The three co-founders of alternative finance start-up Pipe are stepping down as executives of the company in one of the most dramatic management shake-ups seen in the world of fintech startups in some time.
Miami-based Pipe said today it was looking for a “veteran” CEO as Harry Hurst, who has been the face of the company since its inception in 2019, moves from his role as co -CEO to that of vice-president.
Co-founder and co-CEO Josh Mangel will temporarily assume the role of chief executive while Hurst leads the search and subsequent transition into leadership with the help of a global executive search firm. Once a new CEO is appointed, Mangel will become executive chairman of Pipe, focusing on product and strategy. CTO and co-founder Zain Allarakhia will remain on the board and act as the company’s senior advisor. Usman Masood, currently executive vice president of engineering, will take over as chief technology officer.
“We are looking for someone who has significant operational experience in scaling businesses from product market fit to market leadership to rapid growth on a global scale,” Hurst said. .
The news – shared exclusively with TechCrunch – comes as a bit of a surprise given that at its peak just 18 months ago, Pipe was one of the most buzzing fintechs, with Hurst serving as its very public leader. By May 2021, the company had raised $250 million at a $2 billion valuation in a round that Hurst described as “massively oversubscribed.”
This is certainly not the first time a company founder has stepped down to allow for new leadership. But it’s highly unusual for all three co-founders to do so at the same time. And at this point in a business.
In an email interview, Hurst told TechCrunch that the trio “always knew Pipe’s next phase of growth would include a veteran COO.” He said they originally started looking for a COO in the second quarter and during that process they realized the role they were defining was actually that of a CEO who could help. company to reach its “true long-term potential”.
He added: “We are 0-1 builders, not full-scale operators.”
The co-founders remain Pipe’s three largest shareholders, according to Hurst. When asked what percentage of their shares the founders had sold or how many employees had taken out loans from the company to finance the purchase of their own shares, he replied: “As a private company , we do not share any information about anyone’s compensation or personal holdings. ”
Since its inception, the startup claims that 22,000 companies have signed up for Pipe and $7 billion in ARR (annual recurring revenue) has been connected to the platform. Hurst insists traction isn’t the issue here, telling TechCrunch that Pipe is on track for “3x” its revenue this year compared to last year.
“Nasdaq for earnings”
When Pipe started three years ago, its goal was to provide SaaS companies with a financing alternative outside of equity or risky debt. It billed itself as the “Nasdaq for revenue,” saying its mission was to give SaaS companies a way to collect future revenue in advance by matching them with investors in a marketplace that paid a discounted rate for the annual value of these contracts.
The purpose of the platform was to provide companies with recurring revenue streams access to capital so that they would not dilute their ownership by accepting external capital or be forced to take out debt.
Armed with $50 million in strategic growth funding from HubSpot, Okta, Slack, and Shopify, Pipe announced in March 2021 that it would begin to expand beyond strictly serving SaaS businesses to “any business having a recurring revenue stream. This could include, Hurst said, D2C subscription companies, ISPs, streaming services or telecommunications companies. Even venture capital fund administration and management fees were funneled through its platform, for example, according to Hurst.
In February, Pipe announced its expansion into media and entertainment finance with the acquisition of London-based Purely Capital. With this purchase – its first – Pipe created a new media and entertainment division called Pipe Entertainment with the aim of giving independent distributors the ability to trade their revenue streams in the same way a SaaS company could.
Expanding into so many new verticals seemed like a gamble to some observers. Working with SaaS companies with their boring and predictable recurring revenue was very different from working with independent film production companies who, as Hurst himself pointed out, sometimes had to wait “three to five years to get their money back and move on to their next projects.”
Hurst seemed so confident in Pipe’s “capital markets engine” that he believed it could support “the entire income class as assets” globally. At the time, he told TechCrunch, “Eventually anyone should be able to come from our platform.”
He remains optimistic. Currently, more than 50% of trading volume – the buying and selling of future revenue – on the platform comes from non-SaaS verticals. And surprisingly, Pipe Entertainment is one of the fastest growing verticals on its platform, according to Hurst.
“In general, diversification across verticals has been positive, and we expect to continue to foster additional vertical expansion,” he told TechCrunch.
Obviously, a lot has changed since February as the markets have changed dramatically. Since then, valuations have been called into question, more than 100,000 tech workers have been laid off and inflation has risen. Currently, Pipe has 108 employees. He made no 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 track to make long-term strategic decisions from a position of strength to ensure we continue to drive more value for our customers and investors. ”
Pipe has raised over $300 million over its lifetime from investors including 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.
An increasingly competitive landscape
While revenue-based funding has been around for decades, it’s become a more popular way to nurture SaaS startups in recent years.
Y Combinator alum Arc came out stealth in January with $150 million in debt funding and $11 million in seed funding to build what he describes as “a community of high-end software publishers” that gives SaaS startups a way “to convert future revenue into seed capital,” among other things. by Left Lane.
Spanish-American company Capchase – which says it is turning “recurring SaaS revenue into flexible growth funding” – in July 2021 secured $280m in new debt and equity funding and has since raised $80m in equity and incurred additional debt of $400 million.
Austin-based Founderpath announced in August that it had secured $145 million of 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 earn up to 50% of their annual recurring earnings (ARR) in upfront cash.
Crowdz, which secured $10 million in capital co-led by Citi and Dutch growth capital firm Global Cleantech Capital, said this year it moved from providing on-bill financing to on SaaS to also provide them with recurring revenue access to the initial capital 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-up players enter the space, and we understand that some of them might face challenges,” Hurst said. “Although the market has changed significantly since we launched Pipe, we have never been better positioned for this next phase of growth.”
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