10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00702

HERCULES CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Maryland		74-3113410
(State or Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)
400 Hamilton Ave., Suite 310 Palo Alto, California (Address of Principal Executive Offices)		94301 (Zip Code)
		94301 (Zip Code)

(650) 289-3060

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, par value $0.001 per share	HTGC	New York Stock Exchange
6.25% Notes due 2033	HCXY	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On October 21, 2021, there were 115,899,422 shares outstanding of the Registrant’s common stock, $0.001 par value.

HERCULES CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Statements of Assets and Liabilities as of September 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	7
	Consolidated Schedule of Investments as of September 30, 2021 (unaudited)	8
	Consolidated Schedule of Investments as of December 31, 2020	19
	Notes to Consolidated Financial Statements (unaudited)	30
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	83
Item 4.	Controls and Procedures	84
PART II. OTHER INFORMATION		85
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3.	Defaults Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits and Financial Statement Schedules	87
SIGNATURES		92

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts, unless the context otherwise requires.

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share data)


	September 30, 2021		December 31, 2020
	(unaudited)
Assets
Investments, at fair value:
Non-control/Non-affiliate investments (cost of $2,330,982 and $2,175,651, respectively)	$	2,436,307	$	2,288,338
Control investments (cost of $81,020 and $65,257, respectively)		65,835		57,400
Affiliate investments (cost of $13,387 and $74,450, respectively)		9,712		8,340
Total investments, at fair value (cost of $2,425,389 and $2,315,358, respectively)		2,511,854		2,354,078
Cash and cash equivalents		235,851		198,282
Restricted cash		13,509		39,340
Interest receivable		17,859		19,077
Right of use asset		7,373		9,278
Other assets		4,762		3,942
Total assets	$	2,791,208	$	2,623,997

Liabilities
Debt (net of debt issuance costs - Note 5)	$	1,408,701	$	1,286,638
Accounts payable and accrued liabilities		37,098		36,343
Operating lease liability		7,877		9,312
Total liabilities	$	1,453,676	$	1,332,293

Net assets consist of:
Common stock, par value		116		115
Capital in excess of par value		1,166,725		1,158,198
Total distributable earnings		170,691		133,391
Total net assets	$	1,337,532	$	1,291,704
Total liabilities and net assets	$	2,791,208	$	2,623,997

Shares of common stock outstanding ($0.001 par value and 200,000,000 authorized)		115,925		114,726
Net asset value per share	$	11.54	$	11.26

See notes to consolidated financial statements

The following table presents the assets and liabilities of our consolidated securitization trusts for the 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes (see “Note 5 – Debt”), which are variable interest entities, or VIEs. The assets of our securitization VIEs can only be used to settle obligations of our consolidated securitization VIEs, these liabilities are only the obligations of our consolidated securitization VIEs, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities are included in the Consolidated Statements of Assets and Liabilities above.


	September 30, 2021		December 31, 2020
(Dollars in thousands)	(unaudited)
Assets
Restricted Cash	$	13,509	$	39,340
2027 Asset-Backed Notes, investments in securities, at value (cost of $205,093 and $267,657, respectively)		206,707		269,551
2028 Asset-Backed Notes, investments in securities, at value (cost of $294,497 and $355,236, respectively)		297,094		356,097
Total assets	$	517,310	$	664,988

Liabilities
2027 Asset-Backed Notes, net (principal of $115,373 and $180,988, respectively) (1)	$	114,120	$	178,812
2028 Asset-Backed Notes, net (principal of $173,809 and $250,000, respectively) (1)		172,324		247,647
Total liabilities	$	286,444	$	426,459

(1)

The Company’s 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes are presented net of the associated debt issuance costs. See “Note 5 – Debt”.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Investment income:
Interest income
Non-control/Non-affiliate investments	$	62,239		$	64,403		$	185,497		$	192,408
Control investments		1,072			740			2,900			2,117
Affiliate investments		1			232			3			609
Total interest income		63,312			65,375			188,400			195,134
Fee income
Commitment, facility and loan fee income
Non-control/Non-affiliate investments		5,179			2,985			13,845			10,692
Control investments		20			5			43			15
Total commitment, facility and loan fee income		5,199			2,990			13,888			10,707
One-time fee income
Non-control/Non-affiliate investments		1,682			1,974			6,223			6,085
Total one-time fee income		1,682			1,974			6,223			6,085
Total fee income		6,881			4,964			20,111			16,792
Total investment income		70,193			70,339			208,511			211,926
Operating expenses:
Interest		13,069			14,807			42,309			44,415
Loan fees		1,674			1,824			6,694			5,268
General and administrative
Legal expenses		314			673			1,268			2,563
Tax expenses		2,395			994			5,579			3,028
Other expenses		3,771			3,624			10,481			11,622
Total general and administrative		6,480			5,291			17,328			17,213
Employee compensation
Compensation and benefits		8,898			7,181			27,051			22,575
Stock-based compensation		3,320			2,522			8,990			7,477
Total employee compensation		12,218			9,703			36,041			30,052
Total gross operating expenses		33,441			31,625			102,372			96,948
Expenses allocated to the Adviser Subsidiary		(1,337	)		—			(3,474	)		—
Total net operating expenses		32,104			31,625			98,898			96,948
Net investment income		38,089			38,714			109,613			114,978
Net realized gain (loss) and change in unrealized appreciation (depreciation):
Net realized gain (loss)
Non-control/Non-affiliate investments		22,813			(48,501	)		78,444			(41,393	)
Affiliate investments		—			—			(62,143	)		—
Loss on debt extinguishment		(1,702	)		—			(1,702	)		—
Total net realized gain (loss)		21,111			(48,501	)		14,599			(41,393	)
Net change in unrealized appreciation (depreciation)
Non-control/Non-affiliate investments		(31,759	)		54,299			(10,662	)		19,483
Control investments		(3,774	)		646			(7,327	)		(4,563	)
Affiliate investments		(118	)		(2,111	)		64,220			(12,416	)
Total net change in unrealized appreciation (depreciation)		(35,651	)		52,834			46,231			2,504
Total net realized gain (loss) and change in unrealized appreciation (depreciation):		(14,540	)		4,333			60,830			(38,889	)
Net increase (decrease) in net assets resulting from operations	$	23,549		$	43,047		$	170,443		$	76,089

Net investment income before investment gains and losses per common share:
Basic	$	0.33		$	0.34		$	0.95		$	1.03
Change in net assets resulting from operations per common share:
Basic	$	0.20		$	0.38		$	1.47		$	0.68
Diluted	$	0.20		$	0.38		$	1.46		$	0.67
Weighted average shares outstanding
Basic		114,805			113,489			114,590			111,342
Diluted		116,239			113,744			115,550			111,590
Distributions paid per common share:
Basic	$	0.39		$	0.32		$	1.15		$	1.04

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(dollars and shares in thousands)




						Capital in			Distributable
	Common Stock					excess			Earnings			Net
For the Three Months Ended September 30, 2021	Shares			Par Value		of par value			(loss)			Assets
Balance as of June 30, 2021		115,867		$	116	$	1,163,910		$	192,332		$	1,356,358
Net increase (decrease) in net assets resulting from operations		—			—		—			23,549			23,549
Public offering, net of offering expenses		—			—		(10	)		—			(10	)
Issuance of common stock due to stock option exercises		14			—		180			—			180
Retired shares from net issuance		(3	)		—		(52	)		—			(52	)
Issuance of common stock under restricted stock plan		38			—		—			—			—
Retired shares for restricted stock vesting		(46	)		—		(872	)		—			(872	)
Distributions reinvested in common stock		55			—		947			—			947
Distributions		—			—		—			(45,190	)		(45,190	)
Stock-based compensation (1)		—			—		2,622			—			2,622
Balance as of September 30, 2021		115,925		$	116	$	1,166,725		$	170,691		$	1,337,532

For the Nine Months Ended September 30, 2021
Balance as of December 31, 2020		114,726		$	115	$	1,158,198		$	133,391		$	1,291,704
Net increase (decrease) in net assets resulting from operations		—			—		—			170,443			170,443
Public offering, net of offering expenses		—			—		(208	)		—			(208	)
Issuance of common stock due to stock option exercises		277			—		3,813			—			3,813
Retired shares from net issuance		(65	)		—		(1,141	)		—			(1,141	)
Issuance of common stock under restricted stock plan		998			1		(1	)		—			—
Retired shares for restricted stock vesting		(200	)		—		(4,778	)		—			(4,778	)
Distributions reinvested in common stock		189			—		3,057			—			3,057
Distributions		—			—		—			(133,143	)		(133,143	)
Stock-based compensation (1)		—			—		7,785			—			7,785
Balance as of September 30, 2021		115,925		$	116	$	1,166,725		$	170,691		$	1,337,532

(1)

Stock-based compensation includes $36 and $86 of restricted stock and option expense related to director compensation for the three and nine months ended September 30, 2021.




						Capital in			Distributable
	Common Stock					excess			Earnings			Net
For the Three Months Ended September 30, 2020	Shares			Par Value		of par value			(loss)			Assets
Balance as of June 30, 2020		114,230			115	$	1,223,263		$	(59,348	)	$	1,164,030
Net increase (decrease) in net assets resulting from operations		—			—		—			43,047			43,047
Public offering, net of offering expenses		—			—		(96	)		—			(96	)
Issuance of common stock under restricted stock plan		34			—		—			—			—
Retired shares for restricted stock vesting		(24	)		—		(391	)		—			(391	)
Distributions reinvested in common stock		77			—		923			—			923
Distributions		—			—		—			(36,557	)		(36,557	)
Stock-based compensation (1)		—			—		2,124			—			2,124
Balance as of September 30, 2020		114,317		$	115	$	1,225,823		$	(52,858	)	$	1,173,080

For the Nine Months Ended September 30, 2020
Balance as of December 31, 2019		107,364		$	108	$	1,145,106		$	(12,165	)	$	1,133,049
Net increase (decrease) in net assets resulting from operations		—			—		—			76,089			76,089
Public offering, net of offering expenses		5,966			6		73,560			—			73,566
Issuance of common stock due to stock option exercises		29			—		362			—			362
Retired shares from net issuance		(24	)		—		(376	)		—			(376	)
Issuance of common stock under restricted stock plan		835			1		(1	)		—			—
Retired shares for restricted stock vesting		(51	)		—		(1,553	)		—			(1,553	)
Distributions reinvested in common stock		198			—		2,393			—			2,393
Distributions		—			—		—			(116,782	)		(116,782	)
Stock-based compensation (1)		—			—		6,332			—			6,332
Balance as of September 30, 2020		114,317		$	115	$	1,225,823		$	(52,858	)	$	1,173,080

(1)

Stock-based compensation includes $31 and $76 of restricted stock and option expense related to director compensation for the three and nine months ended September 30, 2020.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)


	For the Nine Months Ended September 30,
	2021			2020
Cash flows used in operating activities:
Net increase in net assets resulting from operations	$	170,443		$	76,089
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments		(1,033,189	)		(631,431	)
Fundings assigned to Adviser Funds		107,793			—
Principal and fee payments received on investments		738,321			480,709
Proceeds from the sale of investments		98,567			22,057
Net unrealized (appreciation) depreciation on investments		(46,231	)		(2,504	)
Net realized (gain) loss on investments		(16,301	)		41,393
Accretion of paid-in-kind principal		(8,105	)		(6,481	)
Accretion of loan discounts		(2,737	)		(3,028	)
Accretion of loan discount on convertible notes		504			504
Accretion of loan exit fees		(17,364	)		(19,178	)
Change in loan income, net of collections		21,730			11,986
Unearned fees related to unfunded commitments		(2,367	)		30
Loss on extinguishment of debt		1,702			—
Amortization of debt fees and issuance costs		4,957			3,640
Depreciation and amortization		255			319
Stock-based compensation and amortization of restricted stock grants (1)		7,785			6,332
Change in operating assets and liabilities:
Interest receivable		1,218			701
Other assets		2,380			(1,844	)
Accounts payable		—			(17	)
Accrued liabilities		(680	)		(3,292	)
Net cash provided by (used in) operating activities		28,681			(24,015	)

Cash flows used in investing activities:
Purchases of capital equipment		(12	)		(115	)
Net cash used in investing activities		(12	)		(115	)

Cash flows used in financing activities:
Issuance of common stock		—			73,856
Offering expenses		(208	)		(290	)
Retirement of employee shares		(2,106	)		(1,567	)
Distributions paid		(130,086	)		(114,389	)
Issuance of debt		1,396,406			614,082
Repayments of debt		(1,272,712	)		(610,509	)
Debt issuance costs		(4,830	)		(1,419	)
Fees paid for credit facilities and debentures		(3,395	)		(2,569	)
Net cash used in financing activities		(16,931	)		(42,805	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		11,738			(66,935	)
Cash, cash equivalents, and restricted cash at beginning of period		237,622			114,996
Cash, cash equivalents, and restricted cash at end of period	$	249,360		$	48,061

Supplemental disclosures of cash flow information and non-cash investing and financing activities:
Interest paid	$	44,985		$	46,209
Income tax, including excise tax, paid	$	3,731		$	2,478
Distributions reinvested	$	3,057		$	2,393

(1)

Stock-based compensation includes $86 and $76 of restricted stock and option expense related to director compensation for the nine months ended September 30, 2021 and 2020, respectively.

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows:


	For the Nine Months Ended September 30,
(Dollars in thousands)	2021		2020
Cash and cash equivalents	$	235,851	$	27,554
Restricted cash		13,509		20,507
Total cash, cash equivalents, and restricted cash presented in the Consolidated Statements of Cash Flows	$	249,360	$	48,061

See “Note 2 – Summary of Significant Accounting Policies” for a description of restricted cash and cash equivalents.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Debt Investments
Communications & Networking
1-5 Years Maturity
Cytracom Holdings LLC (11)(17)(18)	Communications & Networking	Senior Secured	February 2025	Interest rate 3-month LIBOR + 9.25% or Floor rate of 10.31%	$	9,000	$	8,789	$	8,797
Rocket Lab Global Services, LLC (14)(16)	Communications & Networking	Senior Secured	June 2024	Interest rate PRIME + 4.90% or Floor rate of 8.15%, PIK Interest 1.25%, 3.25% Exit Fee	$	88,263		87,722		87,722
Subtotal: 1-5 Years Maturity								96,511		96,519
Subtotal: Communications & Networking (7.22%)*								96,511		96,519
Consumer & Business Products
1-5 Years Maturity
Grove Collaborative, Inc. (17)(19)	Consumer & Business Products	Senior Secured	April 2025	Interest rate PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee	$	19,600		19,177		19,177
Subtotal: 1-5 Years Maturity								19,177		19,177
Subtotal: Consumer & Business Products (1.43%)*								19,177		19,177
Diversified Financial Services
Under 1 Year Maturity
Newfront (9)	Diversified Financial Services	Convertible Debt	August 2022	PIK Interest 0.19%	$	403		402		403
Subtotal: Under 1 Year Maturity								402		403
1-5 Years Maturity
Gibraltar Business Capital, LLC (7)	Diversified Financial Services	Unsecured	September 2026	Interest rate FIXED 14.50%	$	15,000		14,651		13,957
	Diversified Financial Services	Unsecured	September 2026	Interest rate FIXED 11.50%	$	10,000		9,815		9,446
Total Gibraltar Business Capital, LLC					$	25,000		24,466		23,403
Hercules Adviser LLC (7)	Diversified Financial Services	Unsecured	May 2023	Interest rate FIXED 5.00%	$	6,100		6,100		6,100
Subtotal: 1-5 Years Maturity								30,566		29,503
Subtotal: Diversified Financial Services (2.24%)*								30,968		29,906
Drug Delivery
1-5 Years Maturity
Antares Pharma Inc. (10)(11)	Drug Delivery	Senior Secured	July 2024	Interest rate PRIME + 4.50% or Floor rate of 8.50%, 4.03% Exit Fee	$	20,000		20,671		20,765
Subtotal: 1-5 Years Maturity								20,671		20,765
Subtotal: Drug Delivery (1.55%)*								20,671		20,765
Drug Discovery & Development
Under 1 Year Maturity
Mesoblast (5)(10)(11)(13)	Drug Discovery & Development	Senior Secured	March 2022	Interest rate PRIME + 4.95% or Floor rate of 9.70%, 9.40% Exit Fee	$	50,000		54,310		54,310
Petros Pharmaceuticals, Inc. (p.k.a. Metuchen Pharmaceuticals LLC)	Drug Discovery & Development	Senior Secured	December 2021	Interest rate PRIME + 7.25% or Floor rate of 11.50%, 3.05% Exit Fee	$	1,741		1,740		1,740
TG Therapeutics, Inc. (10)(13)	Drug Discovery & Development	Senior Secured	March 2022	Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.25% Exit Fee	$	15,410		16,298		16,298
Subtotal: Under 1 Year Maturity								72,348		72,348
1-5 Years Maturity
Albireo Pharma, Inc. (10)(11)(17)	Drug Discovery & Development	Senior Secured	July 2024	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 6.95% Exit Fee	$	10,000		10,177		10,268
Aldeyra Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	October 2023	Interest rate PRIME + 3.10% or Floor rate of 8.60%, 6.95% Exit Fee	$	15,000		15,579		15,773
Applied Genetic Technologies Corporation (11)	Drug Discovery & Development	Senior Secured	April 2024	Interest rate PRIME + 6.50% or Floor rate of 9.75%, 6.95% Exit Fee	$	20,000		20,241		20,238
Aveo Pharmaceuticals, Inc. (11)(15)	Drug Discovery & Development	Senior Secured	September 2023	Interest rate PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee	$	35,000		35,603		35,214
Axsome Therapeutics, Inc. (10)(13)	Drug Discovery & Development	Senior Secured	October 2025	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 5.82% Exit Fee	$	50,000		49,627		51,618
Bicycle Therapeutics PLC (5)(10)(11)	Drug Discovery & Development	Senior Secured	October 2024	Interest rate PRIME + 5.60% or Floor rate of 8.85%, 5.00% Exit Fee	$	24,000		24,182		24,153
BiomX, INC (5)(10)	Drug Discovery & Development	Senior Secured	September 2025	Interest rate PRIME + 5.70% or Floor rate of 8.95%, 6.55% Exit Fee	$	9,000		8,927		8,927
BridgeBio Pharma LLC (12)(13)(16)(17)	Drug Discovery & Development	Senior Secured	May 2025	Interest rate PRIME + 4.40% or Floor rate of 7.65%, 5.54% Exit Fee	$	100,000		103,238		104,680
Century Therapeutics (11)	Drug Discovery & Development	Senior Secured	April 2024	Interest rate PRIME + 6.30% or Floor rate of 9.55%, 3.95% Exit Fee	$	10,000		10,028		10,397
Chemocentryx, Inc. (10)(11)	Drug Discovery & Development	Senior Secured	December 2022	Interest rate PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee	$	18,951		19,958		19,955
	Drug Discovery & Development	Senior Secured	February 2024	Interest rate PRIME + 3.25% or Floor rate of 8.50%, 7.15% Exit Fee	$	5,000		5,130		5,131
Total Chemocentryx, Inc.					$	23,951		25,088		25,086

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Codiak Biosciences, Inc. (11)(17)	Drug Discovery & Development	Senior Secured	October 2025	Interest rate PRIME + 5.00% or Floor rate of 8.25%, 5.50% Exit Fee	$	25,000	$	25,404	$	25,374
Corium, Inc. (16)	Drug Discovery & Development	Senior Secured	September 2026	Interest rate PRIME + 5.70% or Floor rate of 8.95%, 7.75% Exit Fee	$	91,500		90,618		90,618
Eloxx Pharmaceuticals, Inc. (15)	Drug Discovery & Development	Senior Secured	April 2025	Interest rate PRIME + 6.25% or Floor rate of 9.50%, 6.55% Exit Fee	$	12,500		12,360		12,360
G1 Therapeutics, Inc. (10)(11)(17)	Drug Discovery & Development	Senior Secured	June 2025	Interest rate PRIME + 6.20% or Floor rate of 9.45%, 6.95% Exit Fee	$	26,000		26,341		26,524
Geron Corporation (10)(13)	Drug Discovery & Development	Senior Secured	October 2024	Interest rate PRIME + 5.75% or Floor rate of 9.00%, 6.55% Exit Fee	$	22,750		22,913		22,933
Hibercell, Inc. (15)	Drug Discovery & Development	Senior Secured	May 2025	Interest rate PRIME + 5.40% or Floor rate of 8.65%, 4.95% Exit Fee	$	17,000		16,968		16,968
Humanigen, Inc. (9)(10)	Drug Discovery & Development	Senior Secured	March 2025	Interest rate PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee	$	20,000		20,126		19,957
Kaleido Biosciences, Inc. (13)	Drug Discovery & Development	Senior Secured	January 2024	Interest rate PRIME + 6.10% or Floor rate of 9.35%, 7.55% Exit Fee	$	22,500		23,351		23,371
Locus Biosciences (15)	Drug Discovery & Development	Senior Secured	July 2025	Interest rate PRIME + 6.10% or Floor rate of 9.35%, 4.95% Exit Fee	$	8,000		7,938		7,896
Nabriva Therapeutics (5)(10)	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 4.30% or Floor rate of 9.80%, 6.95% Exit Fee	$	5,000		5,444		5,418
Phathom Pharmaceuticals, Inc. (10)(15)(16)	Drug Discovery & Development	Senior Secured	October 2026	Interest rate PRIME + 2.25% or Floor rate of 5.50%, PIK Interest 3.35%, 7.50% Exit Fee	$	86,500		85,035		85,035
Scynexis, Inc.	Drug Discovery & Development	Senior Secured	March 2025	Interest rate PRIME + 5.80% or Floor rate of 9.05%, 3.95% Exit Fee	$	16,000		15,765		15,765
Seres Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	November 2023	Interest rate PRIME + 4.40% or Floor rate of 9.65%, 4.85% Exit Fee	$	25,000		25,598		26,265
Syndax Pharmaceutics Inc. (13)	Drug Discovery & Development	Senior Secured	September 2023	Interest rate PRIME + 5.10% or Floor rate of 9.85%, 4.99% Exit Fee	$	20,000		20,538		20,872
uniQure B.V. (5)(10)(11)(13)(16)(17)	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 3.35% or Floor rate of 8.85%, 4.95% Exit Fee	$	35,000		35,975		36,345
	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 5.00% or Floor rate of 8.25%, 1.65% Exit Fee	$	35,000		35,354		35,698
Total uniQure B.V.					$	70,000		71,329		72,043
Unity Biotechnology, Inc. (10)(11)	Drug Discovery & Development	Senior Secured	August 2024	Interest rate PRIME + 6.10% or Floor rate of 9.35%, 6.25% Exit Fee	$	25,000		25,346		25,921
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC) (11)	Drug Discovery & Development	Senior Secured	May 2024	Interest rate PRIME + 6.45% or Floor rate of 9.70%, 3.85% Exit Fee	$	11,500		11,481		11,537
X4 Pharmaceuticals, Inc. (11)(13)	Drug Discovery & Development	Senior Secured	July 2024	Interest rate PRIME + 3.75% or Floor rate of 8.75%, 8.80% Exit Fee	$	32,500		33,870		34,177
Yumanity Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	January 2024	Interest rate PRIME + 4.00% or Floor rate of 8.75%, 5.92% Exit Fee	$	14,106		14,542		14,588
Subtotal: 1-5 Years Maturity								857,657		863,976
Subtotal: Drug Discovery & Development (70.00%)*								930,005		936,324
Healthcare Services, Other
1-5 Years Maturity
Carbon Health Technologies, Inc. (13)(17)(19)	Healthcare Services, Other	Senior Secured	March 2025	Interest rate PRIME + 5.60% or Floor rate of 8.85%, 3.95% Exit Fee	$	11,250		11,241		11,258
Equality Health, LLC (13)(14)(17)	Healthcare Services, Other	Senior Secured	February 2026	Interest rate PRIME + 6.25% or Floor rate of 9.50%, PIK Interest 1.55%	$	35,306		34,984		35,075
Subtotal: 1-5 Years Maturity								46,225		46,333
Subtotal: Healthcare Services, Other (3.46%)*								46,225		46,333
Information Services
Under 1 Year Maturity
Planet Labs, Inc. (11)	Information Services	Senior Secured	June 2022	Interest rate PRIME + 5.50% or Floor rate of 11.00%, 3.00% Exit Fee	$	25,000		25,317		25,317
Subtotal: Under 1 Year Maturity								25,317		25,317
1-5 Years Maturity
Yipit, LLC (17)(18)	Information Services	Senior Secured	September 2026	Interest rate 1-month LIBOR + 9.08% or Floor rate of 10.08%	$	45,900		44,984		44,984
Subtotal: 1-5 Years Maturity								44,984		44,984
Subtotal: Information Services (5.26%)*								70,301		70,301
Internet Consumer & Business Services
Under 1 Year Maturity
Nextroll, Inc. (13)(14)(19)	Internet Consumer & Business Services	Senior Secured	June 2022	Interest rate PRIME + 3.75% or Floor rate of 7.00%, PIK Interest 2.95%, 3.50% Exit Fee	$	21,395		21,950		21,950
Subtotal: Under 1 Year Maturity								21,950		21,950

