GSV Capital's (GSVC) CEO Michael Moe on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: GSV Capital (GSVC)

GSV Capital Corporation (NASDAQ:GSVC)

Q2 2014 Earnings Conference Call

August 7, 2014 5:00 PM ET

Executives

Spencer McLeod – Associate at Asset Management

Michael Moe – Chairman, President and CEO; Chief Investment Officer and Portfolio Manager

Mark Flynn – President

Bill Tanona – CFO

Analysts

Jeff Houston – Barrington Research

Jon Hickman – Ladenburg Thalmann

Ed Woo – Ascendiant Capital

Steve Baker – Investors Capital

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the GSV Capital Second Quarter 2014 Earnings Conference Call. Today’s conference is being recorded. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, August 7, 2014.

I would now like to turn the conference over to Spencer McLeod of GSV Capital. Please go ahead.

Spencer McLeod

Thank you for joining us on today’s call. I’m joined today by GSV Chairman, CEO and Chief Investment Officer, Michael Moe; President, Mark Flynn; and Chief Financial Officer, Bill Tanona.

Please note that a slide presentation that correlates to today’s prepared remarks by management is available on our website at www.gsvcap.com under Investors, Events & Presentations. We are also live tweeting segments of this earnings call via the Twitter handle @gsvcap. Today’s call is being recorded and webcast on www.gsvcap.com. Replay information is included in our press release that was issued earlier today. This call is the property of GSV Capital Corp and the unauthorized rebroadcast of this call in any form is strictly prohibited.

I’d also like to call your attention to customary disclosures in our press release today regarding forward-looking information. Statements made in today’s conference call and webcast may constitute forward-looking statements, which relate to future events or future performance or financial condition. These statements are not guarantees of our future performance, condition or results, and involve a number of risks, estimates and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the company’s filings with the Securities and Exchange Commission. Management does not undertake to update such forward-looking statements unless required to do so by law. To obtain copies of GSV Capital’s latest SEC filings, please visit our website at gsvcap.com.

Now with that, I’d like to turn the call over to GSV Capital’s CEO, Michael Moe.

Michael Moe

Thank you, Spencer, and good afternoon. I’m going to begin today with a review of our portfolio as of June 30, 2014 and highlight some of our recent key developments. Mark Flynn will then go on to make some brief remarks about selected portfolio companies. Then Bill Tanona will provide a brief financial overview, and from there, we’ll take your questions.

Effective June 18, we’re very excited that we were able to announce that we’ve added Bill Tanona as our Chief Financial Officer. Bill Tanona is a highly regarded financial executive for nearly two decades of Wall Street experience in the financial services sector.

Before Bill joined the GSV team, he served as the Managing Director at Fortress Investment Group. Prior to joining Fortress, Bill was at UBS, and has spent over a decade in various global investment banks, including Goldman Sachs, JP Morgan as an equity research analyst covering financial institutions. We are confident that Bill will be a tremendous asset for GSV Capital, and we move forward we’re pleased to have him on board.

So as it relates to where we ended the quarter, net asset totaled $287.1 million or $14.86 per share NAV as of June 30. While the net asset value of our portfolio was relatively flat at June 30, compared to the prior quarter end, the fundamentals of the portfolio are very strong, which we believe will drive NAV and ultimately our share price in the future.

Twitter, our largest position, represents 20% of our total portfolio. The decline in Twitter’s share price from the first quarter to second quarter was reflected by the $0.15 hit to NAV or roughly $2.9 million. As I think most people are aware, Twitter reported their earnings on July 29, which exceeded the analysts estimates both in terms of financial performance overall usage, which Twitter’s shares responded in time and closed today at $43 per share.

When you look at Twitter, because it’s such a meaningful position in the portfolio and we continue to hold it despite the fact of the light markets. It’s important just to go over some quick key statistics for the quarter. The revenues were up 124% year-over-year. Full year guidance was raised between $1.31 billion and $1.33 billion, which the former guidance was $1.27 billion.

