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The founder also encouraged employees to take on what was effectively personal debt at an ~11B valuation when they only did $5.2M in Q1…

by Lapz 4y ago

Solvitieg 4y ago
And "over half" of their employees apparently took on the debt. Source: https://twitter.com/theryanking/status/1493609864534315014 https://twitter.com/theryanking/status/1493609864534315014
- bombcar 4y ago
  "It was different in the 90s" will turn out to be "it's exactly the same today".
- lelandfe 4y ago
  I'm awful at understanding company stock stuff. > if the common stock becomes less than exercise price, their personal assets are on the hook Can someone explain what that may mean for the >50% of employees at Bolt that bought into this program, now? I'm really struggling to grok what my quoted sentence entails... edit: thanks much for the quick explanations
  - johnzim 4y ago
    By taking part in this program, you are essentially taking a personal loan, partially secured by your stock options which will vest later. If you don't happen to understand Stock options: At a later date you will have the OPTION to buy company stock at a set price (often referred to as a Strike price) So some entity is lending you money because they know you have Stock options and presumably will be good for the money when they vest/mature. Of course, if the value of the Stock at the point of your options maturing is LOWER than your strike price, you essentially have earned yourself the option to buy $4 apples at the price of $50 an apple. Eg: your options are worthless (beyond their ability to purchase shares which might not be buyable on a public market) So since you took out a _personal loan_ you now have to pay it back. EDIT: I missed one thing - you actually get to exercise _now_ if you take out this loan... This has slightly more upside because it means that you could have in theory, sold those shares for immediate upside on the secondary market and thereby have de-risked yourself. If you didn't, then you got hosed. You could also have a capital gains advantage by spreading the gains I suppose
    - bogomipz 4y ago
      I was struggling to understand why someone would take a loan against options rather than just sell them on the secondary market like you mentioned and I think the key difference is that you can't sell an unvested option on the secondary market but with this Bolt program you could take a loan against an unvested option which is unique and kind of bizarre. Who would underwrite such a loan and how is the accounting for it done at the company level? Also wouldn't they be taxed as income?
      - e9 4y ago
        a lot of popular and semi-popular startups are hard for some VCs to invest in. So some of them like ESO fund (https://www.esofund.com https://www.esofund.com) will give you money to exercise and pay taxes but on condition that they'll take a decent amount of profits when you sell the stock
  - Karrot_Kream 4y ago
    These employees chose to take out a loan in order to exercise the options. These employees now own the shares that they exercised their option for _and_ a loan to pay back the amount of money spent to exercise. If the price of these shares becomes _less_ than the price spent to exercise the option to receive the share, then the value of the employees' shares is now _less_ than the price paid to exercise. This means that if an employee wants to pay off the loan, they first sell their shares, and then they're still on the hook for the remaining difference between the sale of the share price and the principal for the loan. For the Bolt employees who took this deal, I feel bad...
deleted 4y ago
[deleted]
dburn1169 4y ago
> when they only did $5.2M in Q1… This is insane to me. I work at a startup with a similar valuation and we bring in almost double that amount of revenue a week... and I think we're overvalued.
- scarface74 4y ago
  I never cease to be amazed at how people value companies based on revenue and not profit. Revenue without profit numbers tell you nothing about how well the company is doing.
  - JumpCrisscross 4y ago
    > how people value companies based on revenue and not profit Profit is a closer abstraction to cash flows (i.e. to the investor) than revenue, but it's still an abstraction. Investors looking at revenues and unit economics can sometimes--often--predict future profits and discount backwards, in the same way that a value investor can look at a company's profits and sometimes--less often, frankly--predict future cash flows from dividends or M&A and then discount backwards.
    - scarface74 4y ago
      Profit isn’t an “abstraction”. If you bring in more money than you spend, it means that you don’t have to worry about a “runway”, nor do you have to worry about outside funding. How can you have a successful business that spends more money than you make?
      - JumpCrisscross 4y ago