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
1-5 Years Maturity
AppDirect, Inc. (11)(17)	Internet Consumer & Business Services	Senior Secured	August 2024	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 7.95% Exit Fee	$	30,790	$	31,230	$	32,253
ePayPolicy Holdings, LLC (11)(17)	Internet Consumer & Business Services	Senior Secured	December 2024	Interest rate 3-month LIBOR + 8.50% or Floor rate of 9.50%	$	8,169		7,999		8,129
EverFi, Inc. (13)(14)(16)	Internet Consumer & Business Services	Senior Secured	May 2022	Interest rate PRIME + 3.90% or Floor rate of 9.15%, PIK Interest 1.50%	$	85,564		85,210		85,210
Houzz, Inc. (9)(14)	Internet Consumer & Business Services	Convertible Debt	May 2028	PIK Interest 5.50%	$	20,390		20,390		20,390
Landing Holdings Inc. (14)(15)	Internet Consumer & Business Services	Senior Secured	March 2023	Interest rate PRIME + 6.00% or Floor rate of 9.25%, PIK Interest 2.55%	$	10,127		9,974		10,431
Rhino Labs, Inc. (14)(15)(17)	Internet Consumer & Business Services	Senior Secured	March 2024	Interest rate PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 2.25%	$	8,089		7,913		7,995
SeatGeek, Inc. (14)	Internet Consumer & Business Services	Senior Secured	June 2023	Interest rate PRIME + 5.00% or Floor rate of 10.50%, PIK Interest 0.50%	$	60,531		59,805		59,902
Skyword, Inc. (14)	Internet Consumer & Business Services	Senior Secured	September 2024	Interest rate PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.90%, 4.00% Exit Fee	$	12,367		12,568		12,487
Tectura Corporation (7)(8)(14)	Internet Consumer & Business Services	Senior Secured	July 2024	PIK Interest 5.00%	$	10,680		240		—
	Internet Consumer & Business Services	Senior Secured	July 2024	Interest rate FIXED 8.25%	$	8,250		8,250		8,250
	Internet Consumer & Business Services	Senior Secured	July 2024	PIK Interest 5.00%	$	13,023		13,023		44
Total Tectura Corporation					$	31,953		21,513		8,294
Thumbtack, Inc. (13)(14)	Internet Consumer & Business Services	Senior Secured	September 2023	Interest rate PRIME + 3.45% or Floor rate of 8.95%, PIK Interest 1.50%, 3.95% Exit Fee	$	25,521		25,741		26,362
Zepz (p.k.a. Worldremit Group Limited) (5)(10)(16)(19)	Internet Consumer & Business Services	Senior Secured	February 2025	Interest rate 3-month LIBOR + 9.25% or Floor rate of 10.25%, 3.00% Exit Fee	$	103,000		101,381		101,131
Subtotal: 1-5 Years Maturity								383,724		372,584
Subtotal: Internet Consumer & Business Services (29.50%)*								405,674		394,534
Manufacturing Technology
1-5 Years Maturity
Velo3d, Inc. (19)	Manufacturing Technology	Senior Secured	October 2023	Interest rate PRIME + 5.75% or Floor rate of 9.00%, 3.00% Exit Fee	$	7,143		7,199		7,199
Subtotal: 1-5 Years Maturity								7,199		7,199
Subtotal: Manufacturing Technology (0.54%)*								7,199		7,199
Medical Devices & Equipment
Under 1 Year Maturity
Quanterix Corporation (11)	Medical Devices & Equipment	Senior Secured	October 2021	Interest rate PRIME + 2.75% or Floor rate of 8.00%, 0.96% Exit Fee	$	1,943		1,993		1,993
Subtotal: Under 1 Year Maturity								1,993		1,993
Subtotal: Medical Devices & Equipment (0.15%)*								1,993		1,993
Software
Under 1 Year Maturity
Regent Education (8)(14)	Software	Senior Secured	January 2022	Interest rate FIXED 10.00%, PIK Interest 2.00%, 7.94% Exit Fee	$	3,029		3,142		1,106
Subtotal: Under 1 Year Maturity								3,142		1,106
1-5 Years Maturity
3GTMS, LLC. (11)(17)(18)	Software	Senior Secured	February 2025	Interest rate 6-Month LIBOR + 9.28% or Floor rate of 10.28%	$	10,000		9,799		9,990
Bitsight Technologies, Inc. (13)(17)(19)	Software	Senior Secured	November 2025	Interest rate PRIME + 6.75% or Floor rate of 10.00%, 3.50% Exit Fee	$	12,500		12,377		13,190
Businessolver.com, Inc. (11)(17)	Software	Senior Secured	May 2023	Interest rate 6-month LIBOR + 7.50% or Floor rate of 8.50%	$	41,197		40,821		41,176
Campaign Monitor Limited (11)(19)	Software	Senior Secured	November 2025	Interest rate 6-month LIBOR + 8.90% or Floor rate of 9.90%	$	33,000		32,430		33,000
Ceros, LLC (17)(18)	Software	Senior Secured	September 2026	Interest rate 3-month LIBOR + 8.89% or Floor rate of 9.89%	$	17,978		17,452		17,452
Clarabridge, Inc. (12)(13)(14)(17)	Software	Senior Secured	May 2024	Interest rate PRIME + 5.30% or Floor rate of 8.55%, PIK Interest 2.25%	$	56,787		56,416		57,356
Cloud 9 Software (13)	Software	Senior Secured	April 2024	Interest rate 3-month LIBOR + 8.20% or Floor rate of 9.20%	$	9,953		9,846		9,953

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
CloudBolt Software Inc. (11)(19)	Software	Senior Secured	October 2024	Interest rate PRIME + 6.70% or Floor rate of 9.95%, 2.95% Exit Fee	$	10,000	$	9,877	$	10,075
Cybermaxx Intermediate Holdings, Inc. (17)	Software	Senior Secured	August 2026	Interest rate 6-month LIBOR + 9.28% or Floor rate of 10.28%	$	8,000		7,792		7,792
Dashlane, Inc. (11)(14)(17)(19)	Software	Senior Secured	July 2025	Interest rate PRIME + 3.05% or Floor rate of 7.55%, PIK Interest 1.10%, 7.10% Exit Fee	$	20,661		21,614		21,614
Delphix Corp. (13)(19)	Software	Senior Secured	February 2023	Interest rate PRIME + 5.50% or Floor rate of 10.25%, 5.00% Exit Fee	$	60,000		61,258		62,345
Demandbase, Inc. (17)(19)	Software	Senior Secured	August 2025	Interest rate PRIME + 5.25% or Floor rate of 8.50%, 2.00% Exit Fee	$	16,875		16,365		16,365
Enmark Systems (17)(18)	Software	Senior Secured	September 2026	Interest rate 6-Month Libor LIBOR + 6.83% or Floor rate of 7.83%, PIK Interest 2.19%	$	8,000		7,789		7,789
Esentire, Inc. (5)(10)(18)	Software	Senior Secured	May 2024	Interest rate 3-month LIBOR + 9.96% or Floor rate of 10.96%	$	21,000		20,671		20,671
Gryphon Networks Corp. (17)	Software	Senior Secured	January 2026	Interest rate 3-month LIBOR + 9.69% or Floor rate of 10.69%	$	5,232		5,099		5,152
Ikon Science Limited (5)(10)(11)(17)(18)	Software	Senior Secured	October 2024	Interest rate 3-month LIBOR + 9.00% or Floor rate of 10.00%	$	7,000		6,791		7,000
Jolt Software, Inc. (14)	Software	Senior Secured	October 2022	Interest rate PRIME + 3.00% or Floor rate of 8.50%, PIK Interest 1.75%, 4.50% Exit Fee	$	7,741		7,929		7,986
Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.) (11)(18)	Software	Senior Secured	July 2023	Interest rate 3-month LIBOR + 10.14% or Floor rate of 11.14%	$	8,628		8,433		8,459
Khoros (p.k.a Lithium Technologies) (11)(17)	Software	Senior Secured	October 2022	Interest rate 6-month LIBOR + 8.00% or Floor rate of 9.00%	$	55,000		54,507		55,000
Logicworks (13)(17)	Software	Senior Secured	January 2024	Interest rate PRIME + 7.50% or Floor rate of 10.75%	$	10,000		9,846		10,031
Mixpanel, Inc. (14)(19)	Software	Senior Secured	August 2024	Interest rate PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.80%, 3.00% Exit Fee	$	20,339		20,189		21,065
Mobile Solutions Services (11)(17)(18)	Software	Senior Secured	December 2025	Interest rate 6-month LIBOR + 9.87% or Floor rate of 10.87%	$	18,933		18,408		18,910
Nuvolo Technologies Corporation (13)(19)	Software	Senior Secured	July 2025	Interest rate PRIME + 7.70% or Floor rate of 10.95%, 1.75% Exit Fee	$	15,000		14,943		15,049
Pollen, Inc. (14)(15)	Software	Senior Secured	November 2023	Interest rate PRIME + 4.75% or Floor rate of 8.00%, PIK Interest 0.50%, 4.50% Exit Fee	$	20,448		20,374		20,195
Pymetrics, Inc (14)	Software	Senior Secured	October 2022	Interest rate PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.75%, 4.00% Exit Fee	$	9,624		9,732		9,856
Reltio, Inc. (13)(14)(19)	Software	Senior Secured	July 2023	Interest rate PRIME + 5.70% or Floor rate of 8.95%, PIK Interest 1.70%, 4.95% Exit Fee	$	10,204		10,231		10,527
Tact.ai Technologies, Inc. (11)(14)	Software	Senior Secured	February 2024	Interest rate PRIME + 4.00% or Floor rate of 8.75%, PIK Interest 2.00%, 5.50% Exit Fee	$	5,159		5,248		5,210
ThreatConnect, Inc. (13)(17)(18)	Software	Senior Secured	May 2026	Interest rate 3-month LIBOR + 9.00% or Floor rate of 10.00%	$	11,172		10,844		10,844
Udacity, Inc. (14)(17)	Software	Senior Secured	September 2024	Interest rate PRIME + 4.50% or Floor rate of 7.75%, PIK Interest 2.00%, 3.00% Exit Fee	$	35,669		35,502		36,767
Zimperium, Inc. (18)	Software	Senior Secured	July 2024	Interest rate 1-month LIBOR + 8.95% or Floor rate of 9.95%	$	15,673		15,361		15,361
Subtotal: 1-5 Years Maturity								577,944		586,180
Greater than 5 Years Maturity
Imperva, Inc. (19)	Software	Senior Secured	January 2027	Interest rate 3-month LIBOR + 7.75% or Floor rate of 8.75%	$	20,000		19,845		20,200
Subtotal: Greater than 5 Years Maturity								19,845		20,200
Subtotal: Software (45.42%)*								600,931		607,486

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Sustainable and Renewable Technology
Under 1 Year Maturity
Impossible Foods, Inc. (12)(13)	Sustainable and Renewable Technology	Senior Secured	July 2022	Interest rate PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee	$	21,188	$	25,385	$	25,385
Pineapple Energy LLC (6)(9)(14)(17)	Sustainable and Renewable Technology	Senior Secured	January 2022	Interest rate FIXED 10.00%	$	120		120		120
Subtotal: Under 1 Year Maturity								25,505		25,505
1-5 Years Maturity
Pineapple Energy LLC (6)(8)(9)(14)(17)	Sustainable and Renewable Technology	Senior Secured	December 2023	PIK Interest 10.00%	$	7,500		7,500		7,500
Subtotal: 1-5 Years Maturity								7,500		7,500
Subtotal: Sustainable and Renewable Technology (2.47%)*								33,005		33,005
Total: Debt Investments (169.23%)*							$	2,262,660	$	2,263,542

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Equity Investments
Communications & Networking
Peerless Network Holdings, Inc.	Communications & Networking	Equity	Common Stock		3,328	$	—	$	8
	Communications & Networking	Equity	Preferred Series A		1,135,000		1,230		4,322
Total Peerless Network Holdings, Inc.					1,138,328		1,230		4,330
Subtotal: Communications & Networking (0.32%)*							1,230		4,330
Consumer & Business Products
TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)	Consumer & Business Products	Equity	Common Stock		42,989		128		373
Subtotal: Consumer & Business Products (0.03%)*							128		373
Diversified Financial Services
Gibraltar Business Capital, LLC (7)	Diversified Financial Services	Equity	Common Stock		830,000		1,884		1,166
	Diversified Financial Services	Equity	Preferred Series A		10,602,752		26,122		16,168
Total Gibraltar Business Capital, LLC					11,432,752		28,006		17,334
Hercules Adviser LLC (7)	Diversified Financial Services	Equity	Member Units				35		10,704
Subtotal: Diversified Financial Services (2.10%)*							28,041		28,038
Drug Delivery
AcelRx Pharmaceuticals, Inc. (4)	Drug Delivery	Equity	Common Stock		176,730		1,329		180
Aytu BioScience, Inc. (p.k.a. Neos Therapeutics, Inc.) (4)	Drug Delivery	Equity	Common Stock		13,600		1,500		39
BioQ Pharma Incorporated	Drug Delivery	Equity	Preferred Series D		165,000		500		173
Kaleo, Inc.	Drug Delivery	Equity	Preferred Series B		82,500		1,007		2,340
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)	Drug Delivery	Equity	Common Stock		2,498		309		37
Subtotal: Drug Delivery (0.21%)*							4,645		2,769
Drug Discovery & Development
Albireo Pharma, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		25,000		1,000		780
Applied Molecular Transport (4)(10)	Drug Discovery & Development	Equity	Common Stock		1,000		42		26
Aveo Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		190,179		1,715		1,174
Bicycle Therapeutics PLC (4)(5)(10)	Drug Discovery & Development	Equity	Common Stock		98,100		1,871		4,080
BridgeBio Pharma LLC (4)(16)	Drug Discovery & Development	Equity	Common Stock		231,329		2,255		10,843
Avalo Therapeutics, Inc. (p.k.a. Cerecor, Inc.) (4)	Drug Discovery & Development	Equity	Common Stock		119,087		1,000		260
Chemocentryx, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		17,241		1,000		295
Concert Pharmaceuticals, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		70,796		1,367		231
Dare Biosciences, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		13,550		1,000		23
Dynavax Technologies (4)(10)	Drug Discovery & Development	Equity	Common Stock		20,000		550		384
Genocea Biosciences, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		27,933		2,000		54
Hibercell, Inc. (15)	Drug Discovery & Development	Equity	Preferred Series B		3,466,840		4,250		4,252
Humanigen, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		43,243		800		256
Kaleido Biosciences, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		86,585		1,000		473
Paratek Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		76,362		2,744		372
Rocket Pharmaceuticals, Ltd. (4)	Drug Discovery & Development	Equity	Common Stock		944		1,500		28
Savara, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		11,119		203		15
Sio Gene Therapies, Inc. (p.k.a. Axovant Gene Therapies Ltd.) (4)(10)	Drug Discovery & Development	Equity	Common Stock		16,228		1,269		35
Tricida, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		68,816		863		320
uniQure B.V. (4)(5)(10)(16)	Drug Discovery & Development	Equity	Common Stock		17,175		332		550
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Drug Discovery & Development	Equity	Preferred Series B		510,308		3,000		4,183
X4 Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		198,277		1,641		1,049
Subtotal: Drug Discovery & Development (2.22%)*							31,402		29,683
Healthcare Services, Other
23andMe, Inc. (4)(20)	Healthcare Services, Other	Equity	Common Stock		828,360		5,094		6,692
Carbon Health Technologies, Inc.	Healthcare Services, Other	Equity	Preferred Series C		217,880		1,687		2,039
Subtotal: Healthcare Services, Other (0.65%)*							6,781		8,731
Information Services
Zeta Global Corp. (4)(20)	Information Services	Equity	Common Stock		295,861		—		1,565
Subtotal: Information Services (0.12%)*							—		1,565
Internet Consumer & Business Services
Black Crow AI, Inc. (6)	Internet Consumer & Business Services	Equity	Preferred Series Seed		872,797		1,000		1,243
Black Crow AI, Inc. affiliates(21)	Internet Consumer & Business Services	Equity	Preferred Note		3		3,000		3,000
Brigade Group, Inc.	Internet Consumer & Business Services	Equity	Common Stock		9,023		93		—

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Contentful Global, Inc. (p.k.a. Contentful, Inc.) (5)(10)	Internet Consumer & Business Services	Equity	Preferred Series C		41,000	$	138	$	516
	Internet Consumer & Business Services	Equity	Preferred Series D		108,500		500		1,409
Total Contentful Global, Inc. (p.k.a. Contentful, Inc.)					149,500		638		1,925
DoorDash, Inc. (4)	Internet Consumer & Business Services	Equity	Common Stock		100,000		1,153		20,598
Lyft, Inc. (4)	Internet Consumer & Business Services	Equity	Common Stock		100,738		5,262		5,399
Nerdy Inc. (4)(20)	Internet Consumer & Business Services	Equity	Common Stock		100,000		1,000		836
Nextdoor.com, Inc.	Internet Consumer & Business Services	Equity	Common Stock		328,190		4,854		9,435
OfferUp, Inc.	Internet Consumer & Business Services	Equity	Preferred Series A		286,080		1,663		1,719
	Internet Consumer & Business Services	Equity	Preferred Series A-1		108,710		632		653
Total OfferUp, Inc.					394,790		2,295		2,372
Oportun (4)	Internet Consumer & Business Services	Equity	Common Stock		48,365		578		1,211
Reischling Press, Inc. (p.k.a. Blurb, Inc.)	Internet Consumer & Business Services	Equity	Common Stock		1,163		15		—
Savage X Holding, LLC	Internet Consumer & Business Services	Equity	Class A Units		42,137		13		64
Tectura Corporation (7)	Internet Consumer & Business Services	Equity	Common Stock		414,994,863		900		—
	Internet Consumer & Business Services	Equity	Preferred Series BB		1,000,000		—		—
Total Tectura Corporation					415,994,863		900		—
TFG Holding, Inc.	Internet Consumer & Business Services	Equity	Common Stock		42,989		89		231
Uber Technologies, Inc. (p.k.a. Postmates, Inc.) (4)	Internet Consumer & Business Services	Equity	Common Stock		32,991		317		1,478
Subtotal: Internet Consumer & Business Services (3.57%)*							21,207		47,792
Medical Devices & Equipment
Flowonix Medical Incorporated	Medical Devices & Equipment	Equity	Preferred Series AA		221,893		1,500		—
Gelesis, Inc.	Medical Devices & Equipment	Equity	Common Stock		227,013		—		4,636
	Medical Devices & Equipment	Equity	Preferred Series A-1		243,432		503		4,973
	Medical Devices & Equipment	Equity	Preferred Series A-2		191,626		500		3,914
Total Gelesis, Inc.					662,071		1,003		13,523
Medrobotics Corporation	Medical Devices & Equipment	Equity	Preferred Series E		136,798		250		—
	Medical Devices & Equipment	Equity	Preferred Series F		73,971		155		—
	Medical Devices & Equipment	Equity	Preferred Series G		163,934		500		—
Total Medrobotics Corporation					374,703		905		—
ViewRay, Inc. (4)	Medical Devices & Equipment	Equity	Common Stock		36,457		333		263
Subtotal: Medical Devices & Equipment (1.03%)*							3,741		13,786
Semiconductors
Achronix Semiconductor Corporation	Semiconductors	Equity	Preferred Series C		277,995		160		726
Subtotal: Semiconductors (0.05%)*							160		726
Software
3GTMS, LLC.	Software	Equity	Common Stock		1,000,000		1,000		857
CapLinked, Inc.	Software	Equity	Preferred Series A-3		53,614		51		88
Docker, Inc.	Software	Equity	Common Stock		20,000		4,284		8
Druva Holdings, Inc. (p.k.a. Druva, Inc.)	Software	Equity	Preferred Series 2		458,841		1,000		2,024
	Software	Equity	Preferred Series 3		93,620		300		460
Total Druva Holdings, Inc. (p.k.a. Druva, Inc.)					552,461		1,300		2,484
HighRoads, Inc.	Software	Equity	Common Stock		190		307		—
Lightbend, Inc.	Software	Equity	Preferred Series D		384,616		265		85
Palantir Technologies (4)	Software	Equity	Common Stock		1,418,337		8,669		34,097

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
SingleStore, Inc. (p.k.a. memsql, Inc.)	Software	Equity	Preferred Series E		580,983	$	2,000	$	2,500
	Software	Equity	Preferred Series F		52,956		280		272
Total SingleStore, Inc. (p.k.a. memsql, Inc.)					633,939		2,280		2,772
Sprinklr, Inc. (4)(20)	Software	Equity	Common Stock		700,000		3,749		10,854
Verana Health, Inc.	Software	Equity	Preferred Series E		952,562		2,000		1,936
Subtotal: Software (3.98%)*							23,905		53,181
Surgical Devices
Gynesonics, Inc.	Surgical Devices	Equity	Preferred Series B		219,298		250		19
	Surgical Devices	Equity	Preferred Series C		656,538		282		56
	Surgical Devices	Equity	Preferred Series D		1,991,157		712		181
	Surgical Devices	Equity	Preferred Series E		2,786,367		429		284
	Surgical Devices	Equity	Preferred Series F		1,523,693		118		220
	Surgical Devices	Equity	Preferred Series F-1		2,418,125		150		316
Total Gynesonics, Inc.					9,595,178		1,941		1,076
Subtotal: Surgical Devices (0.08%)*							1,941		1,076
Sustainable and Renewable Technology
Impossible Foods, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series E-1		188,611		2,000		3,352
Modumetal, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series A-1		103,584		500		—
NantEnergy, LLC (p.k.a. Fluidic, Inc.)	Sustainable and Renewable Technology	Equity	Common Units		59,665		102		—
Pineapple Energy LLC (6)	Sustainable and Renewable Technology	Equity	Class A Units		17,647		4,767		849
Proterra, Inc. (4)(20)	Sustainable and Renewable Technology	Equity	Common Stock		457,841		543		4,140
Pivot Bio, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series D		59,307		4,500		4,020
Subtotal: Sustainable and Renewable Technology (0.92%)*							12,412		12,361
Total: Equity Investments (15.28%)*						$	135,593	$	204,411
Warrant Investments
Communications & Networking
Spring Mobile Solutions, Inc.	Communications & Networking	Warrant	Common Stock		2,834,375		418		—
Subtotal: Communications & Networking (0.00%)*							418		—
Consumer & Business Products
Penumbra Brands, LLC (p.k.a. Gadget Guard)	Consumer & Business Products	Warrant	Common Stock		1,662,441		228		—
Grove Collaborative, Inc.	Consumer & Business Products	Warrant	Common Stock		83,625		432		317
TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)	Consumer & Business Products	Warrant	Preferred Series B		206,185		1,102		1,890
The Neat Company	Consumer & Business Products	Warrant	Common Stock		54,054		365		—
Whoop, Inc.	Consumer & Business Products	Warrant	Preferred Series C		68,627		18		605
Subtotal: Consumer & Business Products (0.21%)*							2,145		2,812
Drug Delivery
Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.)	Drug Delivery	Warrant	Common Stock		110,882		74		—
BioQ Pharma Incorporated	Drug Delivery	Warrant	Common Stock		459,183		1		26
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)	Drug Delivery	Warrant	Common Stock		3,929		390		3
Subtotal: Drug Delivery (0.00%)*							465		29
Drug Discovery & Development
Acacia Pharma Inc. (4)(5)(10)	Drug Discovery & Development	Warrant	Common Stock		201,330		304		35
ADMA Biologics, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		89,750		295		—
Albireo Pharma, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		5,311		60		70
Axsome Therapeutics, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		15,541		681		171
Brickell Biotech, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		9,005		118		—
Century Therapeutics (4)	Drug Discovery & Development	Warrant	Common Units		16,112		37		156
Concert Pharmaceuticals, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		61,273		178		3
Dermavant Sciences Ltd. (10)	Drug Discovery & Development	Warrant	Common Stock		223,642		100		388
Evofem Biosciences, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		7,806		266		—
Genocea Biosciences, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		41,176		165		4
Motif Bio PLC (10)	Drug Discovery & Development	Warrant	Common Stock		121,337,041		282		—

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Myovant Sciences, Ltd. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		73,710	$	460	$	647
Paratek Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		469,388		644		550
Phathom Pharmaceuticals, Inc. (4)(10)(15)(16)	Drug Discovery & Development	Warrant	Common Stock		64,687		848		792
Stealth Bio Therapeutics Corp. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		500,000		158		1
Scynexis, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		60,591		188		118
TG Therapeutics, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		147,058		564		3,236
Tricida, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		31,352		281		1
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Drug Discovery & Development	Warrant	Common Units		102,216		257		838
X4 Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		108,334		673		36
Yumanity Therapeutics, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		15,414		110		41
Subtotal: Drug Discovery & Development (0.53%)*							6,669		7,087
Electronics & Computer Hardware
908 Devices, Inc. (4)	Electronics & Computer Hardware	Warrant	Common Stock		49,078		101		860
Subtotal: Electronics & Computer Hardware (0.06%)*							101		860
Information Services
InMobi Inc. (10)	Information Services	Warrant	Common Stock		65,587		82		—
Netbase Solutions, Inc.	Information Services	Warrant	Preferred Series 1		60,000		356		525
Planet Labs, Inc.	Information Services	Warrant	Common Stock		357,752		615		4,178
Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.)	Information Services	Warrant	Common Stock		2,812,500		283		744
Subtotal: Information Services (0.41%)*							1,336		5,447
Internet Consumer & Business Services
Aria Systems, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series G		231,535		73		—
Cloudpay, Inc. (5)(10)	Internet Consumer & Business Services	Warrant	Preferred Series B		6,763		54		300
First Insight, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series B		75,917		96		80
Houzz, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		529,661		20		153
Interactions Corporation	Internet Consumer & Business Services	Warrant	Preferred Series G-3		68,187		204		520
Landing Holdings Inc. (15)	Internet Consumer & Business Services	Warrant	Common Stock		11,806		116		169
Lendio, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series D		127,032		39		92
LogicSource	Internet Consumer & Business Services	Warrant	Preferred Series C		79,625		30		165
Rhino Labs, Inc. (15)	Internet Consumer & Business Services	Warrant	Common Stock		13,106		471		144
RumbleON, Inc. (4)	Internet Consumer & Business Services	Warrant	Common Stock		5,139		87		35
SeatGeek, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		1,379,761		843		1,080
ShareThis, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series C		493,502		547		—
Skyword, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series B		444,444		83		16
Snagajob.com, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		600,000		16		67
	Internet Consumer & Business Services	Warrant	Preferred Series A		1,800,000		782		66
	Internet Consumer & Business Services	Warrant	Preferred Series B		1,211,537		62		30
Total Snagajob.com, Inc.					3,611,537		860		163
Tapjoy, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series D		748,670		316		80
The Faction Group LLC	Internet Consumer & Business Services	Warrant	Preferred Series AA		8,076		234		802
Thumbtack, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		190,953		553		984
Zepz (p.k.a. Worldremit Group Limited) (5)(10)(16)	Internet Consumer & Business Services	Warrant	Preferred Series D		77,215		129		1,915
	Internet Consumer & Business Services	Warrant	Preferred Series E		1,868		26		22
Total Zepz (p.k.a. Worldremit Group Limited)					79,083		155		1,937
Xometry, Inc. (4)(20)	Internet Consumer & Business Services	Warrant	Preferred Series B		87,784		47		2,973
Subtotal: Internet Consumer & Business Services (0.72%)*							4,828		9,693

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Media/Content/Info
Zoom Media Group, Inc.	Media/Content/Info	Warrant	Preferred Series A		1,204	$	348	$	—
Subtotal: Media/Content/Info (0.00%)*							348		—
Medical Devices & Equipment
Aspire Bariatrics, Inc.	Medical Devices & Equipment	Warrant	Common Stock		22,572		455		—
Flowonix Medical Incorporated	Medical Devices & Equipment	Warrant	Preferred Series AA		155,325		362		—
	Medical Devices & Equipment	Warrant	Preferred Series BB		725,806		351		—
Total Flowonix Medical Incorporated					881,131		713		—
Intuity Medical, Inc.	Medical Devices & Equipment	Warrant	Preferred Series B-1		3,076,323		294		287
Medrobotics Corporation	Medical Devices & Equipment	Warrant	Preferred Series E		455,539		370		—
Outset Medical, Inc. (4)	Medical Devices & Equipment	Warrant	Common Stock		62,794		402		1,955
SonaCare Medical, LLC	Medical Devices & Equipment	Warrant	Preferred Series A		6,464		188		—
Tela Bio, Inc. (4)	Medical Devices & Equipment	Warrant	Common Stock		15,712		61		6
Subtotal: Medical Devices & Equipment (0.17%)*							2,483		2,248
Semiconductors
Achronix Semiconductor Corporation	Semiconductors	Warrant	Preferred Series D-2		750,000		99		1,951
Subtotal: Semiconductors (0.15%)*							99		1,951
Software
Bitsight Technologies, Inc.	Software	Warrant	Common Stock		29,691		284		600
CloudBolt Software Inc.	Software	Warrant	Common Stock		211,342		117		109
Cloudian, Inc.	Software	Warrant	Common Stock		477,454		72		41
Couchbase, Inc. (4)(20)	Software	Warrant	Common Stock		105,350		462		1,493
Dashlane, Inc.	Software	Warrant	Common Stock		560,536		405		422
Demandbase, Inc.	Software	Warrant	Common Stock		483,248		404		463
Delphix Corp.	Software	Warrant	Common Stock		718,898		1,593		2,842
DNAnexus, Inc.	Software	Warrant	Preferred Series C		909,091		97		95
Evernote Corporation	Software	Warrant	Common Stock		62,500		106		75
Fuze, Inc.	Software	Warrant	Preferred Series F		256,158		89		—
Lightbend, Inc.	Software	Warrant	Preferred Series C-1		854,787		130		59
Mixpanel, Inc.	Software	Warrant	Common Stock		82,362		252		503
Nuvolo Technologies Corporation	Software	Warrant	Common Stock		50,000		89		367
OneLogin, Inc.	Software	Warrant	Common Stock		381,620		305		1,560
Poplicus, Inc.	Software	Warrant	Common Stock		132,168		—		—
Pymetrics, Inc	Software	Warrant	Common Stock		150,943		76		149
RapidMiner, Inc.	Software	Warrant	Preferred Series C-1		4,982		24		47
Reltio, Inc.	Software	Warrant	Common Stock		69,120		215		290
Signpost, Inc.	Software	Warrant	Series Junior 1 Preferred		474,019		314		—
SingleStore, Inc. (p.k.a. memsql, Inc.)	Software	Warrant	Preferred Series D		312,596		103		713
Tact.ai Technologies, Inc.	Software	Warrant	Common Stock		1,041,667		206		188
Udacity, Inc.	Software	Warrant	Common Stock		486,359		218		297
ZeroFox, Inc.	Software	Warrant	Preferred Series C-1		648,350		100		302
Zimperium, Inc.	Software	Warrant	Common Stock		20,563		72		70
Subtotal: Software (0.80%)*							5,733		10,685
Specialty Pharmaceuticals
Alimera Sciences, Inc. (4)	Specialty Pharmaceuticals	Warrant	Common Stock		30,581		132		6
Subtotal: Specialty Pharmaceuticals (0.00%)*							132		6
Surgical Devices
Gynesonics, Inc.	Surgical Devices	Warrant	Preferred Series C		151,123		67		14
TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)	Surgical Devices	Warrant	Common Stock		64,440		139		1,102
Subtotal: Surgical Devices (0.08%)*							206		1,116
Sustainable and Renewable Technology
Agrivida, Inc.	Sustainable and Renewable Technology	Warrant	Preferred Series D		471,327		120		—
Fulcrum Bioenergy, Inc.	Sustainable and Renewable Technology	Warrant	Preferred Series C-1		280,897		275		706

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2021

(unaudited)

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)	Sustainable and Renewable Technology	Warrant	Preferred Series A		325,000	$	155	$	165
	Sustainable and Renewable Technology	Warrant	Preferred Series B		131,883		62		54
Total Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)					456,883		217		219
Polyera Corporation	Sustainable and Renewable Technology	Warrant	Preferred Series C		311,609		338		—
Subtotal: Sustainable and Renewable Technology (0.07%)*							950		925
Total: Warrant Investments (3.20%)*						$	25,913	$	42,859
Total: Investments in Securities (187.72%)*						$	2,424,166	$	2,510,812

Investment Funds & Vehicles
Forbion Growth Opportunities Fund I C.V. (5)(10)(17)	Drug Discovery & Development	Investment Funds & Vehicles					1,223		1,042
Total: Investments in Investment Funds & Vehicles (0.08%)*						$	1,223	$	1,042
Total: Investments before Cash and Cash Equivalents (187.80%)*						$	2,425,389	$	2,511,854

Cash & Cash Equivalents
GS Financial Square Government Fund		Cash & Cash Equivalents	Institutional Shares				206,000		206,000
Total: Investments in Cash & Cash Equivalents (15.40%)*						$	206,000	$	206,000
Total: Investments after Cash and Cash Equivalents (203.20%)*						$	2,631,389	$	2,717,854

* Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 3.25% as of September 30, 2021. 1-month LIBOR, 3-month LIBOR and 6-month LIBOR represent 0.08%, 0.13%, and 0.16%, respectively, as of September 30, 2021.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation for federal income tax purposes totaled $158.6 million, $70.5 million and $88.1 million, respectively. The tax cost of investments is $2.4 billion.

