Initial public offerings continued their relatively slow pace in 2016, despite a robust stock market rally. Against this backdrop, we are pleased that Firsthand Technology Value Fund enjoyed one IPO (Nutanix) and three M&A transactions (Tapad, Mattson, and Gilt Groupe) in its portfolio this past year. I am disappointed to report, however, that lagging performance in other investments led the Fund's net asset value (NAV) lower 12.07% during the year, and our stock finished down 6.12%.
Things That Worked
The biggest news for the Fund this year was the acquisition of Tapad by Telenor in March 2016. The Fund's initial investment in Tapad, an advertising technology company, was in 2013, and our total investment was approximately $10.15 million. The Fund received roughly $17.45 million in proceeds from the acquisition, representing a realized gain of approximately $7.3 million (a 72% gain on investment).
Mattson Technology represented another M&A exit for the Fund, with the semiconductor company being bought out by Beijing E-Town Dragon Semiconductor Industry Investment Center in May 2016. The Fund made its initial investment in Mattson in late 2013 and realized a gain of approximately $4 million, representing a 49% gain on investment.
During the year, the Fund also enjoyed its seventh IPO since inception, with Nutanix (Nasdaq: NTNX). We made our initial purchase of Nutanix stock in 2015 and added to our position in the summer of 2016, leading up to its late-September IPO. The company went public at $16.00 per share and, after peaking at over $40 per share in October, settled into a range between $25 and $30 for the remainder of 2016. The Fund's ability to sell the stock is restricted until the end of March 2017, per a lock-up agreement associated with the pre-IPO shares. As of December 31, 2016, we have an unrealized gain of approximately $3.6 million in the stock (note that our valuation policy dictates that we value our Nutanix position at a 10% discount to the market price for the remainder of the lockup period).
Progress for Private Companies
IntraOp Medical (the portfolio's largest holding at 19.1% as of the end of December) continues to report impressive results in treating several forms of cancer. To date, more than 15,000 cancer patients worldwide have been treated with IntraOp's IntraOperative Radiation Therapy (IORT) device, the Mobetron, including more than 7,500 breast cancer patients. In late 2016, researchers from Harvard and Massachusetts General Hospital announced the results of a clinical study that demonstrated a 43% increase in survival rates for pancreatic cancer patients who were treated with electron beam IORT at the time of surgery versus those receiving surgery alone. Because pancreatic cancer has such a high mortality rate, we believe that this study offers IntraOp an opportunity to dramatically increase its profile in the industry.
Pivotal Systems, one of the Fund's largest holdings, announced that Q3 2016 was a record quarter for revenues and more than $4 million in bookings. The company also announced the closing of a new $8 million round of funding that will support its manufacturing expansion in Asia. That investment round was led by Anzu Partners and included participation from Firsthand and other existing investors. As of December 31, 2016, Pivotal represented 16.6% of the Fund's portfolio, and we remain excited about its potential value as an acquisition target. Its mass flow controller technology offers superior performance to other devices in the market, and it is aggressively taking market share from the industry leaders.
Venture capital investors have overlooked the semiconductor industry for some time, which has led to attractive valuations for investors interested in this space. Such was the case with Revasum, a Q4 investment of the Fund. Like Pivotal, Revasum is a supplier of semiconductor manufacturing equipment. The company provides specialized equipment that semiconductor manufacturers use to grind, flatten, and polish semiconductor wafers. In particular, Revasum has expertise in dealing with exotic materials such as sapphire and silicon carbide.
Some Companies Struggling
While most of our portfolio companies continue to show meaningful progress, some are having a more difficult time finding success. Several of our investments in the consumer electronics field disappointed in 2016. The market for wearable technology has underperformed relative to the expectations of many market observers. Despite the early successes of Apple Watch and Fitbit products, wearables took a step back in 2016, leading to struggles for Jawbone, Telepathy, and Vufine. We also divested our position in Hiku this past year, reflecting the limited progress made by the grocery scanner company since our initial investment in 2014.
Despite Tapad's success, valuations have been under pressure in the advertising technology space, as this dynamic market continues its rapid evolution. We wrote down our investment in Turn during the year, reflecting the stock performance of its publicly traded peers. Turn has recently agreed to be acquired by Amobee, a subsidiary of Singtel, one of the largest mobile network operators in Singapore. Although final payouts have not yet been determined, we believe we may realize a small gain on our investment as a result of the transaction.v
In some cases, we have been forced to write down the value of existing investments because the companies have taken in a new round of investment that is dilutive to existing shareholders. Examples this past year include Pivotal, Phunware, and QMAT. In most cases, new rounds of financing include rights and preferences that are senior to those of the prior rounds. Unless the overall valuation implied by the new funding is much higher, the net result of the new round is a decline in value for the securities with junior rights. This is true even if we invest in the new round as well, as was the case with Pivotal. In the case of QMAT, which is a sizeable holding in the portfolio at 8.8% as of December 31, the write-down was significant and was responsible for a large portion of the decline in NAV in the second half of 2016.
Distributions, Buybacks, and the Road Ahead
We share investors' frustration with the discount at which our stock trades relative to NAV. In 2016, realized losses from companies including Hiku and InvenSense offset the gains from the Nutanix, Mattson, and Tapad exits, and prevented the Fund from making a distribution of capital gains to shareholders. We did, however, use some of the Fund's cash to fund a $2 million stock repurchase in 2016. While we are pleased to report that the repurchase added $0.53 to the NAV during the year, there is no evidence that it did anything to close the gap between the stock price and NAV. We will continue our efforts to improve the availability of information about our portfolio companies and to communicate the intrinsic value of the Fund's holdings to the market.
In hindsight, most successful venture capital funds are defined by a few “home runs” that made up for the many losses along the way. If you were an early investor in Facebook, for example, you would have had a successful fund, regardless of what else you invested in. In our view, the investments that will define Firsthand Technology Value Fund are not the companies that we have exited in the past few years. Rather, we believe that the investments that define the Fund will be the investments we made in early-stage companies at low valuations that we nurture and lead to IPO and M&A exits in the future.
We continue to examine and consider other ways to deliver value to shareholders and will do what we think is best for long-term investors in the Fund. I remain one of the Fund's largest individual shareholders and I will continue to invest personally in the Fund in 2017.
In closing, we wish to thank you for entrusting your investment dollars to us and want you to know that we are working hard every day to identify and invest in many of the most exciting technology companies in the world.
CEO and President
Firsthand Technology Value Fund, Inc.