GSV Capital is a closed end investment fund established in 2011. It primarily invests in high growth venture back companies and some mid and large cap publicly traded companies. Its focus is on capital appreciation and it looks primarily to conduct transactions in the private secondary market, but does engage is select public market transactions. The idea of GSV is to have a vehicle for regular investors to participate in high growth private ventures such as Twitter and Dropbox.
The shares of GSV Capital trade at a discount to net asset value due to the high management fees and view that its investments in private firms are worth less than the fair value stated in GSV financials. In addition, there is some additional discount applied to the value of its investments due to the more illiquid nature of private holdings. That said, trends so far in 2013 are more positive for IPOs. Year-to-date, 38% of IPOs priced above their initially stated range an increase from levels in recent years.
GSV has 47 holdings in its portfolio as of the end of 2012 and its top ten make up 60% of net asset value (NAV). Its largest holdings as a percentage of (NAV) are Twitter at 14.3%, Palantir Technologies at 8.3%, Violin Memory at 5.8%, Dropbox at 5.7% and Chegg at 5.6%. Facebook makes up 3.7% of NAV. As of the last report at year-end, GSV has a NAV of $13.07 per share, $252.6 million, a 3% decline from 3Q12. The decline resulted from a slight negative impact from Silver Spring Networks, discussed below, and total write off of Top Hat. The current market price of GSVC is 37% below NAV. Positively, management estimated that revenues of its holdings increased by 80% in 2012 and most of its top ten holdings had increases of 100%.
Silver Spring Networks was one of the funds problem holdings with a fair market value of $2.1 million at the end of the prior year versus the $5.1 million investment. Silver Spring Networks provides a platform for utilities to transform the power grid into a smart grid. SSNI traded up from its IPO price of $17 per share and is currently trading at $18.57. The reported value at 2012 year end was $19.40 per share.
Poor Track Record
While management noted revenues of its portfolio companies moving in the right direction in 2012, that does not mean profitability is doing the same. The track record of GSV is relatively poor with investments like Groupon and Zynga not doing well. Groupon is the provider of online coupons and Zynga designs online games. Both companies have struggled with turning the businesses into profitable endeavors. Groupon lost $67 million in the last twelve months and Zynga lost 209 million. Zynga is down a whopping 75% in the past year and Groupon, not doing quite as poorly, is down 61%. GSV Capital also holds Top Hat and Serious Energy which are believed to have no value and a $4.8 million looming hit to NAV.
Violin Memory IPO Could Help
All Things Digital reported in February Violin Memory is preparing for a 1H13 IPO. GSV holds a $14.8 million position which was acquired at a lower valuation than the projected $1.5 - $2.0 billion forecasted IPO range. In addition, Dropbox and Avenues of the World are all growing quickly and may have positive outlooks.
While certain holdings are moving in the right direction and GSV may monetize some gains from them, primarily Violin Memory, investing in GSV requires buying into its other core holdings. Learn how to find arbitrage situations on funds like this. If you believe the value of core holdings like Dropbox and Twitter will rise, than GSV could outperform.
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