Full year adjusted EBITDA had been hiked to $210 million to $230 million from a $180 million to $205 million. The monthly active users, which is a key metric that we and others were looking for rose 6% quarter-over-quarter, 24% year-over-year to $271 million monthly active users.

Mobile monthly active users were up 7% quarter-over-quarter and 29% year-over-year to 211 monthly active users. Ad revenue which is 89% of revenue was up 129% year-over-year. And data and licensing and other revenue was up 90%, which is acceleration from the 76% growth year-over-year in the first quarter.

Importantly mobile, where all the action is, was 81% of ad revenue versus 80% in Q1, and 75% in Q4. As I mentioned, the lock-up period for Twitter was over on May 6, but we haven’t sold a share of Twitter, as we believe there is substantial near-term upside in the stock, and we believe that investors are just now starting to understand the power of the Twitter platform. And we think that as that gets better appreciated and understood, we think there is a great potential with the stock, and that’s why we’ve maintained our position.

Our investment in Twitter highlights the value proposition of GSV Capital to public market investors.

As a reminder, we purchased our Twitter position in 16 separate transactions between August 2011 and June 2012, leading to our 1.9 million plus share position we hold today. Our cost bases on those shares on average is $17.36. We bought the shares as low as $14. We bought them as high as roughly $19. And as you’ll hear in a bit, as we typically do, what we like to do is we take a position in a company that we have conviction on, and as we see the thesis play out, we’d like to add to the position. That’s exactly what we did with Twitter, and that’s what we are doing with other key names like Dropbox and what we’ve done with Palantir and so forth.

I want to make a comment about how we’re representing the individual positions as a percentage of the portfolio. Historically, we’ve articulated our individual positions as a percentage of net assets, but we believe it’s more accurate and appropriate to show these individual positions as a percentage of the total portfolio assets. To refresh peoples’ memory, we did a convertible last fall, bringing $69 million of convertible debt to GSV Capital.

And so I think it’s a better representation. We believe it’s more appropriate to show as a percentage of that total portfolio of assets. So for example, Twitter which I mentioned is 21% of the total portfolio assets will be 28% of net assets. So as you hear us talk about what different positions are as a percentage of overall assets, just keep in mind that that’s as a percentage of total portfolio assets.

So looking at the second quarter, our top 10 positions represented 63.9% of our total portfolio assets. Our three largest positions; Twitter, Palantir and Dropbox represented 40.1% of total portfolio assets.

Talking about some other new and growing positions. We’re excited about our recent investment in Declara, which was now 10th largest position for GSV Capital. Declara is a social collaborative learning platform driven by Big Data analytics. It’s a unique company and our investment leverages, our expertise from the all Social Media, Education Technology and Big Data, three key themes for us.

Additionally our leading role in Declara’s recent round of financing also I think highlights the momentum GSV has in Silicon Valley. This is a very competitive deal. And number of other world class venture capital firms, were very interested in leading this transaction. We are thrilled to be selected by the company to take the lead.

We are joined in our investment in Declara by Peter Thiel, Founders Fund, Data Collective and Catamount Ventures.

During the second quarter, we also realized gains on the liquidation of our Control4 and Facebook positions. The IRR on each of these investments was 49% IRR for Control4 and 19% IRR for Facebook. We believe that as revenue and earnings growth drive enterprise value over time, our objective will continue to be to identify and invest in companies we believe, can grow at the highest rate for an extended period of time.

Control4 and Facebook are both great examples of GSV’s investment thesis, and we are pleased with these outcomes. Also in the second quarter, we liquidated positions in Violin Memory and Silver Spring Networks, which were losses for the portfolio. That said, however we feel very good about the state of the total portfolio position today, and the fundamentals that are embedded in the 50 investments that we keep in the portfolio.

