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GSVC > SEC Filings for GSVC > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for GSV CAPITAL CORP.

Form 10-Q for GSV CAPITAL CORP.


11-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements.

The forward looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

our future operating results;

our business prospects and the prospects of our portfolio companies;

the impact of investments that we expect to make;

our contractual arrangements and relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we invest;

the ability of our portfolio companies to achieve their objectives;

our expected financings and investments;

the adequacy of our cash resources and working capital; and

the timing of cash flows, if any, from the operations of our portfolio companies.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies' ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies,

an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio,

an inability to access the equity markets could impair our investment activities,

interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and

the risks, uncertainties and other factors we identify in "Risk Factors" and elsewhere in this quarterly report on Form 10-Q and in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this quarterly report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q.


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The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contain elsewhere in this quarterly report on Form 10-Q.

Overview

We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Our investment objective is to maximize our portfolio's total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments with prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. We may also invest on an opportunistic basis in select publicly-traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria. Our investment activities are managed by GSV Asset Management, and GSV Capital Service Company provides the administrative services necessary for us to operate.

Our investment philosophy is premised on a disciplined approach of identifying high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment adviser's investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company's business operations, focusing on the company's growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Many of the companies that our investment adviser evaluates have financial backing from top tier venture capital funds or other financial or strategic sponsors.

We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company's common equity, and convertible debt securities with a significant equity component.

Investments

The fair value of our investments can be expected to fluctuate in future periods
due to changes in our investments and changes in the fair value of the
investments. The following table summarizes the investments we made during the
six months ended June 30, 2014.

[[Image Removed]]     [[Image Removed]]           [[Image Removed]]     [[Image Removed]]
Portfolio Company             Industry             Transaction Date       Gross Payments
StormWind, LLC           Interactive Learning           7-Jan-14        $       2,984,530
StormWind, LLC           Interactive Learning          25-Feb-14                  107,725
NestGSV, Inc.                 Incubator                29-Jan-14                  198,000
NestGSV, Inc.                 Incubator                 4-Mar-14                   99,000
Dailybreak, Inc.          Social Advertising           11-Feb-14                  430,000
AlwaysOn, Inc.               Social Media              14-Feb-14                  232,104
EdSurge, Inc.              Education Media
                               Platform                18-Feb-14                  482,146
Fullbridge, Inc.          Business Education           19-Feb-14                1,280,000
JAMF Holdings, Inc.         Mobile Device
                              Management               28-Feb-14                4,996,044
General Assembly
Space, Inc.                Online Education             6-Mar-14                2,995,658
General Assembly
Space, Inc.                Online Education            21-Mar-14                2,995,983
Lyft, Inc.                   Peer to Peer
                             Ridesharing               21-Mar-14                4,999,991
Totus Solutions,
Inc.                         LED Lighting               1-Apr-14                   75,000
Fullbridge, Inc.          Business Education            3-Apr-14                  749,040
NestGSV, Inc.                 Incubator                 4-Apr-14                  238,077


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[[Image Removed]]      [[Image Removed]]         [[Image Removed]]     [[Image Removed]]
Portfolio Company             Industry            Transaction Date        Gross Payments
GSV Sustainability
Partners                   Clean Technology           15-Apr-14                   225,250
NestGSV, Inc.                 Incubator               17-Apr-14                   348,039
Declara, Inc.              Social Cognitive
                               Learning               17-Apr-14                 9,973,479
Earlyshares.com              Equity Crowd
                               Funding                 1-May-14                   224,999
GSV Sustainability
Partners                   Clean Technology           15-May-14                   371,300
NestGSV, Inc.                 Incubator               16-May-14                   559,133
Fullbridge, Inc.          Business Education          20-Jun-14                   150,001
Circle Media
(f.k.a.S3 Digital
Corp. (d/b/a S3i)
(1)                        Sports Analytics           26-Jun-14                    90,000
Total Gross Payments                                                   $       34,805,499

The following table summarizes the investments we disposed of during the six months ended June 30, 2014.

