Saylor Holds Tight at MicroStrategy

Saylor Holds Tight at MicroStrategy

By Bob Starzynski
Staff Writer

Four million shares of MicroStrategy Inc.'s stock may have flooded the public market last week in a high-flying initial public offering, but control of the company remains closely steered by its founder and chief executive, Michael Saylor.

Michael Saylor
On June 11, MicroStrategy of Vienna, Va., sold 12 percent of the company on the Nasdaq National Market for $48 million through underwriters Merrill Lynch, Hambrecht & Quist and Friedman, Billings, Ramsey & Co. On June 15, the stock closed at $20.50, making that 12 percent stake worth $82 million.

While the new stockholders may be elated with their quick return on investment with MicroStrategy, a maker of data manipulation software, they are getting very little voting power in the nine-year-old company. Each of the shares sold to the public are part of the company's Class A stock and receive one vote per share.

But the shares still held by company insiders, the Class B stock, wield 10 votes each. That means MicroStrategy employees still control 99 percent of the company's voting power.

"It is somewhat unusual" for an company to give up that little amount of control in the public market, said Ken Fleming, an IPO analyst with Renaissance Capital in Greenwich, Conn. "Typically, companies let the public have 25 to 50 percent of the voting stake."

But Saylor, 33, is not interested in relinquishing any of his grip on the company.

The founder, considered by many to be one of the information technology industry's leading young visionaries, sold none of his shares in the IPO. He still owns 22.6 million shares of the Class B stock, giving him 73 percent of the company's voting power and 65 percent of the company's net worth. At the June 11 close, his stake was worth $463 million.

"Considering the market in the past week, MicroStrategy has fared quite well," Fleming said.

Saylor, who could not speak of the offering because of the company's IPO "quiet period," has long preached his business beliefs both inside and outside MicroStrategy. He has avoided venture capital investment in his company, claiming venture capitalists want too much control of companies without paying top dollar for that control.

He values employee dedication so strongly that he pays to take all of his employees - 676 as of March 31 - on a cruise each year, trying to build morale and bonds among his workers.

But foremost, Saylor preaches about his company's forte, decision support software. His vision, called "query tone," is to give people the ability to ask any question, anywhere and at any time.

Like the dial tone in telecommunications, he believes query tone will one day be ubiquitous. If a person with failing health wants to find the world's top heart surgeons, rated by surgical success rates and pioneering research efforts, all he or she would have to do is go to the Internet and find the answer with query tone, Saylor envisions.

The company has already landed numerous, powerful customers, including A.C. Nielsen, Bank of America, General Motors and MCI Communications.

MicroStrategy is not alone in its pursuits, however. Competitors in the data market range from smaller companies, like Information Advantage Inc. and Arbor Software Corp., Sunnyvale, Calif., to big players, like Oracle Corp., Redwood Shores, Calif. According to MicroStrategy's prospectus, filed June 11 with the Securities and Exchange Commission, Microsoft Corp., Redmond, Wash., also has indicated it may introduce certain products this year that would overlap with those offered by MicroStrategy.

Still, Saylor's company is in the decision-support segment of the data warehousing industry, which is estimated by Forrester Research of Boston to grow from $1.1 billion last year to $3.6 billion in 2001. The company has kept pace to date, more than doubling revenue each of the past three years, to $54 million last year.

Such growth is not without its costs, however. MicroStrategy has either lost money or made only several thousand dollars every year since 1994. Because of the internal growth the company has faced in recent years, it has built a working deficit of almost $16 million.

Proceeds from the initial public offering will be used in part to smooth out such growing pains, according to the prospectus. Most of the money will be used for working capital, growth of marketing and sales efforts and the repayment of a $13.6 million business loan.

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