I'll give you a proper introduction here. Phong, you should need no introduction, but for the sake of completeness, Phong has been CEO of Strategy here since 2022. He served at Strategy for 10 years in many roles—COO, CFO—and then in 2022 took the CEO spot for Michael Saylor, who moved to executive chairman. When I think of you guys, having worked with you over the past few years, I think of a few things: innovation, first to market, and challenging traditional thinking. It's been quite a journey as your banker and adviser to keep up. I learned very early on that 'no' is not an acceptable answer, which is great. It's been a wild ride. I'd like to start, if we could, Phong, by going back a little bit to the history. You were there. It was in August of 2020, this shock-the-market announcement that came out of MicroStrategy at the time, which was you were buying $250 million worth of Bitcoin. If you could go back on a retrospective as to how you got to that decision, aligning stakeholders, what was the decision back then leading up to the events that we find ourselves in today?
Thanks, Lee. Thanks everyone for joining us. I think coming out to the Hamptons on a day like this probably wasn't too hard. It's a fantastic, beautiful venue. Now think about the opposite of this experience, which was March of 2020, when we all learned that the NBA was going to shut down its season and the entire United States was going on lockdown. That's what it felt like in 2020. When your back is against the wall, that's typically when people innovate and come up with new ideas and invent new things. And all of us had our backs against the wall. I'll take you back a little bit further than that. Strategy was formerly MicroStrategy. We're a $500 million revenue, about $400 million ARR software business that provides B2B enterprise software and analytics to the largest companies in the world. Michael Saylor founded it in 1989, went public in 1998, and the company in 2020 had about a billion and a half market cap. If we were to have sold the company, we might have been able to sell it for two or three billion dollars. For all intents and purposes, if I told you tomorrow you can go start a $3 billion software company as a founder, you'd all say that's tremendous life success. You can go sell it, own 20% of the equity, make whatever it is—$400 to $600 million—sit down, have fun, go on your yachts, buy a house in the Hamptons, and retire. That's a pretty good deal for a lot of people. It wasn't for us. We had a great software company that's still a great software company, but when we had $500 million of cash on our balance sheet at that point in time, saved for a rainy day, sitting in what you would say is probably the safest money—short-term Treasury bills earning two and a quarter percent in March of 2020—there was an issue. Along with COVID came the US government and the Fed deciding to cut short-term interest rates to zero, which I think was reasonably appropriate to stimulate the economy, and then to print about $5 trillion on a $20 trillion monetary supply. We could all argue at this point in time whether that made sense or not, but we can't argue the result was going to be rapid inflation and debasement of the US dollar. Janet Yellen in October of 2020 even argued that inflation was transitory, and I think we all know that it clearly wasn't transitory. So we sat with $500 million that was earning two and a quarter percent, which went to zero, and was worth very rapidly 20% less than it was in March of 2020. Our backs were against the wall. We're a software company. We had 800 people in a thriving headquarters in Northern Virginia. We had 200,000 square feet of office space that we were paying $10 million a year for. And literally overnight that was worth nothing. Nobody was showing up. We were all sitting at home Zooming each other. We no longer were having lunch together, having drinks together after work. It was a pretty shitty experience. When you're faced with that experience—your money is now worth 20% less and earning you nothing, your 800 headquarters-based employees aren't coming in to work, you're a thriving software company—our valuation started to go up in the second half of the year like a lot of tech companies did. We said, well, what should we do with this problem? Mike's an inventor, risk taker. I wouldn't say I'm an inventor. I'm an operator, but I'm a risk taker. We looked at all the options out there, and time and time again, lo and behold, Bitcoin seemed like the best answer to solve the problem of what to do with our cash and how to transform our treasury. That's how it started.
That's great. Retail has obviously been a huge piece of the storyline. How do you view the difference between the retail investor base versus institutions broadly speaking, and how they've supported the story?
The retail thing has been—I wouldn't call it a surprise in terms of their interest, but the fervor and the level of interest is just outstanding. We will launch new equities into the market, we will publish every week in an 8-K, and literally we'll have brilliant, PhD-level economists, financiers, engineers go on at night and do a two-hour podcast and try to dissect what we're doing. They say it better than we would have said it. They say things we can't say and publicize our equity, things the banks can't even say and publicize our equity and our preferreds. And they're all making money, so they're loving it. They're bringing more and more retail base. It's this virtuous cycle, similar to the virtuous cycle of Bitcoin. You convince somebody that Bitcoin is good, they go buy Bitcoin, drives price up, your equity value goes up, you are able to raise more money, you buy more Bitcoin. It's a virtuous cycle. Same thing on the retail investor base. What's different here, people call it meme stocks, is there's an underlying business. There's an underlying strategy around Bitcoin, and there's an underlying perfectly engineered asset called Bitcoin that this is all based on. The retail folks are just tremendous. The institutional folks are sometimes also great. Some of them are fast money. They're hedging us. They're shorting us. Most of the retailers are long—triple long, quadruple long—but they're pretty long. They're levered long in a lot of cases. I wouldn't necessarily do what they're doing, but it's fantastic and it's great to see them succeed. Success begets success in this space. Bitcoin is one of those things that people follow and really believe in to their core, and so it gets the retail base even more jazzed up. Retail's been the early adopter here, and institutions have a ways to go.
