Value Investors Club / GSV CAPITAL CORP (GSVC)

Description

Company

GSV Capital Corp. (GSVC) is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company. GSVC’s investment objective is to maximize its portfolio’s total return, principally by seeking capital gains on its equity and equity-related investments. The company invests principally in the equity securities of rapidly growing venture capital-backed emerging companies, acquiring its investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. GSVC may also invest on an opportunistic basis in select publicly-traded equity securities or certain non-U.S. companies that otherwise meet its investment criteria.

The company’s investment philosophy is premised on a disciplined approach of identifying high-growth emerging companies across several key industry themes which may include, among others, social media, mobility, cloud computing, software-as-a-service, green technology and education technology. The investment adviser’s investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the company’s growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Top tier venture capital funds or other financial or strategic sponsors have invested in many of the companies that the company evaluates.

GSVC seeks to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a significant equity component.

Value

Private technology company investing is periodically in and out of favor, with the stock price trading accordingly at large premiums and discounts to NAV.

In early 2012 (prior to the Facebook IPO), GSVC traded at a greater than 30% premium to its most recent NAV. The NAV per share as of 9/30/12 was $13.35, with the stock currently trading at a 35% discount to NAV (54% upside to NAV).

		Shares /			% of
	Headquarters /	Capital			Net
Portfolio Investments*	Industry	Contribution	Cost	Fair Value	Assets

2tor, Inc.	Landover, MD
Common shares	Online Education	1,151,802	$8,757,599	$8,730,846	3.36%
Preferred shares, Series A		167,431	1,273,125	1,269,154	0.49%
Total			10,030,724	10,000,000	3.85%

AltEgo, LLC	Santa Monica, CA
Preferred shares, Series B-2	Social Media Customer Acquisition	1,400,000	1,420,406	1,400,000	0.54%
	Platform

AlwaysOn, Inc. (1)(2)	Woodside, CA
Preferred shares, Series A	Social Media	1,066,626	1,027,391	1,087,955	0.42%

Avenues World Holdings LLC	New York, NY
Preferred shares, Class A-1	Globally-focused Private School	5,000,000	10,026,573	10,000,000	3.85%

Bloom Energy Corporation	Sunnyvale, CA
Common shares	Fuel Cell Energy	201,589	3,855,601	3,678,999	1.42%

Chegg, Inc.	Santa Clara, CA
Common shares	Textbook Rental	1,274,193	10,012,543	10,193,544	3.92%
Preferred shares, Series F		500,000	4,008,654	4,000,000	1.54%
Total			14,021,197	14,193,544	5.46%

Control4 Corporation	Salt Lake City, UT
Common shares	Home Automation	3,650,667	6,274,551	5,950,587	2.29%

CUX, Inc. (2)	San Francisco, CA
Preferred shares, Series C	Corporate Education	246,305	2,006,077	2,000,000	0.77%

Dailybreak, Inc. (2)	Boston, MA
Preferred shares, Series A-1	Social Advertising	1,545,181	2,000,000	2,000,000	0.77%

Dataminr, Inc.	New York, NY
Preferred shares, Series B	Social Media Analytics	904,977	2,060,602	1,999,999	0.77%

DreamBox Learning, Inc.	Bellevue, WA
Preferred shares, Series A	Education Technology	3,579,610	758,017	750,000	0.29%

Dropbox, Inc.	San Francisco, CA
Common share	Online	760,000	8,640,940	8,360,000	3.22%
Preferred shares, Series A-1	Storage	552,486	5,015,333	6,077,346	2.34%
Total			13,656,273	14,437,346	5.56%

Facebook, Inc. (3)	Menlo Park, CA
Common shares, Class B	Social Networking	350,000	10,472,294	6,898,710	2.65%

Fullbridge, Inc. (2)	Cambridge, MA
Preferred shares, Series C	Business Education	1,196,809	2,250,001	2,250,000	0.87%