(4)

Except for warrants in 27 publicly traded companies and common stock in 34 publicly traded companies, all investments are restricted as of September 30, 2021 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(5)

Non-U.S. company or the company’s principal place of business is outside the United States.

(6)

Affiliate investment as defined under the Investment Company Act of 1940, as amended, (the “1940 Act”) in which Hercules owns at least 5% but generally less than 25% of the company’s voting securities.

(7)

Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.

(8)

Debt is on non-accrual status as of September 30, 2021, and is therefore considered non-income producing. Note that as of September 30, 2021, only the PIK, or payment-in-kind, portion is on non-accrual for the Company’s debt investment in Tectura Corporation.

(9)

Denotes that all or a portion of the debt investment is convertible debt.

(10)

Indicates assets that the Company deems not “qualifying assets” under section 55(a) of 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.

(11)

Denotes that all or a portion of the debt investment secures the notes offered in the 2027 Asset-Backed Notes or 2028 Asset-Backed Notes (as defined in “Note 5 — Debt”).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in “Note 5 — Debt”).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in “Note 5 — Debt”).

(14)

Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.

(15)

Denotes that all or a portion of the investment in this portfolio company is held by Hercules Capital IV, L.P., the Company’s wholly owned small business investment company.

(16)

Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total net assets as of September 30, 2021.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of September 30, 2021. Refer to “Note 11 - Commitments and Contingencies”.

(18)

Denotes unitranche debt with first lien “last-out” senior secured position and security interest in all assets of the portfolio company whereby the “last-out” portion will be subordinated to the “first-out” portion in a liquidation, sale or other disposition.

(19)

Denotes second lien senior secured debt.

(20)

Denotes all or a portion of the public equity or warrant investment was acquired in a transaction exempt from registration under the Securities Act of 1933 (“Securities Act”) and may be deemed to be “restricted securities” under the Securities Act. As of September 30, 2021, the aggregate fair value of these securities is $28,553, or 2.13% of the Company’s net assets.

(21)

Denotes investment in a non-voting security in the form of a promissory note. The terms of the notes provide the Company with a lien on the issuers' shares of Common Stock in portfolio company Black Crow AI, Inc., subject to release upon repayment of the outstanding balance of the notes. As of September 30, 2021, the Black Crow AI, Inc. affiliates promissory notes had an outstanding balance of $3.0 million.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Debt Investments
Communications & Networking
1-5 Years Maturity
Cytracom Holdings LLC (11)(17)(18)	Communications & Networking	Senior Secured	February 2025	Interest rate 3-month LIBOR + 9.25% or Floor rate of 10.25%	$	7,000	$	6,819	$	6,955
Subtotal: 1-5 Years Maturity								6,819		6,955
Subtotal: Communications & Networking (0.59%)*								6,819		6,955
Diversified Financial Services
1-5 Years Maturity
Gibraltar Business Capital, LLC (7)	Diversified Financial Services	Unsecured	March 2023	Interest rate FIXED 14.50%	$	15,000		14,838		14,970
Subtotal: 1-5 Years Maturity								14,838		14,970
Subtotal: Diversified Financial Services (1.28%)*								14,838		14,970
Drug Delivery
1-5 Years Maturity
Antares Pharma Inc. (10)(11)(15)	Drug Delivery	Senior Secured	July 2022	Interest rate PRIME + 4.50% or Floor rate of 4.50%, 4.14% Exit Fee	$	40,000		41,104		41,242
Subtotal: 1-5 Years Maturity								41,104		41,242
Subtotal: Drug Delivery (3.52%)*								41,104		41,242
Drug Discovery & Development
Under 1 Year Maturity
Genocea Biosciences, Inc. (11)	Drug Discovery & Development	Senior Secured	May 2021	Interest rate PRIME + 3.00% or Floor rate of 8.00%, 5.90% Exit Fee	$	12,922		13,892		13,892
Petros Pharmaceuticals, Inc. (p.k.a. Metuchen Pharmaceuticals LLC)	Drug Discovery & Development	Senior Secured	December 2021	Interest rate PRIME + 7.25% or Floor rate of 11.50%, 3.05% Exit Fee	$	6,653		7,167		7,156
Stealth Bio Therapeutics Corp. (10)(11)	Drug Discovery & Development	Senior Secured	July 2021	Interest rate PRIME + 5.50% or Floor rate of 9.50%, 7.69% Exit Fee	$	9,027		10,463		10,463
Subtotal: Under 1 Year Maturity								31,522		31,511
1-5 Years Maturity
Acacia Pharma Inc. (5)(10)(11)	Drug Discovery & Development	Senior Secured	January 2022	Interest rate PRIME + 4.50% or Floor rate of 9.25%, 3.95% Exit Fee	$	5,452		5,775		5,754
Albireo Pharma, Inc. (10)(11)	Drug Discovery & Development	Senior Secured	July 2024	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 6.95% Exit Fee	$	10,000		9,995		10,106
Aldeyra Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	October 2023	Interest rate PRIME + 3.10% or Floor rate of 9.10%, 6.95% Exit Fee	$	15,000		15,349		15,623
Applied Genetic Technologies Corporation (11)	Drug Discovery & Development	Senior Secured	December 2023	Interest rate PRIME + 6.50% or Floor rate of 9.75%, 6.95% Exit Fee	$	10,000		10,025		10,163
Aveo Pharmaceuticals, Inc. (11)	Drug Discovery & Development	Senior Secured	September 2023	Interest rate PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee	$	15,000		15,069		15,069
Axsome Therapeutics, Inc. (10)(17)	Drug Discovery & Development	Senior Secured	October 2025	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 4.85% Exit Fee	$	50,000		49,023		49,023
Bicycle Therapeutics PLC (5)(10)(11)(17)	Drug Discovery & Development	Senior Secured	October 2024	Interest rate PRIME + 5.60% or Floor rate of 8.85%, 5.00% Exit Fee	$	15,000		14,984		14,984
BridgeBio Pharma LLC (12)(13)(16)	Drug Discovery & Development	Senior Secured	November 2023	Interest rate PRIME + 3.85% or Floor rate of 8.75%, 6.35% Exit Fee	$	35,000		36,163		36,930
	Drug Discovery & Development	Senior Secured	November 2023	Interest rate PRIME + 2.85% or Floor rate of 8.60%, 5.75% Exit Fee	$	20,000		20,541		20,977
	Drug Discovery & Development	Senior Secured	November 2023	Interest rate PRIME + 3.10% or Floor rate of 8.85%, 5.75% Exit Fee	$	20,000		20,400		20,822
Total BridgeBio Pharma LLC					$	75,000		77,104		78,729
Century Therapeutics (11)	Drug Discovery & Development	Senior Secured	April 2024	Interest rate PRIME + 6.30% or Floor rate of 9.55%, 3.95% Exit Fee	$	10,000		9,897		9,897
Chemocentryx, Inc. (10)(11)(15)	Drug Discovery & Development	Senior Secured	December 2022	Interest rate PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee	$	20,000		20,704		21,031
	Drug Discovery & Development	Senior Secured	February 2024	Interest rate PRIME + 3.25% or Floor rate of 8.50%, 7.15% Exit Fee	$	5,000		5,039		5,332
Total Chemocentryx, Inc.					$	25,000		25,743		26,363
Codiak Biosciences, Inc. (11)(17)	Drug Discovery & Development	Senior Secured	October 2024	Interest rate PRIME + 3.75% or Floor rate of 9.00%, 5.50% Exit Fee	$	25,000		25,099		25,223
Dermavant Sciences Ltd. (10)(13)	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 4.45% or Floor rate of 9.95%, 6.95% Exit Fee	$	20,000		20,615		20,553
Eidos Therapeutics, Inc. (10)(13)	Drug Discovery & Development	Senior Secured	October 2023	Interest rate PRIME + 3.25% or Floor rate of 8.50%, 5.95% Exit Fee	$	8,750		8,905		9,182
G1 Therapeutics, Inc. (10)(11)(17)	Drug Discovery & Development	Senior Secured	June 2024	Interest rate PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee	$	20,000		20,053		20,404
Geron Corporation (10)(17)	Drug Discovery & Development	Senior Secured	October 2024	Interest rate PRIME + 5.75% or Floor rate of 9.00%, 6.55% Exit Fee	$	16,250		16,158		16,158
Kaleido Biosciences, Inc. (13)	Drug Discovery & Development	Senior Secured	January 2024	Interest rate PRIME + 6.10% or Floor rate of 9.35%, 7.55% Exit Fee	$	22,500		22,916		23,135
Mesoblast (5)(10)(11)(13)	Drug Discovery & Development	Senior Secured	March 2022	Interest rate PRIME + 4.95% or Floor rate of 9.70%, 8.70% Exit Fee	$	50,000		53,043		53,086
Nabriva Therapeutics (5)(10)	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 4.30% or Floor rate of 9.80%, 7.01% Exit Fee	$	5,000		5,259		5,251
Seres Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	November 2023	Interest rate PRIME + 4.40% or Floor rate of 9.65%, 4.85% Exit Fee	$	25,000		25,238		25,990

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Syndax Pharmaceutics Inc. (13)	Drug Discovery & Development	Senior Secured	September 2023	Interest rate PRIME + 5.10% or Floor rate of 9.85%, 4.99% Exit Fee	$	20,000	$	20,221	$	20,582
TG Therapeutics, Inc. (10)(13)	Drug Discovery & Development	Senior Secured	March 2022	Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.25% Exit Fee	$	30,000		30,423		30,820
Tricida, Inc. (11)(13)(15)(16)	Drug Discovery & Development	Senior Secured	April 2023	Interest rate PRIME + 2.35% or Floor rate of 8.35%, 11.04% Exit Fee	$	75,000		78,266		79,452
uniQure B.V. (5)(10)(11)	Drug Discovery & Development	Senior Secured	June 2023	Interest rate PRIME + 3.35% or Floor rate of 8.85%, 4.95% Exit Fee	$	35,000		35,660		36,849
Unity Biotechnology, Inc. (10)	Drug Discovery & Development	Senior Secured	August 2024	Interest rate PRIME + 6.10% or Floor rate of 9.35%, 6.25% Exit Fee	$	25,000		24,938		24,938
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC) (11)	Drug Discovery & Development	Senior Secured	May 2024	Interest rate PRIME + 6.45% or Floor rate of 9.70%, 3.85% Exit Fee	$	11,500		11,279		11,394
X4 Pharmaceuticals, Inc. (11)	Drug Discovery & Development	Senior Secured	July 2024	Interest rate PRIME + 3.75% or Floor rate of 8.75%, 8.80% Exit Fee	$	32,500		33,082		33,097
Yumanity Therapeutics, Inc. (11)	Drug Discovery & Development	Senior Secured	January 2024	Interest rate PRIME + 4.00% or Floor rate of 8.75%, 7.25% Exit Fee	$	15,000		15,129		15,350
Subtotal: 1-5 Years Maturity								679,248		687,175
Subtotal: Drug Discovery & Development (61.26%)*								710,770		718,686
Electronics & Computer Hardware
Under 1 Year Maturity
Glo AB (8)(10)(14)	Electronics & Computer Hardware	Senior Secured	February 2021	Interest rate PRIME + 6.20% or Floor rate of 10.45%, PIK Interest 1.75%, 5.03% Exit Fee	$	1,631		2,145		2,145
Subtotal: Under 1 Year Maturity								2,145		2,145
Subtotal: Electronics & Computer Hardware (0.18%)*								2,145		2,145
Healthcare Services, Other
1-5 Years Maturity
The CM Group LLC (17)	Healthcare Services, Other	Senior Secured	June 2024	Interest rate 1-month LIBOR + 9.35% or Floor rate of 10.35%	$	10,358		10,229		10,086
Velocity Clinical Research, Inc. (13)(17)(18)	Healthcare Services, Other	Senior Secured	November 2024	Interest rate 1-month LIBOR + 9.08% or Floor rate of 10.08%	$	9,823		9,511		9,887
Subtotal: 1-5 Years Maturity								19,740		19,973
Subtotal: Healthcare Services, Other (1.70%)*								19,740		19,973
Information Services
Under 1 Year Maturity
Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (14)(15)(19)	Information Services	Senior Secured	December 2021	Interest rate PRIME + 6.25% or Floor rate of 9.50%, PIK Interest 1.70%, 5.30% Exit Fee	$	15,825		16,216		16,216
Subtotal: Under 1 Year Maturity								16,216		16,216
1-5 Years Maturity
Planet Labs, Inc. (11)	Information Services	Senior Secured	June 2022	Interest rate PRIME + 5.50% or Floor rate of 11.00%, 3.00% Exit Fee	$	25,000		24,902		24,957
Yipit, LLC (11)(17)(18)	Information Services	Senior Secured	May 2024	Interest rate 1-month LIBOR + 8.88% or Floor rate of 9.88%	$	12,000		11,782		12,000
Subtotal: 1-5 Years Maturity								36,684		36,957
Subtotal: Information Services (4.53%)*								52,900		53,173
Internet Consumer & Business Services
Under 1 Year Maturity
Black Crow AI, Inc. (8)(9)	Internet Consumer & Business Services	Convertible Debt	October 2021	PIK Interest 1.00%	$	3,000		2,993		1,565
	Internet Consumer & Business Services	Convertible Debt	October 2021	PIK Interest 1.00%	$	1,000		1,000		643
Total Black Crow AI, Inc.					$	4,000		3,993		2,208
Intent (p.k.a. Intent Media, Inc.) (8)(14)	Internet Consumer & Business Services	Senior Secured	September 2021	PIK Interest 10.13%, 1.20% Exit Fee	$	4,125		4,150		1,413
Snagajob.com, Inc. (13)	Internet Consumer & Business Services	Senior Secured	June 2021	Interest rate PRIME + 6.90% or Floor rate of 10.15%, 3.05% Exit Fee	$	43,005		43,917		43,754
	Internet Consumer & Business Services	Senior Secured	June 2021	Interest rate PRIME + 7.80% or Floor rate of 11.05%, 3.05% Exit Fee	$	5,173		5,281		5,255
Total Snagajob.com, Inc.					$	48,178		49,198		49,009
Tectura Corporation (7)(8)(14)	Internet Consumer & Business Services	Senior Secured	March 2021	PIK Interest 5.00%	$	10,680		240	—
	Internet Consumer & Business Services	Senior Secured	March 2021	Interest rate FIXED 8.25%	$	8,250		8,250		8,250
	Internet Consumer & Business Services	Senior Secured	March 2021	PIK Interest 5.00%	$	13,023		13,023		350
Total Tectura Corporation					$	31,953		21,513		8,600
Subtotal: Under 1 Year Maturity								78,854		61,230
1-5 Years Maturity
AppDirect, Inc. (11)	Internet Consumer & Business Services	Senior Secured	August 2024	Interest rate PRIME + 5.90% or Floor rate of 9.15%, 7.95% Exit Fee	$	30,790		30,712		30,712
ePayPolicy Holdings, LLC (11)(17)	Internet Consumer & Business Services	Senior Secured	December 2024	Interest rate 3-month LIBOR + 9.00% or Floor rate of 10.00%	$	8,000		7,799		8,080

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
EverFi, Inc. (13)(14)(16)	Internet Consumer & Business Services	Senior Secured	May 2022	Interest rate PRIME + 3.90% or Floor rate of 9.15%, PIK Interest 2.30%	$	84,081	$	83,900	$	84,987
Houzz, Inc. (13)(14)	Internet Consumer & Business Services	Senior Secured	November 2022	Interest rate PRIME + 3.20% or Floor rate of 8.45%, PIK Interest 2.50%, 4.50% Exit Fee	$	51,403		51,854		52,151
Nextroll, Inc. (14)(19)	Internet Consumer & Business Services	Senior Secured	June 2022	Interest rate PRIME + 3.85% or Floor rate of 9.35%, PIK Interest 2.95%, 3.50% Exit Fee	$	20,921		21,240		21,526
SeatGeek, Inc. (14)	Internet Consumer & Business Services	Senior Secured	June 2023	Interest rate PRIME + 5.00% or Floor rate of 10.50%, PIK Interest 0.50%	$	60,301		59,292		57,561
Skyword, Inc. (14)	Internet Consumer & Business Services	Senior Secured	September 2024	Interest rate PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.90%, 4.00% Exit Fee	$	12,196		12,291		12,021
Thumbtack, Inc. (13)(14)	Internet Consumer & Business Services	Senior Secured	September 2023	Interest rate PRIME + 3.45% or Floor rate of 8.95%, PIK Interest 1.50%, 3.95% Exit Fee	$	25,231		25,096		25,348
Varsity Tutors LLC (13)(14)(17)	Internet Consumer & Business Services	Senior Secured	August 2023	Interest rate PRIME + 5.25% or Floor rate of 10.75%, PIK Interest 0.55%, 3.00% Exit Fee	$	39,264		39,438		40,272
Wheels Up Partners LLC (11)	Internet Consumer & Business Services	Senior Secured	July 2022	Interest rate 3-month LIBOR + 8.55% or Floor rate of 9.55%	$	13,436		13,387		13,337
Xometry, Inc. (13)	Internet Consumer & Business Services	Senior Secured	May 2022	Interest rate PRIME + 3.95% or Floor rate of 8.70%, 6.18% Exit Fee	$	11,000		11,431		11,556
	Internet Consumer & Business Services	Senior Subordinate	May 2022	Interest rate PRIME + 3.95% or Floor rate of 8.70%, 6.25% Exit Fee	$	4,000		4,157		4,219
Total Xometry, Inc.					$	15,000		15,588		15,775
Subtotal: 1-5 Years Maturity								360,597		361,770
Subtotal: Internet Consumer & Business Services (36.06%)*								439,451		423,000
Media/Content/Info
1-5 Years Maturity
Bustle (14)(15)	Media/Content/Info	Senior Secured	June 2023	Interest rate PRIME + 4.35% or Floor rate of 9.35%, PIK Interest 1.95%, 4.45% Exit Fee	$	21,045		21,279		21,555
Subtotal: 1-5 Years Maturity								21,279		21,555
Subtotal: Media/Content/Info (1.84%)*								21,279		21,555
Medical Devices & Equipment
Under 1 Year Maturity
Intuity Medical, Inc. (11)(15)	Medical Devices & Equipment	Senior Secured	June 2021	Interest rate PRIME + 5.00% or Floor rate of 9.25%, 6.95% Exit Fee	$	11,217		12,365		12,365
Quanterix Corporation (11)	Medical Devices & Equipment	Senior Secured	October 2021	Interest rate PRIME + 2.75% or Floor rate of 8.00%, 0.96% Exit Fee	$	7,688		7,752		7,752
Sebacia, Inc. (8)	Medical Devices & Equipment	Senior Secured	January 2021	Interest rate PRIME + 4.35% or Floor rate of 8.85%	$	1,000		1,000	—
Subtotal: Under 1 Year Maturity								21,117		20,117
Subtotal: Medical Devices & Equipment (1.71%)*								21,117		20,117
Software
Under 1 Year Maturity
ZocDoc (11)(19)	Software	Senior Secured	August 2021	Interest rate PRIME + 6.20% or Floor rate of 10.95%, 2.00% Exit Fee	$	30,000		30,509		30,509
Subtotal: Under 1 Year Maturity								30,509		30,509
1-5 Years Maturity
3GTMS, LLC. (11)(17)(18)	Software	Senior Secured	February 2025	Interest rate 3-Month LIBOR + 9.28% or Floor rate of 10.28%	$	10,000		9,762		9,754
Abrigo (18)	Software	Senior Secured	March 2023	Interest rate 3-month LIBOR + 7.88% or Floor rate of 8.88%	$	38,457		37,993		38,264
	Software	Senior Secured	March 2023	Interest rate 3-month LIBOR + 5.96% or Floor rate of 6.96%	$	2,312		2,273		2,296
Total Abrigo					$	40,769		40,266		40,560
Bitsight Technologies, Inc. (19)	Software	Senior Secured	November 2025	Interest rate PRIME + 6.75% or Floor rate of 10.00%, 3.50% Exit Fee	$	12,500		12,289		12,289
Businessolver.com, Inc. (11)(17)	Software	Senior Secured	May 2023	Interest rate 6-month LIBOR + 7.50% or Floor rate of 8.50%	$	33,650		33,248		33,640
	Software	Senior Secured	May 2023	Interest rate 6-month LIBOR + 7.50% or Floor rate of 8.50%	$	7,650		7,532		7,579
Total Businessolver.com, Inc.					$	41,300		40,780		41,219
Campaign Monitor Limited (11)(19)	Software	Senior Secured	November 2025	Interest rate 6-month LIBOR + 8.90% or Floor rate of 9.90%	$	33,000		32,348		33,304
Clarabridge, Inc. (12)(13)(14)(17)	Software	Senior Secured	May 2024	Interest rate PRIME + 5.30% or Floor rate of 8.55%, PIK Interest 2.25%	$	55,823		55,359		56,940
Cloud 9 Software (13)	Software	Senior Secured	April 2024	Interest rate 3-month LIBOR + 8.20% or Floor rate of 9.20%	$	10,000		9,867		10,030

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
CloudBolt Software Inc. (17)(19)	Software	Senior Secured	October 2024	Interest rate PRIME + 6.70% or Floor rate of 9.95%, 2.95% Exit Fee	$	5,000	$	4,867	$	4,867
Cloudian, Inc. (11)	Software	Senior Secured	November 2022	Interest rate PRIME + 3.25% or Floor rate of 8.25%, 9.75% Exit Fee	$	15,000		15,883		15,883
Couchbase, Inc. (11)(15)(19)	Software	Senior Secured	June 2024	Interest rate PRIME + 5.25% or Floor rate of 10.75%, 3.75% Exit Fee	$	25,000		25,167		25,761
Dashlane, Inc. (11)(14)(17)(19)	Software	Senior Secured	April 2022	Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 8.50% Exit Fee	$	10,294		10,808		10,838
	Software	Senior Secured	March 2023	Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 4.95% Exit Fee	$	10,195		10,312		10,343
Total Dashlane, Inc.					$	20,489		21,120		21,181
Delphix Corp. (13)(19)	Software	Senior Secured	February 2023	Interest rate PRIME + 5.50% or Floor rate of 10.25%, 5.00% Exit Fee	$	60,000		59,932		61,159
Envisage Technologies, LLC (13)(18)	Software	Senior Secured	March 2025	Interest rate 3-month LIBOR + 9.00% or Floor rate of 10.00%	$	9,750		9,525		9,750
ExtraHop Networks, Inc. (19)	Software	Senior Secured	September 2023	Interest rate PRIME + 7.00% or Floor rate of 10.25%, 2.50% Exit Fee	$	15,000		14,745		14,745
FreedomPay, Inc. (13)(19)	Software	Senior Secured	June 2023	Interest rate PRIME + 7.70% or Floor rate of 10.95%, 3.55% Exit Fee	$	10,000		9,972		10,126
Ikon Science Limited (5)(10)(11)(17)(18)	Software	Senior Secured	October 2024	Interest rate 3-month LIBOR + 9.00% or Floor rate of 10.00%	$	7,000		6,744		6,724
Jolt Software, Inc. (14)	Software	Senior Secured	October 2022	Interest rate PRIME + 3.00% or Floor rate of 8.50%, PIK Interest 1.75%, 4.50% Exit Fee	$	7,639		7,725		7,828
Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.) (11)(18)	Software	Senior Secured	July 2023	Interest rate 3-month LIBOR + 10.15% or Floor rate of 11.15%	$	8,695		8,477		8,509
Khoros (p.k.a Lithium Technologies) (11)	Software	Senior Secured	October 2022	Interest rate 6-month LIBOR + 8.00% or Floor rate of 9.00%	$	56,208		55,585		56,207
Logicworks (17)	Software	Senior Secured	January 2024	Interest rate PRIME + 7.50% or Floor rate of 10.75%	$	10,000		9,801		9,801
Mixpanel, Inc. (14)(19)	Software	Senior Secured	August 2024	Interest rate PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.80%, 3.00% Exit Fee	$	20,062		19,703		19,703
Mobile Solutions Services (17)(18)	Software	Senior Secured	December 2025	Interest rate 6-month LIBOR + 9.87% or Floor rate of 10.87%	$	5,500		5,323		5,400
	Software	Senior Secured	December 2025	Interest rate 6-month LIBOR + 9.87% or Floor rate of 10.87%	$	13,150		12,731		12,672
Total Mobile Solutions Services					$	18,650		18,054		18,072
Nuvolo Technologies Corporation (13)(17)(19)	Software	Senior Secured	April 2023	Interest rate PRIME + 7.25% or Floor rate of 11.50%	$	15,000		14,867		14,993
Optimizely Mergerco, Inc. (17)(18)	Software	Senior Secured	October 2025	Interest rate 6-month LIBOR + 10.00% or Floor rate of 11.00%	$	50,000		48,561		48,559
Pollen, Inc. (14)(15)(17)	Software	Senior Secured	November 2023	Interest rate PRIME + 4.75% or Floor rate of 8.00%, PIK Interest 0.50%, 4.50% Exit Fee	$	7,420		7,366		7,366
Pymetrics, Inc. (14)	Software	Senior Secured	October 2022	Interest rate PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.75%, 4.00% Exit Fee	$	9,497		9,409		9,409
Regent Education (14)	Software	Senior Secured	January 2022	Interest rate FIXED 10.00%, PIK Interest 2.00%, 7.94% Exit Fee	$	3,220		3,315		3,316
Reltio, Inc. (13)(14)(17)(19)	Software	Senior Secured	July 2023	Interest rate PRIME + 5.70% or Floor rate of 8.95%, PIK Interest 1.70%, 4.95% Exit Fee	$	10,073		9,928		10,136
SingleStore, Inc. (p.k.a. memsql, Inc.) (11)(14)(17)	Software	Senior Secured	May 2023	Interest rate PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 0.75%, 3.95% Exit Fee	$	5,021		5,012		5,137
Tact.ai Technologies, Inc. (11)(14)	Software	Senior Secured	February 2023	Interest rate PRIME + 4.00% or Floor rate of 8.75%, PIK Interest 2.00%, 5.50% Exit Fee	$	5,081		4,995		4,970
ThreatConnect, Inc. (13)(17)(18)	Software	Senior Secured	May 2024	Interest rate 3-month LIBOR + 8.26% or Floor rate of 9.26%	$	4,500		4,391		4,441
Udacity, Inc. (14)(17)	Software	Senior Secured	September 2024	Interest rate PRIME + 4.50% or Floor rate of 7.75%, PIK Interest 2.00%, 3.00% Exit Fee	$	35,130		34,700		34,700
Vela Trading Technologies (11)(14)(18)	Software	Senior Secured	July 2022	Interest rate 3-month LIBOR + 12.00% or Floor rate of 11.50%, PIK Interest 2.50%	$	18,131		17,826		14,505
ZeroFox, Inc. (13)	Software	Senior Secured	January 2023	Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.00% Exit Fee	$	20,000		20,118		20,118
Subtotal: 1-5 Years Maturity								668,459		672,062

