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What changed in Hercules Capital, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Hercules Capital, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+544 added−573 removedSource: 10-K (2025-02-13) vs 10-K (2024-02-15)

Top changes in Hercules Capital, Inc.'s 2024 10-K

544 paragraphs added · 573 removed · 456 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

153 edited+15 added−26 removed167 unchanged
Biggest changeRisks Related To Our Investments • Our investments in portfolio companies involve higher levels of risk, and we could lose all or part of our investment. • Our investments are concentrated in certain technology-related industries, which subjects us to the risk of significant loss if any one or more of such industries experiences a downturn. • Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected. • We may be exposed to higher risks with respect to our investments that include PIK interest or Exit fees. • The lack of liquidity in our investments may adversely affect our business. • We may not have the funds or ability to make additional investments in our portfolio companies. • There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims. • We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer, which may subject us to a risk of significant loss if any such issuer experiences a downturn. • We generally will not control our portfolio companies, which may result in the portfolio company making decisions which could adversely impact the value of our investments in the portfolio company’s securities. • Defaults by our portfolio companies will harm our operating results. • Substantially all of our portfolio investments are recorded at fair value as determined in accordance with our Valuation Guidelines and, as a result, there may be uncertainty as to the value of our portfolio investments. • Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution and could impair our ability to service our borrowings. • We are subject to risks associated with the current interest rate environment and changes in interest rates will affect our cost of capital, net investment income and the value of our investments. • We may not realize gains from our equity or warrant investments. • Our investments in foreign securities or investments denominated in foreign currencies may involve significant risks in addition to the risks inherent in U.S. and U.S.-denominated investments.
Biggest changeIn addition, our financial results could be negatively affected if a significant portfolio investment fails to perform as expected. • We may be exposed to higher risks with respect to our investments that include PIK interest or exit fees. • We may not have the funds or ability to make additional investments in our portfolio companies. • There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims. • We generally will not control our portfolio companies, which may result in the portfolio company making decisions which could adversely impact the value of our investments in the portfolio company’s securities. • Defaults by our portfolio companies will harm our operating results. • Substantially all of our portfolio investments are recorded at fair value as determined in accordance with our valuation guidelines and, as a result, there may be uncertainty as to the value of our portfolio investments.
Our Internet address 4 Table of Contents where these documents and other information can be found is www.htgc.com . Information contained on our website is not incorporated by reference into this Annual Report, and you should not consider that information to be part of this Annual Report.
Our Internet address where these documents and other information can be found is www.htgc.com . Information contained on our website is not incorporated by reference into this Annual Report, and you should not consider that information to be part of this Annual 4 Table of Contents Report.
Retention of our personnel is important to the management of our business and believe that compensation and benefits and opportunities for professional development are a key driver of retention. We offer a competitive, compensation and benefits structure that we believe attracts current and prospective professionals relative to their local markets and industry.
Retention of our personnel is important to the management of our business and we believe that compensation and benefits and opportunities for professional development are a key driver of retention. We offer a competitive compensation and benefits structure that we believe attracts current and prospective professionals relative to their local markets and industry.
Warrants, Options, and Restricted Stock Under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stock that it may have outstanding at any time.
Warrants, Options, and Restricted Stock Under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, or rights to purchase shares of capital stock that it may have outstanding at any time.
We are also required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation. Our Chief Compliance Officer is responsible for administering these policies and procedures.
We are also required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws and review these policies and procedures annually for their adequacy and the effectiveness of their implementation. Our Chief Compliance Officer is responsible for administering these policies and procedures.
Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board.
Fair value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board.
We believe that we can mitigate the risk of loss on our debt investments through the combination of loan principal amortization after an initial interest only period, cash interest payments, relatively short maturities (typically between 36-48 months), security interests in the assets of our portfolio companies, and on select investment covenants requiring prospective portfolio companies to have certain amounts of available cash at the time of our investment and the continued support from a venture capital or private equity firm at the time we make our investment.
We believe that we can mitigate the risk of loss on our debt investments through the combination of loan principal amortization after an initial interest only period, cash interest payments, relatively short maturities (typically between 36-48 months), security interests in the assets of our portfolio companies, and on select investment covenants requiring prospective portfolio companies to have certain amounts of available cash at the time of our investment and the continued support from a venture capital or private equity firm.
Capital providers that are subject to such limitations are often required to seek a liquidity event more quickly than they otherwise might, which can result in a lower overall return on an investment. OUR INVESTMENTS AND OPERATIONS We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on Structured Debt.
Capital providers that are subject to such limitations are often required to seek a liquidity event more quickly than they otherwise might, which can result in a lower overall return on an investment. OUR INVESTMENTS AND OPERATIONS We principally invest in debt securities and, to a lesser extent, warrants and equity securities, with a particular emphasis on Structured Debt.
Technology-Related Companies are Underserved by Traditional Lenders. We believe many viable technology-related companies backed by financial sponsors have been unable to obtain sufficient growth financing from traditional lenders, including financial services companies such as commercial banks and finance companies because traditional lenders have continued to consolidate and have adopted a more risk-averse approach to lending.
Technology-Related Companies are Underserved by Traditional Lenders. We believe many viable technology-related companies backed by financial sponsors have been unable to obtain sufficient growth financing from traditional lenders, including financial services companies such as commercial banks and finance companies. Traditional lenders have continued to consolidate and have adopted a more risk-averse approach to lending.
Additionally, our Structured Debt financings 7 Table of Contents may include restrictive affirmative and negative covenants, default penalties, prepayment penalties, lien protection, equity calls, change-in-control provisions or board observation rights. • Senior Debt: We seek to invest a limited portion of our assets in senior debt.
Additionally, our Structured Debt financings 7 Table of Contents may include restrictive affirmative and negative covenants, default penalties, prepayment penalties, lien protection, equity calls, change-in-control provisions and board observation rights. • Senior Debt: We seek to invest a limited portion of our assets in senior debt.
In addition, because of our access to the equity markets, we believe that we may benefit from a lower cost of capital than that available to private investment funds. We are not subject to requirements to return invested capital to investors, nor do we have a finite investment horizon.
In addition, because of our access to the public equity markets, we believe that we may benefit from a lower cost of capital than that available to private investment funds. We are not subject to requirements to return invested capital to investors, nor do we have a finite investment horizon.
The origination team is responsible for sourcing potential investment opportunities and members of the investment origination team use their extensive relationships with various leading financial sponsors, management contacts within technology-related companies, trade sources, technology conferences and various publications to source prospective portfolio companies.
The origination team is responsible for sourcing potential investment opportunities and members of the investment origination team use their extensive relationships with various leading financial sponsors, management contacts within technology-related companies, trade sources, industry conferences and various publications to source prospective portfolio companies.
The NAV per share is equal to the value of our total assets minus liabilities and any preferred stock outstanding divided by the total number of shares of common stock outstanding. As of the date of this report, we do not have any preferred stock outstanding.
The NAV per share is equal to the value of our total assets minus liabilities and any preferred stock outstanding divided by the total number of shares of common stock outstanding. As of the date of this Annual Report, we do not have any preferred stock outstanding.
Qualifying as a Regulated Investment Company In order to qualify as a RIC for U.S. federal income tax purposes and obtain the tax benefits of our RIC status, we must, among other requirements: • have in effect at all times during each taxable year an election to be regulated as a BDC under the 1940 Act; • derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, foreign currencies, or other income derived with respect to our business of investing in such stock or securities and (b) net income derived from an interest in a “qualified publicly traded partnership” (the “Income Test”); • diversify our holdings so that at the end of each quarter of the taxable year: ◦ at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and ◦ no more than 25% of the value of our assets is invested in (i) securities (other than U.S. government securities or securities of other RICs) of any one issuer, (ii) securities (other than U.S. government securities or securities of other RICs) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly traded partnerships” (the “Asset Test”). • distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of our "investment company taxable income," which is generally equal to the sum of our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, determined without regard to any deduction for distributions paid (the "Distribution Requirements").
Qualifying as a Regulated Investment Company In order to qualify as a RIC for U.S. federal income tax purposes and obtain the tax benefits of our RIC status, we must, among other requirements: • have in effect at all times during each taxable year an election to be regulated as a BDC under the 1940 Act; • derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, foreign currencies, or other income derived with respect to our business of investing in such stock or securities and (b) net income derived from an interest in a “qualified publicly traded partnership” (the “Income Test”); • diversify our holdings so that at the end of each quarter of the taxable year: ◦ at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and ◦ no more than 25% of the value of our assets is invested in (i) securities (other than U.S. government securities or securities of other RICs) of any one issuer, (ii) securities (other than U.S. government securities or securities of other RICs) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly traded partnerships” (the “Asset Test”). • distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of our “investment company taxable income,” which is generally equal to the sum of our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, determined without regard to any deduction for distributions paid (the “Distribution Requirements”).
Structured Debt Senior Debt Equity Securities Typical Structure Term debt with warrants Term or revolving debt Warrants, preferred stock, or common stock Investment Horizon Long-term: 2 to 5 years; Average of 3.5 years Generally under 4 years 3 to 7 years Covenants Less restrictive; mostly financial Generally borrowing base and financial None Investment Criteria We have identified several criteria, among others, that we believe are important in achieving our investment objective with respect to prospective portfolio companies.
Structured Debt Senior Debt Equity Securities Typical Structure Term debt with warrants Term or revolving debt Warrants, preferred equity securities, or common equity securities Investment Horizon Long-term: 2 to 5 years; Average of 3.5 years Long-Term: 3 to 5 years Typically under 4 years 3 to 7 years Covenants Less restrictive; mostly financial Generally borrowing base and financial None Investment Criteria We have identified several criteria, among others, that we believe are important in achieving our investment objective with respect to prospective portfolio companies.
Covenants - Our investments may include one or more of the following covenants: cross-default; material adverse change provisions; requirements that the portfolio company provide periodic financial reports and operating metrics; and limitations on the portfolio company’s ability to incur additional debt, sell assets, dividend recapture, engage in transactions with affiliates and consummate an extraordinary transaction, such as a merger or recapitalization without our consent.
Covenants - Our investments may include one or more of the following covenants: cross-default; material adverse change provisions; requirements that the portfolio company provide periodic financial reports and operating metrics; minimum liquidity requirements; and limitations on the portfolio company’s ability to incur additional debt, sell assets, dividend recapture, engage in transactions with affiliates and consummate an extraordinary transaction, such as a merger or recapitalization, without our consent.
In addition, the investment team and credit team advise the investment committee and the Audit Committee of our Board, accordingly, regarding the credit and investment grading for each portfolio company as well as changes in the value of collateral that may occur.
In addition, the investment team and credit team advise the investment committee and the audit committee of our Board (the "Audit Committee"), accordingly, regarding the credit and investment grading for each portfolio company as well as material changes in the value of collateral that may occur.
Liquidity events may include an IPO, a private sale of our equity interest to a third party, a merger or an acquisition of the company or a purchase of our equity position by the company or one of its stockholders.
Liquidity events may include an IPO, a private sale of our equity interest to a third party, a merger or an acquisition of the company or a purchase of our equity position by the company or one or more of its stockholders.
The principal categories of qualifying assets relevant to our business are the following: (1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.
The principal categories of qualifying assets relevant to our business are the following: (1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.
Small Business Administration Regulations We make investments in qualifying small businesses through wholly owned SBIC subsidiaries. SBICs are designed to stimulate the flow of private equity capital to eligible small businesses.
Small Business Administration Regulations We make investments in qualifying small businesses through wholly owned SBIC subsidiaries. SBICs are designed to stimulate the flow of private capital to eligible small businesses.
In addition, if, during an offering pursuant to a prospectus, there is a possibility that we may trigger the undertaking to suspend the offering of shares of our common stock if the NAV fluctuates by certain amounts (as described in the relevant prospectus), the Board or a committee thereof will either (i) comply with such undertaking or (ii) undertake to determine NAV to ensure that such undertaking has not been triggered.
In addition, if, during an offering pursuant to a prospectus, there is a possibility that we may trigger the undertaking to suspend the offering of shares of our common stock if the NAV per share of common stock fluctuates by certain amounts (as described in the relevant prospectus), the Board or a committee thereof will either (i) comply with such undertaking or (ii) undertake to determine NAV per share of our common stock to ensure that such undertaking has not been triggered.
As a RIC, we will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our 19 Table of Contents stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years (“Excise Tax Requirement”).
As a RIC, we will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years (“Excise Tax Requirement”).
In connection with a senior debt investment, we may also provide the borrower with a working capital line-of-credit that will carry an interest rate generally referenced to Prime, SOFR, BSBY, or a similar benchmark rate plus a spread with a floor, generally maturing in three to five years, and typically secured by accounts receivable and/or inventory.
In connection with a senior debt investment, we may also provide the borrower with a working capital line-of-credit that will carry an interest rate generally referenced to Prime, SOFR, SONIA, or a similar benchmark rate plus a spread with a floor, generally maturing in three to five years, and typically secured by accounts receivable and/or inventory.
Risks Related To Our SBIC Subsidiaries • We, through our wholly owned subsidiary, issue debt securities guaranteed by the SBA and sold in the capital markets.
Risks Related To Our SBIC Subsidiaries • We, through our wholly owned subsidiaries, issue debt securities guaranteed by the SBA and sold in the capital markets.
Importantly, this determination does not require that we calculate NAV in connection with each offering of shares of our common stock, but instead it involves the determination by the Board or a committee thereof that we are not selling shares of our common stock at a price below the then current NAV at the time at which the sale is made.
Importantly, this determination does not require that we calculate NAV per share in connection with each offering of shares of our common stock, but instead it involves the determination by the Board or a committee thereof that we are not selling shares of our common stock at a price below the then current NAV per share at the time at which the sale is made.
On April 5, 2007, we received approval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly owned subsidiaries that are SBICs from the 150% asset coverage requirement applicable to us. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes.
On April 5, 2007, we received approval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly owned subsidiaries that are SBICs from the 150% asset coverage requirement applicable to us. We may also borrow amounts up to 5% of the value of our total assets for temporary purposes.
SBA regulations also include restrictions on a “change of control” or transfer of an SBIC and require that SBICs invest idle funds in accordance with SBA regulations. As of December 31, 2023, as a result of having sufficient capital as defined under the SBA regulations, our SBICs were in compliance with the terms of the SBA’s leverage requirements.
SBA regulations also include restrictions on a “change of control” or transfer of an SBIC and require that SBICs invest idle funds in accordance with SBA regulations. As of December 31, 2024, as a result of having sufficient capital as defined under the SBA regulations, our SBICs were in compliance with the terms of the SBA’s leverage requirements.
Through our goal setting and performance review process, employees are annually evaluated by managers and senior management to ensure employees continue to develop and advance as expected. As we hire and develop individuals, we also plan for succession. We have succession plans in place for each of our named executive officers.
Through our goal setting and performance review process, employees are evaluated at least annually by managers and senior management to ensure employees continue to develop and advance as expected. As we hire and develop individuals, we also plan for succession. We have succession plans in place for each of our named executive officers.
In addition, the balance sheets of these companies often include a disproportionately large amount of intellectual property assets, which can be difficult to value. Finally, the speed of innovation in technology and rapid shifts in consumer demand and market share add to the difficulty in evaluating technology-related companies.
In addition, the balance sheets of these companies often include a disproportionately large amount of intellectual property assets, which can be difficult to value. Finally, the speed of innovation in technology and rapid shifts in consumer demand and market share add to the difficulty in evaluating technology-related companies for investment.
Code of Ethics We have adopted and will maintain a code of ethics that establishes procedures for personal investments and restricts certain personal securities transactions.
Code of Ethics We have adopted and maintain a code of ethics that establishes procedures for personal investments and restricts certain personal securities transactions.
