Inntroduction Of Bolt
This past week in the fintech world has been nothing short of chaotic, as Bolt, the one-click checkout startup, stunned the industry with a leaked term sheet. The document revealed Bolt’s attempt to raise $200 million in equity alongside an unusual $250 million in “marketing credits.” The company aimed for a $14 billion valuation, pushing for a pay-to-play cramdown that would force existing investors to either invest more or see their stakes reduced to a buyout at a mere cent per share.
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The industry’s reaction was one of cautious skepticism, with many expressing doubts about the deal’s viability. Brad Pamnani, the investor leading the proposed $200 million equity investment, told TechCrunch that shareholders have until the end of the following week to decide whether they plan to participate in the new funding round.
Bolt’s Controversial Journey to $14 Billion
It attempt to reach a $14 billion valuation comes after a turbulent period since its last valuation of $11 billion in 2022. The company’s outspoken founder, Ryan Breslow, had stepped down as CEO amid controversy, including allegations of misleading investors and violating securities laws by inflating metrics during fundraising. Breslow is also entangled in a legal battle with investor Activant Capital over a $30 million loan.
Part of the new funding round involves Breslow returning as CEO, a move driven by the belief that the company’s decline began after his departure. Investors believe Breslow’s return could reverse the company’s fortunes. However, this decision has raised eyebrows, given Breslow’s past controversies.
A Complex Deal Structure
The proposed deal includes a significant twist: $250 million in marketing credits instead of traditional cash investment. Ashesh Shah of The London Fund explained that these credits would be offered in the form of influencer marketing provided by some of the fund’s limited partners in the media and influencer sectors.
Moreover, the deal includes a controversial pay-to-play or cramdown provision, where existing investors must buy additional shares at the higher valuation, or It threatens to buy back their stakes at just 1 cent per share. This has raised questions about whether It can legally enforce such a provision, especially without the approval of preferred stockholders, who typically hold veto power over such moves.
The Industry’s Response and Legal Concerns
The legality of Bolt’s proposed buyback plan has been called into question by legal experts. Andre Gharakhanian, a partner at venture capital law firm Silicon Legal Strategy, described the move as a “twist on the pay-to-play structure.” While pay-to-play terms benefit new investors at the expense of existing ones, Bolt’s plan involves a forced buyback rather than a forced conversion of shares.
Gharakhanian pointed out that most venture-backed startups would need approval from a majority of preferred stockholders to execute such a maneuver, creating a potential roadblock for Bolt’s plan. This situation is likely to lead to legal disputes, with investors potentially relenting only if the company has no other viable alternatives.
What Lies Ahead for Bolt?
As the fintech industry watches closely, the outcome of Bolt’s fundraising attempt remains uncertain. Whether the company can push through its aggressive deal structure and maintain investor confidence is still up in the air. What is clear is that Bolt’s bold moves have stirred the pot, and the ramifications of this latest chapter in the company’s story are far from over.
Stay tuned for further developments as the saga unfolds.
