← Coin Stories with Natalie Brunell
Coin Stories with Natalie Brunell
Matt Cole & Eric Semler: First Major Bitcoin Treasury Acquisition - Strive Buys Semler Scientific
00:26:18
The first major acquisition in the Bitcoin treasury space just happened: Strive ($ASST) is buying Semler Scientific ($SMLR) in an all-stock transaction. Matt Cole (Strive CEO) and Eric Semler (Semler Scientific Executive Chairman) join Natalie Brunell...
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- [00:00]
A
There was a lot of synergies in both directions of how we could on the bitcoin standard for us where bitcoin is the hurdle rate really do a lot together.
- [00:09]
B
I also just think that, you know, the time is right for consolidation. It's kind of the next wave of bitcoin accretion is consolidation in the bitcoin treasury space. And you know, it's nice to be leading that charge.
- [00:27]
C
Hey everyone, welcome back to the show. This week we saw the first major acquisition in the bitcoin treasury space. And joining me to break it all down is Matt Cole, chairman and CEO of Strive and Eric Semler, executive chairman of Semler Scientific. Welcome guys and congratulations.
- [00:44]
A
Thank you. It's been a busy weekend.
- [00:48]
C
I know, I happen to know. All right, well Matt, let's just start with you. Can you just please tell us about this merger and what STRIVE can now do that maybe it couldn't do before.
- [00:57]
A
Yeah. And I think it's really what both companies will be able to do that they couldn't do before. And this is where you start to see synergies come in. And so maybe just to take a first, quick just glance at what we saw at Semler. We saw a lot of things first, a lot of innovation. The second publicly traded U.S. bitcoin treasury company. So Eric saw this before a lot and before a lot of people and made a lot of value for shareholders by moving in this direction. Also created a lot of optionality for their shareholders to think think strategically into the future. And that was not lost on us. And when we saw them, it's okay, you know, trading below the nav of their bitcoin and they have a historically profitable operating business and not just that, a business that really hits the tone of what is popular in America right now of preventative healthcare around the MAHA movement. And then you look at the Strive side and our co founder of a and and his background in biotech and our executive team has a lot of biotech overlaps and it's just like there was a lot of synergies in both directions of how we could on the bitcoin standard. For us where bitcoin is a hurdle rate really I think do a lot together. And so that's step number one and number two, we've talked a lot at a company of how we want to move to a preferred equity, perpetual preferred equity model and what that means for us. And the reality is that we're already prepared to do that. But this is an institutional game and when you can get scale quickly that actually drives down the costs of such an offering in a major way. And so that's something where on the bitcoin side benefits us, but also benefits to Semler shareholders in a big way to bring that together.
- [02:40]
C
I would love for you to elaborate on that, but first, Eric, why did this acquisition make sense for you and for Semler shareholders?
- [02:49]
B
It's just, you know, it's a win, win. I think we really see the world the same way. Just listening to Matt, listening to how he sees kind of this dual pronged value creation story where we can really accelerate and get much faster and bigger scale than where we are, you know, independently and working together, we create this optionality to really, you know, fuel very highly accretive accumulation of bitcoin. And we have this really interesting asset that Vivek and Matt really see the value of. And they have the ability to really take it to the next level with their focus on preventative care and creating a preventative care platform that aligns so well with the government's mission of making America healthier. And I think we're just such a great representation of a public company that's, you know, making medical devices that save hundreds of thousands of lives and can really, you know, prevent people from getting much sicker by, you know, using our early detection devices. So I just think that dual nature is just a very powerful concept. I think the offer was very attractive, I think, you know, as a 200% plus premium to where our stock was trading on Friday. So it's, you know, you obviously have to be happy with that as a similar shareholder. But I just think that we see this as just a huge opportunity for us to continue to participate in the ascent of bitcoin treasury companies. And this is going to be one of those major bitcoin treasury companies of the future. And we're very fortunate to be kind of sharing that ride together.
