GSV Capital Corp. (NASDAQ: GSVC) offers a publicly traded investment fund that seeks to identify and invest in rapidly growing, late stage, venture capital-backed private companies. GSVC is a unique public fund that gives growth equity investors access to private companies with significant and attractive upside potential.
When GSV Capital was launched, we expected that the majority of investments would be secondary transactions, and in fact, our Facebook, Twitter, Dropbox, Spotify and Palantir investments were almost entirely secondaries. What we found was that we were also provided great opportunities to invest in primary rounds with premier investors.
We are agnostic in terms of whether we invest in secondaries or primaries. Our goal is simply to invest in the top private companies in the world at a fair price. While primaries offer benefits including an abundance of information, GSVC’s deep experience with secondaries offers advantages in terms of access, diligence, and timing.
We calculate NAV on a quarterly basis using a rigorous process that values every security in the portfolio. GSV Capital’s Board of Directors also employs an outside valuation firm, Andersen Tax, to perform an independent appraisal of the portfolio and its corresponding NAV each quarter. When there are differences between the analyses done by GSV management and Andersen, the Valuation Committee of the Board decides which value to apply.
We believe that growth drives enterprise value, and accordingly, we aspire to build a portfolio that has the highest and most sustainable growth rate. Driven by fundamental structural changes in the IPO market and in the characteristics of companies going public today, dramatic growth and value creation are increasingly taking place in the private marketplace.
As a liquid, publicly traded stock, GSVC is a unique vehicle that enables public investors to access this attractive asset class, which has traditionally been limited to select venture capital firms and institutional investors.
Based on research and experience, it is our belief that a disproportionate number of the big winners are found by focusing on themes where significant change and growth are taking place. Megatrends are powerful technological, economic and social forces that provide a tailwind at the back of growth sectors. The convergence of Megatrends and growth themes is how we develop investment themes focused on identifying the “Stars of Tomorrow”… the fastest growing, most dynamic companies in the world.
We have identified five themes that we believe are the most fertile for investments in companies with the greatest potential:
EDUCATION TECHNOLOGY (37% of GSVC’s Total Portfolio Fair Value*): In a Knowledge Economy and Global Marketplace, education makes the difference in terms of how well an individual does, how well a company does, and for that matter, how well a country does. The Internet democratizes education by lowering cost, increasing access, and now improving quality. Over the last 20 years the digital tracks have been laid, with over 3 billion people on the Internet today. We are starting to see what we call “Weapons of Mass Instruction”—rapidly scaling education companies attracting millions of students in a short period of time.
CLOUD + BIG DATA (34% of GSVC’s Total Portfolio Fair Value*): Every minute, over 200 million emails are sent, 2 million “likes” are registered on Facebook, and 300,000 tweets are released. Google alone conducts over 3.5 billion searches a day. “Infobesity” is an epidemic, with the amount of data captured and stored doubling every year. Powerful software analytics are creating massive opportunities for Big Data providers, with the industry expected to reach $55 billion by 2017, up from $20 billion today. The Hadoop market, which was approximately $5 billion in 2014, is predicted to rise 10x to $50 billion in 2020.
SOCIAL/MOBILE (18% of GSVC’s Total Portfolio Fair Value*): Over 87% of Millennials sleep with their smartphone and 80% say the first thing they do when they wake up in the morning is look at social media. If Facebook were a country, it would be largest in the World with over 1.5 billion “citizens”. Facebook-owned Instagram users upload 22 billion photos per year and WhatsApp processes a mind-bending 30 billion messages per day. We look at our phones an average of 110 times per day, and send over 550 million tweets per day. Social everything — communication, collaboration, photography, music, shopping, education and healthcare — is the future and it is going to be done anytime, anywhere on your mobile device.
MARKETPLACES (10% of GSVC’s Total Portfolio Fair Value*): eBay is the granddaddy of online Marketplaces and nearly 20 years old. What started as a way to impress an entrepreneur’s girlfriend and her love for Pez dispensers (and later fueled the Beanie Baby mania) has become the model for many great online businesses. The Internet is exceptionally suited to aggregate supply and demand within an industry, and smartphones amplify the tremendous network effects that can be created. The deeper the liquidity of the Market, the more equilibrium between supply and demand.
SUSTAINABILITY (2% of GSVC’s Total Portfolio Fair Value*): The good news is that the world’s middle class will more than double to five billion over the next 15 years. The bad news is that the strain this will put on the environment will be extreme, with wealthier people traveling more, consuming more, using more electricity for everything—from air conditioning to lighting larger homes. Sustainability is not just Green Technology: it is also Water and Wellness. There is no longer a debate between being “green” or “growing”—both are important. Water is even more precious, with California’s drought being a living example of how vital access to “blue gold” is for everything. Moore’s Law has taken effect with numerous sustainable technologies being able to compete on cost with dirty fossil fuels.
GSV’s investment process is rooted in research.
Our top-down perspective focuses on the intersection of Megatrends (technological, economic, and social forces that disrupt the status quo) across growth sectors of the economy to identify game-changing businesses with innovative technologies and services. We’re looking for large, open-ended growth opportunities as well as individual companies that possess the critical elements necessary to capture meaningful market share in these opportunities.
GSV’s bottom-up analysis is centered on the Four Ps—People, Product, Potential, and Predictability—an objective framework to assess a company’s potential to realize sustained long-term growth resulting from market Megatrends.
As a simple rule of thumb, the vast majority of GSVC’s investments will be in companies with a market value of over $100 million dollars, with the typical stage of investment being the “B round” and beyond. In fact, roughly 85% of our companies had a $100 million or greater market value at the time of our investment, and 92% were B round or later. From a historical perspective, many of the companies we are investing in today would have been small cap IPOs.
Research is the foundation of our investment process. With that in mind, we publish a weekly research newsletter, A2Apple, which focuses on key trends in the global growth economy. Rocket Fuel provides weekly insights and data on IPOs and venture capital financings.
2020 Vision: A History of the Future is GSV’s seventh in a series of white papers focused on the future of human capital and education innovation. It provides in-depth analysis around transformational ideas, models, organizations, and companies, including over 100 case studies and profiles.
The Global Silicon Valley Handbook is both a factual but also a tongue-in-cheek guide to what you need to know to thrive in the startup scene, not only in Silicon Valley, but in the emerging Global Silicon Valley.
GSV Capital has demonstrated the ability to monetize a number of our positions in both public markets as well as private transactions. GSVC aims to monetize public positions at the earliest appropriate time. Typically, GSVC will monetize a position within 18 months of going public, or 12 months after any relevant lock-up has expired. Additionally, the technology industry is going through major consolidation and we expect companies in our portfolio to be acquired.
We believe the most useful (but imperfect) measure to track GSV Capital’s progress is to compare the change in NAV, both on an absolute and relative basis, to the performance of the S&P 500. We use NAV as a tracking device because it is tangible. But the most important measurement is the growth of the intrinsic value of GSV Capital’s portfolio.
Our NAV changes primarily as a result of the changes in our investment portfolio, which under U.S. GAAP is measured at fair value. We calculate NAV on a quarterly basis using a rigorous process that values every security in the portfolio.
GSV Capital’s Board of Directors also engages an outside valuation firm, Andersen Tax, to perform an independent appraisal of the portfolio and its corresponding NAV each quarter. When there are differences between the analyses done by GSVC management and Andersen, the Valuation Committee of the Board decides which value to apply.
*All GSVC data as of December 31, 2016.