Bolt’s Shocking Ultimatum to Investors: Raise More Cash or Lose Your Stakes
In a move that has sent shockwaves through the fintech industry, Bolt has issued an ultimatum to its investors: raise an additional $200 million in equity and a staggering $250 million in "marketing credits" or face the possibility of losing their stakes in the company. The proposed deal would value Bolt at a whopping $14 billion, a multiple that many in the industry are calling "unsustainable."
The company’s founder, Ryan Breslow, has made no secret of his desire to reclaim the reins of the company, and the deal includes a clause that would see him reinstated as CEO with a $2 million bonus and an additional $1 million in back pay. Breslow has been embroiled in controversy since his departure from the company in 2022, including allegations of misrepresenting the company’s financial performance and violating securities laws.
But what’s perhaps most alarming about the deal is the company’s attempt to force existing investors to cough up more cash or lose their stakes in the company. The proposed term sheet includes a "pay-to-play" type cramdown that would see non-participating investors forced to buy back their shares at a penny apiece.
"It’s a twist on the pay-to-play structure," said Andre Gharakhanian, a partner at venture capital law firm Silicon Legal Strategy. "Pay to play" is a term used in term sheets that benefits new investors at the expense of old. It grows in popularity during market downturns, which is why it has become increasingly common in 2024.
But is Bolt really within its rights to force investors to sell their stakes at such a low price? Gharakhanian says it’s unlikely. "Most venture-backed startups must obtain approval from preferred stockholders to do a gambit like that, according to their corporate charters," he said. "That typically requires approval from the majority, the very people that Bolt is trying to strong arm."
In other words, the deal would need to be approved by a majority of existing investors, which is unlikely to happen. If the company truly has no other alternatives, the non-participating investors will often relent and consent to the deal, but at a significant loss.
The question is, what will happen if investors refuse to comply with Bolt’s demands? Will the company be able to force them to sell their stakes, or will they simply be forced to take a significant hit to their investments?
Only time will tell, but one thing is clear: Bolt’s shocking ultimatum has sent a ripple of fear through the fintech industry, and investors are taking notice.
