The Last Days of Bitwise: How a Start-up for Struggling Cities Went Bust

The Washington Post

14:01 JST, July 28, 2023

FRESNO, Calif. – The co-founders were usually ebullient, but on this emergency video call they sat together ashen. Always attentive to optics, they dressed in black to deliver the grave news: Their decade-old start-up, once celebrated as the hopeful future of the technology industry, was out of money, and their hundreds of employees were out of jobs.

The company, Bitwise Industries, started with a grand vision. The founders, Jake Soberal and Irma Olguin Jr., promised to uplift marginalized communities and change the narratives of underestimated places, like this hard-luck city in California’s Central Valley.

Over the years, the two co-chief executives had transformed Bitwise from a small coding academy into an ascendant player in the technology world, with some 900 workers, offices in eight states, high-profile investors and a valuation of several hundred million dollars, all while cultivating a company culture based on inclusivity and progressive values.

But what began as a unique success story ended in spectacular fashion.

Late on Memorial Day, over a glitchy Google Meet call lasting six minutes, Soberal and Olguin delivered the death knell for Bitwise, citing “some extremely adverse financial events” that forced the company to furlough all of its workers, including the two of them. “Tonight will be hard and tomorrow will be hard and we don’t know what happens next,” Olguin said on the call, a recording of which was obtained by The Washington Post. “This super sucks.”

This call, the last time the founders would address their company, was an earthshaking moment for a workplace whose leaders inspired so much loyalty that several employees shared matching tattoos with Olguin. In the weeks since, an alarming picture of the final months of the company has emerged, one rife with warning signs and red flags: bounced paychecks and missing 401(k) contributions, delinquent property taxes and profligate spending.

Former employees are owed thousands of dollars. Some are in deep medical debt, while others are struggling to pay rent. “I trusted them. We all did,” said Katrina Riggs, who worked on the Bitwise marketing team for two years. “I am still reconciling it. That idea of how can something so good end so awfully? I don’t know if I’ll ever be able to unless I have answers.”

The Bitwise board fired Soberal and Olguin days after the video call, then dismissed all of its workers and filed for bankruptcy. Lawsuits against the company and its ousted CEOs are piling up. Meanwhile, federal authorities have opened an investigation, according to three city officials. Soberal, Olguin and two of the three Bitwise board members identified in bankruptcy filings did not respond to repeated requests for comment. The third board member declined to comment through a spokesperson.

Technology has been billed as a powerful force for good in struggling cities across the nation, but the meltdown at Bitwise – and the impacts that have reverberated from Fresno to Buffalo – shows the perils of relying on a rapidly changing industry and the risk of betting the rebirth of a city on the success of a start-up with lofty goals.

“We were hoodwinked,” said Fresno city councilman Mike Karbassi. “It is alarming to me how many people bought into the hype. Bitwise used those people. They capitalized on them. They rode this wave until the very last second and hung people out to dry.”

The sweltering San Joaquin Valley is America’s breadbasket, and it is far more famous for its crops than its coding. But in 2013, two locals set out to change that. Soberal, an intellectual property lawyer in his late 20s, and Olguin, a computer scientist in her early 30s, founded Bitwise in Fresno, a city of 500,000 and the largest in the region.

They were ambitious from the start, writing on an early version of the company website that they were building “the mothership of technological education, collaboration and innovation.” This was especially challenging in Fresno, a city with deep inequities that is home to some of America’s wealthiest neighborhoods and some of its most concentrated poverty.

Soberal and Olguin said their own backgrounds helped them see opportunity in the city’s inequality. Soberal’s father, a Mexican immigrant, grew up poor in East Los Angeles, while Olguin, who identifies as queer, is the daughter of farmworkers and the first in her family to go to college. They made creating opportunities for underrepresented groups a central part of their burgeoning business.

Bitwise and their founders quickly garnered glowing attention, locally and nationally. The Atlantic chronicled the company’s rise, and it opened a splashy new building, the first of several historic structures in a drab swath of downtown that Bitwise renovated and covered in its colorful branding. Officials would later say this investment in the city center helped kick-start a downtown revitalization campaign that continues today.

In 2016, Soberal and Olguin penned an open letter promising to bring 250,000 new tech jobs to Fresno. To support this new economy, they said they would build a 2.5 million square foot campus and a train that would crisscross the county, connecting rural areas to the city in an attempt to make the Central Valley look more like Silicon Valley.

“It was a very strong story and a desperately needed one for a region of folks who don’t have access to coding and tech,” said Miguel Arias, who represents downtown Fresno on the city council. “They could teach a master’s course on branding and selling a dream.”

According to the company and many of its former workers, it did for a time produce results. Bitwise trained thousands of students nationwide, the majority of them people of color and women. Some took jobs with the company while others found work outside on their own. It also offered co-working spaces and a consulting branch.

In Fresno, it helped create more than 15,000 tech jobs over the last 10 years, a company executive said in February. The aggregated wages of those jobs totaled over $250 million and increased the GDP of the city by 1 percent, the executive claimed.

The unlikely start-up success also generated a less quantifiable commodity: hope. “Bitwise was the darling of Fresno,” said Jim Boren, the director of the Institute for Media and Public Trust at Fresno State and the former executive editor of the Fresno Bee. “We wanted to believe in what it represented beyond just a tech hub.”

In June 2019, Bitwise made a milestone announcement: It had raised $27 million in venture capital funding, the first big cash injection to fund its expansion outside of Fresno. But as the company grew, cracks began to show.

Will Dyck, a Fresno developer who befriended Soberal in 2014, partnered with Bitwise early on, joined its board and helped finance the renovation of four downtown buildings. By 2019, however, he had grown increasingly dismayed by the rate at which the company was burning cash without increasing its revenue, he said. He left the board, bought Bitwise out of the buildings and became its landlord.

“There was never a business model,” Dyck said. “It was an idea.” Yet the company continued to gain momentum. The coronavirus pandemic and the racial justice reckoning seemed to validate the Bitwise approach and supercharge its growth.

California Gov. Gavin Newsom (D) heaped praise on the company, saying it was the center of “a remarkable economic story in Fresno and in the Central Valley.” Tens of millions in new funding poured in. The ambitions for Bitwise grew. “It’s time to stop expecting tech giants to be better and instead become a giant ourselves,” company leaders wrote in February 2021.

Less than a year later, the legal trouble began. Dyck and a group of other business partners sued Bitwise and Soberal, accusing them of breaching their contract on the development of a 100,000 square foot historic warehouse that would host the new company headquarters. The lawsuit was settled out of court later in 2022.

Around this time, Bitwise was valued at $257 million by third-party company Carta, which noted in its report that the firm “has not achieved profitability as of the Valuation Date and does not project consistent margins or stable cash flows in the near-term.”

Even as the company expanded further, unveiling plans for a Buffalo office in August 2022, its financial strain grew more serious. Later that year, county records show, Bitwise began missing property tax payments at its Fresno buildings.

But the boom-bust cycle continued at the company. In February, it announced $80 million in new funding, its largest round on record, bringing its total venture capital investments to nearly $160 million.

“It got so giant and so many important people needed a return on their investment,” said Trevor Ford, an art director at Bitwise who worked there for nearly four years. “Everyone hears about the chickens they pump so full of hormones they can’t even stand on their legs. That’s Bitwise.”

The red flags for workers look brighter in hindsight. In March, Bitwise employees began regularly receiving paper checks instead of the usual direct deposit payments. Around that time, some noticed the company was no longer depositing money in employee retirement accounts.

But Bitwise leaders always seemed to have an explanation, several employees said, and Soberal and Olguin had earned their trust. Still, some workers harbored doubts. In an April email to the staff, Olguin told employees that the company would be switching to paper checks permanently.

“Your anxiety may be trying to tell you, ‘OMG the business is failing, we’re out of money,'” Olguin wrote. “No. That’s not what this is about. We’re literally trying to make your lives simpler and remove uncertainty.”

This email came the same week that Bitwise missed another round of property tax payments on the Fresno buildings and as it fell behind in rent to Dyck, the landlord said. Meanwhile, Soberal was frantically working the phones. One of many he called was Agri Capital, a lender in neighboring Madera County.

Soberal assured the firm’s chief financial officer that Bitwise was thriving financially and that its $257 million valuation was actually a lowball: The company was probably worth $500 million, Soberal said in emails that became public after Agri Capital filed suit last month. Even so, Bitwise needed a $5 million loan, fast.

That was because, Soberal said, the company needed to repay another debt but could not draw from the $65 million it had in the bank due to a separate agreement with Goldman Sachs, which, he said, had a “liquidity covenant” that required Bitwise to keep a certain amount of cash on hand.

Goldman Sachs, Soberal claimed, was also preparing to lead another massive $80 million round of financing for the company. Agri Capital agreed to loan $1 million. However, a Goldman Sachs spokesperson refuted both of Soberal’s claims. No such liquidity covenant existed, the spokesperson told The Post, and Goldman Sachs had no pending investment with Bitwise.

Agri Capital declined to comment, but its attorneys wrote in the lawsuit filing that Bitwise leaders “solicited money by crafting a false narrative of financial fortune and stability to lure in unsuspecting investors who believed in the company’s mission.”

In late May, as word got out that the company was desperate, Soberal gave an interview to GV Wire, a local news outlet. When asked about the financial health of the company, Soberal replied, “Man, I hope it’s good. We’re really excited about the future over here.”

