How One Man Struck Digital Gold
A Quick History on HyperIntelligence
Sometimes it takes a rocket scientist to make the first move. And this first move took about 30 years to become an overnight success.
No I'm not talking about Elon Musk. I'm talking about Michael Saylor, the co-founder of MicroStrategy.
Who’s Michael Saylor you ask? He’s an aeronautical engineer who graduated from MIT in 1987. With an Air Force ROTC scholarship, he specialized in astronautics. He couldn’t become a pilot because of medical conditions. So Mike went on to work in technology consulting instead.
Now I don't need to tell you he had no difficulty in getting a job. But it is important to remember that the internet and technology were still young in 1987. So Mike became an internal consultant at DuPont to build computer simulations. Later on they give him an external contract and a team to start MicroStrategy.
At the age of 34, he became a billionaire building business intelligence software for companies like McDonalds. His net worth peaked at 7 billion dollars before imploding during the dotcom bust.
$$ Internet domains
Before I get into MicroStrategy, I want to mention the first time Mike struck digital note.
You see, Mike has been a serious tech enthusiast since the early days. In fact, he's spent over $2 million buying the most valuable domain names.
His investment thesis is based on the value of the English language. Yes, the English dictionary is core to his theis. Mike believes that we spend so much manpower learning basic words like voice and hope so the inherent value of these domain names is limitless.
For example, today he owns domains such as michael.com, wisdom.com, strategy.com, courage.com and alert.com. You may have heard of Alarm.com, the +$4b public security company for residential and Commercial properties. His initial intent was to create joint ventures with these one-word domain names to build more billion dollar businesses.
Most recently he sold voice.com for $30 million. Which he believes is still undervalued.
P.S. I recommend visiting hope.com to learn more about his Bitcoin strategy. He believes Bitcoin is hope so that is why he redirected the domain name. We’ll go more into this soon.
The Mobile wave
Now I may seem like old news but Mike also predicted the Mobile Wave in 2012. In fact, he wrote Mobile Wave on how mobile technology will impact the future of commerce, healthcare and the developing world.
2012 may seem late but he predicted another billion dollar industry. I know many investors that would have loved to invest in mobile apps early on.
But I digress. Let’s talk about digital gold.
A Billion Dollar Treasury Problem
Now last year MicroStrategy had a serious cash problem. The same can be said for every company during the Covid crisis. But for technology companies it was unique. Some technology companies have an investment problem because they make so much money. A very good problem.
And MicroStrategy had five hundred million dollars in cash. And didn’t know where to invest it.
The bigger problem is figuring out how to reinvest at a higher rate of return. You see, anybody can buy Treasuries or low yielding assets. But if you underperform the market your cash will lose its value. So early on Mike decided to transition the company’s treasury into digital assets. Peak pandemic.
In July 2020, MicroStrategy began looking at alternative assets such as gold and bitcoin instead of holding cash. In August, MicroStrategy acquired $250 million dollars in Bitcoin.
That was about half of the company's cash balances. And it didn’t stop there.
Buying Digital assets, at scale
Now why would a technology company buy Bitcoin? At first the reasons seem unclear. This is a volatile asset and MicroStrategy has an analytics software business. But if anybody understands the fundamentals of the technology it's a rocket scientist.
At the time of the initial Bitcoin purchase, MicroStrategy was worth ~$1 billion. And to be quite frank the company wasn't doing too well its revenues had declined from $497 million to $480 million since 2018. Intelligence software was no longer a hot topic.
So Mike made a big bet. He bought as much Bitcoin as possible.
Confident to close
In fact, Mike was so confident that he took out a $650 billion loan and sold secondary shares to buy over $2 billion of Bitcoin. The convertible note had a 0%! All in all, MicroStrategy said the average purchase price of all its Bitcoin purchases averaged $23,985.
Today MicroStrategy owns about two billion dollars worth of bitcoin.
"Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple, & secure savings account to billions of people that don’t have the option or desire to run their own hedge fund." ~ Michael J. Saylor
Now in hindsight this seems like a brilliant transaction. You keep buying as a market goes up. And in some ways Mike led the Bitcoin bull market. This was the first time that institutional investors were buying Bitcoin at scale.
He even convinced Elon to buy a ~$1.5 billion of Bitcoin for Tesla in January. And now consumers can buy Tesla cars with Bitcoin online!
Now I know what you're thinking. What happens if the value of Bitcoin drops by 50%. Fortunately for Mike he's made so much money he's playing with house money now. So the risk is minimal, even if it drops by 70%.
Everyone looks like a genius in a bull market. So there’s no telling how this story will end.
But as the lead investor, MicroStrategy raised the floor for everybody else. And it seems like more institutional capital is following his Big Bet.
How to do your own Software Deals
If this post inspired you to do technology deals, I recommend checking two websites that I've used in the past (affiliate links included).
First is a short class I took last year on how to buy, grow and sell small online businesses. Even if you’re familiar with the acquisition process, this course includes details on how to manage software businesses. A unique point of view when you have a development team.
Ryan breaks down the steps on how to build a deal flow pipeline, identify opportunities and close deals. He's made some impressive acquisitions over the years and built a great portfolio of small software companies. I recommend taking his course to learn more.
Free Software Business Giveaway
And if you're looking for start-up deals, look no further. My friend Andrew Gazdecki launched MicroAcquire last year to provide instant access to buyers and sellers. In 12 months he has signed up over 50,000 members and closed +300 successful deals!
Very impressive and very fast.
MicroAcquire broke $300,000 in revenue in less than 12 months.
And now he's giving away a $25,000 software business if you sign up for the Hustle and refer as many people as you can. All acquisition costs will be covered and the winner will get a profitable business with little to no overhead costs or day-to-day work required.
TiE New Jersey's Latest Tech CEO Event
On Wednesday, TiE New Jersey held another wonderful Tech CEO event with Orion Inc. This may have been our most successful event so far.
Raj Patil, CEO of Orion Inc., discussed his successful M&A Growth strategy and how TiE helped him make a major deal in 2018. Raj discussed the Power of Focus on clients and employees in great detail. The event went on for 1.5 hours with dozens of follow-up questions.
If you want to learn about the growing opportunities in IT services, I suggest watching this!