The three co-founders of alternative financing startup Pipe are stepping down from their roles as company executives in one of the most dramatic management shake-ups the fintech startup world has seen in some time.
Miami-based Pipe said today it is seeking a “veteran” CEO as Harry Hurst, who has been the face of the company since its 2019 founding, moves from his role as co-CEO to vice chairman.
Co-founder and co-CEO Josh Mangel will assume the role of chief executive on an interim basis while Hurst will lead the search and subsequent leadership transition with the help of a global executive recruitment firm. When a new CEO is named, Mangel will become Pipe’s executive chairman, focusing on product and strategy. CTO and co-founder Zain Allarakhia will remain on the board and serve as a senior advisor to the company. Usman Masood, currently EVP of engineering, will take over as chief technology officer.
“We are looking for someone with significant operational experience in scaling businesses, from product market fit to market leadership to rapid growth on a global scale,” said Hurst.
The news — shared exclusively with TechCrunch — comes as a bit of a shock considering that at its peak just 18 months ago, Pipe was among the buzziest of fintechs with Hurst serving as its public frontman. In May of 2021, the company raised $250 million at a $2 billion valuation in a round that Hurst described as “massively oversubscribed.”
Certainly, this is not the first time that the founder of a company has stepped down to make way for new leadership. But it’s highly unusual for all three co-founders to do so at the same time. And at this stage in a business.
In an email interview, Hurst told TechCrunch that the trio “always knew that Pipe’s next phase of growth would include a veteran operational leader.” He said they began searching for a COO in the second quarter and in that process, realized that the role they had identified was actually a CEO who would help the company reach its “true long-term potential.”
He added: “We are 0-1 builders, not scale operators.”
The co-founders remain the three largest shareholders in Pipe, according to Hurst. When asked what percentage of their shares the founders sold or how many employees took loans from the company to finance the purchase of their own shares, he replied, “As a private company, we do not share information about personal compensation. or belonging to anyone. ”
Since its founding, the startup says 22,000 companies have signed up for Pipe and $7 billion of ARR (annual recurring revenue) has been connected to the platform. Hurst insists that traction isn’t the issue here, telling TechCrunch that Pipe is on track to “3x” its revenue this year compared to last year.
“Nasdaq for profit”
When Pipe first started three years ago, its goal was to provide SaaS companies with alternative funding outside of equity or venture debt. It promotes itself as the “Nasdaq for profit,” saying its mission is to give SaaS companies a way to collect their future profits by matching them with investors in a marketplace that pays of the discounted rate for the annual value of those contracts.
The purpose of the platform is to offer companies with recurring revenue streams access to capital so that they do not dilute their ownership by accepting external capital or are forced to take out loans.
With $50 million in strategic growth financing from the likes of HubSpot, Okta, Slack and Shopify, Pipe announced in March 2021 that it would begin expanding beyond strictly serving SaaS companies to “any company that has repeat revenue stream. That could include, Hurst says, D2C subscription companies, ISPs, streaming services or telecommunications companies. Even VC fund admin and management fees are implemented on its platform, for example , according to Hurst.
In February, Pipe announced it was expanding into media and entertainment financing with the acquisition of London-based Purely Capital. With that purchase — its first — Pipe created a new media and entertainment division called Pipe Entertainment with the goal of giving independent distributors the opportunity to trade their revenue streams the same way the company can SaaS.
Expanding into so many new verticals seems like a gamble to some observers. Working with SaaS companies with their boring, predictable recurring revenues is very different than working with independent film production companies who, as Hurst himself points out, sometimes have to wait “three to five years to get their money back and move on to their next projects.”
Hurst appears to have so much faith in Pipe’s “capital markets engine” that he believes it can support “entire income-as-an-asset-class” globally. At the time, he told TechCrunch, “Eventually, anyone should come from our platform.”
He remains optimistic. Currently, more than 50% of trading volume — the buying and selling of future earnings — on the platform comes from non-SaaS vertical markets. And surprisingly, Pipe Entertainment is one of the fastest growing verticals on its platform, according to Hurst.
“Overall, diversification across verticals has been positive, and we plan to continue driving further vertical expansion,” he told TechCrunch.
Clearly, a lot has changed since February as the markets took a dramatic turn. Since then valuations have been challenged, more than 100,000 tech workers have been laid off and inflation has soared. Currently, Pipe has 108 employees. It hasn’t made any layoffs, Hurst said.
The company’s latest move has nothing to do with the company’s current financial situation, according to Hurst, who says Pipe is “well positioned.”
He added: “Unlike many companies in this challenging environment, we have the resources and half a decade of runway to make long-term, strategic decisions from a position of strength to ensure we continue to drive additional value in our customers and investors.”
Pipe has raised over $300 million over its lifetime from investors such as Greenspring Associates, Craft Ventures, Morgan Stanley’s Counterpoint Global, CreditEase FinTech Investment Fund, Fin VC, 3L, and Japan’s SBI Investment. Existing backers such as Next47, Marc Benioff, Alexis Ohanian’s Seven Seven Six, MaC Ventures and Republic.
The increasingly competitive landscape
Although revenue-based funding has been around for decades, it has become a more widespread way to fuel SaaS startups in recent years.
Y Combinator alum Arc emerged from stealth in January with $150 million in debt funding and $11 million in seed funding to build what it describes as “a community of premium software companies” that provide SaaS startups of a way “to convert future income into upfront capital,” among other things. In August, Arc — which now describes itself as a digital bank for SaaS companies — raised another $20 million in a Series A round led by Left Lane.
Spanish-American outfit Capchase — which says it is turning “SaaS recurring revenue into flexible growth financing” — in July 2021 secured $280 million in new debt and equity funding and has since raised $80 million in equity and take on another $400 million in debt.
Austin-based Founderpath in August announced it had raised $145 million in its own debt and equity financing to help B2B SaaS founders grow their businesses without diluting ownership. Specifically, the company says it allows founders to take up to 50% of their annual recurring revenue (ARR) in upfront cash.
Crowdz, which has secured $10 million in capital led by Citi and Dutch growth equity firm Global Cleantech Capital, said this year it has expanded from providing invoice-based financing to SaaS-focused SMEs to also giving them recurring access to the upfront capital income they need without having to dilute their equity.
Unlike Pipe, these companies remain focused on serving SaaS businesses.
“After our public launch in 2020, we’ve seen many follow-on players enter the space, and we understand that some of them may be facing challenges,” Hurst said. “While the market has changed significantly since we started Pipe, we have never been in a stronger position for the next phase of growth.”