I think in many ways, I want to talk about your capital structure strategy, but you're kind of teasing out that institutional investor adoption curve and pushing them right by the creation and the framework that you put in place for your capital structure.
The institutions, depending on the ones—in 2020, the institutions were led by people sitting in large institutions who already inherently believed in Bitcoin, and they were fighting their internal institutions, whether it be a Cap Group or a Fidelity or even a BlackRock or Morgan Stanley. Otherwise, they're getting in because there are very intelligent and stubborn PMs who are like, 'Bitcoin is the thing and I'm going to bring my institution along the way.' Now we get to the point where a lot of the institutions are in it, not quite understanding Bitcoin, but understanding that you can't ignore a 10x return or a 10x dividend on something that's 10x over-collateralized. Now we're at the point five years later, especially after the administration changed too. It's made it safer for institutions to get involved. A lot of the institutions are in Bitcoin for the return profile. They've started to realize: how can you ignore the best-performing capital asset in the last 20 years, Bitcoin? How can you ignore the best-performing US equity in the last five years, Strategy? How can you ignore the best-performing global equity in the last year, Metaplanet? If you're an institutional investor and your job is to provide better-than-market risk-adjusted returns, you can't ignore this asset class anymore. Five years ago, it was the Bitcoin maxi folks sitting within an institution. Now it's the institutions realizing they have to get on board because their customers want access.
There's a really interesting nuance here in that, again, given the early nature of the adoption curve for institutions and protocols that are in place that just don't support direct holdings of Bitcoin, uniquely, you're a stock and you're in the index. Maybe you talk about the evolution where you got picked up by the indices and passive holders now. Just think about the momentum that's behind your name because you're an equity ticker.
Before the beginning of 2024, the only way a lot of these institutions who could buy equities could buy maybe some ETFs, but they couldn't buy commodities and they certainly couldn't buy Bitcoin. They couldn't open—folks at Fidelity weren't exactly opening up Coinbase accounts to go buy Bitcoin and put into cold storage. So they needed access. Before 2024, we've been publicly traded for 25 years. In addition, we're a well-known seasoned issuer, a WKSIE. We have a management team that's been running public companies for that same period of time. I've been the CFO since 2015. We were the safest way to onboard to Bitcoin essentially as a publicly traded Bitcoin proxy. What changed in 2024 was the advent of Bitcoin ETPs—BlackRock's IBIT, the largest. But those you're basically getting access to the price action of Bitcoin. You're paying whatever it is—30, 50, 100 basis points depending on the ETP—but you're not getting leverage. You're not getting the upside of somebody being able to take out a convertible note, somebody being able to issue preferreds, issue secured debt, levering up their company to buy more Bitcoin, and as a result producing one of our KPIs, which is Bitcoin yield. An ETP creates zero Bitcoin yield, zero Bitcoin gain. You just get direct access to Bitcoin price action, which is by the way not so bad either. Those who own Bitcoin, you can do it easily through an ETP structure. But we went from being one-to-one Bitcoin exposure in a publicly traded vehicle to 1.5 to 2x the performance of Bitcoin through leverage. Those were changes that created innovation. Our last innovation that really began at the beginning of this year is how do we provide people access to Bitcoin in a non-dilutive way? That's what our preferreds have been doing. We launched three so far. We announced the launch of another one yesterday. That's what our preferreds do. It's been a staggering of strategies that we put in place that have kept us ahead of the market, but it's also giving investors—institutional, retail—what they want.
When you look at the balance between your debt and equity structure, your capital structure framework—is it based on leverage targets in terms of optimal leverage and that return on Bitcoin that you're targeting? Do the securities provide access to different pools of capital? What are the key attributes when you think about filling out what instrument might you issue next and what instruments are in your capital structure? Last year you did a lot of converts, this year is the year of preferreds. What are the goals in that capital structure framework and how investors can play?
