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Executives

Michael Moe - Founder & Chief Executive Officer

Stephen Bard - Chief Financial Officer

Alex Wellins - Blueshirt Group, Investor Relations

Analysts

John Stockbridge - Private Investor

John Hickman - Ladenburg Thalmann

Ed Woo - Ascendiant Capital

Tony Polak - Maxim Group

Danilo Kawasaki - Gerber Kawasaki Wealth Management

Donald Elliot - Private Investor

William Corley - 22nd Century

GSV Capital Corp. (GSVC) Q2 2012 Earnings Call August 9, 2012 5:00 PM ET

Operator

Welcome to the GSV Capital second quarter 2012 conference call. During today’s presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open to questions. (Operator Instructions).

I would like to turn the conference over to Mr. Alex Wellins of Blueshirt Group. Please go ahead.

Alex Wellins

Thank you and thanks for joining us on today’s call. I’m joined today by Michael Moe, GSV’s Founder and CEO; and Stephen Bard, the company’s Chief Financial Officer.

Today’s call and webcast are being recorded. An audio replay of the conference call will be available for seven days. The webcast can be found on our website at www.gsvcap.com. Replay information is included in our press release that was released after the market closed today. Please note that this call is property of GSV Capital. Any unauthorized re-broadcast of this call in any form is strictly prohibited.

I also like to call your attention to the customary disclosure on our press release today regarding forward-looking information. The statements made in today’s conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition.

These statements are not guarantees of our future performance, condition or results and involve a number of risk 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 our filings with the SEC.

We do not undertake to update our forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit the IR section of our website.

With that said, I’ll turn the call over to Michael Moe. Michael.

Michael Moe

Thanks Alex and good afternoon, thanks for joining us today and we appreciate your interest. Over the past quarter and last 15 months as gone public, we have executed against the strategy we laid out for investors. We built a diversified portfolio of now 40 of the leading fastest growing top venture backed companies across five focus areas of investment. We believe that many of these game-changing companies is the potential to drive outsourced size growth and significant shareholder value in the years ahead.

I’ll start out with a quick summary, a snapshot of the state as of June 30, 2012. First, the total value of GSVs portfolio investments was $171.6 million. The net asset value, NAV of the fund is $13.81 per share and we ended the quarter with $96 million in cash and money market funds.

As of today, our five largest positions in the portfolio are as follows: Twitter, where we’ve invested $32.7 million and are representing 12% of the overall portfolio; Palantir which is a position that we’ve expanded significantly in the past quarter and then since the quarter end where we have $20.6 million invested, which is approximate 7.6% of the portfolio; Violin Memory where we have $14.8 million invested, representing 5.6% of the portfolio; Chegg, who have invested $14 million, representing 5.3% of the portfolio; Dropbox, who has invested to-date $12 million, representing $4.9 million of the portfolio.

We also made new investments in leading companies such as Solexel, which is a prior Perkins backed solar company which we participated in the financings of the recently completed. We put $10 million into Solexel. Just the quick highlight on the company is it really is potentially extremely disruptive in the alternative energy space, with both high efficacy and lower cost. Basically we think it could be a huge, huge win for us.

Spotify, a leaders in the social music area, this is the company that we’ve had our sight set on for some time, yet we are able to acquire this year’s at a price that we thought was very attractive and get approved by the company and so we are delighted to be on Spotify’s cap table.

In addition we added a new position in Avenues: The World School, which has gained quite a bit of attention towards opening its new campus in New York City, creating a global network of private schools with a top tier focus with the former President of Yale University, former Head of Exeter, Phillips Exeter, Head of Hotchkiss and for people in New York City, you’ll appreciate this, the former head of the 92nd streetwise for the preschool program.

Additionally we made a $10 million investment in Tutor. Tutor is a rapidly growing company that partners with Universities such as USC and Georgetown to create online programs, but also just kind of an interesting company, to make note, Dataminer, which we were introduce to from twitter. Which they use twitter’s firehouse to provide real time information, primarily being used by trainers today, but a significant advantage to other sources of that information and we made a small investment. Dataminer, we’re thinking of this huge potential that shows sort of the power of the network.

In addition, as we said we are going to do and we’ve done repeatedly, as we’ve added to core positions and we did in the core, including Bloom Energy, which is doing extraordinarily well and we continue to add to that position at prices that we think are attractive to both fair value and where recent financings have been done. We continue to look to add significantly to our drop box position. As we mentioned that it’s now our fifth largest position, but we continue to actively look to increase that.