        > Profit isn’t an “abstraction” The term profit covers a number of metrics. All of them are abstractions. The number of assumptions that go into a GAAP profit figure is uncountable. Profit on a cash basis is less wiggly, but it's still--for valuation purposes--useful only inasmuch as it is an estimate of actual cash returns on the investment. > you bring in more money than you spend, it means that you don’t have to worry about a “runway”, nor do you have to worry about outside funding Lots of ways for cash-flow positive businesses to be running themselves into the ground. Garden variety is off balance sheet liabilities, though people certainly > How can you have a successful business that spends more money than you make? Nobody argued this, not for the long term. But there are loads of situations in which losing money in the short term is the long-term savvy move. (This literally describes all investing. You send cash out when you invest.) Valuation involves estimating the value of those future earnings today.
upupandup 4y ago
> There IS risk to the employee; they now have a real loan outstanding and 100% personal recourse, so if the common stock becomes less than exercise price, their personal assets are on the hook https://twitter.com/theryanking/status/1493390184897032201 https://twitter.com/theryanking/status/1493390184897032201 HOLY CRAP. How is this even legal???
- nemothekid 4y ago
  I can't see why it should be illegal. People take on debt to buy assets all the time. But this is just so irresponsible and immoral; I really doubt the leadership is actually running a sustainable business; and I'm also starting to seriously doubt there was any credibility to the whole YC/Stripe boys club thing. 1. Ryan (was) the CEO, and can pressure employees to buy stock (or let them go because they aren't "committed" enough). 2. Ryan loses nothing if the company fails (his personal loss has probably already been covered since the first VC round), but each employee is left with a mountain of debt. 3. It's just bad advice. I know plenty of people who took out loans for stock; and I would never recommend it; it's incredibly risky especially if it can destroy you if it fails. If leadership plays so fast and loose with other people's money, you have to question how well they are doing their job.
  - JumpCrisscross 4y ago
    > can't see why it should be illegal Borrowing against one's shares shouldn't be illegal. Companies lining up recourse financing for their employees should. How were the terms of the loans chosen? Who knew who was and wasn't participating? How was it ensured this wouldn't factor into personnel decisions? How were/are the people setting the strike prices of options segregated from the people setting the terms of the loans? There is too much already loaded onto the employer-employee relationship, we don't need to add lender-borrower to the damn mix. (Side note: the $300 stipend for financial advice is laughable. You couldn't even get a lawyer to review a fraction of such an instrument for that amount, and yes, I'd put recourse loans against private shares in the risky as hell bucket which should absolutely be legally reviewed.)
    - 4y ago
librish 4y ago
The founder pushing employees to take such a reckless financial decision while presumably their only insight into many key business metrics is the leaderships rosy portrayal of them is unethically irresponsible.
- deleted 4y ago
  [deleted]
- pbreit 4y ago
  By "pushing" you mean "not pushing"?
- hm8 4y ago
  At this scale/valuation of the company, it's probably a bad idea but hard to know at the time. My understanding of US tax laws and options is that this sort of behavior is what you want for early stage startups. You allow early exercise, restricted vesting with the upside of paying no income tax now, only LTCG on vesting (+liquidity event), and potentially QSBS tax exemption if you joined early enough and the startup does well.
  - nrmitchi 4y ago
    Well sure, but the QSBS exemption cutoff is literally 220x less than the valuation Bolt was trying to see this on.
    - bobbygoodlatte 4y ago
      QSBS cutoff is $50M in gross assets owned by the company, not $50M valuation. There are many cases where a valuation can be far above $50M yet still qualify. That said, I have no idea if Bolt would qualify here. FWIW financial services companies don't qualify for QSBS at all, so Bolt may fall under that
      - nrmitchi 4y ago
        If a company has raised more than $50M though, does that immediately cross “$50M in gross assets” anyways? Obviosuly that’s different than a valuation, but that would immediately disqualify Bolt.
JumpCrisscross 4y ago
> founder also encouraged employees to take on what was effectively personal debt Do we have evidence to this encouragement?
- nrmitchi 4y ago
  The literal entire twitter thread where he was bragging about it and how great it was for "his employees". There is basically no way to read that thread where it doesn't sound like an encouragement.
- Lapz 4y ago
