The Twitter IPO promises to be the highest-profile initial public offering since Facebook (NASDAQ:FB) took the leap last year. With many would-be Twitter owners hoping to pick up shares soon after they become available, intrepid investors are looking for ways to beat the rush and potentially profit from anticipated high demand for Twitter stock.

If you don't want to wait to buy Twitter directly but want exposure to the company before its IPO, you have a couple of options. Two business development companies structured as closed-end funds have positions in Twitter, and they're both publicly traded on the Nasdaq exchange. But rather than going out and buying these funds sight unseen, you need to understand how they work and some of the potential pitfalls involved in investing in them before committing your hard-earned money. Those who didn't do so last year suffered from the fallout following the Facebook IPO.

The back door to Twitter
The Firsthand Technology Value Fund (NASDAQ:SVVC) bills itself as a publicly traded venture capital fund with an emphasis on tech and clean-technology companies. Among its holdings, you'll find companies in a variety of different industry niches, ranging from residential solar-system financing company Sunrun and wearable-technology specialist AliphCom. But Firsthand's big claim to fame is its holdings in Facebook and Twitter, which make up a quarter of the fund's total assets. In particular, Firsthand has about 11% of its assets in Twitter, owning 194,000 preferred shares and 812,200 common shares as of Sept. 30.

Similarly, GSV Capital (NASDAQ:GSVC) aims to invest in rapidly growing emerging companies backed by venture-capital investors. Although it has the ability to invest in publicly traded securities, it prefers to take equity positions while companies are still privately held. As of June 30, GSV had 15% of its assets in Twitter, owning 1.836 million common shares and 65,000 preferred shares. Among GSV's other investments are cybersecurity company Palantir Technologies, cloud-storage specialist Dropbox, and the recent IPO Violin Memory, which specializes in flash memory.

Danger ahead?
Often, popular BDCs and closed-end funds trade at prices above the actual per-share value of their assets, making them bad buys from a bargain hunter's perspective. That was a big problem with Firsthand prior to the Facebook IPO last year, as enthusiasm about the social offering caused it to rise 76% in a single week, representing a huge premium to the actual value of the assets. After Facebook flopped, investors not only suffered from the loss in value in its shares but also from the disappearance of that premium on the BDC shares. GSV saw similar share-price moves before and after the Facebook IPO as well.

Yet things are different now. Firsthand's net asset value came in at $26.34 as of Sept. 30, so the current share price likely represents a modest discount. GSV traded above $15 recently compared to its June 30 net asset value of $12.87, but Facebook's recent gains likely raised that value somewhat by Sept. 30.

Still, investors need to be careful. It's notoriously difficult to produce reliable valuations of privately held companies, making BDCs' net asset values a bit less reliable than those of closed-end funds that exclusively own publicly traded investments.

In addition, the amount of money these BDCs collect in management fees is quite substantial. GSV Asset Management imposes a hedge-fund-like fee, taking 2% of assets off the top and then charging an incentive fee that can add as much as 20% of the BDC's realized capital gains. In total, GSV has reported gross operating expenses of more than 4% annually. Firsthand's expenses are somewhat more modest, but a 2.44% expense ratio is still well above what most mutual funds and closed-end funds charge.

Before you use the Firsthand and GSV Capital BDCs as a pre-IPO Twitter play, you need to take into account all of their traits and potential shortcomings. Doing so could help you better decide whether it's worth the potential upside from a favorable Twitter IPO or whether you're better off simply waiting for shares to become publicly available.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.