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Bolt Built $11 Billion Payment Business on Inflated Metrics and Eager Investors

Even in Silicon Valley, a place teeming with entrepreneurs where fortunes are made seemingly overnight, Ryan Breslow stands out. He has promised …

Bolt Built $11 Billion Payment Business on Inflated Metrics and Eager Investors
10.05.2022 18:14

Even in Silicon Valley, a place teeming with entrepreneurs where fortunes are made seemingly overnight, Ryan Breslow stands out.

He has promised to shake up the boring but important business of online payments with Bolt Financial, the start-up he founded eight years ago at 19. He has fashioned himself into a fund-raising maven, dispensing wisdom through TikTok videos and self-published books. Forbes magazine put him on a recent cover, estimating his net worth at $2 billion. And this past week, Mr. Breslow traveled to Warsaw to show support for Ukrainian refugees.

Mr. Breslow’s charm and vision captivated investors, allowing Bolt to raise funds at a blistering pace. From Peter Thiel’s fund to BlackRock, blue-chip investors have put in nearly $1 billion, drawn to Bolt’s technology — essentially a version of Amazon’s “Buy Now” button that can be plugged into an online merchant’s website, making checkout a breeze.

In just over three years, Bolt has soared in valuation to $11 billion from $250 million, making it a Valley success story. “There’s almost a cult of Ryan” at Stanford University, which Mr. Breslow attended, said Trevor Traina, an early investor in Bolt.

But Bolt’s meteoric rise has been fueled at least in part by a pattern of stretching the truth, according to interviews with over 50 former and current employees, clients, investors and others with whom Bolt discussed partnerships and fund-raising, as well as a lawsuit filed recently by a big customer. Most of them sought anonymity because they weren’t authorized to speak publicly.

In a rush to show growth, Bolt often overstated its technological capability and misrepresented the number of merchants using its service, some of the people said. In presentations to investors, it included the names of customers before verifying whether those merchants were able to use its technology. For a time, a fraud detection product it was pitching to merchants was more dependent on manual review than Mr. Breslow implied, according to a former employee.

Mr. Breslow, 27, abruptly stepped down as chief executive in January, blindsiding some investors who, just weeks earlier, had put money into Bolt at an $11 billion valuation.

Now, Bolt’s troubles are mounting. Some investors are looking to sell their stakes, while customers are questioning Bolt’s technology. One of Bolt’s biggest customers, Authentic Brands Group, which owns and licenses brands like Brooks Brothers, is suing the company for having “utterly failed to deliver on the technological capabilities that it held itself out as possessing.”

At an all-hands staff meeting last month, Bolt — which has around 800 employees — announced a three-month hiring freeze. Although it has cash to keep operating for a while, Bolt has talked to prospective investors about raising more funds, according to people with knowledge of the outreach. The implosion last month of Fast, a direct competitor, has only heightened investor scrutiny.

Bolt Built $11 Billion Payment Business On Inflated Metrics And Eager Investors

Founders Fund, an investment firm run by Peter Thiel, a co-founder of PayPal and Palantir Technologies, put money into Bolt.Credit…Marco Bello/Getty Images

‘It Won’t Fail’

The story of Bolt’s swift ascent and its current troubles echoes a familiar Silicon Valley narrative. A charismatic founder with a clever idea persuades dozens of deep-pocketed investors to buy in, driving up the start-up’s valuation. On the way up, the business is rarely scrutinized by the investors, many of whom are so afraid of missing out on the next big hit that they willingly overlook a start-up’s exaggerated claims — despite high-profile flameouts like the medical test company Theranos and Nikola, the electric car company.

Mr. Breslow declined to be interviewed for this article, saying that “relationships” that the chief executive of The New York Times has “may bias reporting.” (The Times’s chief executive, Meredith Kopit Levien, is on the board of Instacart, a grocery delivery company. The venture capital firm Sequoia is an investor in both Instacart and Stripe, a Bolt rival that Mr. Breslow attacked on Twitter. Ms. Levien has no control over The Times’s editorial decisions.)

Hilary Neve, a Bolt spokeswoman, said that the company was proud of its technology and that the vast majority of its customers were thrilled with their partnership with Bolt.