  This thread https://twitter.com/theryanking/status/1493390167461224451?s=21&t=gHnJ9DFOejEzkEQKgEx4Dg https://twitter.com/theryanking/status/1493390167461224451?s... and https://twitter.com/theryanking/status/1493609864534315014 https://twitter.com/theryanking/status/1493609864534315014
- stu2b50 4y ago
  https://twitter.com/theryanking/status/1493390184897032201 https://twitter.com/theryanking/status/1493390184897032201 I presume the Twitter braggery counts as encouragement.
  - deleted 4y ago
    [deleted]
nklende 4y ago
I had a smaller YC company pitch me something like this as an option for my stock comp - an RSA (restricted stock agreement, or "founder's stock"), where I put up all the cash up front, paid a big income tax bill in the first year, but then upside was all capital gains. I would technically own the stock but I had to sell it back for nothing if I left before it vested. Turned out I left very early because the company wasn't doing great, in the current climate I think they're probably default-dead. All that cash is just gone.
- break_the_bank 4y ago
  Wow. How'd they make you pay upfront and still make you wait & vest? This makes no sense.
  - chowchowchow 4y ago
    This is actually a great deal when the exercise price is low enough. You pay a nominal-ish amount up front to exercise early and all gains are LTCG. It is not a good deal in any situation where you’re not getting in close to the ground floor though, if the exercise cost itself is substantial.
  - gkoberger 4y ago
    For what it's worth, this is how it works for founders too. The amount you pay is stupidly small (usually well under $100), since the strike price is essentially $0. There's no legal designation for founder when it comes to stock, so this person just got the same deal the founders did.
- nthngtshr 4y ago
  See, generally speaking I don't think this is a bad deal. I mean, I don't know the exact numbers / company profile. But I was in a similar situation 8 years ago. I could early exercise and I did. Estimating taxes was a pain (but a fun challenge too, lol). A couple of years ago they finally had a liquidity event and doing all these exercise shenanigans saved me a ton of money, so I'm glad I did that. The business was doing well and I knew exactly what the risks were and I knew I could afford to lose that money. I joined early so it wasn't that much money to begin with. I guess my point is that I wouldn't be too dismissive of early exercise / RSAs / etc — for the right kind of person / company it could be a great tool.
fdgsdfogijq 4y ago
Talk about turning your employees into bagholders.
hahaxdxd123 4y ago
where did you get $5.1m?
- Lapz 4y ago
  I got it from this article: https://www.theinformation.com/articles/bolt-a-checkout-startup-worth-11-billion-has-been-losing-customers-as-revenue-stalls?utm_source=ti_app https://www.theinformation.com/articles/bolt-a-checkout-star....
vincentmarle 4y ago
It gets worse: Ryan Breslow also seems to be behind the company who was offering the equity loans to Bolt employees: https://twitter.com/anothercohen/status/1529607909398589440 https://twitter.com/anothercohen/status/1529607909398589440
hn_throwaway_99 4y ago
OMG, I didn't know a whole lot about this company previously, but holy shit they are toast. From Ryan Breslow's tweets: > At Bolt, we did it as a Series D company > If your company has a strong growth trajectory, the benefits to your team from this program can be extraordinary. https://mobile.twitter.com/theryanking/status/1493390191951851520 https://mobile.twitter.com/theryanking/status/14933901919518... This reminds me during the dot com crash, when employees exercised their options when the stock was sky high, so they had gigantic paper gains and big AMT bills. Then the stock crashed (like 99% and then some crash), so employees were not only left with near worthless stock, but they had huge tax bills with no money to pay them - and they were sometimes locked out of selling due to insider trading rules as the stock was crashing.
thelittleone 4y ago
I always found corporate credit cards to be similarly dodgy. Firms I worked at offered a "corporate" amex. The employee as card holder was personally liable for the debt, the employer had no liability. At the time these cards did not accrue any points either. And the corporate policy was typically "no personal expenses". 1) you must use corporate card for company expenses 2) you must not use corporate card for personal expenses 3) you cannot accrue points for use of corporate card 4) you are personally liable for corporate expenses on this card I'm pretty sure amex was giving big perks to CFOs. If you assume a limit of $10k per card and company (like the one I was at) had over 10k employees (though not all had cards) the amount is pretty astonishing and zero liability. I once had an issue with Amex because I'd been travelling a lot and the boss was away and then slow to approve.
leaflets2 4y ago
About how much debt might that be about? Ballpark? Maybe between $4k - $40k if I were to guess?

