Investors are increasingly skittish. They are warned frequently that the top of the US equity market is feverishly overpriced and might bring the rest down when it falls. And, too, chaos in the national government is making them worried if not yet ready to abandon their lovelies. Interest is growing in finding ways to book gains independent of the stock market. One manifestation of that is the insane growth in economically inefficient buffered funds, and another is the rising interest in securing access to private equity. “Private equity” describes the wide world of corporations whose shares are not available to the public; they’re held by insiders and select groups of outsiders. Reportedly, private equity investments have returned about 5% more per year, over the 21st century, than have public stock investments (CAIA Association, “Long-Term Private Equity Performance: 2000 to 2023,” 4/23/2024). As with the opportunity to invest in hedge funds, the promise is just too great to ignore.
Our advice: ignore it.
The story of Firsthand Technology Value Fund (TVFQX reincarnated as SVVC) represents one of the most dramatic cycles of boom and bust in the investment fund world, transforming from a high-flying technology mutual fund with billions in assets to a shell of its former self with minimal assets and a share price of mere pennies. This comprehensive account documents its meteoric rise, subsequent struggles as a private equity investor, and ultimate collapse. Their struggles offer some hint of the undiscussed risks.
The Golden Era: Firsthand’s Phenomenal Rise in the 1990s
Firsthand Technology Value Fund began its journey in 1994 when Kevin Landis, who would become one of Wall Street’s most celebrated technology investors during the dot-com boom, and Ken Kam founded Firsthand Capital Management. Their edge was that, as successful entrepreneurs in tech and biotech, they had an insider’s firsthand understanding. The fund started as an open-end mutual fund focused on technology investments and quickly became a standout performer in the burgeoning tech sector.
During the late 1990s, the fund delivered extraordinary results, with returns of 59.23% annually from 1994-1999. This performance culminated in a stunning 190% gain in 1999 alone, at the height of the tech bubble. With these spectacular returns, the fund’s assets under management swelled to over $4 billion, and its NAV soared beyond $130 per share. Kevin Landis became a media darling and the “go-to” expert for technology investment commentary, appearing regularly on financial news networks.
The Bursting Bubble: 2000-2010
When the tech bubble burst in 2000, Firsthand Technology Value Fund suffered catastrophic losses along with most technology-focused investments. Over the next three years, the fund’s NAV plummeted by 78%, and its assets shrank dramatically to less than $500 million. The downward spiral continued throughout the decade, with assets dwindling to under $150 million by mid-2010.
This period represented a fundamental challenge to the fund’s investment thesis and management approach. Like many formerly high-flying tech funds of the era, Firsthand struggled to adapt to the new market reality after the dot-com bubble burst.
To this point, the fund was, at worst, just another perfectly ordinary tech disaster, like dozens of its peers. Human error, human arrogance, the bubble pops.
I know there’s a proverb that says, ‘To err is human’ but a human error is nothing to what a computer can do if it tries.” Agatha Christie, Hallowe’en Party (1969)
‘To err is human, to really foul things up requires a computer’. Senator Soaper, the comic creation of Bill Vaughan, “Senator Soaper says” (1969)
Investing in publicly traded securities leads to perfectly ordinary disasters. To really screw things up, add private equity.
Transformation to a BDC: The 2011 Conversion
Facing continuing challenges with the open-end mutual fund structure, the Board approved a significant structural change in 2010-2011. On April 18, 2011, Firsthand Technology Value Fund converted from an open-end mutual fund to a business development company (BDC), structured as a closed-end fund focused primarily on investing in private companies. Like the ETFs we wrote about in “Liquid Promises, Illiquid Reality” (March 2025), the magic was going to be provided by private equity.
While our primary focus is to invest in illiquid private technology and cleantech companies, we may also invest in micro-cap publicly traded companies … We expect to be risk-seeking rather than risk-averse in our investment approach. We expect to make speculative venture capital investments with limited marketability and a greater risk of investment loss than less speculative investments. We are not limited by the diversification requirements applicable to a regulated investment company … (Firsthand Technology Value Fund, Inc., Form 10-K/A, FY 2023)
Here’s private capital in 119 words:
You’re a tiny company with a cool product. You’re new at this. You want to grow but you don’t have the cash or expertise to pull it off, and so you invite in a White Knight. Brilliant, experienced entrepreneurs with a bucket of cash who promise you’ll be The Next Google. You sell much or all of your company to them for a price they tell you is more than fair. They promptly start fixing you. The unspoken part is that they will do to your company whatever it takes to maximize their profit, which might be carefully nurturing its growth, slapping on a coat of paint and flipping the company, or plundering it and filing for bankruptcy.