Kno, which is a leader in digitizing textbooks, again its a very disruptive business that we are very excited about the potential. We added $7.5 million to a relatively small position that we had earlier. In companies like Control4, which is just a classic growth company, which we continue to accumulate positions as we are about to get shares at places that we think will generate substantial return over time.

So the five investment themes that we focus on and have focused on from the beginning, social mobile, cloud computing and service, internet commerce, growth in green technology and education technology are the areas we focus and we believe that these themes are the core themes in the growth economy, powered by mega-trends that we believe will have the greatest return potential for our investments in the years to come and that’s why we continue to believe that the greatest opportunities that can be found in those kind of themes.

If you look at the buying percentages across the portfolio, approximately 25% of our portfolio is in social mobile, 23% is in cloud computing services, 12% is in internet commerce, 29% is in education technology and 11% is in clean technology.

So what our strategy is, is to build a robust, diversified portfolio, great dynamic companies and we are very pleased by the fundamentals and the performance of the companies that we’ve invested in, with overall revenue growth rate year-over-year of the companies that we’ve invested in being well over 100%, close to 150% year-over-year. So we are experiencing hyper growth and that’s particularly an appealing piece of the alternatives that you see in the public markets.

We focus on maximizing the portfolios total return. We have proven and rigorous process that we’ve developed over many years, the core being the forum we’re looking to identify and invest in companies with great people, leading products sees potential and predictability, but a systematic process that we use to dynamically identify, evaluate and rank private companies in the growth universe.

We’ve had three companies go public so far; Facebook, Groupon and Zynga. Obviously the current value of these stocks, we’ve got technology markets facing the internet stocks, in general the social media. Specifically however, I would spot that we are very early in the life cycle of these public companies and I’ll note that while we certainly aren’t pleased by the performance of the stocks of these three companies, they are relatively small in the context of the overall portfolio, so to provide a framework around that, we’ve invested $16.5 million in Facebook, Groupon and Zynga.

If you compare that to our three largest holdings today of Twitter, Palantir and Violin Memory of $68.5 million, we have four times more invested in those three companies than we do in Facebook, Groupon and Zynga and we are extremely pleased with the fundamental performance of Twitter, which continues to just be a rocket ship in terms of growth and we think value creation.

Palantir, which is a name that we are extremely excited about is a leader in high security software. Helps the CIA for example track terrorists and bad guys all over the world and Violin Memory, which is a company that we think has opportunity to go public in the near term. So those are all important things just to kind of keep in references of our overall portfolio.

Looking at the IPO market, despite the Facebook IPO which was a disappointment for most everybody in terms of what the expectations were, the IPO market is actually showing signs of life and after the pause of the Facebook’s IPO, sees strong recent debuts by companies like Palo, to Networks and Kayak.

One of our companies, Silver Springs Networks is on file with the SEC for an IPO. We believe that all of the companies that we have large positions in are the size and the scale that could go public today if they chose and we believe that several of these companies, if not more will start the IPO process, sooner before the end of the year.

Some investors have asked why we haven’t pursued a stock buy back program. As of now, given the fact that our stock has been trading well below the NAV, in a nutshell it’s our philosophy that investors didn’t invest with us. They didn’t trust us with their capital for a 20% or 30% return and it’s only been 69 days since the stocks have been dislocated and our stocks have responded in kind.

Additionally, a stock buyback would increase the flow, making it more difficult for institutional investors to participate in GSV. With that all said, it’s our job to optimize shareholder value and so we are carefully monitoring this. We are actively analyzing its value and what’s the right, the best way to create shareholder returns and we’ll keep that option opened and we’ll continue to monitor it.

We’ll continue to compare all our options on an ongoing basis to really the best long-term return for our shareholders. We are extremely pleased to have a portfolio shaping up and I think a key philosophy that we have, that in the short term there’s a lot of things that impact stock value.

In the long term what impacts the stock value is the fundamentals and we couldn’t be more confident in the fundamentals of the portfolio that we’ve assembled. We are even more confident in the strategy that we have today than we’ve ever been, focusing on leveraging our network and our due diligence process to identify and invest in what we think would be the huge winners in the years to come, the stars of tomorrow.

So thanks for your attention there. I’m going to ask our CFO, Steve Bard, to quickly review our finances with you before opening up the call for your questions. Thank you.

