425: Strive Unveils Clean Capital, Bitcoin Strategy, Semler Deal

Strive's CIO discusses the company's strategic Bitcoin treasury, recent IPO of perpetual preferred stock, and the proposed Semler Scientific acquisition, highlighting a bullish long-term outlook for Bitcoin.

Summary

• Strive's Chief Investment Officer, Ben Werkman, discussed the current Bitcoin market, noting a recent dip of just over 25% from peak to trough, which he considers normal for a bull market.
• Werkman anticipates rate cuts and increased liquidity, leading to a continued bullish outlook for Bitcoin, with institutional adoption and central bank interest (e.g., Czech central bank buying Bitcoin) providing 'air cover'.
• Strive has intentionally built a simple capital structure, avoiding restrictive convertible bonds, and instead raised $700M-$750M through an all-equity PIPE financing, with an additional $750M from traditional warrants, totaling a potential $1.5B.
• The company recently completed a reverse merger, IPO'd, and announced the proposed acquisition of Semler Scientific, which could add over 5000 Bitcoin to its balance sheet, scaling its total to over 7500 Bitcoin since November 10.
• Strive launched its first perpetual preferred equity, SATA, which IPO'd at $80 and is now trading at $94, raising $200M notional (net $160M), upsized from an initial target of $125M.
• SATA offers a 12% dividend rate, which is tax-deferred as a return of capital, effectively yielding over 16%, and is covered by Strive's existing Bitcoin assets for approximately 35 years.
• The perpetual preferred equity is designed as a 'carry trade' where the 30% compound annual growth rate of Bitcoin, minus the 12% dividend, generates value for common stock holders.
• Strive has committed to having SATA as its only perpetual preferred equity for the next 12 months, aiming for simplicity and focused liquidity, and has set aside a 12-month interest reserve for dividend payments.
• The company aims to increase its amplification level (currently 2.5) by scaling SATA and managing delevering events from warrant exercises and Bitcoin price appreciation.

Sentiment

Score: 8

Explanation: The sentiment is highly positive, reflecting Strive's strong strategic positioning, innovative capital structure, and the successful market reception of its new perpetual preferred equity. The company's clear vision for Bitcoin's long-term value and robust risk management framework contribute to a very optimistic outlook, despite general market volatility.

Positives

• Strive maintains a clean capital structure with no debt, providing operational flexibility and avoiding maturity risks associated with convertible bonds.
• The perpetual preferred equity (SATA) offers a high 12% dividend yield, which is tax-deferred, making it a highly attractive instrument for income-seeking investors.
• SATA's IPO was 2x oversubscribed and its trading performance (from $80 to $94) demonstrates strong market demand and investor confidence, even amidst Bitcoin price dips.
• The company has substantial asset coverage for SATA dividends (35 years), providing significant security for preferred equity holders.
• Strive's strategy allows it to raise capital and acquire Bitcoin even during market drawdowns, enabling 'buying the dips' rather than only buying tops.
• The long-term outlook for Bitcoin is bullish, supported by increasing institutional adoption, regulatory warming, and confirmed central bank purchases (e.g., Czech central bank).
• Bitcoin is seen as a fundamental solution to monetary debasement, offering a globally recognized store of value.
• Strive has a robust risk management framework, including a Chief Risk Officer and a 12-month interest reserve for SATA dividends, enhancing investor confidence.

Negatives

• Bitcoin has recently experienced a dip of over 25% from its peak, and has been underperforming since January 2024 due to an 'IPO dynamic' and broader risk-off market moves.
• The market initially treats perpetual preferred instruments as 'junk', indicating a need for significant investor education on their unique benefits and security.
• There is an 'education curve' for new investors to understand the complexities and advantages of digital credit products.
• The proposed Semler Scientific acquisition involves Strive's issuance of additional shares of its Class A common stock, which could cause dilution for existing common equity holders.

Risks

• Bitcoin price volatility, as evidenced by the recent 25% dip, can impact the value of Strive's underlying assets and investor sentiment.
• The 'IPO dynamic' and broader risk-off market moves can create Bitcoin-native selling pressure, affecting its short-term performance.
• The anticipated benefits of the proposed Semler Scientific acquisition, including strategic gains and cost savings, may not be fully realized.
• Integration of Semler Scientific's business may be more difficult, time-consuming, or costly than expected.
• The proposed transaction may incur higher-than-anticipated expenses or take longer to complete due to unexpected factors.
• Diversion of management's attention from ongoing business operations and opportunities during the acquisition process.
• Potential adverse reactions from Strive's or Semler Scientific's customers or changes to business or employee relationships due to the announcement or completion of the proposed transaction.
• Changes in Strive's or Semler Scientific's share price before the closing of the acquisition.

Future Outlook

Strive anticipates a continued bullish trend for Bitcoin, driven by expected rate cuts, increased liquidity, and growing institutional adoption. The company believes Bitcoin's price action will evolve into a more stable 'grind up' rather than explosive volatility. Over the next 12-18 months, Strive will focus on scaling its SATA perpetual preferred equity to achieve higher amplification, educating the market on its products, and establishing ATM offerings for both common and preferred equity to manage capital raising efficiently.

