Bolt Loaned Thousands of Employees to Buy Shares, Then Fired Them

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At the end of May, employees of fintech startup Bolt saw a message from their CEO on the company’s Slack. He warned them that a “restructuring” was coming and they should keep an eye on the invitation on the calendar: one group would join the HR meeting meaning they were being fired and the other would go to the “town hall” meaning they were still Job.

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By the end of the day, 250 employees—nearly a third of the company—were laid off. The mood was sour. In the midst of bitterness and anger, some employees simply lost their heads. Bolt just lifted $355 million in venture capital, and investors valued the startup at $11 billion. In April, Bolt reportedly spent $1.5 billion on buy a crypto startup. There were signs of a downturn in the market elsewhere, but Bolt seemed to be doing well; the founder boasted that the company was growing”lightning fast“. An employee even asked at a recent town hall if layoffs should be expected anytime soon. CEO Maju Kuruvilla said no.

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Such assurances have prompted some Bolt employees to take out personal loans from the company in order to exercise their stock options. Bolt founder Ryan Breslow announced the program publicly in February, calling it “the most employee-friendly stock option program.” Bolt will allow employees to exercise their options early and possibly buy more shares in the startup by taking out interest-free loans from the company. Breslow said at the time that more than half Bolt employees decided to take part in the program.

One of those employees, a programmer who asked not to be named because he is not authorized to discuss the company’s internal affairs, took out a $100,000 loan to exercise his stock options after they were granted rights. To him, Bolt “looked like a spaceship” and he was willing to take risks for potential rewards. Then, just a few months after receiving the loan, a “restructuring meeting” appeared on his calendar. He was fired.

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Over the past few months, a number of startups have had to lay off staffleaving thousands of employees in the lurch. Some, Klarna and Peloton, have feverishly increased their staff during the pandemic, but have cut hundreds of jobs this spring. Venture capitalists have begun cutting off the flow of cash, and many startup executives are realizing that they may not be able to make easy money anymore. AT Blog Post defending the layoffs, Curuvilla described Bolt’s need to expand its runway and try to turn a profit on the money already raised. For this, some people had to be sacrificed.

However, for Bolt employees, it was like being hit with a whip. At the end of 2021, the startup began recruiting, adding hundreds of new people. Many of these new hires quit their jobs at big tech companies like Amazon and Google, only to have their positions disappear less than a year later. “I came to the startup because I was willing to take some risk,” said a software engineer at Bolt. “Sometimes you take risks, you do your best, but nothing works out. But that’s not what it looks like.”

Stephanie Tan, a spokesperson for Bolt, said only a “single-digit” number of laid-off employees would have to repay stock option loans. “Employees who took out loans but did not transfer rights had their loans canceled when Bolt bought shares without rights,” she wrote in an email. Employees who must repay loans will have 30 days to do so.

The programmer, who received a $100,000 loan, said his options were about to be vested, leaving him with two choices: he could sell the options back to Bolt or make a purchase. If he did, he would need to find a way to find the money soon. “I have to figure out how much I can afford,” he said. He didn’t want to part with shares that might someday prove valuable, but he also wasn’t sure how he would get the $100,000 back.

Even before the May layoffs, industry veterans were warning that it was a mistake to take out loans to buy company shares. “That’s a significant risk that I don’t think most employees can afford,” says Oren Barzilai, co-founder and CEO of Equity Bee, a platform that helps startup employees exercise their stock options. “If the company fails – and obviously many startups fail – they will have to pay out of pocket to repay this loan.”

During the dot-com crash of 2000, many other startup employees found themselves in a similar position. According to Trevor Loy, founder and managing partner of Flywheel Ventures, these types of loans saddle people with debt “worse than student loans.” According to him, the problem is not only the payment of the significant amounts they borrowed, but also the tax burden due to the write-off of loans. If a startup goes bankrupt or decides to forgive loans to its employees, the return of that money could be taxed by the IRS as “income.”

Loy says startup founders who haven’t experienced such a downturn before may be naive about how such loans can wreak havoc. “The main problem here is when people at startups operate with a mindset and a future-proof perspective that assumes that valuations will typically go up over time and periods of downgrading will be short-lived,” he says.

On Friday, Kuruvilla, CEO of Bolt, posted Blog how to create sustainable startups. Leaders, he wrote, should focus on decisions they can easily reverse. “Hiring someone, signing a partnership agreement, or even launching or updating a product – none of this has been permanent. We could roll them back if it came to that,” he wrote. Dismissed Bolt employees may wish their decisions were just as easily reversible.

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