Private debt capital in the form of Structured Debt financing from specialty finance companies continues to be an important source of funding for technology-related companies. We believe that the level of demand for Structured Debt financing is a function of the level of annual venture equity investment activity. We believe that demand for Structured Debt financing is currently underserved.
Private debt capital in the form of Structured Debt financing from specialty finance companies continues to be an important source of funding for technology-related companies. We believe that the level of demand for Structured Debt financing is a function of the level of annual venture equity investment activity.
We aim to attract, motivate, and retain a diverse group of individuals and to create an inclusive community where all individuals are welcomed, valued, respected, and heard. We are proud that our workforce consists of diverse professionals including approximately 60% that are women or people of diverse ethnic backgrounds.
We aim to attract, motivate, and retain a diverse group of individuals and to create an inclusive community where all individuals are welcomed, valued, respected, and heard. We are proud that our workforce consists of diverse professionals including approximately 50% that are women or people of diverse ethnic backgrounds.
Typically, our debt and equity investments take one of the following forms: • Structured Debt: We seek to invest a majority of our assets in debt structured with warrants, equity, options, or other rights to purchase or convert into common or preferred stock of prospective portfolio companies.
Typically, our debt and equity investments take one of the following forms: • Structured Debt: We seek to invest a majority of our assets in debt structured with warrants, equity, options, or other rights to purchase or convert into common or preferred equity investment of prospective portfolio companies.
If any of our SBICs fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit our SBICs' use of debentures, declare outstanding debentures immediately due and payable, and/or limit our SBICs from making new investments.
If any of our SBICs fail to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit our SBICs' use of debentures, declare outstanding debentures immediately due and payable, and/or limit our SBICs from making new investments.
The Board considers the following factors, among others, in making such determination: • the NAV of our common stock disclosed in the most recent periodic report we filed with the SEC; • our management’s assessment of whether any material change in the NAV has occurred (including through the realization of net gains on the sale of our portfolio investments) from the period beginning on the date of the most recently disclosed NAV to the period ending two days prior to the date of the sale of our common stock; and • the magnitude of the difference between (i) a value that our Board or an authorized committee thereof has determined reflects the current NAV of our common stock, which is generally based upon the NAV of our common stock disclosed in the most recent periodic report that we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the NAV of our common stock since the date of the most recently disclosed NAV of our common stock, and (ii) the offering price of the shares of our common stock in the proposed offering.
The Board considers the following factors, among others, in making such determination: • the NAV per share of our common stock disclosed in the most recent periodic report we filed with the SEC; 22 Table of Contents • our management’s assessment of whether any material change in the NAV per share has occurred (including through the realization of net gains on the sale of our portfolio investments) from the period beginning on the date of the most recently disclosed NAV per share to the period ending two days prior to the date of the sale of our common stock; and • the magnitude of the difference between (i) a value that our Board or an authorized committee thereof has determined reflects the current NAV per share of our common stock, which is generally based upon the NAV per share of our common stock disclosed in the most recent periodic report that we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the NAV per share of our common stock since the date of the most recently disclosed NAV per share of our common stock, and (ii) the offering price per share of the shares of our common stock in the proposed offering.
As an internally managed BDC, we do not pay management or advisory fees, but instead incur costs customary for an operating company and are governed through supervision by the Board. Some of those costs include recruiting and marketing expenses as well as the costs associated with employing management, investment and portfolio management professionals, and technology, secretarial and other support personnel.
As an internally managed BDC, we do not pay management or advisory fees, but instead incur costs customary for an operating company and are governed through supervision by our Board. Some of those costs include recruiting and marketing expenses as well as the costs associated with employing management, investment and portfolio management professionals, and technology, administrative and other support personnel.
Although we do not intend to operate as an asset-based lender, the estimated liquidation value of the assets, if any, collateralizing the debt securities that we hold is an important factor in our credit analysis and subject to assumptions that may change over the life of the investment especially when attempting to estimate the value of intellectual property.
We do not intend to operate as an asset-based lender. However, the estimated liquidation value of the assets, if any, collateralizing the debt securities that we hold is an important factor in our credit analysis, especially when attempting to estimate (subject to assumptions that may change over the life of the investment) the value of intellectual property.
No-action and Exemptive Relief Obtained On May 11, 2020, we received no-action relief from the SEC staff that allowed us to form the Adviser Subsidiary as a registered investment adviser under the Advisers Act.
No-Action and Exemptive Relief Obtained On May 11, 2020, we received no-action relief from the SEC staff that allowed us to register the Adviser Subsidiary as a registered investment adviser under the Advisers Act.
We believe that an attractive market opportunity exists for a specialty finance company focused primarily on investments in Structured Debt, senior debt, and equity securities in technology-related companies for the following reasons: • technology-related companies have generally been underserved by traditional lending sources; • unfulfilled demand exists for Structured Debt financing to technology-related companies due to the complexity of evaluating risk in these investments; and • Structured Debt products are less dilutive and complement equity financing from venture capital and private equity funds.
We believe that an attractive market opportunity exists for a specialty finance company focused primarily on investments in Structured Debt, senior debt, and equity securities in technology-related companies for the following reasons: • technology-related companies have generally been underserved by traditional lending sources; • unfulfilled demand exists for Structured Debt financing to technology-related companies due to the complexity of evaluating risk in these investments; and • Structured Debt products are less dilutive than, but are complementary to, equity financing from venture capital and private equity funds.
We are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirements and the Excise Tax Requirement (collectively the "Code Distributions"). However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.
We are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirements and the Excise Tax Requirement (collectively the “Code Distributions”). However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.
We use the term “Structured Debt” to refer to a debt investment that is structured with an equity, warrant, option, or other right to purchase or convert into common or preferred stock.
We use the term “Structured Debt” to refer to a debt investment that is structured with an equity, warrant, option, or other right to purchase or convert into common or preferred equity investments.
The exercise prices for the warrants varies from nominal exercise prices to exercise prices that are at or above the current fair market value of the equity for which we receive warrants. We may structure warrants to provide minority rights provisions or, on a very select basis, put rights upon the occurrence of certain events.
The exercise prices for the warrants varies from nominal exercise prices to exercise prices that are at or above the current fair market value of the equity for which we receive warrants. We may structure warrants and other equity investments to provide minority rights provisions or, on a very select basis, put rights upon the occurrence of certain events.
No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting us and our stockholders (including stockholders subject to special rules under U.S. federal income tax law). 18 Table of Contents The discussions set forth herein do not constitute tax advice.
No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting us and our stockholders (including stockholders subject to special rules under U.S. federal income tax law). The discussions set forth herein do not constitute tax advice.
The investment team is supported by treasury, finance, operations, risk management, administrative support, IT and human resources professionals. We leverage the experience and relationships of our management team to successfully identify attractive investment opportunities, underwrite prospective portfolio companies and structure customized financing solutions.
The investment team is supported by treasury, finance, operations, credit management, legal, administrative support, IT and human resources professionals. We leverage the experience and relationships of our management team to successfully identify attractive investment opportunities, underwrite prospective portfolio companies and structure customized financing solutions.
Under these limits, we generally cannot acquire more than 3% of the voting stock of any 14 Table of Contents investment company (as defined in the 1940 Act), invest more than 5% of the value of our total assets in the securities of one such investment company or invest more than 10% of the value of our total assets in the securities of such other investment companies in the aggregate.
Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company (as defined in the 1940 Act), invest more than 5% of the value of our total assets in the securities of one such investment company or invest more than 10% of the value of our total assets in the securities of such other investment companies in the aggregate.
SEC rules permit us to exceed these limits, subject to certain conditions. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.
SEC rules permit us to exceed these limits, subject to certain conditions. With 14 Table of Contents regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.
Further, we anticipate that on the date of our investment we will generally obtain a lien on available assets, which may or may not include intellectual property, and these companies will have sufficient cash on their balance sheet to operate as well as potentially amortize their debt for at least three to nine months following our investment.
Further, we anticipate that on the date of our investment we will generally obtain a lien on available assets, which may or may not include intellectual property, and these companies will have sufficient cash on their balance sheet to operate as well as potentially pay down the principal on our debt for at least three to nine months following our investment.
Our loans will typically be collateralized by a security interest in the borrower’s assets, although we may not have the first claim on these assets and the assets may not include intellectual property. Our debt investments carry fixed or variable contractual interest rates which generally ranged from approximately 8% to 18% as of December 31, 2023.
Our loans will typically be collateralized by a security interest in the borrower’s assets, although we may not have the first claim on these assets and the assets may not include intellectual property. Our debt investments carry fixed or variable contractual interest rates which generally ranged from approximately 8% to 15% as of December 31, 2024.
The investment team, credit team, and finance department are responsible for ensuring timely interest and principal payments and collateral management as well as advising the investment committee on the financial performance and trends of each portfolio company, including any covenant violations that occur, to aid us in assessing the appropriate course of action for each portfolio company and evaluating overall portfolio quality.
The investment team, credit team, loan operations team an d finance department are responsible for ensuring timely interest and principal payments and collateral management as well as advising the investment committee on the financial performance and trends of each portfolio company, including any covenant violations that occur, to aid us in assessing the appropriate course of action for each portfolio company and evaluating overall portfolio quality.
Moreover, to the extent there is a possibility that we may issue shares of our common stock at a price below the then current NAV (and we do not have requisite shareholder authorization and Board approval to do so), the Board or a committee thereof will elect to either (i) postpone the offering until such time that there is no longer the possibility of issuing shares at a price below the then current NAV or (ii) to undertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then current NAV.
Moreover, to the extent there is a possibility that we may issue shares of our common stock at a price below the then current NAV per share (and we do not have requisite shareholder authorization to issue our shares at a price below their NAV per share), the Board or a committee thereof will elect to either (i) postpone the offering until such time that there is no longer the possibility of issuing shares at a price below the then current NAV per share or (ii) to undertake to determine the NAV per share within two days prior to any such sale to ensure that such sale will not be below our then current NAV per share of our common stock.
However, a RIC is not permitted to carry back or carry forward net operating losses, respectively, to prior and 21 Table of Contents subsequent tax years, and such net operating losses would not pass through to the RIC’s stockholders. In addition, deductible expenses can only be used to offset investment company taxable income, and not any net capital gains recognized.
However, a RIC is not permitted to carry back or carry forward net operating losses, respectively, to prior and subsequent tax years, and such net operating losses would not pass through to the RIC’s stockholders. In addition, deductible expenses can only be used to offset investment company taxable income, and not any net capital gains recognized.
Our investment team leverages established contacts with leading venture capital and private equity fund sponsors, public and 12 Table of Contents private companies, research institutions and other industry participants, to identify and source our investments. We believe that leveraging the relationships that our investment teams have established will enable us to continue to identify and attract well-positioned prospective portfolio companies.
Our investment team leverages established contacts with leading venture capital and private equity fund sponsors, public and private companies, research institutions and other industry participants, to identify and source our investments. We believe that leveraging the relationships that our investment teams have established will enable us to continue to identify and attract well-positioned prospective portfolio companies.
We may, however, sell our common stock, or warrants, options or other rights to acquire such common stock, at a price below the current NAV if our Board determines that such sale is in the best interests of our stockholders and if stockholders, including a majority of those stockholders that are not affiliated with us, approve of such sale.
We may, however, sell our common stock, or warrants, options or other rights to acquire such common stock, at a price below the current NAV per share if our Board determines that such sale is in the best interests of our stockholders and, in some cases, if stockholders, including a majority of those stockholders that are not affiliated with us, approve of such sale.
We believe that this provides us with a broader range of potential investment opportunities than those available to many of our competitors, who generally focus 6 Table of Contents their investments on a particular stage in a company’s development.
We believe that this provides us with a broader range of potential investment opportunities than those available to many of our competitors, who generally focus their investments on a particular stage in a company’s development.
As of December 31, 2023, our investment origination team, which consists of more than 50 investment professionals, is headed by our Chief Investment Officer and Chief Executive Officer.
As of December 31, 2024, our investment origination team, which consists of more than 50 investment professionals, is headed by our Chief Investment Officer and Chief Executive Officer.
As of December 31, 2023, our team comprises over 100 professionals across our 9 offices globally. Our investment team is comprised of more than 50 employees, and is led by professionals with extensive experience in venture capital, structured finance, origination of debt and equity investments, commercial lending and acquisition finance with technology and biomedical companies.
As of December 31, 2024, our team comprises over 100 professionals across our 8 offices globally. Our investment team is comprised of more than 50 employees, and is led by professionals with extensive experience in venture capital, structured finance, origination of debt and equity investments, commercial lending and acquisition finance with technology and biomedical companies.
We may also make stand-alone direct equity investments into portfolio companies in which we may not have any debt investment in the company. As of December 31, 2023, we held warrant and equity securities in 160 portfolio companies. In addition to the characteristics described above, the table below compares the typical features of our investments.
We may also make stand-alone direct equity investments into portfolio companies in which we may not have any debt investment in the company. As of December 31, 2024, we held warrant and equity securities in 151 portfolio companies. In addition to the characteristics described above, the table below compares the typical features of our investments.
The Code provides some relief from RIC disqualification due to failures to comply with the Income Test and the Asset Test, although there could be additional taxes due in such cases. We cannot assure you that we would qualify for any such relief should we fail the Income Test or the Asset Test.
The Code provides some relief from RIC disqualification due to failures to comply with the Income Test and the Asset Test, although there could be additional taxes 21 Table of Contents due in such cases. We cannot assure you that we would qualify for any such relief should we fail the Income Test or the Asset Test.
We intend to 20 Table of Contents limit and/or manage our holdings in issuers that could be treated as CFCs in order to limit our tax liability or maximize our after-tax return from these investments. Our functional currency, for U.S. federal income tax purposes, is the U.S. dollar.
We intend to limit and/or manage our holdings in issuers that could be treated as CFCs in order to limit our tax liability or maximize our after-tax return from these investments. Our functional currency, for U.S. federal income tax purposes, is the U.S. dollar.
In addition, SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA.
In addition, SBICs must devote 25.0% of their investment activity to “smaller” enterprises as defined by the SBA.
In addition, our team members have originated Structured Debt, senior debt, and equity investments in over 600 technology-related companies, representing approximately $19.0 billion in commitments from inception to December 31, 2023, and have developed a network of industry contacts with investors and other participants within the venture capital and private equity communities.
In addition, our team members have originated Structured Debt, senior debt, and equity investments in over 600 technology-related companies, representing over $21.0 billion in commitments from inception to December 31, 2024, and have developed a network of industry contacts with investors and other participants within the venture capital and private equity communities.
They monitor and when appropriate, recommend changes to investment grading. Our investment committee reviews and approves the recommendations and/or changes to the investment grading. These approved investment gradings are provided on a quarterly basis to the Audit Committee and our Board, along with valuations for our investments which are submitted for approval.
When appropriate, the teams recommend changes to investment grading. Our investment committee reviews and approves the recommendations and/or changes to the investment grading. These approved investment gradings are provided on a quarterly basis to the Audit Committee and our Board, along with valuations for our investments, which are submitted for approval by the Audit Committee and Board.
These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 1A. of this Annual Report on Form 10-K and the other reports and documents filed by us with the SEC.
These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 1A. of this Annual Report and the other reports and documents filed by us with the SEC.
We make investments in companies that are active across a variety of technology industry sub-sectors or are characterized by products or services that require advanced technologies, including, but not limited to, computer software and hardware, networking systems, semiconductors, semiconductor capital equipment, information technology infrastructure or services, consumer and business services, telecommunications, telecommunications equipment, media, life sciences, and renewable or alternative energy.
We make investments in companies that are active across a variety of technology-related industry sub-sectors or are characterized by products or services that require advanced technologies, including, but not limited to, computer software and hardware, networking systems, semiconductors, semiconductor capital equipment, information technology infrastructure or services, consumer and business services, telecommunications, telecommunications equipment and media.
