Finally, The Facebook and Twitter Fund is Here – Secondary Market CEF

by ETF Base on January 12, 2011

For years, we’ve been reading about how “accredited investors” could invest in startups such as Facebook, Twitter, LinkedIn and others before they actually go public with an IPO.  The logic is that such sophisticated investors are more suited to the risks and capital requirements that come with such investments, even if trading in the secondary market.  Well, coming on the tail of the recent Goldman Sachs (GS) investment in Facebook which valued it at $50 Billion, we now have the first regulatory filing for a publicly traded fund which would invest in such companies, allowing routine retail investors to participate.  So, yes, you’ll be able to invest in Facebook, Twitter, LinkedIn, and other hot private tech outfits as a routine retail investor – through this closed-end fund.

NeXt BDC Capital Corp Fund

This will be the first closed-end fund (see how Closed End Funds Work) focusing solely on this secondary market.  The fund is headed up by Mike Moe, who is also CEO of ThinkEquity partners, which focuses on private equity deals.  Executive management for this fund will also include tech veterans Bill Campbell from Apple’s (AAPL) board, and Todd Bradley, of Hewlett Packard (HPQ).  They intend on raising $50 Million through an IPO to launch the fund.

Should You Invest in Twitter, Groupon and Facebook?

There’s an obvious reason there’s so much action in this space – it may be approaching the top.  Remember when private equity firms first went public?  It was brilliant timing for Blackstone and others.  Blackstone (BX) is still off over 50% since launching in 2007 while the founders are laughing all the way to the bank.  With outfits like Groupon and Facebook raising hundreds of millions of dollars each round, there’s some question as to whether these valuations are reasonable.

As a positive, the tech sector isn’t what it looked like during the dotcom bubble when outfits like were fetching gargantuan valuations while losing money hand over fist.  Many of these companies are relatively well-established, have much growth ahead of them, are growing revenues rapidly, and most importantly – already profitable.  However, if every mom and pop can now get their hands on shares, don’t you think there’s going to be a runup in advance of the IPO for the Next Fund?

Traders in the secondary market now are probably having a field day; they may very well dump shares once the public can participate – after all, the 2011 tax deal doesn’t punish capital gains like many had feared either.  With capital gains taxes likely to increase in 2013 and beyond, early investors may be enticed to sell of shares at the peak here.  While many consider the secondary market as an alternative investment of sorts, and it may well have been their Black Swan Investment for early entrants, there’s so much buzz around these companies that IPOs for each, or the NeXt fund for that matter, may well draw retail dollars at the outset, crushing newer investors.

The ticker symbol for the CEF is to be NEXT.  Make sure to subscribe here for an update on the launch and more new ETF/CEF launch updates!

{ 2 comments… read them below or add one }

Liquid Trader January 13, 2011 at 1:59 pm

Trying to work out if this is likely to increase the amount of liquidity chasing a handful of hyped up stocks??


Jacob @ My Personal Finance Journey January 16, 2011 at 9:14 pm

This is an interesting approach/financial instrument. However, it seems like a little more risk than I normally employ in my regular index mutual fund / ETF investment plan.


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