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- [00:00]
A
We think in our case, because the whole strategy is really about building this diversified set of uncorrelated AI resistant cash flows and then attaching a Bitcoin treasury to it, accumulating those retained earnings into Bitcoin. We generally think that that sum of parts analysis makes sense.
- [00:17]
B
Hi everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin. And now we'll take a quick word from the sponsors who make this show possible. This episode is brought to you by Cape America's Privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location and your data actually stay yours. Get 33% off six months at Cape Co Unchained. Today's guest is Lynn Alden, co founder of Orange Juice. Welcome Lynn.
- [00:52]
A
Happy to be here. Thanks for having me again.
- [00:54]
B
You announced last week that you had raised $40 million to launch Orange Juice, a permanent capital holding company that will acquire, improve and permanently hold cash flowing businesses backed by a Bitcoin treasury. How did you come up with this idea for Orange Juice and what problem were you trying to solve?
- [01:12]
A
Yeah, good questions. I mean first of all, we have a very strong team. It's certainly not just me. Some of the headlines will put my name on it. But there's, this has been a really big team effort. So it's, it's the, the partners at Ego Death Capital, along with Ruben and Adrian from, from other, you know, from other ecosystems. And you know, the idea actually goes back to early 2025. We've been working on this for a while. This isn't just something we put together here this year. It, we, we, you know, it's been, it's been a process to figure out the exact structure, how to bring it to market and all that. And the main kind of focus was that there are a lot of treasury companies out there, Bitcoin treasury companies. You know, one of the biggest criticisms against them is that they don't have cash flows. You know, for those seeking kind of pure play levered bitcoin approaches that, that, you know, that can be a plus in some contexts. For others it's a minus. It certainly kind of adds volatility to the upside and downside. Whereas we view that if you have a stable cash flows, like operating cash flows, that provides a really good foundation that you can then use to build a bitcoin treasury. If anything, I mean, ever since I saw kind of the first company come to market and they had bitcoin as balance Sheet. I've been expecting to see, you know, a variety of other companies want to add some bitcoin as well, but it's that they've actually been quite slow to do that. Most of the ones that have done it are, are kind of more bitcoin adjacent type of companies or they springing up specifically to do the strategy. Whereas I'd actually love to see just boring companies add bitcoin to their, to their balance sheet. And if anything, I think value stocks that are kind of underperforming in this kind of winner take all market, they kind of slowly become a smaller part of the economy over time. One of the ways they can protect themselves by owning a truly scarce asset. And instead of, you know, sending all their cash flows out as dividends or as, you know, buying back their own shares and stuff, they could be holding, you know, this asset. And so kind of after years of waiting to see more companies bring this to market, you know, a couple of us, you know, a bunch of us decided let, let's go and make this happen. The other reason is that we, you know, there is a really big strong demographic force of American business owners in general are aging. Many of them are looking to pass on the wealth that they've built. And you know, there's, there's a variety of options to them. One of the hardest things you can sell is a business because of the size and uniqueness of, of each one. And the main, you know, option for companies in that kind of small to medium size is private equity. And private equity serves a very important spot in the market. It obviously provides liquidity for these businesses that are otherwise quite illiquid. You know, it could be very hard to find a strategic buyer. But they, you know, many would say they have a negative reputation and I think at least some of it's well deserved, which is, you know, PE funds generally have like a 10 year life, the typical life cycle. What they want to do as a business is go in and then within like a three to seven year period, they generally want to flip it. So they lever it up. They cut costs pretty aggressively. You know, they try to find ways to boost the multiple and then they want to either bring it to IPO or otherwise exit that position to kind of optimize for that more short term gain potentially at the expense of that long term success of that business. Studies show that, you know, companies that emerge from PE have a higher than average bankruptcy or financial distress rate. And it's because they're, they're kind of in some ways hollowed out. They, they might otherwise have a good business operation, but they've been hollowed out for that kind of short term flip. Whereas there are, it's rare, but there are other options, permanent capital vehicles that actually want to own that company roughly in the format that it's already in. You know, happy to make modifications and help them where possible, bring additional scale, but otherwise keep intact the legacy that they built and not have that kind of four to seven year or three to seven year mandate to flip and get out of it. Which, which is totally changes our incentive structure.
- [05:20]
B
So yeah, I would love to ask you two follow on questions, but we're going to start with one. So when you were describing the types of companies that you would be looking to buy, you describe them as bo. So do you have in mind what types of companies you're looking at?
