Firsthand: Tech at a Discount
11/03/2015 9:00 am EST
The minimum investment at a top venture capital fund is typically $1 million or more, explains Ian Wyatt, editor of Million Dollar Portfolio.
The fund I'm recommending today gives investors all the benefits of investing in a venture capital fund...without the huge hurdles.
The Firsthand Technology Value Fund (SVVC) is a publicly traded venture capital fund that makes equity investments in technology and clean tech companies.
The fund is based in San Francisco and led by Kevin Landis, a well known technology investor. Since 2011, the fund has invested more than $200 million in 22 companies.
The fund's analysts conduct intensive research on numerous opportunities and typically make individual investments ranging from $1 million to $10 million.
The fund is structured as a business development corporation or BDC. As such, it is required to distribute 90% of pre-tax profits to shareholders in the form of a distribution, which is similar to a dividend.
Since 2013, the fund has made three cash distributions, December 2013 ($0.31), in October 2014 ($2.99), and in November 2014 ($2.86).
The fund currently trades at a 65% discount to the net asset value of $23.88 per share. Landis and the other execs at Firsthand are aware of the considerable difference between the share price and NAV.
In 2014, the company bought back $10 million of its stock. And, in the first half of 2015, repurchases totaled $20 million.
In addition, Kevin Landis has also been personally buying stock. Since the start of 2014, he's spent nearly $2.2 million of his own money buying shares of the fund. He now owns more than 192,000 shares.
So what is the fund worth? My first valuation scenario assumes that 20% of the investments are worthless. Applying a 20% discount, NAV per share would be reduced to $19.10, suggesting a target price of $17.19.
A second scenario assumes that 50% of the firm's investments are completely worthless. Applying this far more conservative scenario translates into a share price of $11.94.
In either case, the downside risk appears limited. Meanwhile, there is significant upside potential if some of the investments materialize.
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