The recent tweet of the pending Twitter IPO sent GSV Capital (NASDAQ: GSVC ) soaring, and rightfully so. The company is heavily invested in Twitter and no doubt will benefit from a big gain in an IPO. The business development company (BDC) that invests in venture-backed or pre-IPO companies is so much more than Twitter, though.
It has several other stocks in the IPO pipeline and recently raised nearly $70 million in a convertible offering for further investments.
The BDC pre-IPO sector has limited investment options, but a couple of other interesting stocks include Firsthand Technology Value Fund (NASDAQ: SVVC ) , which also owns Twitter shares, and Hercules Technology Growth Capital (NYSE: HTGC ) , which prefers to provide senior secured loans at attractive rates while obtaining small equity or warrant positions in these pre-IPO stocks. While the type of firms might be similar, the actual investments and nature of the stocks is very different.
More than Twitter
Twitter is by far the largest position owned by GSV, but it still only accounts for roughly 15% of the total assets. The company also has top five holdings Violin Memory and Chegg, which have recently filed for IPOs. Combined, these two holdings account for $28 million worth of investments, or 12% of total assets.
In addition, Spotify has made a push for a funding at a valuation 70% higher than 10 months ago, though the position in the music streaming service was only worth roughly 1.5% of the portfolio.
On top of that, the two largest positions are both in hot technology firms that could go public in 2014. Palantir is an interesting cyber-security firm that sits at a 9% position, and Dropbox provides an appealing online storage platform in this age of moving all data to the cloud that counts for 6% of net assets.
Violin Memory and Chegg might provide the quickest IPO tests. Violin Memory is a flash-based storage solutions provider that set terms for a $162 million IPO on the NYSE under the symbol of VMEM. The company is offering 18 million shares for a range of $8 to $10 that is expected to price the week of September 23.
Chegg is a leading online education platform, and it filed last month to raise $150 million under the symbol of CHGG. The company had sales of $238 million in the year ended in June. With other large positions in education-related firms, Chegg will provide an interesting insight into whether the decision to invest heavily in the advancing technology of education was wise.
Cash hoarding fund
Firsthand Technology provides an interesting comparison to GSV, but the company had around 52% of the fund in cash at the end of August. Another 11.2% is invested in Facebook, which now trades at a valuation in excess of $100 billion, providing limited positions in actual pre-IPO stocks. The company does own 194,000 preferred shares and 812,200 shares of common stock in Twitter that equate to 10.4% of the fund. At the speculated price of $27, the common stock alone would be worth nearly $22 million.
In total, the book value for Firsthand Technology is listed at $25.80 and will see a bump if the Twitter IPO is wildly successful. Unfortunately though, the fund doesn't have much of an investment pipeline beyond Facebook and Twitter to generate long-term profits.
Hercules provides investors with the ability to receive attractive dividends from high interest rate loans to technology, biotech, and cleantech firms. The effective yield on the debt portfolio investments is an incredible 15.7% and compares very favorably to the 6% weighted average cost of debt.
The company also has roughly $50 million in equity positions and another $35 million in warrants that could pay off handsomely. The stock does provide a very attractive 7.5% yield even after strong stock gains in the last year.
Investors have obtained attractive yields for 32 consecutive quarters since inception. The company has the longest history, having been founded in 2003, which provides more proof of concept compared to the equity BDCs that are only a few years old.
While Twitter will likely dominate the movement of GSV Capital stock and even Firsthand Tech over the short term, GSV Capital is so much more than Twitter. Not only does the fund have interesting investments in a number of other stocks in the IPO pipeline, but also some of the most interesting ones are still developing into future mega-IPOs for next year and beyond.
The company recently raised nearly $70 million in a convertible notes offering that should signal more strong investment opportunities in the pipeline.
The Twitter IPO will continue to grab all the headlines, but investors should keep their sights on these other venture firms that, combined, will have a much more important impact on the NAV whether they impact the stock price or not.
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