- [04:32]
C
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- [06:05]
A
Yeah, you can really go straight to the goat's mouth in this industry. Saylor and their 2Q earnings call and he laid out a plan for strategy that he wants to retire their convertible notes and move strategy itself to perpetual preferred equity only model. And the reason is it's an asset and liability match where Bitcoin does not have cash flows as we all know, but it has great returns. It's the best way to make an investment off the debasement of fiat currencies. So an infinitely long asset on one hand. And if you're going to take a levered exposure to that, which we all think is extremely attractive and accretive to shareholders, you want the liability side to also have as infinite of a duration as possible. And so that's the perpetual preferred equity where you never have to pay back the principal. And so this kind of gets into all sorts of different directions. One would be the valuation in the future of Bitcoin where I've said in many others say there is no top for Bitcoin because they're never going to stop printing money. It's not that one. Bitcoin is going to buy you the state of Texas, it'll buy you in my view, in real terms a lot more than it does today. But it's that you never are going to stop printing money. So you can take a perpetually short fiat currency trade on one hand, pair it with Bitcoin and accrete additional Bitcoin for the common equity shareholders. And so we want that because then we can ride out any bitcoin cycle in the future because the leverage is substantially more intelligent than leverage where you have single year or a couple year maturity risk.
- [07:39]
C
Well, and that's exactly it. Michael Saylor has taught us exactly what intelligent leverage can do. Eric, can you touch a little bit on how Semler's health care business is going to be impacted by the merger?
- [07:50]
B
Sure. I mean, I think that it's really going to have a great future in the hands of Matt and Vivek. I think that they really have a, you know, Vivek, especially with his background investing in biotech and healthcare and having huge success in that area and his, you know, extraordinary financial skills I think will enable it to become kind of this very interesting asset that can, you know, can come a platform to grow with other assets added to it to become, I think, you know, kind of like just one of the only, maybe the best public market story in preventive care. And this idea of making America healthier, I think we have the tools and devices and software to be that company and I think we need that kind of leadership and vision from Vivek and Matt to kind of execute on that. So I don't know exactly how it will play out on a short term basis, but on a longer term basis I think there's tremendous upside and what Strive can do with the asset.
- [09:02]
C
And Matt, you announced a pretty major Bitcoin purchase along with this acquisition. So can you tell us a little bit about the accumulation strategy now? Because it seems like maybe it will be turbocharged at this point.
- [09:15]
A
Yeah, absolutely. So our view, and this kind of gets back into the concept of bitcoin being the hurdle rate and our future return expectations. And so we've broadly internally set a return expectation over the next five years of at least 30% CAGR on average as our internal return. But you could even discount that back to 20%. It wouldn't change the analysis here. And the reality is, is that whenever you have funds coming in, you could always deploy them for at most a capital cost of 10% or less if you know the funds are going to come in. So basically the cost of capital. And so if you think over the long run, bitcoin's going up 30%, but even 20% works and you could finance to get Bitcoin ASAP for 10%. That trade again works out with funds that are coming in. In the short run, it could work out or not. Work out in any given one purchase. But over the long run, that is a good decision to deploy capital into Bitcoin asap. And so our plan here is whenever we have capital coming in is we're not short term market timers. I'm not going to look at the chart and say I think tomorrow bitcoin's going up or going down. I don't think that there's money to be made in that. And so our view is we want bitcoin exposure as fast as possible and that's what we do. But obviously looking at liquidity and not looking to move markets with our purchase. So sizing a purchase to buy without moving the market as fast as we can. And that's what we did here. And then many other discussions started happening like the one with Eric, that made it take a few extra days to actually disclose things like the bitcoin buy. But I'm glad that's out there.
- [10:57]
C
Well, now you're at nearly 11,000 bitcoin climbing the ranks. I know everyone's tracking the bitcoin treasuries now. Right, Eric, what excites you the most? Because you're going to be joining the board of Stripe, right?
