Semler Scientific Studied MicroStrategy’s Success Before Adopting Bitcoin Strategy

Semler Scientific’s decision to convert its cash holdings into Bitcoin comes a little over a year after Eric Semler became an active investor in April 2023.

Semler said he and the board of directors are examining MicroStrategy’s success in adopting its bitcoin strategy.

The medical device maker has since spent more than $60 million to buy the cryptocurrency and plans to make more acquisitions once the hoped-for capital raise receives SEC approval.

More than two years before Bitcoin’s birth, after serving as a flight surgeon in the Korean War and then as chief of cardiology at a hospital in Portland, Dr. Herbert Semler founded Semler Scientific (SMLR) in 2007.

The medical device maker has converted a large portion of its cash holdings into Bitcoin after 17 years and aims to buy much more.

“He was very excited,” Eric Semler, the company’s president and son of Herbert Semler, said of his father’s reaction to the new investment strategy. Harry Semler, Herbert’s father and Eric’s grandfather, both saw gold as a great investment in their day, so he would have loved for the company to invest in “new gold,” Eric Semler told CoinDesk in an interview Tuesday.

Herbert, almost 96 years old, is now retired and no longer involved with Semler Scientific; even Eric was only a passive investor in SMLR until he took a more active role in April 2023 due to governance issues within the company.

Much has changed since the arrival of the younger Semler, most notably the company’s decision to adopt bitcoin as its treasury strategy, announced in May of this year. In this regard, Semler is trying to follow the path of MicroStrategy (MSTR), which began converting its cash assets into bitcoin under the leadership of Michael Saylor and today holds about $14 billion worth of tokens.

“Michael Saylor’s drumbeat about zombie companies that have a lot of cash and are small and untraded resonated with all of us on the board,” Semler said. So they decided to look at MicroStrategy’s success and see the value in adopting its strategy.

Semler Scientific has purchased 929 bitcoins so far for a total of $63 million, or an average of slightly less than $68,000 each, according to the company’s second-quarter earnings report. The recent drop in prices to about $57,000 has reduced the value of those holdings by about $10 million, but that doesn’t change the board’s view, Semler said.

“When you believe in something so strongly and have faith, you have to be willing to step up and buy something when it goes against you,” he said. “I think the ultimate test of faith is whether you’re going to buy something that’s falling and you bought it 20% higher.”

The story continues

Taking another page from Saylor’s playbook, Semler has turned to capital markets to raise money to buy much larger amounts of bitcoin. The company filed a $150 million mixed shelf offering in early June and is currently awaiting SEC approval to move forward.

Experienced issuers like MicroStrategy typically get the green light from the regulator quickly, but because Semler Scientific is a smaller company and is attempting this type of capital raise for the first time, approval is taking longer.

One of the first to believe

A professional investor since 1998, Semler met bitcoin entrepreneurs early in the cryptocurrency’s life and began personally buying in 2016. Semler, who said his investment focus is always on future trends, said he likes to look for stocks and companies that can move from small-cap to large-cap.

“Bitcoin fits that space,” he said, noting that crypto has shown staying power in recent years, particularly during the collapse of Silicon Valley Bank, one of three lenders that succumbed to bank runs in 2023. All three banks had provided banking services to crypto companies, adding to uncertainty about the sector.

“Bitcoin’s resilience in that crisis impressed me, and that influenced how I thought about it,” Semler recalls.

Semler explained that the decision to use Bitcoin as a treasury reserve was a simple business move. The company had plenty of free cash on its balance sheet and was generating additional positive cash flow each year; fundamentals that Semler believes his firm has not received much credit for from Wall Street.

“This was the culmination of a lot of soul-searching about how to deliver value to shareholders,” he said.