Cathie Wood’s new venture fund ARK Invest touts Elon Musk’s Twitter as its biggest stake – and a whole lot of risk

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Cathie Wood, founder of famed ARK Investment Management, is offering retail investors the chance to bet on Elon Musk’s risky $44 billion Twitter investment.

Investors can invest a minimum of $500 in its new venture capital fund, of which Twitter is the top holding. Unlike most funds, this one will continue to hold Twitter stock even after it transitions from a public company to a private company under Musk’s control.

Venture capital is one of the riskiest investments because it usually focuses on immature businesses that by their nature have a high chance of failing. Musk’s erratic leadership style adds to the uncertainty.

“We just launched a public-private crossover fund, and Twitter is in that fund,” Wood told Bloomberg TV on Wednesday.

She thinks the future of Twitter looks bright, if Musk is able to deliver the major changes he promised. He previously talked about expanding Twitter’s reach to include payments through a digital wallet, similar to WeChat; resurrect Vine as a short video alternative to TikTok; and grow its subscription business through Twitter Blue.

The venture capital fund, marketed with Titan, a fintech startup that bills itself as a sort of hedge fund for the little guy, is still quite small with an estimated portfolio of just $8.3 million. His Twitter stake is only about $1 million, or about 12% of the overall fund.

“Over time, we’d like Twitter to become a bigger holding company,” Wood said.

Other holdings include a health technology company called Freenome, a digital payments company serving Africa called Chipper Cash, machine learning startup MosaicML and a small indirect stake in Fortnite publisher Epic Games.

Wood said she was a big fan of Musk, whom she called a modern “Thomas Edison,” and was among Wall Street’s most well-known Tesla bulls. Critics, however, point to Musk’s impulsiveness and habit of making promises, especially related to his other company, Tesla, that he breaks.

paid dearly

The risks for people investing in Wood’s new venture capital fund — not to mention other portfolio holdings — are substantial, however, given the price Musk has paid for the money-losing social media company.

When he launched his offer, the Tesla CEO offered existing Twitter investors $54.20 per share, representing a 38% premium to what the stock was trading at the time.

Using the underlying closing price of $39.21 from April, before news emerged of Musk’s interest in Twitter, and applying the same 28% decline that hit the Nasdaq, at strong technological component, shares of Twitter are only worth $28.40.

That means Musk conservatively paid double the company’s current value — more if you look at the crash in social media stocks like Facebook’s parent company Meta and Snap, which fell 60% and 75%, respectively, over the same period.

Therefore, trying to recoup the investment first and then get a decent return is not a garden variety challenge.

It’s been a tough year for Wood, whose flagship growth fund, focused on publicly traded companies, has lost 60% of its value since the start of the stock market rout this year.

It’s not just the general bear market sentiment that’s hurting. Its stock-picking record hasn’t been the best of late either.

In May, it elevated Roku to one of the top three picks of its ARK Innovation exchange-traded fund. On Thursday, its shares fell to the lowest since late 2019, after the company released a disappointing outlook.

In his interview with Bloomberg, Wood blamed his fund’s poor performance on supply chain bottlenecks affecting the companies he invests in, the war in Ukraine and rising U.S. interest rates in the UK. over the past nine months.

But Wood remained optimistic, saying the stock market was in the “early stages of a bottoming process” and the first to benefit would be the innovation leaders in her portfolio who most have never heard of. , not the FAANG heavyweights of the world that include parent companies Facebook and Google.

“In the later stages of a bear market, our strategy starts to outperform,” she said. “We are the new Nasdaq, and most of our stocks are not in these indexes.”

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