- [11:08]
B
Yeah, I mean, I'm just super excited to be part of the future of Bitcoin treasury and being affiliated with probably one of the big winners in the space. And I really believe strongly in Bitcoin treasury and nothing's changed from that standpoint. I'm just thrilled that we have the opportunity, opportunity to, you know, get scale and access these types of markets, these very accretive markets for bitcoin. I also just think that, you know, the time is right for consolidation. It's kind of the next wave of bitcoin accretion is consolidation in the Bitcoin treasury space. And, you know, it's nice to be leading that charge. I think Matt and Vivek have been, you know, visionaries and seen that and being first and being early, I think you're going to see a lot of consolidation. And which is a good thing because over time, as my experience investing in public markets over 30 years is that when you have consolidation in an industry like this, you tend to see multiple expansion, you tend to see values increase. And so, you know, there will be, this could be really an important kind of planting a pole and kind of valuation and establishing a floor, I think, in the valuations of these companies. And I think that this was just a very kind of, you know, very, very visionary move by Matt and Vivek. And I'M I just think that's what we're going to see and this is going to be a fantastic kind of run from here.
- [12:37]
A
Maybe just quickly, Eric, if you don't mind. Just on my excitement for you joining the board is, I mean you're a visionary. I mean you were the second company to do this. And that to me is what we're looking for as we build this board is people that are going to have conviction because bitcoin is a super volatile asset in the short term and we know or we strongly believe where it's going in the long term. And so you need to have a board that's willing to be innovative to willing, willing to do something that is different. And I think you've demonstrated that was similar. I think the, the speed to which when we started these conversations on both sides to which we were able to move and get towards a deal shows the willingness to think outside the box to get to a solution in the best interest and long run for shareholders. And that's what we want. We want a team of, I mean someone on X calls it the Avengers board and that's what we want is how do we keep executing at scale because yes, we would be close to 11,000 bitcoin at the start right now, but that's just the start of where we want to go as long as it's accretive to our common equity shareholders and, and we think that we're going to be able to do that in a big way.
- [13:48]
C
Well, Eric, you brought up something interesting with this consolidation because I feel like this acquisition took some people in the space by surprise. You know, the message is always you got to buy bitcoin. You shouldn't be buying back your stock or buying other companies. So can you guys maybe both talk to that? Why do you see this maybe starting a trend, this one being the first, but seeing more acquisitions down the road. Coin stories is brought to you by Speed Wallet. Want to win one million sats just by answering simple Bitcoin trivia? The top 50 players win free sats every week and one lucky winner gets a million sats at the end of the month. Speed Wallet makes Bitcoin simple. It is the fastest growing and most loved lightning wallet that allows you to send and receive instantly, swap to stablecoins, shop gift cards, play games to earn and explore many apps. Speed is also driving real adoption. Stake n Shake now accepts Bitcoin nationwide via speed payments. Head to speed app coinstories and use code COINSTORIES10 for 5,000 free sats Next up, BitKey, a Bitcoin hardware wallet with multi sig security inheritance and a recovery system designed for real life. No complex setup, no seed phrase, just true self custody without the stress. Named one of Time's best inventions in 2024. Use code STORIES for 20% off at BitKey World. Up next, the Bitcoin way. There's only one way to protect your Bitcoin from government, politicians and third party risk and that is 100% self custody. My friends at the Bitcoin Way will train you how to do this the right way the first time. No compromises. Go to the Bitcoin way.com Natalie to speak with the experts about making sure your bitcoin is secure and private. Coin Stories is also brought to you by Genius Group, a bitcoin treasury company listed on the NYSE. American undertaker GNS Genius is building toward a 10,000 Bitcoin treasury and just launched the Genius Academy featuring courses from Seifadinamous, myself and more. Start learning for free today at Genius Academy. AI Genius Group. Genius isn't measured in iq, it's measured in bitcoin.
