate them into bigger wins just to carry teams through a bit stagnant times.
You know, I was talking to an entrepreneur friend of mine who I deeply respect. And they said, you know, we set a big, hairy, audacious goal. And then within that, we asked the team, what's the first thing you can celebrate? Because it means that you're on track to achieve the big, hairy, audacious goal. The big, hairy, audacious goal, I've always done.
The what's the first thing you can celebrate question, I've never done. And I love it. It's a huge unlock. So now you can ask the team, what's the first milestone that you can achieve and prove that you're going in that direction? And then actually doing a celebration around it.
I used to run marathons when I was young and had good knees. But you always break down by five miles, just the next five miles. But do you celebrate the five miles when you get to them? Absolutely. I would have a jelly bean. That's great. Or whatever that is. I need to learn that from you. Jelly beans. Jelly beans. Just get that. Jelly bean in my pocket.
And I'd actually vary it up with a Lucozade on mile 10 or whatever that is. But I think that's really important. What trait do you have that you're a little bit ashamed of but it's also contributed to your success?
I'm very independent, very self-sufficient. The downside of this is, it comes from a childhood of a bunch of weirdness that I won't go into now, but people find it very hard to get to know me. They find it very hard to read me within the company. So I try to be more, I try to tell people what I'm thinking. I try to let my face be expressive, which isn't naturally.
Usually I just smile no matter what I'm thinking. But people find it very hard to get to know me, very hard to read me, very hard to empathize with me. On the flip side of that, it allows me to live in my own universe for decision making or big thinking. So my favorite times are sitting on an airplane. No one needs to talk to me. I can just sit there and think. I put my headphones on.
I don't play anything. Sometimes I play static. And I just sit there and think. And I have a notebook, and I write stuff down. And this kind of self-sufficiency isolation I find gives me clarity in a place that otherwise I might not have it.
Do you enjoy your own company?
Oh yeah, of course. Not many do. I feel very fortunate, though.
Okay, final one before we do a quick fire. Becoming a father is an incredibly seismic moment in one's life. How did becoming a father change you as a person, one, and as a leader, two?
It's a good question. Everybody says that having a kid teaches you time management, teaches you prioritization, teaches you coaching. I believe that all that stuff is really true. For me, the biggest change was personal. It just increases your capacity to love and recognize other people.
My favorite thing about having a daughter is, yes, getting to love her and love the snuggles and all of the things that she does. But it was actually seeing my wife become a mother. and seeing the change that brought about in her and seeing her capacity change and that recognition of someone who you've known for so long, you think you know super well, and then you just see this totally new aspect.
It made me think differently about what are the underlying aspects that other people in my life might have and how might they change over time and being more open and accepting of that. What is success to you today? That's a very hard question. I think we all land in the bigger, faster, more, like the relentless pursuit of doing more and so forth. I fall into that trap absolutely as well.
For me, it's like excellence, which is like it doesn't have to be bigger. It doesn't have to be faster even. But it's like whatever we do, it has to be great. I care about the craft of interviewing. We don't have to do more shows or less shows, but they have to be really good shows. And whatever we produce, it has to be great.
Is it internally driven or is it externally driven? Do you have a threshold? That was a good one. That was not a good one. Or if you found a better interviewer than you, if everybody in the world was a better interviewer than you, even though you were still objectively really good, would that be okay?
No. Yeah, exactly. So much of mine is driven through external.
Competitive.
Yeah. What's the right way to approach competition?
I don't know. I love it, though. It drives me in so many senses.
But it will ruin my day when I see a competitor do something that I think we should have done.
I think self-competition is the answer to that, at least for me. At some point, now I care very little about what our competitors do. If we're not as good as we could be, that starts to become a real challenge for me.
Can I just ask one on the investing side? Sure. You have the fund now, Mischief, right?
yes yeah so this might be spice but like you raise money for plaid and you are a brilliant ceo in that respect and then you decide i'm going to invest i'm like if you're angel investing game on you do whatever you want it's your money go go for it but if you're raising money from other people and then spending time investing their money to me i'm like is that not a distraction to the core and to the investors that you've had invest in plaid and actually that's
That's not how it should be. How would you respond to people who believe that?
MARK BLYTHER- That's a good framing, and I appreciate the spice. Going back to one of the themes that we've had throughout this conversation, you have to examine the specific rationale and reason. For me, as Plaid got bigger, I got sucked later in later stage. I was spending time with the gigantic banks. I was spending time with the gigantic companies.
And I found that Plaid was, in some sense, losing some of the founder mentality. It was losing some of the fine-grained attention that I needed to pay to the early-stage market. In 2016, I started angel investing, just because I wanted a reason to go talk to these companies.
and i did a bunch of it like you know had reasons to go talk to founders had reasons to engage with them deeply it kept me fresh it built a great network i learned things that i brought into how we we developed products at plaid i met amazing people who ended up hiring and it's created this like really virtual cycle angel investing actually i think is very distracting to founders the reason for it is um it's personally on you people want to talk to you all the time
You don't have a system for it. You haven't built infrastructure. You have no leverage. And so for me, a good friend and I sat down, and she said, hey, I'm going to go be a full-time VC, but I really want to start a fund. I said, this angel investing stuff is interesting because I learn a lot, but it doesn't have that much meaning, and it takes too much of my time.
And so we decided to partner together. And she kind of decided to go raise a fund. We partnered. We did it together. and that became the first Mischief Fund. Since then, there are two other amazing entrepreneurs, and we've created this fund structure that I have max leverage.
