SuRo Capital Corp (SSSS) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the GSV Capital's first-quarter 2015 earnings conference call. (Operator Instructions). This call is being recorded today Thursday, May 7, 2015.

I will now turn the conference over to Nick Franco of GSV Capital. Please go ahead, sir.

Thank you for joining us on today's call. I'm joined today by GSV Chairman, CEO and Chief Investment Officer, Michael Moe, and Chief Financial Officer, Bill Tanona. Please note that a slide presentation that corresponds to today's prepared remarks by management is available on our website at www.GSVcap.com under investors, events and presentations.

Today's call is being recorded and broadcast live on our website, www.GSVcap.com. Replay information is included in our press release (technical difficulty). This call is the property of GSV Capital Corporation and the unauthorized reproduction of this call in any form is strictly prohibited.

I would also like to call your attention to customary disclosures in our press release today regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements which relate to future events or future performance or financial condition.

These statements are not guarantees of our future performance or future financial condition or results and involve a number of risks, estimates and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors including but not limited to those described from time to time in the Company's filings with the SEC. Management does not undertake to update such forward-looking statements unless required to do so by law.

To obtain copies of GSV Capital's latest SEC filings, please visit the website at GSVcap.com.

Now I would like to turn the call over to Michael Moe.

Thank you, Nick, and good afternoon. We are delighted to have the opportunity to share with you the results of what we believe was a very strong quarter for GSV Capital, including achieving our highest NAV since inception.

First, I will review our portfolio as of March 31, 2015, then I will highlight some recent developments and update you on several follow-on investments. I will then turn over to our Chief Financial Officer, Bill Tanona, who will briefly provide a financial overview and then open it up for questions.

So let's start with slide three. As of March 31, 2015, our net assets were $302 million or $15.66 per share beating our previous NAV high of $15.17. This is up from our NAV of $14.80 per share as of December 31, 2014, and $14.91 per share as of March 31, 2014.

Now let's turn to slide four. In the first quarter, we sold 400,000 shares of Twitter which resulted in $13.2 million of net realized gains. This came from us selling a portion of our position at Twitter at an IRR of 39.3%. As we previously stated, it is our general intention to liquidate our public positions within 12 months after the IPO lock up expires.

We believe it is important to continuous to successfully demonstrate ways to monetize our positions. Thus subsequently to quarter end we sold an additional 400,000 shares of Twitter at an average price of $51.52 per share realizing a gain of $13.7 million for our shareholders yielding an IRR of 43.5%. We will continue to pursue opportunities that we believe will optimize return for our shareholders.

Please turn to slide five. For the first quarter, our top 10 positions accounted for approximately 60% of our total portfolio. Our three large investments Twitter, Palantir and 2U represented 34.2% of the total portfolio. 2U, our third-largest position, has proved to be a very disruptive game-changing leader in online learning as it has crossed the $1 billion market cap threshold in under six years. In the quarter, 2U announced a major partnership with Yale University. 2U's 2015 program pipeline is also off to a very promising start including the Syracuse MBA program, SMU graduate degree in data science by the way following the previously successfully launched data science program at Cal Berkeley, Northwestern's Masters of Counseling degree and the Syracuse Masters of Communications Degree.

We are also a strong believer in the tremendous potential of our eighth largest position, Dataminr, as it continues on its path to becoming the world's leading real-time information discovery company. This quarter Dataminr raised a significant $130 million financing led by Fidelity. Dataminr's analytic engine transforms social media streams into actionable Twitter-based signals providing clients in the financial, government and news media sectors with one of the earliest warning systems for market relevant information, noteworthy events and emerging trends.

Please turn to slide six to look at equities and the IPO market to date. In 2014, we saw the strongest year for the US IPO market since the Internet bubble of 2000 as a number of tech IPO pipeline companies with $1 billion valuation skyrocket. In contrast, the IPO market in the first quarter 2015 got off to a somewhat slow start despite equity indices paying all-time highs. According to Renaissance Capital, the 34 IPOs in the first quarter 2015 raised $5.4 billion which makes it the least active quarter by IPO count in two years and the smallest by proceeds raised since the third quarter of 2011.

