• Can we trust Plaid with our sensitive info?
  • The economics of supersonic flight…
  • “Your efforts do not go unnoticed… ”

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.

If you have a question you’d like answered next week, be sure you submit it right here.

“I am very reluctant to invest this way… ”

Let’s begin with a question on using Plaid’s service…

Hi Jeff. I am a lifetime member of your Day One Investor service. I missed out on your deal #4. My fault. I’m curious about your deal #5.

One question or maybe concern I have is that you said using Plaid requires my bank log-in info. I find this very concerning. After doing minimal research on Plaid, I saw that they just agreed to pay a $58 million class-action lawsuit to settle claims that it violated data privacy laws.

This seems odd that you would recommend this. I feel your readers should be made aware of this. I am very reluctant to invest this way. I would appreciate your response to this issue. Thanks,

 – Richard L.

Hi, Richard, and thanks for being a lifetime Day One member. We’ll have even more deals in the future to look forward to, so I’m very glad to have you along. As you know, my minimum commitment to my Day One Investors is 5 & 50 – that’s 50 deals over the course of five years. I plan on having more than that, but my goal is to help investors develop a diversified portfolio of private companies with extraordinary growth potential.

As for Plaid, it’s an incredible example of day one investing. Plaid is known as a financial technology company – or fintech for short. Its seed round was in the summer of 2013 at a valuation of just $12.8 million.

As of last year, its valuation had grown to an impressive $13.4 billion. That represents a 1,046 times return on investment for those who were fortunate enough to have access to its seed round. That’s enough to turn a simple $1,000 investment into more than $1 million.

Before Plaid, if we wanted to connect an online brokerage account with our bank account (for example), we would have to enter our bank account information and routing number. Then the brokerage account would send two small deposits to our bank account within a few days.

We’d have to log back into our bank account, confirm the deposit amounts, then log back into our brokerage account and enter those two deposit amounts. Once this manual process took place, our accounts were linked and could facilitate transfers from one account to the other.

It was a time-consuming and awkward process that usually took three or four days to complete. This was all just to enable an ACH transfer between one financial service account to a bank account.

Plaid solved this problem. It removed all of the complexity around linking to financial accounts. If we want to open an account on a financial services application that uses Plaid, we simply enter our bank username and password, and in seconds, our accounts are connected and ready to use.

Plaid’s application programming interface (API) technology enables this. This is the technology that Plaid licenses to its customers to enable such an effortless experience.

But, to your point, we must provide our bank account login information to a third-party company – Plaid. Is it safe?

In general, yes, it is safe. When a user types in their bank login information using Plaid’s technology, the account validation process happens once. We can think of it as creating a pipe between an application and our bank account. Once the pipe is open, it’s open. And it can be used at any time.

Yet as you mentioned, Plaid did agree to pay $58 million last August to settle a consumer lawsuit.

The class-action suit was largely based on some customers not realizing that they had used Plaid when they signed up for financial apps like Venmo or Cash App. This was due to Plaid using the look and feel of users’ bank account login pages to create a seamless experience.

As such, these people didn’t realize that Plaid would have access to their banking data, such as transaction histories, which the lawsuit claimed it was selling.

Plaid denied all wrongdoing and objected to this last claim, saying,

We do not, nor have we ever, sold data. We make our role and practices clear and provide services that give consumers control over how and where they share their data. We believe settlement of this matter is best in light of the cost and burden associated with protracted litigation.

Plaid’s lead counsel also said the company was willing to settle because it was already in progress of meeting many of the requirements of the settlement:

The settlement’s core provisions align with the workflows that were already underway – data minimization, enhanced user control, simplified UI’s, and dashboards for privacy; as such, we readily agreed to monument these provisions in this agreement.

Ultimately, this is one of the reasons I’m comfortable using Plaid. As the counsel said, Plaid offers a number of features to help us control our data.

Creating a Plaid account enables us to see and manage any connections made using Plaid’s technology. For those who are curious or concerned about what data is being collected, I recommend doing this by going to https://my.plaid.com to sign up for Plaid’s customer portal.

Once we do this, we can see all accounts that we have connected using Plaid. We can understand the data that a company is collecting on us. We can turn off or on any connections that we like. Or we can ask Plaid to delete all data and connections entirely.

This is a very nice feature that sets Plaid apart. In this way, it is transparent, gives us a level of control, and allows us to remove data and connections entirely. Wouldn’t it be nice if companies like Facebook, Google, and Twitter were like that?