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor (2)	Principal Amount		Cost (3)		Value (4)
Greater than 5 Years Maturity
Imperva, Inc. (19)	Software	Senior Secured	January 2027	Interest rate 3-month LIBOR + 7.75% or Floor rate of 8.75%	$	20,000	$	19,828	$	20,000
Subtotal: Greater than 5 Years Maturity								19,828		20,000
Subtotal: Software (61.60%)*								718,796		722,571
Sustainable and Renewable Technology
Under 1 Year Maturity
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)(8)(14)	Sustainable and Renewable Technology	Senior Secured	January 2021	PIK Interest 10.00%	$	681		681		—
Subtotal: Under 1 Year Maturity								681		—
1-5 Years Maturity
Impossible Foods, Inc. (12)(13)	Sustainable and Renewable Technology	Senior Secured	July 2022	Interest rate PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee	$	38,868		42,285		42,548
Pineapple Energy LLC (6)(8)(9)	Sustainable and Renewable Technology	Senior Secured	December 2023	PIK Interest 10.00%	$	7,500		7,500		7,500
Subtotal: 1-5 Years Maturity								49,785		50,048
Subtotal: Sustainable and Renewable Technology (4.27%)*								50,466		50,048
Total: Debt Investments (178.54%)*							$	2,099,425	$	2,094,435

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Equity Investments
Communications & Networking
Peerless Network Holdings, Inc.	Communications & Networking	Equity	Common Stock		3,328	$	—	$	8
	Communications & Networking	Equity	Preferred Series A		1,135,000		1,230		3,800
Total Peerless Network Holdings, Inc.					1,138,328		1,230		3,808
Subtotal: Communications & Networking (0.29%)*							1,230		3,808
Consumer & Business Products
Intelligent Beauty, Inc.	Consumer & Business Products	Equity	Preferred Series B		111,156		230		743
Subtotal: Consumer & Business Products (0.06%)*							230		743
Diversified Financial Services
Gibraltar Business Capital, LLC (7)	Diversified Financial Services	Equity	Common Stock		830,000		1,884		2,276
	Diversified Financial Services	Equity	Preferred Series A		10,602,752		26,122		31,554
Total Gibraltar Business Capital, LLC					11,432,752		28,006		33,830
Subtotal: Diversified Financial Services (2.62%)*							28,006		33,830
Drug Delivery
AcelRx Pharmaceuticals, Inc. (4)	Drug Delivery	Equity	Common Stock		176,730		1,329		219
BioQ Pharma Incorporated (15)	Drug Delivery	Equity	Preferred Series D		165,000		500		504
Kaleo, Inc.	Drug Delivery	Equity	Preferred Series B		82,500		1,007		4,117
Neos Therapeutics, Inc. (4)(15)	Drug Delivery	Equity	Common Stock		125,000		1,500		78
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)	Drug Delivery	Equity	Common Stock		2,498		309		5
Subtotal: Drug Delivery (0.38%)*							4,645		4,923
Drug Discovery & Development
Albireo Pharma, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		25,000		1,000		938
Aveo Pharmaceuticals, Inc. (4)(15)	Drug Discovery & Development	Equity	Common Stock		190,175		1,715		1,097
Bicycle Therapeutics PLC (4)(5)(10)	Drug Discovery & Development	Equity	Common Stock		98,100		1,871		1,761
BridgeBio Pharma LLC (4)(16)	Drug Discovery & Development	Equity	Common Stock		203,579		2,000		14,476
Cerecor, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		119,087		1,000		314
Chemocentryx, Inc. (4)(10)(15)	Drug Discovery & Development	Equity	Common Stock		17,241		1,000		1,068
Concert Pharmaceuticals, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		70,796		1,367		895
Dare Biosciences, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		13,550		1,000		18
Dynavax Technologies (4)(10)	Drug Discovery & Development	Equity	Common Stock		20,000		550		89
Eidos Therapeutics, Inc. (4)(10)	Drug Discovery & Development	Equity	Common Stock		15,000		255		1,974
Genocea Biosciences, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		27,932		2,000		67
Paratek Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		76,362		2,744		478
Rocket Pharmaceuticals, Ltd. (4)	Drug Discovery & Development	Equity	Common Stock		944		1,500		52
Savara, Inc. (4)(15)	Drug Discovery & Development	Equity	Common Stock		11,119		203		13
Sio Gene Therapies, Inc. (p.k.a. Axovant Gene Therapies Ltd.) (4)(10)	Drug Discovery & Development	Equity	Common Stock		16,228		1,269		45
Tricida, Inc. (4)(15)(16)	Drug Discovery & Development	Equity	Common Stock		68,816		863		485
uniQure B.V. (4)(5)(10)	Drug Discovery & Development	Equity	Common Stock		17,175		332		621
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Drug Discovery & Development	Equity	Preferred Series B		510,308		3,000		3,000
X4 Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Equity	Common Stock		83,334		641		536
Subtotal: Drug Discovery & Development (2.16%)*							24,310		27,927
Healthcare Services, Other
23andMe, Inc.	Healthcare Services, Other	Equity	Common Stock		360,000		5,094		7,546
Subtotal: Healthcare Services, Other (0.58%)*							5,094		7,546
Internet Consumer & Business Services
Contentful, Inc. (5)(10)	Internet Consumer & Business Services	Equity	Preferred Series C		82		138		270
	Internet Consumer & Business Services	Equity	Preferred Series D		217		500		785
Total Contentful, Inc.					299		638		1,055
Countable Corporation (p.k.a. Brigade Group, Inc.)	Internet Consumer & Business Services	Equity	Common Stock		9,023		93		—
DoorDash, Inc. (4)	Internet Consumer & Business Services	Equity	Common Stock		525,000		6,051		58,706
Fastly, Inc. (4)	Internet Consumer & Business Services	Equity	Common Stock		6,238		8		545
Lyft, Inc. (4)	Internet Consumer & Business Services	Equity	Common Stock		200,738		10,487		9,862
Nextdoor.com, Inc.	Internet Consumer & Business Services	Equity	Common Stock		328,190		4,854		8,994
OfferUp, Inc.	Internet Consumer & Business Services	Equity	Preferred Series A		286,080		1,663		1,867
	Internet Consumer & Business Services	Equity	Preferred Series A-1		108,710		632		709
Total OfferUp, Inc.					394,790		2,295		2,576

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Oportun (4)	Internet Consumer & Business Services	Equity	Common Stock		48,365	$	577	$	937
Reischling Press, Inc. (p.k.a. Blurb, Inc.)	Internet Consumer & Business Services	Equity	Common Stock		1,163		15		—
Tectura Corporation (7)	Internet Consumer & Business Services	Equity	Common Stock		414,994,863		900		—
	Internet Consumer & Business Services	Equity	Preferred Series BB		1,000,000		—		—
Total Tectura Corporation					415,994,863		900		—
Uber Technologies, Inc. (p.k.a. Postmates, Inc.) (4)	Internet Consumer & Business Services	Equity	Common Stock		32,991		317		1,683
Subtotal: Internet Consumer & Business Services (6.53%)*							26,235		84,358
Medical Devices & Equipment
Flowonix Medical Incorporated	Medical Devices & Equipment	Equity	Preferred Series AA		221,893		1,500		—
Gelesis, Inc.	Medical Devices & Equipment	Equity	Common Stock		227,013		—		626
	Medical Devices & Equipment	Equity	Preferred Series A-1		191,210		425		554
	Medical Devices & Equipment	Equity	Preferred Series A-2		191,626		500		540
Total Gelesis, Inc.					609,849		925		1,720
Medrobotics Corporation (15)	Medical Devices & Equipment	Equity	Preferred Series E		136,798		250		—
	Medical Devices & Equipment	Equity	Preferred Series F		73,971		155		—
	Medical Devices & Equipment	Equity	Preferred Series G		163,934		500		—
Total Medrobotics Corporation					374,703		905		—
Outset Medical, Inc. (4)	Medical Devices & Equipment	Equity	Common Stock		38,243		527		1,947
ViewRay, Inc. (4)(15)	Medical Devices & Equipment	Equity	Common Stock		36,457		333		139
Subtotal: Medical Devices & Equipment (0.29%)*							4,190		3,806
Software
CapLinked, Inc.	Software	Equity	Preferred Series A-3		53,614		51		78
Docker, Inc.	Software	Equity	Common Stock		20,000		4,284		24
Druva Holdings, Inc. (p.k.a. Druva, Inc.)	Software	Equity	Preferred Series 2		458,841		1,000		3,644
	Software	Equity	Preferred Series 3		93,620		300		777
Total Druva Holdings, Inc. (p.k.a. Druva, Inc.)					552,461		1,300		4,421
HighRoads, Inc.	Software	Equity	Common Stock		190		307		—
Lightbend, Inc.	Software	Equity	Preferred Series D		384,616		265		165
Palantir Technologies (4)	Software	Equity	Common Stock		1,668,337		10,198		36,015
SingleStore, Inc. (p.k.a. memsql, Inc.)	Software	Equity	Preferred Series E		580,983		2,000		2,153
Sprinklr, Inc.	Software	Equity	Common Stock		700,000		3,749		7,088
Subtotal: Software (3.87%)*							22,154		49,944
Surgical Devices
Gynesonics, Inc. (15)	Surgical Devices	Equity	Preferred Series B		219,298		250		14
	Surgical Devices	Equity	Preferred Series C		656,538		282		44
	Surgical Devices	Equity	Preferred Series D		1,991,157		712		137
	Surgical Devices	Equity	Preferred Series E		2,786,367		429		213
	Surgical Devices	Equity	Preferred Series F		1,523,693		118		181
	Surgical Devices	Equity	Preferred Series F-1		2,418,125		150		259
Total Gynesonics, Inc.					9,595,178		1,941		848
TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)	Surgical Devices	Equity	Common Stock		162,617		2,550		3,236
Subtotal: Surgical Devices (0.32%)*							4,491		4,084
Sustainable and Renewable Technology
Impossible Foods, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series E-1		188,611		2,000		2,540
Modumetal, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series A-1		103,584		500		1
Pineapple Energy LLC (6)	Sustainable and Renewable Technology	Equity	Class A Units		17,647		4,767		840

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Proterra, Inc.	Sustainable and Renewable Technology	Equity	Preferred Series 5		99,280	$	500	$	329
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)	Sustainable and Renewable Technology	Equity	Common Stock		488		61,502		—
Subtotal: Sustainable and Renewable Technology (0.29%)*							69,269		3,710
Total: Equity Investments (17.39%)*						$	189,854	$	224,679
Warrant Investments
Communications & Networking
Spring Mobile Solutions, Inc.	Communications & Networking	Warrant	Common Stock		2,834,375		418		—
Subtotal: Communications & Networking (0.00%)*							418		—
Consumer & Business Products
Gadget Guard (15)	Consumer & Business Products	Warrant	Common Stock		1,662,441		228		—
The Neat Company	Consumer & Business Products	Warrant	Common Stock		54,054		365		—
Whoop, Inc.	Consumer & Business Products	Warrant	Preferred Series C		68,627		18		1,152
Subtotal: Consumer & Business Products (0.09%)*							611		1,152
Drug Delivery
Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.) (15)	Drug Delivery	Warrant	Common Stock		110,882		74		—
BioQ Pharma Incorporated	Drug Delivery	Warrant	Common Stock		459,183		1		579
Neos Therapeutics, Inc. (4)(15)	Drug Delivery	Warrant	Common Stock		70,833		285		—
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)	Drug Delivery	Warrant	Common Stock		3,929		390		—
Subtotal: Drug Delivery (0.04%)*							750		579
Drug Discovery & Development
Acacia Pharma Inc. (4)(5)(10)	Drug Discovery & Development	Warrant	Common Stock		201,330		304		184
ADMA Biologics, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		89,750		295		5
Albireo Pharma, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		5,310		61		97
Axsome Therapeutics, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		15,541		681		682
Brickell Biotech, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		9,005		119		—
Century Therapeutics	Drug Discovery & Development	Warrant	Common Units		40,540		37		43
Concert Pharmaceuticals, Inc. (4)(10)(15)	Drug Discovery & Development	Warrant	Common Stock		61,273		178		183
CytRx Corporation (15)	Drug Discovery & Development	Warrant	Common Stock		105,694		160		—
Dermavant Sciences Ltd. (10)	Drug Discovery & Development	Warrant	Common Stock		223,642		101		460
Evofem Biosciences, Inc. (4)(15)	Drug Discovery & Development	Warrant	Common Stock		7,806		266		3
Genocea Biosciences, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		41,176		165		20
Motif BioSciences Inc. (10)	Drug Discovery & Development	Warrant	Common Stock		121,337,041		282		—
Myovant Sciences, Ltd. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		73,710		460		1,031
Ology Bioservices, Inc. (15)	Drug Discovery & Development	Warrant	Common Stock		171,389		838		—
Paratek Pharmaceuticals, Inc. (4)(15)	Drug Discovery & Development	Warrant	Common Stock		469,388		644		960
Stealth Bio Therapeutics Corp. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		500,000		158		—
TG Therapeutics, Inc. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		147,058		563		5,307
Tricida, Inc. (4)(15)(16)	Drug Discovery & Development	Warrant	Common Stock		31,353		280		8
Urovant Sciences, Ltd. (4)(10)	Drug Discovery & Development	Warrant	Common Stock		99,777		383		744
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Drug Discovery & Development	Warrant	Common Units		102,216		257		296
X4 Pharmaceuticals, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		108,334		673		87
Yumanity Therapeutics, Inc. (4)	Drug Discovery & Development	Warrant	Common Stock		15,414		110		98
Subtotal: Drug Discovery & Development (0.79%)*							7,015		10,208
Electronics & Computer Hardware
908 Devices, Inc. (4)(15)	Electronics & Computer Hardware	Warrant	Common Stock		49,078		101		1,215
Subtotal: Electronics & Computer Hardware (0.09%)*							101		1,215
Information Services
InMobi Inc. (10)	Information Services	Warrant	Common Stock		65,587		82		—
NetBase Solutions, Inc.	Information Services	Warrant	Preferred Series 1		60,000		356		498
Planet Labs, Inc.	Information Services	Warrant	Common Stock		357,752		615		273
Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (15)	Information Services	Warrant	Common Stock		2,812,500		283		566
Subtotal: Information Services (0.10%)*							1,336		1,337
Internet Consumer & Business Services
Aria Systems, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series G		231,535		73		—
Cloudpay, Inc. (5)(10)	Internet Consumer & Business Services	Warrant	Preferred Series B		6,763		54		126
First Insight, Inc. (15)	Internet Consumer & Business Services	Warrant	Preferred Series B		75,917		96		91
Houzz, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		529,661		20		150
Intent (p.k.a. Intent Media, Inc.)	Internet Consumer & Business Services	Warrant	Common Stock		140,077		168		—
Interactions Corporation	Internet Consumer & Business Services	Warrant	Preferred Series G-3		68,187		204		549
Just Fabulous, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series B		206,184		1,102		2,791

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
Lendio, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series D		127,032	$	39	$	32
LogicSource	Internet Consumer & Business Services	Warrant	Preferred Series C		79,625		30		104
RumbleON, Inc. (4)	Internet Consumer & Business Services	Warrant	Common Stock		5,139		87		32
SeatGeek, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		1,379,761		842		1,548
ShareThis, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series C		493,502		547		—
Skyword, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series B		444,444		83		78
Snagajob.com, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		600,000		16		53
	Internet Consumer & Business Services	Warrant	Preferred Series A		1,800,000		782		58
	Internet Consumer & Business Services	Warrant	Preferred Series B		1,211,537		62		27
Total Snagajob.com, Inc.					3,611,537		860		138
Tapjoy, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series D		748,670		316		16
The Faction Group LLC	Internet Consumer & Business Services	Warrant	Preferred Series AA		8,076		234		736
Thumbtack, Inc.	Internet Consumer & Business Services	Warrant	Common Stock		190,953		553		262
Xometry, Inc.	Internet Consumer & Business Services	Warrant	Preferred Series B		87,784		47		527
Subtotal: Internet Consumer & Business Services (0.56%)*							5,355		7,180
Media/Content/Info
WP Technology, Inc. (Wattpad, Inc.) (5)(10)	Media/Content/Info	Warrant	Common Stock		255,818		3		—
Zoom Media Group, Inc.	Media/Content/Info	Warrant	Preferred Series A		1,204		348		—
Subtotal: Media/Content/Info (0.00%)*							351		—
Medical Devices & Equipment
Aspire Bariatrics, Inc. (15)	Medical Devices & Equipment	Warrant	Preferred Series B-1		112,858		455		—
Flowonix Medical Incorporated	Medical Devices & Equipment	Warrant	Preferred Series AA		155,325		362		—
	Medical Devices & Equipment	Warrant	Preferred Series BB		725,806		351		—
Total Flowonix Medical Incorporated					881,131		713		—
Gelesis, Inc.	Medical Devices & Equipment	Warrant	Preferred Series A-1		74,784	78			156
InspireMD, Inc. (4)(5)(10)	Medical Devices & Equipment	Warrant	Common Stock		23	0			—
Intuity Medical, Inc. (15)	Medical Devices & Equipment	Warrant	Preferred Series B-1		3,076,323	294			394
Medrobotics Corporation (15)	Medical Devices & Equipment	Warrant	Preferred Series E		455,539	370			—
NinePoint Medical, Inc.	Medical Devices & Equipment	Warrant	Preferred Series A-1		587,840	170			—
Outset Medical, Inc. (4)	Medical Devices & Equipment	Warrant	Common Stock		62,794	402			1,982
Sebacia, Inc.	Medical Devices & Equipment	Warrant	Preferred Series D		778,301	133			—
SonaCare Medical, LLC	Medical Devices & Equipment	Warrant	Preferred Series A		6,464		188		—
Tela Bio, Inc. (4)	Medical Devices & Equipment	Warrant	Common Stock		15,712		61		9
Subtotal: Medical Devices & Equipment (0.20%)*							2,864		2,541
Semiconductors
Achronix Semiconductor Corporation	Semiconductors	Warrant	Preferred Series C		360,000		160		175
	Semiconductors	Warrant	Preferred Series D-2		750,000		99		717
Total Achronix Semiconductor Corporation					1,110,000		259		892
Subtotal: Semiconductors (0.07%)*							259		892
Software
Bitsight Technologies, Inc.	Software	Warrant	Common Stock		29,691		208		208
CloudBolt Software Inc.	Software	Warrant	Common Stock		158,506		91		132
Cloudian, Inc.	Software	Warrant	Common Stock		477,454		72		29
Couchbase, Inc.	Software	Warrant	Common Stock		263,377		462		1,023
Dashlane, Inc.	Software	Warrant	Common Stock		346,747		303		297
Delphix Corp.	Software	Warrant	Common Stock		718,898		1,594		1,857
DNAnexus, Inc.	Software	Warrant	Preferred Series C		909,091		97		153
Evernote Corporation	Software	Warrant	Common Stock		62,500		106		70

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)


Portfolio Company	Sub-Industry	Type of Investment (1)	Series	Shares		Cost (3)		Value (4)
ExtraHop Networks, Inc.	Software	Warrant	Common Stock		154,784	$	191	$	265
Fuze, Inc. (15)	Software	Warrant	Preferred Series F		256,158		89		—
Lightbend, Inc. (15)	Software	Warrant	Preferred Series C-1		854,787		130		169
Mixpanel, Inc.	Software	Warrant	Common Stock		82,362		252		516
Nuvolo Technologies Corporation	Software	Warrant	Common Stock		50,000		88		192
OneLogin, Inc. (15)	Software	Warrant	Common Stock		381,620		305		610
Poplicus, Inc.	Software	Warrant	Common Stock		132,168		—		—
Pymetrics, Inc.	Software	Warrant	Common Stock		150,943		77		182
RapidMiner, Inc.	Software	Warrant	Preferred Series C-1		4,982		24		46
Reltio, Inc.	Software	Warrant	Common Stock		69,120		215		216
SignPost, Inc.	Software	Warrant	Series Junior 1 Preferred		474,019		314		—
SingleStore, Inc. (p.k.a. memsql, Inc.)	Software	Warrant	Preferred Series D		312,596		103		714
Tact.ai Technologies, Inc.	Software	Warrant	Common Stock		1,041,667		206		204
Udacity, Inc.	Software	Warrant	Common Stock		486,359		218		284
ZeroFox, Inc.	Software	Warrant	Preferred Series C-1		648,350		100		363
Subtotal: Software (0.58%)*							5,245		7,530
Specialty Pharmaceuticals
Alimera Sciences, Inc. (4)	Specialty Pharmaceuticals	Warrant	Common Stock		30,581		132		5
Subtotal: Specialty Pharmaceuticals (0.00%)*							132		5
Surgical Devices
Gynesonics, Inc. (15)	Surgical Devices	Warrant	Preferred Series C		151,123		67		10
TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)	Surgical Devices	Warrant	Common Stock		64,441		139		487
Subtotal: Surgical Devices (0.04%)*							206		497
Sustainable and Renewable Technology
Agrivida, Inc.	Sustainable and Renewable Technology	Warrant	Preferred Series D		471,327		120		—
Fulcrum Bioenergy, Inc.	Sustainable and Renewable Technology	Warrant	Preferred Series C-1		280,897		274		744
Kinestral Technologies, Inc.	Sustainable and Renewable Technology	Warrant	Preferred Series A		325,000		155		261
	Sustainable and Renewable Technology	Warrant	Preferred Series B		131,883		63		91
Total Kinestral Technologies, Inc.					456,883		218		352
NantEnergy, Inc. (p.k.a. Fluidic, Inc.)	Sustainable and Renewable Technology	Warrant	Preferred Series D		61,804		102		—
Polyera Corporation (15)	Sustainable and Renewable Technology	Warrant	Preferred Series C		311,609		338		—
Proterra, Inc.	Sustainable and Renewable Technology	Warrant	Common Stock		36,630		1		14
	Sustainable and Renewable Technology	Warrant	Preferred Series 4		477,517		41		376
Total Proterra, Inc.					514,147		42		390
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)	Sustainable and Renewable Technology	Warrant	Class A Units		1		—		—
Subtotal: Sustainable and Renewable Technology (0.12%)*							1,094		1,486
Total: Warrant Investments (2.68%)*						$	25,737	$	34,622
Total: Investments in Securities (182.22%)*						$	2,315,016	$	2,353,736

Investment Funds & Vehicles
Forbion Growth Opportunities Fund I C.V. (5)(10)(17)	Drug Discovery & Development	Investment Funds & Vehicles					342		342
Total: Investments in Investment Funds & Vehicles (0.03%)*						$	342	$	342
Total: Investments before Cash and Cash Equivalents (182.25%)*						$	2,315,358	$	2,354,078

Cash & Cash Equivalents
GS Financial Square Government Fund		Cash & Cash Equivalents					96,000		96,000
Total: Investments in Cash & Cash Equivalents (7.43%)*						$	96,000	$	96,000
Total: Investments after Cash and Cash Equivalents (189.68%)*						$	2,411,358	$	2,450,078

* Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 3.25% as of December 31, 2020. 1-month LIBOR, 3-month LIBOR, and 6-month LIBOR represent, 0.14%, 0.24%, and 0.36%, respectively, as of December 31, 2020.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $166.2 million, $126.1 million, and $40.1 million, respectively. The tax cost of investments is $2.3 billion.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(dollars in thousands)

(4)

Except for warrants in 27 publicly traded companies and common stock in 30 publicly traded companies, all investments are restricted as of December 31, 2020 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s Board. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(5)

Non-U.S. company or the company’s principal place of business is outside the United States.

(6)

(7)

Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.

(8)

Debt is on non-accrual status as of December 31, 2020 and is therefore considered non-income producing. Note that only the PIK portion is on non-accrual for the Company’s debt investments in Glo AB and Tectura Corporation.

(9)

Denotes that all or a portion of the debt investment is convertible debt.

(10)

(11)

Denotes that all or a portion of the debt investment secures the notes offered in the 2027 Asset-Backed Notes or 2028 Asset-Backed Notes (as defined in “Note 5 — Debt”).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in “Note 5 — Debt”).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in “Note 5 — Debt”).

(14)

Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.

(15)

Denotes that all or a portion of the investment in this portfolio company is held by HT III, the Company’s wholly owned small business investment company, or SBIC, subsidiary.

(16)

Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total net assets as of December 31, 2020.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of December 31, 2020. Refer to “Note 11 — Commitments and Contingencies”.

(18)

(19)

Denotes second lien senior secured debt.

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business

Hercules Capital, Inc. (the “Company”) is a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. The Company sources its investments through its principal office located in Palo Alto, CA, as well as through its additional offices in Boston, MA, New York, NY, Bethesda, MD, and San Diego, CA. The Company was incorporated under the General Corporation Law of the State of Maryland in December 2003.

The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). From incorporation through December 31, 2005, the Company was subject to tax as a corporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). Effective January 1, 2006, the Company elected to be treated for tax purposes as a Regulated Investment Company (“RIC”) under Subchapter M of the Code (see “Note 6 - Income Taxes”).