Grade 5 loans will require the fair value of the loans be reduced to the amount, if any, we anticipate will be recovered. As of December 31, 2023, our investment portfolio had a weighted average investment grading of 2.24.
Grade 5 loans will require the fair value of the loans be reduced to the amount, if any, we anticipate will be recovered. As of December 31, 2024, our investment portfolio had a weighted average investment grading of 2.26.
Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by our Board may differ significantly from the value that would have been used had a readily available market existed for such investments, and the differences could be material.
Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the value that would have been used had a readily available market existed for such investments, and the differences could be material.
Warrants received are typically immediately exercisable upon issuance and generally will remain exercisable for the lesser of five to ten years or three to five years after completion of an initial public offering (“IPO”).
Warrants received are typically immediately exercisable upon issuance and generally will remain exercisable for the lesser of five to ten years after issuance or three to five years after completion of such portfolio company's initial public offering (“IPO”).
We may incur losses from our investing activities; however, we work with our troubled portfolio companies to recover as much of our investments as is practicable, including possibly taking control of the portfolio company.
We may incur losses from our investing activities; however, we work with our troubled portfolio companies and their financial sponsors to recover as much of our investments as is practicable, including possibly taking control of the portfolio company.
We may contract with employment agencies with whom we have developed relationships and who have learned our culture to assist with our recruitment efforts. From time to time, we may also contract with independent contractors on a temporary basis.
We may contract with employment agencies with whom we have developed relationships and who have learned our culture to assist with our 12 Table of Contents recruitment efforts. From time to time, we may also contract with independent contractors on a temporary basis.
Under present SBA regulations, eligible small businesses include those businesses that are below small business size standards as published by the North American Industry Classification System (“NASIC”) and adopted by the SBA or any eligible business that has a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years.
Under present SBA regulations, eligible small businesses include those businesses that are below small business size standards as published by the North American Industry Classification System (“NASIC”) and adopted by the SBA or any eligible business that has a tangible net worth not exceeding $24.0 million and has average annual fully taxed net income not exceeding $8.0 million for the two most recent fiscal years.
Reduced Asset Coverage Requirements In accordance with the Small Business Credit Availability Act ("SBCAA"), our Board and stockholders approved the reduction of our minimum asset coverage ratio applicable under Section 61(a)(2) of the 1940 Act on September 4, 2018 and December 6, 2018, respectively.
Senior Securities; Coverage Ratio In accordance with the Small Business Credit Availability Act, our Board and stockholders approved the reduction of our minimum asset coverage ratio applicable under Section 61(a)(2) of the 1940 Act on September 4, 2018 and December 6, 2018, respectively.
Our stockholders have authorized us to issue common stock at a price below the then-current NAV per share, subject to certain conditions including Board approval, for a twelve-month period expiring on July 20, 2024. We cannot predict whether we will make any such sales.
Our stockholders have authorized us to issue common stock at a price below the then-current NAV per share, subject to certain conditions including Board approval, for a twelve-month period expiring on August 15, 2025. We cannot predict whether we will make any such sales.
Our Culture We are committed to fostering a workplace conducive to the open communication of any concerns regarding unethical, fraudulent or illegal activities. We seek to promote a safe environment that is free of harassment or bullying.
Our Culture We are committed to fostering a workplace conducive to the open communication of any concerns regarding unethical, fraudulent or illegal activities. We seek to promote a safe environment that is free of harassment or bullying. We do not tolerate discrimination or harassment of any kind.
Risk Factors—Risks Related To Leverage—Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” Capital Structure Subject to limited exceptions, we are not generally able to issue and sell our common stock at a price per share below NAV.
Risk Factors—Risks Related To Leverage—Because we have substantial borrowings, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” 15 Table of Contents Capital Structure Subject to limited exceptions, we are not generally able to issue and sell our common stock at a price per share below NAV per share.
As such, we value substantially all of our investments at fair value as determined in good faith pursuant to a consistent valuation policy by our Board in accordance with the provisions of ASC Topic 820 and the 1940 Act.
As such, we value substantially all of our investments at fair value as determined in good faith pursuant to valuation guidelines approved by our Board in accordance with the provisions of ASC Topic 820 and the 1940 Act.
We also provide “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position with security interest in all the assets of the portfolio company.
We also provide “unitranche” loans, which are loans that combine both senior and subordinated loans (sometimes referred to as mezzanine debt), generally in a first lien position with security interest in all the assets of the portfolio company.
In cases where we do use a broker, we do not execute transactions through any particular broker or dealer, but will seek to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.
In cases where we do use a broker, we seek to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.
There can be no assurance that principal will be recovered. 11 Table of Contents We use the following investment grading system approved by our Board: Grade 1 Loans involve the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk profile is generally favorable.
There can be no assurance that principal will be recovered. 11 Table of Contents We use the following investment grading system for our loans and debt investments: Grade Description Grade 1 Loans involve the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk profile is generally favorable.
Mitigate Risk of Principal Loss and Build a Portfolio of Warrant and Equity Securities. We expect that our investments have the potential to produce attractive risk-adjusted returns through current income, in the form of interest and fee income, as well as capital appreciation from warrant and equity securities.
We expect that our investments have the potential to produce attractive risk-adjusted returns through current income, in the form of interest and fee income, as well as capital appreciation from warrant and equity securities.
We are also prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board who are not interested persons and, in some cases, prior approval by the SEC.
Other 1940 Act Regulations We are periodically examined by the SEC for compliance with the 1940 Act. We are also prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board who are not interested persons and, in some cases, prior approval by the SEC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following table shows the fair value of the investments held in portfolio companies as of December 31, 2023, that represent greater than 5% of our net assets: (in thousands) December 31, 2023 Fair Value Percentage of Net Assets Axsome Therapeutics, Inc. $ 162,022 9.0 % Phathom Pharmaceuticals, Inc. 129,738 7.2 % Corium, Inc. 108,545 6.0 % SeatGeek, Inc. 108,053 6.0 % Worldremit Group Limited 96,020 5.3 % • Axsome Therapeutics, Inc. is a biopharmaceutical company developing novel therapies for the management of central nervous system disorders for which there are limited treatment options. • Phathom Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of novel treatments for gastrointestinal diseases and disorders. • Corium, Inc. develops, engineers, and manufactures drug delivery products and devices that utilize the skin and mucosa as a primary means of transport. • SeatGeek, Inc. is a mobile-focused ticket platform that enables users to buy and sell tickets for live sports, concerts and theater events. • Worldremit Group Limited is a global online money transfer business.
Biggest changeWe may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company might be. 30 Table of Contents The following table shows the fair value of the investments held in portfolio companies as of December 31, 2024, that represent greater than 5% of our net assets: (in thousands) December 31, 2024 Fair Value Percentage of Net Assets Phathom Pharmaceuticals, Inc. $ 177,348 8.9 % Marathon Health, LLC 166,882 8.4 % Axsome Therapeutics, Inc. 165,220 8.3 % Shield AI, Inc. 113,701 5.7 % SeatGeek, Inc. 110,413 5.5 % Corium, Inc. 109,178 5.5 % • Phathom Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of novel treatments for gastrointestinal diseases and disorders. • Marathon Health, LLC is a provider of employer-sponsored healthcare platform intended to provide convenient and unhurried patient-centered care services. • Axsome Therapeutics, Inc. is a biopharmaceutical company developing novel therapies for the management of central nervous system disorders for which there are limited treatment options. • Shield AI, Inc. is an aerospace and defense technology company that designs and builds AI-powered, autonomous Unmanned Aerial Vehicles (UAVs) for national defense operations and military organizations. • SeatGeek, Inc. is a mobile-focused ticket platform that enables users to buy and sell tickets for live sports, concerts and theater events. • Corium, Inc. develops, engineers, and manufactures drug delivery products and devices that utilize the skin and mucosa as a primary means of transport.
In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directors may serve as directors on the boards of such companies.
In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directors may serve as directors on the boards of directors of such companies.
See “Risk Factors – Risks Related to our Securities — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of the risks related to us issuing shares of our common stock below NAV.
See “Risk Factors – Risks Related to our Securities — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of the risks related to us issuing shares of our common stock below NAV per share.
As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness.
As a result, the Unsecured Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness.
The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes. Terms relating to redemption may materially adversely affect the return on any debt securities that we may issue.
The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of such notes. Terms relating to redemption may materially adversely affect the return on any debt securities that we may issue.
Business — Certain United States Federal Income Tax Considerations — Taxation as a Regulated Investment Company.” Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and are (and may in the future become) subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement.
Business — Certain United States Federal Income Tax Considerations — Taxation as a Regulated Investment Company.” Because we use debt financing, we are subject to an asset coverage ratio requirements under the 1940 Act and are (and may in the future become) subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement.
Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250.0 million at any point in the 60 days prior to the time of such investment and meets the other specified requirements.
Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250.0 million at any point in the 60 days prior to the time of such investment and meets certain other requirements.
In periods of rising interest rates, our cost of funds will increase because the interest rates on the amounts borrowed under our Credit Facilities are floating and are not subject to interest rate caps, which could reduce our net investment income to the extent any debt investments have either fixed interest rates, or floating interest rates subject to an interest rate cap below the then current levels, and as a result such interest rates on these debt investments will not increase.
In periods of rising interest rates, our cost of funds will increase because the interest rates on the amounts borrowed under our Credit Facilities (as defined below) are floating and are not subject to interest rate caps, which could reduce our net investment income to the extent any debt investments have either fixed interest rates, or floating interest rates subject to an interest rate cap below the then current levels, and as a result such interest rates on these debt investments will not increase.
In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes.
In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Unsecured Notes.
Risks Related To Our SBIC Subsidiaries We, through our wholly owned subsidiary, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its guarantee of the debt securities, the SBA has fixed dollar claims on the assets of our subsidiary that are superior to the claims of our securities holders.
Risks Related To Our SBIC Subsidiaries We, through our wholly owned subsidiaries, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its guarantee of the debt securities, the SBA has fixed dollar claims on the assets of our subsidiaries that are superior to the claims of our securities holders.
Terrorist acts, acts of war, public health crises (including the COVID-19 outbreak) or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability.
Terrorist acts, acts of war, public health crises (such as the COVID-19 outbreak) or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability.
These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure.
These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing, terms and/or structure.
Our investments are concentrated in certain technology-related industries, which subjects us to the risk of significant loss if any one or more of such industries experiences a downturn. We have invested and intend to continue investing in a number of companies that operate in technology-related industries.
Our investments are concentrated in certain technology-related industries, which subjects us to the risk of significant loss if any one or more of such industries experiences a downturn. We have invested and intend to continue investing in companies that operate in technology-related industries.
As a result of not having a direct claim against any of our subsidiaries, the Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.
As a result of not having a direct claim against any of our subsidiaries, the Unsecured Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.
In addition, the U.S. and global capital markets have in the past, and may in the future, experience periods of extreme volatility and disruption during economic downturns and recessions. Trade wars and volatility in the U.S. repo market, the U.S. high yield bond markets, the Chinese stock markets and global markets for commodities may affect other financial markets worldwide.
In addition, the U.S. and global capital markets have in the past, and may in the future, experience periods of extreme volatility and disruption during economic downturns and recessions. Trade wars and volatility in the U.S. repo market, the U.S. high yield bond markets, the Chinese stock markets and global markets for commodities may affect financial markets worldwide.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below NAV provided that our Board of Directors makes certain determinations.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below NAV provided that our Board makes certain determinations.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of preferred stock, if any, of our subsidiaries) will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of preferred stock, if any, of our subsidiaries) will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Unsecured Notes) with respect to the assets of such subsidiaries.
Among other circumstances, these amounts generally relate to: (i) amortization of OID, which may arise if (a) we receive equity, warrants, or another asset in connection with the origination of a loan; (b) we invest or acquire a debt investment at a discount to its par value; (ii) contractual payment-in-kind, or PIK, interest, which represents contractual interest added to the loan balance and due at the end of the loan term; (iii) contractual exit fees, which is a contractual fee accrued over the life of a loan and its typically due at loan payoff; or (iv) contractual preferred dividends, which represents contractual dividends added to the preferred stock and due at the end of the preferred stock term, subject to adequate profitability at the portfolio company.
Among other circumstances, these amounts generally relate to: (i) amortization of OID, which may arise if (a) we receive equity, warrants, or another asset in connection with the origination of a loan; (b) we invest or acquire a debt investment at a discount to its par value; (ii) contractual PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term; (iii) contractual exit fees, which is a contractual fee accrued over the life of a loan and its typically due at loan payoff; or (iv) contractual preferred dividends, which represents contractual dividends added to the preferred stock and due at the end of the preferred stock term, subject to adequate profitability at the portfolio company.
At various times, such disruptions have resulted in, and may in the future result in, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk.
At various times, such disruptions in the past have resulted in, and may in the future result in, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk.
To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status.
To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash 46 Table of Contents equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status.
Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and there can be no assurance that any such hedging arrangements will achieve the desired effect. During the year ended and as of December 31, 2023, we had entered into and held one outstanding foreign currency forward contract.
Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and there can be no assurance that any such hedging arrangements will achieve the desired effect. During the year ended and as of December 31, 2024, we had entered into and held one outstanding foreign currency forward contract.
In addition, individuals with whom members of our management team have relationships are not obligated to provide us with investment opportunities and, therefore, there is no assurance that such relationships will general investment opportunities for us. Our Board may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
In addition, individuals with whom members of our management team have relationships are not obligated to provide us with investment opportunities and, therefore, there is no assurance that such relationships will generate investment opportunities for us. Our Board may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
Our financial results could be materially adversely affected if these portfolio companies or any of our other significant portfolio companies encounter financial difficulty and fail to repay their obligations or to perform as expected. We may be exposed to higher risks with respect to our investments that include PIK interest or exit fees.
Our financial results could be materially adversely affected if one of more of these portfolio companies or any of our other significant portfolio companies encounter financial difficulty and fail to repay their obligations or to perform as expected. We may be exposed to higher risks with respect to our investments that include PIK interest or exit fees.
Our stockholders have previously approved a proposal to authorize us to issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Even though we have obtained authorization from our stockholders to issue common stock at a price below our then-current NAV, we cannot predict whether we will make any such sales.
Our stockholders have previously approved a proposal to authorize us to issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Even though we have obtained authorization from our stockholders to issue common stock at a price below our NAV, we cannot predict whether we will make any such sales.
In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level U.S. federal taxes, we will be required to distribute substantially all of our net ordinary taxable income and net capital gain income, including taxable income from certain of our subsidiaries, which includes the income from HC IV.
In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level U.S. federal taxes, we will be required to distribute substantially all of our net ordinary taxable income and net capital gain income, including taxable income from certain of our subsidiaries, which includes the income from HC IV and SBIC V.
In particular, the terms of the respective Notes indentures do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore would rank structurally senior to the Notes and (4) securities, indebtedness or other obligations issued or incurred by our subsidiaries that would be senior in right of payment to our equity interests in our subsidiaries and therefore would rank structurally senior in right of payment to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect to any exemptive relief granted to us by the SEC (currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% thereafter after such borrowings); • pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness; • sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); • enter into transactions with affiliates; 44 Table of Contents • create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; • make investments; or • create restrictions on the payment of distributions or other amounts to us from our subsidiaries.
In 43 Table of Contents particular, the terms of the respective 2033 Notes, September 2026 Notes and January 2027 Notes indentures do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to such notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to such notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore would rank structurally senior to such notes and (4) securities, indebtedness or other obligations issued or incurred by our subsidiaries that would be senior in right of payment to our equity interests in our subsidiaries and therefore would rank structurally senior in right of payment to such notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect to any exemptive relief granted to us by the SEC (currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% thereafter after such borrowings); • pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to such notes, including subordinated indebtedness; • sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); • enter into transactions with affiliates; • create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; • make investments; or • create restrictions on the payment of distributions or other amounts to us from our subsidiaries.