Bolt is “tackling a big opportunity, evolving to meet customer needs, and constantly growing its capabilities,” Ms. Neve said in an emailed statement. “This does not mean we’ve never made miscalculations or missteps. It does mean that we’ve learned as we’ve grown and continued to deliver.”

Raised in the Miami area, Mr. Breslow built e-commerce sites for businesses in high school and started a nonprofit to give golf clubs to children who couldn’t afford them. He entered Stanford in 2012.

At Stanford, Mr. Breslow and his friends mined Bitcoin out of their dorm rooms, but he dropped out to start Bolt in 2014 with a fellow student, Eric Feldman, who left the company five years later. Bolt started as a Bitcoin wallet company, but soon pivoted to e-commerce payments.

Mr. Breslow began to build software that would handle online payments for retailers, offering fraud protection and later, an emerging technology that allowed customers to buy a product with a single click. Amazon already had the one-click technology, but offered it only to merchants selling products on its platform. Bolt pitched a decentralized alternative: one-click checkout software that could plug into the existing payments platform of any business.

In 2016, Khaled Helioui, an entrepreneur and early investor in Uber and Deliveroo, heard Mr. Breslow pitch Bolt at an event for Stanford entrepreneurs. Impressed, Mr. Helioui asked the young founder what he would do if his idea didn’t work out.

“It won’t fail,” Mr. Helioui said Mr. Breslow told him. “It has to work because the industry isn’t working the way it should.”

Mr. Helioui invested $100,000 and introduced Mr. Breslow to his friends, including Mr. Traina, a U.S. ambassador to Austria under President Donald J. Trump. Mr. Traina, who had funded roughly 100 companies by the time he met Mr. Breslow in 2016, considered himself an experienced investor.

Yet he was taken aback — and impressed — that Mr. Breslow asked him for references before accepting his investment. When Mr. Traina hosted a dinner later that year, he sat Mr. Breslow between Mr. Thiel and Reid Hoffman, the co-founder of LinkedIn.

“I was laughing to myself, saying he’ll sink or swim tonight,” Mr. Traina recalled in an interview. “Everyone at the table loved him.”

One of Bolt’s biggest customers, Authentic Brands Group, which owns and licenses brands like Brooks Brothers, is suing the company.Credit…Jeremy M. Lange for The New York Times

Using the Gut to Spot Fraud

With help from early backers, Mr. Breslow tapped into a vast network of angel investors, including Mr. Thiel’s firm, Founders Fund.

In 2018, Bolt began publicly pitching merchants on its fraud protection service. Mr. Breslow talked up Bolt’s algorithm for detecting fraud, saying that it additionally used “human review” when cases looked risky.

Companies lose $20 billion to fraudulent transactions every year, according to Juniper Research. Fighting fraud is expensive — especially for small businesses — and Bolt offered to cover the cost of fraudulent charges, making it an attractive pitch.

In the beginning, risk analysts manually reviewed hundreds of transactions a day, according to a former employee with direct knowledge of the product. Analysts had access to enough transaction data to identify customers online and would sometimes approve or decline transactions based on their gut — such as by visiting their LinkedIn pages — rather than an algorithm, the person said. Bolt later began using its software to process more transactions automatically.

Employees were encouraged to approve transactions even when they looked risky, which contributed to large losses for Bolt, former employees said. But the approach kept merchants on the platform, which was important because Bolt used its merchant count as a key metric in fund-raising.

Ms. Neve of Bolt said in her statement that it was “false or misleading” that employees were encouraged to approve risky transactions but said that losses, which were expected, have gone down.

In 2018, Mr. Breslow told potential investors about the robust pipeline of customers who would imminently turn on Bolt’s payment services, including the clothing brand Guess, according to one current and one former employee. Its future revenue projections included business from these companies, they said.

Internally, Bolt was betting that much of its future business would come from processing payments for some two million merchants who sell, ship and process payments on Shopify, a Canadian e-commerce giant, according to people familiar with the plans. Bolt had already begun processing payments for individual merchants on Shopify’s network, they said.

Bolt’s “Internal Master FAQ List” gave sales employees answers and rebuttals to use in calls with potential clients.

