Markus Villig said that Bolt is profitable in a number of cities and product lines, but it does not consider this the primary concern in regard to growth, since heavy investment brings along greater opportunity. The company’s turnover was well over 500 million euros last year.
“We want to invest for no less than ten more years at the group level. We invest everything we earn because the growth opportunity is that great,” said Villig, reiterating why the world’s largest investors decided to invest hundreds of millions of euros in Bolt. In addition, he said that as long as he is in charge, the objective of scaling the business is more significant than the bottom line. “We do not operate on a short-term outlook; essentially, we will not suddenly start optimising profits and sacrificing growth as a result.”
When looking ahead to the next couple of decades, the most promising market for Bolt is Africa: the population and urbanisation growth will greatly grow that market into a trillion euro one and Bolt has earned a leading position in the ride-sharing market there; additionally, the business will be expanded into other regions. This means the potential for growth is more than tenfold in a five-year period. “As of now, there is not a ceiling for us in the European and African markets anywhere in the near future.”
That is why more investment was sought from investors: the company raised 628 million euros in the fundraising announced last week, on top of the 600 million euros the company raised in August. The company still has some of that money. “We noticed that the need for money escalated in proportion to growth. As the company grew more than twofold in the last year, we always want to have an adequate cash buffer. Thereby, we can use this strategically: for example, if we want to develop a new product line or if there is a new crisis equivalent to the COVID crisis, so ultimately our company would have certainty.”
Among the lead investors were the famous Sequoia Capital, a US venture capital firm, and a new investor, Fidelity Management & Research Company, one of the world’s biggest asset managers. The overall economic environment has become a little more brittle with price hikes and threats of price hikes, but we did not experience that excessively when raising money. A number of investors were spooked by the spread of the Omicron variant, but Villig said that the overall situation remains favourable and the price level the investors are offering is still appealing: Bolt’s value almost doubled to 7.4 billion euros when compared with their value in August.
Nevertheless, money is still not merely thrown about. “The main reason we were able to attract investors and why our value has grown is that our results are the greatest they have ever been. We are growing in every aspect of our business, we are rapidly adding new countries and cities.”
Bolt’s choice of investors was based on the principle that investors would still be shareholders in the company even after the IPO and they would trust the process. The main measure is that investors place their faith in the current team and provide them autonomy and zero interference.
The crisis could be an opportunity
The money that was raised will be invested in further expanding Bolt’s five business areas. Those are: car and scooter rentals, food delivery from restaurants, the ride-sharing service and the delivery of groceries to people’s homes.
High electricity prices and rising inflation brings forth a question: what would happen to Bolt’s convenience services in circumstances when people start to save their money and choose public transport instead of a taxi and preparing meals at home instead of ordering take-out. Villig said that they should be cautious in that case, but more difficult conditions would be rather favourable to them.
“Our main strategy greatly minimises that risk because our focus has always been on operating our business as cost-effectively as we can. We are the leaders of this on the world stage. Nobody can offer it as affordably as we can to the end customer. Any cost savings we make always get passed on to the end customer in the form of lower prices. As a consequence, I can see our competitors being the ones who will suffer if people start to save their money.” That is why we have heavily increased our fundraising efforts in recent years.
Villig stressed that Bolt’s margin is rather small for all products, which was a conscious decision. “Our business strategy is that we earn a low percentage profit on each product, but we get a large amount of it as a result.” This results in a profit margin of less than 10%; it is even lower during the investment period.
A problem regarding growth: no available office space is large enough
Fundraising brings along a wave of new recruitment in Bolt: if currently the company employs approximately 3000 people, then by the end of the year that number could rise to 5000. This brings forth a new set of problems.
“We are starting to run out of office space. Estonia hasn’t had a company as large as this before. Our wish is to create one of the largest IT offices in Europe in Tallinn, a location that could host 5000 employees. That requires space. We are determined to make all those investments, but we need some assistance from the city in order to acquire this land somewhere. This is our first hurdle. Our second hurdle is bringing talent to Estonia and making Estonia attractive to talent.”
Bolt’s CEO said that the decision regarding building the new office must be made over the next six months. “I am an Estonian patriot and I hope that we can build this office in Estonia. I believe that it would be a fantastic symbol for Estonia if one of the biggest companies in Europe was here, not to mention the economic impact. If we could recruit thousands of highly qualified specialists whose yearly salaries range from 50,000 euros to 100,000 euros, the tax revenue from those people could reach hundreds of millions.”