The Company does not currently use Commodity Futures Trading Commission (“CFTC”) derivatives, however, to the extent that it uses CFTC derivatives in the future, it intends to do so below prescribed levels and will not market itself as a “commodity pool” or a vehicle for trading such instruments. The Company has claimed an exclusion from the definition of the term “commodity pool operator” pursuant to Rule 4.5 under the Commodity Exchange Act (“CEA”). The Company is not, therefore, subject to registration or regulation as "commodity pool operator" under the CEA.

Hercules Technology III, L.P. (“HT III”) and Hercules Capital IV, L.P. (“HC IV”) are our wholly owned Delaware limited partnerships that were formed in September 2009 and December 2010, respectively. HT III, and HC IV were licensed to operate as Small Business Investment Companies (“SBICs” or "SBIC") under the authority of the Small Business Administration (“SBA”) on May 26, 2010, and October 27, 2020, respectively. SBICs are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments. The Company is in the process of winding down HT III, and on June 15, 2021 surrendered its HT III SBA license. HT III is no longer operating as an SBIC. The Company formed Hercules Technology SBIC Management, LLC (“HTM”), a limited liability company, in November 2003. HTM is a wholly owned subsidiary of the Company and serves as the general partner of HC IV (see “Note 5 - Debt”).

The Company also established certain wholly owned subsidiaries, all of which are structured as Delaware corporations or Limited Liability Companies (“LLCs”), to hold portfolio companies organized as LLCs (or other forms of pass-through entities). These subsidiaries are consolidated for financial reporting purposes and in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These taxable subsidiaries are not consolidated with Hercules for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments.

In May 2020, Hercules Adviser LLC (the "Adviser Subsidiary") was formed as a wholly owned Delaware limited liability subsidiary of the Company to provide investment advisory and related services to investment vehicles (“Adviser Funds”) owned by one or more unrelated third-party investors ("External Parties"). The Adviser Subsidiary receives fee income for the services provided to the Adviser Funds. The Company was granted no-action relief by the staff of the Securities and Exchange Commission ("SEC") to allow the Adviser Subsidiary to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended (“Advisers Act”).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated interim financial statements have been prepared in conformity with U.S. GAAP for interim financial information, and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments consisting solely of normal recurring accruals considered necessary for the fair statement of consolidated financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the full fiscal year. Therefore, the interim unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020. The year-end Consolidated Statements of Assets and Liabilities data was derived from

audited financial statements but does not include all disclosures required by U.S. GAAP. The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency.

As an investment company, the Company follows accounting and reporting guidance as set forth in Topic 946 (“Financial Services – Investment Companies”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”). As provided under Regulation S-X and ASC Topic 946, the Company will not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Rather, an investment company’s interest in portfolio companies that are not investment companies should be measured at fair value in accordance with ASC Topic 946. The Adviser Subsidiary is not an investment company as defined in ASC Topic 946 and further, the Adviser Subsidiary provides investment advisory services exclusively to Adviser Funds which are owned by External Parties. As such pursuant to ASC Topic 946, the Adviser Subsidiary is accounted for as a portfolio investment of the Company held at fair value and is not consolidated.

Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, gains and losses during the reported periods. Changes in the economic and regulatory environment, financial markets, the credit worthiness of our portfolio companies, the continued development and impact of the global outbreak of the novel coronavirus (“COVID-19”), and any other parameters used in determining these estimates and assumptions could cause actual results to differ from these estimates and assumptions.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company, its consolidated subsidiaries, and all Variable Interest Entities ("VIE") of which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has a potentially significant interest in the VIE, then it consolidates the VIE.

The Company performs periodic reassessments, usually quarterly, of whether it is the primary beneficiary of a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The Company also reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are subject to the VIE consolidation framework.

As of September 30, 2021, the VIEs consolidated by the Company are its securitization VIEs formed in conjunction with the issuance of the 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes (as defined in “Note 5 – Debt”).

Fair Value Measurements

The Company follows guidance in ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a three-tier hierarchy which maximizes the use of observable market data input and minimizes the use of unobservable inputs to establish a classification of fair value measurements. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or

unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. ASC Topic 820 also requires disclosure for fair value measurements based on the level within the hierarchy of the information used in the valuation. ASC Topic 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.

The Company categorizes all investments recorded at fair value in accordance with ASC Topic 820 based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC Topic 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date. The types of assets carried at Level 1 fair value generally are equities listed in active markets.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset in connection with market data at the measurement date and for the extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are publicly held debt investments and warrants held in a public company.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset at the measurement date. It includes prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included in this category are the debt investments and warrants and equities held in a private company.

Valuation of Investments

The most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

As of September 30, 2021, approximately 90.0% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of Directors (the “Board”). 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. The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820. The Company’s debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there generally is no known or accessible market or market indices for these investment securities to be traded or exchanged. As such, the Company values substantially all of its investments at fair value as determined in good faith by the Board pursuant to a consistent valuation policy in accordance with the provisions of ASC Topic 820 and the 1940 Act. 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 the Company’s investments determined in good faith by its 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.

In accordance with procedures established by its Board, the Company values investments on a quarterly basis following a multistep valuation process. Investments purchased within the preceding two calendar quarters before the valuation date and debt investments with remaining maturities within 12 months or less may each be valued at cost with interest accrued or discount accreted/premium amortized to the date of maturity, unless such valuation, in the judgment of the Company, does not represent fair value. In this case such investments shall be valued at fair value as determined in good faith by or under the direction of the Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board.

faith, the Company recognizes these determinations are made using the best available information that is knowable or reasonably knowable. In addition, changes in the market environment, portfolio company performance and other events that may occur over the duration of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. The Company determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.

The Company's quarterly multi-step valuation process each quarter, which the Board has approved, is as described below:

(1) the Company’s quarterly valuation process begins with each portfolio company being initially valued by the investment professionals responsible for the portfolio investment;

(2) preliminary valuation conclusions are then documented and business-based assumptions are discussed with the Company’s investment committee;

(3) the Audit Committee of the Board reviews the preliminary valuation of the investments in the portfolio as provided by the investment committee which incorporates the results of the independent valuation firm(s) as applicable; and

(4) the Board, upon the recommendation of the Audit Committee, discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of, where applicable, the respective independent valuation firm and the investment committee.

Debt Investments

The Company follows the guidance set forth in ASC Topic 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy, which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. The Company’s debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there generally is no known or accessible market or market indexes for debt instruments for these investment securities to be traded or exchanged. In addition, the Company may, from time to time, invest in public debt of companies that meet the Company’s investment objectives. These investments are considered Level 2 assets.

In making a good faith determination of the value of the Company’s investments, the Company generally starts with the cost basis of the investment, which includes the value attributed to the original issue discount (“OID”), if any, and payment-in-kind (“PIK”) interest or other receivables which have been accrued as earned. The Company then applies the valuation methods as set forth below.

The Company applies a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participant where buyers and sellers are willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid or extinguished, but includes an exit concept. The Company determines the yield at inception for each debt investment. The Company then uses senior secured, leveraged loan yields provided by third party providers to determine the change in market yields between inception of the debt investment and the measurement date. Industry specific indices and other relevant market data are used to benchmark and assess market-based movements.

Under this process, the Company also evaluates the collateral for recoverability of the debt investments. The Company considers each portfolio company’s credit rating, security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment as of the measurement date. The anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fair value as of the measurement date.

The Company’s process includes an analysis of, among other things, the underlying investment performance, the current portfolio company’s financial condition and market changing events that impact valuation, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. The Company values its syndicated debt investments using broker quotes and bond indices amongst other factors. If there is a significant deterioration of the credit quality of a debt investment, the Company may consider other factors to estimate fair value, including the proceeds that would be received in a liquidation analysis.

The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a debt investment is doubtful or, if under the in-exchange premise, when the value of a debt investment

is less than amortized cost of the investment. Conversely, where appropriate, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, that its investment has also appreciated in value or, if under the in-exchange premise, the value of a debt investment is greater than amortized cost.

When originating a debt instrument, the Company generally receives warrants or other equity securities from the borrower. The Company determines the cost basis of the warrants or other equity securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity securities received. Any resulting discount on the debt investments from recordation of the warrant or other equity instruments is accreted into interest income over the life of the debt investment.

Debt investments that are traded on a public exchange are valued at the prevailing market price as of the valuation date.

Equity Securities and Warrants

Securities that are traded in the over-the-counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Company has a limited amount of equity securities in public companies. In accordance with the 1940 Act, unrestricted publicly traded securities for which market quotations are readily available are valued at the closing market quote on the measurement date.

At each reporting date, privately held warrant and equity securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition, general market conditions, price to enterprise value or price to equity ratios, discounted cash flow, valuation comparisons to comparable public companies or other industry benchmarks. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricing indicated by that external event is utilized to corroborate the Company’s valuation of the warrant and equity securities. The Company periodically reviews the valuation of its portfolio companies that have not been involved in a qualifying external event to determine if the enterprise value of the portfolio company may have increased or decreased since the last valuation measurement date. Absent a qualifying external event, the Company estimates the fair value of warrants using a Black Scholes OPM. For certain privately held equity securities, the income approach is used, in which the Company converts future amounts (for example, cash flows or earnings) to a net present value. The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account include, as relevant: applicable market yields and multiples, the portfolio company’s capital structure, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, and enterprise value among other factors.

Investment Funds & Vehicles

The Company applies the practical expedient provided by the ASC Topic 820 relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). ASC Topic 820 permits an entity holding investments in certain entities that either are investment companies, or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy as per ASC Topic 820: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (Or its Equivalent).

Cash, Restricted Cash, and Cash Equivalents

Cash and cash equivalents consist solely of funds deposited with financial institutions and short-term liquid investments in money market deposit accounts. Cash and cash equivalents are carried at cost, which approximates fair value. Restricted cash and cash equivalents include amounts that are collected and are held by trustees who have been appointed as custodians of the assets securing certain of the Company’s financing transactions.

Other Assets

Other assets generally consist of prepaid expenses, debt issuance costs on lines-of-credit, net, fixed assets net of accumulated depreciation, deferred revenues and deposits and other assets, including escrow receivables.

Escrow Receivables

Escrow receivables are collected in accordance with the terms and conditions of the escrow agreement. Escrow balances are typically distributed over a period greater than one year and may accrue interest during the escrow period. Escrow balances are measured for collectability on at least a quarterly basis and fair value is determined based on the amount of the estimated recoverable balances and the contractual maturity date. As of both September 30, 2021 and December 31, 2020, there were no material past due escrow receivables. The approximate fair value in accordance with ASC Topic 820 of the escrow receivable balance as of September 30, 2021 and December 31, 2020 was $0.6 million and $65 thousand, respectively.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use (“ROU”) assets, and operating lease liability in our Consolidated Statements of Assets and Liabilities. The Company recognizes a ROU asset and an operating lease liability for all leases, with the exception of short-term leases which have a term of 12 months or less. ROU assets represent the right to use an underlying asset for the lease term and operating lease liability obligations represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The Company has lease agreements with lease and non-lease components and has separated these components when determining the ROU assets and the related lease liabilities. As most of the Company’s leases do not provide an implicit rate, the Company estimated its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. See “Note 11 – Commitments and Contingencies”.

Income Recognition

The Company records interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement, to the extent that such amounts are expected to be collected. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and is accreted into interest income over the term of the loan as a yield enhancement. 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. When a debt investment is placed on non-accrual status, the Company ceases to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay its current and future contractual obligations to the Company. The Company may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Fee income, generally collected in advance, includes loan commitment and facility fees for due diligence and structuring, as well as fees for transaction services and management services rendered by the Company to portfolio companies and other third parties. Loan commitment and facility fees are amortized into income over the contractual life of the loan. Management fees are generally recognized as income when the services are rendered. Loan origination fees are capitalized and then amortized into interest income using the effective interest rate method. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The Company had approximately $39.2 million of unamortized fees as of September 30, 2021, of which approximately $33.7 million was included as an offset to the cost basis of its current debt investments and approximately $5.5 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2020, the Company had approximately $39.2 million of unamortized fees, of which approximately $32.2 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $7.0 million was deferred contingent upon the occurrence of a funding or milestone.

The Company recognizes nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. Certain fees may still be recognized as one-time fee income, including prepayment penalties, fees related to select covenant default, waiver fees and acceleration of previously deferred loan fees and OID related to early loan pay-off or material modification of the specific debt outstanding. The Company recorded approximately $1.7 million and $2.0 million in one-time fee income during the three months ended September 30, 2021 and 2020, respectively, and approximately $6.2 million and $6.1 million in one-time fee income during the nine months ended September 30, 2021 and 2020, respectively.

In addition, the Company may also be entitled to an exit fee that is amortized into income over the life of the loan. 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 September 30, 2021, the Company had approximately $38.4 million in exit fees receivable, of which approximately $35.1 million was included as a component of the cost basis of its current debt investments and approximately $3.3 million was a deferred receivable related to

expired commitments. As of December 31, 2020, the Company had approximately $40.9 million in exit fees receivable, of which approximately $37.6 million was included as a component of the cost basis of its current debt investments and approximately $3.3 million was a deferred receivable related to expired commitments.

The Company has debt investments in its portfolio that contain a PIK provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the portfolio company to be able to pay all principal and interest due. The Company recorded approximately $2.9 million and $2.3 million in PIK income during the three months ended September 30, 2021 and 2020, respectively, and approximately $8.1 million and $6.5 million in PIK income during the nine months ended September 30, 2021 and 2020, respectively.

To maintain the Company’s RIC status for taxation purposes, PIK and exit fee income generally must be accrued and distributed to stockholders in the form of dividends for U.S. federal income tax purposes even though the cash has not yet been collected. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment transaction closes. The Company had no income from advisory services in the three and nine months ended September 30, 2021 and 2020.

Equity Offering Expenses

The Company’s offering expenses are charged against the proceeds from equity offerings when received as a reduction of capital upon completion of an offering of registered securities.

Debt

The debt of the Company is carried at amortized cost which is comprised of the principal amount borrowed net of any unamortized discount and debt issuance costs. Discounts and issuance costs are accreted to interest expense and loan fees, respectively, using the straight-line method, which closely approximates the effective yield method, over the remaining life of the underlying debt obligations (see “Note 5 - Debt”). Accrued but unpaid interest is included within Accounts payable and accrued liabilities on the Consolidated Statements of Assets and Liabilities. In the event that the debt is extinguished, either partially or in full, before maturity, the Company recognizes the gain or loss in the Consolidated Statement of Operations within net realized gains (losses) as a “Loss on debt extinguishment”.

Debt Issuance Costs

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing and are recognized as prepaid expenses and amortized over the life of the related debt instrument using the effective yield method or the straight-line method, which closely approximates the effective yield method. In accordance with ASC Subtopic 835-30 (“Interest – Imputation of Interest”), debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statements of Assets and Liabilities, except for debt issuance costs associated with line-of-credit arrangements.

Stock Based Compensation

The Company has issued and may, from time to time, issue stock options and restricted stock to employees under the 2018 Equity Incentive Plan and the Director Plan. Management follows the guidelines set forth under ASC Topic 718, to account for stock options and restricted stock granted. Under ASC Topic 718, compensation expense associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate and expected option life. In accordance with ASC Topic 480, certain stock awards are classified as a liability. The compensation expense associated with these awards is recognized in the same manner as all other stock-based compensation. The award liability is recorded as deferred compensation and included in Accounts payable and accrued liabilities.

Income Taxes

The Company intends to operate so as to qualify to be subject to tax as a RIC under Subchapter M of the Code and, as such, will not be subject to federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.

As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement. The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

Because federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized securities gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Also, tax legislation requires that income be recognized for tax purposes no later than when recognized for financial reporting purposes, with certain exceptions.

Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net earnings applicable to common shareholders by the weighted average number of common shares outstanding. Common shares outstanding includes common stock and restricted stock for which no future service is required as a condition to the delivery of the underlying common stock. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable pursuant to stock options and to restricted stock for which future service is required as a condition to the delivery of the underlying common stock. In accordance with ASC 260-10-45-60A, the Company uses the two-class method in the computation of basic EPS and diluted EPS, if applicable.

Comprehensive Income

The Company reports all changes in comprehensive income in the Consolidated Statements of Operations. The Company did not have other comprehensive income for the three and nine months ended September 30, 2021 or 2020. The Company’s comprehensive income is equal to its net increase in net assets resulting from operations.

Distributions

Distributions to common stockholders are approved by the Board on a quarterly basis and the distribution payable is recorded on the ex-dividend date. The Company maintains an “opt out” dividend reinvestment plan that provides for reinvestment of the Company’s distribution on behalf of the Company’s stockholders, unless a stockholder elects to receive cash. As a result, if the

Company declares a distribution, cash distributions will be automatically reinvested in additional shares of its common stock unless the stockholder specifically “opts out” of the dividend reinvestment plan and chooses to receive cash distributions. During the three and nine months ended September 30, 2021, the Company issued 55,413 and 189,356 shares, respectively, of common stock to shareholders in connection with the dividend reinvestment plan. During the three and nine months ended September 30, 2020, the Company issued 77,378 and 198,393 shares, respectively, of common stock to shareholders in connection with the dividend reinvestment plan.

Segments

The Company lends to and invests in portfolio companies in various technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these loan and investment relationships has similar business and economic characteristics, they have been aggregated into a single reportable segment.

3. Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations as of September 30, 2021 and December 31, 2020.


(in thousands)	Balance as of September 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Money Market Fund (1)	$	206,000	$	206,000	$	—	$	—

Other assets
Escrow Receivables	$	571	$	—	$	—	$	571

Investments
Senior Secured Debt	$	2,213,247	$	—	$	—	$	2,213,247
Unsecured Debt		50,295		—		—		50,295
Preferred Stock		64,444		—		—		64,444
Common Stock		139,967		84,548		24,087		31,332
Warrants		42,859		—		14,294		28,565
	$	2,510,812	$	84,548	$	38,381	$	2,387,883
Investment Funds & Vehicles measured at Net Asset Value (2)		1,042
Total Investments before cash and cash equivalents	$	2,511,854

Total Investments after cash and cash equivalents	$	2,717,854

(in thousands)	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Money Market Fund (1)	$	96,000	$	96,000	$	—	$	—

Other assets
Escrow Receivables	$	65	$	—	$	—	$	65

Investments
Senior Secured Debt	$	2,079,465	$	—	$	—	$	2,079,465
Unsecured Debt		14,970		—		—		14,970
Preferred Stock		58,981		—		—		58,981
Common Stock		165,698		138,300		—		27,398
Warrants		34,622		—		13,139		21,483
	$	2,353,736	$	138,300	$	13,139	$	2,202,297
Investment Funds & Vehicles measured at Net Asset Value (2)		342
Total Investments before cash and cash equivalents	$	2,354,078

Total Investments after cash and cash equivalents	$	2,450,078

(1)

This investment is included in Cash and cash equivalents in the accompanying Consolidated Statement of Assets and Liabilities.

(2)

In accordance with U.S. GAAP, certain investments are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are not categorized within the fair value hierarchy as per ASC 820. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the accompanying Consolidated Statement of Assets and Liabilities.

The table below presents a reconciliation of changes for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for the nine months ended September 30, 2021 and 2020.


(in thousands)	Balance as of January 1, 2021		Net Realized Gains (Losses) (1)			Net Change in Unrealized Appreciation (Depreciation) (2)			Purchases (5)		Sales			Repayments (6)			Gross Transfers into Level 3 (3)		Gross Transfers out of Level 3 (3)			Balance as of September 30, 2021
Investments
Senior Secured Debt	$	2,079,465	$	(3,744	)	$	7,066		$	884,833	$	—		$	(754,373	)	$	—	$	—		$	2,213,247
Unsecured Debt		14,970		—			(1,194	)		36,519		—			—			—		—			50,295
Preferred Stock		58,981		—			54,508			13,954		(61,732	)		—			—		(1,267	)		64,444
Common Stock		27,398		(60,904	)		15,592			4,371		60,900			—			—		(16,025	)		31,332
Warrants		21,483		2,584			9,043			1,854		(4,630	)		—			—		(1,769	)		28,565
Other Assets
Escrow Receivable		65		584			(1,515	)		2,473		(1,036	)		—			—		—			571
Total	$	2,202,362	$	(61,480	)	$	83,500		$	944,004	$	(6,498	)	$	(754,373	)	$	—	$	(19,061	)	$	2,388,454

(in thousands)	Balance as of January 1, 2020		Net Realized Gains (Losses) (1)			Net Change in Unrealized Appreciation (Depreciation) (2)			Purchases (5)		Sales			Repayments (6)			Gross Transfers into Level 3 (4)		Gross Transfers out of Level 3 (4)			Balance as of September 30, 2020
Investments
Senior Secured Debt	$	2,133,812	$	(47,346	)	$	2,579		$	649,886	$	—		$	(489,431	)	$	—	$	—		$	2,249,500
Unsecured Debt		14,780		—			(283	)		450		—			—			—		—			14,947
Preferred Stock		69,717		(134	)		(5,323	)		245		(40	)		—			—		(14,182	)		50,283
Common Stock		33,547		1,240			8,373			—		(1,240	)		—			—		—			41,920
Warrants		13,722		(5,129	)		4,911			3,327		(1,088	)		—			—		(175	)		15,568
Other Assets
Escrow Receivable		955		105			—			1,440		(2,083	)		—			—		—			417
Total	$	2,266,533	$	(51,264	)	$	10,257		$	655,348	$	(4,451	)	$	(489,431	)	$	—	$	(14,357	)	$	2,372,635

(1)

Included in net realized gains (losses) in the accompanying Consolidated Statements of Operations.

(2)

Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statements of Operations.

(3)

Transfers out of Level 3 during the nine months ended September 30, 2021 relate to the initial public offerings of Proterra, Inc., 23andMe, Inc., Sprinklr, Inc., Century Therapeutics, Couchbase, Inc., and Xometry, Inc. There was no activity related to transfers into Level 3 during the nine months ended September 30, 2021.

(4)

Transfers out of Level 3 during the nine months ended September 30, 2020, relate to the initial public offerings of Palantir Technologies and Outset Medical, Inc. There was no activity related to transfers into Level 3 during the nine months ended September 30, 2020.

(5)

Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loan discounts and fees during the period. Escrow receivable purchases may include additions due to proceeds held in escrow from the liquidation of level 3 investments. Amounts are net of purchases assigned to the Adviser Funds.

(6)

Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures along with regularly scheduled amortization.

For the nine months ended September 30, 2021, approximately $6.5 million in net unrealized depreciation and $15.6 million in net unrealized appreciation were recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the nine months ended September 30, 2021, approximately $0.4 million and $8.0 million in net unrealized appreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

For the nine months ended September 30, 2020, approximately $5.5 million in net unrealized depreciation and $8.4 million in net unrealized appreciation were recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $4.5 million and $0.4 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of September 30, 2021 and December 31, 2020. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements. See the accompanying Consolidated Schedule of Investments for the fair value of the Company’s investments. The methodology for the determination of the fair value of the Company’s investments is discussed in “Note 2 – Summary of Significant Accounting Policies”. The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable.


(in Thousands) Investment Type - Level 3 Debt Investments	Fair Value as of September 30, 2021		Valuation Techniques/Methodologies	Unobservable Input (1)	Range	Weighted Average (2)

Pharmaceuticals	$	32,733	Originated Within 4-6 Months	Origination Yield	10.87% - 11.27%	11.06%
		634,303	Market Comparable Companies	Hypothetical Market Yield	8.94% - 14.25%	10.59%
				Premium/(Discount)	(0.50%) - 0.50%	(0.20%)

Technology		53,129	Originated Within 4-6 Months	Origination Yield	9.90% - 12.35%	11.17%
		674,221	Market Comparable Companies	Hypothetical Market Yield	7.51% - 14.13%	10.87%
				Premium/(Discount)	(0.50%) - 1.50%	0.23%
		1,106	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 80.00%	65.53%
		20,390	Convertible Note Analysis	Probability weighting of alternative outcomes	1.00% - 35.00%	33.01%

Sustainable and Renewable Technology		7,500	Convertible Note Analysis	Probability weighting of alternative outcomes	10.00% - 55.00%	46.78%

Medical Devices		20,765	Market Comparable Companies	Hypothetical Market Yield	8.93%	8.93%
				Premium/(Discount)	(0.25%)	(0.25%)

Lower Middle Market		117,098	Originated Within 4-6 Months	Origination Yield	11.39% - 17.09%	11.65%
		69,736	Market Comparable Companies	Hypothetical Market Yield	10.73% - 15.77%	12.84%
				Premium/(Discount)	0.00% - 1.50%	0.50%
		8,294	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 80.00%	80.00%

			Debt Investments Where Fair Value Approximates Cost
		310,185	Debt Investments originated within 3 months
		80,977	Imminent Payoffs (4)
		233,105	Debt Investments Maturing in Less than One Year
	$	2,263,542	Total Level 3 Debt Investments

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums/(discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:



Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” industry in the Consolidated Schedule of Investments.



Technology, above, is comprised of debt investments in the “Communications & Networking”, “Information Services”, “Internet Consumer & Business Services”, and “Software” industries in the Consolidated Schedule of Investments.



Medical Devices, above, is comprised of debt investments in the “Drug Delivery” and “Medical Devices & Equipment” industries in the Consolidated Schedule of Investments.



Lower Middle Market, above, is comprised of debt investments in the “Healthcare Services, Other”, “Internet Consumer & Business Services”, “Diversified Financial Services”, “Sustainable and Renewable Technology”, “Communications & Networking”, “Consumer & Business Products”, and “Manufacturing Technology” industries in the Consolidated Schedule of Investments.

(2)

The weighted averages are calculated based on the fair market value of each investment.

(3)

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.

(4)

Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.


Investment Type - Level 3 Debt Investments	Fair Value as of December 31, 2020 (in thousands)		Valuation Techniques/Methodologies	Unobservable Input (1)	Range	Weighted Average (2)
Pharmaceuticals	$	130,068	Originated Within 4-6 Months	Origination Yield	10.94% - 13.56%	11.84%
		574,149	Market Comparable Companies	Hypothetical Market Yield	8.43% - 14.66%	10.87%
				Premium/(Discount)	(0.50%) - 1.50%
Technology		114,136	Originated Within 4-6 Months	Origination Yield	11.49% - 13.78%	12.05%
		867,892	Market Comparable Companies	Hypothetical Market Yield	7.61% - 17.71%	11.67%
				Premium/(Discount)	(0.25%) - 2.50%
		18,126	Liquidation (3)	Probability weighting of alternative outcomes	10.00% - 75.00%
Sustainable and Renewable Technology		15,775	Market Comparable Companies	Hypothetical Market Yield	9.61% - 10.04%	9.72%
				Premium/(Discount)	0.00%
		7,500	Liquidation (3)	Probability weighting of alternative outcomes	0.00% - 100.00%
Medical Devices		41,242	Market Comparable Companies	Hypothetical Market Yield	9.52% - 9.52%	9.52%
				Premium/(Discount)	(0.25%)
	—		Liquidation (3)	Probability weighting of alternative outcomes	0.00%
Lower Middle Market		106,877	Market Comparable Companies	Hypothetical Market Yield	10.26% - 15.86%	11.81%
				Premium/(Discount)	(1.00%) - 1.00%
		8,600	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 80.00%
			Debt Investments Where Fair Value Approximates Cost
		78,016	Debt Investments originated within 3 months
		38,148	Imminent Payoffs (4)
		93,906	Debt Investments Maturing in Less than One Year
	$	2,094,435	Total Level 3 Debt Investments

(1)



Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” and “Healthcare Services, Other” industries in the Consolidated Schedule of Investments.



Technology, above, is comprised of debt investments in the “Communications & Networking”, “Information Services”, “Internet Consumer & Business Services”, “Media/Content/Info” and “Software” industries in the Consolidated Schedule of Investments.



