GSV Capital Punished for Expanding Facebook Investment

Venture capital firm GSV Capital

will sell an additional 3 million shares of common stock in order to raise funds that it will use to buy interests in Facebook, Twitter, and

. The company will also use the funds to invest in Dropbox, StormWind, DreamBox, Grockit, ZocDoc, and other young internet-based companies. GSV has attracted investment thanks to its narrow focus on sexy media darlings, such as social media, cloud computing, clean tech, and mobile computing; its investment in Kno, an e-textbook startup, follows Apple's

to jump into the etextbook sector. The company also made heavy investments in Groupon

and Zynga

. The company currently holds 80,000 shares of GRPN that it cannot sell until May 1st. CSV also holds an unsecured promissory note on Zynga worth $4 million which the company expects to mature on June 28th. These holdings are 8.2 percent of the company's net asset value, and may be dwarfed by its holdings in Facebook. Currently, the company owns 350,000 shares of Class B common stock in the social media site that it cannot sell until six months after Facebook's IPO. Shares in GSV plummeted on the news, hitting $17 in pre-market trading. The stock closed at $19.50 at the end of trading on Thursday. According to an SEC filing on Thursday, the company's net asset value was $13.26 per share, so even at $17, the firm is trading at a premium. However, since GSV is a major investor in Facebook and intends on expanding its holdings in the company, that premium may shrink after Facebook's IPO. The company's bigger bet on Facebook also means that investors can use GSV now to invest in the firm before it goes public. An investment in

would also mean shareholders in GSV can have an indirect stake in the internet startup that has seen

and investor interest. A greater bet on Kno Inc. will also give GSV more exposure to the nascent etextbook market. Kno, an e-textbook startup led by Osman Rashid, who also founded Chegg, a company that rented textbooks to college students. The company's exposure to so many new and young comanies with growth potential in trendy tech sectors such as social media, cloud computing, and electronic media, has prompted analysts at Ladenburg Thalmann to maintain a buy rating for the company in December, although the stock has since exceeded their price target of $17.25. With pre-market losses, the stock is playing with that number again. That price target may need to be revised if the company digs deeper into Facebook before its $5 billion IPO, the biggest for any internet company. GSV's plans to increase its stake in the social media company are in line with its operations as a public company that uses its assets to invest in young private companies with high growth potential in the IT sector. Market interest in private internet companies has exploded, as the recent IPOs for Groupon

, LinkedIn

, and Zillow

have demonstrated. While public interest in these offerings was as high as their media profiles, each company is down since going public, with LinkedIn the biggest loser after falling nearly 19% in nine months, although it is up nearly 8 percent in pre-market trading thanks to beating earnings yesterday. GSV's bet on internet startups is risky, but with those risks are enormous potential. In the private market, Facebook has topped the

behind its IPO while revenues at the firm have increased by 88 percent over the past year and net income rose to $1 billion. Scepticism over the company's value

, but investors willing to take the risk now can look at GSV, whose fortunes remain connected to the future of social media and cloud computing as it remains linked to the hottest trends in internet business.