On November 22, alternative financing startup Pipe announced that its three co-founders were go down of his executive duties and that the search for a new “veteran” CEO had begun.
In an exclusive interview, co-founder and former co-CEO Harry Hurst told TechCrunch that the trio were “0-1 builders, not operators at scale.” He said that the company’s income was growing year after year and that the company had a five-year history.
However, finding the right successor could take a while. To begin with, Pipe, who has raised more than $300 million of investors since it was founded in 2019, it has only one outside board member in Peter Ackerson, a general partner at Fin Capital, who became a VC just three years ago. Hurst and his fellow founders Josh Mangel and Zain Allarakhia are the only other directors on the board.
Furthermore, detractors seem intent on raising questions about the way the business has been run. Since that article was published, multiple sources who wished to remain anonymous, including an investor who says he stopped investing in the startup in its early days, have said they have “heard” that Pipe made roughly $80 million in loans to one or more various crypto mining companies. The team or teams have since gone out of business and the $80 million is believed to have been paid off entirely, these people said.
Asked about the complaints, a company spokesperson told TechCrunch that Pipe did not issue $80 million worth of loans to crypto mining companies and that Pipe did not have to fully “write off” any related receivables. Instead, he confirmed that Pipe “has provided access to funding to crypto mining hosting companies” and said: when asked if Pipe had lost no amount of money in loans to crypto mining entities: that, as a private company, Pipe does not share the finances of your company.
The startup declined to name its crypto mining-related clients, but notably, Pipe had a public partnership with Compass Mininga now-beleaguered crypto mining firm that is reportedly facing its own fair share of struggles.
There are other complaints. One source alleged that Hurst and the other two founders sold millions of dollars worth of their own shares in a secondary sale, a practice that has become quite common during the pandemic at many young companies. (The founder of Hopin, also founded in 2019, would have cashed in shares worth at least $195 million.) When we asked Hurst last week how much investors had let the co-founders take off the table, he declined to answer.
A fintech investor also raised questions about the sophistication of Pipe’s technology. When asked if there were any issues related to Pipe’s underlying loans, the company spokesperson said: “While we have seen some defaults on the platform like many fintechs in this current macro environment, we do not expect buy-side investors to experience losses that have not yet been communicated to them or part of the broader risk profile communicated by the company.”
Hurst has apparently been hearing about the conjecture surrounding his company. in a Twitter thread last night, he railed against “venture capitalists and others who hate our company based on hearsay. It’s pretty obvious that there are bad actors with their own agendas spreading BS without regard for the people it harms.” He also wrote: “As a leader, I will not let this noise distract us or undermine the incredible hard work our team puts in to achieve our mission of empowering companies around the world to grow on their terms.”
Meanwhile, the CEO search continues. Indeed, the Pipe spokesperson today reiterated what the company said publicly last week, that “Joseph [Mangel] he is now interim CEO and Harry is still with the company in his new capacity as vice president. They both want to see Pipe reach his full potential and are committed to finding a new CEO as reported and announced…”
Once Pipe’s new CEO is named, he added, that person will take over from Hurst on the board.
As for who is helping with the search, he said the answer is that “Many of Pipe’s stakeholders are part of the CEO search process, including senior managers and investors.”
In addition to Fin Capital, other venture capitalists who will lead investments in Pipe by their investment firms include Marlon Nichols, managing director of MaC Venture Capital, and Ashton Newhall, a longtime Greenspring Associates investor and now partner. of StepStone Group, which acquired Greenspring in September of last year.
None responded to requests for comment.
Another Pipe investor, Matthew Cowan of Next47 Capital, told TechCrunch that he was “not allowed to comment.”
Other company backers include Morgan Stanley’s Counterpoint Global, CreditEase FinTech Investment Fund, 3L, Japan’s SBI Investment, Marc Benioff, Alexis Ohanian’s Seven Seven Six, Republic and Craft Ventures, which led the $6 million Initial funding in February 2020.
Meanwhile, a D-shape signed by Pipe’s lead attorney, Peter Chiaro, with the US Securities and Exchange Commission in late September, reveals that the company recently secured $7.12 million in debt financing, which could be interpreted as a positive alternative to the kind of highly structured internal round that many startups are currently closing.
Pipe co-founder and chief commercial officer Michal Cieplinski, whose name was not listed in the company’s announcement last week, was listed as Pipe’s “CEO” in the filing, declining to disclose his income range.
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