Firsthand Technology Value Fund (SVVC) closed Tuesday at $16.07; in contrast, its net asset value (NAV) as of June 30 was $23.75 of which $19.30 was balance sheet cash. SVVC has no leverage and the cash is (as far as I can tell) in the United States so that there isn't a latent repatriation tax issue. I guess it would help to know whether the cash is in the form of unmarked bills as opposed to something recently stolen from a bank, but I don't think it will call IR with that question. In fact, it is pretty easy to figure out how SVVC got the cash; it wasn't a cocaine deal but instead a "follow on" offering as recently as April priced at (believe it or not) $27 a share. Now that we have established that we are not dealing with "hot" goods here, the really hard question is why SVVC is trading at a large discount to balance sheet cash?
So why exactly is SVVC trading at a discount usually associated with prices charged by a high volume fence? Blame it on Facebook (FB)! In the weeks leading up to the FB IPO, there was a frantic effort to "get in on the action" and SVVC was one of the only ways retail investors could "front run" the IPO which, everyone knew, would be a huge success with the stock shooting up like a V-2 the moment the gates were opened and the public could FINALLY participate in this cornucopia of riches. So, SVVC started to take off in late April and early May (management has to be lauded for their adept timing of the follow on offering) and actually got into the 40s for a while. Alas, we all know how the IPO went down. The disappointment and revulsion was so strong that the retail investor dropped anything remotely connected with FB like a live grenade.
SVVC is a closed end fund targeted at investing in private securities not normally open to retail investors and, as such, gives the retail investor a way to "participate" in the "action" with respect to these securities. As the old adage goes, you should "be careful what you wish for because you may get it" - in this case, SVVC investors got a good dose of the FB investor experience.
Now that we are nursing our hangovers from the party, it is time to take out an adding machine and run the numbers. SVVC's holdings of FB are only a tiny portion of its NAV - less than $2 a share and even if FB is worthless, SVVC would still have NAV north of $22. We can actually get a pretty good fix on the "solid" value of SVVC because three of its larger holdings, FB, Intervac (IVAC) and Yelp (YELP) are all publicly traded. If we simply multiply SVVC's share count in each of these by the current market price for the security, the value of SVVC's holdings in these three companies comes to roughly $2.70 a share. This means that there is a very solid $22 on SVVC's books with another $1.75 or so of hard to value privately held securities.
I don't think that the current discount to NAV will last forever. There are several scenarios possible here. SVVC could squander the $19.30 in cash on bad investments, SVVC could employ "financial engineering" to close the price/NAV gap, there could be some kind of takeover or restructuring, or the market may close the gap on its own. I made a lot of money buying closed end funds and business development companies at large discounts to NAV in 2009 and as recently as 2011 with American Capital (ACAS). You never know how or when the gap will close and I suppose there is always a risk that it never will. But the opportunity to buy one dollar for roughly 80 cents and have some FB and other stock thrown in for free is just too tempting to pass up. I am long SVVC.