March Idea of the Month: Venture Capital at a Discount

Buying a dollar of speculation for 50 cents, plus thoughts on insurance and commodities

By Travis Johnson, Stock Gumshoe, March 4, 2016

I’m going to throw our Idea of the Month out here for you early this time around, because the stock has had some fundamental changes, is trading quite cheaply, and stands a reasonable chance, I think, of posting substantial returns over the next two years (and possibly a dividend in the meantime). And it should report in about a week, so I think it’s an interesting time to take a nibble while folks aren’t paying a lot of attention to the shares.

This is a stock that has been teased before — several times, in fact — and it’s been largely a disaster, with the exception of two huge runs the stock made that coincided with specific investments in their portfolio. My guess about the next two years is that they’ll have one or two other investments that could possibly generate excitement on a similar level again… but that’s been true for a while and is hard to predict, particularly on the timing front. The reason I think it’s worth a speculative taste now is that it’s also gotten much cheaper.

There are reasons for the cheapness, of course, but I think we’re at a price where the potential reward outweighs the risk.

So what am I suggesting as our March Idea of the Month? A publicly traded venture capital fund called GSV Capital (GSVC).

Sound familiar? It should, if you’ve been treading these boards here at the Gumshoe Theater for a while — it’s been teased by a few different newsletters as a way to get access to a couple of the hottest and most valuable private companies in silicon valley, just as it was similarly teased as a way to get access to Facebook before the FB IPO, and to Twitter before the TWTR IPO. And that part is true, two of GSVC’s major investments are Palantir and DropBox, and those are among the most valuable private companies in the US (probably only Uber is more valuable).

GSV Capital did three big things last year: They sold off more of their large Twitter holding (too late, but still good, for quite a while the stock traded based almost entirely on TWTR’s share price); they sold out completely of one of their major investments that had gone public (2U, TWOU) with a major gain and near the peak price; and they changed their structure to begin ...

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