The founder also encouraged employees to take on what was effectively personal debt at an ~11B valuation when they only did $5.2M in Q1…

by Lapz 4y ago

The founder also encouraged employees to take on what was effectively personal debt at an ~11B valuation when they only did $5.2M in Q1…

Solvitieg 4y ago

And "over half" of their employees apparently took on the debt. Source: https://twitter.com/theryanking/status/1493609864534315014 https://twitter.com/theryanking/status/1493609864534315014

bombcar 4y ago
"It was different in the 90s" will turn out to be "it's exactly the same today".
lelandfe 4y ago
I'm awful at understanding company stock stuff. > if the common stock becomes less than exercise price, their personal assets are on the hook Can someone explain what that may mean for the >50% of employees at Bolt that bought into this program, now? I'm really struggling to grok what my quoted sentence entails... edit: thanks much for the quick explanations
- johnzim 4y ago
  By taking part in this program, you are essentially taking a personal loan, partially secured by your stock options which will vest later. If you don't happen to understand Stock options: At a later date you will have the OPTION to buy company stock at a set price (often referred to as a Strike price) So some entity is lending you money because they know you have Stock options and presumably will be good for the money when they vest/mature. Of course, if the value of the Stock at the point of your options maturing is LOWER than your strike price, you essentially have earned yourself the option to buy $4 apples at the price of $50 an apple. Eg: your options are worthless (beyond their ability to purchase shares which might not be buyable on a public market) So since you took out a _personal loan_ you now have to pay it back. EDIT: I missed one thing - you actually get to exercise _now_ if you take out this loan... This has slightly more upside because it means that you could have in theory, sold those shares for immediate upside on the secondary market and thereby have de-risked yourself. If you didn't, then you got hosed. You could also have a capital gains advantage by spreading the gains I suppose
  - bogomipz 4y ago
    I was struggling to understand why someone would take a loan against options rather than just sell them on the secondary market like you mentioned and I think the key difference is that you can't sell an unvested option on the secondary market but with this Bolt program you could take a loan against an unvested option which is unique and kind of bizarre. Who would underwrite such a loan and how is the accounting for it done at the company level? Also wouldn't they be taxed as income?
    - e9 4y ago
      a lot of popular and semi-popular startups are hard for some VCs to invest in. So some of them like ESO fund (https://www.esofund.com https://www.esofund.com) will give you money to exercise and pay taxes but on condition that they'll take a decent amount of profits when you sell the stock
- Karrot_Kream 4y ago
  These employees chose to take out a loan in order to exercise the options. These employees now own the shares that they exercised their option for _and_ a loan to pay back the amount of money spent to exercise. If the price of these shares becomes _less_ than the price spent to exercise the option to receive the share, then the value of the employees' shares is now _less_ than the price paid to exercise. This means that if an employee wants to pay off the loan, they first sell their shares, and then they're still on the hook for the remaining difference between the sale of the share price and the principal for the loan. For the Bolt employees who took this deal, I feel bad...

deleted 4y ago

[deleted]

dburn1169 4y ago

> when they only did $5.2M in Q1… This is insane to me. I work at a startup with a similar valuation and we bring in almost double that amount of revenue a week... and I think we're overvalued.

scarface74 4y ago
I never cease to be amazed at how people value companies based on revenue and not profit. Revenue without profit numbers tell you nothing about how well the company is doing.
- JumpCrisscross 4y ago
  > how people value companies based on revenue and not profit Profit is a closer abstraction to cash flows (i.e. to the investor) than revenue, but it's still an abstraction. Investors looking at revenues and unit economics can sometimes--often--predict future profits and discount backwards, in the same way that a value investor can look at a company's profits and sometimes--less often, frankly--predict future cash flows from dividends or M&A and then discount backwards.
  - scarface74 4y ago
    Profit isn’t an “abstraction”. If you bring in more money than you spend, it means that you don’t have to worry about a “runway”, nor do you have to worry about outside funding. How can you have a successful business that spends more money than you make?
    - JumpCrisscross 4y ago
      > Profit isn’t an “abstraction” The term profit covers a number of metrics. All of them are abstractions. The number of assumptions that go into a GAAP profit figure is uncountable. Profit on a cash basis is less wiggly, but it's still--for valuation purposes--useful only inasmuch as it is an estimate of actual cash returns on the investment. > you bring in more money than you spend, it means that you don’t have to worry about a “runway”, nor do you have to worry about outside funding Lots of ways for cash-flow positive businesses to be running themselves into the ground. Garden variety is off balance sheet liabilities, though people certainly > How can you have a successful business that spends more money than you make? Nobody argued this, not for the long term. But there are loads of situations in which losing money in the short term is the long-term savvy move. (This literally describes all investing. You send cash out when you invest.) Valuation involves estimating the value of those future earnings today.