What led to the shift of VC-based company staying private longer? Obviously this has been a core part of our thesis from the beginning of GSV Capital and one of the reasons we believe there is such a major opportunity for our strategy. But one key fundamental reason for this is being public costs a lot of money, it is a big time sink for a management. Support structures for small cap public companies has become obsolete with little research, little trading and little investor interest.

A second reason is companies have little urgency to seek IPO capital with the abundant availability of private funding at current very high valuations. This concept of unicorns, the previously rare almost never seen $1 billion value VC backed private companies are now increasingly less rare than they used to be with roughly 80 unicorns now in existence. Investors are starved for growth and supply effectively induces demand.

The third reason is finally private company markets are creating liquidity alternatives to minimize the pressure of going public. Tech companies such as Dropbox, Airbnb, Square, provide liquidity with tender offers or companies issue equity outside investors use these proceeds to buy back shares from existing shareholders.

Next, turn to slide seven where we break out our portfolio mix across growth themes as of March 31. We are constantly analyzing the growth economy and how megatrends are influencing emerging themes as we believe that is where the mega winners will be found. Of the five key investment themes that we have identified, education technology continues to be our largest commitment representing 35.1% of the portfolio; cloud computing and big data is 29.1%; social/mobile is 21.5%; marketplaces being 8.7%; and sustainability is 5.6% of the total portfolio.

Please turn to slide eight. Along with this education technology theme, we hosted our sixth annual highly successful Ed Tech conference in Scottsdale in April which hosted 270 of the leading most disruptive Ed Tech companies in the world. The New York Times said it was the most must attend event in education technology and we had keynotes such as Richard Branson, Howard Schultz, Vinod Khosla, Common, the Oscar-winning rapper, Mitch Daniels and Secretary of Education, Arne Duncan. We believe this adds tremendous value for our portfolio companies and is a great sourcing opportunity to find new investments.

Next, please turn to slide nine. During the quarter, we added to our seventh-largest position, PayNearMe, a next-generation electronic cash payment platform. It is estimated there is as many as 80 million under bank, on bank customers in the United States and by allowing these customers to pay auto, rent, utility bills through 17,600 retail locations, we've made this previously very burdensome process much more efficient.

We made a $4 million follow-on investment along with other existing investors AugustCapital, True Ventures and Khosla Ventures as the Company continues to aggressively expand its retail footprint in the breadth of industries that its payment system covers.

Please turn to slide 10. In March 2015, we participated in a $530 million Series E financing and ridesharing start-up Lyft with a $2.5 billion follow-on investment on top of the $5 million investment that we made previously. Investors in Lyft have included Andreessen Horowitz, Coatue and Alibaba. As reported in the Wall Street Journal, Lyft is currently being valued at $2.5 billion and is experiencing hyper growth.

Lyft currently operates in 65 cities in the United States. The additional capital will primarily be used as a US expansion and building out Lyft Line, the company's carpooling service as it seeks to gain greater market share.

Now let's turn to slide 11. In January 2015, we made a $1 million follow-on investment in GSVlabs. GSVlabs which was previously known as NestGSV, is a hub of innovation focused on accelerating the high growth, high impact verticals of Ed Tech, sustainability, Gig Data and mobility, obviously four key themes for GSV Capital.

From its 72,000 square foot Silicon Valley campus, GSVlabs houses over 100 startups, provides unparalleled networking opportunities and partners with industry leaders such as Google, Intel, AT&T, tata, IBM and Toyota to build out comprehensive education program and thought leadership. Last month GSVlabs launched EdTech innovation core lab and cord lab's game accelerator catalyzing robust startup ecosystem.

Please to move to slide 12. We also made a $1 million follow-on investment in the Fullbridge program. The Fullbridge program is essentially a finishing school for business. The white space between what you learn in a traditional school and what you need to know to be successful in the real world. Another GSV investment, General Assembly, plays in the same theme. We live in a knowledge economy one which all levels of next-generation workers need to work as productively as possible in a rapidly changing landscape, jobs being [serried] left and right.

We believe that Fullbridge can be the global brand in the business education market aligning with the leading universities, top education brands and global distribution partners. It is rapidly scaling and in our opinion build a formal prestigious global alumni base.

