Should You Get a Head Start on Twitter's Rumored IPO?

Though Twitter executives continue to deny that an initial public offering is imminent, all signs point to a different reality. In early August, USA Today reported a LinkedIn LNKD job description posted by Twitter, seeking a financial reporting manager who would specifically be "responsible for preparation of monthly reporting materials, quarterly/annual financial statements, and Form S-1 when we are ready to go public." (Soon after the news broke, Twitter removed the posting). Last week, Alex MacGillivray, Twitter’s chief lawyer, announced that he would step down from his current role (though he will continue in an advisory capacity). Replacing him? Vijaya Gadde, Twitter’s new general counsel, who has been with Twitter for about two years, and has vast experience in corporate and securities law from her years at the Silicon Valley firm Wilson Sonsini Goodrich & Rosati. Just before the Labor Day weekend, Kate Jhaveri, a senior marketing executive from Facebook FB, announced her new role at Twitter, signaling even more momentum around Twitter’s effort to focus on revenue-generating activities. Finally, the Sunday Times, a UK publication, reported on Sunday that Twitter was planning a $15 billion float, and cited anonymous sources.
Despite all the indicators, however, investors can’t truly gauge the potential opportunity the Twitter IPO presents until the company's financials are made public. Or can they?

As The Globe & Mail reports, interested investors can get a piece of the pre-IPO Twitter by way of GSV Capital Corp GSVC, a public fund that invests in high-growth venture-backed companies while they’re still private. Founded in 2011, GSV has provided investors exposure to privately held shares of tech companies including Facebook, Zynga ZNGA, and Groupon GRPN. Unfortunately, those offerings mostly disappointed investors and hit the GSV stock hard: Shares sank from a high above $20 to a low below $7 late last year. Currently, they’re trading back up around the $12.40 mark. (It is worth nothing that there are other private venture-backed funds with top holdings in Twitter, including Firsthand Technology Value Fund SVVC.)

But as Facebook’s stock is on the rebound, GSV’s is also up 60% and could in fact climb higher, especially given that its top five portfolio holdings include stakes in Twitter, Palantir (a software company serving the US government), Dropbox (rumored for IPO in 2014), Violin Memory (a flash storage company that filed for a $172 million IPO last month), and online textbook provider Chegg (which recently selected JPMorgan Chase JPMand Bank of America BAC to lead its IPO). On its Q2 2013 earnings call, which included a reported increase in net asset value of $0.18 to $12.87 per share, GSV Capital founder and CEO Michael Moe noted, "[M]omentum is building as we believe several of these later stage companies approach exit."

Despite the stock’s recent comeback, however, GSVC hasn’t realized gains, and its investors haven’t seen dividends. (Groupon and Zynga were realized as losses in 2013, along with Top Hat 430, Serious Energy, and AltEgo.)
Should investors use the Facebook IPO as a cautionary tale... or place their bets on a pre-Twitter IPO? Sandeep Dhillon, practice leader for EMEA for technology, media, and telecoms research at Gerson Lehrman Group, says he believes that "there is potential for a large upside when Twitter lists valuation on the secondary markets -- and that it continues to increase as the company continues to grow." He points out that in early 2011, venture capital firm Kleiner Perkins Caufield & Byers invested in Twitter, valuing the company at roughly $3.7 billion. In March 2013, GSV Capital valued the company at $9.8 billion. Ultimately, Dhillon views a buy into Twitter as a lower risk compared to that taken by pre-IPO Facebook investors. "When they invested, there was no directly comparable social media company on the listed market. Twitter now has Facebook and LinkedIn. When Facebook went public, it was going through a pivotal change in its business with customers shifting to mobile, which at the time was not being monetized by the company."
Whether investing in GSV could in fact provide exposure to a prime pre-IPO Twitter opportunity is anyone’s guess; ultimately, it is up to GSV as to which of its stakes it chooses to hold and unload for investors' benefit. As Mark Holder of Stone Fox Capital (who is long on GSV) ultimately points out, "The major key to long-term performance is the ability to exit positions with significant profits."

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