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  • Keating Capital: A Business Model Doomed To Fail [View article]
    Hi Josh, I went to check the 10-K for 2012 and here's basically an example of structural protection. It's for their investment in Corsair. A little lazy so I'll just copy the whole chunk here.

    Page 67 of 10-K, "Pursuant to the common stock and warrant purchase agreement governing the private purchase transaction with the Sellers, we purchased 640,000 shares of Corsair common stock at price of $6.25 per share and warrants to purchase 160,000 shares of common stock at a price of $0.0005 per share. The warrants were negotiated as a structural protection and grant us the right to purchase from the Sellers up to 160,000 shares of Corsair common stock at an exercise price of $0.05 per share... These warrants would entitle us to a structurally protected appreciation multiple of 2x our overall Corsair investment cost at the time of the IPO based on the IPO price, provided Corsair prices at its IPO at $10.00 per share or greater.
    The warrants are exercisable only upon: (i) Corsair completing an IPO of its common stock at an offering price of less than $12.50 per share, (ii) a sale of Corsair which results in holders of Corsair common stock receiving net sales proceeds of less than $12.50 per share, and (iii) if Corsair does not complete an IPO or sale prior to July 6, 2016, the warrants will be deemed to have been automatically exercised on such date. If the warrants become exercisable as a result of an IPO or sale of Corsair, the number of warrants will be proportionately decreased from 160,000 to the extent that the IPO price or net sale proceeds, as the case may be, exceeds $10.00 per share but is less than $12.50 per share, and the number of warrants will be reduced to zero if the IPO price or net sale proceeds, as the case may be, equals or exceeds $12.50 per share. Accordingly, if the warrants become exercisable as a result of an IPO or sale, we will be entitled to receive the full 160,000 warrants only if the IPO price or net sale proceeds, as the case may be, is $10.00 per share or less."

    A similar passage for Lifelock can be found on page 74 of the 10-K.

    I believe their investment results is what they are because their holding companies have simply not gone public(I believe only 4 have?), rendering their structural protections worthless. I also believe that the option-pricing(if that is the calculation they are using) of warrants decreases their value on the balance sheet.

    As you wrote, using Level 3 inputs is actually necessary, and any BDC that invests in private companies will almost definitely have most non-cash investments categorized under Level 3. I don't see that as a negative because if the investor is at all knowledgeable about KIPO's investment mandate, they should already be weary of the NAV provided. It boils down to how much you trust the management's assessment of value.

    Many parts of this article questioned the management's motive and actions. I have no idea about those so I shall not comment.

    While I might not personally long KIPO, I find it somewhat dangerous to short them. Should just a few of their portfolio companies go public, or in your words, should a few more "acorns" be found, investors might have to short cover out of money. Also, with the two rounds of special dividends coming up, the cost of shorting is increased, skewing the risk-reward matrix.

    Regardless, thank you for an interesting read.
    Jun 3, 2013. 01:05 PM | 1 Like Like |Link to Comment
  • Keating Capital: A Business Model Doomed To Fail [View article]
    Hi DRID, don't think it's the same Keating.

    From Wikipedia, the Keating Five guy is a Mr Charles H. Keating who should be 90 years old now. The CEO of KIPO is Mr Timothy J. Keating
    Jun 3, 2013. 12:35 PM | Likes Like |Link to Comment
  • Keating Capital: Liquidity Arbitrage In The IPO Market [View article]
    beefsteak12, I actually do agree with most of your points.

    1) It is generally unadvisable to buy into a CEF at IPO because the administrative fees and other expenses eats straight into the purported NAV. And Andrew here seems to do a pretty solid comparison:

    2) KIPO, and even GSVC, has performed poorly. By any measure. There really isn't any argument about that. And that's actually why it might be profitable to look at stocks like these now. Because I do think that there's a price for everything, even something that's bleeding cash. At some point, it must be worth a look, although you might not believe that now is the time, which is perfectly reasonable.

    3) The management might be paying themselves handsomely(I haven't actually check, definitely an oversight). But the fact remains that the information is public and disclosed. So although getting paid while delivering subpar results might not be too nice, there certainly isn't anything wrong with that. If that doesn't settles well with the investor, then the investor should look elsewhere. It is an open marketplace after all.

    The problem with having a corporate raider raid a CEF investing in private companies is that it can be extremely hard to get out of positions. Because if you hold a fire-sale of assets, I doubt even a 30% discount to NAV will allow the raider to emerge profitably. So that's a slight problem there.