With the additional capital, the Company seeks to continue international expansion and further develop its software platforms. Co-CEO is Candace Carpenter Olson, who is an Internet pioneer of iVillage, and Peter Olson, who is the former CEO of Random House.

Now please turn to page 13. We made a $0.5 million follow-on investment in GSV Sustainability Partners. GSV Sustainability Partners is a transformed financial company that leverages the rapid global adoption of proven sustainable products thereby delivering meaningful customer savings through more effective use of energy, water and waste. We think this is somewhat analogous to what we saw happen in the solar industry with Solar City. This is led by former Kleiner Perkins partner, John Denniston.

Please turn to slide 14. Lastly, I want to invite each and every one of you to our second annual investor day on June 3, from 1 PM until 5 PM at GSVlabs located at the heart of Silicon Valley. We will have CEOs from many of our companies present including OZY Media, Enjoy, Declara and Chegg.

Thanks for your attention and with that I will turn it over to our CFO, Bill Tanona.

Thank you, Michael. Today I will be providing you with a brief financial overview, an update on our current liquidity position, an update on the status of our 850-1B application, a brief comment on our recent change in auditors and details about our upcoming annual meeting, which Michael just mentioned.

Now please turn to slide 15 for the financials as of March 31, 2015.

Our NAV increased 5.8% quarter over quarter to a record $15.66. Of the $0.86 increase realized gains of $0.68 per share and unrealized appreciation of $1.44 per share were partially offset by $0.87 per share in tax provisions related to these items and $0.39 per share of net investment losses.

Although the market value of our portfolio increased meaningfully this quarter, the increase was fairly narrow and driven primarily by an increase in values at four of our 52 portfolio companies and these include Twitter, Dataminr, 2U and Lyft.

Our liquid assets ended the quarter at approximately $110 million consisting of $8 million of cash, $2 million of unused borrowings under our credit facility, and $100 million of public securities not subject to lockup agreements, although approximately $31 million are still subject to other sales restrictions.

Subsequent to quarter end, GSV sold an additional 400,000 shares of Twitter at an average price of $51.52 per share raising an additional cash of $20.6 million. However, we used some of our excess cash to pay off the outstanding balance on our credit facility subsequent to quarter end.

Now I would like to spend a couple of minutes to give everyone an update on our pending RIC status. As many of you are aware, we have resubmitted our 851-E application to the SEC back in December. At the end of March, we received comments that from the SEC regarding the application and they have requested additional information from us. We continue to work closely with our attorney and the commission and hope to have a resolution to this matter in the near future. Once we receive clarity on this matter, we will be better able to provide investors with our future distribution and capital management plans.

Now please turn to slide 16. On April 27, upon the recommendation of the Audit Committee, our Board appointed Deloitte & Touche to serve as our new independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ended December 31, 2015. We are thrilled to have Deloitte & Touche as our new audit partner. Our assets have grown considerably since our inception. With this growth, we felt our shareholders would be better served by an audit firm with significant experience in working with BDCs.

Deloitte's extensive experience and institutional knowledge in this area will add value and serve us and our shareholders well as we continue to grow and build for the future.

Lastly, as Michael had previously mentioned, we would like to invite all of our shareholders to our 2015 Annual Meeting scheduled for Wednesday, June 3, at 12 PM Pacific time. Our meeting will be held at our portfolio company, GSVlabs in Redwood City, California. The details and the address are shown on slide 17 on the presentation deck.

We appreciate all of your support in GSV Capital and look forward to meeting you there. That concludes my comments. Now we would like to just thank you for your interest and I will turn the call over to the operator for a Q&A session.

While we are waiting for the instructions to come from the operator for questions, just a point of clarification. We are having our Annual Meeting at noon on June 3 at GSVlabs and then at 1 o'clock, we are having our Investor Day which is following that which will go from 1 to 5.

(Operator Instructions). Jon Hickman, Ladenburg.

Good afternoon. Could you just talk about some of the other names on the education, Coursera, the avenues of the holding? You have such a large position there in 35% of the portfolio and I know obviously 2U is working out nicely but could you discuss some of the other names?

