Firsthand Technology Value Fund, Inc. (OTCQB:SVVC) is a publicly traded venture capital fund that has been investing in technology and cleantech companies since its inception in 2011. The fund’s investment strategy has evolved over the years, but its core focus remains on identifying promising early-stage and growth-stage companies in the technology and cleantech sectors.

Company History and Business Overview Firsthand Technology Value Fund was initially formed as a closed-end, non-diversified management investment company in 2011 and elected to be treated as a business development company under the Investment Company Act of 1940. The fund commenced operations on April 18, 2011. On April 15, 2011, the company acquired its initial portfolio of securities through the reorganization of Firsthand Technology Value Fund, a series of Firsthand Funds, into the company.

The fund’s investment strategy has primarily focused on investing in privately held technology and cleantech companies, with a minimum of 70% of its total assets allocated to these types of investments. The remaining 30% is allocated to opportunistic investments, which can include publicly traded securities or other asset classes.

In 2018, the company faced a significant change in its tax status. Due to the increase in value from the initial public offerings of two of its portfolio companies, Pivotal Systems and Revasum, Firsthand Technology Value Fund was no longer able to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. As a result, the company was taxed as a corporation starting in 2018 and had to pay federal and state corporate taxes on its taxable income.

Over the years, Firsthand Technology Value Fund has built a diversified portfolio of investments, ranging from software and semiconductor companies to renewable energy and advanced materials firms. The fund’s investment philosophy is centered on identifying companies with strong growth potential, innovative technologies, and experienced management teams.

Financial Performance As of September 30, 2024, Firsthand Technology Value Fund reported net assets of approximately $1.5 million, or $0.22 per share. This represents a significant decline from the fund’s net assets of $30.6 million, or $4.44 per share, as of December 31, 2022. The primary driver of this decrease was the write-downs of the fund’s investments in IntraOp Medical Corp. and Wrightspeed, Inc. in the third quarter of 2023, as well as the complete loss of the fund’s investment in Revasum, Inc. in the second quarter of 2024.

For the most recent fiscal year (2023), SVVC reported a net loss of $29.35 million, with no revenue, operating cash flow of -$639, and free cash flow of -$639.

In the most recent quarter (Q3 2024), the company showed significant improvement: Revenue: $35,792 Net Income: $526,227 Operating Cash Flow: $99 Free Cash Flow: $99

Compared to Q3 2023, revenue increased from a loss of $234,130 to a gain of $35,792, while net income increased from a loss of $10.42 million to a gain of $526,227. The increase in revenue and net income was primarily due to a decline in net realized and unrealized losses on investments.

For the nine months ended September 30, 2024, the company had investment income of $97,790, compared to $88,810 for the nine months ended September 30, 2023. Net investment loss before taxes was $2.28 million for the nine months ended September 30, 2024, compared to a loss of $1.36 million for the nine months ended September 30, 2023. The company recognized net realized gains of $11.69 million during the nine months ended September 30, 2024.

Liquidity Despite these setbacks, Firsthand Technology Value Fund maintains a relatively strong liquidity position, with approximately $1.0 million, or $0.15 per share, in cash and cash equivalents as of June 30, 2024. However, the fund’s overall financial performance has been significantly impacted by the losses incurred from its investments in troubled portfolio companies.

As of September 30, 2024, the company had $2,810 in cash and cash equivalents, with no available credit lines disclosed. The current ratio was 0.04 and the quick ratio was also 0.04. The company has no debt, resulting in a debt/equity ratio of 0.

Portfolio Composition As of September 30, 2024, the fair value of the company’s investment portfolio was approximately $1.40 million, compared to $8.70 million as of December 31, 2023. The portfolio is primarily composed of equity and equity-like securities, including common and preferred stock, warrants, convertible and term notes.

The top industry sectors the company is invested in as of September 30, 2024 are: – Exchange-Traded/Money Market Funds (64.60%) – Advanced Materials (22.80%) – Medical Devices (3.10%) – Equipment Leasing (2.20%)

Challenges and Risks The challenges facing Firsthand Technology Value Fund are not unique to the fund itself, but rather reflective of the inherent risks associated with investing in early-stage and growth-stage technology companies. The fund’s portfolio is heavily concentrated in privately held companies, which can be subject to significant volatility and risk due to their limited operating histories, lack of diversification, and high sensitivity to market conditions.

Additionally, the fund’s performance has been impacted by the broader macroeconomic environment, including the effects of the COVID-19 pandemic and geopolitical tensions, which have affected the operations and valuations of its portfolio companies. The fund’s limited geographic diversification, with a significant portion of its investments focused on companies in the San Francisco Bay Area, also exposes it to regional risks.

The small size and concentrated nature of the investment portfolio expose the company to significant risks and make it challenging to generate consistent positive returns for shareholders. The performance of the portfolio has been very poor in recent years, with substantial write-downs and losses on key investments like IntraOp Medical and Wrightspeed.

Outlook and Guidance Firsthand Technology Value Fund has not provided any formal guidance or outlook for its future performance. However, the fund’s management has acknowledged the challenges facing the portfolio and has indicated that it is exploring various options to enhance shareholder value, including potential mergers or acquisitions of its portfolio companies. The company has explored options to enhance shareholder value, including a potential merger transaction, but these efforts have not been successful so far.

The fund’s ability to navigate these challenging times will likely depend on its ability to effectively manage its existing investments, identify new opportunities that align with its investment strategy, and adapt its approach to the evolving market conditions. Investors in Firsthand Technology Value Fund should closely monitor the fund’s progress and any updates provided by the management team.

Conclusion Firsthand Technology Value Fund has faced significant headwinds in recent years, with its portfolio companies experiencing significant setbacks and the fund’s overall financial performance suffering as a result. However, the fund’s diversified investment strategy and strong liquidity position provide some resilience, and the management team is actively exploring options to enhance shareholder value.

Investors in Firsthand Technology Value Fund should carefully consider the risks and challenges facing the fund, as well as any potential opportunities that may arise from the fund’s efforts to navigate these difficult times. As with any investment, it is important to conduct thorough research and make informed decisions based on the available information. The recent improvement in financial performance in Q3 2024 may be a positive sign, but it remains to be seen if this trend can be sustained given the historical challenges and the volatile nature of the fund’s investments.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.