Plaid’s transparency on these matters really stands out to me in the tech space. And is worth noting that the company has become a decacorn just by licensing its APIs to financial service companies – this is one of the best business models in the world and Plaid dominates this space.

With all that said, I certainly understand and respect if readers would like to avoid using Plaid to link accounts. If we really wanted to keep our data safe, we shouldn’t use a laptop, surf the internet, use a smartphone, and should only use a feature phone for a mobile (no Android OS, iPhone iOS, or software applications).

In other words, we would really have to go to extremes that would cause great inconveniences in our lives. The reality is that it is a tradeoff. But working with best-in-class technology providers whose business models do not rely on data surveillance and advertising revenues is in itself a way to reduce risk.

From my perspective, Plaid is a best-in-class technology company that provides an excellent solution to what used to be a painful process. I believe the convenience it offers outweighs any serious threat to our privacy.

But for any readers who are still uncomfortable with Plaid, it is still possible to invest via a credit card in most crowdfunding deals, and it is also possible to send money via a wire transfer. Both methods do have fees involved, but they are options for those who are uncomfortable with Plaid’s approach.

The cost of supersonic flight…

Next, a reader shares their thoughts about supersonic flight…

Jeff, as one involved in a lot of supersonic and hypersonic vehicle studies over the past 50 years, I can tell you that the economics are not there and may never be there to compete with efficient subsonic aircraft.

The supersonic and hypersonic systems breathe air at high pressures, and that causes drag… lots of drag. Therefore, they are not fuel-efficient, and fuel is getting more and more expensive.

Elon’s Starship just might change the equation, but it’s still too early to place a bet there. The other possible competitor is the evacuated hyper-tube with magnetic suspension. Their problem is earthquakes, so the hyper-tubes should avoid fault lines. Keep up the good work.

– Dana G. A.

Hi, Dana – thanks for writing in. It’s always great to hear from readers working in the technology areas we cover in these pages. I share your interest in this issue. I remember doing some air transportation economic studies way back in ’90–’91 when I was at Purdue earning my degree in aeronautical and astronautical engineering.

I’ve written a handful of times over the past couple of years about supersonic and hypersonic travel.

Several companies are working on potential successors to the Concorde. Some readers may recall the first commercial passenger jet that could fly at Mach 2… But it was retired in the early 2000s.

We wrote back in 2020 about how Virgin Galactic is working on its supersonic jet design that can reach Mach 3 – three times the speed of sound.

Another company, Stratolaunch, is testing out its hypersonic technology. This occurs at extremely high altitudes, enabling incredible speeds.

Its massive aircraft, the Roc, carries up its hypersonic vehicles to a designated elevation and drops them… And they’re able to achieve speeds up to Mach 6. That would cover more than a mile per second.

While it intends its vehicles primarily for military and defense, it’s a milestone achievement. And these military designs could easily serve as a test case for future models aimed at the commercial markets.

SpaceX also has ambitions for hypersonic travel, as you mentioned. It could become another big player in this space.

And, of course, there’s also one of my favorite companies in the supersonic race – Boom Supersonic.

We’ve talked about Boom several times in these pages. And United Airlines has already agreed to buy 15 of Boom’s supersonic jets, with the option to buy 35 more at a later date.

Boom’s Overture Airliner

Source: Boom

Boom is scheduled to deliver its first jet to United in 2025 with flights occurring in 2026.

And Boom hasn’t stopped there…

This past January, it took in funding from the investment arm of the U.S. Air Force. That’s another big vote of confidence.

And while there may be challenges in the economics as this technology is refined and improved, I can all but guarantee that companies and executives will be lining up to use supersonic flights once they become available.

I have traveled more than five million miles internationally in my career, and I wish supersonic air travel had been available to me. If I could cut a 14-hour flight between JFK and Tokyo down to seven hours (or less), I would happily pay extra for the efficiency.

And as we’ve seen, the military and government will certainly be another market for this technology.

Additionally, hypersonic travel may be restricted to popular markets at first due to cost. We will likely see flights become available in some of the wealthiest cities first… From an American perspective, New York, Miami, Los Angeles, D.C., and San Francisco come to mind.

These densely populated cities will make the economics simpler as this technology develops.

When I think back to when I was in school, technology has evolved to an incredible degree.