Sure. I would be delighted. Thanks, Jon. Obviously 2U is our largest position which we made about a $10 million investment at $7 a share a couple of years ago and now is our third-largest position through appreciation. And again, we haven't sold any shares to date and have great conviction of the future growth.

Coursera is our fifth largest position overall and we have made nearly a $15 million investment. Coursera is the leader in what is called MOOCs, massively open online courses, which is the leader in this area at 12 million students that they have in 110 universities partnered with Coursera. The company, we remain close to the company, we are an investor with Kleiner Perkins and NEA. But the company is progressing very, very impressively in our mind. They brought in the former President of the Yale University, Rick Levin, about a year ago. He has done a phenomenal job. Avenues of the World School has created a global network of elite K-12 schools in the world's great cities. New York City is its first campus. By many people's account, the most successful private school to be open anywhere in the United States or anywhere else. Again a very big successful opening and very exciting potential with Avenues.

Another significant position of ours but it is not in the top 10 is Chegg, which is public. Obviously yesterday reported a very, very strong quarter. Stock was up I think over $1 today with investors starting to kind of gravitate what is really going on. I think unfortunately when it went public, it was going through the transition to an online offering and still had service legacy business and as it was going through that transition I think investors are confused. If you look at the business overall, the valuation is just about 2 times sales with an online piece of their business that is growing at north of 50%. And so I think as people start to really value the business on what the future looks like, we think that has tremendous upside from there.

So those are three relatively significant positions that we can highlight. Maybe I will just make one other reference, a company called DreamBox Learning, which we are an investor in with Reed Hastings, the CEO of Netflix and John Doerr from Kleiner Perkins. What DreamBox does is it is creating highly adaptive math learning technology where basically students, kids playing games with every single click it is adapting and becoming more individualized for each student. And it has proven to be extraordinarily effective and the company is growing at a really high rate.

So we think we've got an extraordinarily powerful portfolio of education technology businesses that we think will benefit shareholders. We have obviously made a big bet in this area. We think it is an emerging area with a lot of tailwinds and we think that is going to drive huge value for us for the future. Thanks for your question.

If there aren't any other questions, can I have a couple of follow-ups?

Why don't we see is if there are other questions because what we like to do is give everybody a chance, Jon, and then if there aren't though, for sure.

Okay.

(Operator Instructions). At this time there are no further questions in our queue.

Jon, you can ask some follow-up questions.

Okay, any comments on the likelihood of the next IPO in your portfolio? Which ones would you be like -- (multiple speakers) available?

The good news is that you have got a number of companies that could go public if they chose to. And so I think we are encouraged by when you look at Palantir, obviously with tremendous interest growing really fast, sizable business. Dropbox is doing phenomenally well and I think could go public when it wanted to.

So we've got a number of companies that I think are poised to go public on their terms. As we mentioned earlier in our comments, the IPO market has slowed down a little bit year to date which frankly I think is healthy. I think when you put too much supply in the market, investors get fatigued. And so I think as the leading companies come out, I think there will be strong interest because we still have I think a healthy overall market for global companies and investors looking to pay for futures.

So anyway, probably because of our position with a number of these companies and knowing actually if they would go or not go, it probably isn't appropriate to go into much further detail about it but I guess I would say is you've got a number of these companies which are of the size and I think growth characteristics that could go if they would like to.

And then one last question, I think if I do the math rate, you've got about 1 million shares of Twitter left.

Less than that. Less than that. 800,000.

At this time, this does conclude today's question-and-answer session. I would like to turn things over to our speakers for any closing or additional remarks.

Thank you everybody for tuning in. As I said at the beginning, we are pleased with the way things are going here. We think our portfolio overall is doing quite well. The growth characteristics are tremendous and I think we are in a great position to be able to invest in the leaders of tomorrow. So our job here is to keep on growing NAV and being smart with the way that we optimize the outcomes from the portfolio.

Thank you for everybody's interest. If anybody has any follow-up questions, please let us know here. But thank you and we will talk to you soon.

Ladies and gentlemen, that does conclude today's presentation. We appreciate everyone's participation.