As a reminder, it’s our intent to liquidate the position within 18 months of going public or 12 months after the lock-up has expired. Subsequent to the June 30, we’ve closed on our investments totaling $4 million, primarily in two companies. And as I referenced earlier, as we like to do, we feed our winners. And so the two follow-on investments we’ve made were existing portfolio companies, StormWind, a leader in interactive learning, and Solexel, which has become our eighth largest position with this investment and is a leader in the solar space.

I’m just going to make a quick mention about Solexel, as we think this has tremendous potential and can have significant impact for the GSV Capital shareholders. We’re very excited about the continued momentum in Solexel, which many insiders in Silicon Valley consider to be the leading private solar company in the United States, if not the world.

Supporting our thesis on July 21, Solexel announced they had raised an additional $31 million in funding from world class syndicate of VCs that include Kleiner Perkins, Technology Partners, DAG Ventures, Gentry Ventures, Northgate Capital and ourselves.

Furthermore, the capital announced that they’ve added a new strategic investor in GAF, the largest roofing materials manufacturer in United States. We believe that GAF will add enormous values as a partner and as an investor to pull on the business forward.

And just to give a quick investment opportunity with Solexel. What they’ve effectively created is what we believe to be the highest quality solar panels that exist in evidence of this, SunPower, which is considered to be a leader in terms of the quality in the solar space is an investor in Solexel. But in addition to that, they also have the lowest cost delivery of solar, which is incredibly disruptive in this $100 billion industry. So we’re very, very excited about this, as I mentioned, we have a nice position in Solexel, which is our eighth largest position overall.

As we look at the snapshot of our portfolio on Slide 3, we’re optimistic about the future and about the value that we’re creating with the portfolio. The overall fundamentals are very robust with over 90% revenue growth expected from 2013 to 2014 for our private companies.

And while we’re frustrated by the substantial discount of our current share price versus NAV per share, we’re confident that when our portfolio performs, as it is, the stock will take care of itself. And therefore we’re very, very confident in terms of what is going on with the portfolio today.

Please turn to Slide 4 to take a look at equities and IPO market to-date. Obviously, the IPO market is important for us, both, as a way to create liquidity for the private investments we make, but also to give an indicator of the health of the innovation economy and for emerging growth companies.

I will also just make another point, which is the private market activity, we’re seeing pick up nicely, which I think corresponds with what we’re seeing in the overall IPO world, which we think can provide opportunities for us, for private companies that we own, if we chose to create some liquidity for them. So I think that’s all healthy and good for GSV Capital.

But looking at what’s going on in the IPO world. If you look at last week, was the busiest IPO week of 2014, with 16 companies raising close to $6.5 billion. This was the most active week since 2007. When you look at what’s going on year-to-date, 183 issues have come public, which again is pace for the most robust activity since 2000.

I think importantly when people look at what’s going on here, while the activity is good, it still is not to the levels that we saw for the decade, during the 1990s which had an average of 500 IPOs per year. And importantly, from kind of barometer standpoint, in terms of how – is the market too frothy or investors are being too aggressive, is there a bubble being created and so forth, the most useful indicators that we’ve always looked at for 20 years is, both, how investors are pricing IPOs and how they are trading after they go public.

So typically what we’d expect in a normal market is about 20% to 25% of IPOs pricing above the filing range and trading up 10% to 15%. If you look what’s going on last week, even with the huge activity, you basically had normal type of pricing above the range 25% and the first day POP was only 7%.

If you look over the last three months, while you’ve had 86 new issues going public, 19% priced above the range, 52% within the range and the first day POP was 12%. That’s what we consider to be normal, certainly not overheated.

Let me then move on. TrueCar is one of our holdings that completed a successful IPO during the second quarter. Mark will discuss in a few moments. TrueCar is – maybe some people are aware, just reported their numbers after the close of day, which – revenues and guidance were strong, so we are pleased to see that.

Now please turn to Slide 5. And we’ll talk about the portfolio mix, about the growth themes that we invested in as of June 30. As you know, these categories represent, we think are the most powerful themes emerging in the intersection of fast growing industries and the mega-trends of the growth of economy.