Building the Business

The race to add merchants often meant that Bolt’s sales team signed deals without always verifying that the merchant’s payments technology would be able to integrate with Bolt.

Ms. Neve said it was standard industry practice to include both prospective clients and those who had signed, even if they weren’t using the service. Guess, for instance, was listed on Bolt’s website as a “won” customer but never went live and was later removed, she said.

An internal document viewed by The Times laid out what to do if a merchant asked whether Bolt’s technology could integrate with its e-commerce platform. “If it’s a big merchant, you probably want to act like our integration is already underway, not lie about it being done, but act as if it’s close,” the document said. “If it’s a smaller merchant, gauge how much we want them vs how excited they are. If we want them a lot and they’re not absolutely ecstatic, then act as if we’ll build it.”

Ms. Neve said the company couldn’t locate the document, but that it does not reflect “the practices or policies of Bolt.”

Bolt’s business tactics raised questions from at least one big potential investor.

As part of its due diligence, Tiger Global, a fund known for investing in hundreds of young start-ups, had talked to clients that Bolt said it had signed on. Based on those conversations, Tiger executives weren’t so sure those merchants would use Bolt beyond a trial, according to two people involved in the conversations. To Tiger, Bolt’s revenue projections seemed overly bullish and exaggerated, the people said. Tiger passed.

In 2018 and 2019, Bolt raised $71 million from investors in stages, at valuations ranging from $250 million to $357 million, according to the company. The money allowed Bolt to hire more employees, who began to sort out which clients would actually be able to go live. It also honed its fraud detection algorithm, which was now being used to review most of the transactions that came through its system.

In October 2019, Mr. Breslow acknowledged that Bolt had to change its approach. “We succeeded at signing deals, but a fraction of them would actually go live,” he wrote in an update to investors, a copy of which was reviewed by The Times. “To scale the business for the long term, this absolutely needed to change.”

The expected partnership with Shopify — which Bolt hoped would bring much of its future revenue — never came about, and Bolt had to stop processing payments for merchants using that platform.

Shopify removed Bolt in January 2020 because it was bypassing Shopify’s own checkout product, a person familiar with Bolt’s partnership negotiations said. By then, Mr. Breslow had already told investors that Bolt had moved away from Shopify.

In an October 2019 email to investors, Mr. Breslow wrote that Bolt’s gross margins had gone from negative numbers to 15 percent over the course of the year.

Bigger and Bigger

In the summer of 2020, Bolt raised money at a $425 million valuation. Months later, it raised another $75 million in a round led by General Atlantic, a well-known venture capital firm, and WestCap, a fund run by Laurence Tosi, the former chief financial officer of Blackstone and Airbnb.

Mr. Breslow, whose profile was rising, sometimesoverstated Bolt’s numbers in the media. Once, he admitted to employees that he had been “over-zealous” with a reporter about Bolt’s numbers, allowing a published error — that Bolt processed over $1 billion in annual transactions — to stand, according to a December 2019 screenshot of an exchange shared with The Times. Ms. Neve said Mr. Breslow had made efforts to correct the error.

In 2020, Bolt struck a strategic partnership with Authentic Brands Group — a big get since Authentic Brands owns over 30 retail brands, including Forever 21, Lucky Brand and Brooks Brothers, and licenses their use to others.

Although only Forever 21 and Lucky used Bolt’s technology, Bolt would often cite Authentic Brands’ total revenue of more than $14 billion in its marketing materials. For instance, Brooks Brothers doesn’t use Bolt, but was cited on Bolt’s website as recently as April 25.

In November 2021, Authentic Brands sued Bolt, saying the start-up used the bigger company’s brand to raise money. It said that Bolt failed to deliver a free shipping service for shoppers across its merchant network that would have been similar to Amazon Prime. The complaint also alleged that problems with Bolt technology cost Forever 21 $150 million in sales and prevented Brooks Brothers from using Bolt’s products — all while Bolt used the company’s brand, implicitly or explicitly, to raise money.

