Beware the startup sleight of hand

On Tuesday, Bolt’s investors got an unwelcome jolt, when the investment that was emblematic of their ZIRP-fueled exuberance – and idiocy – proved to be a story far from over.

For a hot minute, Ryan Breslow was the man. The Stanford dropout had taken advantage of Amazon’s expiring one-click-checkout patent and built a company that investors like General Atlantic and BlackRock plowed $1B into, at an $11B valuation.

But things started falling apart in 2022 as they did for many of that era’s unicorns. Churn was high, new logo acquisition was low, and while Ryan was busy delivering Twitter haymakers to the “Silicon Valley Mob,” major customers like Authentic Brands Group were taking them to court.

Ryan didn’t survive the fallout. He started a new company called Love.com and went to be a yogi in Puerto Rico. Everyone thought he was done. They were wrong.

Out of nowhere this week, the interim CEO of Bolt sent a letter to its investors announcing an impending $450M+ Series F round led by UAE—and UK-based investment firms. He claimed the infusion would “elevate our total valuation to over $14 billion.” Oh, and yeah, Breslow would be returning to take the reins.

Most of the ecosystem is abuzz about Ryan’s undeniable fundraising prowess and the bizarre term sheet the deal comes with. You can feel the schadenfreude toward current investors whose capital has been incinerated and brands dented.

Investors play the power law game and can take an L. Employees, though, have but one career and can cast their lot with just one company at a time. Thousands of talented professionals wasted valuable years and racked up the man-hours in therapy by being lured by Pied Pipers with names such as Adam Neumann and Ryan Breslow.

There will always be Adams and Ryans out there, so it’s on us to learn how to avoid their traps.

The London Games
Ok, we have to talk about that term sheet.

A mysterious Middle Eastern fund is said to be coughing up $200M, while the $250M balance isn’t cash, but rather comes in the form of “marketing credits” from a firm called The London Fund. What are marketing credits? Remember the cloud credits Microsoft gave OpenAI? Marketing credits are a similar concept, but for influencer marketing, which feels very 2021.

Ryan’s return comes with a $2M bonus, $1.5M+ in expenses per year and more shares. Bolt will also invest money into The London Fund and Love.com.

Surprisingly founder-friendly for a founder who hasn’t been a good steward of capital. London Fund founder Ashesh Shah, who had a miniscule public profile before this week, disagrees: “Look at the term sheet and how many rails there are,” he told Newcomer in a very strange conversation. “Headlines, people love headlines.”

To boot: existing investors have to either invest more capital into Bolt or their shares will be converted to common stock and two-thirds of them will be bought out for $0.01. They have until Aug 26 to decide if they want to “pay to play.”

Beware of the Razzle Dazzle
There’s a real difference between founders who shape the world, and founders who shape-shift to manipulate investors and employees. But rarely is it visible to the untrained eye.

Part of the problem is that we love rooting for the underdog. When we come across a David vs Goliath story, we cheer for the little guy, suspending our skepticism.

And as employees, we know we are taking on significant risk when we decide to join a startup, so we tend to give them more leeway. But not all risks are equal. Some are worth taking, others are not.

Joining a company that is still figuring out product-market-fit is a risk worth taking. However, joining a company where the founder is terrible at capital allocation isn’t.

Companies are able to deploy a sleight of hand and distract from important topics like product-market-fit and capital allocation by throwing off razzle-dazzle signals like funds raised with lofty valuations, hotshot investors, marquee clients and glitzy offsites.

Remember that those are not core concerns. Instead, we need to focus on asking about the unglamorous data that will actually tell us what we’re getting ourselves into.

Revenue, NRR, GRR, CAC and burn are a good starting point, but only if you know what they really mean, and what “good” looks like for companies at various stages.

When understood properly, they can help an individual realize that a company like Bolt, which was burning $100M/year with less than $30M in revenue, and had raised at a 400X valuation 2 years ago but been unable to add any new revenue, might not be a good place to bet your future.
Over 150 people have joined Bolt in the last 12 months, so this lesson is far from learned.