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Steady as She Goes for Our Investment Company Investment

Sutter Rock Capital Corp., formerly known as GSV Capital, logged some nice gains during the second quarter on its investments in Spotify and Dropbox.
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Wednesday night, the public company that invests in private ones that is Sutter Rock Capital Corp. (SSSS:Nasdaq;$6.46;4.35%) reported its June quarter results. Given the nature of its business – an investment portfolio – we tend to disregard normal financial metrics such as revenue and earnings per share in favor of net asset value (NAV) per share, which reflects the value of its private company investment portfolio. Exiting the June quarter, Sutter Rock’s NAV per share hit $10.75, which was flat compared to the March quarter but up nicely from $10.46 in the year-ago one. As we suspected, Sutter Rock management utilized its share repurchase program during the June quarter, capitalizing on the company’s share price fall-off from near $7 at the start of the quarter. During the three-month period Sutter Rock acquired 115,801 shares for roughly $0.7 million, which implies an average purchase in the realm of more than $6 a share. Entering the current quarter, Sutter had roughly $4.1 million remaining on its existing buyback authorization, and on Wednesday the board authorized another $5 million to that plan.

In the 24 months since Sutter enacted this buyback plan, it has shrunk its share count by roughly 11%, which has had a favorable impact on its NAV per share; the remaining $9.1 million if fully utilized over the next 12 to 24 months would equate to another 1.4 million shares near the current share prices, which would shrink the existing share count by another 7%. Said a different way, if management stepped in and utilized all the current buyback plan today, it in theory would boost the current NAV per share to roughly $11.60. During the June quarter, Sutter did make some portfolio maneuvers, exiting its position in Spotify Technology (SPOT) and selling 437.460 shares of Dropbox Inc. (DBX) , which generated a combined gain of $18.6 million for the portfolio. That impressive gain was offset by a $5.1 million loss on the exit of another investment. Following the close of the quarter, Sutter sold another 55,000 DBX shares for a gain of $0.5 million, and we’d note with the latest sale that Sutter dramatically has reduced its exposure to Dropbox, enough to knock DBX out of its top five investment positions. The only significant exposure Sutter now has to the public markets is with Lyft Inc. (LYFT) , which accounts for just over 10% of the company’s investment portfolio. The positive is this should reduce share price gyrations meaningfully, but it also means we continue to wait for the next initial public offering (IPO) monetization. That doesn’t mean the Sutter team is resting on its collective laurels. During the June quarter the investment team added a new $7.5 million investment in GreenAcreage Real Estate Corp., which is a REIT that holds industrial and retail cannabis-related facilities. Sutter also took down a small position in Aspiration, a mobile banking platform that offers socially responsible banking and investing products and services. And during the conference call, despite the recent name change from GSV Capital Corp., the company remains committed to its investment strategy that focuses on Education Technology (38% of the portfolio), Marketplaces (25%), Big Data & Cloud (23%), Financial Technology (7.5%), Social & Mobile (6.5%) and Sustainability (0.4%). Nice to know, but it raises the question as to what to do with the shares. In a word, nothing. We’ll keep our Two rating intact as well as our price target, but we remain in a waiting game for the next catalyst to emerge. We’ll continue to watch the IPO filing circuit as well as new private company investments made by Sutter. Stay tuned….

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