I knew them when: Pre-IPO investing goes retail

I knew them when: Pre-IPO investing goes retail
New closed-end fund lets clients bet on future stock market stars
NOV 08, 2011
Groupon Inc.'s wildly anticipated— and somewhat disappointing — IPO in early November may have doused some of the interest in privately held social-networking companies. But private companies likely to go public are still a lucrative opportunity, says Tim Keating, president of Keating Capital Inc. Mr. Keating plans to give individual investors the chance to get in on the action when he lists his Keating Capital closed-end fund on the Nasdaq market Monday under the ticker symbol KIPO. The company raised $87 million in an unlisted offering in June and now has nearly 4000 shareholders. Mr. Keating invests in venture-backed companies he expects to go public within 12 to 18 months. Typically, such late-stage private companies get their financing from institutional investors. “We'll be the only publicly traded fund exclusively investing in pre-IPO companies,” said Mr. Keating, who started his firm in 1997 as a traditional investment bank. Previously, he had worked for Kidder Peabody & Co., Nomura Securities Co. Ltd., and the Bear Stearns Cos. Inc. The fund has $32 million invested in portfolio companies and about $45 million in cash. Mr. Keating plans to make between one and three more investments before the end of the year. His investments are roughly equally distributed between the technology, Internet and software, and clean tech sectors. His three largest positions are in Corsair Components Inc., a maker of gaming components, Metabolon Inc., a biochemical diagnostics maker, and Tremor Video Inc., a digital video technology company. “We're not interested in the Facebooks, Twitters and Zyngas,” Mr. Keating said. “We think most of the value is already realized before they go public.” Groupon's IPO sent investors on a wild ride. Opening at $20, the stock raced up to $31 before diving to $15 by the end of the month. It trades in the $22 range. Investors in LinkedIn Corp., which sold a limited number of shares in May, fared substantially better, although the ride was no less wild. Shares rose from $45 to over $120 before falling back into the $50s last month. It is trading at about $72. Keating is less interested, however, in high fliers such as Facebook, which has not set plans for an IPO, and Zynga, which is set to offer shares to the public next week. With a six-month underwriters' lockup after his portfolio companies go public, Mr. Keating aims to get in on companies substantially earlier. “The big bump [in share price]," he said, "now happens earlier than the IPO."

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