Gilt Groupe, Inc.	New York, NY
Common shares	e-Commerce	248,600	6,594,346	5,469,200	2.10%
	Flash Sales

Global Education Learning (Holdings) Ltd. (2)	Hong Kong
Preferred shares, Series A	Education Technology	1,472,175	2,999,998	2,999,998	1.15%

Grockit, Inc. (2)	San Francisco, CA
Preferred shares, Series D	Online Test	2,728,252	2,005,945	2,000,000	0.77%
	Preparation

Groupon, Inc. (4)	Chicago, IL
Common shares	Online Deals	80,000	2,128,774	381,600	0.15%

Kno, Inc.	Santa Clara, CA
Preferred shares, Series C	Digital	440,313	2,262,006	2,250,000	0.87%
Preferred shares, Series C-1	Textbooks	1	7,510,334	7,500,000	2.89%
Common shares		50,000	214,681	205,000	0.08%
Total			9,987,021	9,955,000	3.84%

Maven Research, Inc. (2)	San Francisco, CA
Preferred shares, Series B	Knowledge	49,505	217,206	200,000	0.08%
Preferred shares, Series C	Networks	318,979	1,999,998	1,999,998	0.77%
Total			2,217,204	2,199,998	0.85%

NestGSV, Inc. (2)	Redwood City, CA
Preferred shares, Series A	Incubator	1,000,000	1,021,778	1,000,000	0.38%

NestGSV Silicon Valley, LLC (2)	Redwood City, CA
Common membership interest	Incubator	$500,000	500,000	500,000	0.19%

Neuron Fuel, Inc.	San Jose, CA
Preferred shares, Series AAI	Computer Software	250,000	262,530	250,000	0.10%

NewZoom, Inc. (d/b/a ZoomSystems)	San Francisco, CA
Preferred shares, Series A	Smart e-tail	1,250,000	260,476	250,000	0.10%
	(Retail)

Palantir Technologies, Inc.	Palo Alto, CA
Common shares, Class A	Cyber Security	7,045,690	19,780,613	19,747,501	7.60%
Preferred shares, Series G		326,797	1,008,968	999,999	0.38%
Total			20,789,581	20,747,500	7.98%

Serious Energy, Inc.	Sunnyvale, CA
Common shares	Green Materials	178,095	739,130	--	0.00%

SharesPost, Inc.	San Bruno, CA
Preferred shares, Series B	Online	1,771,653	2,257,984	2,256,752	0.87%
Common warrants, $0.13 strike price, expire 6/15/2018	Marketplace	770,934	23,128	8,480	0.00%
Total	(Finance)		2,281,112	2,265,232	0.87%

Silver Spring Networks, Inc.	Redwood City, CA
Common shares	Smart Grid	510,143	5,145,271	3,275,118	1.26%

SinoLending Ltd. (2)	Shanghai, China
Preferred shares, Class A	Chinese P2P Lending	6,414,368	501,998	500,000	0.19%

Solexel, Inc.	Milpitas, CA
Preferred shares, Series C	Solar Power	4,576,659	10,016,559	10,000,000	3.85%

Spotify Technology S.A.	Stockholm, Sweden
Common shares	Music Streaming Service	3,658	3,598,472	3,589,659	1.38%

StormWind, LLC (2)	Scottsdale, AZ
Preferred shares, Series B	Interactive Learning Platform	3,279,629	2,019,687	2,000,000	0.77%

Strategic Sports Solutions, LLC (2)	New York, NY
Preferred shares, Class A1	Sports Analytics	500,000	529,522	500,000	0.19%

SugarCRM, Inc.	Cupertino, CA
Common shares	Customer Relationship Manager	432,500	1,521,100	1,513,750	0.58%

The Echo System Corp. (1)(2)	New York, NY
Preferred shares, Series A	Social Analytics	512,365	1,436,404	1,639,568	0.63%
Preferred warrants, $0.20 strike price, expire 11/14/2016		68,359	75,988	70,394	0.03%
Total			1,512,392	1,709,962	0.66%