Stephen Bard

Thank you Michael. As of June 30 the total value of our investments was $171.6 million. That compares to $75.8 million as of March 31. Net assets as of June 30 were $266.9 million, translating to a net asset value per share of $13.81 and that compares to net assets of $167.3 million or $13.47 per share as of March 31.

During the quarter we’ve originated approximately $98.5 million in investments in nine new and eight existing portfolio companies that’s exclusive of transactions costs. Since inception we’ve invested a total of approximately $173.9 million in 34 companies and that’s through June 30. As Michael indicated, subsequent to quarter end we’ve invested in 40 companies representing approximately $216.5 million in investments.

Investment income, which is comprised of accrued interest as well as money market dividends was approximately $110,000, which translates to $0.001 per share for the second quarter and that compares with investment income of about $118,000 also $0.001 per share for the first quarter of 2012.

Net investment loss for ongoing operating expenses for the second quarter was $2.1 million, which translates to $0.13 per share and that compares to a net investment loss of about $1.1 million or $0.12 per share for the first quarter of 2012.

Net realized loss on investments was $1.4 million or $0.08 per share for the quarter and that was related to our investment in PJV, which was the Synthetic Zynga investment that we made and that compares with the realized loss of essentially zero for the first quarter of 2012.

The net change in unrealized depreciation, which is comprised of transaction costs such as finders fees, legal expenses, escrow fees associated with acquiring portfolio investments and most importantly any fair value adjustments was approximately $2 million or $0.12 per share for the second quarter and that compares with a $1 million or $0.11 per share unrealized appreciation in the first quarter of 2012.

That our results in the net decrease and net assets resulting from operations for the second quarter was about $5.5 million or $0.34 per share. That compares with $83,000 or $0.001 per share for the first quarter. We ended the quarter with about $95.6 million in cash and money market funds.

With that said, I’ll now turn the call over to the operator who will start the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of John Stockbridge, a private investor.

John Stockbridge - Private Investor

Yes gentlemen, I’m a private investor is correct. I was one of the ones that talked I believe with TNEG (ph) about stock repurchase, but beyond that, what is the cash to date, not June 30. What is the NAV today, not June 30. I know you can calculate that. I mean I did spend 30 years in Wall Street. Is it possible you could share that with us, because I think the recent public positions have been a disaster and it would be good to get a sense of where we really are.

Michael Moe

Sure. I mean Steve, why don’t you give the percentage number on the cash today and again, I think as it relates to the positions that we have, obviously we have gone through the portfolio extensively and we are very confident in terms of the mark that we have provided and again, we think both the fundamentals are what we reflected, but Steve, give the precise cash position please.

Stephen Bard

Sure. Through today it’s about $40 million balance.

Operator

Thank you. Our next question comes from the line of John Hickman with Ladenburg Thalmann; please go ahead.

John Hickman - Ladenburg Thalmann

Hi guys. Steve would you walk us through the Zynga. Have you written that off? Is that what I heard you say?

Stephen Bard

No John, we haven’t written it off. The note actually matured on June 27 and we received shares and settlement for that note, so. The interest that we had obtained over the life of them, around $300,000 was capitalized into principal. Again, the note was set out in share. Specifically we received $533,333 shares. The closing price on June 29 was $5.44. So we did realize a loss on the PJB investment of about $1.4 million and we are now holding Zynga shares on the book, so you’ll notice on the schedule of investments you’ll see that.

John Hickman - Ladenburg Thalmann

Okay, so they gave you enough shares to equal the total value of the note and then the stock has declined from that period of time.

Stephen Bard

Correct.

John Hickman - Ladenburg Thalmann

You have lot of them coming from, okay, excellent. Okay, so could you talk a little bit about your – you have a large position. I mean 29%, 30% of the portfolio is invested in the education and technology space. Could you talk about that? That’s the largest position in the portfolio and you must have a philosophy there. Could you share that with us?

Michael Moe

Sure, a couple of things. One is that we do have a strong conviction in terms of growth potential in the education technology space. You’re seeing substantial activity going on in the market looking for education innovation. When you look at what’s going on in the technology economy, you have 8.3% unemployment, you have 30% of high schools students dropping out, you got 50% of college students that can’t get a job in the first 12 months, 45% of law students can’t.

We see the opportunity for education technology to have a substantial role to allow people to participate in the future. You start to see education technology models for the first time really have disruptive characteristics, kind of version 1.0, the companies like Kappel (ph) and BlackBoard were effectively creating access.

