Bolt, the one-click checkout startup, has made headlines with its attempt to raise $450 million at a potential valuation of $14 billion. The company has faced controversy in the past, including allegations of misleading investors and violating security laws. However, the news of this new funding round also brought back the company’s outspoken founder, Ryan Breslow, as CEO. Breslow had stepped down in February 2022 and was involved in a legal battle with investor Activant Capital. The proposed deal presented to preferred shareholders includes a significant capital infusion and the return of Breslow as CEO.
However, as more details emerged, it became clear that the proposed transaction is a modified example of a “pay-to-play” structure. Bolt is attempting to grant itself the ability to buy out non-participating investors at a price of 1 cent per share. Initially, The London Fund and Silverbear Capital were believed to be the main investors in the deal. However, Silverbear Capital later stated that it was no longer involved, and an unnamed Abu Dhabi-based fund would invest $200 million in Bolt at the $14 billion valuation. Some investors have expressed pushback on Breslow potentially receiving a $2 million bonus and $1 million of back pay.
The question now is whether Bolt can force a buyback or conversion of shares if shareholders do not agree to the proposed terms. According to Andre Gharakhanian, a partner at a venture capital law firm, it is unlikely. He explains that most VC-backed companies require approval from preferred stockholders for such a transaction, and Bolt is trying to pressure those investors into supporting the company. He adds that while the deal may face hurdles in getting approved, the true pressure on investors comes from the possibility of the company’s future if new financing cannot materialize.
The negotiation and finalization of the deal may take weeks, and legal fees for pay-to-play deals can be high. However, Gharakhanian notes that if the company has no other alternatives, non-participating investors often relent and consent to the deal. He also highlights that an amendment was added to Bolt’s charter in May 2022, stating that any compensatory agreement with Breslow would require the consent of the majority of preferred shareholders.
Overall, the proposed deal by Bolt is facing challenges and pushback from investors. However, if the company can convince existing preferred shareholders to consent to the deal, it may be able to move forward with its fundraising plans.
