Is MicroStrategys $563M STRK really oversubscribed？

Depending on which news outlet you read this morning, investment demand for MicroStrategy‘s new STRK was either far less than or doublethe company’s goal.

According to a press release, MicroStrategy raised $563.4 million via its new Series A Perpetual Strike Preferred Stock after targeting just $250 million for that capital raise.

That version of the news lit up one side of the media this morning with a fanfare of bullish headlines from crypto publications.

In stark contrast, traditional finance reported on the raise with more detail and none of this bullishness.

Barron‘s, for example, led with “MicroStrategy’s New Preferred Issue Yields 10% as Stock Sells at Discount.”

Careful observers, rather than simply accepting the news of an oversubscribed financing round, calculated far more sobering numbers than crypto publications.

Although MicroStrategys headline of $584 million certainly indicated plenty of demand from investors, experienced investors know that there is always unlimited demand for an investment with excellent terms.

Read more: MicroStrategy wanted bitcoin rule change — not billions in tax bills

MicroStrategy offered a 20% discount on liquidation preference

In its press release, MicroStrategy admits that it intends to settle a public offering of 8% dividend-yielding stock with a liquidation preference of $100 per share, yet it offered those shares at $80 apiece. In other words, the company didnt have enough demand to sell that quantity at $85, $90, or $95 per share.

Liquidation preference is the right to receive money back first — a “preference” before other equity owners — in the event of a “liquidity” (payout) event such as acquisition, public offering, or dividend.

Instead of a smaller and more advantageously priced share sale, MicroStrategy offered investors a substantial 20% discount on their liquidation preference in order to raise a larger quantity of money.

Theres never a free lunch on Wall Street. Sure, MicroStrategy will now have over half a billion dollars in extra cash to buy BTC in February. However, the capital came at a cost: a 20% liquidation preference discount, and more dilutive convertibles overhanging on common, MicroStrategy shareholders.

Whether thats bullish or bearish news depends on the frame. Michael Saylor had to offer a discount on dividend-yielding preferreds, yet he raised a bunch of money in the process.

For what it‘s worth, today’s pre-market trading session for MSTR was relatively unchanged from Thursdays pre-announcement close.