MicroStrategy is a Northern Virginia tech company that I think has an inappropriate corporate structure.
In the news is the fact that MicroStrategy has suffered a very large “asset impairment” because of their commitment to a BitCoin buy-and-hold strategy. You can read the details at the MicroStrategy investor relations page, but in summary, the company lost almost $200million on their BitCoin holdings, while making a profit (~$4million net on ~$105million gross profit) on their technology operations. Now the company is about to offer up $500million in stock sales to raise more cash. If you buy MicroStrategy stock in this new offering what are you buying, a tech company, or BitCoin? It’s not clear, is it?
Here’s the take-away question for you, the entrepreneur: If you plan to use your current company assets to invest in a new business line of products or services, what impact will it have on your current business value?
Look, it is easy to create a subsidiary company to your existing company. And that subsidiary is where you should dabble with the new product line. Keep the risks and rewards of separate business lines separated! That way, if someone wants to invest in your main business, they won’t be conflicted about what they are investing in. For more information about how to structure the ownership of multiple companies see the blog post in this series: Structuring Ownership of Multiple Companies, Part 1, Part 2, Part 3.
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