- [05:37]
A
Yeah, good question. So basically because we, a lot of us come from a venture capital background in the company. So we are partners at Eagle Earth Capital. So we for example, invest in bitcoin growth companies, tech companies, you know, fintech companies. But the types of companies we're looking to buy with orange juice are generally speaking companies that are outside of the space entirely. Things that often have a physical real world presence, you know, that are kind of AI resistant, you know, the kind of the classic PE examples like H Vac businesses, for example. It's almost a meme at this point that, you know, you leave Wall street and go and you roll up a bunch of H Vacs. But that's not really far off. You know, when we start out, we are industry agnostic, meaning we're not, we're not targeting any specific industry. Instead, kind of in the early stages, we're interested in founders that specifically fall under a certain size category and that have an interest in preserving the business that they built. They optionally can even continue working at it even as they want some liquidity. Maybe they want to keep their employees together. They want to keep kind of the soul of the company alive. They think it's better in those types of hands. And generally speaking, early founders are probably going to be interested in bitcoin in some way. So they're going to be founders that just happen to also be bitcoiners. Because early on in the strategy we intend to buy companies with a combination of cash and some equity in our own entity. And that could be variable to the business seller. And so generally speaking, we're looking for founders that kind of buy into the thesis as we see it, which is the cash flows and bitcoin is a good combination, generally speaking, as we hopefully make a series of successful acquisitions, we will then have, you know, an industry set that we can maybe more lean into and find synergies between. And at that point we're, you know, we're, at that point we're probably less targeting business owners that necessarily care about Bitcoin. And you know, we're more in that kind of traditional PE type of category because we, you know, at that point we will hopefully have a track record of successful implementations. But early on the profile is generally speaking, small business owners that, that, you know, have a business that most likely has nothing to do with Bitcoin. But on the side they're, they're bullish on bitcoin and they like the asset and they, they're looking for liquidity and they're looking to keep their company intact.
- [08:04]
B
And why is it that you've decided to not go with VC backed type startups but instead the more boring ones
- [08:13]
A
specifically for cash flow? So VC backed startups are rarely profitable. You know, in some rare circumstances they can be, but generally speaking they're more growth oriented. You know, you know, many businesses start without venture capital. They generally have, you know, somewhat of a slower growth profile, quicker time to profits. But venture cap backed companies are generally really going for something bigger, whereas, and that's not really something you want to focus a bitcoin treasury kind of, you know, is a competing force with that. Instead we're looking for companies that are generally on this, they're the mature phase of their life cycle, meaning that we see them as AI resistant, they're not really going anywhere, but they're not in some massive growth area. And they can be bought at low multiples, meaning that with a fairly small amount of capital you can get a substantial amount of cash flows that if selected well, are very durable and long lasting. And then that can be a very strong foundation to accumulate Bitcoin. Because the company's not often the type that benefits from aggressive reinvestment of those cash flows. In some circumstances it might, but in generally speaking, these are companies that are already established, they're spitting off cash. And in a traditional value stock setting, private company, or even a public traded example, which we're not going after initially, but just as a value stock in general, there's only a handful of things they can do with that excess capital. They can give it back to the owners either in terms of private distributions or for public company dividends. They can buy back their own shares if they're public, if their balance sheet has issues, they can, they can put more money toward their balance sheet if they're already have a clean balance sheet that's off the table. So a lot of it is just distributing capital outside of the company. And we view that accumulating Bitcoin is one of the valuable things that you can do with that. In addition, when you have solid operating cash flows, you can put moderate amounts of leverage on that with the interest expense that's fully covered by the operational cash flows. For example, you can have interest expense equal to say one third of operational cash flows. So that you know, it would take a two thirds fall in operational cash flows to get to a point where you're not really covering an interest expense anymore. So you can, you can conservatively lever these businesses and then unlike a traditional kind of PE exit where these companies are highly leveraged, these companies would be attached to the parent company that has a lot of Bitcoin on the balance sheet. So it would be a company that has more assets than liabilities while at the same time having operational cash flows that, you know, fully fulfill the interest expense multiple times over. And so that's a very different model than if we were to go out and buy venture backed companies which, which would be very high multiple and generally profit, you know, non profitable companies that are just, it's a completely different category which by the way, we're still focusing on ego death capital. It's just, it's a very differentiated type of strategy.
- [11:07]
B
Super fascinating. All right, so in a moment we're going to talk more about the Bitcoin treasury. But first we'll take a quick word from the sponsors who make the show possible. If you hold crypto on your phone, your biggest vulnerability isn't your wallet, it's your carrier. AT&T Verizon and T Mobile have been breached again and again and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where Kape comes in. America's privacy first mobile carrier, same premium service, but Kape rotates the identifier on Your Sim every 24 hours, deletes your call and text metadata after a day and protects against SIM swaps with a 24 word recovery phrase that only you control. You also get two middle to end encrypted secondary numbers for banking and signups. So you stop handing your real number to every app that asks go to Cape co unchained and use code unchained for 33% off your first six months. Back to my conversation with Lynn. So as you already started discussing there will be this Bitcoin treasury and that is seemingly in a way like on the surface part of a trend that we've seen this last few years. You know, this explosion in digital asset. But you know, most of them are vehicles specifically to acquire Bitcoin and obviously orange juice is taking a different approach. So explain you know how your Bitcoin DA will function. You said I guess it stays with the, with the parent company. But I'd love to hear more of the details about, you know, how, what the relationship is with the portfolio companies.
