In late April, GSV Capital (NASDAQ:GSVC) launched its IPO. It was a fairly small offering, with an issuance of 3.3 million shares at $15 each. Even though the company’s focus is to invest in hot pre-IPO companies, it wasn’t enough to gin up excitement for investors. As a result, the stock price languished.
But on Monday, things changed in a big way — GSV announced that it purchased 225,000 shares of Facebook for $29.28 each.
That sets a valuation on the social-network operator at $70 billion, which is actually at a discount to some of the recent trades that valued Facebook at $80 billion to $85 billion. The transaction was completed on SecondMarket, which is a marketplace for privately held companies.
Unsurprisingly, the stock price of GSV soared by 42%.
However, the investor reaction does seem a little exuberant. After all, the buzz is that Facebook may achieve a valuation of $100 billion by the time of its IPO, which is expected by many to come in the first quarter of 2012. That’s certainly a juicy figure – but it doesn’t represent a massive return. GSV’s position also represents only about 15% of its overall portfolio.
What’s more, investing in pre-IPO companies can be extremely risky because of the changes in technology and competition. Just take a look at Color, which raised $40 million in venture capital. Despite having a cool mobile social network, few users signed up. So far, it’s been a bust.
GSV does have an advantage, however. Its CEO is Michael Moe, who is a veteran in the tech world. He was the co-founder of ThinkEquity, an investment bank, and served as the head of global growth research at Merrill Lynch. He even wrote the top-selling book called Finding the Next Starbucks.
Moe also is involved in neXtup Research, which provides coverage of privately held companies and is a good source of investment ideas and analysis.
Besides Facebook, GSV also recently made an investment in Kno, a developer of education applications, focused on e-textbooks. In fact, the company has raised $85 million in venture capital from firms like Intel Capital, Advance Publications, Andreessen Horowitz, Floodgate, First Round Capital and SV Angel.
It’s still early to gauge the success of GSV. This type of investing often takes time to see results. However, if the firm wants to continue to juice short-term returns, it would certainly make sense to take positions in other high-profile companies like Zynga and Twitter – even though the valuations are already hefty.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