Sustainable and Renewable Technology, above, is comprised of debt investments in the “Sustainable and Renewable Technology”, “Internet Consumer & Business Services”, and “Electronics & Computer Hardware” industries in the Consolidated Schedule of Investments.



Medical Devices, above, is comprised of debt investments in the “Drug Delivery”, and “Medical Devices & Equipment” industries in the Consolidated Schedule of Investments.



Lower Middle Market, above, is comprised of debt investments in the “Healthcare Services, Other”, “Internet Consumer & Business Services”, “Diversified Financial Services”, “Sustainable and Renewable Technology”, and “Software” industries in the Consolidated Schedule of Investments.

(2)

The weighted averages are calculated based on the fair market value of each investment.

(3)

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.

(4)

Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

Investment Type - Level 3 Equity and Warrant Investments

Fair Value as of
September 30, 2021
(in thousands)

Valuation Techniques/
Methodologies

Unobservable Input (1)

Range

Weighted Average (5)

Equity Investments

29,690

Market Comparable Companies

EBITDA Multiple (2)

5.2x - 16.5x

9.8x

Revenue Multiple (2)

1.0x - 22.4x

8.1x

Tangible Book Value Multiple (2)

2.2x - 2.2x

2.2x

Discount for Lack of Marketability (3)

19.09% - 31.88%

23.12%

22,019

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(88.41%) - 100.55%

6.31%

10,704

Discounted Cash Flow

Discount Rate (7)

13.81% - 22.84%

18.29%

—

Liquidation

Revenue Multiple (2)

2.1x - 2.1x

2.1x

Discount for Lack of Marketability (3)

84.00% - 84.00%

84.00%

33,363

Other (6)

Warrant Investments

15,512

Market Comparable Companies

EBITDA Multiple (2)

9.7x - 35.8x

16.9x

Revenue Multiple (2)

0.9x - 10.6x

5.1x

Discount for Lack of Marketability (3)

14.64% - 35.15%

25.67%

6,477

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(88.41%) - 100.55%

(3.54%)

6,576

Other(6)

Total Level 3
Warrant and Equity Investments

124,341

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity securities are revenue and/or earnings multiples (e.g. EBITDA, EBT, ARR), market equity adjustment factors, and discounts for lack of marketability. Significant increases/(decreases) in the inputs in isolation would result in a significantly higher/(lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.

(2)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(5)

Weighted averages are calculated based on the fair market value of each investment.

(6)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

(7)

The discount rate used is based on current portfolio yield adjusted for uncertainty of actual performance and timing in capital deployments.


Investment Type - Level 3 Equity and Warrant Investments	Fair Value as of December 31, 2020 (in thousands)		Valuation Techniques/ Methodologies	Unobservable Input (1)	Range	Weighted Average (6)
Level 3 Equity Investments	$	46,669	Market Comparable Companies	EBITDA Multiple (2)	5.0x - 9.8x	7.5x
				Revenue Multiple (2)	2.0x - 19.5x	4.5x
				Tangible Book Value Multiple (2)	4.1x	4.1x
				Discount for Lack of Marketability (3)	22.59% - 27.53%	24.56%
				Average Industry Volatility (4)	66.14% - 116.71%	102.66%
				Risk-Free Interest Rate	0.10%	0.10%
				Estimated Time to Exit (in months)	10 - 13	11
		12,666	Market Adjusted OPM Backsolve	Market Equity Adjustment (5)	(79.34%) - 53.87%	(12.70%)
				Average Industry Volatility (4)	39.29% - 152.09%	98.23%
				Risk-Free Interest Rate	0.14% - 2.64%	0.42%
				Estimated Time to Exit (in months)	10 - 40	25
		—	Liquidation	Revenue Multiple (2)	1.4x - 1.4x	1.4x
				Discount for Lack of Marketability (3)	75%	75%
		27,044	Other (7)
Level 3 Warrant Investments		10,284	Market Comparable Companies	EBITDA Multiple (2)	4.1x - 19.2x	16.4x
				Revenue Multiple (2)	0.6x - 10.7x	6.0x
				Discount for Lack of Marketability (3)	21.56% - 34.61%	28.02%
				Average Industry Volatility (4)	59.33% - 95.76%	82.21%
				Risk-Free Interest Rate	0.10% - 0.31%	0.14%
				Estimated Time to Exit (in months)	10 - 48	25
		11,199	Market Adjusted OPM Backsolve	Market Equity Adjustment (5)	(45.5%) - 57.42%	(12.27%)
				Average Industry Volatility (4)	38.87% - 152.09%	85.53%
				Risk-Free Interest Rate	0.13% - 2.64%	0.32%
				Estimated Time to Exit (in months)	10 - 43	22
Total Level 3 Warrant and Equity Investments	$	107,862

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity securities are revenue and/or EBITDA multiples, market equity adjustment factors, and discounts for lack of marketability. Additional inputs used in the OPM include industry volatility, risk free interest rate and estimated time to exit. Significant increases/(decreases) in the inputs in isolation would result in a significantly higher/(lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.

(2)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)

Represents the range of industry volatility used by market participants when pricing the investment.

(5)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(6)

Weighted averages are calculated based on the fair market value of each investment.

(7)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

The Company believes that the carrying amounts of its financial instruments, other than investments and debt, which consist of cash and cash equivalents, receivables including escrow receivables, accounts payable and accrued liabilities, approximate the fair values of such items due to the short maturity of such instruments. The debt of the Company is recorded at amortized cost and not at fair value on the Consolidated Statements of Assets and Liabilities. The fair value of the Company’s outstanding debt is based on observable market trading prices or quotations and unobservable market rates as applicable for each instrument.

Based on market quotations on or around September 30, 2021, the 2022 Notes, September 2026 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes were quoted for 1.018, 0.902, 1.000, 1.001, and 1.043 per dollar at par value, respectively. As of September 30, 2021, the 2033 Notes were trading on the New York Stock Exchange (“NYSE”) at $26.45 per unit at par value. The par value at underwriting for the 2033 Notes was $25.00 per unit. The fair values of the SBA debentures, July 2024 Notes, February 2025 Notes, June 2025 Notes, March 2026 A Notes, and March 2026 B Notes are calculated based on the net present value of payments over the term of the notes using estimated market rates for similar notes and remaining terms. The fair values of the outstanding debt under the Union Bank Facility and the Wells Facility are equal to their outstanding principal balances as of September 30, 2021.

The following tables provide additional information about the approximate fair value and level in the fair value hierarchy of the Company’s outstanding borrowings as of September 30, 2021 and December 31, 2020:


	September 30, 2021
(in thousands)	Carrying		Approximate		Identical Assets		Observable Inputs		Unobservable Inputs
Description	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
SBA Debentures	$	62,368	$	65,681	$	—	$	—	$	65,681
2022 Notes		149,432		152,774		—		152,774		—
2033 Notes		38,690		42,320		—		42,320		—
July 2024 Notes		104,164		105,617		—		—		105,617
February 2025 Notes		49,608		49,335		—		—		49,335
June 2025 Notes		69,393		69,553		—		—		69,553
March 2026 A Notes		49,582		49,336		—		—		49,336
March 2026 B Notes		49,544		49,436		—		—		49,436
September 2026 Notes		320,127		293,280		—		293,280		—
2027 Asset-Backed Notes		114,120		115,373		—		115,373		—
2028 Asset-Backed Notes		172,324		173,918		—		173,918		—
2022 Convertible Notes		229,349		239,915		—		239,915		—
Wells Facility		—		—		—		—		—
Union Bank Facility		—		—		—		—		—
Total	$	1,408,701	$	1,406,538	$	—	$	1,017,580	$	388,958


	December 31, 2020
(in thousands)	Carrying		Approximate		Identical Assets		Observable Inputs		Unobservable Inputs
Description	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
SBA Debentures	$	98,716	$	102,815	$	—	$	—	$	102,815
2022 Notes		149,039		152,490		—		152,490		—
April 2025 Notes		73,351		76,500		—		76,500		—
2033 Notes		38,610		42,880		—		42,880		—
July 2024 Notes		103,942		106,061		—		—		106,061
February 2025 Notes		49,522		49,664		—		—		49,664
June 2025 Notes		69,272		69,592		—		—		69,592
March 2026 A Notes		49,550		50,092		—		—		50,092
2027 Asset-Backed Notes		178,812		181,087		—		181,087		—
2028 Asset-Backed Notes		247,647		250,469		—		250,469		—
2022 Convertible Notes		228,177		236,164		—		236,164		—
Wells Facility		—		—		—		—		—
Union Bank Facility		—		—		—		—		—
Total	$	1,286,638	$	1,317,814	$	—	$	939,590	$	378,224

4. Investments

Control and Affiliate Investments

As required by the 1940 Act, the Company classifies its investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “control”. Under the 1940 Act, the Company is generally deemed to “control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of the Company, as defined in the 1940 Act, which are not control investments. The Company is deemed to be an “affiliate” of a company in which it has invested if it owns 5% or more, but generally less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments. For purposes of determining the classification of its investments, the Company has included consideration of any voting securities or board appointment rights held by the Adviser Funds which are managed by the Adviser Subsidiary.

The following table summarizes the Company’s realized gains and losses and changes in unrealized appreciation and depreciation on control and affiliate investments for the three and nine months ended September 30, 2021 and 2020.


(in thousands)				For the Three Months Ended September 30, 2021									For the Nine Months Ended September 30, 2021
Portfolio Company	Type	Fair Value as of September 30, 2021		Interest Income		Fee Income		Net Change in Unrealized Appreciation (Depreciation)			Realized Gain (Loss)		Interest Income		Fee Income		Net Change in Unrealized Appreciation (Depreciation)			Realized Gain (Loss)
Control Investments
Gibraltar Business Capital, LLC	Control	$	40,737	$	853	$	15	$	(3,475	)	$	—	$	2,325	$	38	$	(17,690	)	$	—
Hercules Adviser LLC	Control		16,804		45		—		(219	)		—		59		—		10,669			—
Tectura Corporation	Control		8,294		174		5		(80	)		—		516		5		(306	)		—
Total Control Investments		$	65,835	$	1,072	$	20	$	(3,774	)	$	—	$	2,900	$	43	$	(7,327	)	$	—

Affiliate Investments
Black Crow AI, Inc.	Affiliate	$	1,243	$	—	$	—	$	(66	)	$	—	$	—	$	—	$	2,028		$	—
Pineapple Energy LLC	Affiliate		8,469		1		—		(52	)		—		3		—		9			—
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)	Affiliate		—		—		—		—			—		—		—		62,183			(62,143	)
Total Affiliate Investments		$	9,712	$	1	$	—	$	(118	)	$	—	$	3	$	—	$	64,220		$	(62,143	)
Total Control & Affiliate Investments		$	75,547	$	1,073	$	20	$	(3,892	)	$	—	$	2,903	$	43	$	56,893		$	(62,143	)

(in thousands)				For the Three Months Ended September 30, 2020									For the Nine Months Ended September 30, 2020
Portfolio Company	Type	Fair Value as of September 30, 2020		Interest Income		Fee Income		Net Change in Unrealized Appreciation (Depreciation)			Realized Gain (Loss)		Interest Income		Fee Income		Net Change in Unrealized Appreciation (Depreciation)			Realized Gain (Loss)
Control Investments
Gibraltar Business Capital, LLC	Control	$	46,797	$	565	$	5	$	154		$	—	$	1,683	$	15	$	(3,406	)	$	—
Tectura Corporation	Control		8,295		175		—		492			—		434		—		(1,157	)		—
Total Control Investments		$	55,092	$	740	$	5	$	646		$	—	$	2,117	$	15	$	(4,563	)	$	—

Affiliate Investments
Optiscan BioMedical, Corp.	Affiliate	$	—	$	—	$	—	$	(1,011	)	$	—	$	13	$	—	$	(9,601	)	$	—
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)	Affiliate		9,800		232		—		(1,100	)		—		596		—		(2,815	)		—
Total Affiliate Investments		$	9,800	$	232	$	—	$	(2,111	)	$	—	$	609	$	—	$	(12,416	)	$	—
Total Control & Affiliate Investments		$	64,892	$	972	$	5	$	(1,465	)	$	—	$	2,726	$	15	$	(16,979	)	$	—

Portfolio Composition

The following table shows the fair value of the Company’s portfolio of investments by asset class as of September 30, 2021 and December 31, 2020:


	September 30, 2021					December 31, 2020

(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Senior Secured Debt	$	2,213,247		88.1	%	$	2,079,465		88.4	%
Unsecured Debt		50,295		2.0	%		14,970		0.6	%
Preferred Stock		64,444		2.6	%		58,981		2.5	%
Common Stock		139,967		5.6	%		165,698		7.0	%
Warrants		42,859		1.7	%		34,622		1.5	%
Investment Funds & Vehicles		1,042		0.0	%		342		0.0	%
Total	$	2,511,854		100.0	%	$	2,354,078		100.0	%

A summary of the Company’s investment portfolio, at value, by geographic location as of September 30, 2021 and December 31, 2020 is shown as follows:


	September 30, 2021					December 31, 2020
(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
United States	$	2,208,332		87.9	%	$	2,227,341		94.6	%
United Kingdom		138,636		5.5	%		29,533		1.3	%
Netherlands		73,635		2.9	%		37,812		1.6	%
Australia		54,310		2.2	%		53,086		2.3	%
Canada		20,671		0.8	%		—		0.0	%
Israel		8,927		0.4	%		—		0.0	%
Ireland		5,418		0.2	%		5,251		0.2	%
Germany		1,925		0.1	%		1,055		0.0	%
Total	$	2,511,854		100.0	%	$	2,354,078		100.0	%

The following table shows the fair value of the Company’s portfolio by industry sector as of September 30, 2021 and December 31, 2020:


	September 30, 2021					December 31, 2020
(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Drug Discovery & Development	$	974,136		38.8	%	$	757,163		32.2	%
Software		671,352		26.7	%		780,045		33.1	%
Internet Consumer & Business Services		452,019		18.0	%		514,538		21.9	%
Communications & Networking		100,849		4.0	%		10,763		0.4	%
Information Services		77,313		3.1	%		54,510		2.3	%
Diversified Financial Services		57,944		2.3	%		48,800		2.1	%
Healthcare Services, Other		55,064		2.2	%		27,519		1.2	%
Sustainable and Renewable Technology		46,291		1.9	%		55,244		2.4	%
Drug Delivery		23,563		0.9	%		46,744		2.0	%
Consumer & Business Products		22,362		0.9	%		1,895		0.1	%
Medical Devices & Equipment		18,027		0.7	%		26,464		1.1	%
Manufacturing Technology		7,199		0.3	%		—		0.0	%
Semiconductors		2,677		0.1	%		892		0.0	%
Surgical Devices		2,192		0.1	%		4,581		0.2	%
Electronics & Computer Hardware		860		0.0	%		3,360		0.1	%
Specialty Pharmaceuticals		6		0.0	%		5		0.0	%
Media/Content/Info		—		0.0	%		21,555		0.9	%
Total	$	2,511,854		100.0	%	$	2,354,078		100.0	%

No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of September 30, 2021 or December 31, 2020.

Unconsolidated Subsidiaries

In accordance with Rules 3-09, 4-08(g), and Rule 10-01(b)(1) of Regulation S-X, (“Rule 3-09”, “Rule 4-08(g)”, and “Rule 10-01(b)(1)”, respectively), the Company must determine if its unconsolidated subsidiaries are considered “significant subsidiaries”. As of September 30, 2021 and September 30, 2020, there were no unconsolidated subsidiaries that are considered “significant subsidiaries”.

Concentrations of Credit Risk

The Company’s customers are primarily privately held companies and public companies which are active in the “Drug Discovery & Development", "Software”, “Internet Consumer & Business Services”, “Communications & Networking", and "Information Services” sectors. These sectors are characterized by high margins, high growth rates, consolidation and product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.

Industry and sector concentrations vary as new loans are recorded and loans are paid off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrant or other equity interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Revenue recognition in any given year can be highly concentrated among several portfolio companies.

For the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company’s ten largest portfolio companies represented approximately 32.8% and 27.9% of the total fair value of the Company’s investments in portfolio companies, respectively. As of September 30, 2021 and December 31, 2020, the Company had seven and three investments, respectively, that represented 5% or more of the Company’s net assets. As of September 30, 2021, the Company had seven equity investments representing approximately 57.7% of the total fair value of the Company’s equity investment portfolio, and each represented 5% or more of the total fair value of the Company’s equity investments. As of December 31, 2020, the Company had four equity investments which represented approximately 63.7% of the total fair value of the Company’s equity investment portfolio, and each represented 5% or more of the total fair value of such investments.

Investment Collateral

In the majority of cases, the Company collateralizes its investments by obtaining a first priority security interest in a portfolio company’s assets, which may include its intellectual property. In other cases, the Company may obtain a negative pledge covering a company’s intellectual property. As of September 30, 2021, approximately 80.8% of the Company’s debt investments at fair value were in a senior secured first lien position, with 45.7% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 27.6% secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property, and 7.5% of the Company’s debt investments at fair value were in a first lien “last-out” senior secured position with a security interest in all of the assets of the portfolio company, whereby the “last-out” loans will be subordinated to the “first-out” portion of the unitranche loan in a liquidation, sale or other disposition. Another 17.0% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 2.2% were unsecured.

As of December 31, 2020, approximately 84.2% of the Company’s debt investments at fair value were in a senior secured first lien position, with 43.5% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 31.0% secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property, 0.6% of the Company’s debt investments at fair value were senior secured by the equipment of the portfolio company, and 9.1% of the Company’s debt investments at fair value were in a first lien “last-out” senior secured position with security interest in all of the assets of the portfolio company, whereby the “last-out” loans will be subordinated to the “first-out” portion of the unitranche loan in a liquidation, sale or other disposition. Another 15.1% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 0.7% were unsecured.

5. Debt

Outstanding Debt

As of September 30, 2021 and December 31, 2020, the Company had the following available and outstanding debt:


	September 30, 2021						December 31, 2020
(in thousands)	Total Available		Principal		Carrying Value (1)		Total Available		Principal		Carrying Value (1)
SBA Debentures (2)	$	175,000	$	64,500	$	62,368	$	99,000	$	99,000	$	98,716
2022 Notes		150,000		150,000		149,432		150,000		150,000		149,039
July 2024 Notes		105,000		105,000		104,164		105,000		105,000		103,942
February 2025 Notes		50,000		50,000		49,608		50,000		50,000		49,522
April 2025 Notes		—		—		—		75,000		75,000		73,351
June 2025 Notes		70,000		70,000		69,393		70,000		70,000		69,272
March 2026 A Notes		50,000		50,000		49,582		50,000		50,000		49,550
March 2026 B Notes		50,000		50,000		49,544		—		—		—
September 2026 Notes		325,000		325,000		320,127		—		—		—
2033 Notes		40,000		40,000		38,690		40,000		40,000		38,610
2027 Asset-Backed Notes		115,373		115,373		114,120		180,988		180,988		178,812
2028 Asset-Backed Notes		173,809		173,809		172,324		250,000		250,000		247,647
2022 Convertible Notes		230,000		230,000		229,349		230,000		230,000		228,177
Wells Facility (3) (4)		72,000		—		—		75,000		—		—
Union Bank Facility (3)		400,000		—		—		400,000		—		—
Total	$	2,006,182	$	1,423,682	$	1,408,701	$	1,774,988	$	1,299,988	$	1,286,638

(1)

Except for the Wells Facility and Union Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, associated with the debt as of the balance sheet date.

(2)

As of September 30, 2021, the total available debt under the SBA Debentures was $175.0 million, all of which was available to HC IV. The availability of the full amount of debt is subject to regulatory requirements and regulatory acknowledgement of contributed capital of $87.5 million. As of September 30, 2021, the Company has contributed and received regulatory acknowledgement for $59.5 million of capital to HC IV. As of December 31, 2020, the total available debt under the SBA debentures was $99.0 million, all of which was available in HT III.

(3)

Availability subject to the Company meeting the borrowing base requirements.

(4)

From time to time, the Company may guarantee certain unfunded commitments through its credit facilities, which have reduced the amount available to draw as of the reporting date.

Debt issuance costs, net of accumulated amortization, were as follows as of September 30, 2021 and December 31, 2020:


(in thousands)	September 30, 2021		December 31, 2020
SBA Debentures	$	2,132	$	284
2022 Notes		390		660
July 2024 Notes		836		1,058
February 2025 Notes		392		478
April 2025 Notes		—		1,649
June 2025 Notes		607		728
March 2026 A Notes		418		450
March 2026 B Notes		456		—
September 2026 Notes		4,873		—
2033 Notes		1,310		1,390
2027 Asset-Backed Notes		1,253		2,176
2028 Asset-Backed Notes		1,485		2,353
2022 Convertible Notes		371		1,040
Wells Facility (1)		66		198
Union Bank Facility (1)		1,577		2,485
Total	$	16,166	$	14,949

(1)

The Wells Facility and Union Bank Facility are line-of-credit arrangements, the debt issuance costs associated with these instruments are included within Other assets on the Consolidated Statements of Assets and Liabilities in accordance with ASC Subtopic 835-30.

For the three and nine months ended September 30, 2021, the components of interest expense, related fees, losses on debt extinguishment and cash paid for interest expense for debt were as follows:


	Three Months Ended September 30, 2021										Nine Months Ended September 30, 2021
(in thousands) Description	Interest expense(1)		Amortization of debt issuance cost (loan fees)(2)		Unused facility and other fees (loan fees)		Total interest expense and fees		Cash paid for interest expense		Interest expense(1)		Amortization of debt issuance cost (loan fees)(2)		Unused facility and other fees (loan fees)		Total interest expense and fees		Cash paid for interest expense
SBA Debentures	$	114	$	50	$	—	$	164	$	183	$	1,228	$	367	$	—	$	1,595	$	2,272
2022 Notes		1,776		90		—		1,866		—		5,327		270		—		5,597		3,469
July 2024 Notes		1,252		74		—		1,326		2,504		3,756		221		—		3,977		5,008
February 2025 Notes		535		29		—		564		1,070		1,605		86		—		1,691		2,140
April 2025 Notes		—		1,477		—		1,477		667		1,969		1,667		—		3,636		2,635
June 2025 Notes		754		40		—		794		—		2,263		121		—		2,384		1,509
March 2026 A Notes		563		24		—		587		1,125		1,688		70		—		1,758		1,875
March 2026 B Notes		569		26		—		595		1,138		1,308		59		—		1,367		1,138
September 2026 Notes		338		32		—		370		—		338		32		—		370		—
2033 Notes		625		27		—		652		625		1,875		81		—		1,956		1,875
2027 Asset-Backed Notes		1,344		72		—		1,416		1,348		4,593		922		—		5,515		4,677
2028 Asset-Backed Notes		2,226		251		—		2,477		2,256		7,684		867		—		8,551		7,785
2022 Convertible Notes		2,683		223		—		2,906		5,031		8,050		669		—		8,719		10,062
Wells Facility		—		43		146		189		—		—		132		460		592		—
Union Bank Facility		290		314		458		1,062		327		625		968		1,404		2,997		540
Total	$	13,069	$	2,772	$	604	$	16,445	$	16,274	$	42,309	$	6,532	$	1,864	$	50,705	$	44,985

(1)

Interest expense includes amortization of original issue discounts for the three months ended September 30, 2021 of $41 thousand, $168 thousand, and $6 thousand, for the 2022 Notes, 2022 Convertible Notes, and September 2026 Notes, respectively. Interest expense includes for the nine months ended September 30, 2021, $123 thousand, $504 thousand, and $6 thousand for the 2022 Notes, 2022 Convertible Notes, and September 2026 Notes, respectively.

(2)

“Amortization of debt issuance cost (loan fees)” includes $1,477 thousand, $28 thousand, and $197 thousand related to debt extinguishment costs for the April 2025 Notes, 2027 Asset-Backed Notes, and 2028 Asset-Backed Notes, respectively during both the three and nine months ended September 30, 2021 disclosed as a “Loss on debt extinguishment” in the Consolidated Statement of Operations.

For the three and nine months ended September 30, 2020, the components of interest expense and related fees and cash paid for interest expense for debt were as follows:


	Three Months Ended September 30, 2020										Nine Months Ended September 30, 2020
(in thousands) Description	Interest expense(1)		Amortization of debt issuance cost (loan fees)		Unused facility and other fees (loan fees)		Total interest expense and fees		Cash paid for interest expense		Interest expense(1)		Amortization of debt issuance cost (loan fees)		Unused facility and other fees (loan fees)		Total interest expense and fees		Cash paid for interest expense
SBA Debentures	$	841	$	111	$	—	$	952	$	1,752	$	2,670	$	503	$	—	$	3,173	$	4,285
2022 Notes		1,775		90		—		1,865		—		5,529		270		—		5,799		3,469
July 2024 Notes		1,252		74		—		1,326		2,505		3,756		221		—		3,977		5,009
February 2025 Notes		535		29		—		564		1,070		1,403		75		—		1,478		1,070
April 2025 Notes		984		95		—		1,079		984		2,953		285		—		3,238		2,953
June 2025 Notes		754		39		—		793		—		989		51		—		1,040		—
March 2026 A Notes		—		—		—		—		—		—		—		—		—		—
March 2026 B Notes		—		—		—		—		—		—		—		—		—		—
September 2026 Notes		—		—		—		—		—		—		—		—		—		—
2033 Notes		625		27		—		652		625		1,875		81		—		1,956		1,875
2027 Asset-Backed Notes		2,303		72		—		2,375		2,303		6,908		208		—		7,116		6,908
2028 Asset-Backed Notes		2,939		68		—		3,007		2,939		8,818		189		—		9,007		8,818
2022 Convertible Notes		2,684		223		—		2,907		5,032		8,051		669		—		8,720		10,063
Wells Facility		—		43		80		123		—		25		131		249		405		25
Union Bank Facility		115		319		554		988		238		1,438		947		1,389		3,774		1,734
Total	$	14,807	$	1,190	$	634	$	16,631	$	17,448	$	44,415	$	3,630	$	1,638	$	49,683	$	46,209

(1)

Interest expense includes amortization of original issue discounts of $41 thousand and $168 thousand for the 2022 Notes and 2022 Convertible Notes, respectively, for the three months ended September 30, 2020, and $123 thousand and $504 thousand for the 2022 Notes and Convertible Notes, respectively, for the nine months ended September 30, 2020.

As of September 30, 2021 and December 31, 2020, the Company was in compliance with the terms of all borrowing arrangements. There are no sinking fund requirements for any of the Company’s debt.

SBA Debentures

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments.

The Company reported the following SBA debentures outstanding principal balances as of September 30, 2021 and December 31, 2020:


(in thousands) Issuance/Pooling Date	Maturity Date	Interest Rate (1)	September 30, 2021		December 31, 2020
September 21, 2011	September 1, 2021	3.16%	$	—	$	25,000
March 21, 2012	March 1, 2022	3.28%		—		25,000
September 19, 2012	September 1, 2022	3.05%		—		24,250
March 27, 2013	March 1, 2023	3.16%		—		24,750
March 26, 2021	September 1, 2031	1.58%		37,500		—
June 25, 2021	September 1, 2031	1.58%		16,200		—
July 28, 2021	September 1, 2031	1.58%		5,400		—
August 20, 2021	September 1, 2031	1.58%		5,400		—
Total SBA Debentures			$	64,500	$	99,000

(1)

Interest rates are determined initially at issuance and reset to a fixed rate at the debentures pooling date. The rates are inclusive of annual SBA charges.

