Companies that convince their customers to subscribe to their products and services have a huge advantage: they can have a lot more confidence and visibility about the revenue they will earn in the coming months and years. However, these companies still face a well-known problem: they must invest upfront to drive growth and scale while continuously managing cash flow and liquidity. Enter Pipean American start-up with an innovative new solution to close the loop.
The pinnacle of Pipe was the recognition that the recurring revenues of these companies could be considered a valuable asset class. After all, a wide range of investors are desperate for new sources of safe and reliable returns, especially in the current environment of interest rates that are still remarkably low by all historical comparisons. Businesses that generate recurring revenues deliver just that, Pipe realized.
The company is the brainchild of Harry Hurst, a British entrepreneur who has led start-ups in the US for the past seven years. The idea of helping companies unlock new sources of finance struck a chord, he explains. “When I started my career in the UK, the venture capital ecosystem was virtually non-existent and it was very difficult for entrepreneurs looking to build something meaningful to find capital support,” he says. That frustration led Hurst to move to the US to pursue his entrepreneurial aspirations — and left him with an abiding concern about the lack of access to finance for start-ups and scale-ups.
Pipe is Hurst’s answer to that concern. Any business that generates recurring revenue can sign up to Pipe’s exchange and sell its future earnings to an investor. The company receives upfront capital to invest in growth; the investor acquires the rights to that ongoing income, ensuring consistent returns.
It’s a simple idea made possible by advanced technology. Companies looking to raise capital link their financial systems to Pipe’s software engine; it identifies their recurring earnings and then lists them for sale on the exchange. It also uses analytics to assess the company’s risk – essentially the likelihood of it losing customers and therefore failing to deliver the expected recurring revenue – so that investors can make a more informed decision about what earnings to buy and how much to buy. Pay. The exchange also groups multiple income streams together to create a packaged product that protects investors through diversification.
“We launched Pipe because we found that companies with very predictable revenues had to raise capital in a very inefficient way,” explains Hurst. “We thought we could solve that problem by introducing recurring revenues as a new asset class, allowing these companies to unlock the potential of that predictability and security.”
Pipe started targeting software-as-a-service companies, but soon realized that the market was much broader, from gyms whose users pay monthly to accounting firms that file returns and reports for clients on a regulated schedule. “These companies are greatly disadvantaged by traditional forms of capital,” Hurst says. “Once they have access to that capital, they can invest in future growth.”
In practice, Pipe’s proposal is not a million miles away from invoice financing, where companies sell unpaid bills to investors to get their money earlier. But Pipe goes much further for both parties. Businesses can continuously sell their earnings well into the future. Investors can buy a wide variety of income streams and participate in a secondary market through a single exchange.
Pipe is simply an intermediary, Hurst emphasizes, connecting companies seeking capital with investors willing to provide it. “We built a trading platform instead of offering another form of alternative financing,” he says. Indeed, a source of growth for the company will be to partner with other promoters who want to help companies raise money; earlier this year it made its first acquisition by buying London-based Purely Capital, which helps media and entertainment companies raise funding.
The proposal seems to capture the imagination of both companies selling income and potential investors. To date, some 20,000 companies have linked approximately $7 billion in assets to the Pipe platform. Investors range from banks to family offices and credit funds.
Companies linked to the stock exchange include a growing number of UK companies. Miami-based Pipe started in 2019 with a focus on the US market, but launched in the UK last year. “It’s our fastest growing segment right now,” Hurst says.
As for Pipe itself, revenue continues to grow. The company’s business model is to allow companies to sign up for free, but to charge both sides a trading fee of up to 1% when investors take over a company’s earnings.
Investors seem to like the company too — it has raised more than $250 million in capital in a few rounds of funding, driving the company to a valuation of over $2 billion within three years of launch.
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