We, the Adviser Funds and our portfolio companies are subject to applicable local, state and federal laws and regulations, including those promulgated by the SEC, the NYSE, and the Public Company Accounting Oversight Board. Failure to comply with any applicable local, state or federal law or regulation could negatively impact our reputation and our business results.
We, the Adviser Funds and our portfolio companies are subject to applicable local, state and federal laws and regulations, including those promulgated by the SEC, the NYSE, and the Public Company Accounting Oversight Board (United States). Failure to comply with any applicable local, state or federal law or regulation could negatively impact our reputation and our business results.
The values of pharmaceutical companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of pharmaceutical companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.
The valuations of pharmaceutical companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of pharmaceutical companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.
GAAP”), of those approximately 50% of warrants that we do not realize any exit, the assigned costs to the initial warrants may lead to realized losses when the warrants either expire or are not exercised. We may expose ourselves to risks when we engage in hedging transactions.
GAAP, of those approximately 50% of warrants that we do not realize any exit, the assigned costs to the initial warrants may lead to realized losses when the warrants either expire or are not exercised. We may expose ourselves to risks when we engage in hedging transactions.
Any decision to sell shares of our common stock below the then current NAV per share of our common stock or securities to subscribe to, convert to, or purchase shares of our common stock would be subject to the determination by our Board that such issuance is in our and our stockholders’ best interests.
Any decision to sell shares of our common stock below NAV per share of our common stock or securities to subscribe to, convert to, or purchase shares of our common stock would be subject to the determination by our Board that such issuance is in our and our stockholders’ best interests.
We will be partially dependent on HC IV for cash distributions to enable us to meet the RIC distribution requirements. HC IV may be limited by SBIC regulations from making certain distributions to us that may be necessary to enable us to maintain our status as a RIC.
We will be partially dependent on HC IV and SBIC V for cash distributions to enable us to meet the RIC distribution requirements. HC IV and SBIC V may be limited by SBIC regulations from making certain distributions to us that may be necessary to enable us to maintain our status as a RIC.
If that happens, we will be prohibited from issuing debt securities or preferred stock and/or borrowing money from banks or other financial institutions and may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy this test. • Any amounts that we use to service our debt or make payments on preferred stock will not be available for dividends to our common stockholders. 40 Table of Contents • It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
If that happens, we will be prohibited from issuing debt securities or preferred stock and/or borrowing money from banks or other financial institutions and may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy this test. • Any amounts that we use to service our debt or make payments on preferred stock will not be available for dividends to our common stockholders. • It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
Any default under such agreements, or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness, could make us unable to pay principal, premium, if any, and interest on any of our indebtedness, including our Notes and Credit Facilities, or other indebtedness and substantially decrease the market value of our outstanding Notes and Credit Facilities debt.
Any default under such 44 Table of Contents agreements, or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness, could make us unable to pay principal, premium, if any, and interest on any of our indebtedness, including our Notes and Credit Facilities, or other indebtedness and substantially decrease the market value of our outstanding Notes and Credit Facilities debt.
The following table illustrates the reduction to NAV, or NAV, and the dilution 42 Table of Contents experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a price below its NAV per share.
The following table illustrates the reduction to NAV, or NAV, and the dilution 41 Table of Contents experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a price below its NAV per share.
As publicly traded companies, the securities of these companies may not trade at high volumes, and prices can be volatile, particularly during times of general market volatility, which may restrict our ability to sell our positions and may have a material adverse impact on us. 28 Table of Contents In addition, our ability to invest in public companies may be limited in certain circumstances.
As publicly traded companies, the securities of these companies may not trade at high volumes, and prices can be volatile, particularly during times of general market volatility, which may restrict our ability to sell our positions and may have a material adverse impact on us. In addition, our ability to invest in public companies may be limited in certain circumstances.
See "Note 5 – Debt." If we choose to redeem our Notes when the fair market value is above par value, such noteholders would experience a loss of any potential premium. If we default on our obligations imposed upon us by our indebtedness, we may not be able to make payments on our outstanding Notes and Credit Facilities.
See “Note 5 – Debt.” If we choose to redeem our Notes when the fair market value is above par value, such noteholders would experience a loss of any potential premium. If we default on our obligations imposed upon us by our indebtedness, we may not be able to make payments on our outstanding Notes and Credit Facilities.
If we do match our competitors’ pricing, terms or structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms.
If we do match our competitors’ pricing, terms or structure, we may 25 Table of Contents not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms.
Our SBIC subsidiary may be unable to make distributions to us that will enable us to meet or maintain RIC status, which could result in the imposition of an entity-level tax.
Our SBIC subsidiaries may be unable to make distributions to us that will enable us to meet or maintain RIC status, which could result in the imposition of an entity-level tax.
As a result, unless a stockholder is a tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the value of the dividend that they have elected to have reinvested in our common stock. Legislative or regulatory tax changes could adversely affect our stockholders.
As a result, unless a stockholder is a tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the value of the dividend that they have elected to have reinvested in our common stock. 47 Table of Contents Legislative or regulatory tax changes could adversely affect our stockholders.
As such, these limitations could inhibit our ability to grow, pursue our business plan and attract and retain professional talent, any or all of which may have a negative impact on our business, financial condition and results of operations. Our business model depends to a significant extent upon strong referral relationships.
As such, these limitations could inhibit our ability to grow, pursue our business plan and attract and retain professional talent, any or all of which may have a negative impact on our business, financial condition and results of operations. Our business model depends to a significant extent upon strong referral relationships for investment opportunities.
New approaches could damage our investments, disrupt the market in which we operate and subject us to increased competition, which could materially and adversely affect our business, financial condition and results of investments. We may, subject to internal policies, use artificial intelligence or machine learning in connection with our business activities, including investment activities.
New approaches could damage our investments, disrupt the market in which we operate and subject us to increased competition, which could materially and adversely affect our business, financial condition and results of investments. 49 Table of Contents We may, subject to internal policies, use artificial intelligence or machine learning in connection with our business activities, including investment activities.
Failure of pharmaceutical companies to comply with 29 Table of Contents applicable laws and regulations can result in the imposition of civil and criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid. Pharmaceutical companies may be adversely affected by government regulation and changes in reimbursement rates.
Failure of pharmaceutical companies to comply with applicable laws and regulations can result in the imposition of civil and criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid. Pharmaceutical companies may be adversely affected by government regulation and changes in reimbursement rates.
Third-party payors are increasingly challenging the price and cost-effectiveness of medical products. Significant uncertainty exists as to the reimbursement status of health care products, and there can be no assurance that adequate third-party coverage will be available for pharmaceutical companies to obtain satisfactory price levels for their products.
Third-party payors are increasingly challenging the price and cost-effectiveness of medical products. Significant uncertainty exists as to the reimbursement status of health care products, and there can be no 29 Table of Contents assurance that adequate third-party coverage will be available for pharmaceutical companies to obtain satisfactory price levels for their products.
In addition, under the terms of any credit facility or other debt instrument we enter into, in the event of a default, we are likely to be required by its terms to use the net proceeds of any investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses.
In addition, under the terms of any credit facility or other debt instrument we enter into, in the event of a default, we are likely to be required by its terms to use the net proceeds of any investments 35 Table of Contents that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses.
Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our stockholders.
Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower 36 Table of Contents or eliminate the dividends that we have historically paid to our stockholders.
If we are unable to meet the financial obligations under the debentures, the SBA, as a creditor, will have a superior claim to the assets of HC IV over our securities holders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us. See “Item 1.
If we are unable to meet the financial obligations under the debentures, the SBA, as a creditor, will have a superior claim to the assets of our SBICs over our securities holders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us. See “Item 1.
There could be: • sudden electrical or telecommunications outages; • natural disasters such as earthquakes, tornadoes and hurricanes; • disease pandemics; • events arising from local or larger scale political or social matters, including terrorist acts and social unrest; and • cyber-attacks, including software viruses, ransomware, malware and phishing and vishing schemes.
Such events could include: • sudden electrical or telecommunications outages; • natural disasters such as earthquakes, tornadoes and hurricanes; • disease pandemics; • events arising from local or larger scale political or social matters, including terrorist acts and social unrest; and • cyber-attacks, including software viruses, ransomware, malware and phishing and vishing schemes.
Federal Income Taxes We will be subject to U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M of the Code.
Federal Income Taxes We will be subject to U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M Part I of the Code.
The following table illustrates the effect of leverage on returns from an investment in our common stock assuming that we employ (1) our actual asset coverage ratio as of December 31, 2023, (2) a hypothetical asset coverage ratio of 200%, and (3) a hypothetical asset coverage ratio of 150% (each excluding our SBA debentures as permitted by our exemptive relief) each at various annual returns on our portfolio as of December 31, 2023, net of expenses.
The following table illustrates the effect of leverage on returns from an investment in our common stock assuming that we employ (1) our actual asset coverage ratio as of December 31, 2024, and (2) a hypothetical asset coverage ratio of 150% (each excluding our SBA debentures as permitted by our exemptive relief) each at various annual returns on our portfolio as of December 31, 2024, net of expenses.
Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or 43 Table of Contents other liabilities of any such subsidiary senior to our claims.
Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims.
We cannot assure you that the SBA will grant such waiver and if HC IV is unable to obtain a waiver, compliance with the SBIC regulations may result in loss of RIC status and a consequent imposition of an entity-level tax on us. Risks Related To Operating As A RIC And U.S.
We cannot assure you that the SBA will grant such waiver and if HC IV or SBIC V are unable to obtain a waiver, compliance with the SBIC regulations may result in loss of RIC status and a consequent imposition of an entity-level tax on us. Risks Related To Operating As A RIC And U.S.
Certain of our assets are subject to security interests under our senior securities and if we default on our obligations under our senior securities, we may suffer adverse consequences, including foreclosure on those assets. Certain of our assets are currently pledged as collateral under our senior securities, including any credit facilities or notes.
Certain of our assets are subject to security interests under our senior securities and if we default on our obligations under our senior securities, we may suffer adverse consequences, including foreclosure on those assets. Certain of our assets are currently pledged as collateral under our senior securities, including our outstanding Credit Facilities and certain Notes.
In addition, under the 1940 Act, preferred stock constitutes a “senior security” for purposes of the asset coverage test. The Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness.
In addition, under the 1940 Act, preferred stock constitutes a “senior security” for purposes of the asset coverage test. Except for the 2031 Asset-Backed Notes, the Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness.
The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor.
The principles of equitable subordination have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor.
Item 1A. Risk Factors Investing in our securities involves a number of significant risks. In addition to the other information contained in this Annual Report on Form 10-K, you should carefully consider the following information before making an investment in our securities. The risks set forth below are not the only risks we face.
Item 1A. Risk Factors Investing in our securities involves a number of significant risks. In addition to the other information contained in this Annual Report, you should carefully consider the following information before making an investment in our securities. The risks set forth below are not the only risks we face.
By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest.
By their terms, such debt instruments may entitle the holders to receive payment of interest or 31 Table of Contents principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest.
Our investment objective and investment strategies may be very similar to those of the Adviser Funds and External Parties, and it is likely that an investment appropriate for us, the Adviser Funds, or External Parties would be appropriate for the other entity.
Our investment objective and investment strategies may be very similar to those of the Adviser Funds and External Parties, and it is likely that an investment appropriate for us, the 37 Table of Contents Adviser Funds, or External Parties would be appropriate for the other entity.
To maintain our status as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made and giving effect to it, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
To maintain our status as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
A change in control under the indentures occurs upon the consummation of a transaction which results in a “person” or “group” (as those terms are used in the Exchange Act and the rules promulgated thereunder) becoming the beneficial owner of more than 50% of our outstanding voting stock.
A change in control under the indentures or note purchase agreements, as applicable, occurs upon the consummation of a transaction which results in a “person” or “group” (as those terms are used in the Exchange Act and the rules promulgated thereunder) becoming the beneficial owner of more than 50% of our outstanding voting stock.
(3) Assumes $5.6 billion in total assets including debt issuance costs on a pro forma basis, $3.8 billion in debt outstanding, $1.8 billion in stockholders’ equity, and an average cost of funds of 4.8%, which is the approximate average cost of our Notes and Credit Facilities for the period ended December 31, 2023, along with the hypothetical estimated incremental cost of debt that would be incurred on offering the maximum permissible debt under the 150% asset coverage.
(2) Assumes $6.3 billion in total assets including debt issuance costs on a pro forma basis, $4.2 billion in debt outstanding, $2.0 billion in stockholders’ equity, and an average cost of funds of 5.0%, which is the approximate average cost of our Notes and Credit Facilities for the period ended December 31, 2024, along with the hypothetical estimated incremental cost of debt that would be incurred on offering the maximum permissible debt under the 150% asset coverage.
Our secured credit facilities with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”) and MUFG Union Bank, N.A., (the “MUFG Bank Facility”) and our letter of credit facility with Sumitomo Mitsui Banking Corporation (the “SMBC LC Facility” and together with the SMBC Facility and MUFG Bank Facility, our “Credit Facilities”), as well as the July 2024 Notes, February 2025 Notes, June 2025 Notes, June 2025 3-Year Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, January 2027 Notes, 2031 Asset-Backed Notes and 2033 Notes (each term as is individually defined herein and collectively, the “Notes”) contain financial and operating covenants that could restrict our business activities, including our ability to declare dividend distributions if we default under certain provisions.
Our secured credit facilities with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”) and MUFG Union Bank, N.A., (the “MUFG Bank Facility”) and our letter of credit facility with Sumitomo Mitsui Banking Corporation (the “SMBC LC Facility” and together with the SMBC Facility and MUFG Bank Facility, our “Credit Facilities”), as well as the February 2025 Notes, June 2025 Notes, June 2025 3-Year Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, January 2027 Notes, 2031 Asset-Backed Notes and 2033 Notes (each term as is individually defined under “Note 5 - Debt” and collectively, the “Notes”), each outstanding as of December 31, 2024, contain financial and operating covenants that could restrict our business activities, including our ability to declare dividend distributions if we default under certain provisions.
As a result, we do not expect to achieve liquidity in our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because 32 Table of Contents there is usually no established trading market for such investments.
As a result, we do not expect to achieve liquidity in our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments.
We may seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer; however, we may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial 35 Table of Contents distress.
We may seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer; however, we may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.
Any failure to do so could subject us to enforcement action by the SEC, cause us to fail to satisfy the requirements associated with RIC status and subject us to entity-level corporate income taxation, cause us to fail the 70% test described above or otherwise have a material adverse effect on our business, financial condition or results of operations.
Any failure to do so could subject us to enforcement action by the SEC, cause us to fail to satisfy the tests and requirements associated with our RIC status and subject us to entity-level U.S. federal income taxation, cause us to fail the 70% test described above or otherwise have a material adverse effect on our business, financial condition or results of operations.
The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause us to forego attractive investment opportunities that are not permitted under SBIC regulations.
The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause HC IV or SBIC V to forego attractive investment opportunities that are not permitted under SBIC regulations.
Such 48 Table of Contents conditions may occur for a prolonged period of time again, and may materially worsen in the future, including as a result of U.S. government shutdowns, or future downgrades to the U.S. government's sovereign credit rating or the perceived credit worthiness of the U.S. or other large global economies.
