The fallout from Bolt’s aggressive fundraising effort was massive

The past week has been a wild one in the world of fintech, as Bolt surprised the industry with a leaked term sheet that revealed the company was seeking to raise $200 million in equity capital and an additional, unusual $250 million in “marketing credits.”

Under the deal, Bolt sought a $14 billion valuation, bolstered by an aggressive pay-to-play share buyback policy that would force existing investors to put up more cash or simply lose their shares in exchange for a 1-cent share buyback.

The industry responded collectively: “We’ll see.”

Brad Pamnani, the investor spearheading the proposed $200 million equity investment deal, told TechCrunch on Thursday that shareholders have until the end of next week to declare whether they plan to write checks as part of the new funding round.

Back to the beginning: On Aug. 20, Information reported that one-click payments startup Bolt was close to raising another $450 million at a potential valuation of $14 billion. That would be shocking if true, but as more details about the proposed deal have emerged, the details have become less straightforward.

That would be shocking, as the company has seen its share of controversies since it was last valued at $11 billion in 2022, including its outspoken founder Ryan Breslow stepping down as CEO in early 2022. Part of the news about the new funding round included Breslow returning as CEO. That comes after allegations that he misled investors and violated security regulations by inflating metrics during a fundraising campaign the last time he ran the company. Breslow is also still embroiled in a legal battle with investor Activant Capital over a $30 million loan he took out.

Initial reports indicated that Silverbear Capital was the frontrunner for the investment, but Pamnani told TechCrunch (as also reported by Axios’ Dan Primack) that’s not true. While Pamnani is a partner at Silverbear Capital, the investment vehicle is actually a special purpose acquisition company that will be managed by a new private equity fund based in the United Arab Emirates.

“We have already filed an application in the UAE and are waiting for regulatory approval,” he said, declining to disclose the names of the entities.

Pamnani said Silverbear is not involved in the Bolt deal at all, noting that she also works for an unnamed Cayman Islands-based private equity firm that is a subsidiary of the special purpose acquisition company.

“I initially answered some questions using my Silverbear email address, which caused some confusion, but Silverbear never actually looked into the transaction,” he said.

Breslow told TechCrunch he could not comment on the proposed transaction.

The London Fund’s Ashesh Shah also explained to TechCrunch more about the additional $250 million or more he plans to invest in Bolt, but not so much in cash. Instead, he confirmed that he’s offering “marketing credits.” He described the credits as a cash equivalent that could be provided in the form of influencer marketing for Bolt by some of his funds’ limited liability partners who operate in the influencer and media world.

New investors agree to reappoint Breslow as CEO

Bolt’s annual revenue was $28 million, and the company had $7 million in pretax profit as of the end of March, journalist Eric Newcomer, who also saw copies of the leaked term sheet, reported this week.

This means that a valuation of $14 billion would be a huge amount in this market and a step up from Bolt’s valuation of $11 billion in January 2022.

Pamnani told TechCrunch he expects the valuation to be closer to $9 billion to $10 billion.

“We wanted to get a discounted valuation when we came in and we were talking about something in the $9 billion to $10 billion range. We’re not interested in paying top dollar if we don’t have to. Unfortunately, we didn’t get there,” he said.

“But we think it’s a fair valuation that we’ve been able to achieve,” he said of the $14 billion valuation.

Pamnani said the SPV was also pushing to reinstate Breslow as CEO. Interestingly, the term sheet states that the founder will receive a $2 million bonus for returning to the CEO role, plus an additional $1 million in back pay.

Bolt has been operating under former sales executive Justin Grooms as interim CEO since March, when Maju Kuruvilla left after reports she had been ousted by Bolt’s board. Kuruvilla has served in the role since early 2022 following Breslow’s resignation.

“We understood looking back at Bolt’s historic achievements when Ryan was behind the wheel and then as soon as he left, everything started to fall apart and it wasn’t the best of times,” Pamnani said.

Can Bolt really force investors to sell shares for a penny?

The deal also includes a so-called “pay-to-pay” or “cramdown” clause, under which existing shareholders must buy additional shares at higher rates or the company threatens to buy back their shares for a cent apiece.

The question then is whether, if a shareholder does not agree to repurchase the shares, can the company actually dispose of its investment in such a way?

Unlikely, according to Andre Gharakhanian, a partner at venture capital firm Silicon Legal Strategy, who has reviewed the company’s articles of association. He described the proposed transaction as “an inversion of the pay-to-play structure.”

“Pay to play” is a term used in term sheets to benefit new investors at the expense of old ones. It tends to gain popularity during market downturns (which is why it’s become increasingly common in 2024, according to Cooley). It essentially forces existing investors to buy all the proportion of shares they’re entitled to, or the company will take some punitive action, such as converting their shares from preferred shares with additional rights to common shares, explains AngelList.

In Bolt’s case, “it’s not really a forced conversion like most pay-to-play games. Instead, it’s a forced buyback. The goal is the same — to put pressure on existing investors to continue to support the company and reduce the ownership of those who don’t,” Gharakhanian said. “However, instead of automatically converting nonparticipating investors to regular investors, they’re buying back 2/3 of the nonparticipating investors’ preferred stock at $0.01 per share.”

The catch, he said, is that most venture-backed startups must get approval from preferred shareholders to pull off such a gambit, according to their corporate charters. That usually requires majority approval—the same people Bolt is trying to coerce.

What usually happens is that such a threat sends everyone to the lawyers. The deal can ultimately be reached after a lot of “hesitation and vacillation” and a lot of ill will, Gharakhanian said.

“If a company really has no other alternatives, nonparticipating investors will often back down and agree to the deal,” he said, meaning they will agree to let the company buy them out. Whether they will accept such a large loss remains to be seen.

Wait for further information.

Want more fintech news in your inbox? Sign up for TechCrunch Fintech Here.

Want to reach out to me with a tip? Email me at [email protected] or send me a message on Signal at 408.204.3036. You can also send a message to the entire TechCrunch team at [email protected]. To ensure safer communications, Click here to contact usincluding SecureDrop (instructions here) and links to encrypted messaging apps.