Now your seeing true network effects where your seeing the growth of the network grow exponentially, so you look at our largest positions. Chegg, which is a leader in creating a network in college students. The Trojan Horse was effectively renting college textbooks, providing a compelling value proposition, I don’t know, like a Netflix, but what they were able to do is take that position and basically capture 40% of all college students on the network providing other services that are utilized by that demographic.

You have Kno, which has digitized over 225,000 textbooks. As a leader its shift that’s gone on from paper textbooks to smart digital textbooks, where publishers are partnering with Kno and the college universities, as well as the large strategic businesses are partnering with Kno, basically to help them create a smarter, richer, interactive, less costly product. So with Kno we are investors with Marc Andreessen, as well as with Intel and Goldman. Chegg, we are an investor with Kleiner Perkins and Insight and so you look at a Tutor.

Again, you are seeing this wave where universities are looking at how they create a better value proposition for their students. The typical college student has $25,000 of debt, that’s $1 trillion of all college debt. Tutor goes and partners the university, helps them create online program, creates incremental revenue for the university as well as a better student online experience. So you’ve just seen a lot of this, of what I call confluence or catalyst taking place in that market.

We actually just put out a white paper, because we are seeing such activity and candidly because of our reputation. We are getting invited to participate with all the best stuff. You see the leading investors, the guys are always early and usually right, Benchmark, Kleiner Perkins, Sequoia are all being activists in the education technology space and we are in there with them, because we see such – growth as such strong fundamentals.

I will say if you kind of look at – if you aggregate internet, commerce, social mobile and cloud service, which all could be categorized kind of internet and that’s still by far way the largest with green technology being 11%, but we are also looking to grow our green tech investments selectively.

We continue as I mentioned, add to our position in Bloom Energy which is experiencing tremendous growth for really strong fundamentals. Our recent investment in Solexel, which is a business that we think has just huge growth in front of it, you know truly disruptive from the obviously gigantic energy market. Then Totus is another new investment we’ve made, which is in the sustainability group in the green lighting space.

John Hickman - Ladenburg Thalmann

And then just one more question, if you had the guts right now, is Silver Springs the next – probably in your portfolio the next one to go up.

Michael Moe

Yes, once filed. It’s certainly probably the most probable. That said, we are aware of several of our companies that are kind of spinning up the process and kind of carefully evaluating whether its time to go out or not and as I made in the formal remarks, I think all these companies are looking at their options and our core holdings and again we have concentrated positions in companies that are greater scale, greater market value and we think all of them can go public if they chose and they obviously strategically value.

There’s a consolidation that’s taking place in the technology world, which is going to whether we like it or not, pick off companies that we are invested in, because we are invested in (inaudible).

John Hickman - Ladenburg Thalmann

Okay, thank you.

Michael Moe

Thank you.

Stephen Bard

This is Steve Bard, I’m sorry to interrupt. I just want to revisit John Stockbridge’s question with respect to cash on hand. The number I provided earlier, netted out in investments which we’ve committed to make, but haven’t completed yet. The actually cash on hand as of this morning was $51.5 million. Thank you operator

Operator

Thank you. And our next question comes from the line of Ed Woo with Ascendiant Capital. Please go ahead.

Ed Woo - Ascendiant Capital

I had a clarifying question, is it correct that the bulk of your loss from the quarter net realized or un-realized was due to Zynga, was there anything else involved?

Michael Moe

Yes, I’ll let Steve answer the question. But no, there was a handful of adjustments. But go ahead, go through them Steve.

Stephen Bard

Sure, the net realized loss was exclusively the PJB note, $1.38 million. There were a few marks to the portfolio, so net changes and unrealized depreciation on investments, we marked down Facebook, Facebook, Groupon and Serious. We marked up Dropbox, there were transaction fees such as finder fees and legal expenses involved there, but with respect to the net realized loss, that was exclusively PJB.

Ed Woo - Ascendiant Capital

Okay, and just another clarifying question, is Silver Springs the only company you are investing that has actually filed and everybody else hasn’t filed yet.

Michael Moe

Correct.

Ed Woo - Ascendiant Capital

Okay and the last question I have is, now that you are up to about 40 companies, do you have an optimal amount of companies that you would like to see GSV invested in.

Michael Moe

Yes, that’s a great question. I think that’s evolved as our capitals grow. We still have a strong philosophy of concentrating the capital in core holdings. So we made reference to our five largest holdings earlier.

