Global Silicon Valley Capital (GSVC), for those who don't know, is a company that allows the average investor a backdoor entrance to privately held stock in the next generation of growth companies. Bulls will point to the growth prospects of holdings such as Twitter, Dropbox and Spotify. Bears will point to a lackluster scorecard consisting of realized losses on Zynga (ZNGA), Groupon (GRPN) and most recently the IPO of Silver Spring Networks (SSNI) which carries a 69% unrealized loss.
Most articles that discuss GSVC will dwell on the Facebook (FB) acquisition or the fact that the stock price trades at such a significant discount to NAV. Recently reported earnings [see transcript] for the Q1 of 2013 were one of the first in the company's short history that we've seen with no initial investments in new companies. Being the case I felt it was appropriate to see how those holdings have fared over the 3 month period. One of the biggest problems with the GSVC holdings is that the fair value for many of the positions are hard to truly gauge since most of the holdings are not publicly traded. With that in mind their initial valuations may have been questionable but I am less skeptical of these valuation updates.
The sample size used was made up of the top holdings, consisting of 75.84% of a portfolio compiled of 45 companies.
3 Month Return
From this week's conference call:
.. These top companies are the ones that really have the ability to move the needle in terms of the overall impact to our portfolio and NAV, and our outside commitments these large positions represent our highest conviction investments. So for example, the $35 million investment that we have in Twitter has over 10 times impact of our portfolio in NAV in $3 million investment that we have in our portfolio, which we have a number of $3 million, $2 million, $1 million investments. The $15 million in Dropbox investment has a 15 times impact of a $1 million investment.
This can be seen in the sample study:
The 3 month return on Twitter this period wiped out any gains made by the remaining 26 companies that did not make it into the sample group.
The largest gainer was from the top 15th holding, followed by the 16th holding of 45 companies.
16 investments were profitable, 7 making it to the sample group.
The weighted return of the sample study is -0.57%.
The Ugly, The Bad, and The Good
Only time will tell if GSVC and its business model is a worthwhile investment but current shareholders are losing their patience (as evident in the lively Q&A at the end of the quarterly conference calls). Even though the NAV declined this quarter I think that most shareholders were just happy to finally see an exit out of the Zynga and Groupon positions. Those willing to wait for the Twitter IPO might see going forward as a new start to a rough beginning.
The 4 major blemishes on record are Zynga, Groupon, Top Hat 430 (bankruptcy) and Serious Energy. An early position in Gilt Groupe has lost half of its value to date, a newer position in Starfish Holdings (dba YourOffers) lost 78% of its value between quarters and an interesting exchange occurred with the Fullbridge position this quarter where GSVC obtained additional valueless shares at a cost of $10.5k, bringing the average price per share down from $2.72 to $1.88.
Yet there are still reasons to be hopeful with GSVC. With no debt and trading at almost half its NAV with the right set of circumstances this could be a winner. The portfolio is still new and lacking credibility so to prove itself GSVC needs a larger percentage of its holdings to be publicly traded and to bag a few capital gains along the way. They have the big names, just missing the numbers. Top 3 holding Dropbox and a smaller position in social analytics company The Echo System Corp - one of the few investments that produces income for the company - have each appreciated 10% to date. Education play StormWind Studios have a reported unrealized gain of 75% to date but will these gains ever be realized and can they be realized on a larger scale and/or more frequently?
Finding the Next Starbucks
Waiting for holdings like Silver Spring Networks to go from private to IPO has proven to be a moment of value realization rather than a moment of value creation. I have no doubt that GSVC will eventually hit one out of the ballpark - it's just a question of how many losses they will rack up before then.