Such conditions may occur for a prolonged period of time, and may materially worsen in the future, including as a result of U.S. government shutdowns, or future downgrades to the U.S. government's sovereign credit rating or the perceived credit worthiness of the U.S. or other large global economies.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for their holders, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting their trading value.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the 2033 Notes, September 2026 Notes and January 2027 Notes may have important consequences for their holders, including making it more difficult for us to satisfy our obligations with respect to the 2033 Notes, September 2026 Notes and January 2027 Notes or negatively affecting their trading value.
Our total investment in companies may be significant individually or in the aggregate. As a result, if a significant investment in one or more companies fails to perform as expected, our financial results could be more negatively affected, and the magnitude of the loss could be more significant than if we had made smaller investments in more companies.
As a result, if a significant investment in one or more companies fails to perform as expected, our financial results could be more negatively affected, and the magnitude of the loss could be more significant than if we had made smaller investments in more companies.
Furthermore, the terms of the respective Notes indentures do not protect their respective holders in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
Furthermore, the terms of the respective 2033 Notes, September 2026 Notes and January 2027 Notes indentures do not protect their respective holders in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
As a result, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. Our success depends on attracting and retaining qualified personnel in a competitive environment. Our growth will require that we retain new investment and administrative personnel in a competitive market.
As a result, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. Our success depends on attracting and retaining qualified personnel in a competitive environment. Our growth requires that we attract and retain investment and administrative personnel in a competitive market.
Losses from terrorist attacks, public health crises, climate change, and natural disasters are generally uninsurable. 49 Table of Contents Technological innovations and industry disruptions, including those related to artificial intelligence and machine learning, may negatively impact us.
Losses from terrorist attacks, public health crises, climate change, and natural disasters are generally uninsurable. Technological innovations and industry disruptions, including those related to artificial intelligence and machine learning, may negatively impact us.
Increases to budget deficits or direct and contingent sovereign debt may create concerns about the ability of certain nations to service their sovereign debt obligations and any risks resulting from any such debt crisis in Europe, the U.S. or elsewhere could have a detrimental impact on the global economy, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally.
Increases to budget deficits or direct and contingent sovereign debt may create concerns about the ability of certain nations to service their sovereign debt obligations and any risks resulting from any such debt crisis in Europe, the United States or elsewhere could have a detrimental impact on the global economy, sovereign and non-sovereign debt markets and the financial condition of financial institutions generally.
While our stockholders have authorized us to issue common stock at a price below the then-current NAV per share, subject to certain conditions including Board approval, for a twelve-month period expiring on July 20, 2024, we cannot predict whether we will make any such sales.
While our stockholders have authorized us to issue common stock at a price below the then-current NAV per share, subject to certain conditions including Board approval, for a twelve-month period expiring on August 15, 2025, we cannot predict whether we will make any such sales.
Certain of our debt instruments include more protections for their respective lenders than the Notes, and we may issue or incur additional debt in the future which could contain more protections for its holders, including additional covenants and events of default.
Certain of our debt instruments include more protections for their respective lenders than the 2033 Notes, September 2026 Notes and January 2027 Notes, and we may issue or incur additional debt in the future which could contain more protections for its holders, including additional covenants and events of default.
These events have limited and could continue to limit our investment originations, and limit our ability to grow and could have a material negative impact on our operating results, financial condition, results of operations and cash flows and the fair values of our debt and equity investments.
These events have limited in the past and could continue to limit our investment originations, and limit our ability to grow and could have a material negative impact on our operating results, financial condition, results of operations and cash flows and the value of our debt and equity investments.
If healthcare companies are unable to successfully expand their product lines through internal research and development and acquisitions, their business may be materially and adversely affected. In addition, if these companies are unable to successfully grow their businesses through marketing partnerships and acquisitions, their business may be materially and adversely affected. • Sustainable and Renewable Technology Industry Risk.
If healthcare companies are unable to successfully expand their product lines through internal research and development and acquisitions, their business may be materially and adversely affected. In addition, if these companies are unable to successfully grow their businesses through marketing partnerships and acquisitions, their business may be materially and adversely affected.
In addition, if our common stock trades below our NAV per share, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a sale and our Board makes certain determinations.
We cannot predict whether our common stock will trade at, above or below NAV. In addition, if our common stock trades below our NAV per share, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a sale and our Board makes certain determinations.
During the year ended December 31, 2023, we received early principal payments and early payoffs on our debt investments of approximately $925.1 million. We are subject to the risk that the debt investments we make in our portfolio companies may be repaid prior to maturity.
During the year ended December 31, 2024, we received early principal payments and early payoffs on our debt investments of approximately $922.0 million. We are subject to the risk that the debt investments we make in our portfolio companies may be repaid prior to maturity.
To the extent PIK interest and exit fees constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following: • PIK interest and exit fee instruments may have higher yields, which reflect the payment deferral and credit risk associated with these instruments; • PIK interest and exit fee instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of the collateral; and • PIK interest and exit fee instruments may represent a higher credit risk than coupon loans; even if the conditions for income accrual under generally accepted accounting principles in the United States of America are satisfied, a borrower could still default when actual payment is due upon the maturity of such loan.
To the extent PIK interest and exit fees constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following: • PIK interest and exit fee instruments may have higher yields, which reflect the payment deferral and credit risk associated with these instruments; • PIK interest and exit fee instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of the collateral; and • PIK interest and exit fee instruments may represent a higher credit risk than coupon loans; even if the conditions for income accrual under generally accepted accounting principles in the United States of America (“U.S.
Federal Income Taxes.” 33 Table of Contents We generally will not control our portfolio companies, which may result in the portfolio company making decisions which could adversely impact the value of our investments in the portfolio company ’ s securities. In some instances, we may control our portfolio companies or provide our portfolio companies with significant managerial assistance.
We generally will not control our portfolio companies, which may result in the portfolio company making decisions which could adversely impact the value of our investments in the portfolio company ’ s securities. In some instances, we may control our portfolio companies or provide our portfolio companies with significant managerial assistance.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur management is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents, including through the receipt of notifications from service providers and reliance on communications with risk management, legal, information technology, and/or compliance personnel. 51 Table of Contents Assessment of Cybersecurity Risk The potential impact of risks from cybersecurity threats are assessed on an ongoing basis, and how such risks could materially affect our business strategy, operational results, and financial condition are regularly evaluated.
Biggest changeOur management is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents, including through the receipt of notifications from service providers and reliance on communications with legal, operations, information technology, and/or compliance personnel.
The Board receives periodic updates from our Chief Operating Officer and, as appropriate, the Chief Compliance Officer and the Director of Information Technology, regarding the overall state of our cybersecurity program, information on the current threat landscape, and risks from cybersecurity threats and cybersecurity incidents.
The Board receives periodic updates from our Chief Operating Officer and, as appropriate, the Chief Compliance Officer, the Director of Information Technology and third-party cybersecurity experts, regarding the overall state of our cybersecurity program, information on the current threat landscape, and risks from cybersecurity threats and cybersecurity incidents.
Our risk management, legal, information technology, and compliance personnel identify and oversee risks from cybersecurity threats associated with our use of such entities. Board Oversight of Cybersecurity Risks Our Board provides strategic oversight on cybersecurity matters, including risks associated with cybersecurity threats.
Our legal, operations, information technology, and compliance personnel identify and oversee risks from cybersecurity threats associated with our use of such entities. Board Oversight of Cybersecurity Risks Our Board provides strategic oversight on cybersecurity matters, including risks associated with cybersecurity threats.
Effective February 12, 2024, we moved our corporate headquarters to 1 North B Street, Suite 2000 in San Mateo, California. We also lease office space in Boston, MA, New York, NY, Bethesda, MD, Denver, CO, Westport, CT, Chicago, IL, San Dieg o, CA, and London, United Kingdom.
We also lease office space in Boston, MA, New York, NY, Denver, CO, Westport, CT, Chicago, IL, San Dieg o, CA, and London, United Kingdom.
Properties Neither we nor any of our subsidiaries own any real estate or other physical properties materially important to our operation or any of our subsidiar ies. Until February 12, 2024, our corporate headquarters was located in leased office space at 400 Hamilton Avenue, Suite 310, in Palo Alto, CA.
Properties Neither we nor any of our subsidiaries own any real estate or other physical properties materially important to our operation or any of our subsidiar ies. Our corporate headquarters are located at 1 North B Street, Suite 2000 in San Mateo, California.
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Assessment of Cybersecurity Risk The potential impact of risks from cybersecurity threats are assessed on an ongoing basis, and how such risks could materially affect our business strategy, operational results, and financial condition are regularly evaluated.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. Mine Safety Disclosures Not applicable. 52 Table of Contents PART II
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 51 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePrice Range Premium/ Discount of High Sales Price to NAV Premium/ Discount of Low Sales Price to NAV Cash Distribution per Share (2) NAV (1) High Low 2021 First quarter $ 11.36 $ 16.60 $ 14.21 46.1 % 25.1 % $ 0.37 Second quarter $ 11.71 $ 17.66 $ 15.98 50.8 % 36.5 % $ 0.39 Third quarter $ 11.54 $ 17.56 $ 16.50 52.2 % 43.0 % $ 0.39 Fourth quarter $ 11.22 $ 18.07 $ 16.14 61.1 % 43.9 % $ 0.40 2022 First quarter $ 10.82 $ 18.23 $ 16.56 68.5 % 53.0 % $ 0.48 Second quarter $ 10.43 $ 18.91 $ 12.82 81.3 % 22.9 % $ 0.48 Third quarter $ 10.47 $ 16.13 $ 11.45 54.1 % 9.4 % $ 0.50 Fourth quarter $ 10.53 $ 14.92 $ 11.59 41.7 % 10.1 % $ 0.51 2023 First quarter $ 10.82 $ 16.24 $ 11.56 50.1 % 6.8 % $ 0.47 Second quarter $ 10.96 $ 15.08 $ 12.38 37.6 % 13.0 % $ 0.47 Third quarter $ 10.93 $ 18.02 $ 14.86 64.9 % 36.0 % $ 0.48 Fourth quarter $ 11.43 $ 16.93 $ 15.09 48.2 % 32.1 % $ 0.48 (1) NAV per share is generally determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.
Biggest changePrice Range Premium/ Discount of High Sales Price to NAV Premium/ Discount of Low Sales Price to NAV Cash Distribution per Share (2) NAV (1) High Low Year Ended December 31, 2023 First quarter $ 10.82 $ 16.24 $ 11.56 50.1 % 6.8 % $ 0.47 Second quarter $ 10.96 $ 15.08 $ 12.38 37.6 % 13.0 % $ 0.47 Third quarter $ 10.93 $ 18.02 $ 14.86 64.9 % 36.0 % $ 0.48 Fourth quarter $ 11.43 $ 16.93 $ 15.09 48.2 % 32.1 % $ 0.48 Year Ended December 31, 2024 First quarter $ 11.63 $ 18.77 $ 16.67 61.4 % 43.3 % $ 0.48 Second quarter $ 11.43 $ 19.92 $ 17.07 74.3 % 49.3 % $ 0.48 Third quarter $ 11.40 $ 21.67 $ 17.71 90.1 % 55.4 % $ 0.48 Fourth quarter $ 11.66 $ 20.22 $ 18.53 73.4 % 58.9 % $ 0.48 Year Ending December 31, 2025 First quarter (through February 6, 2025) * $ 21.15 $ 19.73 * * $ 0.47 * Net asset value has not yet been calculated for this period.
The graph measures total stockholder return, which takes into account both changes in stock price and distributions, prior to any tax effect. It assumes that distributions paid are reinvested in like securities. * Assumes $100 invested on December 31, 2018 in Hercules Capital, Inc. or the applicable index, and that all dividends are reinvested.
The graph measures total stockholder return, which takes into account both changes in stock price and distributions, prior to any tax effect. It assumes that distributions paid are reinvested in like securities. * Assumes $100 invested on December 31, 2019 in Hercules Capital, Inc. or the applicable index, and that all dividends are reinvested.
There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2024 distributions to stockholders will actually be and we cannot assure you that we will achieve results that will permit the payment of any cash distributions.
There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2025 distributions to stockholders will actually be and we cannot assure you that we will achieve results that will permit the payment of any cash distributions.
The stock price performance included in the above graph is not necessarily indicative of, or intended to forecast, future stock price performance. Item 6. [Reserved] 55 Table of Contents
The stock price performance included in the above graph is not necessarily indicative of, or intended to forecast, future stock price performance. Item 6. [Reserved] 54 Table of Contents
Of the distributions declared during the years ended December 31, 2023, 2022, and 2021, 100% were distributions derived from our current and accumulated earnings and profits.
Of the distributions declared during the years ended December 31, 2024, 2023, and 2022, 100% were distributions derived from our current and accumulated earnings and profits.
This graph and other information furnished under Part II. Item 5 of the Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
This graph and other information furnished under Part II. Item 5 of this Annual Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
During 2023, 2022, and 2021, we issued 303,960, 259,466 and 248,041 shares, respectively, of common stock to stockholders in connection with the distribution reinvestment plan. 54 Table of Contents PERFORMANCE GRAPH The following stock performance graph compares the cumulative stockholder return assuming that, on December 31, 2018, a person invested $100 in each of our common stock, the S&P 500 Index, the NASDAQ Financial 100 Index, the S&P BDC Index, and the KBW Regional Bank Index.
During 2024, 2023, and 2022, we issued 471,949, 303,960 and 259,466 shares, respectively, of common stock to stockholders in connection with the distribution reinvestment plan. 53 Table of Contents PERFORMANCE GRAPH The following stock performance graph compares the cumulative stockholder return assuming that, on December 31, 2019, a person invested $100 in each of our common stock, the S&P 500 Index, the NASDAQ Financial 100 Index, the S&P BDC Index, and the KBW Regional Bank Index.
EQUITY COMPENSATION PLAN INFORMATION See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 53 Table of Contents ISSUER PURCHASES OF EQUITY SECURITIES The Company did not repurchase common stock on the open market during the years ended 2023, 2022, and 2021.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 52 Table of Contents ISSUER PURCHASES OF EQUITY SECURITIES The Company did not repurchase common stock on the open market during the years ended 2024, 2023, and 2022.
The possibilities that our shares of common stock will trade at a discount from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease.
Shares of BDCs may trade at a market price that is less than the NAV per share. The possibilities that our shares of common stock will trade at a discount from NAV per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease.
These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended ("the Securities Act"). The aggregate value of the shares of our common stock issued under our dividend reinvestment plan during the years ended December 31, 2023, 2022, and 2021 were approximately $4.6 million, $4.0 million, and $4.1 million, respectively.
The aggregate value of the shares of our common stock issued under our dividend reinvestment plan during the years ended December 31, 2024, 2023, and 2022 were approximately $8.8 million, $4.6 million, and $4.0 million, respectively. EQUITY COMPENSATION PLAN INFORMATION See “Item 12.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PRICE RANGE OF COMMON STOCK Our common stock is traded on the NYSE under the symbol “HTGC.” As of February 2, 2024, we had approximately 134,176 stockholders of record.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PRICE RANGE OF COMMON STOCK Our common stock is traded on the NYSE under the symbol “HTGC.” As of February 3, 2025, we had approximately 158,869 stockholders of record, which does not include stockholders for whom shares are held in “nominee” or “street name.” Most of the shares of our common stock are held by brokers and other institutions on behalf of stockholders.
The NAVs shown are based on outstanding shares at the end of each period. (2) Represents the dividend or distribution declared in the relevant quarter. SALES OF UNREGISTERED SECURITIES During 2023, 2022, and 2021, we issued 303,960, 259,466, and 248,041 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan.
SALES OF UNREGISTERED SECURITIES During 2024, 2023, and 2022, we issued 471,949, 303,960, and 259,466 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended (“the Securities Act”).
Removed
Most of the shares of our common stock are held by brokers and other institutions on behalf of stockholders. There are currently approximately 190 additional beneficial holders of our common stock. Shares of BDCs may trade at a market price that is less than the NAV per share.
Added
(1) NAV per share is generally determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. (2) Represents the dividend or distribution declared in the relevant quarter.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents certain additional selected information regarding our debt investment portfolio as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Number of portfolio companies with debt outstanding 125 120 Percentage of debt bearing a floating rate 95.9 % 95.3 % Percentage of debt bearing a fixed rate 4.1 % 4.7 % Weighted average core yield (1)(3) 14.3 % 13.8 % Weighted average effective yield (2)(3) 15.3 % 14.7 % Prime rate at the end of the period 8.50 % 7.50 % (1) The core yield is a Non-GAAP financial measure.
Biggest changeDecember 31, 2024 December 31, 2023 Number of portfolio companies with debt outstanding 118 125 Percentage of debt bearing a floating rate 97.4 % 95.9 % Percentage of debt bearing a fixed rate 2.6 % 4.1 % Weighted average core yield on debt investments (1)(3) 12.9 % 14.3 % Weighted average effective yield on debt investments (2)(3) 13.7 % 15.3 % Prime rate at the end of the period 7.50 % 8.50 % Percentage of Prime rate linked debt investments 77.5 % 69.2 % Weighted average floor rate bearing a Prime rate 7.2 % 5.7 % Percentage of SOFR, SONIA and BSBY rate linked debt investments 19.9 % 26.7 % Weighted average floor rate bearing a SOFR, SONIA or BSBY rate 1.0 % 1.1 % (1) The core yield is a Non-GAAP financial measure.
Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period.
Fee Income Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period.
For a description of our critical accounting policies, refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report. We consider the most significant accounting policies to be those related to our Valuation of Investments, Fair Valuation Measurements, Income Recognition, and Income Taxes.
For a description of our critical accounting policies, refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this Annual Report. We consider the most significant accounting policies to be those related to our Valuation of Investments, Fair Valuation Measurements, Income Recognition, and Income Taxes.
Additional liquidity is available through accordion provisions within the terms of our Credit Facilities, through which the available borrowing capacity can be increased by an aggregate $475.0 million, subject to certain conditions. Further, the SMBC letter of credit facility may also be increased by an additional $225.0 million (up to $400.0 million), subject to certain conditions.
Additional liquidity is available through accordion provisions within the terms of our Credit Facilities, through which the available borrowing capacity can be increased by an aggregate $400.0 million, subject to certain conditions. Further, the SMBC letter of credit facility may also be increased by an additional $225.0 million (up to $400.0 million), subject to certain conditions.
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Annual Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Annual Report.
Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on Structured Debt.
Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, warrant and equity securities, with a particular emphasis on Structured Debt.
We may not apply the non-accrual status to a loan where the investment has sufficient collateral value t o collect all of the contractual amount due and is in the process of collection.
We may choose not to apply the non-accrual status to a loan where the investment has sufficient collateral value t o collect all of the contractual amount due and is in the process of collection.
Realized loss on debt extinguishment relates to additional fees, costs, and accelerated recognition of remaining debt issuance costs, which are recognized in the event debt is extinguished before its stated maturity.
Realized loss on debt extinguishment relates to additional fees, costs, and accelerated recognition of remaining debt issuance costs, which are recognized in the event our debt is extinguished before its stated maturity.
In vestment income is primarily composed of interest income earned on our debt investments and fee income from commitments, facilities, and other loan related fees.
In vestment income is primarily composed of interest income earned on our debt investments, fee income from commitments, facilities, and other loan related fees and dividend income.
Changes in interest rates, including Prime, SOFR, Eurodollar, or BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates. Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation.
Changes in interest rates, including Prime, SOFR, SONIA, or BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates. Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation.
The effective yield is derived by dividing total investment income from debt investments by the weighted average earning investment portfolio assets outstanding during the year, excluding non-interest earning assets such as warrants and equity investments. Please refer to the "Portfolio Yield" section below for further discussion of this measure.
The effective yield is derived by dividing total investment income from debt investments by the weighted average earning investment portfolio assets outstanding during the year, excluding non-interest earning assets such as warrants and equity investments. Please refer to the “Portfolio Yield” section below for further discussion of this measure.
During the year ended December 31, 2023, we principally funded our operations from (i) cash receipts from interest, dividend, and fee income from our investment portfolio, (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments, (iii) debt borrowings on our credit facilities, and (iv) equity offerings.
During the year ended December 31, 2024, we principally funded our operations from (i) cash receipts from interest, dividend, and fee income from our investment portfolio, (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments, (iii) debt borrowings on our Credit Facilities, and (iv) equity offerings.
We may also raise additional equity or debt capital through registered offerings off a shelf registration, At-the-Market (“ATM”), and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiary.
We may also raise additional equity or debt capital through registered offerings off a shelf registration, At-the-Market (“ATM”) offerings, and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiaries.
We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.
We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we 66 Table of Contents may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.
In particular, we evaluate performance through monitoring the portfolio yields as we consider them to be effective indicators, for both management and 60 Table of Contents stockholders, of the financial performance of our total investment portfolio and total debt portfolio.
In particular, we evaluate performance through monitoring the portfolio yields as we consider them to be effective indicators, for both management and stockholders, of 59 Table of Contents the financial performance of our total investment portfolio and total debt portfolio.
(3) The core and effective yields represent the weighted average yields for the three month periods ended December 31, 2023 and December 31, 2022. Please refer to the "Portfolio Yield" section below for further discussion of these measures.
(3) The core and effective yields represent the weighted average yields for the three month periods ended December 31, 2024 and December 31, 2023. Please refer to the "Portfolio Yield" section below for further discussion of these measures.
Income and Excise Taxes We account for income taxes in accordance with the provisions of ASC Topic 740 Income Taxes, under which income taxes are provided for amounts currently payable and for amounts deferred based upon the estimated future tax 67 Table of Contents effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax law.
Income and Excise Taxes We account for income taxes in accordance with the provisions of ASC Topic 740, Income Taxes, under which income taxes are provided for amounts currently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax law.
For the years ended December 31, 2022 and December 31, 2021 A comparison of the fiscal years ended December 31, 2022 and December 31, 2021 can be found in our Form 10-K for the fiscal year ended December 31, 2022 within “Part II, Item 7.
For the years ended December 31, 2023 and December 31, 2022 A comparison of the fiscal years ended December 31, 2023 and December 31, 2022 can be found in our Form 10-K for the fiscal year ended December 31, 2023 within “Part II, Item 7.
Non-binding outstanding term sheets are subject to completion of our due diligence and final investment 70 Table of Contents committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.
Non-binding outstanding term sheets are subject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.
The core yield on our debt investments excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, other one-time events, and includes income from expired commitments. Please refer to the "Portfolio Yield" section below for further discussion of this measure.
The core yield on our debt investments excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, other one-time events, and includes income from expired commitments. Please refer to the “Portfolio Yield” section below for further discussion of this measure.
The Non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies. 56 Table of Contents Overview We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries.
The Non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies. 55 Table of Contents Overview We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology and life sciences industries.
Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. We had no common stock repurchases during the years ended 2021, 2022, or 2023. Commitments and Obligations Our significant cash requirements generally relate to our debt obligations.
Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. We had no common stock repurchases during the years ended December 31, 2024, 2023, or 2022. Commitments and Obligations Our significant cash requirements generally relate to our debt obligations.
Use of Non-GAAP Measures Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “Non-GAAP financial measures” under SEC rules and regulations. GAAP is the acronym for “generally accepted accounting principles” in the United States.
Use of Non-GAAP Measures We present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “Non-GAAP financial measures” under SEC rules and regulations. GAAP is the acronym for “generally accepted accounting principles” in the United States.
The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt.
The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt, as applicable.
For a further discussion, refer to Part I, Item 1A “Risk Factors - Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then-current NAV per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock.” appearing elsewhere in this report.
For a further discussion, refer to Part I, Item 1A “Risk Factors- Risks Related to our Securities - Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then-current NAV per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” appearing elsewhere in this Annual Report.
Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans.
Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to its respective business plan.
Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrants or other equity interests, can fluctuate materially when a loan is paid off or a warrant or equity interest is sold. Revenue recognition in any given year can be highly concentrated in several portfolio companies.
Investment income, consisting of interest, fees, and recognition of gains on equity and warrants or other equity interests, can fluctuate materially when a loan is paid off or a warrant or equity interest is sold. Investment income recognized in any given year can be highly concentrated in several portfolio companies.
Under the terms of the Sharing Agreement, we allocate the related expenses of shared services to the Adviser Subsidiary. Our total net operating expenses for the years ended December 31, 2023 and 2022, are net of expenses alloc ated to the Adviser Subsidiary of $9.1 million and $8.3 million, respectively.
Under the terms of the Sharing Agreement, we allocate the related expenses of shared services to the Adviser Subsidiary. Our total net operating expenses for the years ended December 31, 2024 and 2023, are net of expenses alloc ated to the Adviser Subsidiary of $10.8 million and $9.1 million, respectively.
The net realized gains were generated from gross realized gains of $29.9 million primarily from the sale of our equity and warrant positions 66 Table of Contents in Palantir Technologies, Provention Bio, Inc., TransMedics Group, Inc., Sprinklr, Inc., DoorDash, Inc., and Zeta Global Corp.
The net realized gains were generated from gross realized gains of approximately $29.9 million primarily from the sale of our equity and warrant positions in Palantir Technologies, Provention Bio, Inc., TransMedics Group, Inc., Sprinklr, Inc., DoorDash, Inc., and Zeta Global Corp.
As of December 31, 2023 and 2022, unamortized capitalized fee income was recorded as follows: (in millions) As of December 31, 2023 2022 Offset against debt investment cost $ 32.9 $ 43.1 Deferred obligation contingent on funding or other milestone 9.4 10.9 Total Unamortized Fee Income $ 42.3 $ 54.0 Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan.
As of December 31, 2024 and 2023, unamortized capitalized fee income was recorded as follows: (in millions) As of December 31, 2024 2023 Offset against debt investment cost $ 36.9 $ 32.9 Deferred obligation contingent on funding or other milestone 9.1 9.4 Total Unamortized Fee Income $ 46.0 $ 42.3 Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan.
General and Administrative Expenses and Tax Expenses General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments and various other expenses. Our general and administrative expenses increased to $18.7 million from $16.9 million for the years ended December 31, 2023 and 2022, respectively.
General and Administrative Expenses and Tax Expenses General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments and various other expenses. Our general and administrative expenses increased to $19.7 million from $18.7 million for the years ended December 31, 2024 and 2023, respectively.
See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report. 61 Table of Contents Portfolio Composition Our portfolio companies are primarily privately held companies and public companies which are active in sectors characterized by high margins, high growth rates, consolidation, and product and market extension opportunities.
See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report. 60 Table of Contents Portfolio Composition Our portfolio companies are primarily privately held companies which are active in sectors characterized by high margins, high growth rates, consolidation, and product and market extension opportunities and, to a lesser extent, public companies active in those sectors.
As a result, comparison of the net increase (decrease) in net assets resulting from operations may not be meaningful. Investment Income Total investment income for the year ended December 31, 2023 was a pproximately $460.7 million as compared to approximately $321.7 million for the year ended December 31, 2022.
As a result, comparison of the net increase (decrease) in net assets resulting from operations may not be meaningful. Investment Income Total investment income for the year ended December 31, 2024 was a pproximately $493.6 million as compared to approximately $460.7 million for the year ended December 31, 2023.
The forward-looking statements contained in this report include statements as to: • our current and future management structure; • our future operating results; • our business prospects and the prospects of our prospective portfolio companies; • the impact of investments that we expect to make; • our informal relationships with third parties including in the venture capital industry; • the expected market for venture capital investments and our addressable market; • the dependence of our future success on the general economy and its impact on the industries in which we invest; • our ability to access debt markets and equity markets; • the occurrence and impact of macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war) on us and our portfolio companies; • the ability of our portfolio companies to achieve their objectives; • our expected financings and investments; • our regulatory structure and tax status as a RIC; • our ability to operate as a BDC and a SBIC; • the adequacy of our cash resources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies; • the timing, form and amount of any distributions; • the impact of fluctuations in interest rates on our business; • the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and • our ability to recover unrealized depreciation on investments.
The forward-looking statements contained in this report include statements as to: • our current and future management structure; • our future operating results; • our business prospects and the prospects of our prospective portfolio companies; • the impact of investments that we expect to make; • our informal relationships with third parties including in the venture capital industry; • the expected market for venture capital investments and our addressable market; • the dependence of our future success on the general economy and its impact on the industries in which we invest; • our ability to access debt markets and equity markets; • the occurrence and impact of macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war) on us and our portfolio companies; • the ability of our portfolio companies to achieve their objectives; • our expected financings and investments; • our regulatory structure and tax status as a RIC; • our ability to operate as a BDC and our subsidiaries ability to operate as SBICs; • the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks; • the adequacy of our cash resources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies; • the timing, form and amount of any distributions; • the impact of fluctuations in interest rates on our business; • the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and • our ability to recover unrealized depreciation on investments.
The Adviser Subsidiary Hercules Capital Management LLC through the Adviser Subsidiary has entered into investment management agreements (the “IMAs”) with the Adviser Funds. Pursuant to the IMAs, the Adviser Subsidiary provides investment advisory and management services to the Adviser Funds in exchange for an asset-based fee.
The Adviser Subsidiary The Adviser Subsidiary has entered into investment management agreements (the “IMAs”) with the Adviser Funds. Pursuant to the IMAs, the Adviser Subsidiary provides investment advisory and management services to the Adviser Funds in exchange for an asset-based fee.
As of December 31, 2023, we had approximately $335.3 million of available unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones, as well as uncalled capital commitments to make investments in private equity funds.
As of December 31, 2024, we had approximately $448.5 million of available unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones, as well as uncalled capital commitments to make investments in private equity funds.
We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range. Through generation of current income from our debt investments and capital appreciation from our warrant and equity investments, we aim to maximize our portfolio total return.
We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range.
Three Months Ended December 31, Year ended December 31, 2023 2022 2023 2022 Total Yield 14.6% 13.7% 14.6% 11.9% Effective Yield (1) 15.3% 14.7% 15.4% 12.7% Core Yield (Non-GAAP) (1) 14.3% 13.8% 14.1% 12.3% (1) Yield calculated using “ Total investment income ” excluding bank interest, dividend income, and investment income from other assets for the three months and year ended December 31, 2023.
Three Months Ended December 31, Year ended December 31, 2024 2023 2024 2023 Total Yield 13.2% 14.6% 13.9% 14.6% Effective Yield (1) 13.7% 15.3% 14.4% 15.4% Core Yield (Non-GAAP) (1) 12.9% 14.3% 13.5% 14.1% (1) Yield calculated using “ Total investment income ” excluding bank interest, dividend income, and investment income from other assets for the three months and year ended December 31, 2024 and December 31, 2023.
The core yield is derived by dividing “Core investment income from debt investments” by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year.
The core yield is derived by dividing “Core investment income” from debt investments by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year.
During the years ended December 31, 2023 and December 31, 2022, we recorded approximately $24.7 million and $20.5 million of PIK income, respectively. Portfolio Yield We report our financial results on a GAAP basis. We monitor the performance of our total investment portfolio and total debt portfolio using both GAAP and Non-GAAP financial measures.
During the years ended December 31, 2024 and December 31, 2023, we recorded approximately $51.3 million and $24.7 million of PIK income, respectively. Portfolio Yield We report our financial results on a GAAP basis. We monitor the performance of our total investment portfolio and total debt portfolio using both GAAP and Non-GAAP financial measures.
