The three co-founders Alternative finance startup Pipe is stepping down from his company’s executive role in one of the most dramatic management shakeups in the fintech startup world.
Miami-based Pipe announced today that it is looking for a “veteran” CEO as Harry Hurst, who has been the company’s face since 2019, moves from associate to vice chairman.
Co-founder and CEO Josh Mangle will assume the role of CEO, leading Hearst’s search and subsequent transition with the assistance of a global executive recruitment firm. Once a new CEO is named, Mangle will become Pipe’s executive, focusing on product and strategy. CTO and co-founder Zain Alarakhia will remain on the board and serve as a senior advisor to the company. Usman Masood, currently EVP of Engineering, will be appointed Chief Technology Officer.
“We are looking for someone with business experience who has significant operational experience, from product market fit to market leadership to rapid global growth,” Hurst said.
The news — which was shared exclusively with TechCrunch — comes as a bit of a shock given that just 18 months ago, at its peak, Pipe was one of fintech’s buzziest and Hurst served as its most public front. In the year In May 2021, the company raised $250 million in a $2 billion round that Hurst described as “oversubscribed.”
Certainly, it’s not the first time a company’s founder has stepped down to allow new leadership. But it’s unusual for all three co-founders to do so at the same time. And at this stage in business.
In an email interview, Hearst told TechCrunch that the trio “always knew that the next phase of Pipeline’s growth would involve a veteran operations leader.” They said they first began searching for a COO in the second quarter and realized that the role they were defining in that process was the CEO who would help the company achieve its true long-term potential.
“We are 0-1 developers, not level operators,” he added.
According to Hurst, the co-founders will remain the three largest shareholders in Pipe. Asked how many shares the founders sold or how many employees borrowed from the company to buy their own shares, he said, “As a private company, we don’t share information about anyone’s personal compensation or holdings. “
Since its inception, the startup has registered 22,000 companies for Pipe and $7 billion in ARR (Annual Recurring Revenue) has been linked to the platform. Hearst told TechCrunch that drag isn’t the issue, saying Pipe is on track to “3x” its revenue this year compared to last year.
‘Nasdaq for Income’
When Pipe started three years ago, its goal was to provide SaaS companies with a funding option other than equity or venture debt. It introduced itself as “Nasdaq for income”, its mission was to provide a way for SaaS companies to collect their future income by connecting with investors in a marketplace that pays an annual discount for those contracts.
The objective of the forum was to enable companies with recurring revenue sources to receive capital without having to risk their ownership or be forced to take out loans by accepting foreign capital.
Armed with $50 million in strategic growth funding from the likes of HubSpot, Okta, Slack and Shopify, Pipe announced in March 2021 that it will begin expanding beyond strictly serving SaaS companies to “companies with recurring revenue streams.” This could include D2C subscription companies, ISPs, streaming services or telecommunications companies, Hurst said. Even VC fund manager and management fees were opening up on the platform, for example, like Hurst.
In February, Pipe announced that it was expanding into media and entertainment finance by acquiring London-based Purely Capital. With that acquisition – its first – Pipe created a new media and entertainment division called Pipe Entertainment, which aims to give independent distributors the opportunity to market their revenue streams in a way that a SaaS company can.
Expanding into so many new verticals felt like a bit of a gamble to some observers. Working with SaaS companies, with their boring and predictable recurring revenue, felt very different from working with independent film production companies, where, as Hearst himself explained, they sometimes “had to wait three to five years to get their money back and move on to their next project.” He said.
Hearst seemed to have so much faith in Pipe’s “capital markets engine” that he believed it supported the “total income-as-assets class” globally. At the time, he told TechCrunch, “Ultimately, anyone should be able to come to our platform.”
He remains optimistic. Currently, more than 50% of trading volume – buying and selling futures – on the platform comes from non-SaaS vertical markets. And surprisingly, Pipe Entertainment is one of the fastest-growing verticals on the platform, Hurst explained.
“Overall diversification across verticals is positive, and we plan to continue further vertical expansion,” he told TechCrunch.
Clearly, a lot has changed since February when the markets made a dramatic turnaround. Since then, inflation has caused more than 100,000 tech workers to be laid off and inflation has soared. Currently, Pipe has 108 employees. He didn’t make any layoffs, Hurst said.
The company’s latest move has nothing to do with the company’s current financial situation, according to Hearst, which said Piper is “in a good place.”
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 strong position to continue to deliver greater value for our customers and investors.” “
Pipe has raised more than $300 million in its lifetime from investors including Greenspring Associates, Craft Ventures, Morgan Stanley Counterpoint Global, CreditEase FinTech Investment Fund, Fin VC, 3L and Japan’s SBI Investments. Backers like Next47, Marc Benioff, Alex Ohanian’s Seven Seven Six, Massey Ventures and Republic.
An increasingly competitive landscape
While revenue-based financing has been around for decades, it has become a more widespread way to fuel SaaS startups in recent years.
Y Combinator alum Arc came out of hiding in January with $150 million in debt financing and $11 million in seed funding to build what it describes as a “community of premium software companies” that will give SaaS startups “a way to turn future revenue into future 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 “turns SaaS recurring revenue into dynamic growth financing” — raised $280 million in new debt and equity financing in July 2021, and has since raised $80 million in equity and taken another $400 million in debt.
Austin-based Founder’s Way announced in August that it had secured $145 million in debt and equity financing to help B2B SaaS founders grow their businesses without having to settle for a patent. Specifically, the company said it will allow founders to take 50 percent of their annual recurring revenue (ARR) in cash up front.
Crowdz, led by Citi and Dutch growth equity firm Global Cltech Capital, raised $10 million in capital this year to help SaaS-based small and medium-sized businesses with invoicing, recurring revenue, and priority capital. They need without exhausting their equity.
Unlike Pipe, these companies focus on serving SaaS businesses.
“Since we officially launched in 2020, we’ve seen a lot of subsequent players enter the space, and we understand that some of them may face challenges,” Hurst said. “The market has changed dramatically since we launched the pipeline, but we’ve never been in a stronger position for the next phase of growth.”