The rSmart Group, Inc.	Scottsdale, AZ
Preferred shares, Series B	Higher Education	1,201,923	1,266,940	1,250,000	0.48%
	Learning Platform

Top Hat 430, Inc. (2)	Shakopee, MN
Preferred shares, Series A	Jewelry Retailing Technology	1,777,778	4,015,179	4,000,001	1.54%

Totus Solutions, Inc. (2)	Carrollton, TX
Common shares	LED Lighting	20,000,000	5,023,748	5,000,000	1.92%

TrueCar, Inc.	Santa Monica, CA
Common shares	Online	377,358	2,014,863	2,011,318	0.77%
	Marketplace (Cars)

Twitter, Inc.	San Francisco, CA
Common shares	Social	1,835,600	31,755,821	34,876,400	13.42%
Preferred shares, Series A	Communication	65,000	1,235,290	1,235,000	0.47%
Total			32,991,111	36,111,400	13.89%

Violin Memory, Inc.	Mountain View, CA
Preferred shares, Series B	Flash	800,000	4,800,798	4,800,000	1.85%
Preferred shares, Series D	Memory	1,666,666	10,018,045	9,999,996	3.85%
Total			14,818,843	14,799,996	5.70%

Whittle Schools, LLC (2)	New York, NY
Preferred shares, Series B	Education Technology	1,500,000	1,500,000	1,500,000	0.58%

ZocDoc Inc.	New York, NY
Preferred shares, Series A	Online Medical	200,000	3,563,178	3,500,000	1.35%
	Scheduling

Zynga, Inc.	San Francisco, CA
Common shares	Social Gaming	533,333	3,003,462	1,514,666	0.58%

Total Portfolio Investments			224,689,927	217,441,538

Cash and money markets				42,331,482

Total				259,773,020

Less: Total Liabilities				(449,771)

Net Asset Value				259,323,249

NAV per share				$13.42
# shares				19,320,100

In terms of an update, the values today of the publicly traded companies owned by GSVC (Facebook, Groupon and Zynga) in total exceed the 9/30/12 carrying value on GSVC’s books by $0.16 per GSVC share.

Additionally, Palantir Technologies trades currently on private markets at approximately $3.25 per share, implying a market value in excess of 9/30/12 carrying value of $0.16 per GSVC share.

Management Fees

GSVC pays GSV Asset Management a fee for its services under an Investment Advisory Agreement consisting of two components — a base management fee (2% of assets annually) and an incentive fee of a 20% carry with an 8% annual hurdle. Given that NAV is currently below purchase cost, if an incentive fee does come into play in the future, that will be a good problem to have (since the implied appreciation would be quite attractive). While significant, the annual management fee covers most of the management cost (personnel, etc are employees of GSV Asset Management) and the gradual erosion of capital from the annual management fee pales in comparison to the current discount.

Taxes

As a Registered Investment Company, GSVC generally will not have to pay corporate-level federal income taxes on any income that it distributes to its stockholders as dividends.

GSVC will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless it distributes in a timely manner an amount at least equal to the sum of (1) 98% of net ordinary income for each calendar year, (2) 98.2% of capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years. GSVC generally will endeavor in each year to make sufficient distributions to its stockholders to avoid any U.S. federal excise tax on its earnings.

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

Investing in private technology companies comes back into favor, and/or some of the private companies in the portfolio go public, raising the NAV and profile of GSVC.

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			2013	2014
Price:	8.65	EPS	$0.00	$0.00
Shares Out. (in M):	19	P/E	0.0x	0.0x
Market Cap (in $M):	167	P/FCF	0.0x	0.0x
Net Debt (in $M):	-42	EBIT	0	0
TEV (in $M):	125	TEV/EBIT	0.0x	0.0x