This conversion proved controversial from the start. Financial columnist Chuck Jaffe of MarketWatch issued a stark warning about the conversion, calling it a move “likely to gut shareholders like fish” and suggesting that “they’d be better off with a liquidation, which Firsthand has done to some of its other miserable funds” (“Chuck Jaffe: Don’t experience this bad deal ‘Firsthand,’” Seattle Times, 8/10/2010). Two notes there: (1) that was the nicest thing Chuck said about the manager in the course of this 2010 article and (2) it was cited by Tech Value’s largest shareholder in a 2013 filing with the SEC. Despite these warnings, the conversion proceeded, and SVVC began its new life as a BDC with an NAV of $94 million, including $75 million in cash.
The Facebook Effect: A Brief Illusory Revival
In October 2011, SVVC announced a $1.6 million investment in Facebook through a private transaction. As Facebook prepared for its highly anticipated IPO, the investment represented a rare opportunity for public market investors to gain exposure to the pre-IPO social media giant.
By April 2012, Facebook represented 26% of SVVC’s assets, and investor excitement pushed the fund’s share price to more than $45 per share, representing a massive premium over its last reported NAV of $24.56. Capitalizing on this enthusiasm, SVVC conducted a secondary offering, issuing 4.4 million shares at $27 per share, more than doubling the fund’s size. You would think that investing in a FAANG when it was still a Baby Tooth would be a sure road to riches. Not so much. The Facebook-driven euphoria proved short-lived. The social media giant’s IPO was widely regarded as disappointing, and SVVC suffered as its largest holding underperformed expectations.
The decision to bet the ranch on private equity came with vast and predictable risks:
- Valuation uncertainty, where the nominal value of a position is untested in the market. At the base you’re dependent on “welllll … our experts are pretty sure that we could someday sell this to someone for something like …. But when? Don’t know.”
- Illiquidity, especially for tiny companies with untested models in periods of …
- Market volatility, which was rampant.
- Interest rate uncertainty, where rising rates and fear of a recession reduced the availability of credit for merger & acquisition activities, and limited the fund’s ability to cash out of positions and move on.
- Potential misalignment with other private equity investors: private equity investors are a famously predatory bunch with a reputation for looking to gut their acquisitions as quickly and thoroughly as possible. Eileen O’Grady, a researcher at the Private Equity Stakeholder Project, reports: “A review by the Private Equity Stakeholder Project has found that private equity firms played a role in eleven of the 17 (65%) largest US corporate bankruptcies during the first six months of 2024 (bankruptcies with liabilities of $1 billion or greater at the time of filing).” If you’re interested in strengthening a company and your colleagues are interested in looting it, you’re going to have a problem.
Management decisions during this period came under intense scrutiny. For instance, the fund passed on buying SolarCity shares at $8 in its December IPO, despite having previously valued the company’s restricted shares at $16 – a decision that proved costly as SolarCity’s shares subsequently traded at around $20.
Shareholder Activism and Liquidation Attempts
By 2020, dissatisfied shareholders began organizing. A group called “Save Firsthand Technology Shareholders” proposed “ceasing new investments and pursuing an orderly liquidation or termination of the fund,” noting that SVVC’s NAV had fallen 60% from its recent high.
In May 2021, shareholders were urged to vote in favor of terminating the investment advisory and management agreements between SVVC and Firsthand Capital Management. A vocal shareholder, Rawleigh Ralls, who owned approximately 3.7% of SVVC common stock, pointed out that Firsthand Capital Management had collected $33.8 million in fees over a nearly ten-year period during which the SVVC stock price declined by 78% (Globe NewsWire, 5/7/21).
The Final Collapse
The fund’s decline accelerated dramatically in recent years. As of December 31, 2022, SVVC reported net assets of approximately $30.6 million and then, a year later, $1.3 million, a staggering 95.8% decline in a single year. The market value tells an even bleaker story, with SVVC trading at just $0.06 per share in February 2025, giving the fund a minuscule market capitalization of just $439,582. Management delisted from the NASDAQ, then attempted to delist as a BDC and liquidate the fund in October 2023. They appear to have failed perhaps because you can’t liquidate unless you can convert your illiquid positions into cash. The fund keeps limping along with a combination of optimistic rhetoric (about microcap and private equity opportunities) and fatalism (“Throughout the quarter, the Fund continued its efforts to manage its portfolio prudently, including working with its portfolio companies and their management teams to seek to enhance performance and uncover potential exit opportunities,” filing on 11/14/24).
Conclusion: Lessons from a Fund’s Collapse
The story of Firsthand Technology Value Fund offers several cautionary lessons for investors. It demonstrates how quickly investment fortunes can reverse, particularly for funds heavily concentrated in volatile sectors. It also highlights the potential misalignment between management incentives and shareholder interests, as Firsthand Capital Management continued collecting substantial fees even as the fund’s value evaporated.
Perhaps most importantly, SVVC’s transformation from a high-flying open-end mutual fund to a penny stock illustrates the profound risks of illiquid investments and the challenges of valuing private company holdings – precisely the concerns that prompted regulatory limitations on illiquid investments in publicly traded funds designed to protect “regular” investors from sophisticated investment risks they might not fully understand.
