What do you get when you combine artificial intelligence (AI) with venture capital? The next wave of unicorn IPOs.
The problem for the average investor is getting an opportunity to invest along with the big venture capital and institutional players. There are very few onramps for doing this. Equity crowdfunding has made a small dent, but for the most part, it’s still very difficult for the investor with a $10,000 portfolio to find anything worthwhile.
Despite the difficulties, some publicly-traded companies invest in venture capital, whose stocks you can buy.
I used the Securities and Exchange Commission’s EDGAR search tool to find them, looking for the term “venture capital” within 10-K annual reports. That query brought up 1,337 results filed between July 1, 2022, and July 28, 2023.
Of the choices, here are three venture capital stocks to buy through which you could profit from the next wave of venture capital.
TriplePoint Venture Growth BDC (TPVG)
TriplePoint Venture Growth BDC (NYSE:TPVG), as its name implies, is a business development company (BDC). The BDC is externally managed by TriplePoint Capital, an investment manager that’s made more than $10 billion in loans to venture capital-backed companies since its founding in 2006.
TPVG is one of TriplePoint Capital’s five investment vehicles on its platform. The others are all venture capital-related. However, only the BDC is publicly traded.
As its 10-K states, the company provides growth capital loans, equipment financing, revolving loan facilities and direct equity investments to growth-stage ventures. The typical growth capital loan ranges from $5 million to $50 million. The interest on those loans ranges from 10% to 18%, with repayment periods of 36 to 60 months. These loans often have warrants attached that allow the BDC to participate in the venture’s equity appreciation. The warrant amount generally is 2% to 10% of the loan.
As for direct equity investments, TPVG obtains equity investment rights from some of the secured loans that allow it to invest in future rounds. Sometimes, it also invests in a venture before a secured loan is completed. The typical equity investment is between $100,000 and $5.0 million.
TriplePoint Capital, as the adviser, receives a base management fee of 1.75% of the BDC’s gross assets, with an additional incentive fee based on net investment income.
The BDC’s net asset value as of December 2022 was $419.9 million, while its net investment income was $63.6 million, 55% higher than a year earlier.
The stock’s annualized dividend is currently $1.60 per share, yielding 12.99%.
SuRo Capital (SSSS)
It’s been a long time since I’ve written about SuRo Capital (NASDAQ:SSSS) under its previous name, GSV Capital. For that, you have to go back to October 2013.
Back then, GSV held 15% of its portfolio in Twitter, which went public a few weeks later at $26 a share, opening at $45. By the end of 2013, its Twitter holdings were worth $103 million, or nearly 36% of its net asset value. As a result, GSV’s share price was over $15.
The company became Sutter Rock Capital in July 2019. A year later, the company changed its name again to SuRo Capital. Its shares traded for pennies above $4.
For the aggressive investor, SuRo presents a potential value proposition. At the end of March, its net asset value (NAV) was $7.59 per share ($215 million). Its current share price is a 47% discount to its NAV.
In the company’s Q1 2023 press release, chief executive officer (CEO) Mark Klein said, “With over $120.0 million of investable capital at quarter-end, we remain poised to continue investing in both primary and secondary opportunities for later-stage, high-growth companies at what we believe will be compelling valuations.”
SuRo finished the first quarter with $165.1 million in portfolio investments. The remainder of its $291.1 million in total assets was cash, Treasury bills, and receivables.
Social Leverage Acquisition Corp 1 (SLAC)
Social Leverage Acquisition Corp 1 (NASDAQ:SLAC) is a special purpose acquisition company (SPAC) from Social Leverage LLC, a Scottsdale-based technology-focused early-stage investment company.
Co-founded in 2009 by Howard Lindzon and Tom Peterson, its managing partner is Gary Benitt, who joined the company in 2014. To date, Social Leverage has raised three active funds that have made more than 125 investments in fintech, enterprise software and consumer technology companies.
In February 2021, the SPAC, led by Howard Lindzon as CEO, raised $345 million partly due to its initial public offering. It had 24 months to find an active company to merge with, or the funds raised would return to investors.
On Aug. 1, 2022, SLAC announced that it was merging with W3BCLOUD, a storage and compute infrastructure provider for Web3. The transaction values the combined entity at $1.25 billion. W3BCLOUD will use the funds to accelerate its data center footprint and Web3 developer ecosystem.
In April, the shareholders of SLAC agreed to extend the deadline for closing its merger with W3BCLOUD by nine months, to Feb. 17, 2024.
While there is a risk that the deal isn’t completed and the trust funds are returned to shareholders, the downside is minimal. As we’ve seen from many SPACs, the real risk comes post-merger when investors realize the actual value of the operating business is significantly lower.
Howard Lindzon and his partners have done an excellent job building a venture capital brand that resonates with institutional and retail investors. SLAC stock is one way to play the venture capital game without betting the entire farm.
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