You can see that social mobile consists 25.8% of our invested capital. Cloud and big data is 24.7%. Education technology is 33.8%. Marketplaces represents 10.8% and sustainability is 4.9%.

Thanks for your attention. With that, I’ll turn the call over to Mark Flynn to highlight a couple of our portfolio companies in the marketplace space. I’ll just make a quick point. The marketplace is the way that we kind of calculate it as 10.8%. Many of the models that we invested in the various themes actually have marketplace components of it. So we’re very big believers, and marketplaces and network effects and the benefits that accrued to the leaders in these marketplaces.

With that, I’ll turn over to Mark.

Mark Flynn

Thanks, Michael. Please turn to Slide 6. As Michael pointed out today, we’re going to focus on the marketplace sector, an area we believe holds enormous potential, as traditional industries continue to be disrupted by emerging technologies.

One of our more recent investments is Lyft, a car ride sharing service that’s on the forefront of the sharing economy and is truly disrupting the traditional transportation market. We’ve invested $5 million in Lyft and it represents 1.3% of our portfolio.

You may see Lyft in your local markets. In fact, are operating currently in 60 cities in the U.S. And each week, Lyft drivers provide more than 50,000 rides to consumers like ourselves every week. We are thrilled to have directly participated in their Series D financing that was led by a group of world class investors including Coatue Management, Andreessen Horowitz, Alibaba, Founders Fund and Dan Loeb’s hedge fund, Third Point. Today, Lyft has been very successful in raising capital in amount over $332 million.

Please turn to Slide 7. In February 2014, we had announced a $10 million investment in PayNearMe. PayNearMe is a cash-based payments platform that allows roughly 40 million unbanked or underbanked members of the U.S. These are typically people who lack a checking account or credit card. These consumers use PayNearMe to pay their rent, their utility bills, their loans, buy tickets online and more. And it’s, we believe a very exciting in growth areas, the demographics continue to change throughout the U.S.

PayNearMe has a presence in over 17,000 retail locations in 40 states including 7-Eleven stores and Family Dollar stores. The underbanked and unbanked community represents over $22 billion of payment flows. And we believe these demographics are going to continue to be favorable over time.

To-date we’ve invested, as I said, $10 million in the company. We invested most recently in a round that we led in conjunction with Maveron, Khosla Ventures, True Capital and August Capital.

Turning to Slide 8, and Michael mentioned, TrueCar. So the pricing in transparency have transformed several sectors, including consumer electronics, travel and housing. The automotive industry is ripe for disruption and TrueCar has proven, that it’s leader in this transformation.

TrueCar’s growth is supported by a large affinity customer base, scalable technology platform, nationwide dealer network and a strong monetization model.

TrueCar seeks to become the place to go for new and used car sales, and expect to capture significant portion of the U.S. market. TrueCar raised $70 million in its May 15 IPO. The stock performed well and rose 12% in the first day of trading and has appreciated to 63% increase over its $9 initial stock offering price.

Thanks for your attention. With that, I will turn over the call to our new Chief Financial Officer, Bill Tanona.

Bill Tanona

Thanks, Mark. Before I begin, I’d like to just say, how excited I am to be part of GSV Capital. I’ve been here for about two months now, and I am really impressed with the team that is assembled here at GSV. And I am looking forward to working with many of you in the future.

So with that, let’s now turn to Slide on Page 9, where I’ll briefly highlight the financials for the quarter.

As Michael mentioned, our NAV for June 30 was $287.1 million or $14.86 per share, which is a decline of $0.05 from our March 31 NAV.

Let’s start on the investment portfolio. Our portfolio experienced net investment gains of $4.2 million in the quarter, consisting of $11.5 million of unrealized gains, or about $0.60 per share. These were partially offset by $7.2 million of realized losses or $0.38 per share. The net-after-tax increase to NAV was about $0.13 during the quarter.

