How To Capture Explosive Growth Before Companies IPO
It’s an old investing axiom that that many of the companies with the highest growth potential are private and thus out of reach for investors of the public markets. Venture Capital (VC) firms are the ones making investments in early stage growth companies, but it usually takes big bucks to get in on the action.
GSV Capital Corp. (Nasdaq: GSVC) is a publicly traded VC that allows regular investors to invest in hyper-growth companies. Better yet, the firm’s stock trades at a discount and has several potential catalysts that could send shares higher.
In early-stage investing, there are going to be hits and misses, that’s just the nature of the beast. However, GSV has shown it has a knack for picking winners. It invested in Facebook, Inc. (Nasdaq: FB) and Twitter, Inc. (NYSE: TWTR) prior to their initial public offerings (IPOs). This is a company that’s done very well for investors, steadily growing its net asset value per share over the last three years.
Despite the company steadily growing assets per share, the stock price hasn’t followed suit. Despite trading for a slight premium to net asset value during the first few years of its existence, it now trades at a 34% discount, giving investors a margin of safety if they buy shares now.
This discount to net asset value is a clear opportunity as there are catalysts that could propel the stock higher and close that discount quickly. The market is trading at all-time highs, which has motivated a lot of companies to go public sooner rather than later.
IPOs are how this company monetizes its successful investments. GSV Capital’s stock nearly doubled in the months leading up to Twitter’s late-2013 IPO. Now, GSV is a large owner of two other companies that could soon announce their own IPOs, and those deals could bring a large windfall of cash to the company.
Dropbox, the cloud storage company, is the fourth largest position in GSV Capital’s portfolio. Its most comparable competitor in the cloud-storage industry is publicly traded Box, Inc. (NYSE: BOX). Box had 32 million registered users as of the end of 2014 and today has a market value of roughly $2 billion. Dropbox, on the other hand, has more than 300 million active users and is the recognized leader in the industry.
#-ad_banner-#Another portfolio holding that is expected to generate a much-anticipated IPO is Lyft, the ride-sharing service that is a key rival to Uber. A new round of funding, including a $100 million dollar investment from Carl Icahn, brought the company’s reported value up to $2.5 billion.
Uber was recently valued at $40 billion, and Lyft’s valuation will likely continue to grow from here. While the financials haven’t been reported for either Dropbox or Lyft, the IPOs could spell big profits for GSV Capital investors.
A second catalyst is the potential initiation of a dividend payment to investors. The company disclosed on its fourth quarter conference call that it had applied to the SEC to change its corporate structure to be a “Registered Investment Company.”
This change in structure doesn’t change the fundamentals of the business, but in a low interest rate environment where investors need yield from their investments, a dividend policy opens up the stock to another class of investors who might not otherwise have considered investing.
Risks To Consider: GSV Capital still owns a large block of Twitter stock. Any large moves in Twitter could affect the underlying value of GSV.
Action To Take –> This is a unique opportunity for retail investors to buy a piece of companies trading in the private market who can’t write a check as large as Carl Icahn. The stock’s discount to net asset value gives investors a change to buy a piece of these companies for 66 cents on the dollar. An IPO of one of the portfolio companies or a dividend announcement could be the catalyst that provides 34% upside to fair value.
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