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How Twitter Broke GSV Capital In 2013

A Broken Model?

Another possibility is that investors simply don't understand, or have given up on the business model.

For instance, GSV's unrealized investment gains stood at $87 million in 2013, while realized investment losses and operating expenses totaled $8.9 million and $22 million, respectively. Overall, while GSV's unrealized investment gains surged by $87 million, but the firm's NAV only increased $35 million.

"GSV faces a number of risks, including the Twitter effect (which could produce periods of severe undervaluation and overvaluation), lack of a track record (IPO in May 2011), failed investments, exit timing due to the nature of GSV's portfolio companies (which tend to have volatile price swings after they begin trading publicly), and IPO market health. Also, GSV has a high percentage of retail (75%, at the end of June)," Barrington analyst Houston cautioned in a March 19 client note.

Still, the analyst is bullish on GSV. "GSV provides investors with access to disruptive, fast‐growing pre‐IPO companies at discounts," Houston wrote. "The fund trades at a 30% discount to our NAV calculation of about $17, GSV should trade at a premium because it is run by a savvy team of technology mavericks, the IPO market is robust, dividends are on the horizon, there is NAV upside potential, and there is an opportunity to increase its institutional investor base," he concluded.

Who's Next?

Palantir Technologies and Dropbox are GSV's two biggest private investments. The firm marked its Palantir stake at $33.8 million as of the fourth quarter, representing 11.8% of its overall assets. GSV's Dropbox investment was marked at $15.9 million as of the fourth quarter, representing 5.5% of its NAV.

A 10-K filing with the Securities and Exchange Commission showed GSV has made $13.8 million in investments in 2014, and realized $13.1 million of gains on it Facebook and Control4 investments this year.

GSV launched investments in General Assembly and EdSurge in 2014 and boosted its investment in StormWind, NestGSV, Dailybreal, AlwaysOn, Fullbridge, JAMF Software. The firm sold 150,000 Facebook shares for $9.5 million at an average price of $63.08 in 2014 and retains a 25,000 share stake in the social network.

Barrington Research believes GSV investments Dropbox, Gilt Groupe, Spotify, SugarCRM and TruCar could go public in 2014.

-- Written by Antoine Gara in New York

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