But if you look at our top 20 holdings, in the top 20 investments, we make its 86% of the portfolio and we anticipate and what I’ve said is sort of a framework that we are trying to – as we are constructing our portfolio, we are looking at different investment themes, we are looking at size and stages of companies. But we look to continue to have the bulk of our investments in a relatively 20 to 25 names and then we will sprinkle that with interesting companies and smaller positions as we think its appropriate.

But I think what we had created as a model was that we would have 25 to 30 names. That was sort of what our thesis was as we kind of evolved this looking at where we think we can optimize the portfolio, the greatest. We continue to believe its about concentrating and adding to core positions and leading names, but we are complementing that with making smaller investments in companies where we think have an advantage where we think it makes sense, because it would compensate us for in terms of return potential, so that’s how we are thinking about it.

So we are not looking at having to expand the number of core positions, but we have added what we think are compelling smaller types of investments on top of the large positions we continue to add to.

Ed Woo - Ascendiant Capital

Great. Well, definitely good luck.

Michael Moe

Thank you so much. I appreciate it.

Operator

Thank you. (Operator Instructions). We have a follow up question from the line of John Stockbridge a Private Investor; please go ahead.

John Stockbridge - Private Investor

Yes sir, I’m sorry, but I did not get. My first question was cash and NAV for as of today not June 30, and you did cash, but did not give me any NAV. If your good enough to do that, that would be perfect.

Michael Moe

Well Steve, this is in your realm to discuss. We give a NAV once a quarter and that progress that we go through is pretty rigorous, so we are not just going to throw up NAV, but I think you can do – the portfolio is marked on a current investment basis. You know currently as of June 30, but I don’t think there is anything material that’s changed to the portfolio. Again, we put an appropriate value on and we are confident with the fundamentals. The cash, I think it’s important. In terms of the total cash it is just over $50 million we have in our bank today.

John Stockbridge - Private Investor

Right, well thank you. But I think a lot of the cash position as you know was from the secondary offering. And listen, don’t get me wrong, I’m just a very discouraged individual investor that would like to see a little bit more from the standpoint of information flow or whatever, and I don’t mean what investments you are look at, but something that allows for the market to penalize what your NAV could substantially account.

Michael Moe

Yes and believe me, I understand your frustration, and I mean we are all frustrated in terms of where the share price is. We are frustrated and disappointed with how our three public companies have done, and I will tell you that we have been around this for quite some time and been involved in emerging growth companies and we are going to be wrong from time to time, but we are focused on the barring average, we are focused on fundamentals, because we know that over time fundamentals will drive the stock price.

And so we are working extremely hard at GSV, is to focus on identifying the best of the best growth company in the world and be diligent and be transparent and honest with ourselves about what’s going on and we work really hard of doing that.

I will say that we try to be communicative with our investors, its our obligation, its our duty and we feel very strongly about that and if there’s suggestions or things that we can do on an ongoing basis that will provide better information, better insight to what we are doing, I think that’s important and we think that’s to everybody’s benefit. So we will focus on how we, how we can deliver against that and I think that’s completely fair and again, your frustration is fair as well.

What we are focused on is making smart decisions and doing everything we can to be involved with the right companies, because if we do that, everything will take care of itself and that I assure you. Thank you.

Operator

Thank you. Our next question comes of the line of Tony Polak with Maxim Group. Please go ahead.

Tony Polak - Maxim Group

Could you comment a little about your valuation on Twitter. I see if I’m right its about $17 and could you comment on where it is trading now. I assume it is trading somewhat higher than that.

Michael Moe

Yes, so the reality with Twitter is, I’ll tell you, I don’t think there is a real, it’s not the kind of market that we’ve seen in the past. Even the fact that Twitter as you might know or recall from previous calls is a company that is very systematic, has a process about who’s approved to buy the shares and so forth and we are an approved buyer. But nonetheless you’ve seen a pretty active market and with marks that give you some pretty good sense of how investors are valuing it.

Before Facebook, Twitter shares were certainly north of $20 a share. I think $21, $22 you saw pretty good institutional market. Since Facebook and the disappointment, it was our expectation that we were going to see Twitter shares be much lower than where you are seeing our market today and its not like I said before, its not a great market, but I think we are seeing twitter – we think we are reflecting the value of Twitter today well in terms of what we stated in our statement. You are playing about $17 and change.