Our SBICs are periodically examined and audited by the SBA’s staff to determine its compliance with SBA regulations. Our SBICs were in compliance with the terms of the SBIC’s leverage as of September 30, 2021 and December 31, 2020, as a result of having sufficient capital as defined under the SBA regulations.

HT III

On May 26, 2010, HT III received a license to operate as an SBIC. As an SBIC, HT III can borrow funds from the SBA against eligible investments and additional contributions to regulatory capital. During the nine months ended September 30, 2021, the Company paid down $65.0 million on March 1, 2021 and $34.0 million on May 5, 2021. During the year ended December 31, 2020, the Company paid down $50.0 million of SBA debentures. As of September 30, 2021, HT III had no SBA guaranteed debentures outstanding. As of December 31, 2020, HT III had a total of $99.0 million of SBA guaranteed debentures outstanding. As of September 30, 2021 and December 31, 2020, HT III has paid the SBA commitment fees and facility fees of approximately $5.1 million and $5.1 million, respectively.

As noted in "Note 1 - Description of Business", the Company is in the process of winding down HT III, and on June 15, 2021 surrendered its SBA license and is no longer operating as an SBIC. All assets have been or will be transferred to an affiliated entity as part of the wind down. As of December 31, 2020, the Company held investments through HT III in 29 companies with a fair value of approximately $137.4 million, accounting for approximately 5.8% of the Company’s total investment portfolio. As of December 31, 2020, HT III held approximately $201.2 million in tangible assets which accounted for approximately 7.7% of the Company’s total assets as of December 31, 2020.

HC IV

On October 27, 2020, HC IV was licensed to operate as an SBIC under the SBA. The license has a 10-year term. With the license, HC IV has access to $175.0 million of capital through the SBA debenture program, in addition to the Company’s regulatory capital commitment of $87.5 million to HC IV which will be used for investment purposes. As of September 30, 2021, HC IV has the capacity to issue a total of $175.0 million in SBA guaranteed debentures, subject to SBA approval, of which $64.5 million was outstanding as of September 30, 2021. As of December 31, 2020, HC IV had no outstanding SBA debentures.

As of September 30, 2021, HC IV has paid the SBA commitment fees and facility fees of approximately $1.8 million and $1.6 million, respectively. As of September 30, 2021, the Company held investments in HC IV in 8 companies with a fair value of approximately $118.1 million, accounting for approximately 4.7% of the Company’s total investment portfolio. HC IV held approximately $128.0 million in tangible assets which accounted for approximately 4.6% of the Company’s total assets as of September 30, 2021. As of December 31, 2020, HC IV had no material assets other than $19.1 million of cash from the regulatory capital committed.

2022 Notes

On October 23, 2017, the Company issued $150.0 million in aggregate principal amount of 4.625% interest-bearing unsecured notes that mature on October 23, 2022 (the “2022 Notes”), unless repurchased in accordance with their terms. Interest on the 2022 Notes is due semiannually in arrears on April 23 and October 23 of each year, commencing on April 23, 2018. The 2022 Notes rank pari passu, or equally, in right of payment with all of the Company’s existing and future liabilities that are not so subordinated, or junior. The 2022 Notes effectively rank subordinated, or junior, to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2022 Notes rank structurally subordinated, or junior, to all existing and future indebtedness (including trade payables) incurred by subsidiaries, financing vehicles or similar facilities of the Company. The 2022 Notes are not guaranteed by any of the Company’s current or future subsidiaries. The Company may redeem some or all of the 2022 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after September 23, 2022.

2022 Convertible Notes

On January 25, 2017, the Company issued $230.0 million in aggregate principal amount of 4.375% interest-bearing unsecured notes due on February 1, 2022 (the “2022 Convertible Notes”), unless previously converted or caused to repurchase the notes in accordance with their terms by the holders of the 2022 Convertible Notes. The Company may not redeem the 2022 Convertible Notes at its option prior to maturity. The $230.0 million issued aggregate principal of the 2022 Convertible Notes includes an additional $30.0 million aggregate principal amount issued pursuant to the initial purchaser’s exercise in full of its overallotment option. Interest on the 2022 Convertible Notes is due semiannually in arrears on February 1 and August 1 of each year. The 2022 Convertible Notes are unsecured obligations of the Company and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

Prior to the close of business on the business day immediately preceding August 1, 2021, holders may convert their 2022 Convertible Notes under certain circumstances set forth in the terms of the 2022 Convertible Notes. On or after August 1, 2021 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, the Company will pay or deliver, as the case may be, at its election, cash, shares of its common stock or a combination of cash and shares of its common stock. The conversion rate was initially 60.9366 shares of common stock per $1,000 principal amount of 2022 Convertible Notes (equivalent to an initial conversion price of approximately $16.41 per share of common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such a corporate event in certain circumstances. In May 2021, the Company provided a notice of adjustment in the conversion rate to give effect to the dividend distributed in the second that quarter of 2021. As of September 30, 2021, the conversion rate was 61.6847 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an adjusted conversion price of approximately $16.21 per share of common stock). In addition, if certain corporate events occur, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

The 2022 Convertible Notes are accounted for in accordance with ASC Subtopic 470-20 (“Debt with Conversion and Other Options”). In accounting for the 2022 Convertible Notes, the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the 2022 Convertible Notes were approximately 98.5% and 1.5%, respectively. The original issue discount of 1.5% or $3.4 million, attributable to the conversion feature of the 2022 Convertible Notes was recorded in “capital in excess of par value” in the Consolidated Statements of Assets and Liabilities. As a result, the Company records interest expense comprised of both stated interest expense as well as accretion of the original issue discount resulting in an estimated effective interest rate of approximately 4.76%.

On July 26, 2021, the Company provided notice to the 2022 Convertible Notes holders by which the Company irrevocably elected to settle conversions using the combination settlement method as provided within the 2022 Convertible Note Indenture. Accordingly, the 2022 Convertible Notes holders will receive a cash payment of up to $1,000 for each $1,000 principal amount of 2022 Convertible Notes converted and the balance, if any, to be settled in shares of common stock of the Company. The Company will not issue fractional shares of common stock upon the conversion of the Notes. In lieu of issuing fractional shares, the Company will pay cash.

July 2024 Notes

On July 16, 2019, the Company issued $105.0 million in aggregate principal amount of 4.77% interest-bearing unsecured notes due on July 16, 2024 (the “July 2024 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in

a private placement notes offering. Interest on the July 2024 Notes is due semiannually. The July 2024 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

February 2025 Notes

On February 5, 2020, the Company issued $50.0 million in aggregate principal amount of 4.28% interest-bearing unsecured notes due February 5, 2025 (the “February 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the February 2025 Notes is due semiannually. The February 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

April 2025 Notes

On April 26, 2018, the Company issued $75.0 million in aggregate principal amount of 5.25% interest-bearing unsecured notes due April 30, 2025 (the “April 2025 Notes”), unless repurchased in accordance with the terms of the Fifth Supplemental Indenture to the Base Indenture, dated April 26, 2018 (the “April 2025 Notes Indenture”). On July 1, 2021, the Company fully redeemed the aggregate outstanding $75.0 million of principal and $0.6 million of accrued interest pursuant to the redemption terms of the April 2025 Notes Indenture. The Company accelerated recognition of $1.5 million of debt issuance costs associated with the extinguishment of the debt. Interest on the April 2025 Notes was payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The April 2025 Notes traded on the NYSE under the symbol “HCXZ”. The April 2025 Notes were general unsecured obligations and ranked pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

June 2025 Notes

On June 3, 2020, the Company issued $70.0 million in aggregate principal amount of 4.31% interest-bearing unsecured notes due June 3, 2025 (the “June 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering pursuant to the 2025 Note Purchase Agreement. Interest on the June 2025 Notes is due semiannually. The June 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

March 2026 A Notes

On November 4, 2020, the Company issued $50.0 million in aggregate principal amount of 4.5% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 A Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the March 2026 A Notes is due semiannually. The March 2026 A Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

March 2026 B Notes

On March 4, 2021, the Company issued $50.0 million in aggregate principal amount of 4.55% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 B Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement pursuant note offering. The sale of the March 2026 B Notes generated net proceeds of approximately $49.5 million. Aggregate offering expenses in connection with the transaction, including fees and commissions, were approximately $0.5 million. Interest on the March 2026 B Notes is due semiannually. The March 2026 B Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

September 2026 Notes

On September 16, 2021, the Company issued $325.0 million in aggregate principal amount of 2.625% interest-bearing unsecured notes due September 16, 2026 (the “September 2026 Notes”), unless repurchased in accordance with the terms of the Seventh Supplemental Indenture, dated September 16, 2021 (the “September 2026 Notes Indenture”). The issuance of the September 2026 Notes generated net proceeds of approximately $320.1 million. The aggregate offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $4.1 million of costs and $0.8 million related to the discount. Interest on the September 2026 Notes is payable semi-annually in arrears on March 16 and September 16 of each year, commencing on March 16, 2022. The September 2026 Notes are general unsecured obligations and rank pari passu, or equally in right

of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the September 2026 Notes at any time, or from time to time, at the redemption price set forth under the terms of the September 2026 Notes Indenture.

2033 Notes

On September 24, 2018, the Company issued $40.0 million in aggregate principal amount of 6.25% interest-bearing unsecured notes due October 30, 2033 (the “2033 Notes”), unless repurchased in accordance with the terms of the Sixth Supplemental Indenture to the Base Indenture, dated September 24, 2018 (the “2033 Notes Indenture”). Interest on the 2033 Notes is payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 2033 Notes trade on the NYSE under the symbol “HCXY.” The 2033 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the 2033 Notes at any time, or from time to time, at the redemption price set forth under the terms of the 2033 Notes Indenture after October 30, 2023.

2027 Asset-Backed Notes

On November 1, 2018, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $200.0 million in aggregate principal amount of 4.605% interest-bearing asset-backed notes due on November 22, 2027 (the “2027 Asset-Backed Notes”). The 2027 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2018-1 (the “2018 Securitization Issuer”) pursuant to a note purchase agreement, dated as of October 25, 2018, by and among the Company, Hercules Capital Funding 2018-1 LLC, as trust depositor, the 2018 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, and are backed by a pool of senior loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. As of October 21, 2020, the securitization is past its reinvestment period, and it may no longer reinvest principal collections into additional eligible loans. Accordingly, available funds from principal collections were used to pay $65.6 million and $19.0 million of the outstanding principal balance on the 2027 Asset-Backed Notes during the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively. Interest on the 2027 Asset-Backed Notes will be paid, to the extent of funds available.

On October 20, 2021, the Company fully repaid the aggregate outstanding $115.4 million of principal and repaid $0.4 million of accrued interest and fees pursuant to the redemption terms of the 2027 Asset-Backed Notes agreement. The Company will accelerate recognition of $1.2 million of debt issuance costs associated with the extinguishment of the debt.

Under the terms of the 2027 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2027 Asset-Backed Notes and through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2027 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of September 30, 2021 and December 31, 2020, there was approximately $5.8 million and $19.1 million, respectively, of funds segregated as restricted cash related to the 2027 Asset-Backed Notes. As a result of the extinguishment of the 2027 Asset-Backed Notes on October 20, 2021, all funds previously segregated have been released to the Company.

2028 Asset-Backed Notes

On January 22, 2019, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $250.0 million in aggregate principal amount of 4.703% interest-bearing asset-backed notes due on February 22, 2028 (the “2028 Asset-Backed Notes”). The 2028 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2019-1 (the “2019 Securitization Issuer”) pursuant to a note purchase agreement, dated as of January 14, 2019, by and among the Company, Hercules Capital Funding 2019-1 LLC, as trust depositor, the 2019 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, MUFG Securities Americas Inc., as a co-manager, and Wells Fargo Securities, LLC., as a co-manager, and are backed by a pool of senior loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. As of January 21, 2021, the securitization is past its reinvestment period, and it may no longer reinvest principal collections into additional eligible loans. Accordingly, available funds from principal collections were used to pay $76.2 million of the outstanding principal balance on the 2028 Asset-Backed Notes during the nine months ended September 30, 2021. There were no payments on the outstanding principal balance for the year ended December 31, 2020. Interest on the 2028 Asset-Backed Notes will be paid, to the extent of funds available.

On October 20, 2021, the Company fully repaid the aggregate outstanding $173.8 million of principal and repaid $0.7 million of accrued interest and fees pursuant to the redemption terms of the 2028 Asset-Backed Notes agreement. The Company will accelerate recognition of $1.5 million of debt issuance costs associated with the extinguishment of the debt.

Under the terms of the 2028 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2028 Asset-Backed Notes and through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2028 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of September 30, 2021 and December 31, 2020, there was approximately $7.7 million and $20.2 million, respectively, of funds segregated as restricted cash related to the 2028 Asset-Backed Notes. As a result of the extinguishment of the 2027 Asset-Backed Notes on October 20, 2021, all funds previously segregated have been released to the Company.

Credit Facilities

As of September 30, 2021 and December 31, 2020, the Company has two available credit facilities, the Wells Facility and the Union Bank Facility (together, the “Credit Facilities”). For the nine months ended September 30, 2021 and year ended December 31, 2020, the weighted average interest rate was 2.60% and 3.15%, respectively, and the average debt outstanding under the Credit Facilities was $32.1 million and $55.4 million, respectively.

Wells Facility

On June 29, 2015, the Company, through a special purpose wholly owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into an Amended and Restated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent, and the lenders party thereto from time to time.

On January 11, 2019, Hercules Funding II entered into the Seventh Amendment to the Wells Facility (the “Wells Facility Seventh Amendment”). Among other changes, the Wells Facility Seventh Amendment amends certain key provisions of the Wells Facility to reduce the current interest rate to LIBOR plus 3.00% with an interest rate floor of 3.00% and extends the maturity date to January 2023, unless terminated earlier in accordance with its terms. In addition, the Wells Fargo Capital Finance, LLC has committed $75.0 million in credit capacity with an accordion feature, in which the Company can increase the credit line up to an aggregate of $125.0 million, funded by additional lenders and with the agreement of Wells Fargo and subject to other customary conditions. The Wells Facility has an advance rate of 55% against eligible debt investments, and it is secured by all of the assets of Hercules Funding II. The Wells Facility requires payment of a non-use fee of up to 0.375% depending on the average monthly outstanding balance under the facility relative to the maximum amount of commitments at such time.

On July 2, 2019, Hercules Funding II entered into the Eighth Amendment to the Wells Facility (the “Wells Facility Eighth Amendment”). The Wells Facility Eighth Amendment amends certain provisions of the Wells Facility to, among other things, revise certain provisions thereof to further permit a third party special servicer to act as servicer after an event of default instead of the Company with respect to split-funded notes receivable owned by Hercules Funding II and an affiliate thereof (including Hercules Funding IV LLC).

The Wells Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require the Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, and a minimum tangible net worth ratio.

The Wells Facility provides for customary events of default, including, without limitation, with respect to payment defaults, breach of representations and covenants, certain key person provisions, cross acceleration provisions to certain other debt, lien, and judgment limitations, and bankruptcy.

Union Bank Facility

On February 20, 2020, the Company, through a special purpose wholly owned subsidiary, Hercules Funding IV LLC (“Hercules Funding IV”), as borrower, entered into the credit facility (the “Union Bank Facility”) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union Bank Facility replaced the Company’s credit facility (the “2019 Union Bank Facility”) entered into on February 20, 2019 with MUFG Union Bank, as the arranger and administrative agent, and the lenders party thereto. The 2019 Union Bank Facility replaced the Company’s credit facility (the “Prior Union Bank Facility”) entered into on May 5, 2016 with MUFG Union Bank, as the arranger and administrative agent, and the lenders party thereto. Any references to amounts related to the Union Bank Facility prior to February 20, 2020 were incurred and relate to the Prior Union Bank Facility or the 2019 Union Bank Facility, as applicable.

Under the Union Bank Facility, the lenders have made commitments of $400.0 million. The Union Bank Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $200.0 million, funded by existing or additional lenders and with the agreement of MUFG Union Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the Union Bank Facility to increase available borrowings. Debt under the Union Bank Facility generally bear interest at a rate per annum equal to LIBOR plus 2.50%. The Union Bank Facility matures on February 22, 2024, unless sooner terminated in accordance with its terms. The Union Bank Facility is secured by all of the assets of Hercules Funding IV. The Union Bank Facility requires payment of a non-use fee during the revolving credit availability period as follows: (i) 0.50% if less than or equal to 50% utilization; (ii) 0.375% if more than 50% utilization but less than or equal to 80% utilization; and (iii) 0.20% if more than 80% is utilized.

The Union Bank Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding IV, including covenants relating to certain changes of control of Hercules Funding IV. Among other things, these covenants also require the Company to maintain certain financial ratios, including a minimum interest coverage ratio with respect to Hercules Funding IV and a minimum tangible net worth in an amount that is in excess of $723.0 million.

The Union Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.

6. Income Taxes

The Company intends to operate so as to qualify to be subject to tax as a RIC under Subchapter M of the Code and, as such, will not be subject to U.S. federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.

To qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividends of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for distributions paid, to its stockholders. The amount to be paid out as a distribution is determined by the Board each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s earnings fall below the amount of dividend distributions declared, however, a portion of the total amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

Because federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Also, tax legislation requires that income be recognized for tax purposes no later than when recognized for financial reporting purposes, with certain exceptions.

During the three and nine months ended September 30, 2021, the Company declared and paid distributions of $0.39 per share and $1.15 per share, respectively. The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s taxable year generally based upon its taxable income for the full taxable year and distributions paid for the full taxable year. As a result, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full taxable year. If the Company had determined the tax attributes of its distributions taxable year-to-date as of September 30, 2021, 100% would be from its current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the actual tax attributes of the Company’s fiscal year of 2021 distributions to stockholders will be.

As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of its ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of its 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, or the Excise Tax Avoidance Requirement. The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

The Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for U.S. GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal corporate tax rates based on its taxable income.

Taxable income for the three months ended September 30, 2021 was approximately $43.3 million or $0.38 per share. Taxable net realized gains for the same period were $23.0 million or approximately $0.20 per share. Taxable income for the three months ended September 30, 2020 was approximately $37.2 million or $0.33 per share. Taxable net realized gains for the same period were $4.3 million or approximately $0.04 per share.

Taxable income for the nine months ended September 30, 2021 was approximately $125.3 million or $1.09 per share. Taxable net realized gains for the same period were $80.5 million or approximately $0.70 per share. Taxable income for the nine months ended September 30, 2020 was approximately $112.8 million or $1.01 per share. Taxable net realized gains for the same period were $14.2 million or approximately $0.13 per share.

For the three and nine months ended September 30, 2021, the Company paid approximately $0.1 million and $3.7 million of income tax, including excise tax, and had $4.9 million of accrued but unpaid tax expense as of September 30, 2021. For the three and nine months ended September 30, 2020, the Company paid approximately $0 and $2.5 million of income tax, including excise tax, and had $1.8 million accrued but unpaid tax expense as of September 30, 2020.

The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

7. Stockholders’ Equity

On May 6, 2019, the Company entered into an At-The-Market (“ATM”) equity distribution agreement with JMP Securities LLC (“JMP”) (the “2019 Equity Distribution Agreement”). The 2019 Equity Distribution Agreement provides that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent.

On July 2, 2020, the Company terminated the 2019 Equity Distribution Agreement and entered into a new ATM equity distribution agreement with JMP (the “2020 Equity Distribution Agreement”). As a result, the remaining shares that were available under the 2019 Equity Distribution Agreement are no longer available for issuance. The 2020 Equity Distribution Agreement provides that the Company may offer and sell up to 16.5 million shares of its common stock from time to time through JMP, as its sales agent. Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

During the three and nine months ended September 30, 2020, the Company sold no shares and approximately 6.0 million shares, respectively, of common stock under the 2019 Equity Distribution Agreement. For the same period, the Company received no proceeds during the three month period and accumulated net proceeds of approximately $73.9 million for the nine months ended September 30, 2020, respectively. This included $0.8 million of offering expense from these sales during the nine months ended

September 30, 2020. There were no shares of common stock sold under the 2020 Equity Distribution Agreement during the three and nine months ended September 30, 2021.

The Company generally uses net proceeds from these offerings to make investments, to repurchase or pay down liabilities and for general corporate purposes. As of September 30, 2021, approximately 16.2 million shares remain available for issuance and sale under the 2020 Equity Distribution Agreement.

The Company has issued stock options for common stock subject to future issuance, of which 209,511 and 438,809 were outstanding as of September 30, 2021 and December 31, 2020, respectively.

8. Equity Incentive Plans

The Company and its stockholders authorized and adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for purposes of attracting and retaining the services of its executive officers and key employees. In addition, the Company and its stockholders authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan”) for purposes of attracting and retaining the services of its Board. On June 21, 2017, the 2006 Plan expired in accordance with its terms and no additional awards may be granted under the 2006 Plan.

On May 13, 2018, the Board further amended and restated the 2004 Plan and renamed it the Hercules Capital, Inc. Amended and Restated 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”). Under the 2004 Plan, prior to the amendment and restatement, the Company was authorized to issue 12.0 million shares of common stock. The 2018 Equity Incentive Plan, among other things, increased the number of shares available for issuance to eligible participants by an additional 6.7 million shares. Unless earlier terminated by the Board, the 2018 Equity Incentive Plan will terminate on May 12, 2028. On May 13, 2018, the Board adopted the Hercules Capital, Inc. 2018 Non-Employee Director Plan (the “Director Plan”). The Director Plan provides equity compensation in the form of restricted stock to the Company’s non-employee directors. Subject to certain adjustments, the maximum aggregate number of shares of stock that may be authorized for issuance as restricted stock awards granted under the Director Plan is 300,000 shares. Unless sooner terminated by the Board, the Director Plan will terminate on May 12, 2028. The 2018 Equity Incentive Plan and the Director Plan were each approved by stockholders on June 28, 2018. Except for the Retention PSUs (as described below), these employee awards generally vest 33% one year after the date of grant and ratably over the succeeding 24 months.

On May 29, 2018, the Company filed an exemptive application with the SEC and an amendment to the application on September 27, 2018, with respect to the 2018 Equity Incentive Plan and the Director Plan for exemptive relief from certain provisions of the 1940 Act. On January 30, 2019, the Company received approval from the SEC on its request for exemptive relief that permits it to issue restricted stock to non-employee directors under the Director Plan and restricted stock and restricted stock units to certain of its employees, officers, and directors (excluding non-employee directors) under the 2018 Equity Incentive Plan. The exemptive order also allows participants in the Director Plan and the 2018 Equity Incentive Plan to (i) elect to have the Company withhold shares of its common stock to pay for the exercise price and applicable taxes with respect to an option exercise (“net issuance exercise”) and/or (ii) permit the holders of restricted stock to elect to have the Company withhold shares of its stock to pay the applicable taxes due on restricted stock at the time of vesting. Each individual employee would be able to make a cash payment to satisfy applicable tax withholding at the time of option exercise or vesting on restricted stock.

The Company determined that the fair value of options granted under the 2018 Equity Incentive Plan during the nine months ended September 30, 2021 and 2020 was approximately $123,000 and $9,000, respectively. During the nine months ended September 30, 2021 and 2020, approximately $23,000 and $22,000 of share-based cost due to stock option grants was expensed, respectively.

During the nine months ended September 30, 2021 and 2020, the Company granted 741,894 shares and 693,248 shares, respectively, of restricted stock awards pursuant to the 2018 Equity Incentive Plan and the Director Plan. The Company determined that the fair values, based on grant date close price, of restricted stock awards granted under the 2018 Equity Incentive Plan and the Director Plan during the nine months ended September 30, 2021 and 2020 were approximately $11.0 million and $9.7 million, respectively. As of September 30, 2021, there were approximately 12.2 million of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.9 years.

The following table summarizes the activities for the Company’s unvested restricted stock awards for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30,
	2021					2020
	Restricted Stock Awards			Weighted Average Grant Date Fair Value		Restricted Stock Awards			Weighted Average Grant Date Fair Value
Unvested as of December 31,		750,801		$	13.89		178,509		$	12.88
Granted		741,894		$	14.81		693,248		$	14.01
Vested		(372,542	)	$	13.97		(80,006	)	$	12.89
Forfeited		(61,672	)	$	14.34		(20,677	)	$	14.15
Unvested as of September 30,		1,058,481		$	14.54		771,074		$	13.86

During the nine months ended September 30, 2021 and 2020, the Company did not grant restricted stock units pursuant to the 2018 Equity Incentive Plan. The Company granted approximately 6,625 shares and 67,363 shares, respectively, of distribution equivalent units pursuant to the 2018 Equity Incentive Plan during the nine months ended September 30, 2021 and 2020. The Company determined that the fair values, based on grant date close price, of restricted stock units granted under the 2018 Equity Incentive Plan during the nine months ended September 30, 2021 and 2020 were approximately $0.1 million and $0.9 million, respectively. As of September 30, 2021, there were approximately $0.7 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be recognized over a weighted average period of 0.4 years.

The following table summarizes the activities for the Company’s unvested restricted stock units for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30,
	2021					2020
	Restricted Stock Units			Weighted Average Grant Date Fair Value		Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested as of December 31,		238,299		$	13.06		603,837		$	13.13
Granted		—		$	—		—		$	—
Distribution Equivalent Unit Granted		6,625		$	13.04		67,363		$	—
Vested (1)		(144,534	)	$	13.05		(367,414	)	$	13.21
Forfeited		(9,348	)	$	12.96		(8,294	)	$	13.00
Unvested as of September 30,		91,042		$	13.06		295,492		$	13.06

(1)

With respect to restricted stock units granted prior to January 1, 2019, receipt of the shares of the Company’s common stock underlying vested restricted stock units will be deferred for four years from grant date unless certain conditions are met. Accordingly, such vested restricted stock units will not be issued as common stock upon vesting until the completion of the deferral period.

During the nine months ended September 30, 2021, the Company expensed approximately $6.4 million of compensation expense related to restricted stock awards and restricted stock units. The Company had approximately $5.0 million in compensation expense related to restricted stock awards and restricted stock units during the nine months ended September 30, 2020.

On May 2, 2018, the Company granted long-term Retention Performance Stock Unit awards (the “Retention PSUs”) under the 2004 Plan and separate cash bonus awards with similar terms (the “Cash Awards”) to senior personnel. The awards are designed to provide incentives that increase along with the total shareholder return (“TSR”). On May 2, 2018, the target number of Retention PSUs granted to senior personnel was 1,299,757 in the aggregate and the target amount of the Cash Awards granted to senior personnel was $4.0 million in the aggregate. As of September 30, 2021, there were 487,409 Retention PSUs outstanding at target and the target amount of the Cash Awards was $3.0 million in the aggregate. During each of the nine months ended September 30, 2021 and 2020, no Retention PSUs at target were forfeited. The Retention PSUs and Cash Awards do not vest until the fourth anniversary “cliff vest” of the grant date (or a change in control of the Company, if earlier) and the Retention PSUs must generally be held and not disposed of until the fifth anniversary of the grant date, except in the event of death, disability or a change in control (the “Performance Period”). Distribution equivalent units will accrue in respect only of the Retention PSUs in the form of additional Retention PSUs, however will not be paid unless the Retention PSUs to which such distribution equivalent units relate actually vest. The Cash Awards are not eligible to accrue distribution equivalent units.

The Company follows ASC Topic 718 to account for the Retention PSUs and Cash Awards granted. Under ASC Topic 718, compensation cost associated with Retention PSUs is measured at the grant date based on the fair value of the award and is recognized over the Performance Period. As the Cash Awards are settled in cash, the award is expensed as a liability, and will be re-measured at each reporting period until the Performance Period is complete. The compensation expense for these awards is based on the per unit grant date valuation using a Monte-Carlo simulation multiplied by the target payout level. The payout level is calculated based the Company’s TSR relative to specified BDCs during the Performance Period.