They run it full-time, three full-time people, and me who does it a few hours a week, but I get to spend time talking to entrepreneurs, helping them through sticky situations.
And the amazing thing for me is like I said, I talked about sending emails and people responding, like the wisdom and the value of Silicon Valley, and I say Silicon Valley in like air quotes here because it's not about being in the place,
that enabled me to be an entrepreneur that taught me everything that i know and i think there's a value in paying it forward and so what oftentimes happens is you know we have these whatsapp threads with the founders and lots of questions and we hear a question enough i'll go down and write a blog post and the blog post that i write will oftentimes be something i'll just distribute within plaid like hey how do we think like i have a blog post on atomic teams like how do we think about atomic teams why do they matter like why are they useful how do we think about applying them into product innovation
So I'll share that with Implod. I'll share that with all the founders. And sometimes we'll even do a Q&A, which we'll record, and then we'll have this artifact. And so for me, it makes me a better entrepreneur to go deep on these key topics that I recognize. It prompts me to actually teach things to the company in an important way.
And then it creates this amazing kind of pay it forward mentality with the founders that we interact with. So I think the average returns have to come down, because the amount of capital that's going up and the amount of amazing companies is not necessarily going up at the same pace.
MARK BLYTH I agree completely. But we've moved from a boutique industry, as Doug Leone calls it, to a commoditized asset class.
MARK MANDELMANN Yeah. So the question, is the VC product kind of played out? I think it's kind of played out, yeah.
MARK MANDELMANN Do you think VCs add value? MARK MANDELMANN A few. MARK MANDELMANN In what way has a VC moved the needle for Plaid?
MARK MANDELMANN There have been a few. One of them was transformational, where a VC came in and said, we had a round that was falling apart for very unrelated reasons. They came in and said, look, we're going to stand behind this. We're actually going to give you more money at a higher valuation. And it's going to meaningfully change the trajectory of the company
there was some risk on the round that kind of came up mid-round and they were like, no, we believe so, so deeply in the company. And so like that decision to invest at the right time, like made a huge difference. Who was that? That was NEA. Like they, I think the world of them and like the way that they handle that situation was truly incredible.
That's awesome. Don't worry, they'll love that. That's good promotion.
This is not like who walked away, so they'll be thrilled. Rick Yang, amazing.
I spoke to him before actually. Yeah. He said you're a dick. I don't think he's ever said that word in his life. Yeah, no, he's way too nice. That was just me. But we'll cut out that last sentence from me and then he'll just be pissed. Listen, I want to do a quick fire. So I say a short statement. You give me your immediate thoughts. Sound okay? Yeah.
What book written before 1965 would you most recommend? Oh man, too many. The wealth of nations. What's the most contrarian or unorthodox advice for founders listening?
Most of the stuff that the VCs tell you, don't do it. That's not to say like totally ignore them or like tell them they're wrong.
What's the most dangerous trope that VCs often say?
The OKR stuff, like putting OKRs in a business way too early is totally wrong. Putting revenue metrics on a company before they've achieved product market fit, totally wrong. Like encouraging founders to like, I mean, this was addressed in the founder mode post that we talked about, but encouraging people to like hire great execs and then like let them have space, totally wrong.
Don't like micromanage them too much, but like stay close. You need to stay in the details. You need to understand what's going on.
What have you changed your mind on most in the last 12 months?
So many things. We were talking about experience. I've been proven time and time again that hiring for experience in certain pockets where deep industry expertise matters is really, really important. And so that's been just really in my face a couple of times. What technology or advancement is most underrated?
The last time I had this, like, oh my gosh, the internet, this is the way that technology is going to go. Like, there were a few of them recently, like, trying the meta-ray bands. It's like, oh my gosh, like, this is a thing that's going to happen. Like, I'm dealing with some of the AI stuff. It's been fascinating.
Like, one of the first ones I had was, it's like ShopPay, where I showed up to this website and it had all my information and I just clicked buy. And it was like, ah, that's how the internet's supposed to work. And I think that that innovation is underrated. Everyone's cloned it now, and PayPal's done it, and Stripe's done it. Everyone's built the same thing.
But the first time I saw that, they had just this incredible advantage relative to the rest of the market. So it was very cool.
MARK MANDELBACHER- If I ask you in five years' time, where would you be exceptional for Plaid to be, and where would be a fail, what would the answer be?
If anyone can get credit, get access to credit based on the data that they have with them in their head, your transaction history and so forth, you have the ability to link that based on the data you have in your head, that would be a huge unlock.
I think if financial fraud, which right now, at least in the US, is growing at an increasing rate, if we can have it either flat or at least growing at a decreasing rate, minimally, ideally declining, that would be huge. And I think we can very realistically do that. And I think if it's a one-tap experience to apply for a loan, that's the threshold that we have. That's the target that we have.
It's like, I want to apply for a loan. Click Apply. Do a face ID. Great. Your application's submitted. That's the goal.
Zach, thank you so much for putting up with my variations and moving around schedules. You've been fantastic, and I've so enjoyed this, man.
Yeah, it's been super fun. Thank you for having me.
I have to say, that was such a special one for me to do. We first did our first episode together seven years ago, so to have the chance to do that in person was just fantastic. If you want to watch the full episode, you can find it on YouTube by searching for 20VC, that's 2-0-V-C. But before we leave you today, I'd like to introduce you to one of my favorite brands, Atteo.
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