Last week was a tumultuous one for the fintech world, as Bolt stunned the industry with leaked term sheets revealing it was seeking to raise $200 million in equity and an unprecedented additional $250 million in “marketing credits.”
As part of the deal, Bolt wanted a $14 billion valuation, bolstered by an aggressive takeover-style enforcement that would force existing investors to either pay more cash or essentially lose their shares in a deal worth 1 cent a share.
The industry responded unanimously, “We'll look into that.”
Brad Pamnani, the investor spearheading the proposed $200 million equity deal, told TechCrunch on Thursday that shareholders have until the end of next week to indicate whether they plan to write a check for the new funding round.
Let's go back to the beginning: On August 20, The Information reported that one-click checkout startup Bolt was on the verge of raising another $450 million at a potential valuation of $14 billion. This would be shocking if all true, but as more information emerged about the proposed deal, the details weren't so straightforward.
This would have come as a shock, as the company has been plagued by a lot of controversy, including the departure of its outspoken founder, Ryan Breslow, as CEO in early 2022 after being valued at $11 billion in 2022. Part of the news of the new funding round also included Breslow returning as CEO, following allegations that he misled investors and violated securities laws by inflating metrics during the fundraising when he last ran the company. Breslow is also still embroiled in a legal battle with investor Activant Capital over a $30 million loan he borrowed.
Initial reports said Silverbear Capital was leading the investment, but Pamnani told TechCrunch that this wasn't accurate (as also reported by Axios' Dan Primack). While Pamnani is a partner in Silverbear Capital, the investment vehicle is actually an SPV managed by a new UAE-based private equity fund.
“We have already applied in the UAE and are awaiting regulatory approval,” he said, declining to name the group.
Pamnani said Silverbear was not involved in the Bolt transaction at all, noting that he also works for an unnamed Cayman Islands-based private equity firm that is an LP in the SPV.
“There was some confusion initially because I responded to some things using Silver Bear's email, but Silver Bear was not actually looking at this transaction,” he said.
Breslow told TechCrunch he couldn't comment on the proposed deal.
London fund Ashesh Shah also confirmed that he plans to invest at least $250 million in Bolt, but not in cash, and instead will provide “marketing credits,” which he described as cash equivalents that some of the fund’s limited partners in the influencer and media industries will provide in the form of influencer marketing for Bolt.
Image credit: Bolt
New investors agree to reappoint Breslow
Journalist Eric Newcomer, who also saw a copy of the leaked terms and conditions document, reported this week that Bolt's annual revenue was $28 million, and its gross profit was $7 million as of the end of March.
That means a $14 billion valuation would be a huge multiple in this market, surpassing the multiple used when Bolt was valued at $11 billion in January 2022.
Pamnani told TechCrunch he expects the valuation to be closer to $9 billion or $10 billion.
“We wanted a cheap valuation for the acquisition and were in talks around $9 billion to $10 billion. We're not going to pay top dollar unless we have to, and unfortunately we didn't get that,” he said.
“But we think that's a fair valuation that it can reach,” he said of the $14 billion valuation.
Pamnanee said the SPV also wanted Breslow to return as CEO. Notably, the term sheet stipulated that the founder would receive a $2 million bonus for returning as CEO, plus an additional $1 million in unpaid salary.
Bolt has been led by former sales director Justin Grooms as interim CEO since March, when Maju Kuruvilla stepped down after reportedly being fired by Bolt's board of directors. Kuruvilla had held the role since early 2022, following Breslow's departure.
“If you look back at Bolt's historical record when Ryan was in charge, you can see that as soon as he left things got worse and it wasn't the best of times,” Pamnani said.
Can Bolt really force investors to sell for 1 cent a share?
The agreement also contains so-called “pay-to-pay” or “clamp-down” clauses, which require existing shareholders to buy additional shares at the higher rate or the company will threaten to buy back their own shares at 1 cent per share.
The question then becomes: if shareholders do not consent to another acquisition, can the company really dispose of its investment in such a way?
That's unlikely, according to Andre Galakhanian, a partner at venture-capital law firm Silicon Legal Strategies who has reviewed the company's articles of incorporation, who described the proposed deal as “a twist on a pay-to-play structure.”
“Pay to play” is a term used in term sheets to benefit new investors at the expense of existing investors. It grows in popularity during market downturns (and is becoming more common in 2024, according to Cooley's data). It essentially forces existing investors to buy all the pro rata shares they are entitled to, or the company will take punitive measures, such as converting their shares from preferred to common stock with additional rights, AngelList explains.
In Bolt's case, this “is not actually a forced conversion like most pay-to-plays. Rather, it is a forced share buyback. The objective is the same: to pressure existing investors to continue supporting the company and reduce the ownership of non-supporting investors,” Galakhanian said. “However, rather than automatically converting non-participating investors into common stock, we are buying back two-thirds of the non-participating investors' preferred stock at $0.01 per share.”
The problem, he said, is that most venture-backed startups, according to their articles of incorporation, must get approval from preferred shareholders to pull off such a maneuver — and that usually requires majority approval — which is exactly the people Bolt is trying to force.
Such threats usually send everyone to the lawyers, and sometimes after a lot of “hesitation” and a lot of bad faith, an agreement is finally reached, Galakhanian said.
“If the company really has no other choice, nonparticipating investors will usually relent and agree to the deal,” he said. That means they'll allow the company to buy back. Whether they'll accept such a large loss remains to be seen.
stay tuned.
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