By Dan Primack
June 27, 2011

The man who bought Facebook shares at a valuation of only $70 billion explains how he did it. 

GSV Capital (GSVC), a publicly-traded investment firm focused on private companies, today disclosed that it has acquired 225,000 Facebook shares at $29.28 per share. This works out to a valuation of approximately $70 billion, which is less than where Facebook shares have been trading lately on the private secondary markets. Not surprisingly, GSV shares were up nearly 40% at the time of this writing.

So I spent some time on the phone with Michael Moe, founder and CEO of GSV Capital. What follows is an edited transcript of our conversation:

Fortune: You got your shares at the “discount” valuation of $70 billion. How?

Moe: We worked every source possible that we knew of. We had a relatively large amount we were willing to buy, and said we were willing to buy more if we got a lower price. Also, we were a known quantity that wasn’t going to flake out. We said here’s what we’re interested in paying and we don’t want anything at a price above that. Clear and straightforward.

The actual deal closed after the LinkedIn IPO, but a lot of the process occurred around that time. I think there were some fears that perhaps LinkedIn wouldn’t do well, or that the shares would trade down and create issues on the secondary markets.

Finally, we got these transactions done through SecondMarket, which helped streamline the process.

Did you really buy “at a discount,” or has Facebook simply lost some value?

I think it was a discount. If you look at what’s happened over the past few weeks on the secondary markets, Facebook’s valuation has actually taken a step up. The last SharesPost auction, for example, was last Thursday at $35 per share.

We obviously have been in the process of closing for the past 30 days, but doing it today at less than $30 per share would be tough. Even at the time some people thought we were bluffing. One person emailed to say I was full of it.

Did you buy the shares from ex-employees, institutions or both?

Former employees. We talked to multiple classes of shareholder when trying to acquire shares, but in the end it was ex-employees.

Would you consider adding more Facebook stock to your current portfolio?

My view is that Facebook is the top private company in the world, and I don’t think that’s very controversial. The structure of our fund permits up to go up to 25% for any one company, so 15% is a pretty significant slug for us. We could do more, but not if we couldn’t get it for the right price.

You are still heavily involved with NeXtup, an equity research company focused on private companies. How do you manage what appears to be a possible conflict of interest?

There are a few different components to NeXtup. One is that we don’t offer buy or sell ratings. Instead, we do research on 35 private companies to provide a framework for investors to get information that is otherwise very difficult to get. I’m very proud of the work NeXtup does. It’s very solid.

I’m very conscious of the issues at public companies, and the different shenanigans that people have done. We have a wall between GSV Capital and NeXtup, and are transparent about our association. We would never front-run.

Ok, but it seems like you’re almost in position to condition the market when it comes to valuations of companies with undisclosed financials.

Again, at the end of the day we’re very conscious of these issues. I know this might sound like a throwaway line, but conflicts of interest are really conflicts of character. We’re very sensitive toward issues that could become problematic for people.

A simple strategy would be to completely have my involvement with NeXtup go away, but I think that would be unfortunate. I contribute a weekly newsletter, and work on other editorial efforts about perspectives on growth stocks.

NeXt up is a complimentary, but separate, business from our investment business. From an economic perspective, NeXtup is self-supporting but teeny. It was basically created with the idea that there’s a problem and we might be able to help solve it.

Legislation has been proposed to effectively eliminate the so-called “500 shareholder” rule. Do you think this means Facebook may remain private indefinitely?

I think it could. The 500 shareholders number was arbitrary. There was no magic to it. And the public equity markets have real issues, which is why no Silicon Valley CEOs I know want to become public.

Amending that rule would be very helpful but, from my investment standpoint, I’m agnostic. If companies like Facebook go public, great. More liquidity and more interest, which means valuations should benefit. At the same time, if it’s private and there’s a secondary marketplace with valuations that represent reasonable returns, then we can sell there.

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