Looking at our unrealized gains and losses, our two most significant contributors for unrealized gains in the quarter were our positions in Dropbox and 2U. 2U stock rose from $13.65 at the end of the first quarter to $16.81 at the end of June.

Our two largest contributors to unrealized losses were Totus Solutions and Twitter, which as you know, is our largest portfolio investment. Keep in mind that our embedded gain at quarter end for Twitter was still around $45 million, but the markdown was directly related to the decline in Twitter’s share price from $46.67 at March 31 to $40.97 at quarter end. The decline in share price reduced our NAV by about $0.15.

Now let’s look at realized gains and losses in the quarter. As we mentioned earlier, we had net realized losses of $7.2 million in the quarter, which consisted of gains of $5.5 million and $900,000 from Control4 and Facebook respectively. And these gains were offset by realized losses of $9.9 million in Violin Memory and $3.6 million in Silver Spring Networks.

That’s it for the portfolio. I would like to just spend a brief minute here talking about our liquidity. Our liquid assets ended the quarter at about $109 million. This consisted of $4.2 million of cash, $2.9 million of undrawn credit facilities and $86 million of public securities that weren’t subject to lock-up agreement.

That is it for me. I want to just thank you all for your attention. And now I’m going to turn the call over to the operator to start the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Once again, please limit yourself to one question and to one follow-up. Our first question comes from Jeff Houston with Barrington Research.

Jeff Houston – Barrington Research

Thanks for taking my questions. Two quick questions. First is regarding GSV Sustainability Partners. How is that entity structured, and is GSV Capital the only investor, and could you talk a bit about the strategy there? Then second group of questions is regarding management incentive fees. Is the right way to think about that is that net asset value per share already accounts for that, due to the accrued incentive fee liability? Thank you.

Michael Moe

Yes. Thanks, Jeff. I’m going to give you some – just a minute, thirty second back on GSV Sustainability Partners. And then I will let Mark Flynn, who was directly involved, kind of, structuring this to explain in more detail how that works. And then as it relates to the management incentive fees, I’ll let Bill Tanona answer that. But just first on GSV Sustainability Partners.

We had a very unique and we think compelling opportunity come to us from a person, John Denniston and Tom Cain, who – we’ve known John for many years. He was a partner who retired recently from Kleiner Perkins. He was there for 13 years. And for much of that time, was heading up their Sustainable Growth Fund.

John came to us with interesting idea to basically provide financing for green technology companies and with some very unique applications. We’re excited about the potential. It’s something that we’re letting, sort of the business development before we’re going to get to visible with it, but it’s something that we see very unique position in the marketplace, that I would think our shareholders are going to do. Be very pleased with this as this develops.

Mark, I’ll let you take the rest of that.

Mark Flynn

Sure.

Michael Moe

And then Bill, maybe you can handle the question on the incentive fees.

Mark Flynn

Sure, Jeff. The GSV Sustainability Partners is a portfolio company. It’s a C corporation. We are the only institutional investor. The only other investors are the management team, the two principals that Michael referred to.

We think again there is a very significant opportunity. The company is operating a bit in its stealth mode right now. And we have a lot of enthusiasm and excitement behind their strategy. And I think in coming quarters, as they deploy some of the things they are doing, we’ll be able to talk more specifically about it.

Bill Tanona

Hi Jeff. In terms of the management incentive fee, as you know, that is accrued, but it’s not something that we have taken yet. For the quarter, obviously that was $844,000, and essentially that just reflects the 20% of the $4.2 million in the net portfolio gains that we experienced there in the quarter. So I don’t know if that answers your question, but I assume that’s what you were asking.

Jeff Houston – Barrington Research

Yes, thank you.

Operator

We’ll now take our next question from Jon Hickman with Ladenburg.

Jon Hickman – Ladenburg Thalmann

Hi, thanks for taking my question. When will the Q be up?

