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Monday, May 16, 2011
With GSV Fund, The Little Guy Can Shoot For The Next Facebook
May. 16 2011 - 1:57 am | 222 views | 0 recommendations | 0 comments
If you want a piece of Facebook, Twitter or other hot private Internet companies, you can buy a stake through SecondMarket, Sharespost or a secondary broker–if you’re an accredited investor as defined by the SEC.
But a new publicly-traded closed-end mutual fund, Global Silicon Valley Corp. (Nasdaq: GSVC), which quietly had its IPO last month, gives the average Joe the chance to buy in to the next big technology company–while it’s still private.
On April 28 GSV, which is changing its name from its original moniker NeXt Innovation Corp., raised about $50 million through pricing 3.33 million shares at $15 a piece. The firm is headed by Chief Executive Michael Moe, who was co-founder and former chairman of tech investment bank ThinkEquity Partners.
GSV will initially invest in about 15 to 30 start-ups in secondary deals as well as primary direct investments. It will target companies between $100 million and $1 billion in valuation, with revenue growing at more than 40% annually. The firm has not invested in any companies yet. Moe says he’s looking at growth-stage companies, not competing with John Doerr or Marc Andreessen for the next early-stage star company.
“We intend to invest in the most important, fastest growing companies,” Moe said. “It’s a new normal of companies staying private longer. We’re investing in companies that would’ve historically have gone public… This not only will give start-up companies and their investors big paydays but also give retail investors access to new high growth tech companies.”
GSV will pass on profits to its own investors when it sees liquidity in its portfolio companies through a dividend. GSV is organized as a closed-end fund, which is a publicly-traded company. GSV is managed by the affiliated NeXt Asset Management.
Moe has been thinking about the problems with the IPO market for years. He was co-founder and CEO at ThinkEquity from 2001 to 2008. Prior to that he was head of global growth research at Merrill Lynch from 1998 to 2001, and before that he was head of growth research and strategy at Montgomery Securities from 1995 to 1998. He also is on the board of Sharespost.
He’s still bullish on Sharespost, but he believes there should be a way for retail investors to invest in new growth companies. Whereas in the past companies may have gone public at a $100 million market cap, now due to major changes in the IPO market many are waiting until they reach $1 billion or more. He says GSV will give individual investors access to these companies, which have previously only been accessible to venture capital and private equity firms, as well as accredited investors (which generally means someone with a net worth of more than $1 million or annual income of more than $200,000).
“It’s a way for a broad group of investors to access the kind of companies of tomorrow that they used to have the opportunity to invest in because they had an IPO on the Nasdaq,” Moe said. “Now they’re not. So now investors can participate in those companies in a publicly-traded security. I think that is compelling.”
But will there be sufficient information about these private companies? Many questions have been raised about special-purpose vehicles buying shares of companies like Facebook and Twitter and whether even accredited investors have an accurate sense of what they’re investing in. (I previously covered this at Dow Jones.) That’s because few shareholders have access to the financials of private companies, by definition, except perhaps venture investors with large stakes.
So will retail investors betting on similar private companies be even less informed? Moe says no. He says GSV Capital has detailed information on private companies from NeXtup Research, which Moe co-founded and co-owns. GSV management pays NeXtup for the research out of its management fees. NeXtup Research also provides research to Sharespost.
NeXtup Research does not have inside information but gathers data through its proprietary methods, Moe says. Whether that research is enough for investors to buy the stock remains to be seen. Moe is selling investors on his background and experience in investment banking as well as that of his partners–that he will pick winners in what is a frothy private market for Internet and technology companies.
GSV’s CFO Stephen Bard was chief operating officer and a board member at Fuller & Thaler Asset Management from 2001 to 2009. Prior to that he was managed west coast operations for Fidelity Management Trust Company.
GSV’s board of advisors includes Todd Bradley, executive vice president at Hewlett-Packard, William Campbell, who is an Apple board member and chairman at Intuit, and Robert Grady, managing director and partner at Cheyenne Capital Fund and former partner at the Carlyle Group.
Next Innovation will charge a 2% management fee and a 20% carry on profits after an 8% hurdle, somewhat akin to the way a venture fund works. Moe says that venture and private equity firms would be interested in working with his company because it can provide advice, help with recruiting or connections through their networks. Also, GSV does not require a board seat to invest.
There is some precedent for a publicly-traded venture investor. Internet Capital Group famously was one of the high-flyers during the dotcom bubble, investing in business-to-business e-commerce companies and once had a $60 billion valuation on the Nasdaq. Harris and Harris Group is a publicly traded company investing in nanotechnology. But Moe says GSV is not a publicly-traded venture fund, it’s rather an emerging growth fund.
Ultimately it will be interesting to see how investors react once GSV starts to announce companies in which it has invested. In the dot-com bubble, Main Street investors, eyes glued to CNBC, eagerly invested in every new dot-com IPO. During this era, will retail investors, pumped up by bloggers and Twitter posts, instead invest in hot growth companies through funds like GSV? Will GSV’s stock pop each time it announces a new portfolio company? Stay tuned.
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