Taiwan Semiconductor (TSM) is the world’s largest contract semiconductor manufacturer with a 5...
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.
More from MoneyShow.com:
Related Articles on TECHNOLOGY
The problem with reading (and writing) about Microsoft (MSFT) is that we all understand the company ...
As global payment patterns keep shifting from cash to digital networks, Visa (V) is one of the compa...
Two top picks in the commercial cybersecurity area are Fortinet (FTNT) and Palo Alto Networks (PANW)...