Bill Tanona

That should be out tomorrow.

Jon Hickman – Ladenburg Thalmann

Okay. In lieu of that, could you tell us if there any of your other positions – meaningful positions that you have written down in this quarter?

Michael Moe

No. I think if you go to the – I think we’ve made reference to it in the call, and Bill just talked about a couple that had the most impact, Twitter being one, Totus being another, neither being anything substantial. If you look at overall, the health of the portfolio is, we think, very good. So no, basically Totus and Twitter are the two things that Bill referenced earlier and that’s – and again I think rather than somebody sees in fundamental, it’s just sort of timing. So for example, you also see Palantir as a slight write-down from the previous quarter.

Well, Palantir is doing extraordinary well. It just so happen, how things are calculated with different transactions and so forth during the quarter. So it’s just – it is a process.

Jon Hickman – Ladenburg Thalmann

Okay. And then could you – what’s the percentage of the portfolio that’s in education now?

Michael Moe

33%.

Jon Hickman – Ladenburg Thalmann

33%, okay. And you still hold Chegg, right?

Mark Flynn

We do.

Jon Hickman – Ladenburg Thalmann

Okay. Then one other question, is there anything public you could say about which one of your holdings might be in line for an IPO in the next, maybe six months?

Michael Moe

Sure. And I will say, Jon, you were very clever of asking about seven questions, when the operator said one, but that’s fine.

Jon Hickman – Ladenburg Thalmann

Okay.

Michael Moe

You do this question [ph], and that’s fine.

Jon Hickman – Ladenburg Thalmann

I’m done after this, okay.

Michael Moe

So first of all, I will say on Chegg, you saw they reported on Monday, and they were – we’re very close to what’s going on there. And I do believe that as investors come to appreciate how that business is positioned. They’ve got an incredible market share of students, both, high school and college that are going onto their platform, creating the student graph. Additionally, when you look at businesses that historically – you can tell by where talent goes and what the culture is like, kind of, how the business themselves feel about what’s going on. And there is just tremendous excitement at Chegg.

And you saw the numbers for the quarter were great, and I think the mood that they made with book ground of business was great.

As you look at the portfolio, as you know, we invest in emerging growth companies, primarily sort of in that $100 million – the sweet spot is really kind of above $100 million. 85% of the portfolio is invested in companies with $100 million or greater market value.

I think one thing that you are seeing is the size, the medium size of companies going public is lower than what we’ve seen for really a dozen years prior. You’re seeing $300 million, $400 million market value businesses going public routinely today, which is unique vis-à-vis what we’ve seen over the number of years before that.

So that means that a number of companies could be going public, if they so choose to, in over the next six to 12 months. We’re seeing a pretty steady drum beat of companies going public as you’ve seen with TrueCar and with Twitter and Chegg, and you have this. So as you look at our – I think when you look at our top 10 positions, which we went through in the slide, not to say that they would, but I think many of those could go public in the next six to 12 months.

And as you even go down to the top 20, I think it’s that same comment could apply. So anyway, because we are close to the number of these companies, and we know what’s going on, it wouldn’t be appropriate to make any kind of comment, because I could be interpreted in certain ways. But I will say that many of these companies could go out of, if they so choose, and certainly the IPO market is supporting new issues to come top on [ph].

Jon Hickman – Ladenburg Thalmann

Thank you.

Operator

We’ll move onto our next question from Ascendiant Capital, we have Ed Woo.

Ed Woo – Ascendiant Capital

Great, thanks for taking my question, and welcome aboard Bill. I had a question in terms of, you said that overall IPO market is relatively strong and premier market is relatively strong. Are there any areas that you see growing faster and the others are slowing down? Thank you.

Michael Moe

Well, certainly in the IPO market, it’s been open to the biotech companies and the medical companies over the past 18 months in a very substantial fashion. I think that’s one of the reasons why you’re seeing, because smaller companies go out and they just – it’s been an area that there is very difficult place for companies to go public for much of the last – for a long time. And then these companies are being able to get out and be successful.