- [12:49]
A
Yeah, the main relationship is that you know, although all the companies will be subsidiaries of, of the parent company, the treasury will itself be held at that the parent company level. And what that does is it gives us optionality. So if you have a pure play dat for example, the primary goal every, every month or every quarter is to pretty much only accumulate more of that of that coin per, per share. Where and the, the challenge with that is it can be a quite a pro cyclical approach. You know, when, when, when bitcoins or, or other, you know, for, for some of the other types of DAs, whenever the coin is really high, generally speaking the M Nav is going to be high, the market enthusiast is going to be high. They're selling more shares or otherwise raising capital to buy more of that coin. And often when there's a bare market it gets harder to buy that. Whereas when you have kind of more than one direction that you can go in, it gives you some countercyclical optionality. And what I mean by that is, you know, if you have a set of cash flowing businesses and you're, you know, you have, you're accumulating that, that cash flow, you're putting some of it into Bitcoin at any given time you have a handful of options for what you can do. You if the inbound pipeline of businesses looking to sell that meet your target at the multiples you're looking for, if that's a very strong pipeline at the moment, you can lean into buying more businesses. Especially if Bitcoin for example just went up 10x maybe it's, it's very enthusiastic at the moment and you know that, that, you know that's a very pro cyclo environment. Maybe it's better to lean into those businesses with a strong, with a strong inbound pipeline. On the other hand it could, you could, you know, a year or two later you could find yourself with, with Bitcoin in a pretty deep bare market. At the bottom according to most valuation metrics or most sentiment metrics that are available, coins that have rotated away from fast money towards strongly held hands. And that might be a time where you actually wanted to put more cash flows into accumulating a bitcoin in that, in that kind of, when it's cheap, when it's kind of out of favor. And so there's a handful of options and the companies, you know, as long again, as long as the operational cash flows are managed, well, it's not a company that has to perpetually issue new securities. You know, it has the option to raise capital. But the cash flows themselves provide a continuous sort of just a new capital that comes in and can be put toward either new businesses or bitcoin. You know, leverage can be used judiciously at times. Other times deleveraging can be a tactic that makes sense in certain environments. And so it gives the company just a handful directions that it can go in that is very kind of execution dependent. So the better that the, that the partners and management is at, you know, executing properly and doing it in that kind of countercyclical, cautious way. It's a differentiated strategy compared to what else is out there. I, you know, I've been on record, I've been a, you know, I've been a Strategy shareholder since August 2020 when they started strategy. But I'm on the record that the long tail of other pure play DATs or Treasury companies, you know, I think it's a very crowded space. I think there's only, there's only, you know, liquidity begets liquidity. So I think the large ones have a role to play. And there are different markets out there. There's Japan, there's Brazil, there's European markets, there's a number of kind of big liquid markets. But if you're not one of the top pure play DATs in those markets, those treasury companies in those markets, you know, I think the much bigger opportunity is just that other companies, whether it's publicly traded companies now or, or it's our strategy that's, you know, you know, accumulating private companies and intends to go public eventually to take these just totally non bitcoin businesses that have cash flows and just put it into a bitcoin treasury as just another thing you can do with your capital besides, you know, the other things you can do with retained earnings.
- [16:29]
B
And how many companies do you expect that you'll end up with in your portfolio?
- [16:34]
A
Well, we, we intend this to run for years and decades. You know, this is, it's a permanent capital vehicle and you know, it's, it's, it's, you know, it's, it's been compared to, say, Berkshire Hathaway, which of course is premature because, you know, we're talking about one of the biggest, most successful companies in the world. But in terms of just intention and structure, it's a comparable kind of data point. So it's like saying, how many companies will Berkshire Hathaway acquire? Well, I mean, they want to keep acquiring companies indefinitely. Right. So especially as we start from the small stage, we plan on.
- [17:06]
B
With the. Yeah, with the 40 million.
- [17:08]
A
Yeah. So we, we plan on acquiring a few per year. We're looking eventually to raise, likely raise additional capital in the future, the early capitals to kind of prove the model, to, you know, kind of to prove that the pipeline exists, to prove that. That there, there is demand from business owners for, to sell to this type of entity compared to digital private equity. And I will say we've already gotten a ton of inbound ever since the announcement. So that's, you know, we're kind of at the early stages of proving that demand, but we have to actually go out and execute and acquire some of these businesses and kind of find the percentage or whatever that funnel is that meets our criteria and ends up being a good fit. But the initial capital is meant to buy a handful of companies, prove the concept so that we can go out and you know, potentially hopefully continue the process for the longer term. And like I said before, at a certain point you can get to a phase where additional capital is optional because the cash flows themselves are additional capital that can come in and eventually result in another acquisition or can result in more bitcoin stack, which occasionally could be levered to go out and buy a business and then pay off the small amount of leverage you took out to acquire it.
- [18:23]
B
Okay. Yeah. I mean, like, it's funny that you, you mentioned strategy because obviously there's. They've been in the news a lot recently. But I do feel like there is something about, you know, you, you want to have sort of like a diversified group because there's going to be like a number of different levers and, you know, when things swing a certain way with bitcoin or something else, like you would want to have something that you, you know, is. Yeah. Maybe not swinging or swings the other way or, you know, whatever it is. But I was curious to, to just think about, do you think that the volatility of the bitcoin price could ever hurt these companies or in any way, like, cause some stress?
