SuRo Capital - Shallow Dive
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What Attracted Me To SuRo Capital?
Disclaimer is at the end.
1. What Attracted Me To SuRo Capital?
There are a few things that caught my eye when it came to SuRo Capital.
They are publicly traded “VC fund”.
They are shareholder friendly.
In 2022 no one wants to “invest” into such funds due to all of macro uncertainties.
They invest into companies that I personally:
Don’t have access to
Don’t have as good of knowledge
Wouldn’t invest into by myself even if I could
They successfully exited Palantir and a few other well known unicorns.
Company that we will discuss today is SuRo Capital Corp (currently around $200M Market Cap). SuRo Capital is a business development company. The firm seeks to invest in growing, late stage, venture capital-backed private companies.
SuRo Capital is (basically) a public VC fund with shareholder friendly management.
SuRo Capital’s exits include:
Facebook - META Snap - SNAP Twitter - TWTR
Spotify - SPOT Palantir - PLTR Coursera - COUR
SuRo Capital Corp. SSSS (“Company” or “SuRo Capital”), formerly known as Sutter Rock Capital Corp. and as GSV Capital Corp. and formed in September 2010, is a publicly-traded fund that seeks to invest in high-growth, venture-backed private companies. The firm primarily seeks to invest in social mobile, sustainability, cloud computing, big data, marketplaces, and education sectors.
The Company's investment objective is to maximize its portfolio’s total return, principally by seeking capital gains on equity and equity-related investments, and to a lesser extent, income from debt investments. The Company acquires its investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies, and negotiations with selling stockholders. In addition, Suro invests in private credit and in the founders equity, founders warrants, forward purchase agreements, and private investment in public equity (PIPE) transactions of special purpose acquisition companies (SPACs).
Prior to June 22, 2020, company was externally managed by their former investment adviser, GSV Asset Management, LLC (“GSV Asset Management”), pursuant to an investment advisory agreement, and their former administrator, GSV Capital Service Company, LLC ("GSV Capital Service Company"), provided the administrative services necessary for our operations pursuant to an administration agreement.
“In connection with our Internalization, the Investment Advisory Agreement and the Administration Agreement were terminated as of the Effective Date in accordance with their respective terms. As a result, we no longer pay any fees or expenses under an investment advisory agreement or administration agreement, and instead pay the operating costs associated with employing investment management professionals including, without limitation, compensation expenses related to salaries, discretionary bonuses and restricted stock grants.”
SuRo Capital is based in San Francisco, California.
Mark Klein owns (922,485 shares) about 3.04% of total outstanding shares (largest shareholder)
Allison Green owns (114,877 shares) about 0.38% of total outstanding shares.
5. Current Portfolio
SuRo Capital has two portfolios:
Since the above five companies take up the bulk of “investments” in portfolio here is a bit more information on them:
You can click on each one (green color highlight) to dig deeper
Course Hero is a peer-to-peer marketplace for educational resources and expert tutors. Harnessing marketplace network effects that have propelled businesses like Lyft, Uber, and Airbnb, Course Hero is aligned with increasing consumer preference for on-demand, digital education resources.
Forge is a leading provider of marketplace infrastructure, data services and technology solutions for private market participants. By combining world-class trading technology and operating expertise, Forge Markets enables private company shareholders to trade private company shares with accredited investors. Forge Company Solutions, Forge Data and Forge Trust along with Forge Markets provide the transparency, access and solutions that companies, as well as institutional and individual investors need to confidently navigate and efficiently transact in the private markets.
Blink Health is a digital health company focused on making prescriptions affordable and conveniently accessible to everyone. Blink Health’s technology platform enables patients to access lower prices for their prescriptions and gives patients the best end-to-end experience possible. Through its app and its website, the company serves as the best-in-class e-commerce platform for prescription medications.
Aspiration is creating a digital investment firm focused on providing transparency and trust with the goal of becoming one of the leading brands for millennials and other investors looking for a fresh alternative to traditional wealth managers. Aspiration provides even entry-level investors access to research and analysis on top of a unique fee structure based on what the investor believes to be fair. Aspiration aims to become the premier brand for investors seeking a more open, transparent, fair and customer-centric investment platform.
StormWind was founded with the objective of completely disrupting the corporate IT training market. By combining true high-definition, deeply immersive, rich media online environments with world-class instructors, at approximately 50% of the cost of in-person training, StormWind has now proven to be able to replicate the classroom using web-based video—something no other company has done yet.
SuRo Capital’s cash balance was approximately $153.0 million, or 43% of gross assets, as of June 30, 2022.
Sports is new and still relatively small portfolio that I believe management will be leaning into as valuations (in both public and private markets) being “compressed”.
The sports betting industry in the United States has grown with relative speed. Many states have legalized the pastime and even more are in the process of doing so. In 2021, sports betting revenue was forecast to reach 2.1 billion U.S. dollars and, by 2028, this figure is anticipated to grow to over 10 billion U.S. dollars. - statista .
