Pipe's founding team stepping down as hunt for 'veteran' CEO begins

The three co-founders of alternative financing startup Pipe are stepping down from their roles as executives of the company in one of the most dramatic management shake-ups seen in the fintech startup world in some time.

Miami-based Pipe said today it is on the hunt for a “veteran” CEO as Harry Hurst, who has been the face of the company since its 2019 inception, transitions from his role as co-CEO to vice chairman.

Fellow founder and co-CEO Josh Mangel will temporarily assume the role of chief executive while Hurst leads the search and subsequent transition in leadership with the help of a global executive recruitment firm. Once a new CEO has been named, Mangel will become executive chairman of Pipe, 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 the EVP of engineering, will take over as chief technology officer.

“We are looking for someone who has significant operational experience scaling businesses, from product market fit to market leadership all the way through to rapid growth on a global scale,” Hurst said.

The news — shared with TechCrunch exclusively — is a bit startling considering that at its height just 18 months ago, Pipe was among the buzziest of fintechs with Hurst serving as its very public frontman. In May of 2021, the company had raised $250 million at a $2 billion valuation in a round that Hurst had described as “massively oversubscribed.”

Certainly, it’s not the first time the founder of a company has stepped down to allow for fresh leadership. But it is highly unusual for all three co-founders to do so at once. And at this stage in a business.

In an email interview, Hurst told TechCrunch that the trio has “always known that the next phase of Pipe’s growth would include a veteran operational leader.” He said they initially started a search for a COO in the second quarter and during that process, realized that the role they were defining was actually that of a CEO who could help the company reach its “true long-term potential.”

He added: “We’re 0-1 builders, not at-scale operators.”

The co-founders remain the three largest shareholders in Pipe, according to Hurst. When asked what percentage of their shares the founders have sold or how many employees took loans from the company to fund the purchase of their own shares, he responded, "As a private company, we do not share information about anyone's personal compensation or holdings."

Since its founding, the startup says that 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 is not the issue here, telling TechCrunch that Pipe is on track to “3x” its revenue this year compared to last year.

"Nasdaq for revenue"

When Pipe first started three years ago, its goal was to provide SaaS companies a funding alternative outside of equity or venture debt. It promoted itself as the “Nasdaq for revenue,” touting that its mission was to give SaaS companies a way to collect their future revenues up front by pairing them with investors on a marketplace that paid a discounted rate for the annual value of those contracts.

The goal of the platform was to offer companies with recurring revenue streams access to capital so they didn’t dilute their ownership by accepting external capital or get forced to take out loans.

Armed 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 to expand beyond strictly serving SaaS companies to “any company with a recurring revenue stream. That could include, Hurst had said, D2C subscription companies, ISP, streaming services or telecommunications companies. Even VC fund admin and management fees were being piped 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 buy — its first — Pipe created a new media and entertainment division called Pipe Entertainment with the aim of giving independent distributors the opportunity to trade their revenue streams in the same way a SaaS company could.

Expanding into so many new verticals felt like a bit of a gamble to some observers. Working with SaaS companies with their boring, predictable recurring revenues felt very different than working with independent movie production companies that, as Hurst himself pointed out, sometimes had to wait “three to five years to get their money back and go on to their next projects.”

Hurst appeared to have so much confidence in Pipe’s “capital markets engine” that he believed it could support “the entire revenue-as-an-asset class” globally. At the time, he told TechCrunch, “Eventually, anyone should be able to originate onto our platform.”

He remains optimistic. Currently, over 50% of the trading volume -- the buying and selling of future revenues -- 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.

“In general, diversifying across verticals has been positive, and we plan to continue driving additional vertical expansion,” he told TechCrunch.

Clearly, much has changed since February as the markets took a dramatic shift. Since then valuations have been challenged, over 100,000 tech workers have been laid off and inflation has surged. Presently, Pipe has 108 employees. It has not conducted 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 that 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 are continuing to drive further value to our customers and investors.”

Pipe has raised over $300 million in 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.

Increasingly competitive landscape

While revenue-based financing has been around for decades, it has become more of a pervasive way to fuel SaaS startups in recent years.

Y Combinator alum Arc came out of stealth 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 gives SaaS startups a way “to convert future revenue into upfront capital,” among other things. In August, Arc — which now describes itself as a digital bank for SaaS companies — landed another $20 million in a Series A round led by Left Lane.

Spanish-American outfit Capchase — which says it turns “SaaS recurring revenue into flexible growth financing” — in July of 2021 secured $280 million in new debt and equity funding and has since raised $80 million in equity and taken on another $400 million in debt.

Austin-based Founderpath in August announced it had secured $145 million in its own debt and equity financing to help B2B SaaS founders grow their businesses without diluting ownership. Specifically, the company claims that it allows founders to take up to 50% of their annual recurring revenue (ARR) in upfront cash.

Crowdz, which secured $10 million in capital co-led by Citi and Dutch growth equity firm Global Cleantech Capital, said this year it expanded from providing invoice-based financing to SaaS-focused SMEs to also providing them with recurring revenue access to upfront 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 saw a lot of follow-on players enter the space, and we understand some of them may be facing challenges,” Hurst said. “While the market has changed significantly since we started Pipe, we’ve never been in a stronger position for this next phase of growth.”

Reporter's note: After this article was published, TechCrunch published a follow-up piece, which you can read here.