In its motion to dismiss the suit, filed on March 18, Bolt said Authentic Brands was trying to rewrite its contract so that it could purchase shares of Bolt at a discounted price. Bolt disputed which elements of the subscription product it needed to deliver by the deadline. It did not deny that it had used the brand, but argued that investor presentations didn’t legally count as advertising and that listing Brooks Brothers on its website did not imply that the retailer was a customer.

Bolt used the Brooks Brothers logo in its marketing and on its website, even though Brooks Brothers did not use its technology.Credit…Bolt

New Pitch

Beginning last summer, as he continued his push to raise funds, Mr. Breslow began telling investors that Bolt was now targeting shoppers in addition to merchants.

Bolt’s one-click checkout would become the predominant way to pay for the next generation, Mr. Breslow told investors, according to a senior executive and a July 2021 pitch deck viewed by The Times. Rather than creating accounts with individual merchants, shoppers would hop between online merchants using their Bolt accounts, paying with a single click since their credit card and other data were already uploaded.

Mr. Breslow urged investors to value the company on the basis of the 5.6 million shoppers who were signed onto Bolt’s network, rather than just the roughly 250 merchants using its service, according to the pitch deck.

Investors lapped it up.

In 2021, Bolt raised $333 million at a $4 billion valuation. A bigger jump came in January, when Bolt raised $355 million at an $11 billion valuation from investors including BlackRock. Its initial announcement said that BlackRock was the lead investor. A later version was reworded to say that the giant asset manager was not leading the round, after BlackRock complained because it had signed off on the second version, according to a person familiar with the situation.

Since January, Bolt has approached other investors to gauge their interest in putting money in at a higher valuation of $14 billion, according to three people with knowledge of the outreach. Ms. Neve said the company is not currently fund-raising.

But some existing investors, worried that Bolt wasn’t meeting its numbers and was overvalued, are trying to sell.

Ken Smythe, the chief executive of Next Round Capital Partners, an advisory firm, said he was representing investors looking to sell Bolt shares worth several hundred million dollars. But even at a valuation of $8 billion, he said, they were having trouble finding buyers.

“People don’t have faith in this kid or the management team,” Mr. Smythe said, calling Bolt “a ghost ship sailing in the middle of the night without a captain.”

Mr. Breslow at the 2022 CEO Summit held by the Wharton School’s Baker Retailing Center and Retail Leaders Circle in New York in February.Credit…Cindy Ord/Getty Images for Wharton School’s Baker Retailing Center and Retail Leaders Circle

A Fund-Raising Guru

Still, Mr. Breslow has become something of a legend in the Valley, for his fund-raising prowess and his outspoken behavior. Last summer, he self-published a 58-page book on fund-raising, described on Amazon as an “essential playbook” for start-ups. “Fund-raising is purely a matter of momentum,” he wrote.

Jack Burlinson, an entrepreneur who attended Stanford, said Mr. Breslow counseled him on fund-raising and introduced him to investors. “The fact that I’m tangentially related to him in some way made it easy to raise money,” Mr. Burlinson said.

Mr. Breslow moved back to Florida during the pandemic, where he has been “hacking himself,” Mr. Traina, the early Bolt investor, said. Often photographed in yoga poses, Mr. Breslow — who Forbes reported plays a buffalo-skin drum before bed — told the magazine he wants nothing to do with the “elite circle” of billionaires.

Shortly after Bolt closed its January funding round, Mr. Breslow went on Twitter to accuse Stripe, Y Combinator and top investors of conspiring to lock entrepreneurs like him out of fund-raising. He said venture capitalists would express excitement at his “game-changing” product, only to “mysteriously” back away later.

Then, Mr. Breslow decided to step down as chief executive of Bolt, but remains its executive chairman. Maju Kuruvilla, the former chief operating officer, is now chief executive. Mr. Breslow has co-founded a new company in Miami to let people fund clinical trials, Ms. Neve said.

Some Bolt clients are still trying to figure out the company’s unique proposition.

Chip Overstreet, the chief executive of Spiceology, started using Bolt last year to process the payments at his Spokane, Wash.-based spice company. Mr. Overstreet said he was satisfied with the service but was surprised that he couldn’t process orders that are gifts. Bolt has told him it plans to have the feature available by June, he added.

“They just don’t seem to be very innovative,” Mr. Overstreet said.


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