Image via Anthony Quintano/Flickr CC

By any metric, the recent Snapchat IPO should be considered a colossal success. Despite some post-debut volatility—which was to be expected—shares of the millennial favorite have stayed considerably higher than its $17 offering price, and at one point, showed a 73% gain when it peaked at $29.44. The lesson to learn—once again—is that the smart money is in getting a piece of these hot commodities before they start trading. It’s a lesson investors really need to take to heart, particularly as Snap could be just the start of a very pent up Tech IPO cycle ready to unleash its next wave.

With $3.4 billion raised, Snap is the largest Tech IPO since Alibaba (BABA) went public in 2014, and analysts have been projecting 2017 to be a major slumpbuster for quite some time now. With startup darlings like Snap (SNAP), Palantir, Spotify, Coursera, Dropbox, Lyft and dozens more like them in its portfolio, venture capital fund GSV Capital Corp. (GSVC) is sitting in the catbird seat. What’s more, as one of only a handful (at most) of publicly traded venture capital firms in the market, GSV could serve as a compelling vehicle for investors looking to get ahead of an impending IPO rebound.

“While we’re pleased to see a portfolio company go public, Snap’s listing signals a broader opportunity for the best names to break through an IPO backlog that has not only been building over the past couple years, but really over the last 15 years,” said Michael Moe, Chairman and CEO of GSV Capital, on the company’s most recent conference call. “Not surprisingly, groups like Renaissance Capital have predicted an IPO rebound in 2017. Historically, leading portfolio positions with a runway to IPO have been a positive catalyst for our stock. And in fact, GSV Capital traded a premium to the NAV in advance of high-profile IPOs from Facebook (FB) and Twitter (TWTR). With GSV Capital selling at approximately 40% discount of NAV, we think there is exceptional risk/reward opportunity for investors based on the strong momentum behind GSV’s top names and improving IPO environment that we believe is materializing.”

To Moe’s point, GSV’s current net asset value totaled approximately $192.1 million, which equates to $8.66 per share as of December 31, 2016, while its shares recently closed at $4.73. The portfolio has an aggregate fair value of approximately $262.0 million.

The investment philosophy of GSV is driven by what Moe calls the 4P’s: People, Product, Potential and Predictability. Investible companies that meet these tenets are then categorized into five key investment themes: Education Technology (37% of portfolio), Cloud Computing & Big Data (34%), Social Mobile (18%), Marketplace (10%) and Sustainability (2%).

What’s in GSV’s IPO Pipeline?

While Snap is the latest GSV portfolio company to graduate into the public markets, the fund still has a number of big names in the bullpen. Arguably, of the dozens of startups in the GSV portfolio, the ones most likely to go public next—at least according to market chatter and media coverage—would be Palantir, Spotify, Dropbox and Lyft in some order. They’re consistently mentioned in any conversation regarding the hottest IPOs investors are waiting on.

Palantir

Most Recent Valuation: $20 billion

While Palantir isn’t necessarily a household name like Spotify or Lyft, it could actually be the biggest and closest to IPO of the group. Palantir is one of the largest mega unicorns left in the private market right now, and incidentally, is also the largest holding by a wide margin in the GSV portfolio at 16%, making up 22% of NAV. The secretive big data analysis company has reportedly been mulling an IPO for some time now. With the company growing its top line and cutting its burn rate by as much as 60%, all signs indicate that the company, which counts Peter Thiel and Alex Karp among its co-founders, is getting its house in order ahead of a potential IPO later this year.

Why GSV Likes Them: Palantir prohibits the communication of company information. You can learn about Palantir by visiting their website: palantir.com. (Did we mention they’re secretive?)

Spotify

Most Recent Valuation: $8.53 Billion

Undoubtedly the most popular music streaming service in the market, Spotify boasts over 100 million subscribers (50 million paid). Anticipation for a Spotify IPO continue to be high, though a recent TechCrunch article suggests that the company could push their plans into 2018 as it seeks to hit a valuation target of $11 billion to $13 billion before it goes public. That would represent a major jump from the $8.5 billion valuation Spotify achieved in 2015. The company represents 10% of the GSV portfolio and 10% of NAV.

Why GSV Likes Them: Recently, consumer preferences have shifted from owning music to “renting” it, allowing listeners to access their favorite songs seamlessly from their tablet, smartphone, and computer. We believe this trend will only continue to expand in the future as the world undergoes this shift.

Lyft

Most Recent Valuation: $5.5 Billion

Despite Uber getting the lion’s share of attention (for better or worse) in the ride-sharing space, the considerably smaller Lyft is increasingly showing that it’s more than ready to play David to Uber’s Goliath. Set aside that Lyft’s popularity has soared in the face of Uber’s series of critical mishaps, the fundamentals of the former Pink Mustache are actually quite sound. In June 2016, leaked shareholder documents showed that Lyft was on pace to beat its projected growth in ride volume by 35% and hit a new record in net ride value at about a $1.9 billion run rate. Lyft’s shareholders include GM (GM), Alibaba, Carl Icahn, and, of course, GSV Capital. It also accounts for 3% of the GSV portfolio and 4% of NAV.

Why GSV Likes Them: The emerging Sharing Economy is disrupting traditional industries, Taxis in this case, and leading platforms are providing a better solution and experience to the customer. Lyft is on the forefront of the ride sharing trend and is creating its own cultural trend among the younger generation.

Dropbox

Most Recent Valuation: $10 Billion

The cloud storage startup has been one of the more volatile names in venture capital. The company suffered some major institutional markdowns by the likes of Fidelity and T. Rowe Price last year in the wake of the unicorn correction. But according to recent reports from TechCrunch and MIT Technology Review, Dropbox may have righted its ship. The company claims that it’s on pace for a $1 billion run rate and is free-cash flow positive. Most importantly, it may have finally cracked the enterprise nut with Dropbox Business, which was a major question mark when the startup was still widely considered just a consumer-oriented service. While Dropbox tends to play its IPO cards close to the vest, speculation continues to grow louder that it’s nearing a public exit. The company makes up 5% of the GSV portfolio and 7% of NAV.

Why GSV Likes Them: As services and products continue their relentless “march to the cloud,” Dropbox is strongly positioned to both capture and accelerate this move, from individual consumers to entire enterprises. Dropbox is a powerful platform that is disrupting the file storage space by providing a solution for users and businesses to easily share, edit, store, and access files, and to collaborate from any device at any time. In addition, the freemium model has proven to be extraordinarily powerful in driving user growth—and ultimately provides Dropbox a massive barrier to entry.

You can check out the entire GSV Capital portfolio here for much more information on their holdings and why they like them.


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