Better: the VCs own stock with liquidation preference over the common stock they loaned you money to buy. If there's venture debt, they are also part of the estate that will be paid by those loans if the company goes bankrupt.
This all smells. Especially given, to my knowledge, Bolt didn't let even its employees take liquidity in their shares through traditional channels.
Bolt offered, with multiple conflicts of interest, what are essentially margin loans to potentially unsophisticated borrowers. The $300 credit for a financial advisor the CEO tweeted about should, alone, be presumptive.
To be clear, I don't think anyone did anything intentionally wrong. (Also, I learned about this yesterday, so there’s that.) But wanton incompetence bordering on--perhaps crossing into--negligence, enabled by a Board that absolutely should have known better, can and should create liability.
This was an incredibly risky program, and I don't understand how Bolt was valued last year. But engineers were potentially sitting on a life changing amount of money. Not exercising could have cost engineers hundreds of thousands in additional taxes if Bolt had a great IPO. They needed to get financial advice from an independent advisor.
Unfortunately, they'll probably never be able to sell their shares for even a fraction of that amount anyway.
The first 5 engineers would be incredibly lucky if they got 0.1% - who knows how many of them fully vested and still have shares. I'm guessing less than half. There's MAYBE one person who was looking at close to $11M.
Engineers after that would be incredibly lucky to even get 0.01% of the company. That's $1.1M. Again - I'd be surprised if there's even 5 fully vested that still have shares.
And even if they still have the shares, they'll be lucky to sell them at a $2B valuation - let alone $11B. So cut those numbers by 1/5th (or more).
Bolt would've been a SCREAMING success for a startup. Unless you were engineer #1-5 - you'd be better off as an L4 at FAANG.
The company tried to do something beneficial for its employees, although perhaps it was misguided. They gained nothing here except the marketing benefit of trying to be employee friendly.
Margin loans are risky because you can get liquidated and lose your other principal. This was a cashless loan, that was only 50% recourse, so the only risk is that you may have to pay back half of what you bought the stock at if it ends up worthless.
I don’t think there was any incompetence or negligence here, and even if there was some incompetence, that’s not a theory of liability.
Issuer is the lender is the employer. This is a mess of conflicts.
> company tried to do something beneficial for its employees, although perhaps it was misguided
I agree. (Though it ignores the stupidly simple, entirely common alternative: cut the loan crap and just give them the money.)
> was a cashless loan, that was only 50% recourse, so the only risk is that you may have to pay back half of what you bought the stock at if it ends up worthless
For that 50%, it’s identical to a margin loan. We regulate those because lending against magic numbers that go up is a consistent failure mode in capital markets.
FYI, this is irrelevant with respect to the SEC's jurisdiction [1].
[1] https://www.sec.gov/oiea/investor-alerts-bulletins/ib_privat...
The SEC created a safe harbor for registration. The Securities Act of 1933 regulates all securities [1]. This is why private companies issuing shares have to hire securities lawyers.
This feels like a more complex, insidious version of company scrip. At the end of the day, you’re getting paid in fake company money that’s worthless if they go belly up.
The whole point is you're in debt (against worthless equity). It's negative worth!
IIUC, Evergrande strongly "encouraged" execs to take loans (secured against their income - which was considerable) to buy Evergrande "investment products".
Obviously, this was just a way to pay employees with their loan. If things blew up - the employee is completely screwed. If things don't blow up (which seems unlikely when an employer has reached this level of desperation) - then it's still not clear it was worth the risk premium to the employee.
This literally feels like something from a dystopian novel - where you take out loans to get your salary - and you only actually make money if your company grows 10x in one year - and even in that case your benefit is slim - while the VCs and founders walk off with 85% of the gains.
Hardly anyone understands finance - and most people underestimate how greedy some people can be. I feel like there would be no end to suckers who would fall for this trap.