[[Image Removed]]      [[Image Removed]]     [[Image Removed]]     [[Image Removed]]     [[Image Removed]]
Portfolio Company       Transaction Date           Shares              Share Price          Net Proceeds
Control4 Corporation         5-Feb-14                    6,000     $           21.11     $         126,655
Control4 Corporation         6-Feb-14                    4,000                 21.00                83,991
Control4 Corporation         7-Feb-14                   30,000                 21.55               646,432
Control4 Corporation        10-Feb-14                   10,000                 21.00               210,008
Control4 Corporation        12-Feb-14                   50,000                 23.16             1,157,940
Control4 Corporation        12-Feb-14                   50,000                 24.10             1,205,224
Control4 Corporation        13-Mar-14                   10,000                 22.80               228,000
Control4 Corporation        18-Mar-14                   10,000                 23.00               229,989
Control4 Corporation        19-Mar-14                   10,000                 22.21               222,144
Control4 Corporation        20-Mar-14                   10,000                 22.33               223,290
Control4 Corporation        21-Mar-14                   10,000                 22.44               224,420
Control4 Corporation        24-Mar-14                    3,700                 22.15                81,946
Control4 Corporation        11-Apr-14                   10,000                 19.58               195,831
Control4 Corporation        11-Apr-14                   10,000                 20.14               201,439
Control4 Corporation        15-Apr-14                   10,000                 20.59               205,938
Control4 Corporation        17-Apr-14                   10,000                 19.82               198,151
Control4 Corporation        23-Apr-14                   10,000                 18.62               186,200
Control4 Corporation        23-Apr-14                   10,000                 18.70               186,965
Control4 Corporation        24-Apr-14                   10,000                 19.29               192,854
Control4 Corporation        28-Apr-14                   10,000                 19.47               194,690
Control4 Corporation        29-Apr-14                   10,000                 19.25               192,508
Control4 Corporation        29-Apr-14                   10,000                 18.94               189,353
Control4 Corporation        11-Jun-14                   15,000                 18.86               282,903
Control4 Corporation        12-Jun-14                    5,100                 18.49                94,309
Control4 Corporation        12-Jun-14                    7,663                 18.71               143,413
Control4 Corporation        20-Jun-14                      600                 18.47                11,083
Control4 Corporation        20-Jun-14                   40,976                 18.09               741,182
Control4 Corporation        25-Jun-14                   50,000                 18.01               900,560
Control4 Corporation        25-Jun-14                   46,100                 18.09               834,152
Control4 Corporation        25-Jun-14                  285,386                 18.43             5,258,463
Control4 Corporation        25-Jun-14                   24,264                 18.08               438,810
Facebook, Inc.               3-Feb-14                   25,000                 60.02             1,500,599
Facebook, Inc.               5-Feb-14                   50,000                 61.17             3,058,437
Facebook, Inc.               6-Feb-14                   25,000                 61.05             1,526,163
Facebook, Inc.              19-Feb-14                   25,000                 65.05             1,626,232


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[[Image Removed]]   [[Image Removed]]     [[Image Removed]]     [[Image Removed]]     [[Image Removed]]
Portfolio Company    Transaction Date           Shares              Share Price           Net Proceeds
Facebook, Inc.           27-Feb-14                   25,000                 70.00              1,750,095
Facebook, Inc.           16-Jun-14                   25,000                 64.11              1,602,665
Violin Memory,
Inc.                     11-Apr-14                   58,862                  4.01                235,966
Violin Memory,
Inc.                     11-Apr-14                1,188,636                  3.97              4,719,254
Silver Spring
Networks, Inc.           15-Apr-14                   28,500                 15.37                438,084
Silver Spring
Networks, Inc.           17-Apr-14                   40,000                 15.27                610,902
Silver Spring
Networks, Inc.           17-Apr-14                   15,400                 15.02                231,281
Silver Spring
Networks, Inc.           23-Apr-14                    9,100                 14.28                129,958
Silver Spring
Networks, Inc.           23-Apr-14                    9,028                 14.93                134,759
Total Net
Proceeds                                                                              $       32,853,238

The fair value, as of June 30, 2014, of all of our portfolio investments, excluding U.S. Treasury Bills and Strips, was $367,037,838. We also held $4,194,280 of unrestricted cash and $22,139 restricted cash on June 30, 2014.

Results of Operations
Comparison of the three months ended June 30, 2014 and June 30, 2013