We think it’s an appropriate level. They will be going through, they are going through a tender process as we speak. So I think we’ll have a pretty good sense of what the current price is, but its not my expectation that you’ll see it materially above where we have it marked. But we do love what’s going on with Twitter. We are very close to that situation, as just was with a very, very senior person on Twitter last night and we are very excited about what’s going on there from a value creation standpoint.

I’ll also make the point which I probably could have referenced in the earlier formal remarks, but there may isn’t time mention, because people are asking what’s going on in the marketplace. And certainly what’s happened, Twitter’s unique Dropbox candidly is unique and that the values, I mean Dropbox are smoking.

But generally speaking we’ve gone from being a sellers market, meeting the sellers, dictating terms, people were chasing or we thought we were very disciplined about how we bought our shares and as we mentioned as disappointed as we are on Facebook, we own the shares at $29 which there was no market and at the time now its below $30 in the period that we bought the shares, but nonetheless we are trading with it everyday.

But generally speaking, the good news here is its become more of a boxed market, meaning buyers are able to dictate terms, buyers are able to get that much greater value on great companies. So I made the point about Spotify earlier, I just kind of referenced in passing.

We are delighted by the Spotify stock that we own and the price that we own it vis-à-vis where its recent financing was done. The fundamentals that are explosive are just fabulous, and we’ve got a very good price vis-à-vis where financing was done every recently. But the financing was done prior to Facebook and we bought our shares after Facebook, so its good news for I think our shareholders.

Tony Polak - Maxim Group

Okay, thank you.

Michael Moe

Thank you.

Operator

Thank you. Our next question comes from the line of Danilo Kawasaki with Gerber Kawasaki Wealth Management; please go ahead.

Danilo Kawasaki - Gerber Kawasaki Wealth Management

Yes, in light of what happened to Facebook IPO would you guys be willing to consider taking some profits for the next two companies that go public.

Michael Moe

Well, we are always looking at what’s the right decision and generally speaking, it’s our philosophy once we become liquid, once we are permitted to sell, we’ll be looking for an opportunity to sell. So with the companies that we invested, we have a lockup period of six months. In some cases underwrites will allow you to sell before that lockup period is done, but we haven’t had that opportunity. Whether we would have, that’s different, but generally speaking you can expect that we are going to hold the position for at lease six months and will then look for the appropriate time and the place to exit.

Danilo Kawasaki - Gerber Kawasaki Wealth Management

Okay, thank you.

Michael Moe

Thank you.

Operator

Thank you. Our next question comes from the line Donald Elliot, a Private Investor. Please go ahead.

Donald Elliot - Private Investor

Hi, I have a coupe of questions, particularly about some of these companies, i.e., Dropbox. Do you really think that they can compete in the space with such names as Google, Apple, Microsoft and if I’m not mistaken they are cloud computing.

So if I’m not mistaken, Google has Google Drive, Apple has iCloud, I think Microsoft has SkyDrive, something like that. You really think Dropbox can compete and another question regarding Twitter, do you feel -- I mean how do you feel about Twitter. Do you feel like it’s going to flop like Facebook or what..

Michael Moe

Well, I mean this is the first on Dropbox and obviously we’d be naïve to say that we don’t pay attention or don’t carefully watch the developments of very powerful, tremendous companies such as Google doing Google Drive and with iCloud with Apple or Microsoft, I mean these are great companies, lot of resources and so forth.

What our experience is with emerging growth companies, is that you come across, again often those companies, the buy guys kill the little guys and you’ve seen that many times more than the little guys win it right. But you come across these very special companies every so often that have the special sauce, the special leadership, special product and potential and culture and I’m telling you things can change, but Dropbox is a company that we are huge ably resent…

iCloud, with me obviously Apple tried to buy Dropbox three years ago for a $1 billion and Drew Houston said he wasn’t going to do it. And then he just got their head down and you walk into that company and they are relentless, they have a product that’s basically magic and it’s so much.

I think basically 100 million people’s view right now that this is a product that is superior, vastly superior to anything in the market. They’ve commoditized the operating system, they have commoditized device and they made a seamless remarkable product that when you have real network effects going, meaning you got the network that everybody sharing on, it doesn’t matter how big your competitors might be. You have built in network effect type of advantage.

So look, Dropbox, as I said we would be foolish to ignore it. They are serious compotators, but we think Dropbox is a special company and they are doing unbelievably well and their value is going up even with the carnage that you’ve seen taken place in a lot of the internet names.