    Thank you however for your comments. It sure did provide a counter viewpoint for the investment case.
    Apr 26, 2013. 11:45 AM | Likes Like |Link to Comment
  • GSV Capital: Cloudy With A Chance Of Meatballs [View article]
    GSVC is a trading stock as market perception is all that counts; there is little transparency in its NAV valuation process and it depends on whether you trust the NAV figure and what you think of their holdings. I personally like some of their companies even if I don't really like how management is conducting its investment process. The only comfort I have is that based on management's track record, they won't divest their investments for at least a year or two, so the companies I believe have latent potential will have the time and room to grow.

    But the above is slightly tangential. To answer you, I will definitely want to get into a position if GSVC breaks below $7.00, near where the historic low is and where insider buying has been strongest. The discount to NAV will also be more than 40% at that level, which is quite ridiculous. I believe it will take quite something for it to fall another 10% to test that level though.

    Disclaimer: Nothing says that a cheap stock can't get cheaper. Caveat Emptor.
    Apr 5, 2013. 11:59 AM | Likes Like |Link to Comment
  • GSV Capital: Cloudy With A Chance Of Meatballs [View article]
    Thanks notlup, I did missed that section regarding subsequent material events. The track record is really nothing to look at.
    Apr 4, 2013. 11:30 PM | Likes Like |Link to Comment
  • Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts [View article]
    Having done some due diligence, could I know what your view on the following matters are?

    1) It seems that using EBITDA may paint an overly rosy picture of IMOS since depreciation far exceeds capex spending. On another note, if this is the case, the company does not seem to be positioning itself for all the immense growth that you have mentioned. I do not know how the industry works, but I do assume that to meet all the "long-term sustainable growth of high-end portable electronics", they would need to ramp up their capacity and this would require capital expenditure that are at least in line with depreciation figures.

    2) Chairman and CEO S.J Cheng was indicted by the Taipei District Prosecutor’s Office in December 2005. It was alleged that "Mr. Shih-Jye Cheng, as instructed by Mr. Hung-Chiu Hu, purchased repurchase notes on January 6, January 13, and January 28, 2004 from Founder Associates Limited, a British Virgin Islands company affiliated with Mega Securities Co., Ltd. (formerly known as Barits International Securities Co., Ltd.), with an aggregate principal amount of approximately US$29 million, by using corporate funds from ChipMOS Taiwan and ThaiLin. The indictment further alleges that these repurchase notes were used as a cover to misuse the corporate funds of Mosel, and its affiliated entities, including ChipMOS Taiwan and ThaiLin, in violation of ROC law. In addition, the indictment alleges that Mr. Hu and others were engaged in the insider trading of the securities of Mosel in violation of ROC law, but none of the current officers at ChipMOS Taiwan or ThaiLin was indicted in this regard." (SEC 6-K, page 8) The company did establish a special committee regarding this, but the "committee" contained one person as of March 2012. The case has dragged on and on for over 5 years and 18 trial hearings and it is unclear if Mr Cheng will be charged and sentenced. The filing notes that "Mr. Cheng is very important to our current on-going business operations and our relationships with our customers and financing sources". Even if he is cleared of all charges, it seems that the management of ChipMOS is not as aboveboard as one might have thought.

    I would be hesitant to get into a position in this company even if the prospects seem compelling.
    Apr 3, 2013. 12:54 PM | 3 Likes Like |Link to Comment
  • Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts [View article]
    Just wanted to give a shout out to a well-reasoned piece, which I thoroughly enjoyed. I agree with many of the arguments put forth and they reminded me of the reasons that value investing legends like Greenblatt and Klarman gave for their own investments. And that's probably as good as it gets.

    Thank you for this gem.
    Apr 1, 2013. 12:28 PM | 1 Like Like |Link to Comment
  • GSV Capital: Cloudy With A Chance Of Meatballs [View article]
    According to GSVC, they invest in megatrends - Education Tech, Social/Mobile, Cloud, Greentech and Internet Commerce. So of the three companies you mentioned, SpaceX and Square wouldn't fit into GSVC's investment mandate, which is actually pretty sad.

    SpaceX is ambitious and it has a clear revenue model that is unlike, as you rightly pointed out, many "revolutionary" start-ups. They have extremely high R&D and capex outlay so I'm not too certain about their profitability, but at least they have a defined and viable revenue stream. Or as viable as the US government is going to be, with the sequester and partisanship. I have no idea if it will make a good investment.

