Why GSV Capital Is Worth Much More

The first quarter NAV provides substantial upside for GSV Capital especially now that the Twitter position has stabilized and the investment fund has the flexibility to unload shares when it obtains an attractive valuation.

Jun 13, 2014 at 7:00AM

The public markets continue to doubt the strategy of investing in high-growth private firms, yet GSV Capital (NASDAQ:GSVC) continues to execute on its strategy and drive value higher. The recent market volatility highlights the value of investing in a diversified group of firms with a long-term horizon.

For the first quarter, GSV saw the net asset value, or NAV, remain flat sequentially at $14.91 even with a volatile market for high-growth investments whether public or private. The NAV of GSV was able to withstand the large losses in Twitter (NYSE: TWTR) by offsetting it with gains in other portfolio stocks such as Palantir Technologies and Dropbox. Investors weren't as forgiving with the stock plunging to now sit substantially below that NAV at $10. Oddly, the theme is consistent with other venture capital funds including Firsthand Technology Fund (NASDAQ:SVVC) that trades significantly below NAV as well.

The quarter was important with the successful exit of a portion of the Facebook position and the subsequent lock-up expiration of the outsized Twitter position allowing the fund to unload the shares at any time now.

Exit strategy
Now that GSV Capital is fully grownup with mature positions and numerous that have gone public, investors can finally visualize the full investment cycle of this investment fund. The management team was clear that losses materialize quicker than the major winnings and that's starting to play out. Despite a huge sell-off, Twitter remains a significant gain for the company and Palantir Tech and Dropbox appear next inline for major IPOs.

The company has finally outlined the goal of holding stocks 18 months after an IPO.

While the typical investor can invest directly in the investments once they go public thereby losing the pre-IPO advantage provided by GSV Capital, the flexibility to hold onto stocks until attractive valuations are obtained was no more evident than the Facebook position. Considering the company establishes venture capital positions typically requiring a six-month lock-up before the company can unload the shares, GSV was forced to hold Facebook after the IPO at $45 until the stock plunged until the expiration with it trading below $20.

A requirement to unload the stock at that point would've caused a lot of harm to investors, but fortunately the GSV Capital held the stock until it surged beyond the original IPO price in the first quarter of this year. The ability to hold the stock until appropriate valuations are obtained in the public markets adds to the long-term attractiveness of investing in GSV.

More than Twitter
For the time being, Twitter will continue to dominate the headlines and even the direction of GSV Capital's stock. At the end of March, the position accounted for 28% of the portfolio.

With Twitter down significantly during May, it sure hasn't helped the NAV and of course placed it at risk of declining during the second quarter. In reality though, Palantir and Dropbox combined now have a similar impact to the valuation of GSV with those holdings combining for a 23.4% position. Those stocks no doubt face the similar tough market, but the revenue growth rates of 90% for all the holdings provide a strong fundamental backdrop for future returns.

Whether due to fears of future losses in Twitter, GSV Capital's stock now trades at a substantial discount to NAV. Enough of a discount that the board of directors agreed to a stock repurchase plan of $10 million. No better investment than buying their own stock at a deep discount to NAV over buying a private firm at current market prices during a major fund raising.

The Firsthand Technology Fund faces a similar scenario with the stock trading around $21 and the May 31 NAV at approximately $26.37. The fund only had a 13.6% position in Twitter so clearly the discount isn't all about that stock. Of course, it might not help that the fund has Facebook as the top position at 15.95%. The combined social media leaders amount to 29.5% of the fund.

Bottom line
The fundamentals of fast growing private firms will eventually push valuations higher for both GSV Capital and Firsthand Technology Fund and at some point investors will pay full NAV for the stocks. 

Facebook was a prime example of GSV paying what most considered a high value and eventually unloading the stock at an even higher price. Twitter could well be another example of this scenario making GSV the best way to invest in that stock. If one thinks Twitter is going much higher, buy it via an investment in GSV trading substantially below NAV.

With the stock trading at $10, investors get the stock with a significant cushion for falling stock prices in both public and private firms and all of the upside of rising prices.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Mark Holder and Stone Fox Capital clients own shares of GSV Capital. The Motley Fool recommends Twitter. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers