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The AGM #8 In the News: What everyone doesn't understand about DXYZ

Destiny Tech100 is all the buzz but is trading at 5x NAV -- what gives?

DISCLAIMER: Things I am not: an accountant, a lawyer, a fiduciary to any reader, or a registered advisor. I’m just a guy writing a newsletter so none of this constitutes any tax, accounting, legal, life, or investment advice.

Disclosure: I do not hold $DXYZ. $DXYZ and my employer do share at least one common portfolio company.

Following up from last week

Did you miss me? I missed writing for you. I packed my schedule a bit too tight when traveling a couple weeks back and didn’t get the time to write The AGM as I had scheduled.

Following up from #7 on QSBS I received a lot of follow up about fund pass through mechanics. I will write about those in the future, they are important and somewhat complicated so I want to make sure I fully explain the mechanics for each involved party (GP/LP) when I do cover it.

This week we’ll come back to an In The News, and cover Destiny Tech 100, trading on the NYSE as DXYZ, a closed-ended fund that lets retail access private companies in a fund structure.

In The News
What everyone is missing about DXYZ

DXYZ is all the rage — it launched March 26, 2023 on the NYSE at $8.25 (already almost twice its NAV), and has since reached peaks as high as $105. It has been one of the most volatile stocks in the market in the last three weeks with mutliple day moves of 30-50%.

As the linked article mentions, the NAV driven reference price of Destiny Tech 100 is just $4.84 — yet it’s never traded that low, or even close.

The crazy thing in that time period nothing has changed about the underlying asset. No rounds have been announced, and no new investments have been made nor stock issuances. This is a stock driven purely by hype and some level of irrationality.

NOT an ETF

However to fully understand this you need to understand one key point that isn’t immediately apparent. DXYZ is NOT a ETF. It’s a closed-ended fund in which the market value of the shares does not necessarily directly relate to the underlying asset value.

Even with Monday’s 31% bounce DXYZ is incredibly overvalued at $36.88 / share representing a total market cap of the fund of $401 million. The underlying assets are marked to and held at ~$54m.

That indicates a premium of nearly 8x — and that is before considering that many of the underlying assets are held at ridiculous premiums as they march the slowest of dilutive marches down Cramdown Avenue to make up for the gluttonous valuation times of 2021 and 2022.

Destiny Tech “100”

For a vehicle named Destiny Tech 100 there sure isn’t much that is 100.

They are down significantly on their portfolio, likely due to timing combined with an overindexing on brand, but I’ll get in to that a bit later. They invested $82,484,413 in private instruments (excluding money market funds) and the current holdings are worth only $48,373,804.* That’s just 59%. Decidely not 100% performance.

They claim in their prospectus that they’ll hold 100 private companies. They have 24 and an SPV for a 25th (which we’ll cover later). That is at best a quarter of 100.

To get to 100 positions (assuming similar weighting) they’d need to raise another $100-150m via share issuance. Even at high premium current pricing that leads to dilution in the range of 20-40%. This would be dramatic, newsworthy, and, considering retail traders current decision making, potentially do absolutely nothing to the share price.

*I did calculations using the December 31, 2023 Schedule of Investments and excluding money market funds and liabilites

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