Six days later, Soberal and Olguin announced the mass furlough. Then on June 29, Bitwise and its associated limited liability companies filed for chapter 7 bankruptcy, an indication the board does not intend to reorganize the business. City officials are now scrutinizing the company’s claims about job growth and revenue.

Federal authorities are also investigating the company’s activities, a Fresno city official with direct knowledge of the probe said. The FBI has requested all financial documents Bitwise has filed with the city since 2013, the official said. Two other city officials said they were also informed of the probe. The Justice Department and FBI declined to comment, citing a long-standing practice to neither confirm nor deny investigations.

Soberal and Olguin have not spoken publicly since their video call, and messages to them – from reporters and former employees – have gone unanswered. At their homes in Fresno on a recent afternoon, the lights were off and the shades pulled shut.

Nearly every employee interviewed for this report stressed that Bitwise was not a normal workplace. Employees played with Nerf guns, sailed down hallways on scooters and were friends with their bosses. It was a community of like-minded people who believed they were part of an effort to make life better in the cities where they operated.

When the start-up suddenly collapsed, it left nearly 1,000 people reeling. For most, it was their dream job. For many, Bitwise was a safe place, whether they were Black, Brown, gay, trans or formerly incarcerated. They had free health insurance and unlimited time off.

Now, the same people Bitwise helped are struggling. There is Monica McCutcheon, who was one of the first hires at Bitwise Buffalo. When she started, the single mother of four was running her own small business and Olguin asked her to close it to focus on Bitwise. “Irma said, ‘I’ll make your life better,'” McCutcheon said.

And for about two years, she did. McCutcheon and her children moved to a better neighborhood. Christmas was no longer stressful. She could finally afford a new car. But her last paycheck came more than two months ago. Her car was recently repossessed and she’s not sure how she’ll cobble together the money for rent.

“I went out and did my best to put forward something good that I thought could work for Buffalo,” McCutcheon said. “I thought these people had changed my life, so I wanted to change someone else’s life. It is embarrassing. Since this happened, I haven’t told a lot of people.”

About 500 miles away, Ayoka Samuels was dreading checking her mail. The former vice president of Bitwise Chicago knew what might be waiting there: another medical bill. After the furlough announcement, the company canceled employee health insurance without warning, Samuels said. The next day her son got in a car crash, swerving to avoid a deer near his college town in southern Illinois.

An ambulance took him to the emergency room, where he was diagnosed with a broken wrist. The only orthopedic surgeon in town, a private doctor, ran the insurance card for Samuels, but it was rejected. Her son’s procedure would cost $11,000. “At that moment, I sat down in the waiting room and burst into tears,” Samuels said. “You do everything you can for your children and in that moment, I felt like I couldn’t.”

They skipped the surgery and Samuels and her husband drove their son back to Chicago, to a hospital accustomed to working with patients who could not afford pricey medical options. Her son is healing, but the bills keep coming. The family’s medical debt is at $13,500 and climbing. “It is like an earthquake, you didn’t know it was coming,” she said. “And for the last 35 days, the aftershocks, I still feel them.”

The shocks are especially strong in Fresno. Lots of people said Bitwise was like family, but for Chris Ramos, it was literally true. Ramos, his husband and his mother all worked for the company in Fresno. Growing up gay in the conservative city, Ramos thought he would have to move away to find a community that welcomed him. But he found Bitwise.

“We were a shining example of what we could do in our city,” Ramos said. “It felt amazing to be a part of a movement like that.” Ramos and his family were close with Bitwise leaders. It is the silence, from Soberal and Olguin, but also from the Bitwise board, that has been hardest to bear, he said.

“I love them too, but that is why I’m angry, because I trusted them and I was vulnerable with them,” said Ramos, who was one of the employees to get a matching tattoo with Olguin, an homage to the historic architecture of a Bitwise building. “They took all the most vulnerable people and invested in us, and we in return invested in them. And we’ve all been abandoned.”

Ramos said he believes the work Bitwise started in Fresno and elsewhere will continue, and some former employees have already launched their own companies. They have also filed a class-action suit against Bitwise, Olguin and Soberal.

Local officials are hoping that even with the company’s folding, the city can build on the momentum it started. The state has allotted $250 million for infrastructure work in the core of Fresno, which officials say will help it bounce back after Bitwise.

But the fall of what was billed as a successful homegrown business has nonetheless hurt. Aside from lost jobs and revenue, the decline of Bitwise has taken a symbolic toll on the longed-for turnaround in Fresno. During a recent weekday visit to the former company headquarters, an old downtown auto garage, the Bitwise wing was empty, the halls eerie.

The accounting office was a jumbled mess of company files and stranded furniture. Its door bore the name of the wizard bank from the Harry Potter series. Nearby, the corner office that Soberal and Olguin shared was bare. The landlord, Dyck, expects to fill the space soon, perhaps with another start-up looking to change the narrative in Fresno.