This past week saw significant upheaval in the fintech world as Bolt, a one-click checkout startup, shocked. The industry with a leaked term sheet indicating a bold attempt to raise $200 million in equity. An additional $250 million in “marketing credits.” The company is seeking a hefty $14 billion valuation and is using a controversial tactic to pressure existing investors to reinvest or risk a forced buyout at a mere penny per share. The industry has responded with skepticism and uncertainty regarding the potential success of this maneuver.
Aggressive Tactics to Raise Capital BoltÂ
The leaked term sheet has revealed Bolt’s unusual strategy to secure new funding. The company is attempting to enforce a “pay-to-play” type cramdown, a strategy designed to coerce existing investors into participating. The new funding round or face significant financial losses. If investors do not comply, Bolt has threatened to buy back their shares at just $0.01 each, a move that has raised eyebrows across the fintech sector.
Bolt Background and Recent Developments
On August 20, it was reported that Bolt was nearing a $450 million funding round at a $14 billion valuation, a figure that seemed staggering given the company’s recent challenges. Since achieving an $11 billion valuation in 2022, Bolt has faced numerous controversies, including the departure of its outspoken founder, Ryan Breslow, amid allegations of misleading investors and violating securities laws. The new funding round reportedly includes Breslow’s return as CEO, a condition pushed by the new investment group.
Marketing Credits and Valuation Challenges
Another unique aspect of Bolt’s funding strategy involves the proposed $250 million in “marketing credits,” which would be provided instead of cash by some of the investors’ partners in the influencer and media space. This unusual form of investment further complicates the valuation and potential success of the funding round. According to TechCrunch, Bolt’s annualized run rate was $28 million in revenue with a gross profit of $7 million as of March. The $14 billion valuation thus represents a significant multiple, raising questions about its justification.
Legal and Strategic Concerns
The proposed pay-to-play strategy has prompted legal scrutiny. Andre Gharakhanian, a partner at venture capital law firm Silicon Legal Strategy, described the strategy as “a twist on the pay-to-play structure.” Typically, this approach forces existing investors to buy their entitled shares or face punitive actions, such as the conversion of preferred shares to common shares. However, Bolt’s tactic involves a forced buyback, which is unusual and might require approval from a majority of preferred stockholders.
Future Implications for Bolt and Fintech
The outcome of Bolt’s bold funding strategy will likely have significant implications. The company and the fintech sector as a whole. If successful, it could set a precedent for other companies facing financial difficulties to use similar tactics.
