I recently christened my SeekingAlpha account with an article on Global Silicon Valley Capital (NASDAQ:GSVC) - a business development company (BDC) specialized in acquiring the equity of companies about to go public. GSVC is usually lumped together with another BDC Firsthand Technology Value Fund (NASDAQ:SVVC) due to their holdings in both Facebook (NASDAQ:FB) and Twitter but these 2 stocks are quite different. SVVC has a less centralized investing theme but leans towards solar. With the top 3 holding SolarCity (NASDAQ:SCTY) crushing the markets I wanted to revisit SVVC. So let's take a closer look.
Facebook may be why many investors know of GSVC, or even SVVC, but it has actually become a much smaller portion of the GSVC portfolio over time. Prior to the Facebook IPO it was the lead investment and now hardly cracks the top 10. SVVC on the other hand still maintains Facebook as its #2 top holding. An investor seeking exposure to Facebook will find that SVVC provides about 3 times the exposure to Facebook in comparison to GSVC.
Once the elephant in the room has been addressed the remaining holdings seem incomparable. GSVC currently manages 45 positions with 6.5% of their portfolio in cash. SVVC has 14 positions with 66% of the portfolio in cash.
3 month return
Since many of these companies are not publicly traded their true investment values are somewhat murky. With that said, SVVC does have a portfolio of companies appreciating in value over the quarters. Something that can not be said about GSVC. However, it must be noted that a very small position became valueless over quarters. The effect would still leave a 2% unrealized gain for the quarter. But keep in mind that only ⅓ of the portfolio is being deployed. For the same management fees as GSVC investors must weigh the costs and benefits of different investing methods. 66% cash is fairly substantial.
One of my biggest disappointments with SVVC is their lack of clear communication with shareholders. One thing that GSVC offers that SVVC falls short on is a clear and concise cost for each holding. I think these are crucial pieces of information and management should be proactive in providing this information in regular filings. Part of this oversight is in the SVVC method of purchasing shares through additional option and warrant purchases - which isn't a bad thing - but the lack of opacity leaves this investor wanting more.
Hidden value.... for those who dare
Amongst the dark clouds around position costs and murky waters surrounding privately traded current valuations lies the true value camouflaged in plain sight.
Q1 of 2013 saw SolarCity, the third largest holding AND publicly traded, increase in value by 68% to $7.2 million. This falls somewhat in line with the stock price which returned 52%. Since the close of Q1 SCTY has returned an impressive 167%, which if the shares in SVVC remained somewhat unchanged that $7.2 million would be worth closer to $19.2 million - making it a contender for the top holding and potentially 9% of the portfolio, up from 3.5%.
The price action of SCTY between $32 and $45 didn't seem to phase SVVC but once it gapped up to $50 the needle on SVVC was moved from the $18s to the $19s - a $0.50 increase. Seems a bit modest for a company that just accumulated 7.5% of its market cap in unrealized gains. The gains on SCTY should add about $1.50 to the NAV. Let's say that SVVC historically trades at a 20% discount to NAV - that would imply that the gains from SCTY should have been valued at closer to $1.20 as opposed to $0.50.
It is no surprise that the value wasn't fully realized. Time and time again we see this with both SVVC as well as with GSVC. There is just too much risk surrounding these BDCs right now and management fees seem high and unwarranted. However, small gains like this will help to make an impressive Q2 for SVVC.