May 26, 2022 - Economy

Bolt Financial's loans come due

Illustration of the bolt logo striking and breaking a cellphone

Illustration: Sarah Grillo/Axios

One-click checkout company Bolt Financial yesterday laid off one-third of its workforce, just months after raising $355 million in VC funding at nearly an $11 billion valuation.

Why it matters: For some, the financial ramifications go well beyond the loss of future salary.

  • In February, we discussed how Bolt offered loans to employees who wanted to buy vested shares.
  • We also noted that while the goal was laudable, in that it could help employees lower future tax bills, the loan structure could also put employees in hock to their employer. And that unbalanced trade-off was too dangerous (no matter how much "education" was provided).

Now we know more:

  • Bolt's loans were 51% recourse, which means they're collateralized by employee's personal assets, while 49% were secured by the shares. Any loans tied to covering taxes were 100% recourse.
  • Moreover, if an employee stops working at Bolt — for any reason — the loan must be repaid within 90 days. Imagine having your boss hand you a pink slip and then reach into your pocket, because that's exactly what's happening to some folks who worked at Bolt.

A Bolt spokesperson says that only a "single digit" number of laid-off employees took out the loans, despite more than 200 people losing their jobs, and that the aggregate amount was below $200,000. Moreover, she says the company plans to "work with" those individuals.

  • Yes, it's welcome news that the hole isn't deeper. Particularly since Bolt founder and then-CEO Ryan Breslow once tweeted that over half of eligible employees took out loans. Maybe the layoffs were mostly of newer, unvested employees. Breslow, for what it's worth, has gone radio silent on me since yesterday afternoon.
  • But some remaining employees must be freaking out, particularly given that Bolt is suddenly scaling way back, is being sued by a top partner and is an e-commerce enabler heading into what could be a recession. There's some solace that the loans aren't currently underwater given the delta between 409a valuations and venture valuations, nor is Bolt charging interest, but it's a challenging time for optimism.
  • The exceptions may be employees who, rather than taking out a loan, took advantage of a different Bolt offer to extend their exercise period (the length of which was based on tenure).

There also was some social media talk yesterday that a separate company tied to Breslow provided the loans, but Bolt's spokesperson says that's untrue (which makes sense, since these were cashless transactions).

She adds that Nasdaq Private Market managed the process. NPM initially declined comment, but sent a statement subsequent to this story's initial publication: “Nasdaq Private Market provides both technology solutions and market trading solutions for private company equity. Companies leverage NPM’s technology for a variety of bespoke solutions, including option extensions and contract management workflows. Currently NPM does not provide loans or any lending services.”

The big picture: This story is about Bolt, but a startup lawyer tells me that it's hardly the only startup giving out these recourse loans. Moreover, some of them now are even coming with "forfeiture clauses" for loans tied to early exercise of unvested shares, whereby the company doesn't repay at cost if the employee leaves (Bolt did not have a forfeiture clause).

The bottom line: Several dotcom-era vets warned today's entrepreneurs that these loans were a bad idea, particularly given that the unicorn herd was almost certain to be thinned. They were right.

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