Pipe Secures $50 Million to Expand Revenue Trading Platform

Just over a year ago, Pipe completed a $6 million seed funding round, spearheaded by Craft Ventures, with the intention of providing SaaS businesses an alternative to traditional funding methods like equity or venture debt.

The company’s core objective was to enable SaaS companies to access their revenue immediately. This is achieved by connecting them with investors through a marketplace that offers a discounted rate for the annual value of their contracts. Pipe characterizes its investors as a carefully selected network of financial institutions and banks.

Further Investment and Platform Growth

Following the initial seed round, Pipe secured an additional $10 million in funding as an extension to that initial investment.

Today, the Miami-based company announced a new funding round of $50 million in “strategic equity funding” from a prominent group of investors. Siemens’ Next47 and Jim Pallotta’s Raptor Group jointly led the round, with participation from Shopify, Slack, HubSpot, Okta, Social Capital’s Chamath Palihapitiya, Marc Benioff, Michael Dell’s MSD Capital, Republic, Alexis Ohanian’s Seven Seven Six, and Joe Lonsdale.

The majority of this funding will be used to acquire primary equity. However, a portion is designated for secondary equity purchases, meaning some funds will be used to buy shares from current stakeholders like employees and executives.

Strategic Partnerships and Expanding Scope

Pipe co-CEO and co-founder Harry Hurst emphasized that the company isn’t focused on traditional funding stages.

“Our priority wasn’t simply raising capital,” he stated. “We already had sufficient runway – five to six years. This round was about securing the right strategic partners for our capitalization table.”

Alongside the new funding, Pipe is broadening its platform’s reach beyond solely SaaS companies to encompass any business with a predictable recurring revenue model. This includes direct-to-consumer subscription services, internet service providers, streaming platforms, and telecommunications companies. Even VC fund administration and management services are utilizing the platform, according to Hurst.

Platform Usage and Qualification

“Initially, we concentrated on the SaaS sector as our primary market,” Hurst explained. “Since then, over 3,000 companies have joined our platform.” These companies vary in size, from early-stage startups with $200,000 in revenue to publicly listed corporations.

Pipe’s platform evaluates a company’s key performance indicators by integrating with its accounting, payment processing, and banking systems. This allows for an instant assessment of business performance and qualification for a specific trading limit.

Currently, trading limits range from $50,000 for smaller, early-stage companies to over $100 million for larger, publicly traded entities. However, there is no upper limit on potential trading volume.

Predictability of revenue is key to utilizing the platform, according to Hurst. Pipe aims to convert monthly recurring revenue into annual recurring revenue.

Trading Volume and Future Vision

In the first quarter of 2021, the Pipe platform facilitated trades totaling tens of millions of dollars. From its launch in late June 2020 through the end of the year, the company also processed “tens of millions” in trades. The total tradable annual recurring revenue (ARR) on the platform currently exceeds $1 billion.

“We empower companies to grow independently,” Hurst said. “Alternatively, we are essentially creating a ‘Nasdaq for revenue.’ The vast majority of businesses either already operate with a recurring revenue model or are actively exploring its implementation.”

Global Expansion Plans

Pipe is leveraging its new capital and partnerships to extend its platform’s reach internationally.

The company initially launched in the U.S. but is experiencing growth in Europe, Asia-Pacific, Latin America, and Canada. Hurst anticipates India becoming a significant market in the long term.

“Our global expansion strategy includes support for multiple currencies,” Hurst explained. “And, establishing local teams in key markets. We have technically supported a global audience since our inception.”

Pipe: A New Approach to Capital Access

Pipe was established in September 2019 by Hurst, Josh Mangel, and Zain Allarakhia.

The platform’s primary function is to provide businesses with consistent revenue streams access to funding without requiring them to relinquish equity through traditional investment or incur debt.

The Core Concept: Trading Recurring Revenue

Essentially, Pipe operates as a marketplace designed for a novel asset category: recurring revenue.

However, Hurst emphasizes that the company, comprised of 25 individuals, doesn’t position its solution as a universal substitute for equity financing.

Equity vs. Recurring Revenue

“We recognize the significant value and appropriate use cases for equity,” Hurst stated. “A key drawback of equity is that its value increases as a company expands, making its sale more costly over time.”

Pipe, in contrast, operates without a cost of capital.

Investors actively compete for opportunities on the platform, and Pipe facilitates transactions by applying a fixed trading fee, capped at 1%, to both parties involved, with the percentage varying based on transaction volume.

Expanding Access to Growth Capital

The latest funding round aims to foster collaboration with investors.

This partnership will broaden access to growth capital for the numerous customers collectively served by these investors.

“We are focused on building tools to enhance the product experience, while simultaneously providing access to capital markets,” Hurst explained. “Specifically, we aim to create a more equitable environment for early-stage companies that often lack access to traditional funding sources.”

Investor Perspectives

Investors consistently express their approval of Pipe’s ability to offer companies alternatives to conventional funding methods.

Monty Gray, SVP Corporate Development at Okta, highlights that Pipe’s platform “streamlines the often complex and lengthy process of traditional fundraising, enabling founders to concentrate on the growth of their core product.”

“We anticipate Pipe will benefit not only the startups within the Okta Ventures portfolio but also Okta’s extensive customer base,” he added.

Leveling the Playing Field

Chamath Palihapitiya, founder & CEO of Social Capital, views Pipe as a force for democratization in capital markets.

“By enabling the trading of contracts that generate recurring revenue streams for the first time, Pipe has unlocked a multi-trillion dollar asset class – revenue itself,” he explained.