February 3, 2023

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Tensions rise over allegations when Pipe’s founding team departs • TechCrunch

On November 22, alternative finance startup Pipe announced that its three co-founders were stepping down from their executive positions and beginning a search for a new, “seasoned” CEO.

In an exclusive interview, co-founder and former co-CEO Harry Hurst told TechCrunch that the trio are “0-1 builders, not large-scale operators.” He said that the company’s sales are growing year after year and that the company is five years on the runway.

However, the search for a suitable successor could take a while. For starters, Pipe — which has raised more than $300 million from investors since its inception in 2019 — has only one outside board member in Peter Ackerson, a general partner at Fin Capital who himself became a VC just three years ago. Hurst and his co-founders Josh Mangel and Zain Allarakhia are the only other directors on the board.

Additionally, critics seem keen to ask questions about the way the business was run. Since this article was published, multiple sources who have asked to remain anonymous — including an investor who says he passed on the investment in the startup in its early days — have said they “heard” Pipe was about $80 million in loans to one or more crypto mining companies. The outfit or outfits have since gone out of business and the $80 million is believed to have been written off in full, these people said.

When asked about the allegations, a company spokesman told TechCrunch that Pipe had not made $80 million worth of loans to crypto mining companies and that Pipe did not have to “write off” related claims entirely. Instead, she confirmed that Pipe “has provided access to funding for crypto mining hosting companies” and said — when asked if Pipe had lost any amount of money lending to crypto mining companies — that Pipe, being a private company, does not own its business shares finances.

The startup declined to name its customers in connection with crypto mining, but notably Pipe had a public partnership with Compass Mining, a now-struggling crypto mining company that’s reportedly facing its fair share of struggles.

There are other musings. A source claimed that Hurst and the other two founders sold millions of dollars worth of their own stock in a secondary sale, a practice that has become fairly common among numerous fledgling companies during the pandemic. (The founder of Hopin, also founded in 2019, has reportedly cashed out at least $195 million worth of stock.) When we asked Hurst last week how much investors the co-founders had already dumped, he declined to answer away.

A fintech investor also posed questions about the maturity of Pipe’s technology. When asked if there was a related issue with Pipe’s underlying loans, the company spokesman said, “While we have seen some defaults on the platform, as with many fintechs in this current macro environment, we do not expect investors on the platform.” Buyer side will suffer such losses has not yet been communicated to them or is part of the broader risk profile communicated by the company.”

Hurst apparently heard about the suspicions surrounding his company. in one Twitter thread Last night he railed against “VCs and others who hate our company based on rumours. Quite obviously there are bad actors with their own agendas spreading BS with no 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 that our team invests in fulfilling our mission to enable businesses everywhere to grow on their terms.”

Meanwhile, the CEO search continues. In fact, Pipe’s spokesperson reiterated today what the company said publicly last week, that “Josh [Mangel] is now interim CEO and Harry is still with the company in his new role as Vice Chairman. Both want Pipe to reach its ultimate potential and are committed, as reported and announced, to finding a new CEO…”

Once Pipe’s new CEO is named, she added, that person will take Hurst’s seat on the board.

As for who is helping with the search, she said the answer is that “many of Pipe’s stakeholders are part of the CEO search process, including senior management and investors.”

Photo credit: Twitter

In addition to Fin Capital, other VCs who will lead investments in Pipe from their investment firms include Marlon Nichols, a managing director at MaC Venture Capital, and Ashton Newhall, a longtime investor at Greenspring Associates and now a partner in StepStone Group, which acquired Greenspring in September last year.

No one responded to requests for comment.

Another Pipe investor, Matthew Cowan of Next47 Capital, told TechCrunch that he was “not allowed to comment.”

Other backers of the company include Morgan Stanley’s Counterpoint Global, CreditEase FinTech Investment Fund, 3L, SBI Investment of Japan, Marc Benioff, Seven Seven Six of Alexis Ohanian, Republic and Craft Ventures, which raised the company’s seed funding in February 2020 of $6 million.

Meanwhile, a Form-D signed by Pipe Senior Counsel Peter Chiaro with the US Securities and Exchange Commission in late September reveals that the company recently raised $7.12 million in debt financing, which appears to be a positive alternative to the type of highly structured inner workings could be designed around that many startups are currently closing.

Pipe co-founder and chief business officer Michal Cieplinski, whose name was missing from the company’s announcement last week, was listed as Pipe’s “executive officer” in the filing, which declined to disclose its sales margin.

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