upupandup 4y ago

> There IS risk to the employee; they now have a real loan outstanding and 100% personal recourse, so if the common stock becomes less than exercise price, their personal assets are on the hook https://twitter.com/theryanking/status/1493390184897032201 https://twitter.com/theryanking/status/1493390184897032201 HOLY CRAP. How is this even legal???

nemothekid 4y ago
I can't see why it should be illegal. People take on debt to buy assets all the time. But this is just so irresponsible and immoral; I really doubt the leadership is actually running a sustainable business; and I'm also starting to seriously doubt there was any credibility to the whole YC/Stripe boys club thing. 1. Ryan (was) the CEO, and can pressure employees to buy stock (or let them go because they aren't "committed" enough). 2. Ryan loses nothing if the company fails (his personal loss has probably already been covered since the first VC round), but each employee is left with a mountain of debt. 3. It's just bad advice. I know plenty of people who took out loans for stock; and I would never recommend it; it's incredibly risky especially if it can destroy you if it fails. If leadership plays so fast and loose with other people's money, you have to question how well they are doing their job.
- JumpCrisscross 4y ago
  > can't see why it should be illegal Borrowing against one's shares shouldn't be illegal. Companies lining up recourse financing for their employees should. How were the terms of the loans chosen? Who knew who was and wasn't participating? How was it ensured this wouldn't factor into personnel decisions? How were/are the people setting the strike prices of options segregated from the people setting the terms of the loans? There is too much already loaded onto the employer-employee relationship, we don't need to add lender-borrower to the damn mix. (Side note: the $300 stipend for financial advice is laughable. You couldn't even get a lawyer to review a fraction of such an instrument for that amount, and yes, I'd put recourse loans against private shares in the risky as hell bucket which should absolutely be legally reviewed.)
  - 4y ago

librish 4y ago

The founder pushing employees to take such a reckless financial decision while presumably their only insight into many key business metrics is the leaderships rosy portrayal of them is unethically irresponsible.

deleted 4y ago
[deleted]
pbreit 4y ago
By "pushing" you mean "not pushing"?
hm8 4y ago
At this scale/valuation of the company, it's probably a bad idea but hard to know at the time. My understanding of US tax laws and options is that this sort of behavior is what you want for early stage startups. You allow early exercise, restricted vesting with the upside of paying no income tax now, only LTCG on vesting (+liquidity event), and potentially QSBS tax exemption if you joined early enough and the startup does well.
- nrmitchi 4y ago
  Well sure, but the QSBS exemption cutoff is literally 220x less than the valuation Bolt was trying to see this on.
  - bobbygoodlatte 4y ago
    QSBS cutoff is $50M in gross assets owned by the company, not $50M valuation. There are many cases where a valuation can be far above $50M yet still qualify. That said, I have no idea if Bolt would qualify here. FWIW financial services companies don't qualify for QSBS at all, so Bolt may fall under that
    - nrmitchi 4y ago
      If a company has raised more than $50M though, does that immediately cross “$50M in gross assets” anyways? Obviosuly that’s different than a valuation, but that would immediately disqualify Bolt.