Management Comments

• "I look at this dip and I don't see anything out of the ordinary from any other bull market."
• "I see rate cuts coming. I see liquidity coming. You know, I see a lot of reasons to continue to be very bullish on Bitcoin."
• "Everything we were hoping would happen for Bitcoin is starting to happen."
• "Bitcoin is just going to quietly put on 30% a year, and it's going to lull people to sleep."
• "Bitcoin is solving for monetary debasement, right? It's a way to preserve value, and that's a use case that's globally recognized, that hits everybody."
• "This is our only perpetual preferred equity that we're going to be offering for the next 12 months. And the reality is, if this goes really well, and there's a lot of demand for this, we would love for this to be our only perpetual preferred equity ever."
• "We've already got the interest held in a separate account for 12 months of the dividend payments on SATA."
• "My job is to keep my foot on the gas and try to keep moving forward. And Jeff's job is to tell me when I have to slow down, right? And you need that balance."

Industry Context

The announcement highlights the evolving landscape of Bitcoin Treasury Companies, with Strive positioning itself as a key player alongside pioneers like MicroStrategy. The introduction of perpetual preferred equity as a capital-raising instrument marks a significant innovation in the digital asset space, offering a stable, high-yield alternative to traditional debt. This trend is expected to accelerate, with other companies like MetaPlanet and MicroStrategy also exploring similar products, indicating a broader industry shift towards more sophisticated and diversified financing strategies for Bitcoin-backed balance sheets.

Comparison to Industry Standards

• Strive's SATA perpetual preferred equity offers a 12% dividend yield, which is significantly higher than typical yields from traditional low-volatility products like checking accounts or money market accounts.
• The tax-deferred treatment of SATA dividends (as return of capital) provides an effective yield equivalent to over 16%, outperforming many conventional investment alternatives.
• Strive's clean capital structure, with no debt and only two product offerings (common and perpetual preferred equity), is presented as simpler and more transparent compared to complex structures like Berkshire Hathaway's or MicroStrategy's reliance on convertible bonds.
• The 4:1 coverage ratio for SATA was established as the institutional comfort zone, aligning with market expectations for similar offerings from peers like MicroStrategy.
• Strive's approach directly addresses concerns raised by S&P's Brating for MicroStrategy, which cited maturity risk from convertible debt and the lack of value attributed to Bitcoin assets; Strive's perpetual preferred avoids these maturity risks and is backed by unencumbered Bitcoin.

Corporate Governance

Stakeholder Impact

• **Shareholders (Common Equity)**: Expected to benefit from the compounding value generated by the 'carry trade' (Bitcoin's CAGR minus SATA's dividend), potentially outperforming Bitcoin itself. The clean capital structure and strategic growth are positive, though potential dilution from the Semler acquisition and warrant exercises exists.
• **SATA Preferred Equity Holders**: Receive a stable, high (12%), tax-deferred yield with strong asset coverage (35 years of dividend coverage) and no maturity risk, offering a low-volatility income stream.
• **Customers and Employees (Semler Scientific)**: May experience potential adverse reactions or changes to business or employment relationships as a result of the proposed acquisition.
• **Investment Professionals and Institutions**: Provided with an innovative, high-yield, low-volatility digital credit product (SATA) that offers diversification and income generation, backed by a transparent and well-managed balance sheet.

Next Steps

• The proposed acquisition of Semler Scientific needs to go to a vote and close.
• Strive will focus on scaling its SATA perpetual preferred equity to achieve a higher amplification level (slightly above 2.5).
• The company plans to establish an At-The-Market (ATM) product for both its common and preferred equity to facilitate efficient capital raising.
• Strive will undertake significant efforts to educate the market on the value proposition and risk management of its perpetual preferred products over the next 12-18 months.
• Management will monitor delevering events, such as the exercise of outstanding warrants and Bitcoin price appreciation, to maintain target amplification levels.

Key Dates

Recommendation

Strive's strategic decision to build a clean capital structure, avoiding the maturity risks of convertible debt, positions it favorably. The overwhelming success of the SATA perpetual preferred equity IPO, demonstrating strong market demand and trading performance even during Bitcoin dips, provides a stable and efficient capital source for growth. The company's clear long-term bullish outlook on Bitcoin, coupled with its ability to amplify returns for common equity holders through this innovative financing, makes it a compelling investment. The proposed Semler Scientific acquisition further scales its Bitcoin treasury, reinforcing its leadership in the sector. The robust risk management framework adds an extra layer of confidence for investors.

Keywords

Bitcoin, Treasury Company, Strive, Semler Scientific, Perpetual Preferred Equity, Digital Credit, Capital Structure, IPO, M&A, Risk Management, Monetary Debasement, Store of Value, Yield, Amplification