GSVC – Playing the Facebook IPO ?

GSV Capital Corp – GSVC

As many of you already know, social networking IPO’s have been red hot in the recent months, despite a broader market that has been sketchy at best. Recently, the  LinkedIn IPO (LNKD:NASDAQ) and Zillow (Z:NYSE) have made massive gains for investors who were lucky enough to get in at the offering price. IPO investors also have Zynga and Groupon to look forward to in the near future, but even these two major names pale in comparison to the mother load of all social networking stocks. Yes, of course it’s Facebook.

Now, here are a few ways to participate in Facebook by using existing equities before it comes public. The first one is Microsoft (MSFT:NASDAQ). MSFT owns stakes in many private companies, so the stake in Facebook really isn’t a surprise. Plus, MSFT has an enormous market cap already. So the Facebook position probably will be nothing more than a blip on the radar. The second company is Mail.ru (MAIL.LON), this is a name that isn’t familiar to many U.S. investors, but the company is also a large one and also probably won’t be impacted much by their impressive pre-IPO position. Mail.ru owns a little less than 2.5% of Facebook.

Now the third way to play Facebook makes a lot more sense when you think about it. Plus, the company is a name that most are not familiar with. However, when you look at GSV Capital Corp (GSVC:NASDAQ) it seems to make sense. GSVC is business development company that went public at $15 back in April, and as many BDC’s often do, shares traded down after the offering to below $10 in June. Later in the month, Michael Moe, GSVC‘s CEO and co-founder of ThinkEquity pulled of a major PR coup. Moe announced that GSVC had purchased 225,000 shares of Facebook at a cost of 29.28 per share. To put Moe’s purchase price in perspective, Facebook is worth $87.5 billion at $35 per share, and it has traded at that price on SharesPost.

GSVC files to issue 100 Million in Stock

Kate Kelly of CNBC recently reported that Facebook’s valuation could be as much as or even exceed $100 million on the IPO date and that is without counting a first day pop in the stock. So it seems safe to say at this point that Moe made a wise call on the transaction, and shares of GSVC responded trading up to $19.97 after announcing it’s Facebook stake. But, GSVC recently filed to issue as much as $100 million in stock, which is sizable considering that the company currently has a market cap of $52.5 million. This type of impending dilution has obviously weighed on shares of GSVC.

But, the purpose of this piece is not to debate Facebook’s valuation or even GSVC‘s for that matter. The purpose is to point out that GSVC will be traded on a momentum type basis leading up to the Facebook IPO. Now if this secondary offering is somehow canceled, due to market conditions, we could see a nice rally in GSVC, solely based on short covering. We could also see pure hype move GSVC higher as it did recently, and the closer we get to the Facebook IPO, the more exposure GSVCwill get, especially if Facebook resets it’s valuation higher or if Moe adds another high profile deal to the portfolio.

So add GSVC to you list of stocks to watch, but it’s probably wise to let the dust clear from the upcoming secondary offering before considering acting. Just keep in mind that GSVC has great potential to mimic the interest of Facebook. Even after the offering, GSVC will still have a small market cap and a relatively low share price for aggressive types to trade from both a long and short basis.

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