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Facebook Inc (FB), GSV Capital Corp (GSVC): Make Money From Twitter Before Its IPO

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There has been speculation that popular social media website Twitter is set to go public soon via an IPO. This IPO should be similar to Facebook Inc (NASDAQ:FB), which saw high anticipation. Twitter will be hoping that its IPO is more successful than Facebook Inc (NASDAQ:FB)’s, which failed to live up to the hype. If you are interested in getting a piece of Twitter, but don’t want to wait until it goes public, there is a wise investment option. GSV Capital Corp (NASDAQ:GSVC) offers the opportunity to invest in several private companies, and Twitter is among them.

Facebook Inc (NASDAQ:FB)

Unique investing concept
The company offers a huge portfolio of publicly traded and private technology companies backed by venture capital. Through this structure, GSV Capital Corp (NASDAQ:GSVC) is the link between public investors and private companies.

After several large holdings in tech companies like Facebook Inc (NASDAQ:FB), Groupon, and Zynga, GSV Capital Corp (NASDAQ:GSVC) now counts on the valuation of Twitter for most of its net asset value. In the second quarter, GSV Capital Corp (NASDAQ:GSVC) valued Twitter at $9.5 billion. Recent valuations have placed Twitter at $10 billion. The Wall Street Journal recently used Google comparisons to estimate Twitter is worth north of $12.5 billion. This means GSV Capital Corp (NASDAQ:GSVC) is possibly downplaying the real value of its Twitter stake.

Here are the most recent top 10 holdings of GSV Capital Corp (NASDAQ:GSVC), with fair value and percentage of total net asset value:

Company Investment ($M) Percentage of GSV Assets
Twitter $37.6 15.1%
Palantir Tech $23.0 9.3%
Dropbox $15.1 6.1%
Violin Memory $14.4 5.8%
Chegg $14.0 5.6%
Solexel $11.0 4.4%
2 U $10.6 4.3%
Avenues World Holdings $10.4 4.2%
Coursera $10.0 4%
Kno $9.9 4%

In total, the top 10 positions represent $156 million in assets and 62.8% of the valuation of GSV Capital. GSV has investments in a total of 45 companies. In the second quarter, GSV made new investments in Coursera, AliphCom, Jawbone, and oDesk Corporation. GSV also increased positions in ZocDoc, SugarCRM, Solexel, Dailybreak, and AlwaysOn.

Rebounding with Facebook Inc (NASDAQ:FB)
GSV still owns shares of Facebook Inc (NASDAQ:FB), and that ownership could be one reason shares of GSV Capital are undervalued. The company has tried to distance itself from Facebook Inc (NASDAQ:FB), due to a rough IPO, but may want to make sure investors know it still owns a small stake. In the second quarter, GSV estimated its 350,000-share stake in Facebook to be worth $8.7 million. That comes after a cost of $10.5 million for GSV Capital. However, using a recent closing price of $38.50, GSV’s stake is currently worth $13.5 million.

Facebook has ambitious plans to offer video advertisements on its site, which could cost as much as $2 million per ad. This new source of revenue should provide a boost to Facebook and can keep the share price above the $35 level. GSV’s stake in Facebook represents only 3.5% of net assets, but is growing in valuation with Facebook’s rise.

Analysts are becoming more bullish on Facebook’s growth. Revenue is expected to climb 43.6% in fiscal 2013 and another 30% in fiscal 2014. The success and climb in Facebook’s price also bodes well for the future Twitter IPO. Shares of Facebook fell and continued downward after investors failed to see the high growth the company once had. With Facebook shares now ahead of IPO prices, Twitter should come to the market with high demand and a good profit return for GSV’s stake.

The good news for GSV Capital is Facebook shares are now in the black on the company’s balance sheet. GSV paid around $29 a share after being late to the party in Facebook’s valuation climb prior to its IPO. GSV had a similar problem investing in companies like Zynga and Groupon at their peaks. While Zynga and Groupon have lost their luster in their declining markets, Twitter and Facebook appear to have staying power with a growing user base and strong advertising revenue.

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