I think as you see that backlog work out and you see the quality of the companies starting to go down, I think you’ll see that probably slowdown, but I think what clearly investors are looking for and there is an incredible thirst, is looking for growth. So I think the themes that we’re focused on; the social mobile, big data, cloud computing, marketplaces, sustainability and education technology. These are the themes that we’re seeing just incredible growth and incredible opportunity.

We obviously have made commitment to education technology world. We’re seeing businesses which, for the first time – it’s what they call, weapons of mass instruction. These are companies that are scaling very, very quickly reaching millions of people very quickly. We have investments, as you know, in companies like Coursera and 2U and Chegg and Knewton and Declara. These are companies that we think are very, very excited, but the big data area is really, really on fire.

And so we’re excited about number of our positions there. The big data and cloud computing theme. We’re investor in a company called Silicon Valley Data Science for example, which works with major corporations and their big data strategies. And so we just think that there is some really exciting things going on and innovation and growth.

As you look – obviously little bit more of a comment on this market, the private market area. You are seeing, I think it’s a very healthy signs of a broad name of marketplace for private companies. I think historically, we’ve seen interest, but there has been a relatively narrow group of companies. I think you’ve seen that broaden somewhat.

And because you were seeing more players coming to this marketplace, we do think there is going to be some opportunities for us to not just liquidate some positions where we got the appropriate returns in the public market, but we think we’re going to have opportunities to do that in the private marketplace.

And we’ve talked about that historically that we thought that would be an opportunity for us, but what we’re seeing, we certainly believe we have that opportunity, if we so choose today. So that hopefully gives you a perspective on what you were looking for.

Ed Woo – Ascendiant Capital

Great. Thank you and good luck.

Michael Moe

Thank you.

Operator

We’ll take our next question from Steve Baker, Investors Capital.

Steve Baker – Investors Capital

Good afternoon. I had a quick question on the balance sheet. At the end of the first quarter, there was about $80 million of Treasury Bills. It looks like they were offset by about $80 million of security purchase payables. In this quarter, it looks like the $80 million is still there, and payables dropped to $72 million. Could you just kind of explain what the Treasury Bills are doing there and how that payable works?

Michael Moe

Go ahead.

Bill Tanona

Sorry, Michael. Yes, so last quarter when we purchased those Treasury Bills, we actually purchased them just before quarter end, but they didn’t settle until after the quarter ended. For this quarter, they actually settled on June 30. And so therefore, it was reported on a net basis as opposed to a gross basis.

Michael Moe

And the net being the cash deposit.

Bill Tanona

Yes, the cash collateral that we had to post at the broker dealer.

Steve Baker – Investors Capital

Right. And just, I guess the follow-up would be, so why did we borrow $80 million worth of Treasuries?

Bill Tanona

Well, we brought the Treasuries solely to meet the diversification tests for our RIC compliance metrics. So we’re literally buying the Treasuries for a number of days, and they are maturing a couple of days later.

Operator

And that does conclude our question-and-answer session for today. At this time, I’d like to turn the conference back over to Michael Moe for any additional or closing remarks.

Michael Moe

We just want to thank people for tuning in this afternoon to hear about the update on GSV Capital. Just to reiterate, we are very, very pleased with the way that the portfolio is evolving, and the fundamentals and the growth that we’re seeing. We do believe that there is good catalyst ahead for our companies. And we know that while we’re – we don’t like where the share price is, we do like what we see going on and we think that will correct itself. And we’re also focused on how we can help that process by being in front, being proactive with investors, with analysts, and we’ll look forward to being helpful to anybody that is looking for more information about what’s going out in the portfolio and how we do things.

So with that, we look forward to following up with anybody with questions, and we will keep working harder on it. Thank you very much.

Mark Flynn

Thank you.

Operator

Once again, that does conclude today’s conference. Thank you for your participation.

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