- [15:44]
A
So I think there's a couple of reasons. One scale is your friend and at least to a certain level. And I think once so like when I used to work at Calpers as an example, I ran a $70 billion bond portfolio and I can tell you that, that you get access to a lot of things that you don't get when you're small. And so as an example, if you're small and you're talking about the prep as an example, you need to be raising a few hundred million minimum to do a syndicated offering with a large bank that's going to go out there and raise an institutional round. So that says you need little bit of, of scale but even at that level your fees are a lot higher. So ultimately that that makes a leakage in accretion as you go up that next level. I think the sweet spot Here is the 10 to 60,000 bitcoin level today. I think it's going to grow over time as the preferred equity markets expand and, and this gets into what I think is one of the biggest challenges to date for strategy and that is that they struggle to get enough leverage. And so it's funny because a lot of people will say they're risky, they're over levered, they're going to go bankrupt. And I look at them like they're AAA debt, they can't even, they're struggling to get enough leverage because they're, they're innovating in this market and building out a new perpetual preferred equity market. And Michael's doing team are doing a great job of that. But that's taking time, that's taking years where a 10 to 50,000 Bitcoin company can get to that, you know, 30, 40% leverage ratio that Saylor talks about through preferred equity only without breaking the size of the professional preferred equity market. And so they'll get there over time. But I think when you think about fastest horses with regards to accretive intelligent leverage, I think that's the sweet spot and that's like right where we'll start at the gates.
- [17:35]
B
And I think there's just this kind of reality that there's now all of these newcomers to bitcoin treasury, right? There's something like 180 of them and most of them I think unfortunately are in a position where they can't buy bitcoin accretively or getting close to the point where they can't. And so it's just inevitable that they're going to have to either, you know, buy something or sell something, you know, most likely get acquired. And so if you can be kind of the first mover and establish that, I think that you'll trade at a higher multiple. And we're seeing that Strive is doing this acquisition in a very accretive way if you look at the numbers. So they were able to offer us a very attractive premium yet still do an accretive deal. And that is a great formula and that is I think what you're just going to see more and more of. But they have a big advantage because they have the ability to do bigger deals and more deals than most of their peers. And that is, that's where you're going to see I think Strive kind of separate from the pack.
- [18:44]
C
Well when you look out at the institutional and retail investors out there who have maybe sat on the sidelines because they've been a little bit nervous about the volatility of bitcoin, what do you say to them?
- [18:57]
A
I'll make a few comments. One, I think you have to take, you have to zoom out that Bitcoin is an infinitely long duration asset. And if you go look at any four year period in Bitcoin's history, any, any day, so any four year period, day by day, there's not one period that has a negative return. And but if you go any month or any week, there's a lot of big negative returns. Right, because it's a hyper volatility asset. So the Zoom out mentality is something that people really need to get their minds around, both in buying Bitcoin directly and then even more so when you buy amplified Bitcoin through a bitcoin treasury company that you need to be thinking in terms of the long run. And that's where we've talked about how we set even management compensation and incentives. It's all about thinking in the long run. So increasing Bitcoin per share on the short term, meeting your debt liabilities and then over the long run we think if you are continually increasing Bitcoin per share that you're going to also outperform Bitcoin over the long run because that just structurally works. It's really that simple. And it gets into the preferred equities is if you're borrowing at 10% and Bitcoin goes up 30% a year, that's a, that's what in fixed income markets is called a carry trade. And that carry trade will work over the long run, but it won't work every month. And so if anybody has a month time horizon on a trade of a publicly traded security, that's a bitcoin treasury company, it's highly risky. It could work out really well. It could work out really, really poorly. And so that's where we really don't want our management team ever to be thinking in terms of a month or a quarter, but to zoom out and drive long run value for our shareholders.
- [20:45]
C
Yeah, I actually saw you tweet about that positive incentive structure. So Eric.