[[Image Removed]]   [[Image Removed]]      [[Image Removed]]       [[Image Removed]]      [[Image Removed]]
                                   June 30, 2014                                  June 30, 2013
                                    (Unaudited)                                    (Unaudited)
                           Total            Per Basic Share(1)            Total            Per Basic Share(1)
Total Investment
Income              $          97,033                 0.01         $          15,723                 0.00
Interest Income                96,935                 0.01                         -                    -
Dividend income                    98                 0.00                    15,723                 0.00
Total Operating
Expenses                    5,875,551                 0.30                 2,402,634                 0.12
Investment
management fees             1,933,663                 0.10                 1,246,378                 0.06
Incentive Fees                844,633                 0.04                         -                    -
Costs incurred
under our
administration
agreement                     929,701                 0.05                   709,885                 0.04
Directors' fees                65,000                 0.00                    65,000                 0.00
Professional fees             402,555                 0.02                   220,978                 0.01
Interest Expense            1,533,971                 0.08                         -                    -
Insurance Expense              60,303                 0.00                    64,062                 0.00
Investor
Relations Expense             103,384                 0.01                    72,943                 0.00
Other expenses                 22,341                 0.00                    23,388                 0.00
Gain on fair
value adjustment
for embedded
derivative                    (20,000 )              (0.00 )                       -                    -
Benefit for taxes
on net investment
loss                        2,359,369                 0.12                         -                    -
Net Investment
Loss                       (3,419,149 )              (0.18 )              (2,386,911 )              (0.12 )
Realized Loss on
Investments                (7,249,566 )              (0.38 )              (6,327,632 )              (0.33 )
Benefit for taxes
on Net Realized
Capital Losses              2,959,998                 0.15                         -                    -
Change in
Unrealized
Appreciation on
Investments                11,472,725                 0.59                12,230,246                 0.63
Provision for
taxes on
Unrealized
Appreciation of
Investments                (4,684,314 )              (0.24 )                       -                    -
Net Increase
(Decrease) in Net
Assets Resulting
From Operations              (920,306 )              (0.05 )               3,515,703                 0.18

[[Image Removed]]

(1) The basic per share figures noted above are based on a weighted-average of 19,320,100 and 19,320,100 shares outstanding for the three months ended June 30, 2014 and June 30, 2013, respectively.


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Investment Income

Investment income increased from $15,723 for the three months ended June 30, 2013 to $97,033, for the three months ended June 30, 2014. The increase was primarily due to the addition of several new term loans during the quarter ended June 30, 2014.

Operating Expenses

Total operating expenses increased from $2,402,634 for the three months ended June 30, 2013 to $5,875,551, for the three months ended June 30, 2014. The increase was primarily due to increases in interest expense, incentive fees, and investment management fees. The increases in interest expense resulted from the Convertible Senior Notes and the Credit Facility. These borrowings have enabled us to increase our portfolio and continue to invest in emerging companies. Refer to "Overview" for a further discussion of our investment philosophy. The incentive fees result from the significant appreciation in our portfolio for the three months ended June 30, 2014 relative to the three months ended June 30, 2013. The increased management fees are a result of the growth of our investment portfolio for the three months ended June 30, 2014 relative to the three months ended June 30, 2013.

Net Realized Losses on Investments

Net realized losses on investments increased from $6,327,632 for the three months ended June 30, 2013 to $7,249,566, for the three months ended June 30, 2014. The increase was primarily due to the sales of our shares of Violin Memory, Inc. and Silver Spring Networks, Inc. These losses were partially offset by gains from the sales of our shares in Control4Corporation.

Net Change in Unrealized Appreciation of Investments

Net change in unrealized appreciation of investments decreased from $12,230,246
for the three months ended June 30, 2013 to $11,472,725, for the three months
ended June 30, 2014. The following table summarizes the significant changes in
unrealized appreciation (depreciation) of the Company's investment portfolio for
the three months ended June 30, 2014 by Portfolio Company.