- [19:10]
A
So we intend to structure it so that the answer is no. Obviously any sort of, any sort of strategy has risk associated with it because this is a permanent capital vehicle that it tends to buy businesses. Long term financial stability is one of the, the key, key metrics that we would try to optimize. We would keep leverage conservative backed by operational cash flows. If you design it properly. So the interest expense is only a relatively small fraction of operational cash flows. In theory, even if the Bitcoin treasury were to go away, the company itself still functions, it's still solvent. At that point you would have lost your buffer. And obviously it's not something we intend for Bitcoin to go away, but the way we intend to do it is that the Bitcoin strategy is only upside for the cash flow companies. That if these companies were spun out of private equity, often on their own, they would be very levered, they wouldn't have a bunch of liquid financial assets to offset that leverage. They would have just had pretty big cost reductions. Maybe employee morale is often not the highest and they're kind of set up for a difficult road ahead. Whereas our companies at the parent company we probably would have, it depends on market conditions. We would anticipate having some degree of leverage, but as a small percentage of operational cash flows. But then importantly, all those companies are part of a structure that is backed up by a company that has more assets than it has liabilities, substantially so. So that even as that asset pile swings sometimes it could be really, really over capitalized. Some, you know, in a bear market it obviously could be somewhat less over capitalized, but that's all still strictly better than if that company was just on its own with very little financial assets, with lever with leverage purely against its operational cash flows, backed up by no treasury at all. So we, we intend to structure it so that it's only upside even though obviously the volatility is still a factor to consider. And you know, kind of one of my views, you know, as I continue to be active in this company with my co founders is I tend to be very cautious. I'm a cautious investor in it. The other aspects that I work on and I expect to bring it to this company as well.
- [21:25]
B
Okay. And the way that the companies would benefit from the Bitcoin would be that it could be used as like collateral for loans or like how, how does it become monetized?
- [21:37]
A
Well, primarily it's, it's a way to retain value. So a lot of that is attractive to the investors. It's also attractive to the business owners that Sell to us. Because again, if we buy those businesses partially in cash and partially in equity in orange juice, those business owners have a long term, you know, incentive for the company to continue growing. And if those founders, those business owners, if they are bitcoiners, if they like bitcoin, they expect it to appreciate long term. And you know, a lot of them, you know, they might have millions of dollars locked into a business that they've, you know, to some extent they'd rather have in bitcoin. They think maybe bitcoin has higher upside than their business. This allows them to unlock some of that liquidity and either go out and buy bitcoin if they want or, or, you know, as they take equity in our company, they would have that combination of cash flows and bitcoin. So, you know, we think it's an attractive proposition for business sellers as well as those that want to invest in this combined strategy, because we generally think that the sum of the parts is better than the whole. When you have bitcoin, when you have operational cash flows, when you have operation like optionality to take on leverage in conservative ways, either collateralized by the bitcoin or backed up by the cash flows, these different strategies are available. It gives you just different options through different market conditions. And another kind of aspect that one of the challenging things, if you kind of back up and say, why aren't there just more permanent capital vehicles out there? There are a handful, but why aren't there a ton? And the general answer is because you need some sort of edge. So if you're buying small businesses, small cash flow businesses at low multiples, you generally need an edge that would push your returns higher. And for pe, for private equity, their answer is flip it. Their answer is, we don't want to hold these longer term. We're not interested in that kind of slow and steady approach. We want to buy a company, gut it, lever it, find ways to juice up the multiple and get out. And that if you do that over and over again, that's, that's their kind of, that's their juice. If you're Berkshire Hathaway, that is buying companies and holding them long term, their main juice is that they have the, the best source of like leverage in the world, which is their insurance float. So Berkshire Hathaway is one of the biggest insurance companies in the world. And insurance float is an incredibly low cost of leverage. It's an incredibly stable source of leverage. And then they also, of course, have other types of corporate leverage. I mean, they, one of the lowest borrowing rates in the world. So they're able to go out, buy these businesses and they're doing it on insurance float, they're doing it on some of the lowest bond yields in the world. And that's their juice. And for Orange Juice, you know, name implied. Our general view is that our kind of X factor, our juice, is that we think Bitcoin is a, is kind of a little bit of a rocket fuel to kind of push you over that edge, to make that work really well. Because you buy a collection of cash flowing businesses and you're able to kind of put that into a bitcoin treasury and then you're able to have conservative leverage that has no end date to it. So there's no, like, if you look at say a pure treasury company, you say, well, where's the cash flow going to come to pay off the existing leverage? And the answer is that they expect that the underlying asset is going to keep appreciating. And of course, it's a very cyclical asset. There's times where it goes up, there's times where it goes down. Whereas in Orange Juice's case, the interest is fully covered with operational cash flows. Again, assuming, you know, there's always risk with business, but assuming that they're well selected and well managed, you have interest fully covered by operational cash flows and then you have this growing collection of, of, of Bitcoin on the side and that combination is your long bitcoin, your long, you know, kind of durable, AI resistant businesses and then your short fiat. And your short fiat in a way that's not tied just purely to one asset, but is tied to a strong foundation as well as, you know, a scarce asset that can't be printed.
- [25:36]
B
Okay, this is so interesting and it totally makes sense. And it also feels like it answers some of the criticisms that we've seen with some of the DATs. However, I do have a question. Let's say that you have a portfolio company that ends up, for whatever reason, bleeding money. How do you handle that and how does that affect the structure? Because like, like everything that you said makes a lot of sense to me if everything's working and going up as planned, but if something goes wrong, then how do you handle that?