When it comes to SSSS competitors are pretty much everyone. In VC/PE world (and public markets) and yet because TAM is so large and vague, I would say the real competitor is CASH & TIME. Because as long as there is a lot of liquidity available everyone who is on the mission to create the next unicorn has access to “easy money” and with valuations can get out of hand (year 2000 or 2020 as an examples) that taking away any kind of Margin of Safety, unless we are in the bear market.
7. Past Performance
Just by looking at the chart above it seems like nothing much has happened since 2011(ish) until July 2022 and yet company has invested and exited companies like PLTR TWTR SPOT COUR and many other “hot” growth companies at net profits.
Also, as we can see from the two charts below:
Large dividend pay outs came out only 3 ish times, 2016x1 2021x2, and whatever is left from 2021 in 2022x1 (as of July 2022).
So if all the Special Dividends have been paid out in 2021 does that mean new shareholders have missed out on all of the fun?
That all depends on the current portfolio and future investments + market sentiment..which we will discuss next...
Dividends are not always the best option to maximize shareholder value, sometimes it’s share repurchasing.
Current Portfolio’s Holdings + Future Holdings
If we treat this as VC then that means the bull case would be SuRo buying into the future unicorns and exiting them at much higher multiples (in the future hot markets?)
Although their track record shows they can deliver, they also have some bets that went to zero (as with anything VC that is expected but it doesn’t mean I have to go all in) and currently holding something under assumptions they are zero.
Example : OZY (Media Company)
Proper allocation will be very important.
Will be watching for:
New funding / New exits
Announcement of dividends (and their payouts)
Markets feelings towards “growth investing” and overall market sentiment.
Combining that with Management
If we look at the “start” of dividends (from “Past Performance) we can see that they started dividends again in 2020-2021 there could be two reasons for that (and I believe they are both true at the same time being point 1 > point 2) :
1) It’s because they start exiting some of their holdings and so had to distribute the profits to shareholders.
2) In 2020 company/management “kind of” became free of GSV’s over watch and can be more free to do what they want to / need to.
Although management does not own VERY large amount of stock in the company, Mark Klein (curent CEO) is currently the largest shareholder and has been buying little bit in the open market.
Agressive repurchasing of shares
Recently announced plan to repurchase around 6% of shares (and if I’m not mistaken almost 10% total YTD if they will get the 6%) is another way of them trying to build up the value while shares are depressed.
If we persist in the “bear market” or enter recession/depression, company might simply not survive to see better days.
Failure of Successful New Investments
As mentioned before not all of the bets have been home runs, some went to zero.
Failure to have enough funds/money to keep running the company is also potential risk as with a lot of VC funds.
It’s probably a good idea to read SuRo’s 10K, especially Risk Factors section.
Currently SuRo is around $200M Market Cap with around $70M Debt, $150M Cash, & 30.33M outstanding shares.
You take 150-70=80/30.33 and you get about $2.6 in cash per share.
Management believes NAV is around 9.2 but (I noticed) they will move this number around based on each quarters calculations.
ROE/ROIC is on average around 15% but can be very unstable at times.
10. Personal Touch
Does This Co. Meets The Check List Requirements?
Kind of. Sort of.
Since this is not my standard play, some requirements are not really applicable.
(will be interesting to see if deviating from check list will be a bad thing)
Is this a WONDERFUL Business or a GOOD Business?
Neither, its an interesting company.
Currently none of the gurus that I follow own any significant amount of SSSS shares.
Margin of Safety Price?
Net-Net is $2.5
Based of NAV is around $5-$6 range.
Fair Value? Price Target?
Based of current NAV of $9.24, that’s the “FV” but I think that’s a trap.
Around $12 (It’s the NAV that the company had before public market started assigning lower valuation to their portfolio)
When market will start rising, their NAV (most likely) will go up.
When market will start falling, their NAV (most likely) will go down.
It probably… depends.
SuRo Capital is really not my in my circle of competence and yet what they are doing and how they are doing (to me) is fascinating. I’m cautious optimist and think there will be better days in the stock market which means there will be better days for growth companies which means if you can buy something at large discount (margin of safety) and hold it long enough for management to prove themselves to Mr Market that they are worth it, there is room for some high double digit returns…
…or maybe not.
Personally VC game is new to me and doesn’t fully resonates with my understanding of Value Investing. But if done properly VC works and maybe SuRo is the way to play it if you are not into day-to-day VC stuff.
I would love to get some perspective from seasoned VC investors on what they think about SuRo Capital.
Because of my current investment in IAC , I have decided to be more disciplined when it comes to investing into (additional) HoldCos or VC funds but if the price goes low enough I could become more interested in SSSS .
At the time of this publication, I do NOT own shares of SSSS .
The information of this article (deep dive) is provided for informational and educational purposes only.
The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.
None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. The company is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.