April is Here. Time To Review Investment in Pied Piper Again

April is Here. Time To Review Investment in Pied Piper Again

By Assaf Gilad and Aidan Dugan

**Spoiler alert: This analysis contains spoilers from Season 4 Episode 1. Also, check out Zirra’s comprehensive Premium Insight report on Pied Piper**

“Working for a startup is like riding a rollercoaster.” This evergreen cliche doesn’t even come close to describe the series of events that were thrown at Pied Piper from its founding three years ago. CEO Richard Hendricks and his team have triumphed twice over Hooli, a Google-style company managed by the super arrogant and vindictive version of Steve Jobs. The first victory was at court, which decided that Hooli’s claims of Hendricks creating Pied Piper on its computers were nullified by an illegal non-compete clause. The second was when each of Hoolis’ attempts to launch a Pied Piper competitor failed one by one – and ended with the team building these potential competitors leaving Hooli.

The company went from being the most promising compression technology company in the Silicon Valley and breaking a world record, to a black-labeled startup that is famous for its fraudulent behavior.

Investor-wise, after convincing Raviga, a leading VC in the valley, to buy its eccentric angel investor’s (Russ Hanneman) stocks and after almost securing a much bigger round led by Coleman Blair Partners, Pied Piper lost all of their prospects after it admitted faking its numbers.

Source: HBO’s Silicon Valley

At the debut of the fourth season, it seems that Pied Piper is further than ever from a big exit, not to mention an IPO. All we’re left with is a hope that HBO’s writers will find a little mercy in their heart for Hendricks, Bachman and their pals this year. Check out the new Pied Piper’s website and blog post.

However, if you’ve ever considered investing in Pied Piper, you’ve come to the right place. As we at Zirra analyze startups for our living, we couldn’t ignore a new season about our favorite startup. Yes, we can even analyze fake companies, as long as they keep making us laugh (or cry) on a weekly basis.

As the company re-branded from Pied Piper to PiperChat, changed its management, abandoned its original compression product and is counting on a new group video chat app, it’s the perfect time to re-review the pros and cons of making an investment opportunity in the company. [For a deeper look into the company, go to Zirra’s comprehensive Premium Insight report on Pied Piper

Leadership:

Pied Piper’s management in April 2017 is almost the same as the one presented at the beginning of season one. There were the same people then as there are now. But it couldn’t be more deceiving than that. Between these two timeframes, it seems that everything went bananas at the top of the pyramid. Richard Hendricks was removed in favor of the much experienced and sales oriented Jack Barker. After a mutiny waged by Hendricks, Barker left the company and Hendricks again won the investors’ support, only to lose it again after admitting to having played with the company’s DAU (daily active users). Hendricks decided to leave the company for another venture, and senior software developer Dinesh Chugtai was promoted to the role of CEO.

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Chugtai lacks managerial skills and this is probably his first ever managerial role. He was appointed to the role after developing Pied Piper’s new project, PiperChat, and he’s probably the only team member who knows the product from the inside out and could sell it to investors. Chugtai also has an impressive technical background: He has received degrees in information theory and computer science from Yale, Caltech, and Oxford, and has published several books on advanced Java tools.

Also, one of the co-founders, Nelson Bighetti, left the company to work at competitor Hooli and was promoted to the role of a VP in order to directly compete with Pied Piper. Bighetti was forced to quit Hooli with a generous retirement agreement that was eventually breached by him. He then returned to Pied Piper as a VC investor, through his partnership in Bachmanity, an investment firm founded by him and Erlich Bachman, the owner of the hub in which Pied Piper was established. He now sits on the company’s board of directors together with his father and Bachman.

After employees lost all their shares with the acquisition by Bachmanity, a re-shuffle in the company’s structure in the beginning of 2017 allocated them more shares than before.

Investors: In 2015 Raviga, a leading Silicon Valley VC bought angel investor Russ Hanneman’s stake in Pied Piper, securing 3 of Pied Piper’s 5 board seats. A year later, however, Raviga is poised to sell its stake in the company following Pied Piper’s fraudulent data mess. Bachmanity, controlled de-facto by the Bighetti family, beat out Hooli to acquire Pied Piper by one dollar.

Pied Piper’s board of directors includes now two members of the Bighetti family and Erlich Bachman. As of April 2017, Pied Piper’s cap table is Bighetti family (50%), Erlich Bachman (35%), Dinesh Chugtai (5%), Bertram Gilfoyle (5%) and Jared Dunn (5%).

As shown in the first episode of the new season, investors are already like the idea of PiperChat, willing to forget the company’s troubled past if it will surpass the one million users threshold.

IP and Technology:  The patent behind Pied Piper’s compression technology is taken away by its creator, Richard Hendricks to its new venture. PiperChat will be able to make use of the technology without paying royalties, but in case the company is acquired, the patent is not included.

Inventor Richard Hendriks is recognized as one of the greatest engineers of his time, being responsible for the majority of Pied Piper’s coding – which got a record-breaking Weissman Score of 5.2 at TechCrunch Disrupt SF 2015.

Product: Say goodbye to PiedPiper and hello to PiperChat. As the video compression software couldn’t commercialize, the company’s new hit is a high-resolution group video chat app for smartphones. Thanks to the new TURN server, the video chat app can conference as many friends at the same time, theoretically without a limit. The high-standard video compression creates, probably, the clearest image in a chat app that involves several sources. According to the company, they have surpassed 120,000 DAU and the growth is at “Facebook-level growth,” with a rate of 18% organically week after week.

Competitors: Group video chat market is already packed with other products but no one seems to control the market, and the adoption is not fast enough. Google is pushing Hangouts group chat app, while Yahoo-Tumblr (Now a division in Verizon) has launched Cabana, a group video-chat app focused on watching videos together.

Startups in the space are thriving too. Houseparty (formerly live broadcasting app Meerkat) has raised in the end of 2016 $50 million from Sequoia to push forward its live chat app, and YouNow has raised $26 million to develop a group chat apps that allow users ‘host’ non-friends, mainly hobbyist dancers, singers or comedians and broadcast it to their followers. Canadian chat app Kik also bought group video chat Rounds a few months ago and closed down its app.

As we’re well aware of the fact that SimilarWeb’s capabilities in mobile monitoring are limited, it is interesting to look at the comparison between the rank of the three biggest group live chat apps

PiperChat is not expected to have a competition form Hooli’s direction at that moment, as Gavin Belson pushes former Pied Piper CEO Jack Barker to sell a storage box. Belson and Barker have just signed a new agreement to finally manufacture Hooli-End Frame’s storage box described by them as “the most successful American data storage appliance to ever manufactured in China.” But even after that huge milestone, a new dispute between the two sheds some doubts as to the future of their partnership and the product.

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Lawsuits:

Founder and CEO of Hooli, Gavin Belson, sued Richard Hendriks and Pied Piper for the rights to Pied Piper’s proprietary technology. The case was built upon the fact that Richard started working on Pied Piper’s technology while working at Hooli, and that he had run tests on some code while on a Hooli computer while in a Hooli office. Although the case was ultimately decided in the favor Richard and Pied Piper, this lawsuit caused quite a scandal for the company and made angel investors and VCs quite hesitant to invest. It’s possible that people will continue to have negative associations with Pied Piper because of the lawsuit. This could lead towards trouble for the start-up down the road. [For a deeper look into the company, go to Zirra’s comprehensive Premium Insight report on Pied Piper

 

*Silicon Valley is an HBO comedy series broadcasted every Sunday

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