Investing in Facebook Via the Back Door, GSV Capital (GSVC, MSFT)

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Everyone wants to get a piece of Facebook.  Shares have been sold by the company and shares have been sold by employees and insiders on private market exchanges.  Now a company called GSV Capital Corp. (NASDAQ: GSVC) has announced that it has taken a small stake in Facebook.  If this comes to pass, GSV will join Microsoft Corporation (NASDAQ: MSFT) as a public owner of Facebook but on a much smaller scale.

GSV is formerly a company called NeXt Innovation Corp. and on May 26, 2011 it filed articles of amendment to its charter with the State of Maryland to formally change its name to GSV Capital Corp.  It is a closed-end investment company, which is also a business development company under the Investment Company Act of 1940. GSV invests principally in equity securities of venture capital-backed, rapidly growing emerging non-public companies.

This morning came the announcement that GSV has acquired 225,000 shares of Facebook at an average price of $29.28 per share. The investment of $6,587,500 represents approximately 15% of GSV’s total portfolio.

The company claims that it “leveraged its network to quickly execute the transaction” by entering the agreement to purchase shares of Facebook shortly after the close of its IPO.

Here is where this deal gets complicated.  The transaction is subject to closing conditions which includes a 30-day Right of First Refusal expiration.  Also, keep in mind that Facebook has not yet formally filed for an IPO with formal terms so there is no assurance that this transaction will be profitable.

GSV said that it is also in the final stages of discussions with a handful of private company investments that it anticipates acquiring within the next 30 days.

GSV appears to have gotten shares of Facebook but we have no way of knowing whether or not the company will get to close on the transaction or if the transaction will be taken away.  This business development company also has a very low market cap of only $34.25 million based upon its $10.27 price.  Since coming public, its trading range is $9.75 to $14.85.

JON C. OGG

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