On Twitter, again the Twitter, Facebook comparison – when others make a point on Facebook and certainly there is a number of different reasons why stock is trading at $20 and change versus what many of us expected it was going to do. But what it has to do with Facebook. I mean their growth decelerated in the past three quarters from well over 100% at when we bought our stock to the last three quarters, 55%, 45% and 35%.

And so that when people, investors are paying the futures that makes a trough on Facebook and that coupled with any kind of way you could mishandle an offering which went on here, investors pay futures for growth companies and that makes them work when people start to question that and they look at the review mirror and that’s when you have a stock compressed like Facebook’s compressed.

That said, you have an amazing network that’s been created by Facebook. You know some of the issues that people point to and not being able to monetize their mobile usage and so forth. I mean that’s true, they’ve got to monetize, its lagging their mobile users, but they’ve got almost a half a billion peoples using Facebook on mobile device, even signal month. That’s just incredible.

So if Mark Zuckerberg tomorrow would decide to kind of over weigh monetization versus user experience, I think you’d see that Facebook revenues and profitability would sore, Wall-Street would love it, but what I think they are looking at building us long term business and we do still continue to believe that Facebook is the communication collaboration platform of the future.

Long way of saying, Twitter, well now I guess because you are seeing, you see the similar early growth with Twitter and Facebook and we made the comparison looking at Twitter which started three years after Facebook, basically being three years behind it in the value creation, we think that part of the thesis is correct.

The difference is with Facebook, what Twitter’s creating a modern media network. Its foundation is really time service and we made a reference of a investment we make at Dataminer, which is benefiting off a remarkable Twitter firehouse of information.

So business are being created off of, just like the Facebook, but off of the power of the Twitter network. But I think its game armors relates to network effects and how Twitter has been integrated into every old medium business, very business, everything that’s going on basically has Twitter in mind in terms of a partner just because of the power of this network that they are creating.

So again, its no doubt that Twitter people, when you look at the opportunities in front of us, they are going to be able to grow at a really high rate for a really long time, so they got to executive, the got to continue in fact to retain the best people, but it’s a great growth business and we are delight that that’s our largest position.

Operator

Thank you and our last question comes from the line of William Corley, a Private Investor.

William Corley - 22nd Century

Yes, I’m actually William Corley with 22nd Century. Hi Mike, how are you?

Michael Moe

I’m doing great. How are you?

William Corley - 22nd Century

I got a few quick couple of questions for you. First of all, and I’d like to thank you for your weekly writing that you put out. I met you in San Francisco in your office a number of years ago. I also run 1st Discount Brokerage, but the writings that you put out each week are very helpful.

Michael Moe

Thank you.

William Corley - 22nd Century

I think that you have done an excellent job of telegraphing your views and even with the debacle on Facebook I think that you addressed it to the readers readily and I want you to know first hand I appreciate it and believe in the way that you approach your investing and these things are tricky.

That being said, I have been a professional money manger for quite a long time and these private equity deals are sometimes moving forward and I know your are such a valuation, and trying to place asset to what they will be valued in the market place over a period of time.

What do you expect the multiplying effect to be in the closed in space of private equity. You got other private equity investment that have been out there for a number of years that have been the leading discounts to NAVs in the group and so its interesting that this particular stock is, GSV is now somewhat getting painted with that same brush.

So I want to kind of get your view as you move forward on how we can separate ourselves from that that stigma and then secondly, to understand if the market, you can’t close that 30%, 40% discount to NAV moving forward.

And then secondly, because of your writings going back in March, you introduced a number of companies, one course era and I just finished taking their sociology course online from Princeton University because you introduced that to me, and I took the time to take that course, just so that I can be informed to be able to let investors and the community know, whether this was real or whether this was just a hot spot and thanks to your initiation, its very real and its phenomenal.

They expected to be 5000 students in my class and by the mid-term there were 40,000 and the professor did a brilliant job and what I as a student took away from the class was knowledge at a very high institution i.e., Princeton.

So my question to you is, as you are investing, the GSV funds into the knowledge space, how are those investors going to play out when now you have MIT, Harvard courses bringing in high level education to the public at no cost.

Michael Moe

Yes, you said a lot of different things, but first let me one, thank you very much for your kind comments about the news letter we put out and anybody on the line, we make this available, we put our kind of weekly thoughts out and we do try to communicate and provide information on how we are thinking of what we are doing and so one, I very much appreciated those kind of comments and it is, and we should have probably done before, just to make sure that people are aware that we do that, and that’s something that we hope people find useful and it adds to that point about communicating well with our shareholders.

