When Facebook (FB) held its initial public offering on May 18th 2012, it was one of the largest in internet history with a peak market capitalisation of $104 billion. The event changed the lives of thousands of people overnight.
Young investors who had the fortitude and insight to invest in the start-up while it was a private company became instant millionaires. A few became billionaires.
But the Facebook success story was not possible for everybody. It takes good connections and a tremendous amount of capital to invest in a fledgling start-up like Facebook, which means when the company finally did float, the really big return had already been made.
Gaining Access To Start-Ups
So how can the average investor hope to cash in on these high-growth start-ups when the barriers to entry are so high?
Well, one answer is GSV Capital (GSVC), a $125 million investment fund that is democratizing access to VC-backed companies.
Headed up by CEO Michael Moe, GSV Capital fills the void, allowing investors to gain access to a diverse range of technology start-ups via private marketplaces such as SharesPost and SecondMarket.
Moe is also the author of best-selling growth investing book Finding The Next Starbucks. He was one of the first research analysts to identify Starbucks as a huge growth opportunity in 1992.
GSV Capital seeks to identify high-growth businesses according to the four P’s: People, Product, Potential, and Predictability and most of the companies in GSV’s portfolio have demonstrated year-on-year revenue growth of 100% or more. Specifically, the firm is most optimistic about tech companies in big data, cloud computing, education and social media.
As of the turn of the year, GSV’s top 10 positions made up 55% of the total portfolio with the top three positions being Palantir, Dropbox and Twitter, as below:
As you can see from the graphic, GSV Capital has investments in a number of high-growth ventures and Spotify is now it’s fourth largest after the company increased it’s stake during the fourth quarter of 2015.
CEO Michael Moe believes Spotify to be a company with ‘strong fundamentals that are accelerating’.
Spotify is holding it’s own in a lucrative market despite competition from much larger rivals Apple (Music) and Google (YouTube). There’s no doubt that consumers prefer Spotify for listening to music and the company has a lot of potential for additional monetisation and subscriber growth.
Additionally, GSV Capital was able to increase their stake in the business while the values of private companies across the board have been in somewhat of a lull. Recent trades, (such as the one in Lyft) have shown that GSV has the ability to time investments well according to market scenarios and conditions.
GSV Capital trades at a forward P/E of 11.62 with a hefty dividend yield of over 40%, thanks to the firm’s new structure and profit distribution and the fact that the stock now trades near it’s lowest levels since inception.
At $5.81 a share, the stock is back to price levels it last saw in mid-2015 and 2012. On both of these occasions, the stock found a bottom and in the latter case, ended up surging over 100% in 2013 to over $11 a share.
While we do not predict such a price surge this time around we do think GSV Capital is making the right moves in industries that still offers tremendous excitement. Palantir, Dropbox, Coursera, and Lyft are all excellent business with the potential to ‘disrupt’, and Spotify could well be the pick of the lot.
What gives us even more confidence, however, are the number of recent purchases that have been made in the stock by company insiders.
Over the past month, there have been no fewer than eight signficant purchases coming from directors Mark Klein and Leanord Potter, President Mark Flynn and CEO Michael Moe. As shown in the graphic below, all recent purchases have been made around the $6 mark:
We take such purchases as a strong signal that the stock is cheaply valued at this price point and we are particularly confident in the ability of the members of the GSV team to time their investments given their ability to do so in prior transactions.
Considering the confidence from company insiders, hefty dividend, strong portfolio and the fact GSV is trading at levels that typically inspire an upward bias, we believe there is potential for gains of 20-40% in the stock price over the coming few weeks.
Disclosure: We are not currently long but may initiate a position in GSVC in the next 72 hours.