Pre-IPO tech fund returns 28 percent in first year

(Reuters) - The first mutual fund giving mom-and-pop investors easy access to the private market for tech startups turned a year old this week, capping a year of big gains and raising the question for would-be buyers: Is this a good deal or a danger?

For $2,500, anyone can buy into the $32 million SharesPost 100 Fund, and get a portfolio of roughly 20 tech companies three years or less away from going public. In its first year, fund manager Sven Weber has seen two of its holdings sold, returned 28 percent to investors and handily beaten the S&P 500 Index, the Dow Jones U.S. Technology Index and the Nasdaq 100 Technology Index, which respectively have returned 12.75 percent, 15.97 percent and 20.74 percent as of March 25, according to Lipper.

It opens to small investors a fairly risky world typically off-limits to anyone who is not pre-qualified as a wealthy and sophisticated investor. But it does not come cheap. With annual fees of 1.9 percent of assets under management, it is more expensive than an average mutual fund.

Furthermore, because it is organized as a so-called "closed end interval fund" it limits shareholder redemptions. Investors can buy in whenever they want, but they can only sell once a quarter. Even then, redemptions are capped fund-wide at 5 percent of the portfolio. Should investors, in total, want to sell more than 5 percent of the fund in any quarter, SharesPost would pro-rate the shares it would allow each investor to sell.

FINDING DEALS

Weber said he tries to find companies two to three years before they make news by being acquired or going public, but he has already seen two acquisitions: In July, Yahoo Inc acquired Flurry Inc, a San Francisco-based provider of mobile device analytics. And in December, Oracle Corp bought Datalogix, a data company that helps firms understand the effectiveness of their online advertising.

Terms of both acquisitions were not disclosed.

On Weber's list of potential upcoming IPOs in his portfolio are Sunnyvale, California-based Good Technology, which postponed going public last year, solar energy company SunRun Inc, and peer-to-peer lender Social Finance Inc, which specializes in student loans.

Social Finance, Good Technology and SunRun declined to comment.

Because of the fund's small asset size, it can be overallocated to certain sectors. For example, the fund is 12.5 percent invested in online gaming, largely because one of its top holding is San Francisco-based online and mobile gaming company Kabam.

Its size is also partly to blame for its comparatively high expenses.

"This is not an easy fund to run and it is going to cost something," said Jeff Tjornehoj, head of Lipper Americas research, a unit of Thomson Reuters. "I think as the asset base grows, those expenses will come down."

Weber hopes the portfolio grows to 70 to 90 companies, up from 20 now, which will diversify the sectors represented, he said. He hopes to have around $125 million a year from now and around $200 million within two years.

SharesPost sets the net asset value of the fund daily; Weber says its valuations are audited by an independent accounting firm and reviewed by the fund's independent trustees.

NO STRANGER TO VENTURE CAPITAL WORLD

Weber most recently oversaw more than $1.5 billion in venture capital investments as president of SVB Capital, a division of Silicon Valley Bank [SIVBV.UL].

To find companies, he reviews a database of over 120,000 venture capital transactions taking place over the past 15 years. He assesses the top performers and where those investors are putting their money today. He then chooses the 100 most promising companies, and from those picks about 20 for the fund.

Weber says he has not had trouble finding deals because he often gets to the companies before the big buyers would get interested. He tries to always have 35 to 40 new companies to add to the pipeline.

Not all meet his test. Some startups get ahead of themselves, Weber says.

"There are companies that have the fundamentals and then there are companies where you scratch your head and wonder how did you get there," he said.

(Reporting by Jessica Toonkel in New York; Editing by Linda Stern and Lisa Shumaker)