- [26:04]
A
Yeah, good question. I mean, so when we kind of model this out, we have to anticipate that, you know, if you acquire 10 companies, some percentage, the more you acquire some percentage of them might not work out the way expected. You could have some companies that exceed expectations and you could have other companies that don't. When Companies are spun out of private equity. If they run into frictions, it's pretty much game over because they're levered, they're, they're already gutted, they've already done cost cutting. If they still run into frictions, that's, I mean, that's why they have a higher than average bankruptcy rate or a financial distress rate. Whereas in our case, if they're part of a collection of companies, you know, you, you can have a weak area that is, you know, it could be temporarily weak. Maybe they run into a cyclical issue or an operational issue that would otherwise kill like a levered company on its own. It can be temporarily carried by the operational cash flows of the other businesses, by the strength of the parent company. You know, we, you know, we can bring in resources to help them solve the issue if possible. You know, I'm very bullish on our managing partner, Ruben. He has a Navy SEAL officer background. Then he went into finance. Kind of a very, kind of an interesting combination. Very kind of focused on execution. We would send resources to try to help that, you know, those running that business solve the problem. It obviously in very adverse circumstances, you know, there could be situations where a business has to be wound down or otherwise, you know, transitioned to some other owner. It's not impossible. We don't rule out the, the possibility that some businesses might one day down the line have to be sold or might otherwise just, you know, the world can change. And those are not functional. And the main difference compared to private equity is that we're not intending to sell. So we're not, we're not, we don't have this kind of three to seven year, you know, surety that we're going to do everything we can to flip a company. Instead when we buy, we intend to hold indefinitely. But the world does change. It's always possible we'd have to take actions. And you know, the general rule is that, you know, we're not going to just put unlimited resources into one bleeding company. If there's a, if there's a wound, sometimes you do have to mitigate harm. And the other side of the token is if we have a business that, you know, we initially bought thinking it's slow growth and it's low multiple, but if we find investment opportunities, we can direct more resources to help that company grow faster than it was prior to acquisition. And so there, there's both upside and downside associated with some of the businesses that, that we anticipate acquiring.
- [28:37]
B
Okay, super interesting. So one other thing that of course is like yet another piece to this is you're planning to go public. And you know, obviously there are some similarities that you have to bitcoin treasury companies, even strategy itself also has its own operating business. Obviously it's a very small part of the business, but you know, there is that component. But I was curious like should or not should, but, but like would an investor kind of look at this and be looking more at kind of the, you know, bitcoin per share metric or the M Nav metric that people have been looking at or since this is a different kind of animal, like what types of metrics would, would people assess the performance by?
- [29:21]
A
Good question. I mean if, if I saw a structure like this on the market, even if I wasn't involved at all, I, I would use a sum of parts analysis for it, which is actually initially how I analyzed micro strategy when they just started the strategy. Because back then the operational company was a bigger percentage. You know, when they go out and buy their first or second tranche of bitcoin. You had this bitcoin tranche and then you had this software company. And that was, you know, that was before they added billions and billions and billions of bitcoin. So I would say, okay, well here's what the software company was worth pre Bitcoin. Here's how much cash flow they're earning, here's what's on their balance sheet. You know, here's a reasonable industry multiple that associated with that business. And then here on the side is this Bitcoin. And then any leverage that you know, that company might have attached to, you know as well. And you generally do a sum of parts analysis. So in terms of MNAV or bitcoin per share, those are probably not the go to metrics I would use for a more hybrid company like this. I think that they, they make sense for a, something that's closer to a pure play treasury company. But when you have this kind of hybrid approach of operational cash flows as well as that bitcoin treasury, you have to kind of break those up to some extent and do the analysis. And then there's a degree that's where investors might differ. Some might view it as a greater than the sum of its parts because when you have that engine combined together, that gives you that countercyclical strategy that I talked about before that you can lean, you have a couple different levers that you can lean into. You know, they, they can compound on each other and just be bet. You know, it could be one plus one equals three because you, you have this Kind of synergy there. Whereas sometimes conglomerates get like a conglomerate discount, meaning that, you know, you have, you have a bunch of companies together, the market might find it kind of opaque or challenging. Some conglomerates find that spitting off certain entities ends up helping their valuation in some way, that those things get valued better separately. We think in our case, because the whole strategy is really about building this diversified set of uncorrelated AI resistant cash flows and then attaching a Bitcoin treasury to it, accumulating those retained earnings into Bitcoin. We generally think that that sum of parts analysis makes sense.
- [31:32]
B
Yeah, there's something about the pitch you're making that reminds me of how people have long been saying that, for instance, renewable energy producers could use bitcoin mining as a way to kind of even out their cash flow. So I do see there is something to the strategy that is very interesting and appealing. But I do also have to wonder, like, why it is that you're pursuing a public listing because, you know, maybe it's just a way to raise money, but it also feels like then, you know, it just gets complicated with having to answer public shareholders and all those kinds of things. So. Yeah. Why? Why?
- [32:15]
A
A couple reasons. One of the main reasons, like I said, when we look to buy businesses, you know, we're partially looking to buy in cash, but we're also interested in, you know, using the equity of the company to purchase some of those businesses. Some of the owners we expect will want, you know, ownership in orange juice in a similar way that investors have. It actually also in certain circumstances could come with tax deferral advantages when you, when you, you know, you sell a business for, for equity rather than for, for cash. So there are a variety of reasons why business owners might want that equity, but that equity is more valuable to them, generally speaking, if it's a publicly traded company or has a vision toward going public in a kind of a reasonable number of years. Because often if you're a business seller, one of the key things you're looking for is liquidity. If you have a functioning business, it's very successful, you enjoy what you do, you might even want to continue working there. But for one reason or another, whether it's because you're looking to eventually retire, you're looking to pass on what you build, or you just want to diversify, you're generally looking for some form of liquidity. And a publicly, you know, a company with publicly traded shares can offer that a lot better than a private company can. And so that, that's kind of the key motivation to eventually go public. In addition, you know, we've already gotten questions, obviously as a private company, you know, when you're raising capital from accredited investors. But of course, people reach out and say, you know, I obviously I can't invest that, but, you know, I'd like to invest a smaller amount. And you know, having a public listing lets investors of a variety of sizes participate. And because, you know, this is a bitcoin company, obviously bitcoin has a lot of enthusiasts. You know, we think that, that having a retail stock, you know, can be interesting to a lot of people. So we think that there are additional kind of capital market access opportunities. If you get large enough for the. Obviously there's an additional cost of being publicly. You said you have to answer to public shareholders. There's a lot more auditing burden. There's obviously a lot more frictions and expenses. But if you reach a scale where that makes sense, it does unlock additional opportunities. And I would say the main thing is we want to make sure that we have, you know, kind of liquid offerings for business sellers that, that might not want the entire value of their business in cash and might actually want to continue to participate in the upside of both their businesses and other businesses in the orange juice umbrella.
