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Tiny BDC, pursued by activist, announces plan to liquidate

Crossroads Capital, a tiny BDC once targeting pre-IPO equity, announced this week it would liquidate its investment portfolio and distribute cash to shareholders.

This news comes after activist Bulldog Investors became the largest shareholder of the company, previously called BDCA Venture. BDCA Venture changed its name from Keating Capital in July 2014.

Crossroads Capital’s investments are in preferred stock, common stock, subordinated convertible bridge notes, subordinated secured notes, and equity warrants, although under previous management the company made an eleventh-hour attempt to switch to a debt strategy.

However, as of Jan. 25, the company’s investment strategy became “preservation of capital and maximization of shareholder value,” and will immediately pursue a sale of investments.

The plan to liquidate “was made after considerable analysis, review and deliberation. Both management and the board believe this is the most efficient way to deliver the company’s underlying value to our shareholders,” a Jan. 25 statement said.

Among the investments in the portfolio as of Sept. 30 are social media content company Mode Media, ecommerce network Deem, online dating company Zoosk, software company Centrify, renewable oils company Agilyx, human resources software company SilkRoad, waste management company Harvest Power, and solar thermal energy company BrightSource Energy.

Net assets totaled $54.5 million as of Sept. 30, 2015, or $5.63 per share, consisting of 12 portfolio company investments with a fair value of $39 million and cash and cash equivalents of $16.2 million. Shares in Crossroads Capital, which trade on Nasdaq as XRDC, closed at $2.10 yesterday.

In September 2014, the company’s previous board approved a change in strategy to focus on debt of private companies, moving away from venture equity. The change was part of then-management’s attempt to reduce the company’s stock discount to NAV.

But this plan was too little, too late, for some.

In May, Bulldog Investors filed a proxy statement soliciting support for a plan to elect its own board members, terminate an external management agreement with BDCA Adviser, and pursue a plan to maximize shareholder value through liquidation, a sale, or a merger.

Bulldog Investors criticized the strategy to convert BDCA Venture away from venture capital–backed or high-growth companies into an income-oriented fund, saying the BDC’s small size and high expense ratio meant the plan was “almost certainly doomed to fail.”

BDCV’s shares were trading at $5.05 at the time the proxy was filed in May 2015, a 25% discount from its March 31 NAV of $6.71. That compared to a listing price of $10 at the time of the company’s IPO on Nasdaq in December 2011.

In contrast, BDCV’s expenses in the three years prior to the proxy totaled $13.25 million, or $1.33 per share, according to the Bulldog proxy.

The plan laid out in May 2015 has more or less come to pass.

In July, shareholders elected Bulldog-nominated directors Richard Cohen, Andrew Dakos, and Gerald Hellerman. A proposal to terminate the investment advisory agreement with BDCA Venture Adviser failed to pass in a vote at the 2015 annual meeting, but was approved by the board in October.

CEO Timothy Keating resigned in late July, replaced by COO Frederic Schweiger. Around that time, the company held equity investments in 12 portfolio companies, 11 of which were private portfolio companies and the other which was publicly traded Tremor Video. The company did not expect any of the private companies to complete an IPO in 2015.

Schweiger resigned as CEO in December, and was replaced by Ben Harris. Harris is a director of NYSE-listed Special Opportunities Fund.

At the same time, BDCA Venture announced a name change to Crossroads Capital. The ticker changed to XRDC on Nasdaq, from BDCV. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.