We have composite materials that we didn’t have back then, the ability to 3D print parts for engines that would have been impossible 30 years ago, and we have the computational ability to iterate and optimize the design in ways that were unthinkable back then.

All of these factors positively impact the economics of supersonic, and hypersonic flight. And I am 100% certain that we’re going to see regular commercial service of supersonic flights within this decade and the same for hypersonic next decade.

These will be flagship routes. Every airline won’t always make money on every flight, but they will maintain this kind of service.

And it is worth mentioning that most national airlines around the world receive government subsidies to keep their businesses from going bankrupt. Airlines will purchase and operate these planes, even if they can’t figure out how to run the flights profitably in their own markets.

Elon Musk has already shown us that we can build aerospace technology that used to cost billions of dollars for just tens of millions. If we can do it for sending payloads into orbit or to the moon, we can do the same thing for supersonic and hypersonic commercial travel.

I think you’re going to be pleasantly surprised, Dana. And who knows, maybe we’ll find ourselves sitting side by side on a future supersonic flight enjoying the ride…

Seeking out the best recommendations…

Let’s conclude with some kind feedback from a reader…

Hi Jeff, I just wanted to send a thank you to you and your team for all of the efforts you put into researching recommendations for people like me. It’s evident you do it to help the “small guy,” as you could profit from the information yourself.

I am now an Unlimited member and read all of your research. And although I can’t afford to invest in everything you recommend, I still value the time and energy you put into your research and read all of it.

It is enlightening to read your reports, and I appreciate the amount of work that you put into providing the detail and background on your recommendations. It is evident that you live for seeking out the next best recommendation to help people like me gain wealth. That doesn’t go unnoticed.

My family was never good at saving, but I am putting what I can into your recommendations (using rational portion sizing and diversification), and I hope to someday be comfortable in retirement. My parents will never retire, which is frustrating to me, but I am going to change that course.

Lately, I have been tuned in to your Day One investments, I am 31 years old and am comfortable with the risk involved with these early stage companies for the potential upside. I am excited to see how they play out. Obviously, I am hopeful some of them will do well and I can redeploy the capital into more investments to start compounding my original investment.

Again, thank you. I just want to reiterate that your efforts do not go unnoticed, and I appreciate the long days you and your team put in.

– Dan E.

Hi, Dan, it’s emails like yours that really keep me going.

The truth is, I haven’t had much sleep at all during the last three weeks. We had our annual investment summit at the end of last month and the amount of preparation for something like that is immense.

I always do my best to bring new ideas that subscribers haven’t seen before. As an Unlimited subscriber, you can now see my presentations from the summit on the Brownstone Research website. [Members can directly access Jeff’s 2022 Summit presentation right here.]

When we have events like that, my research and publishing schedule doesn’t stop. That’s what makes these windows of time so intense. But it’s all worth it when I know I have subscribers like you taking the right steps toward financial independence.

Like you, I didn’t come from money. My father didn’t save either. It ended in disaster, and it strongly influenced my own motivations to avoid a similar fate.

Getting started early at your age in private investing is such an incredible thing to do. A portfolio of private investments compounds dramatically over time, and you have at least three productive decades ahead of you, hopefully more. You can let the time work to your advantage.

When I think about my own angel investing, I view it as somewhat of an evergreen fund. I’ve never taken a single dollar out of my private investments. I take all of my profits from any exits that I have had and I turn around and reallocate those funds to my next round of private investments.

And I take advantage of Section 1202 and 1045 in the U.S. tax code which currently allows for tax-free capital gains when investing in small, early stage companies that meet the qualified small business stock requirements. This tax code was smartly designed as a way to incentivize investors to take on the additional risk to invest in young companies and create new jobs.

It’s incredibly smart to have a portion of investable assets dedicated to private investments. They haven’t impacted in the same way that public markets are in times of volatility and market turmoil. In that way, they are an alternative asset class.

And I’m planning on building out additional research products at Brownstone Research, which will of course be available to all of my Unlimited subscribers.

My goal is to have a range of investment research products that will meet the needs of all my subscribers at any point in their lives. That way, subscribers can pick and choose which research products are most interesting and/or suitable for their needs at any given time.

I can’t wait to share more about what I’m working on in the background. In time.

Thanks again for writing in.

And for any subscribers that have an interest in taking advantage of becoming a lifetime member, you can go right here to find out more.

That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.

Have a good weekend.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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