Secondly as it relates to kind of the state of our discount to NAV versus what can happen over time and how do we avoid being in sort of a perpetual discount to NAV and there is a couple or three things that how we look at that. One is, we understand. I mean we understand what happened to our stock and we think again as stock goes ahead of NAV we have got 4% of the fund in Facebook, we got undue credit for Facebook in the fund and if one of the things went the other way, we certainly got punished along with.

But I think the gap between NAV, the portfolio and what we got, you know I think some investors think that everything in the portfolio is – and obviously its discount like this with the case. We bought at one price, but they are significantly below what we bought. I mean that’s – we have NAV and we go through a third party evaluation firm. Our auditors go through it, so there is no routine matter with an auditor and so our NAV is our stated NAV and I think as people appreciate, the portfolio that doesn’t have a bunch of black holes. In fact the fundamentals are outstanding.

Moving that gap and as we tell that story and people understand what we are doing, we are more confident in what we are going than what we ever have done. We think the vehicle address is a huge structural change that’s taken place in the private market, which we think will benefit our shareholders and I think as people understand that and understand what’s the underlying portfolio, we will see that gap close materially.

Along with that, we will have events that will confirm that and candidly the real thing that people need, that we think we have to educate about and we have to prove this is correct, is that over time, the intrinsic value of the portfolio should be materially above state NAV and I think if we show that’s correct, because in other words the things that create markets are going to give you more up a sock. I mean on the negative side they happen right away.

On the positive side it’s not going to happen as fast and so overtime when you are investing the portfolio its growing well over 100% per year, if you ran the fundamentals of value creation and if we buy them right, which we think we are, the value creation should be extreme and that ultimately as investors start to have confidence, if that’s the case, we think that the share should trade at a health premium.

But the first step is to get it back to, back to approximation NAV and I think communication and execution are the key things to that, and execution is the most important, but we want to communicate, we want to be transparent.

As it relates to the point you make about course era and what’s going on in the disruption and education space and John Hickman asked the question earlier, there is tremendous change that’s taken place in this industry and it’s a huge industry, its $4.5 trillion globally; in the US 10% of GDP.

The classic investment opportunity is where there is a problem. The bigger the problem, the bigger the opportunity. In a global market place knowledge economy there is no bigger problem than how to more effectively educate our populist and our education makes a deference not only on how an individual does, but how a company does and how a country does.

So we are looking to invest in companies that are change ages, the disruptors in this course era regrettably. You know your right, we highlighted because we think it’s just a fascinating, powerful company, but we haven’t had the opportunity to invest in course era to date. They have nearly a million and they were created 12 months ago, they have nearly a million students today.

Kleiner Perkins are the big investors there. We certainly are in dialog with Course Era, we are trying to get close to them, we have a nice relationships with Kleiner Perkins, so all that’s good, but Course Ear is a fascinating company and a good example of the type of companies that we are looking to invest in.

And when you see with three models, what’s interesting, we’ve got this theses called knowledge is a currency and so what we believe and we have a great kind of commercial for this theses, with Course Era, because it ultimately, if you can get a class for free and you can demonstrate, you benefit from that knowledge, this knowledge economy you are going to continue to be able replenish your knowledge take and be relevant and changes happen so fast. So to keep the job you have to participate in the future.

People are going to have to keep on coming back and get this knowledge’s to make more a difference of what know versus where you go. And so that’s the kind of company, so Course Era is a great example of that, Twitter is a great example of that and we were investing in the companies that are disrupted, that’s what we are doing.

So that’s what we are excited about. That’s why we are excited about this. There is a lot of money spent. Knowledge is critical, knowledge economy is critical, you are seeing all the things circled around it and we are going to be investing in the very best companies, with the companies that are disrupting this market place and our shareholders and we think we’ll participate in a material way. But I appreciate all your comments and your questions.

And so with that, I think it sounds like we are done in terms of questions. But we are always available. We are sincerely appreciative of the support and the confidence people are putting in us. We are sharing the comments of some earlier questions; we are certainly frustrated.

While we think that we are focused, we know if we executive, we know if we do our job in terms of investing in great companies and great prices. We are going to reward our shareholders and people that show confidence in us. So thank you very much for your interest and attention. Again, we are certainly available off line. Thank you.

Operator

Ladies and gentlemen, that does conclude the GSV Capital second quarter 2012 conference call. Thank you for your participation. You may now disconnect.

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