Three cofounders of fintech lending startup Pipe, valued at $2 billion in a funding round last year, are stepping down from the Miami company. The departing executives include co-CEO Harry Hurst, 33; co-CEO Josh Mangel, 29; and CTO Zain Allarakhia, 34. The news comes as a big surprise since the fast-growing business is just three years old, and it’s highly unusual for multiple cofounders to all announce their resignations at once.
“While the three of us will still all be involved in Pipe, of course, we acknowledge the company needs a veteran and experienced operational CEO to drive the business forward to even greater heights,” former co-CEO Harry Hurst said in a press release yesterday. Pipe is currently searching for a new CEO. Hurst has already stepped down but remains on the board as vice chair. Mangel will be Pipe’s acting CEO until a replacement is found, at which point he’ll become executive chair. Allarakhia “will also remain deeply involved, both at the board level and in his role as Senior Advisor,” the press release states.
Pipe’s investors and Hurst, Mangel and Allarakhia decided that, despite having run the company since 2019, the three executives didn’t have enough fintech operational experience to continue in their leadership roles. Prior to Pipe, Hurst and Mangel founded a rental car delivery company that was later acquired. Allarakhia previously worked as a software engineer at fintech companies Braintree and Plaid. Michal Cieplinski, a former executive at LendingClub
Pipe looks and smells like a lender but isn’t technically one. It lets other businesses such as software companies sell their future recurring revenue to large institutional investors for cash the borrowers can spend immediately. Pipe charges transaction fees of roughly 1% to 2% for the service, and institutional investors earn interest on the software companies’ loans. Pipe has helped more than 22,000 companies get financing and facilitates hundreds of millions of dollars in loans quarterly.
Although Pipe doesn’t hold loans on its books, if the deals it facilitates go sour, its business suffers–that’s because investors will stop buying loans through Pipe if borrowers can’t pay them back. In March, Pipe announced that it would help facilitate financing for bitcoin mining companies, which have been decimated by the decline in bitcoin’s price. Some of those loans have gone bad, says a person familiar with the company.
Pipe is also investigating questions about whether Hurst and Mangel owned equity stakes in crypto mining companies that became Pipe customers, says a person familiar with the matter. (A Pipe spokesperson says Hurst and Mangel don’t own equity stakes in any crypto mining companies that became customers and wouldn’t comment further.) Beyond software companies and crypto, Pipe has expanded into many different business categories including entertainment, consumer brands and real estate, a scattershot strategy that makes it more difficult to assess risk, experts say.
Over the past year, as interest rates have risen and venture capital funding has slowed to a crawl, fintech companies have been hit hard. Many have had layoffs, including the largest private fintech in the U.S., Stripe. Pipe is the latest fintech to feel the squeeze of the downturn. The Miami startup claims it has more than five years of cash in the bank to keep running the business.
Although Pipe is only a few years old, CEO Harry Hurst has already cashed out some of his shares. He sold some stock in a 2021 funding round, according to The Information. A Pipe spokesperson says Hurst, Mangel and Allarakhia remain the largest shareholders in the company and declined to comment on their ownership stakes.
One venture capitalist who passed on Pipe says Hurst is a part of a batch of “larger than life” founders. “They were good storytellers,” the investor says. “They had big egos, big personalities. And they were dictating terms to investors … The founder of [failed startup] Fast, the founder of Bolt–those were the type of founders in this mix.”