- [20:49]
B
Yeah, something that I just think we aren't paying enough attention to is this institutional capital issue. I've been an institutional investor for 30 years. I talk to very large institutional investors every day. My friends, I see them at meetings. I built a lot of relationships over many years and I know that so many of them want exposure to Bitcoin. They can't buy the etf, they can't buy Bitcoin itself. So they really can't get their exposure other than through owning microstrategy large institutions. And there needs to be more opportunities. I love MicroStrategy. I love, I love the guys there, I love Michael Saylor. But they can't just own one stock to get exposure to Bitcoin. They want to have multiple stocks or concentration issues on how big a position you can make some one stock. So there should be many more that they can get. You know, they can and also, you know, different flavors of bitcoin treasury companies they can invest in. So there's just a huge opportunity here. And because you know, ironically, because there's so many, it's so fragmented now and there's so many small companies that can't get to scale. And we'll have to get kind of, we'll have to decide about whether, you know, how they're going to move forward. You're going to have these, you're going to have a. Companies like strive that are going to be kind of the majors, you know, in the space and they're going to get scooped up in the portfolios of these large institutions. And, and it's, and so there's just going to be massive demand more for these treasury companies because of the institutional capital that's out there for them. It's on the sidelines waiting to. For more opportunities than strategy. And I think this is going to be one of those, like, I just, I know so because I talked to the guys who are running capital who, who believe in bitcoin and they just need more, you know, they need more.
- [22:39]
A
Opportunities and on capital real quick, just because, you know, Mark's been pretty open publicly about this. Their companies need to be at a certain scale for them to be able to invest in it. And so this gets into another reason why joining forces here accelerates that path to these larger institutional investors that are literally going in the Wall Street Journal and saying, I want to buy additional bitcoin treasury companies, but they need to meet certain market cap restrictions for me to be able to buy them. And it's just an open, please do this. And you know, that obviously means an opportunity for Bitcoin treasury companies that can check that box. Yeah.
- [23:20]
B
And they don't have to trade at a huge M nav for them to buy them. They're happy buying them at one mnav, you know, at par. Because that's bitcoin. Right. But that's their only way to get access, you know, exposure to it, to invest in it. So it's, it's not, it's, it's a huge opportunity that I just think people overlook.
- [23:39]
C
It's a really exciting time in bitcoin story. We're all very, very early still. We've got regulatory wins giving us some momentum. So really excited. It's been an honor to serve on the board of SEM Scientific. Final thoughts from both of you.
- [23:55]
A
My final thought is that it is early and we do need a ton of these and just to go one layer deeper on differentiation in the space because I think a lot of people say, oh, you're just doing the same thing as strategy. And if you look at and you take an analogy of a bitcoin treasury company, which is an operating company, and you compare it to hedge funds. There are many, many different hedge funds that have slightly different risk return profiles. So one example here would be different leverage ratios. That's going to appeal to different, different people. Are you using different ways to get yield on your Bitcoin or are you not getting yield on your bitcoin at all because you don't think that's attractive? Those are different ways that are going to have people that will prefer those types of exposures. And that's before you get into the operating business or any different way that you even can also think about it. So my view is that there can be a few hundred bitcoin treasury companies from a differentiation perspective, just like there's a few hundred insurance companies, a few hundred banks, there's a few hundred hedge funds. Any industry where there is something innovative that people want access to, there will be a ton of ways to differentiate. And it's still very early. I mean, even strategy themselves, they don't even have anything close to the balance the capital structure they want. So I think this is early innings, but, you know, early innings in something that will be volatile. So huddle for the long run.
- [25:15]
B
I think that says it all. The only thing I want to add is that I'm going to miss being on a board with you, Natalie, and it's been great. You've added so much value to us and hope we can do something together again sometime in the future.
- [25:29]
C
Well, thank you so much. I feel the same way. Congratulations to both of you and to everyone on both teams. We're looking out for more announcements. Thank you so much. And I'll have more information in the press release in the show notes. Thank you so much. Matt and Eric, thank you.
- [25:43]
B
Thanks.
- [25:44]
C
Thank you so much for checking out this episode of Coin Stories. Make sure you're subscribed to the show so you don't miss any new episodes. And if you can turn on those notifications and leave us a positive review, they really help the show grow organically with new listeners. We have a free weekly newsletter. You can sign up@thenewsblock.substack.com this show is for educational and entertainment purposes only. Nothing should constitute as official investment advice and you should always do your own research. I'm always open to feedback and guest suggestions, so please feel free to reach out@infookingbitcoin.com I'll see you next time.