By Brett Johnson
GSVC’s (NASDAQ:GSVC) strategy is simple and compelling: Get in on the best investments from the best venture capitalists, at a point when they are sure-winners and have an IPO liquidity on the horizon. Later this week, Citigroup will price GSVC.
As of last week, GSVC invested $42 million from the $50 million it raised in May in 13 such companies.
GSVC’s Chief Executive Officer and Chief Investment Officer, Michael Moe’s vision is to provide investors access to the most promising growth stocks currently inaccessible. The opportunity is upside from the appreciation from the operational progress (these companies are growing at well over 100% annually). It also offers a public “liquidity premium” once public. Linkedin (NYSE:LNKD), for example, experienced a 3x increase valuation after its IPO.
As of end of trading Sept 19th, GSVC stock is trading at about $14.37 and seems undervalued for several reasons: The intrinsic value of the portfolio of companies; the appreciation already experienced, its rapid growth rates and relative proximity to public offerings.
Bloom Energy exemplifies the valuation notion. GSVC bought stock at $1.8 billion valuation at the end of June. Kleiner Perkins just invested at a $2.6 billion valuation. I would point out that Kleiner doesn’t invest for 10% returns.
We looked at GSVC’s holdings to try to understand the value of its stock by estimating what the combined portfolio is worth and the prospects for its primary holdings. A reasonable “back of the envelope” is closer to $22 to $23 per share if you liquidated and distributed.
Some highlights: Facebook is GSVC’s second largest and most well known holding. It purchased it at just over $29 per share. (About an 80 billion valuation) Sharespost is commencing an auction this week at $32 per share. Twitter, GSVC’s largest holding, is virtually unavailable for purchase. GSVC was able get in at $17 per share. Sharespost now lists offers at $30 per share. GSVC purchased Zynga at a $4 billion valuation ($15 per share). It was recently listed on Sharespost for $30. Like Twitter, Zynga is almost impossible to purchase and not hard to find credible investors that see a $20 billion valuation.
The company has proven its ability to get into deals that others can’t. Other companies in the portfolio include Chegg, Gilt Groupe, Kno, SharesPost, and most recently TrueCar. Of the 13 investments, the only one with some vulnerability is Groupon which is GSVC’s 8th largest holding. The sectors that the company is focusing on are clearly big growth areas.
According to Wedbush analyst, Lou Kerner, highly regarded in social media, “We are in a time where more wealth will be created than at any other point. The changes going on in mobile and social media for example are creating unprecedented opportunity. You have companies being launched and worth billions within a few years.”Kerner’s forecast on Facebook three years out is $235 billion. He added, “Moe is clearly a visionary on the markets and has demonstrated the ability to get positions in these stocks that others can’t.”