- [34:40]
B
And this might be early, but do you have any thoughts on how you'll go public?
- [34:45]
A
That's still early at this point. You know, we, we, we intend in, in a number of years to go public. Obviously these are, it's very market condition dependent. You know, the lawyers obviously want us to be very cautious with how we phrase things as well. You know, we're, we want to make sure that we're doing things properly and conservatively. But when it comes time, if the business makes sense to be public, you know, we'll, we'll explore a variety of things to, to kind of make sure that that's done in a optimal way.
- [35:14]
B
Okay, so now let's talk about the AI portion. One part of your press release, you know, mentioned that you will be, quote, assembling an in house operating team to support companies with operational improvements and successfully navigate the AI transition. So how do you see orange juice helping your portfolio companies with AI?
- [35:37]
A
Yeah, so a lot of business owners, especially ones that are looking to sell, are, you know, older in years. They, they might not, you know, they have a lot, they're handsful running a business. You know, they, they might have just been overwhelmed figuring how, you know, how can I get AI to make my business a little bit more efficient? And if you Have a team that is prepared to go in there and help them with that very question. You know, it's a way to kind of ease them of that burden. You know, it's not one of those like hack and slash type of AI approaches where you just say, hey, humans are irrelevant. We can do everything with AI. We can degrade customer experience to save a couple pennies here and there. Instead it's basically saying, okay, are there redundant back end tasks that can be just way smoother with AI? Can we use AI and just obviously the various kind of pattern recognition optimization to figure out where revenue growth might be able to come from. Can we do revenue optimization with AI with that analysis? And you know, even, even just like value stocks in general, like, you know, I pay attention a lot to the banking space, which is something obviously it's a separate conversation than orange juice. But when you look at like community bank CEOs or very small regional bank CEOs, it's often just not the most tech forward group out there. You know, the, the average CEO in that category is like 60 years old. And you know, they're experts in finance and banking and all this are not necessarily tech experts. And so when they look around they're saying, how can we keep up with the really big banks that can go hire all these, you know, AI experts and tech experts and all that and digitize their platforms? How can we, how can we keep up with that? And I would, I, I think that if basically the same type of questions being asked by a ton of small business, small, medium business owners around the country and around the world, which is, you know, the owners, the owners, you know, you know, like up in years, may, may. Even if they are tech savvy, they might just have their hands full. Right? They're just, they're running a business. They're not, you know, they're not, they don't want to reinvent the wheel with this whole thing and just kind of custom apply it. They could bring in consultants, which is hard if you're at that smaller scale. And so we think that having a small but, but very kind of, you know, kind of updated in house team to go in and just work with that owner and say we want, we want to preserve the business that you built. We want to, we don't want to interfere with customer relationships and just dis. But we do want to find ways that, you know, to stay competitive in this modern world. How can we streamline your back end? How can we make it so that you maybe don't have to hire. You know, maybe you're not letting people go, but you're not hiring as much because you're doing more with the employees you have, because you can empower those employees to do more with AI. You know, how can you find, how can you use AI to seek out new revenue opportunities that might have been invisible to you before? So we generally think there's an arbitrage there of these kind of just smaller, you know, cash flowing businesses that just probably aren't the earliest AI adopters and that can be accelerated in a responsible way.
- [38:40]
B
Yeah, I mean, even if I think about my company just in the last few months, so many of these backend operations have been completely transformed. So I agree that that could probably happen at pretty much every single company on the planet.
- [38:55]
A
Yeah.
- [38:56]
B
All right, let's talk about strategy now. You know, we alluded to this earlier. They've definitely come under fire recently for complicating their capital structure. You know, there are some people who are saying that what they've done is created a structure where any move they make will hurt at least one part of the capital structure. And obviously we've seen that they're selling Bitcoin after Michael Saylor famously said you should sell a kidney before you sell bitcoin. So what do you say, you know, to those critics? Like, do you agree with them? Do you disagree? What's your take on what's been happening with strategy recently?