As of December 31, 2023 and 2022, loan exit fees receivable were recorded as follows: (in millions) As of December 31, 2023 2022 Included within debt investment cost $ 35.9 $ 32.5 Deferred receivable related to expired commitments 4.3 5.0 Total Exit Fees Receivable $ 40.2 $ 37.5 Additionally, we have debt investments in our portfolio that earn PIK interest.
As of December 31, 2024 and 2023, loan exit fees receivable were recorded as follows: (in millions) As of December 31, 2024 2023 Included within debt investment cost $ 39.2 $ 35.9 Deferred receivable related to expired commitments 3.0 4.3 Total Exit Fees Receivable $ 42.2 $ 40.2 Additionally, we have debt investments in our portfolio that earn PIK interest.
Our existing warrant holdings would require us to invest approximately $61.7 million to exercise such warrants as of December 31, 2023. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions.
Our existing warrant holdings would require us to invest approximately $60.5 million to exercise such warrants as of December 31, 2024. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions.
For the years ended December 31, 2023 and 2022, our ten largest portfolio companies represented approximately 29.7% and 29.0% of the total fair value of our investments in portfolio companies, respectively. As of December 31, 2023 and December 31, 2022, we had five and eight investments that represented 5% or more of our net assets, respectively.
For the years ended December 31, 2024 and 2023, our ten largest portfolio companies represented approximately 31.6% and 29.7% of the total fair value of our investments in portfolio companies, respectively. As of December 31, 2024 and December 31, 2023, we had six and five investments that represented 5% or more of our net assets, respectively.
As a result of the SEC exemptive order, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 150%, which while providing increased investment flexibility, also may increase our exposure to risks associated with leverage. Total asset coverage when including our SBA debentures was 214.7% as of December 31, 2023.
As a result of the SEC exemptive order, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 150%, which while providing increased investment flexibility, also may increase our exposure to risks associated with leverage. Total asset coverage when including our SBA debentures as senior securities was 211.5% as of December 31, 2024.
The increase in expenses allocated to the Advise r Subsidiary for the year ended December 31, 2023 compared to 2022 is due to higher average assets under management and higher allocations to the Adviser Funds. As of December 31, 2023 and 2022, $0.1 million and $0.1 million, respectively, was due from the Adviser Subsidiary.
The increase in expenses allocated to the Adviser Subsidiary for the year ended December 31, 2024 compared to 2023 is due to higher average assets under management and higher allocations to the Adviser Funds. As of December 31, 2024 and 2023, less than $0.1 million and $0.1 million, respectively, was due from the Adviser Subsidiary.
Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for December 31, 2023 and December 31, 2022 was approximately 1% and less than 1% of total debt investments, respectively.
Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for December 31, 2024 and December 31, 2023 was approximately 2% and 1% of total debt investments, respectively.
Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.
We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.
As of December 31, 2023 the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, “Consumer & Business Services”, or "Healthcare Services, Other". Industry and sector concentrations vary as new loans are recorded and loans are paid off.
As of December 31, 2024, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Software”, “Drug Discovery & Development”, “Healthcare Services, Other”, and “Consumer & Business Services.” Industry and sector concentrations vary as new loans are recorded and loans are paid off.
We, our subsidiaries or our affiliates, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services.
We, through the Adviser Subsidiary, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we, through the Adviser Subsidiary may earn management or other fees for our services.
Portfolio and Investment Activity The total fair value of our investment portfolio as of December 31, 2023 and December 31, 2022 was as follows: (in millions) Fair Value December 31, 2023 December 31, 2022 Debt $ 3,057.3 $ 2,795.4 Equity 152.2 134.0 Warrants 33.9 30.6 Investment Funds & Vehicles 4.6 3.9 Total Investment Portfolio $ 3,248.0 $ 2,963.9 Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments.
Portfolio and Investment Activity The total fair value of our investment portfolio as of December 31, 2024 and December 31, 2023 was as follows: (in millions) Fair Value December 31, 2024 December 31, 2023 Debt $ 3,494.6 $ 3,057.3 Equity 128.7 152.2 Warrants 30.5 33.9 Investment Funds & Vehicles 6.2 4.6 Total Investment Portfolio $ 3,660.0 $ 3,248.0 Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments.
Another financial measure that we monitor is the total return for our investors, which was approximately 42.0% and (10.1%) during the years ended December 31, 2023 and 2022, respectively.
Another financial measure that we monitor is the total return for our investors, which was approximately 32.8% and 42.0% during the years ended December 31, 2024 and 2023, respectively.
Debt commitments generally fund over the two succeeding quarters from close. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements. Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company.
Debt commitments generally fund over the year following the underwriting of such debt commitment. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements. Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company.
As of December 31, 2023, Hercules and its Adviser Subsidiary actively manage approximately $4.2 billion of assets. We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements.
As of December 31, 2024, we, including through our Adviser Subsidiary, actively manage approximately $4.8 billion of assets. We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements.
As of December 31, 2023, net assets to taled $1.8 billion, with a NAV per share of $11.43. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies.
As of December 31, 2024, our net assets to taled $2.0 billion, with a NAV per share of $11.66. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies.
Non-accrual Investments The following table shows the amortized cost of our performing and non-accrual investments as of December 31, 2023 and December 31, 2022: (in millions) As of December 31, 2023 2022 Amortized Cost Percentage of Total Portfolio at Amortized Cost Amortized Cost Percentage of Total Portfolio at Amortized Cost Performing $ 3,216 99.0 % $ 2,988 99.4 % Non-accrual 31 1.0 % 18 0.6 % Total Investments $ 3,247 100.0 % $ 3,006 100.0 % Debt investments are placed on non-accrual status when it is probable that principal, interest or fees will not be collected according to contractual terms.
Performing and Non-accrual Investments The following table shows the amortized cost of our performing and non-accrual investments as of December 31, 2024 and December 31, 2023: (in millions) As of December 31, 2024 2023 Amortized Cost Percentage of Total Portfolio at Amortized Cost Amortized Cost Percentage of Total Portfolio at Amortized Cost Performing $ 3,648 98.3 % $ 3,216 99.0 % Non-accrual 61 1.7 % 31 1.0 % Total Investments $ 3,709 100.0 % $ 3,247 100.0 % Debt investments are placed on non-accrual status when it is probable that principal, interest or fees will not be collected according to contractual terms.
The increase in general and administrative expenses for the year ended December 31, 2023 is primarily attributable to an increase in costs of office and travel expenses and certain professional fees. Tax expenses primarily relate to excise tax accruals. Tax expenses were $6.1 million and $5.4 milli on for the years ended December 31, 2023 and December 31, 2022, respectively.
The increase in general and administrative expenses for the year ended December 31, 2024 is primarily attributable to an increase in costs of office and professional fees and expenses. Tax expenses were $5.8 million and $6.1 milli on for the years ended December 31, 2024 and December 31, 2023, respectively. Our t ax expenses primarily relate to excise tax accruals.
During the years ended December 31, 2023 and 2022, we recorded approximately $25.0 million of net unrealized appreciation and $85.1 million of net unrealized depreciation on our investments. The decrease in unrealized depreciation was primarily related to appreciation of our equity, warrants, and investment funds investments during the year ended December 31, 2023.
During the years ended December 31, 2024 and 2023, we recorded approximately $31.2 million of net unrealized depreciation and $25.0 million of net unrealized appreciation on our investments. The decrease in unrealized depreciation was primarily related to depreciation of our equity, warrants, and debt investments during the year ended December 31, 2024.
Macroeconomic developments are outside our control and could require us to adjust our plan of operations, impact our financial condition, and impact our results of operations or cash flows in the future.
These m acroeconomic developments are outside our control and could require us to adjust our plan of operations, and impact our financial position, results of operations or cash flows in the future.
Interest and dividend income for the year ended December 31, 2023 totaled appro ximately $434.4 million as compared to approximately $307.3 million for the year ended December 31, 2022.
Interest and dividend income for the year ended December 31, 2024 totaled appro ximately $467.2 million as compared to approximately $434.4 million for the year ended December 31, 2023.
As of December 31, 2023, we had $1,570.0 million of debt outstanding, $105.0 million due within the next year, $689.0 million being due within 1 to 3 years, and $776.0 million being due beyond 3 years. In addition to our debt obligations, in the normal course of business, we are party to financial instruments with off-balance sheet risk.
As of December 31, 2024, we had $1,783.3 million of debt outstanding, $170.0 million due within the next year, $891.0 million due within 1 to 3 years, and $722.3 million due beyond 3 years. In addition to our debt obligations, in the normal course of business, we are party to financial instruments with off-balance sheet risk.
As of December 31, 2023, we held warrants in 103 portfolio companies, with a fair value of approximately $33.9 million. The fair value of our warrant portfolio increased by approximately $3.3 million, as compared to a fair value of $30.6 million as of December 31, 2022, primarily related to the decrease in fair value of the portfolio companies.
As of December 31, 2024, we held warrants in 98 portfolio companies, with a fair value of approximately $30.5 million. The fair value of our warrant portfolio decreased by approximately $3.4 million, as compared to a fair value of $33.9 million as of December 31, 2023, primarily related to the decrease in fair value of the portfolio companies.
The increase in the weighted average cost of debt during 2023 as compared to 2022, was attributable to i ncreased usage of our Credit Facilities which are floating rate instruments and thus, have a higher cost of debt.
The increase in the weighted average cost of debt during 64 Table of Contents 2024 as compared to 2023, was attributable to i ncreased usage of our Credit Facilities which are floating rate instruments and have higher borrowing rates.
The following table shows the PIK related activity for the years ended December 31, 2023 and 2022, at cost: (in thousands) Year Ended December 31, 2023 2022 Beginning PIK interest receivable balance $ 25,713 $ 11,801 PIK interest income during the period 24,670 20,455 PIK capitalized as principal or converted to equity or other assets (3,317) — Payments received from PIK loans (9,036) (6,176) Realized gain (loss) — (367) Ending PIK interest receivable balance $ 38,030 $ 25,713 The increase in PIK interest income during the year ended December 31, 2023, as compared to the year ended December 31, 2022 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest.
The following table shows the PIK-related activity for the years ended December 31, 2024 and 2023, at cost: (in thousands) Year Ended December 31, 2024 2023 Beginning PIK interest receivable balance $ 38,030 $ 25,713 PIK interest income during the period 51,270 24,670 PIK capitalized as principal or converted to equity or other assets (1,095) (3,317) Payments received from PIK loans (18,346) (9,036) Realized loss (2,203) — Ending PIK interest receivable balance $ 67,656 $ 38,030 The increase in PIK interest income during the year ended December 31, 2024, as compared to the year ended December 31, 2023 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest.
Total amounts outstanding as of December 31, 2023, were $155.0 million outstanding under our Credit Facilities, which are floating interest rate obligations, and the remaining $1,415.0 million of term debt outstanding, which are all fixed interest rate debt obligations. Not considered above, as of December 31, 2023, we held $17.1 million of cash classified as restricted cash.
Total amounts outstanding as of December 31, 2024, were $399.8 million outstanding under our Credit Facilities, which are floating interest rate obligations, and the remaining $1,383.5 million of term debt outstanding, which are all fixed interest rate debt obligations. Not considered above, as of December 31, 2024, we held $3.3 million of cash classified as restricted cash.
Employee stock-based compensation totaled approximately $13.2 million for the year ended December 31, 2023, as compared to approximately $13.4 million for the year ended December 31, 2022. The decrease between comparative periods was primarily attributable to a decrease in compensation expense related to Performance Awards which vested in 2022.
Employee stock-based compensation totaled approximately $12.8 million for the year ended December 31, 2024, as compared to approximately $13.2 million for the year ended December 31, 2023. The decrease for the year ended December 31, 2024 was primarily attributable to a decrease in compensation expense related to Performance Awards (as defined below) which vested in 2023.
Interest collected on non-accrual investments are generally applied to principal. 63 Table of Contents Results of Operations Our condensed consolidated operating results for the years ended December 31, 2023 and 2022, were as follows: (in thousands, except per share data) Year Ended December 31, 2023 2022 Total investment income $ 460,668 $ 321,688 Total expenses 156,631 133,620 Net investment income 304,037 188,068 Net realized gain (loss): 8,437 (924) Net change in unrealized appreciation (depreciation): 25,010 (85,063) Net increase (decrease) in net assets resulting from operations $ 337,484 $ 102,081 Net investment income before gains and losses per common share: Basic $ 2.09 $ 1.48 Change in net assets resulting from operations per common share: Basic $ 2.32 $ 0.80 Diluted $ 2.31 $ 0.79 Our operating results can vary substantially from period to period due to various factors, including changes in the level of investments held, changes in our investment yields, recognition of realized gains and losses, and changes in net unrealized appreciation and depreciation, among other factors.
Interest collected on non-accrual investments are generally applied to principal. 62 Table of Contents Results of Operations Our condensed consolidated operating results for the years ended December 31, 2024 and 2023, were as follows: (in thousands, except per share data) Year Ended December 31, 2024 2023 Total investment income $ 493,591 $ 460,668 Total expenses 167,759 156,631 Net investment income 325,832 304,037 Net realized gain (loss): (31,657) 8,437 Net change in unrealized appreciation (depreciation): (31,209) 25,010 Net increase (decrease) in net assets resulting from operations $ 262,966 $ 337,484 Net investment income before gains and losses per common share: Basic $ 2.00 $ 2.09 Change in net assets resulting from operations per common share: Basic $ 1.61 $ 2.32 Diluted $ 1.61 $ 2.31 Our operating results can vary substantially from period to period due to various factors, including changes in the level of investments held, changes in our investment yields, recognition of realized gains and losses, and changes in net unrealized appreciation and depreciation, among other factors.
As of December 31, 2023, our asset coverage ratio under our regulatory requirements as a BDC was 228.7% excluding our SBA debentures. Our exemptive order from the SEC allows us to exclude all SBA leverage from our asset coverage ratio.
As of December 31, 2024, our asset coverage ratio under our regulatory requirements as a BDC was 231.7% excluding our SBA debentures. We received an exemptive order from the SEC that allows us to exclude all SBA leverage as senior securities from our asset coverage ratio.
On July 20, 2023, we obtained authorization from our stockholders to issue common stock at a price below our then-current NAV per share for a twelve-month period expiring on July 20, 2024, subject to certain conditions.
On August 15, 2024, we obtained authorization from our stockholders to issue common stock at a price below our then-current NAV per share for a twelve-month period expiring on August 15, 2025.
The reconciliation to calculate “Core investment income” from GAAP basis 'Total investment income' are as follows: (in thousands) Three Months Ended December 31, Year ended December 31, 2023 2022 2023 2022 GAAP Basis: Total investment income $ 122,603 $ 100,187 $ 460,668 $ 321,688 Less: fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events except income from expired commitments (8,138) (5,630) (38,324) (12,340) Non-GAAP Basis: Core investment income $ 114,465 $ 94,557 $ 422,344 $ 309,348 Less: bank interest income, dividend income, and other investment income from other assets (2,269) (296) (5,123) (667) Core investment income from debt portfolio $ 112,196 $ 94,261 $ 417,221 $ 308,681 We believe the Core Yield is useful for our investors as it provides the yield at which our debt investments are originated and eliminates one-off items that can fluctuate significantly from period to period, thereby allowing for a more meaningful comparison over time.
The reconciliation to calculate “Core investment income” from GAAP basis “Total investment income” are as follows: (in thousands) Three Months Ended December 31, Year ended December 31, 2024 2023 2024 2023 GAAP Basis: Total investment income $ 121,784 $ 122,603 $ 493,591 $ 460,668 Less: fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events except income from expired commitments (7,309) (8,138) (32,382) (38,324) Non-GAAP Basis: Core investment income $ 114,475 $ 114,465 $ 461,209 $ 422,344 Less: bank interest income, dividend income, and other investment income from other assets (3,002) (2,269) (11,371) (5,123) Core investment income from debt portfolio $ 111,473 $ 112,196 $ 449,838 $ 417,221 We believe the Core Yield is useful for our investors as it provides the yield at which our debt investments are originated and eliminates one-off items that can fluctuate significantly from period to period, thereby allowing for a more meaningful comparison over time.
