How To Get A Piece Of Lyft, Spotify, Dropbox And Other Startups Before Their IPOs

Before Facebook Inc FB and Twitter Inc TWTR filed their IPOs, GSV Capital Corp GSVC allowed investors to get a piece of these promising startups. Michael Moe, co-founder, CEO and Chief Investment Officer of GSV Capital, started the company after a long career involving growth companies and growth investing. "I was a research analyst for a number of years, identifying and writing research on fast-growing businesses," Moe told Benzinga. "I started an investment bank called ThinkEquity Partners, which was a growth-focused bank that we sold in 2007." He also wrote a book, "Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow." That title was the result of Moe's own success. "I happen to be the first person to write research about Starbucks that wasn't in their underwriter group," said Moe. "After we sold ThinkEquity in 2007, we kind of came up with the idea of GSV and GSV Capital, which is a publicly traded fund that invests in leading VC-backed private companies."

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Big Opportunities

GSV's current investments include Lyft, Dropbox, Spotify, 2U Inc TWOU, Coursera, Twitter, Palantir and a host of others. "The opportunity we saw when we took GSV Capital public, you had a dramatic shift in the capital markets over the dozen or so years from when the dot-com bubble had burst," said Moe. "[That] resulted in dramatically fewer IPOs and the companies going public were typically much larger and much more mature." GSV Capital ultimately serves two purposes. Moe said that it provides access for public investors to "invest in rapidly growing companies with large potential." "For the companies themselves, because the time from VC investment to monetization has quadrupled over the past dozen years -- from three years to 14 years -- we provide liquidity of growth capital," Moe added.

Need A Lyft?

Moe is very impressed with the way Lyft and Uber are transforming the transportation business. "We invested in Lyft a year ago or so," he said. "The company's growing extremely fast. It's a business that truly has gigantic network effects. And it's disrupting an industry that's a trillion dollars-plus." Moe said that while Lyft is growing at an "incredible rate," it faces one big issue: Uber. "They've got an extraordinarily tough competitor in Uber, who is very well financed and has really smart people," Moe added. "It does cause a ferocious battle between the two." In Moe's words, Uber is "absolutely killing it." "They're doing tremendously well from a business standpoint," Moe continued. "The real question is, is there room for two? Right now, the evidence would say yes. While Lyft is smaller [than Uber], it's growing like crazy and it's a gigantic market and people like choices. It's very exciting." Moe is fascinated with the metrics of the space. "It's one of these business [where] when you look at the metrics, it becomes fascinating," he said. "Every little metric on their business, and because it's smartphone-enabled and you have so much data, every single metric -- you tweak it one way or another -- and it has a significant impact."

Apple Vs. Spotify

Moe doesn't think that Spotify has much to worry about in competing against Apple Inc. AAPL and others that offer on-demand music services. "Great companies kind of blaze their own trail," he said. "Apple was the first innovation, the first kind of revolution [and] clearly was the leader in music. Basically, it came up with a legitimate model that was transformational for the music industry." It was Apple's game to lose, but Moe said the company didn't do anything innovative after the initial debut. "They just kept playing the same tune over and over," said Moe. "That gave an opening to some newer models." Moe praised Pandora Media Inc P as an innovator over "the old Apple model." "It was probably a smart thing for Apple to do to get back in the front edge of the game," Moe added. "Spotify is really impressive in terms of how it's developed and is evolving its market and competing. If it didn't have real players that were interested, you [would] question the market opportunity. Google and others are trying to find a way to be relevant."

The Last Tweet Is Coming

GSV Capital does not hold onto publicly traded firms forever. Now that shares of Twitter can be purchased by anyone, GSV can focus on the next big startup. "The reason why we continue to hold it is, we have a fiduciary responsibility to optimize the return for our shareholders," said Moe. "We sold a little bit of Twitter when it was above $50 before. We have a game plan with Twitter stock. If we're right about what we think the fundamentals are…and how the stock will respond to the fundamentals that we think, we're gonna have a higher stock price from here. Our time horizon is over the next three to six months. We hope to realize that." One way or another, Moe said that GSV will be "liquidated of the Twitter position and redirect that into the next Twitter." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.