- [39:33]
A
So I think there's some valid criticism. I think my, my, my view kind of, it shifted over time based on when you asked me this question because you know, I've been a, I've been a, you know, analyst and shareholder of MicroStrategy. So I, you know, analyze them when I, when I went on their February earnings call, so I've been on 2 of their earnings call as an analyst. One of the things I focused on, the two main questions I asked were, you know, are they going to maintain that existing USD reserve policy so that two to three year of worth of preferred dividends, are they going to maintain that policy? And two, we had seen actually at the ego death side in our venture capital arm, we had seen a number of companies looking to build products on top of strc, some of which could be levered. And so we, we, you know, that, that, you know, certainly gave me some red flags combined with just tradfi leverage. If you have one thing, you know, with pretty low volatility with a high yield and you can borrow at a lower yield than that, there's a lot of investors out there, either retail or institutional that might want to try to lever that trade. And it comes with certain risks. So my second question was, you know, are you monitoring leverage built on time top of strc? Would you kind of encourage or discourage that, that type of thing? In the months that followed, generally speaking, their, their USD reserve dipped below their, their two to three year guidance that they had given and you know, when they were gathering questions for their next earnings call, which I, I wasn't on, but I did on, on social media provide that question which was, I point out that the, the dollar reserve fell to 18 months outside of their, their two to three year range. And if they have updated guidance and then in the, in the month or so that followed after that, it at one point dipped all the way down to six months of dividends of, of reserves. And to their, to their credit it wasn't because they, you know, they, they just aped into Bitcoin. They actually paid off one of their convertibles. So they, they, I, I would assume that they, they actually somewhat view that as a conservative decision, but I think kind of a chief, you know, if I were to be critical of the company is that they generally speak when a company sets guidance, especially things that is in their power to do, the market generally expects them to follow that guidance. And so there's kind of surprises to that, you know, to their operations. You know, it can spook investors. So that combination of having I think a lower dollar reserve and then, you know, leverage built on top of strc, obviously that combination can create a very powerful volatility event. And then when that volatility even happens, investors can get spooked about the ability to the company to kind of continue supporting, you know, the dividends there. I, so I, I think that there are things you can be critical of, of kind of the steps leading up to that where I, I do like the announcement that they did where they came out with that kind of updated plan where now they have a board level kind of line in the sand that they're, that the reserve has to stay above 12 months unless the board authorizes otherwise. They also kind of authorized pools of like buyback capital, you know, for some of their preferreds with, with an emphasis on STRC as well as potentially their own common stock. They've always been trying to make their, My read of their kind of selling of Bitcoin is partially that they want to show that they, you know, that reserve can be tapped to pay for dividends and things which unlocks obviously years of reserves. Assuming that Bitcoin doesn't just totally collapse in value or something. And obviously in a perfect world, they didn't really want to sell their bitcoin. They want bitcoin to keep appreciating. They want to be able to issue new capital with positive navs. But they do have that option to fall back to. And so I think that there has been some criticisms around, say the path depends to get here. It would have been, I think, better just not to let the dollar reserve fall as low as it did. But I do think that the steps that they've done since then have been, you know, about as ideal as I could consider. Like, if I just found. If I just found myself in that situation with you have six months of reserves. STRC just had a really big volatility event and it's still nowhere near its extended target. What steps do you do now? X, Y and Z. I can't imagine what steps I would have taken differently than they would have since then, even if I might have advised different steps in the months leading up to that point.
- [43:54]
B
Yeah, I said this on some other shows, but it sort of felt like what happened was that it was more about the psychology of just whether or not you trusted their judgment anymore. It was like they said one thing, they, you know, did another thing. They were, you know, not clear communication, like they were just a bunch of missteps that I think caused investors to lose confidence in the decisions they were making. And it's not about like, you know, whether or not they have enough bitcoin to fund all the dividends or anything like that. But, you know, ever since they announced their new plan and you know, all these kind of rules about how they'll operate, we've seen that. So first of all, MSTR, the MSTR, M Nav is still at about 1 and STRC is. Well, actually last night when I checked this, it was at 85. I don't know what it's right now at this moment, but so it's not at the $100 it's supposed to be at. So, you know, given this state of affairs, if you were strategy, what would you do?
- [44:57]
A
Good set of questions. I mean, their latest actions have been to be building their dollar reserve. They actually, I think, I think announced one in the past 24 hours and they got it up something like 22 months. So I think that's a reasonable kind of initial step is just have this, this USD reserve and some people are critical of it while it's building because it is, is generally speaking dilutive. In terms of bitcoin building that reserve, you know, obviously an ideal path is that you never dip the reserve in the first place so that you, you know, you might not have boosted per bitcoin per share as much, but then you're not also pulling it back. But again you, you can't really go back and change the past. So they are rebuilding their reserve. I think that's a reasonable first step. Two, if, if STRC stays in the 80s they do have this authorization to, to buy it back. So that's, that's, that's an option that they, that they can turn to, which I think can make sense. I, I also think a very reasonable approach at this current time is just a wait and see approach. It's still early. You know, it generally takes a, a while to repair. Like you brought up, you know, investor psychology around management, if they deviated from guidance, they had this new guidance. I think the market wants to see how credible that new guidance is. I think the fact that it's backed by the board further boosts the credibility. But the market, it takes time for information to go through the market. I think they want to see months and quarters of execution. And so I think that sometimes the best option is to not really change things and just keep doing what you said you would do and give the market time to adjust. It can also be the case that the market, it just currently weights STRC at a higher risk and it wants a higher yield and so it's pricing it down so that it has that yield, you know, at least for, for new invest, you know, for, for investors that buy in and, and so they have a couple of levels that they can pull. But I, I, you know, I wouldn't say that they have to overdo anything. I mean I think we're still in a bitcoin bear market. So it's natural that just M navs are compressed and, and, and just overall demand for their products is relatively compressed, especially after they had that, you know, that market scare, that volatility event. So I, I think, you know, just going for now and just continue to operate the way that they said they would is probably the, the key first step.