Our gains were offset by gross realized losses of $21.5 million from the write-off of equity and warrant investments in Concert Pharmaceuticals, Inc. and Fungible, Inc. which had no value after the respective portfolio companies were acquired, the write-off of our equity investments in Gynesonics, Inc., Paratek Pharmaceuticals, Inc., Tricida, Inc., Gelesis, Inc. and Flowonix Medical Inc. as a result of capital markets transactions or events.
Our gross realized gains were offset by gross realized losses of $21.5 million from the write-off of equity and warrant investments in Concert Pharmaceuticals, Inc. and Fungible, Inc., which had no value after the respective portfolio companies were acquired, as well as the write-off of our equity investments in Gynesonics, Inc.
The following table shows the approximate increase (decrease) to the fair value of our debt investments from hypothetical change to the yield interest rates used for each valuation, assuming no other changes: (in thousands) Change in unrealized appreciation (depreciation) Basis Point Change (100) $ 37,485 (50) $ 20,761 50 $ (20,945) 100 $ (42,223) For a further discussion and disclosure of key inputs and considerations related to this estimate, refer to "Note 3 -Fair Value of Financial Instruments" included in the notes.
The following table shows the approximate increase (decrease) to the fair value of our debt investments from hypothetical change to the yield interest rates used for each valuation, assuming no other changes: (in thousands) Change in unrealized appreciation (depreciation) Basis Point Change (100) $ 51,209 (50) $ 27,134 50 $ (29,148) 100 $ (58,584) For a further discussion and disclosure of key inputs and considerations related to this estimate, refer to "Note 3 -Fair Value of Financial Instruments" included in the notes to our consolidated financial statements appearing elsewhere in this report.
Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements. 57 Table of Contents Our portfolio activity for the years ended December 31, 2023, and 2022 was comprised of the following: (in millions) December 31, 2023 December 31, 2022 Investment Commitments (1) Investment Commitments Originated by Hercules Capital and the Adviser Funds $ 2,174.1 $ 3,121.4 Less: Commitments assigned to or directly committed by the Adviser Funds (3) (595.6) (747.1) Net Total Investment Commitments $ 1,578.5 $ 2,374.3 Gross Debt Commitments Originated by Hercules Capital and the Adviser Funds New portfolio company $ 1,571.0 $ 2,612.0 Existing portfolio company 589.5 482.3 Sub-total 2,160.5 3,094.3 Less: Debt commitments assigned to or directly committed by the Adviser Funds (3) (593.7) (742.4) Net Total Debt Commitments $ 1,566.8 $ 2,351.9 Investment Fundings (2) Gross Debt Fundings by Hercules Capital and the Adviser Funds New portfolio company $ 747.3 $ 1,068.1 Existing portfolio company 836.5 371.5 Sub-total 1,583.8 1,439.6 Less: Debt fundings assigned to or directly funded by the Adviser Funds (3) (348.8) (325.5) Net Total Debt Fundings $ 1,235.0 $ 1,114.1 Equity Investments and Investment Funds and Vehicles Fundings by Hercules Capital and the Adviser Funds New portfolio company $ 2.0 $ 5.0 Existing portfolio company 12.8 20.4 Sub-total $ 14.8 $ 25.4 Less: Equity fundings assigned to or directly funded by the Adviser Funds (3) (1.9) (4.7) Net Total Equity and Investment Funds and Vehicle Fundings $ 12.9 $ 20.7 Total Unfunded Contractual Commitments (4) $ 335.3 $ 628.9 Non-Binding Term Sheets New portfolio company $ 645.0 $ 96.7 Existing portfolio company 31.8 39.4 Total $ 676.8 $ 136.1 (1) Includes restructured loans and renewals in addition to new commitments.
Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements. 56 Table of Contents Our portfolio activity for the years ended December 31, 2024 and 2023 was comprised of the following: (in millions) December 31, 2024 December 31, 2023 Investment Commitments (1) Investment Commitments Originated by Hercules Capital and the Adviser Funds $ 2,692.7 $ 2,174.1 Less: Commitments assigned to or directly committed by the Adviser Funds (562.1) (595.6) Net Total Investment Commitments $ 2,130.6 $ 1,578.5 Gross Debt Commitments Originated by Hercules Capital and the Adviser Funds New portfolio company $ 2,335.4 $ 1,571.0 Existing portfolio company 344.8 589.5 Sub-total 2,680.2 2,160.5 Less: Debt commitments assigned to or directly committed by the Adviser Funds (559.9) (593.7) Net Total Debt Commitments $ 2,120.3 $ 1,566.8 Investment Fundings (2) Gross Debt Fundings by Hercules Capital and the Adviser Funds New portfolio company $ 1,281.7 $ 747.3 Existing portfolio company 513.5 836.5 Sub-total 1,795.2 1,583.8 Less: Debt fundings assigned to or directly funded by the Adviser Funds (381.4) (348.8) Net Total Debt Fundings $ 1,413.8 $ 1,235.0 Equity Investments and Investment Funds and Vehicles Fundings by Hercules Capital and the Adviser Funds New portfolio company $ 2.0 $ 2.0 Existing portfolio company 10.0 12.8 Sub-total $ 12.0 $ 14.8 Less: Equity fundings assigned to or directly funded by the Adviser Funds (1.8) (1.9) Net Total Equity and Investment Funds and Vehicle Fundings $ 10.2 $ 12.9 Total Unfunded Contractual Commitments (3) $ 448.5 $ 335.3 Non-Binding Term Sheets New portfolio company $ 297.6 $ 645.0 Existing portfolio company — 31.8 Total $ 297.6 $ 676.8 (1) Includes restructured loans and renewals in addition to new commitments.
Interest and fee expense during the year ended December 31, 2023, as 65 Table of Contents compared to the year ended December 31, 2022, increased due to higher weighted average borrowing costs and debt outstanding. We had a weighted average cost of debt of approximately 4.8% and 4.2% for the years ended December 31, 2023 and 2022, respectively.
Interest and fee expense during the year ended December 31, 2024, as compared to the year ended December 31, 2023, increased due to higher weighted average borrowing costs and debt outstanding. Our weighted average cost of debt was approximately 5.0% and 4.8% for the years ended December 31, 2024 and 2023, respectively.
The following table presents the fair value of the Company’s portfolio by industry sector as of December 31, 2023 and December 31, 2022: (in thousands) December 31, 2023 December 31, 2022 Investments at Fair Value Percentage of Total Portfolio Investments at Fair Value Percentage of Total Portfolio Drug Discovery & Development $ 1,257,699 38.7 % $ 1,150,707 38.8 % Software 764,985 23.6 % 798,264 26.9 % Consumer & Business Services 525,973 16.2 % 439,384 14.8 % Healthcare Services, Other 300,079 9.3 % 198,763 6.7 % All other industries (1) 399,310 12.2 % 376,837 12.8 % Total $ 3,248,046 100.0 % $ 2,963,955 100.0 % (1) See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio.
The following table presents the fair value of the Company’s portfolio by industry sector as of December 31, 2024 and December 31, 2023: (in thousands) December 31, 2024 December 31, 2023 Investments at Fair Value Percentage of Total Portfolio Investments at Fair Value Percentage of Total Portfolio Software $ 1,081,100 29.5 % $ 764,985 23.6 % Drug Discovery & Development 1,080,390 29.5 % 1,257,699 38.7 % Healthcare Services, Other 610,184 16.7 % 300,079 9.3 % Consumer & Business Services 372,641 10.2 % 525,973 16.2 % All other industries (1) 515,663 14.1 % 399,310 12.2 % Total $ 3,659,978 100.0 % $ 3,248,046 100.0 % (1) See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio.
Employee Compensation Employee compensation and benefi ts totaled approximately $50.2 million for the year ended December 31, 2023, as compared to approximately $43.9 million fo r the year ended December 31, 2022. The increase between comparative periods was primarily due to increased headcount and variable compensation during the year ended December 31, 2023 .
Employee Compensation Employee compensation and benefi ts totaled approximately $54.2 million for the year ended December 31, 2024, as compared to approximately $50.2 million fo r the year ended December 31, 2023. The increase for the year ended December 31, 2024 was primarily due to fluctuations in variable compensation and increase in headcount.
As the impact of the macro-economic events, potential global recession, acts of terrorism, war, geopolitical events, and the related disruption to markets and business continues to impact the economy, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.
As the impact of the macro-economic events, potential global recession, acts of terrorism, war, geopolitical events, and the related disruption to markets and business continues to impact the economy, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances. 68 Table of Contents Equity Offerings We may from time-to-time issue and sell shares of our common stock through public or ATM offerings.
Approximately $50.8 million of the aggregate principal repayments related to scheduled principal payments and approximately $925.1 million were early principal repayments related to 45 portfolio co mpanies. 58 Table of Contents Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the years ended December 31, 2023 and December 31, 2022 was as follows: (in millions) December 31, 2023 December 31, 2022 Beginning Portfolio $ 2,963.9 $ 2,434.5 New fundings and restructures 1,598.6 1,465.0 Fundings assigned to or directly funded by the Adviser Funds (1) (350.7) (330.2) Warrants not related to current period fundings 1.3 2.0 Principal payments received on investments (50.8) (70.1) Early payoffs (925.1) (373.3) Proceeds from sale of debt investments (26.7) (84.0) Proceeds from sale of equity investments (43.2) (17.6) Accretion of loan discounts and paid-in-kind principal 59.5 54.8 Net acceleration of loan discounts and loan fees due to early payoffs or restructures (14.1) (17.7) New loan fees (13.5) (13.8) Gain (loss) on investments due to sales or write offs 6.0 (0.3) Net change in unrealized appreciation (depreciation) 42.8 (85.4) Ending Portfolio $ 3,248.0 $ 2,963.9 (1) Funded amounts include $338.6 million and $193.2 million of direct fundings of investments made by the Adviser Funds for the years ended December 31, 2023 and 2022, respectively.
Approximately $31.6 million of the aggregate principal repayments related to scheduled principal payments and approximately $922.0 million were early principal repayments related to 56 portfolio co mpanies. 57 Table of Contents Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the years ended December 31, 2024 and December 31, 2023 was as follows: (in millions) December 31, 2024 December 31, 2023 Beginning Portfolio $ 3,248.0 $ 2,963.9 New fundings and restructures 1,807.2 1,598.6 Fundings assigned to or directly funded by the Adviser Funds (383.2) (350.7) Warrants not related to current period fundings 0.3 1.3 Principal repayments received on investments (31.6) (50.8) Early payoffs (922.0) (925.1) Proceeds from sale of debt investments — (26.7) Proceeds from sale of equity and warrant investments (49.4) (43.2) Accretion of loan discounts and paid-in-kind interest 87.7 59.5 Net acceleration of loan discounts and loan fees due to early payoffs or restructures (12.3) (14.1) New loan fees (15.2) (13.5) Gain (loss) on investments due to sales or write offs (19.7) 6.0 Net change in unrealized appreciation (depreciation) (49.8) 42.8 Ending Portfolio $ 3,660.0 $ 3,248.0 Additionally, we may hold investments in debt, warrant, or equity positions of portfolio companies that have filed a registration statement with the SEC in contemplation of a potential IPO.
As of December 31, 2023 and 2022, approximately 95.9% and 95.3%, of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, LIBOR, SOFR, Eurodollar, or BSBY-based interest rate floor, respectively. Note that as of December 31, 2023, no investments were priced using LIBOR based interest rates.
As of December 31, 2024 and 2023, approximately 97.4% and 95.9% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, SOFR, SONIA, or BSBY-based interest rate floor, respectively.
As of December 31, 2023 and December 31, 2022, we had five and four equity investments representing approximately 56.5% and 39.8%, respectively, of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments.
As of December 31, 2024 and December 31, 2023, we had three and five equity investments, respectively, that represented 5% or more of the total fair value of our equity investments. These equity investments represented approximately 49.7% and 56.5% of the total fair value of our equity investments as of December 31, 2024 and December 31, 2023, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS The matters discussed in this report, as well as in future oral and written statements by management of Hercules Capital, Inc. that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS The matters discussed in this Annual Report, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties, including those discussed under “Item 1A.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−2 removed9 unchanged
Biggest changeFor additional information regarding the interest rate associated with each of our debt borrowings, refer to “Note 5 – Debt” included in the notes to our consolidated financial statements in this report on Form 10-K. 72 Table of Contents
Biggest changeFor additional information regarding the interest rate associated with each of our debt borrowings, refer to “Note 5 – Debt” included in the notes to our consolidated financial statements in this Annual Report. 71 Table of Contents
Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle fund investments. Our investment income will be affected by changes in various interest rates, including Prime, SOFR, and BSBY rates, to the extent our debt investments include variable interest rates.
Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle fund investments. Our investment income will be affected by changes in various interest rates, including Prime, SOFR, and SONIA rates, to the extent our debt investments include variable interest rates.
Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. 71 Table of Contents Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2023, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investments and debt.
Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. 70 Table of Contents Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2024, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investments and debt.
During the year ended December 31, 2023, we have entered into a foreign currency forward to limit our foreign currency exposure with respect to the British Pound. For additional information refer to “Note 4 – Investments”, included in the notes to our consolidated financial statements appearing elsewhere in this report.
During the year ended December 31, 2024, we have entered into a foreign currency forward contract to limit our foreign currency exposure with respect to the British Pound. For additional information refer to “Note 4 – Investments”, included in the notes to our consolidated financial statements appearing elsewhere in this Annual Report.
As of December 31, 2023, approximately 95.9% of the loans in our portfolio had variable rates based on floating Prime, SOFR, or BSBY rates with a floor. The majority of our loans are linked to the Prime rate and comprise 69.2% of the loan portfolio as of December 31, 2023.
As of December 31, 2024, approximately 97.4% of the loans in our portfolio had variable rates based on floating Prime, SOFR, or SONIA rates with a floor. The majority of our loans are linked to the Prime rate and comprise 77.5% of the loan portfolio as of December 31, 2024.
Removed
(in thousands) Basis Point Change Interest Income Interest Expense Net Income EPS (200) $(41,785) $(4,207) $(37,578) $(0.25) (100) $(22,230) $(2,103) $(20,127) $(0.13) (75) $(17,271) $(1,578) $(15,693) $(0.10) (50) $(11,759) $(1,052) $(10,707) $(0.07) (25) $(6,075) $(526) $(5,549) $(0.04) 25 $6,408 $526 $5,882 $0.04 50 $12,815 $1,052 $11,763 $0.08 75 $19,183 $1,578 $17,605 $0.12 We generally do not engage in hedging activities.
Added
(in thousands) Basis Point Change Interest Income Interest Expense Net Income EPS (200) $(27,762) $(8,367) $(19,395) $(0.12) (100) $(16,172) $(4,184) $(11,988) $(0.07) (75) $(12,469) $(3,138) $(9,331) $(0.06) (50) $(8,645) $(2,092) $(6,553) $(0.04) (25) $(4,284) $(1,046) $(3,238) $(0.02) 25 $4,582 $1,046 $3,536 $0.02 50 $9,623 $2,092 $7,531 $0.05 75 $15,461 $3,138 $12,323 $0.07 From time-to-time, we may hedge against interest rate fluctuations and foreign currency by using standard hedging instruments such as futures, options, and forward contracts.
Removed
From time-to-time, we may hedge against interest rate fluctuations and foreign currency by using standard hedging instruments such as futures, options, and forward contracts.

Other HTGC 10-K year-over-year comparisons