JumpCrisscross 4y ago

> founder also encouraged employees to take on what was effectively personal debt Do we have evidence to this encouragement?

nrmitchi 4y ago
The literal entire twitter thread where he was bragging about it and how great it was for "his employees". There is basically no way to read that thread where it doesn't sound like an encouragement.
Lapz 4y ago
This thread https://twitter.com/theryanking/status/1493390167461224451?s=21&t=gHnJ9DFOejEzkEQKgEx4Dg https://twitter.com/theryanking/status/1493390167461224451?s... and https://twitter.com/theryanking/status/1493609864534315014 https://twitter.com/theryanking/status/1493609864534315014
stu2b50 4y ago
https://twitter.com/theryanking/status/1493390184897032201 https://twitter.com/theryanking/status/1493390184897032201 I presume the Twitter braggery counts as encouragement.
- deleted 4y ago
  [deleted]

nklende 4y ago

I had a smaller YC company pitch me something like this as an option for my stock comp - an RSA (restricted stock agreement, or "founder's stock"), where I put up all the cash up front, paid a big income tax bill in the first year, but then upside was all capital gains. I would technically own the stock but I had to sell it back for nothing if I left before it vested. Turned out I left very early because the company wasn't doing great, in the current climate I think they're probably default-dead. All that cash is just gone.

break_the_bank 4y ago
Wow. How'd they make you pay upfront and still make you wait & vest? This makes no sense.
- chowchowchow 4y ago
  This is actually a great deal when the exercise price is low enough. You pay a nominal-ish amount up front to exercise early and all gains are LTCG. It is not a good deal in any situation where you’re not getting in close to the ground floor though, if the exercise cost itself is substantial.
- gkoberger 4y ago
  For what it's worth, this is how it works for founders too. The amount you pay is stupidly small (usually well under $100), since the strike price is essentially $0. There's no legal designation for founder when it comes to stock, so this person just got the same deal the founders did.
nthngtshr 4y ago
See, generally speaking I don't think this is a bad deal. I mean, I don't know the exact numbers / company profile. But I was in a similar situation 8 years ago. I could early exercise and I did. Estimating taxes was a pain (but a fun challenge too, lol). A couple of years ago they finally had a liquidity event and doing all these exercise shenanigans saved me a ton of money, so I'm glad I did that. The business was doing well and I knew exactly what the risks were and I knew I could afford to lose that money. I joined early so it wasn't that much money to begin with. I guess my point is that I wouldn't be too dismissive of early exercise / RSAs / etc — for the right kind of person / company it could be a great tool.

fdgsdfogijq 4y ago

Talk about turning your employees into bagholders.

hahaxdxd123 4y ago

where did you get $5.1m?

Lapz 4y ago
I got it from this article: https://www.theinformation.com/articles/bolt-a-checkout-startup-worth-11-billion-has-been-losing-customers-as-revenue-stalls?utm_source=ti_app https://www.theinformation.com/articles/bolt-a-checkout-star....

vincentmarle 4y ago

It gets worse: Ryan Breslow also seems to be behind the company who was offering the equity loans to Bolt employees: https://twitter.com/anothercohen/status/1529607909398589440 https://twitter.com/anothercohen/status/1529607909398589440

hn_throwaway_99 4y ago

OMG, I didn't know a whole lot about this company previously, but holy shit they are toast. From Ryan Breslow's tweets: > At Bolt, we did it as a Series D company > If your company has a strong growth trajectory, the benefits to your team from this program can be extraordinary. https://mobile.twitter.com/theryanking/status/1493390191951851520 https://mobile.twitter.com/theryanking/status/14933901919518... This reminds me during the dot com crash, when employees exercised their options when the stock was sky high, so they had gigantic paper gains and big AMT bills. Then the stock crashed (like 99% and then some crash), so employees were not only left with near worthless stock, but they had huge tax bills with no money to pay them - and they were sometimes locked out of selling due to insider trading rules as the stock was crashing.

thelittleone 4y ago

I always found corporate credit cards to be similarly dodgy. Firms I worked at offered a "corporate" amex. The employee as card holder was personally liable for the debt, the employer had no liability. At the time these cards did not accrue any points either. And the corporate policy was typically "no personal expenses". 1) you must use corporate card for company expenses 2) you must not use corporate card for personal expenses 3) you cannot accrue points for use of corporate card 4) you are personally liable for corporate expenses on this card I'm pretty sure amex was giving big perks to CFOs. If you assume a limit of $10k per card and company (like the one I was at) had over 10k employees (though not all had cards) the amount is pretty astonishing and zero liability. I once had an issue with Amex because I'd been travelling a lot and the boss was away and then slow to approve.

leaflets2 4y ago

About how much debt might that be about? Ballpark? Maybe between $4k - $40k if I were to guess?