[[Image Removed]]   [[Image Removed]]      [[Image Removed]]      [[Image Removed]]            [[Image Removed]]      [[Image Removed]]      [[Image Removed]]            [[Image Removed]]
[[Image Removed]]   [[Image Removed]]      [[Image Removed]]      [[Image Removed]]            [[Image Removed]]      [[Image Removed]]      [[Image Removed]]            [[Image Removed]]
                                           June 30, 2014 (Unaudited)                                                  March 31, 2014 (Unaudited)
                                                                   Unrealized Appreciation                                                    Unrealized Appreciation         Change in Unrealized
Portfolio Company           Cost                Fair Value              (Depreciation)                 Cost                Fair Value              (Depreciation)         Appreciation (Depreciation)
Twitter, Inc.       $       32,991,111     $       77,867,582     $         44,876,471         $       32,991,111     $       80,717,912     $         47,726,801         $          (2,850,330 )
Palantir
Technologies,
Inc.                        21,060,447             41,233,482               20,173,035                 21,060,448             42,447,871               21,387,423                    (1,214,388 )
Dropbox, Inc.               13,656,486             28,156,997               14,500,511                 13,656,486             25,068,483               11,411,997                     3,088,514
2U, Inc. (f/k/a
2tor, Inc.)                 10,032,117             19,293,387                9,261,270                 10,031,837             14,856,213                4,824,376                     4,436,894
ZocDoc Inc.                  5,298,056              7,796,650                2,498,594                  5,298,056              5,649,417                  351,361                     2,147,233
Avenues Global
Holdings, LLC               10,151,854             11,258,690                1,106,836                 10,151,854             10,220,061                   68,207                     1,038,629
Silver Spring
Networks, Inc.                       -                      -                        -                  5,145,271              1,773,247               (3,372,024 )                   3,372,024
Violin Memory,
Inc.                                 -                      -                        -                 14,820,178              4,989,992               (9,830,186 )                   9,830,186
Control4
Corporation                          -                      -                        -                  5,257,705             12,282,478                7,024,773                    (7,024,773 )
Totus Solutions,
Inc.                         6,100,283              1,094,403               (5,005,880 )                6,023,973              3,627,332               (2,396,641 )                  (2,609,239 )
Other(1)                   272,756,525            269,439,233               (3,317,292 )              260,055,782            255,480,515               (4,575,267 )                   1,257,975
Totals              $      372,046,879     $      456,140,424     $         84,093,545         $      384,492,701     $      457,113,521     $         72,620,820         $          11,472,725

[[Image Removed]]

(1) Other represents all investments (including U.S. Treasury Bills and U.S. Treasury Strips) whose individual change in unrealized appreciation (depreciation) was less than $1,000,000 for the three months ended June 30, 2014.

Net Increase (Decrease) in Net Assets

Net increase (decrease) in net assets resulting from operations was $(920,306), and $3,515,703, respectively, for the three months ended June 30, 2014 and June 30, 2013. The decrease was the result of


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increased operating expenses, and the provision for taxes on unrealized appreciation of investments. These items were partially offset by the benefit for taxes on net investment loss and the benefit for taxes on net realized capital losses.

Comparison of the six months ended June 30, 2014 and June 30, 2013

[[Image Removed]]   [[Image Removed]]      [[Image Removed]]       [[Image Removed]]      [[Image Removed]]
                             June 30, 2014 (Unaudited)                      June 30, 2013 (Unaudited)
                           Total            Per Basic Share(1)            Total            Per Basic Share(1)
Total Investment
Income              $         137,848                 0.01         $          20,258                 0.00
Interest Income               109,186                 0.01                         -                    -
Dividend income                28,662                 0.00                    20,258                 0.00
Total Operating
Expenses                   10,724,094                 0.56                 4,974,894                 0.26
Investment
management fees             3,689,859                 0.19                 2,529,977                 0.13
Incentive Fees              1,814,285                 0.09                         -                    -
Costs incurred
under our
administration
agreement                   1,838,233                 0.10                 1,597,869                 0.08
Directors' fees               130,000                 0.01                   130,250                 0.01
Professional fees             859,094                 0.04                   457,864                 0.02
Interest Expense            2,713,696                 0.14                         -                    -
Insurance Expense             120,039                 0.01                   117,075                 0.01
Investor
Relations Expense             158,296                 0.01                   116,505                 0.01
Other expenses                 40,592                 0.00                    25,354                 0.00
Gain on fair
value adjustment
for embedded
derivative                   (640,000 )              (0.03 )                       -                    -
Benefit for taxes
on net investment
loss                        4,372,283                 0.23                         -                    -
Net Investment
Loss                       (6,213,963 )              (0.32 )              (4,954,636 )              (0.26 )
Realized Gain
(Loss) on
Investments                   682,179                 0.04                (9,674,524 )              (0.50 )
Provision for
taxes on Net
Realized Capital
Gains                        (278,533 )              (0.01 )                       -                    -
Change in
Unrealized
Appreciation on
Investments                 8,399,046                 0.43                10,653,608                 0.55
Provision for
taxes on
Unrealized
Appreciation of
investments                (3,429,331 )              (0.18 )                       -                    -
Net Increase
(Decrease) in Net
Assets Resulting
From Operations              (840,602 )              (0.04 )              (3,975,552 )              (0.21 )

[[Image Removed]]

(1) The basic per share figures noted above are based on a weighted-average of 19,320,100 and 19,320,100 shares outstanding for the six months ended June 30, 2014 and June 30, 2013, respectively.

Investment Income

Investment income increased from $20,258 for the six months ended June 30, 2013 to $137,848, for the six months ended June 30, 2014. The increase was primarily . . .

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