As one option for recruitment, Bolt has considered acquiring another IT company as an easier way to recruit more employees, but they have not yet found an adequate solution because demand is quite high.
Finding drivers is another relevant issue; the company would like thousands of more drivers.
The newly acquired billionaire title that came along with the fundraising is of no importance to Villig. “It has never been my priority. My objective is to build Bolt into one of the biggest companies in Europe. Ultimately, all those material assets are only on paper. It is not money I would use for something. I would be pleased if due to our success, other workers in Estonia could become wealthy and grow the Estonian economy as a result,” he said. When taking into consideration the approximately 10% dilution caused by the fundraising, Villig’s stake in Bolt is worth approximately 1.3 billion euros.
The target has been partially met when looking at the number of customers. “Today we have more than 100 million customers. Companies with over 100 million customers are in short supply in Europe. I believe that our company could be Estonia’s own Nokia-like brand in the future; something that would make us known all over the world in a positive sense.”
Bolt will eventually go public, but not right now
Local investors have patiently waited for the time at which regular people can also ride on the coattails of Bolt’s success. There have been many rumours about going public in the last year, but this is not a priority for the company right now. There is a simple reason for that: private investors are currently providing funding with nearly the same terms, which takes the edge off. There is also no pressure from the large US hedge funds who invested in Bolt.
“If our observations showed that similar companies in our sector were highly valued on the public market, that would be an obvious material reason to go public.”
When asked which stock exchange would be their choice (New York, Amsterdam, London or Frankfurt), Villig said that all of those are the biggest stock exchanges in the Western world and all of them would therefore be suitable candidates. Villig does not rule out dual listing on the Tallinn Stock Exchange in order to make it easier for local investors to invest in the company. “It is possible but going public is not in our plans in the short-term; we have not spent too much time on this idea.”
The greatest challenge for new business ventures: a shortage of cars
Bolt has started two new business ventures over the past year: Bolt Drive (car rental) and Bolt Market (the delivery of groceries). In regard to both ventures, Bolt’s CEO said that they have matched their expectations and even slightly exceeded them. For example, Bolt Market is used by tens of thousands of people every month.
Regarding business calculations, Bolt has decided not to follow the lead of its competitors in offering an ultra-fast service in which milk and bananas show up at people’s doorsteps in a couple of minutes; Bolt’s aim is around the 15-20 minute mark. Bolt does not want to go lower than that as the costs associated with it would be too high. “We would need more couriers who would just stand around in order to be able to deliver in time. Our view is that for most people, 15-20 minutes is the ideal time.” A faster delivery time would mean an increase in euros per order, and consumers do not see adequate value in that.
Besides Estonia, the Bolt Market service is now available in Latvia, Lithuania, Romania, Croatia, Slovakia, Poland, Portugal and the Czech Republic. Our objective for 2022 is to launch Bolt Market in other Eastern European countries and in Africa.
Regarding car rentals, the global supply chain issue has greatly affected Bolt’s expansion plans, including our car fleet selection. “It is a big hurdle in regard to Bolt Drive, but also for our ride-sharing taxis. It is just not possible for drivers to get cars affordably or in volumes they would like.”
That is especially worrying in Africa, as car manufacturers have decided to cater to primarily wealthier markets in the current situation where there is a shortage of cars.
In a similar way to grocery ordering, Villig sees that customers are extremely price-sensitive regarding car rental, meaning that if people were to switch their cars for shared transportation, the prices must be reasonable. “According to our own research, one Bolt Drive car could replace between five and ten private cars. If Tallinn has over 200,000 private cars, this means we would have to offer tens of thousands of cars in order to potentially displace them. It will take some time to reach that level of business.”
Bolt’s CEO said that the current prices are not to simply entice people, they are sustainable. “Nevertheless, we depend on external factors – if fuel prices do not change drastically, we can keep the current prices.”
Electric cars will not become part of Bolt Drive’s car fleet in the near future for a simple reason: cost. “Electric cars are still much more expensive, even when considering the car’s entire life cycle as well as fuel and operating costs. Regulators have been dragging their feet for too long in this regard and they should step in more aggressively – either from the positive side by subsidising electric cars or from the negative side by taxing fuel and cars more heavily in order to accelerate this changeover.”
Are you interested in investing in the Estonia’s Unicorn Factory? Send us a request for personal e-Consulting and let’s get started.