    I have followed Square since late November, and I am certain mobile payment is going to be big. The only problem? Everyone seems to think so. There are so many competitors everywhere that it's impossible to keep a count. Many are localized - PayFirma in Canada, iZettle, SumUp,Payleven, mPowa in Europe - but there are just as many serious players targeting the worldwide market too - Intuit GoPayment, JPM-backed GoPago(they are backing Square too... if only they hedged their bets as well in the London Whale incident) and PayPal Here, among others. This is still the proliferation phase for the industry but I believe it will end in consolidation and oligopoly. Having too many systems simply reduce the effectiveness of each, and it will make sense to buy out a competitors' existing business in a region. Square had a first-mover advantage, but that is quickly eroding in face of big, nimble competitors. I believe the two or three that makes that metaphorical land-grab most quickly wins, but I have no idea who will do it. I like Jack Dorsey, but the risk/reward don't seem compelling.

    Pinterest...I don't know much about it but I wouldn't see it as a great investment. It belongs squarely in the Social/Mobile megatrend that GSVC is dedicated to, but that megatrend, as well as Internet Commerce, are those which I do not fancy. Personally, as much as I like startups, I am only a mid-stage adopter of tech fads. I still don't use Twitter(I'm pretty private), and I don't think I'll be using Pinterest anytime soon. My loss. Monetization has proven to be a problem for social communities like Facebook, and Pinterest should be no different. Current valuations would likely require Pinterest to monetize something, anything, so it's up to you to decide if they can do it. (Can't judge since I don't use it)

    I'll just reveal two apps that I use. Evernote has worked well for me and I like it. It will fit under GSVC's Cloud megatrend. Flipboard is a twitter aggregator that I particularly admire for bringing me trending news.(This is a reason I will not group Twitter with FB and Pinterest. I believe Twitter has a lot more commercial potential). I think Flipboard makes a bit of money off ads, but viability remains to be discerned.

    I believe I've stopped making I'm going to stop here. Just a disclaimer: I wrote this at 2am, and thus, I did not proofread. And I am half asleep. 

    I apologize in advance for any logical fallacy present.
    Mar 29, 2013. 02:50 PM | Likes Like |Link to Comment
  • GSV Capital: Cloudy With A Chance Of Meatballs [View article]

    Just to update, I got a reply from Financial Profiles, a firm GSV Capital has engaged for IR purposes, regarding Strategic Sports Solutions.

    I'll just quote from the email. "To clarify, S3i is Strategic Sports Solutions LLC. You will find it in the annual report and schedule of investments as S3 Digital Corp. (d/b/a S3i)."

    I have gone back to my worksheet and the math checks out so it's all good. I suppose Strategic Sports Solutions just changed their name too many times in a quarter such that their previous name(S3i) was not even the one found in the 3Q 2012 quarterly report.
    Mar 28, 2013. 08:31 PM | Likes Like |Link to Comment
  • GSV Capital: Cloudy With A Chance Of Meatballs [View article]
    Illuminati, you're right with Twitter's P/S (my mistake there). Although I wouldn't suggest that management spend all its cash and short-term investments on buybacks, some form of shareholder-friendly initiative would certainly be nice and would demonstrate that they feel as much a responsibility to shareholders as they do to themselves.

    MR-Tampa, just to clarify, what I meant by email is that I used the IR contacts on their website ( to try to reach them. I probably did that 10 days ago and nope, I haven't gotten a reply.

    meridian6, thanks a lot for the insight into their investments.

    To add on, I think Palantir is funded also by IN-Q-Tel, the PE arm of CIA. So the relationship with the government is even more complex. Looking at their career listing, I believe that they are working with multiple European governments, as well as Australia, NZ and Singapore. Wow, I knew Violin is decent, but I have no idea it was so groundbreaking. With Dropbox, the slight problem is that Microsoft has Office360, and that might prove to be the deciding factor in terms consumer choice. Personally, I can use any type of email but I much prefer Microsoft Office than OpenOffice or Google Docs, although that might change.

    I noticed GSVC gets in pretty late for the absolute hits(Twitter/Facebook) and this compounds risk. However, in fairness, they are having an increasing number of investments that are at seed/Series A stage. I didn't mention it before, but I like the investment in Avenues too. Apparently Suri Cruise attends it.
    Mar 27, 2013. 09:16 PM | Likes Like |Link to Comment