- [47:21]
B
Okay, and I would love to ask two quick questions on Bitcoin. One is about bip110 which proposes a temporary soft fork in which nodes would for a year reject transactions that hold arbitrary data such as for INSC. Do you agree with BIP 110 supporters that inscriptions and similar data on the bitcoin blockchain are quote unquote spam.
- [47:46]
A
I'd say for the most part I do view that as spam. A lot of it is just speculation. I think that the amount of utility that has been used for bitcoin's non monetary space has been low. So that gets a very self of a question. It's like if you pay for it, is it spam? Generally speaking for a network that is designed primarily to be a money, I would consider that spam. One, one thing you mentioned is that it keeps arbitrary data out of bitcoin. The challenging part of Bitten is it's not even fully the case. It limits OP return. There's still ways to put a lot of non monetary data into the blockchain, especially through the more inscription route, so into that kind of witness of the blockchain. And that's actually one of the biggest criticisms that opponents of it have or those that might even be sympathetic to the cause of adding costs to non monetary data in the blockchain. They might say that this doesn't necessarily solve the problem, it just kind of moves the problem around. And then of course there's different debates within the bitcoin space. Are certain types of how that non monetary data is organized better or worse than others? Like if you break it in chunks, does that fix it or is it still a problem that that's kind of the ongoing debates in general? I think it's, it's one of those things where there are reasonable concerns that the proponents of that, of that BIP have, you know, about either illicit material winding up in bitcoin or just, just the overall kind of bloat that can happen. But I think that anytime you try to rush a soft fork in, in bitcoin, you know, I think one of the, one of the, probably the, one of the, probably the biggest single, you know, attribute of bitcoin that that brings a lot of us to it is it is very, very hard to change. If bitcoin was easy to change, you know, that that kind of makes its sound money aspect reduced. So I think the fact that bitcoin is very resistant to changes. There were those just a couple years ago that really tried aggressively to make bitcoin more expressive, you know, take on just, just more kind of script expressivity in bitcoin. And that kind of ran into the wall of not going to happen, at least not in that time frame. And now it's kind of interesting that we're seeing kind of at the other angle, which is how to make bitcoin even more conservative in some sense. And so I think there's a long term discussion to be had around non monetary data in Bitcoin. But in general, I view some of the marketing around the BIP to be somewhat disconnected from what is the actual the BIP is kind of able to do on a technical level as it relates to non monetary data.
- [50:28]
B
Okay. And of course I have to ask about the quantum threat to Bitcoin. I'm sure you know that this is something that a lot of people have their eyes on in terms of what is potentially a long term threat that obviously would hit most of crypto and, you know, a lot of other things in the world. But the threat is almost existential for Bitcoin just because of certain things around Satoshi's coins and the different key signatures, some of which are quite vulnerable. There's just a whole set of things around also the culture of Bitcoin that are causing people to have concern about whether or not the community will be ready to face that threat once it comes. How do you think about that?
- [51:12]
A
Good question. I would separate the different concerns. So I view Satoshi's coins as less of a concern than most because we're talking about 5% of coins, roughly speaking. And then there's a number of lost coins as well. I view that as a volatility event, more so than existential. I think the bigger topic is the other one you brought up, which is that and that I mentioned the prior question, which is that bitcoin is very resistant to change. So there's a lot of systems that are quantum vulnerable should a, a high powered quantum computer emerge. But some of those can be changed faster than a, than a system that is inherently decentralized and inherently resistant to rapid change. And then even when you do the change, if, for example, if you introduce a new address type, it takes time for existing coins to migrate over to that. There's only so much throughput that bitcoin can do, and so you, generally speaking, want to get that change earlier than later. I do think it's a good thing that there are researchers working on this problem. One of the worst things you can do is overestimate the threat and then rush a solution. Because quantum resilient signatures are still evolving. It's still not clear what the best one's going to be years down the line in terms of what is most data efficient, what is most resilient to the attacks, what has been fully vetted, and so putting in one that is maybe not up to par in a number of years just to get one in there could be worse, could be worse than doing nothing at all. So I am glad that people are working on it. I don't view it as a near term risk in, say, five or 10 years like some of the really big quantum bulls do. I do think that there's a much bigger difference between kind of theoretical growth in this field and actually bringing a cost effective quantum computer to market at this scale. Generally speaking, the hardware takes longer than, you know, kind of many people think when they're just kind of theory crafting it, but I do think it's something that can't be fully dismissed. And, you know, I've talked to some of the people that have, you know, they, you know, they're the ones working on the BIPs to eventually add quantum resilience signatures to Bitcoin or other solutions to make it more resilient. And I for one, I'm just glad that there are people looking into that to hopefully have solutions in place well before we need them and that we've vetted kind of all the possible things that we could do to find whatever signature types are the best for it, rather than just kind of the first one that, that we rushed.
- [53:39]
B
All right, Lynn. Well, as usual, it's been such a pleasure having you on Unchained. Thanks for coming on.
- [53:45]
A
Thanks for having me.
- [53:46]
B
Nothing you hear on Unchained is investment advice. This show is for informational and entertainment purposes only. And my guests and I may hold assets that's discussed on the show. For more disclosures, visit Unchained Crypto.com.