As of September 30, 2021, all outstanding Retention PSUs and Cash Awards were unvested and there were approximately $1.0 million of total unrecognized compensation costs related to the Retention PSUs. These costs are expected to be recognized over a weighted average remaining vesting period of 0.58 years. As of September 30, 2021, there was approximately $4.8 million of accumulated compensation expense related to the Cash Awards. The accumulated expense related to the Cash Awards is included within Accounts payable and accrued liabilities in the Consolidated Statements of Assets and Liabilities. As of September 30, 2020, all outstanding Retention PSUs and Cash Awards were unvested and there were approximately $2.7 million of total unrecognized compensation costs related to the Retention PSUs. These costs are expected to be recognized over a weighted average remaining vesting period of 1.59 years. As of September 30, 2020, there was approximately $2.5 million of accumulated compensation expense related to the Cash Awards. The accumulated expense related to the Cash Awards is included within the Consolidated Statements of Assets and Liabilities.

9. Earnings Per Share

Shares used in the computation of the Company’s basic and diluted earnings per share are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2021			2020			2021			2020
Numerator
Net increase (decrease) in net assets resulting from operations	$	23,549		$	43,047		$	170,443		$	76,089
Less: Distributions declared-common and restricted shares		(45,190	)		(36,557	)		(133,143	)		(116,782	)
Undistributed earnings (loss)		(21,641	)		6,490			37,300			(40,693	)
Undistributed earnings (loss)-common shares		(21,641	)		6,445			36,931			(40,693	)
Add: Distributions declared-common shares		44,770			36,309			131,829			115,936
Numerator for basic and diluted change in net assets per common share	$	23,129		$	42,754		$	168,760		$	75,243

Denominator
Basic weighted average common shares outstanding		114,805			113,489			114,590			111,342
Incremental shares from assumed conversion of 2022 Convertible Notes		661			—			293			—
Common shares issuable		773			255			667			248
Weighted average common shares outstanding assuming dilution		116,239			113,744			115,550			111,590

Change in net assets per common share
Basic	$	0.20		$	0.38		$	1.47		$	0.68
Diluted	$	0.20		$	0.38		$	1.46		$	0.67

In the table above, unvested share-based payment awards that have non-forfeitable rights to distributions or distribution equivalents are treated as participating securities for calculating earnings per share. Unvested common stock options and restricted stock units are also considered for the purpose of calculating diluted earnings per share.

As disclosed in “Note 5 – Debt”, the Company has irrevocably elected combination settlement for the 2022 Convertible Notes. Therefore in calculating the dilutive impact of the 2022 Convertible Notes, only the portion expected to be settled in stock has been included in the calculations of diluted shares outstanding for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, the 2022 Convertible Notes under the treasury stock method was anti-dilutive and, accordingly, was excluded from the calculation of diluted earnings per share.

The calculation of change in net assets resulting from operations per common share—assuming dilution, excludes all anti-dilutive shares. For the three and nine months ended September 30, 2021 and 2020, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, are as follows:


	Three months ended September 30,				Nine Months Ended September 30,
Anti-dilutive Securities	2021		2020		2021		2020
2022 Convertible Notes		—		6,669,062		—		6,104,592
Unvested common stock options		198		90,689		88		80,342
Unvested restricted stock units		—		—		—		—
Unvested restricted stock awards		710		17,883		720		63,737
Unvested Retention PSUs		—		—		—		—

At both September 30, 2021 and December 31, 2020, the Company was authorized to issue 200 million shares of common stock with a par value of $0.001. Each share of common stock entitles the holder to one vote.

10. Financial Highlights

Following is a schedule of financial highlights for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30,
	2021			2020
Per share data (1):
Net asset value at beginning of period	$	11.26		$	10.55
Net investment income		0.95			1.03
Net realized gain (loss) on investments		0.12			(0.37	)
Net unrealized appreciation (depreciation) on investments		0.40			0.02
Total from investment operations		1.47			0.68
Net increase (decrease) in net assets from capital share transactions (1)		(0.11	)		0.02
Distributions of net investment income (6)		(1.06	)		(0.99	)
Distributions of capital gains (6)		(0.09	)		(0.06	)
Stock-based compensation expense included in investment income (2)		0.07			0.06
Net asset value at end of period	$	11.54		$	10.26

Ratios and supplemental data (in thousands, except per share data):
Per share market value at end of period	$	16.61		$	11.57
Total return (3)		23.05	%	(10.19)%
Shares outstanding at end of period		115,925			114,317
Weighted average number of common shares outstanding		114,590			111,342
Net assets at end of period	$	1,337,532		$	1,173,080
Ratio of total expense to average net assets (4)		9.93	%		11.29	%
Ratio of net investment income before investment gains and losses to average net assets (4)		11.01	%		13.39	%
Portfolio turnover rate (5)		33.14	%		23.86	%
Weighted average debt outstanding	$	1,246,769		$	1,302,048
Weighted average debt per common share	$	10.88		$	11.69

(1)

All per share activity is calculated based on the weighted average shares outstanding for the relevant period, except net increase (decrease) in net assets from capital share transactions, which is based on the common shares outstanding as of the relevant balance sheet date.

(2)

Stock option expense is a non-cash expense that has no effect on net asset value. Pursuant to ASC Topic 718, net investment income includes the expense associated with the granting of stock options which is offset by a corresponding increase in paid-in capital.

(3)

The total return for the nine months ended September 30, 2021 and 2020 equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. As such, the total return is not annualized. The total return does not reflect any sales load that must be paid by investors.

(4)

The ratios are calculated based on weighted average net assets for the relevant period and are annualized.

(5)

The portfolio turnover rate for the nine months ended September 30, 2021 and 2020 equals the lesser of investment portfolio purchases or sales during the period, divided by the average investment portfolio value during the period. As such, portfolio turnover rate is not annualized.

(6)

Includes distributions on unvested restricted stock awards.

11. Commitments and Contingencies

The Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans to the Company’s portfolio companies. A portion of these unfunded contractual commitments as of September 30, 2021 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements with its portfolio companies generally contain customary lending provisions which allow the Company relief from funding obligations for previously made unfunded commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the Company. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by future or unachieved milestones.

As of September 30, 2021 and December 31, 2020, the Company had approximately $309.9 million and $179.8 million, respectively, of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones. This excludes unfunded commitments related to the portion of portfolio company investments assigned to or directly committed by the Adviser Funds as described in "Note -12 Related Party Transactions".

The fair value of the Company’s unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

As of September 30, 2021 and December 31, 2020, the Company’s unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and unencumbered by milestones were as follows:


(in thousands)	Unfunded Commitments (1) as of
Portfolio Company	September 30, 2021		December 31, 2020
Debt Investments:
BridgeBio Pharma LLC	$	70,000	$	—
uniQure B.V.		65,000		—
G1 Therapeutics, Inc.		20,000		10,000
Albireo Pharma, Inc.		20,000		—
Dashlane, Inc.		19,300		10,000
Udacity, Inc.		15,000		15,000
BitSight		12,500		—
Equality Health, LLC		12,250		—
Codiak Biosciences, Inc.		10,000		20,000
AppDirect, Inc.		10,000		—
Rhino Labs, Inc.		8,000		—
Clarabridge, Inc.		7,500		7,500
Businessolver.com, Inc.		6,375		6,375
Carbon Health Technologies, Inc.		5,625		—
Grove Collaborative, Inc.		3,920		—
Ceros		3,846		—
Khoros (p.k.a Lithium Technologies)		3,019		—
Yipit, LLC		2,250		425
Logicworks		2,000		2,000
Demandbase		1,875		—
ThreatConnect, Inc.		1,600		1,800
3GTMS, LLC.		1,583		5,036
Ikon Science Limited		1,050		1,050
Mobile Solutions Services		565		848
CyberMaxx		471		—
Enmark Systems		457		—
Pineapple Energy LLC		280		—
Gryphon Networks Corp.		268		—
Cytracom Holdings LLC		250		250
ePayPolicy Holdings, LLC		250		250
SingleStore, Inc. (p.k.a. memsql, Inc.)		—		25,000
Bicycle Therapeutics PLC		—		15,000
Pollen, Inc.		—		13,000
Axsome Therapeutics, Inc.		—		10,000
Geron Corporation		—		6,500
Varsity Tutors LLC		—		5,210
CloudBolt Software Inc.		—		5,000
Nuvolo Technologies Corporation		—		5,000
Reltio, Inc.		—		5,000
Optimizely Mergerco, Inc.		—		2,500
The CM Group LLC		—		750
Velocity Clinical Research, Inc.		—		750
Total Unfunded Debt Commitments:		305,234		174,244

Investment Funds & Vehicles:
Forbion Growth Opportunities Fund I C.V.		4,647		5,527
Total Unfunded Commitments in Investment Funds & Vehicles:		4,647		5,527

Total Unfunded Commitments	$	309,881	$	179,771

(1)

For debt investments, amounts represent unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This also excludes $7.2 million of unfunded commitments as of September 30, 2021, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds as described in "Note -12 Related Party Transactions". There were no unfunded commitments related to the Adviser Funds as of December 31, 2020. For investment funds and vehicles, amount represents uncalled capital commitments in a private equity fund.

The following table provides additional information on the Company’s unencumbered unfunded commitments regarding milestones, expirations and type:


(in thousands)	September 30, 2021		December 31, 2020
Unfunded Debt Commitments:
Expiring during:
2021	$	151,125	$	129,710
2022		114,469		15,000
2023		17,550		6,375
2024		10,884		14,892
2025		2,314		8,267
2026		8,892		—
Total Unfunded Debt Commitments		305,234		174,244

Unfunded Commitments in Investment Funds & Vehicles:
Expiring during:
2030		4,647		5,527
Total Unfunded Commitments in Investment Funds & Vehicles		4,647		5,527
Total Unfunded Commitments	$	309,881	$	179,771

The following tables provide the Company’s contractual obligations as of September 30, 2021 and December 31, 2020:


As of September 30, 2021:	Payments due by period (in thousands)
Contractual Obligations (1)	Total		Less than 1 year		1 - 3 years		3 - 5 years		After 5 years
Debt (2)(3)	$	1,423,682	$	230,000	$	255,000	$	545,000	$	393,682
Lease and License Obligations (4)		8,832		3,065		3,562		1,427		778
Total	$	1,432,514	$	233,065	$	258,562	$	546,427	$	394,460



As of December 31, 2020:	Payments due by period (in thousands)
Contractual Obligations (1)	Total		Less than 1 year		1 - 3 years		3 - 5 years		After 5 years
Debt (5)(3)	$	1,299,988	$	25,000	$	454,000	$	300,000	$	520,988
Lease and License Obligations (4)		10,581		3,031		5,345		1,427		778
Total	$	1,310,569	$	28,031	$	459,345	$	301,427	$	521,766

(1)

Excludes commitments to extend credit to the Company’s portfolio companies and uncalled capital commitments in an investment fund.

(2)

Includes $64.5 million in principal outstanding under the SBA Debentures, $150.0 million of the 2022 Notes, $105.0 million of the July 2024 Notes, $50.0 million of the February 2025 Notes, $70.0 million of the June 2025 Notes, $50.0 million of the March 2026 A Notes, $50.0 million of the March 2026 B Notes, $40.0 million of the 2033 Notes, $325.0 million of the September 2026 Notes, $115.4 million of the 2027 Asset-Backed Notes, $173.8 million of the 2028 Asset-Backed Notes, and $230.0 million of the 2022 Convertible Notes as of September 30, 2021. There was no outstanding debt under the Wells Facility and Union Bank Credit Facility as of September 30, 2021.

(3)

Amounts represent future principal repayments and not the carrying value of each liability. See “Note 5 – Debt”.

(4)

Facility leases and licenses including short-term leases.

(5)

Includes $99.0 million in principal outstanding under the SBA Debentures, $150.0 million of the 2022 Notes, $105.0 million of the July 2024 Notes, $50.0 million of the February 2025 Notes, $75.0 million of the April 2025 Notes, $70.0 million of the June 2025 Notes, $50.0 million of the March 2026 A Notes, $40.0 million of the 2033 Notes, $181.0 million of the 2027 Asset-Backed Notes, $250.0 million of the 2028 Asset-Backed Notes, and $230.0 million of the 2022 Convertible Notes as of December 31, 2020. There was no outstanding debt under the Wells Facility and Union Bank Credit Facility as of December 31, 2020.

Certain premises are leased or licensed under agreements which expire at various dates through December 2028. For the three and nine months ended September 30, 2021, total rent expense, including short-term leases, amounted to approximately $0.8 million and $2.4 million, respectively. For the three and nine months ended September 30, 2020, total rent expense, including short-term leases, amounted to approximately $0.8 million and $2.3 million, respectively. The Company recognizes an operating lease liability and a ROU asset for all leases, with the exception of short-term leases. The lease payments on short-term leases are recognized as rent expense on a straight-line basis. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental weighted average cost of debt. The Company considers the general economic environment and its credit rating and factors in various financing and asset specific adjustments to ensure the discount rate applied is appropriate to the intended use of the underlying lease. While some of the leases contained options to extend and terminate, it is not reasonably certain that either option will be utilized and therefore, only the payments in the initial term of the leases were included in the lease liability and ROU asset.

The following table sets forth information related to the measurement of the Company’s operating lease liabilities and supplemental cash flow information related to operating leases as of September 30, 2021 and 2020:


(in thousands)	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
Total operating lease cost	$	724	$	735	$	2,196	$	2,205
Cash paid for amounts included in the measurement of lease liabilities	$	578	$	562	$	1,733	$	2,223
ROU assets obtained in exchange for lease liabilities	$	—	$	—	$	—	$	—


	As of September 30, 2021			As of September 30, 2020
Weighted-average remaining lease term (in years)		4.37			4.28
Weighted-average discount rate		4.87	%		5.45	%

The following table shows future minimum lease payments under the Company’s operating leases and a reconciliation to the operating lease liability as of September 30, 2021:


(in thousands)	As of September 30, 2021
Remainder of 2021	$	587
2022		2,966
2023		2,305
2024		653
2025		693
Thereafter		1,512
Total lease payments		8,716
Less: imputed interest		(839	)
Total operating lease liability	$	7,877

The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, the Company does not expect any current matters will materially affect the Company’s financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on the Company’s financial condition or results of operations in any future reporting period.

12. Related Party Transactions

As disclosed in "Note 2 - Summary of Significant Accounting Policies", the Adviser Subsidiary is accounted for as a portfolio investment of the Company held at fair value. Refer to "Note 4 – Investments" for information related to income, gains and losses recognized related to the Company’s investment.

In March and July 2021, the Adviser Subsidiary entered into investment management agreements with its privately-offered Adviser Funds, and it receives management fees based on the assets under management of the Adviser Funds and may receive incentive fees based on the performance of the Adviser Funds. Additionally, the Company entered into a shared services agreement (“Sharing Agreement”) with the Adviser Subsidiary, through which the Adviser Subsidiary will utilize human capital resources (including administrative functions) and other resources and infrastructure (including office space and technology) of the Company. Under the terms of the Sharing Agreement, the Company allocates the related expenses of shared services to the Adviser Subsidiary based on direct time spent, investment activity, and proportion of assets under management depending on the nature of the expense. The Company’s total expenses for the three and nine months ended September 30, 2021 are net of expenses allocated to the Adviser Subsidiary of $1.3 million and $3.5 million, respectively. As of September 30, 2021, the Company owed the Adviser Subsidiary $0.1 million related to settlement of investment assignments to the Adviser Funds. As of December 31, 2020, no amounts were due to or outstanding from the Adviser Subsidiary. During the three and nine months ended September 30, 2020, the Company did not allocate any expenses to the Adviser Subsidiary.

In addition, the Company may from time-to-time make investments alongside the Adviser Funds or assign a portion of investments to the Adviser Funds in accordance with the Company’s allocation policy. During the three and nine months ended September 30, 2021, $99.6 million and $204.5 million of 2021 investment commitments were assigned to or directly committed by the Adviser Funds. During the nine months ended September 30, 2021, fundings of $139.5 million were assigned to, directly originated, or funded by the Adviser Funds. The Company received $107.6 million from the Adviser Funds relating to the assigned

investments during the nine months ended September 30, 2021. No investments were assigned to, directly originated, or funded by the Adviser Funds, nor were any amounts received in the three and nine months ended September 30, 2020.

13. Recent Accounting Pronouncements

Recently Issued or Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, “Debt  Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging  Contracts in Entity’s Own Equity (Subtopic 815-40)”, which is intended to address issues identified as a result of the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. The amendment, among other things, reduces the number of accounting models for convertible debt instruments and convertible preferred stock and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share. The new guidance is effective for interim and annual periods beginning after December 15, 2021. The Company does not intend to early adopt the standard and does not anticipate adoption to have a material impact to the consolidated financial statements and related disclosures.

14. Subsequent Events

On October 21, 2021, the Board declared a cash distribution of $0.33 per share to be paid on November 17, 2021 to stockholders of record as of November 10, 2021. In addition to the cash distribution, and as part of the declared supplemental cash distribution of $0.28 per share for the fiscal 2021 made on April 21, 2021, the Board declared a supplemental cash distribution of $0.07 per share to be paid on November 17, 2021 to stockholders of record as of November 10, 2021. Including the $0.07 per share supplemental cash distribution paid to stockholders of record as of May 12, 2021 and August 11, 2021, the Board has declared to date a total of $0.21 per share of the $0.28 per share fiscal 2021 supplemental cash distribution declared on April 21, 2021.

Redemption of 2027 Asset-Backed and 2028 Asset-Backed Notes

On October 20, 2021, the Company fully redeemed the aggregate outstanding $289.2 million of principal and $1.1 million of accrued interest and fees pursuant to the redemption terms of the 2027 Asset-Backed and 2028 Asset Backed Notes Indentures. The Company accelerated recognition of $2.7 million of debt issuance costs associated with the extinguishment of the debt, which would represent a $0.02 per share impact using the Company’s weighted average shares for the most recent quarter.

ITEM 2. 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. 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. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. 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 current and future effects of the COVID-19 pandemic 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;



our ability to operate as a BDC, a SBIC and a RIC;



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.

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.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A— “Risk Factors” of Part II of this quarterly report on Form 10-Q, Item 1A— “Risk Factors” of our annual report on Form 10-K filed with the SEC on February 23, 2021 and under “Forward-Looking Statements” of this Item 2.

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. The non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies.

COVID-19 Developments

The COVID-19 pandemic, which began in late 2019 has and threatens to continue to create market volatility and disruption in the U.S. and across the global capital markets. We are continuing to closely monitor the impact of COVID-19 on all aspects of our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and financial markets. With the rollout of vaccination programs in the U.S. and globally, several countries, as well as certain states in the U.S., have lifted or reduced certain travel restrictions, business restrictions, and other quarantine measures. This has contributed to a positive economic recovery since 2020, and reduced volatility in the U.S. capital market. Although the economic recovery and rollout of vaccination programs are promising, the potential exists for the Delta variant or other variants to impede the global economic recovery. Many areas have since experienced a surge in the reported number of cases, hospitalizations and deaths related to the COVID-19 pandemic. These surges have led to the re-introduction of such restrictions and business shutdowns in certain states within the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere.

As a result of the pressures on liquidity and financial results to certain of our portfolio companies caused by the COVID-19 pandemic, portfolio companies may draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans. The extent to which the COVID-19 pandemic will continue to affect the financial condition and liquidity of our portfolio companies’ results of operations will depend on future developments, such as the speed and extent of further vaccine distribution and the impact of the Delta variant or other variants that might arise, which are highly uncertain and cannot be predicted.

Equally the extent of the impact of the COVID-19 pandemic on our own operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend to a large extent on future developments regarding the duration and severity of the coronavirus, effectiveness of vaccination deployment and the actions taken by governments (including stimulus measures or the lack thereof) and their citizens to contain the coronavirus or treat its impact, all of which are beyond our control. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. Given the fluidity of the situation, neither our management nor our Board is able to predict the full impact of COVID-19 on our business, future results of operations, financial position, or cash flows at this time.

Overview

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, Bethesda, MD, and San Diego, CA.

Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticated and customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companies but also have investments in public companies.

We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, including warrants, options or other rights to purchase or convert into common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of the portfolio company. We also provide “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position.

Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and equity investments. Our primary business objectives are to increase our net income, net investment income, and net asset value (“NAV”) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio

companies in connection with future equity financing rounds. Capital that we provide directly to venture capital-backed companies in technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations.

We also make investments in qualifying small businesses through our wholly owned SBICs. We currently have one active SBIC, HC IV, which holds approximately $128.0 million in tangible assets which accounted for approximately 4.6% of our total assets as of September 30, 2021.

We have qualified as and have elected to be treated for tax purposes as a RIC under Subchapter M of the Code. Pursuant to this election, we generally will not be subject to corporate-level taxes on any income and gains that we distribute as dividends for federal income tax purposes to our stockholders. However, our qualification and election to be treated as a RIC requires that we comply with provisions contained in Subchapter M of the Code. For example, as a RIC we must earn 90% or more of our gross income during each taxable year from qualified sources, typically referred to as “good income,” as well as satisfy certain quarterly asset diversification and annual income distribution requirements.

We are 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. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents and high-quality debt investments that mature in one year or less.

In May 2020, Hercules Adviser LLC (the "Adviser Subsidiary") was formed as our wholly owned Delaware limited liability subsidiary to provide investment advisory and related services to investment vehicles (“Adviser Funds”) owned by one or more unrelated third-party investors ("External Parties"). The Adviser Subsidiary receives fee income for the services provided to Adviser Funds. We have been granted no-action relief by the staff of the SEC to allow the Adviser Subsidiary to register as a registered investment adviser under the 1940 Act, as amended.

Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology, life sciences, and sustainable and renewable technology related companies at various stages of their development. Consistent with requirements under the 1940 Act, we invest primarily in U.S. based companies and to a lesser extent in foreign companies.

We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio of investments or an entire company or sell a portion of our portfolio on an opportunistic basis. 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 may also invest in the equity of these funds, along with other third parties, from which we would seek to earn a return and/or future incentive allocations. Some of these transactions could be material to our business. Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditions including, without limitation, the approval of our Board and required regulatory or third-party consents and, in certain cases, the approval of our stockholders. Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may require significant management resources either during the transaction phase or on an ongoing basis depending on the terms of the transaction.

Portfolio and Investment Activity

The total fair value of our investment portfolio was approximately $2.5 billion and $2.4 billion as of September 30, 2021 and December 31, 2020, respectively. The fair value of our debt investment portfolio as of September 30, 2021 was approximately $2.3 billion, compared to a fair value of approximately $2.1 billion at December 31, 2020. The fair value of the equity portfolio as of September 30, 2021 was approximately $204.4 million, compared to a fair value of approximately $224.7 million as of December 31, 2020. The fair value of the warrant portfolio as of September 30, 2021 was approximately $42.9 million, compared to a fair value of approximately $34.6 million as of December 31, 2020.

Portfolio Activity

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. From time to time, unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over the two succeeding quarters from close. Not all debt commitments represent future cash requirements. Similarly, 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. Non-binding 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. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

During the nine months ended September 30, 2021, a total of $204.5 million of investment commitments made, representing $139.5 million of debt, equity, and warrant fundings during the period, were assigned to, directly funded or originated by the Adviser Funds.

Our portfolio activity for the nine months ended September 30, 2021 and September 30, 2020 was comprised of the following:


(in millions)	September 30, 2021			September 30, 2020
Gross Debt Commitments Originated by Hercules Capital and the Adviser Funds (1)
New portfolio company	$	1,258.1		$	744.5
Existing portfolio company		413.6			290.8
Sub-total		1,671.7			1,035.3
Less: Debt commitments assigned to or directly committed by the Adviser Funds (3)		(202.5	)	—
Net Debt Commitments	$	1,469.2		$	1,035.3
Gross Debt Fundings by Hercules Capital and the Adviser Funds (2)
New portfolio company	$	786.2		$	348.0
Existing portfolio company		258.4			281.4
Sub-total		1,044.6			629.4
Less: Debt fundings assigned to or directly funded by the Adviser Funds (3)		(137.6	)	—
Net Debt Fundings	$	907.0		$	629.4
Equity Investments and Investment Funds and Vehicles Fundings by Hercules Capital and the Adviser Funds
New portfolio company	$	15.3		$	—
Existing portfolio company		5.2			2.0
Sub-total	$	20.5		$	2.0
Less: Equity fundings assigned to or directly funded by the Adviser Funds (3)		(2.0	)	—
Total	$	18.5		$	2.0
Unfunded Contractual Commitments (4)
Total	$	309.9		$	242.5
Non-Binding Term Sheets
New portfolio company	$	185.2		$	77.5
Existing portfolio company		63.0			20.4
Total	$	248.2		$	97.9

(1)

Includes restructured loans and renewals in addition to new commitments.

(2)

Funded amounts include debt on revolving facilities.

(3)

Commitments and fundings include amounts assigned to, directly committed or originated, funded by the Adviser Funds, as applicable.

(4)

Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $7.2 million of unfunded commitments as of September 30, 2021, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the nine months ended September 30, 2021, we received approximately $740.3 million in aggregate principal repayments. Of the approximately $740.3 million of aggregate principal repayments, approximately $62.0 million were scheduled principal payments and approximately $678.3 million were early principal repayments related to 36 portfolio companies. $63.8 million of the early principal repayments were early repayments due to merger and acquisition transactions of five portfolio investments.

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the nine months ended September 30, 2021 and September 30, 2020 was as follows:


(in millions)	September 30, 2021			September 30, 2020
Beginning portfolio	$	2,354.1		$	2,314.5
New fundings and restructures		1,065.1			631.4
Fundings assigned to or directly funded by the Adviser Funds(1)		(139.6	)		—
Warrants not related to current period fundings		0.7			(0.2	)
Principal payments received on investments		(62.0	)		(54.0	)
Early payoffs		(678.3	)		(426.7	)
Accretion of loan discounts and paid-in-kind principal		32.7			33.1
Net acceleration of loan discounts and loan fees due to early payoff or restructure		(14.0	)		(8.6	)
New loan fees		(12.2	)		(7.7	)
Sale of investments		(97.9	)		(22.1	)
Gain (loss) on investments due to sales or write offs		15.5			(41.4	)
Net change in unrealized appreciation (depreciation)		47.8			2.5
Ending portfolio	$	2,511.9		$	2,420.8

(1)

Funded amounts include $31.9 million of direct fundings of debt investments made by the Adviser Funds.

As of September 30, 2021, we held debt, warrants, or equity positions in one company that has filed a registration statement on Form S-1 with the SEC in contemplation of a potential initial public offering, and four companies that have filed definitive agreements for reverse merger initial public offerings with special purpose acquisition companies. There can be no assurance that companies that have yet to complete their initial public offerings will do so in a timely manner or at all.

The following table presents certain selected information regarding our debt investment portfolio as of September 30, 2021 and December 31, 2020:


	September 30, 2021			December 31, 2020
Number of portfolio companies with debt outstanding		91			97
Percentage of debt bearing a floating rate		95.9	%		96.9	%
Percentage of debt bearing a fixed rate		4.1	%		3.1	%
Weighted average core yield (1)		11.4	%		11.6	%
Weighted average effective yield (2)		12.7	%		12.9	%
Prime rate at the end of the period		3.3	%		3.3	%

(1)

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.

(2)

The effective yield on our debt investments includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events. The effective yield is derived by dividing total investment income by the weighted average earning investment portfolio assets outstanding during the year, excluding non-interest earning assets such as warrants and equity investments.

Income from Portfolio

We generate revenue in the form of interest income, primarily from our investments in debt securities, and fee income primarily from commitment and facility fees. Interest income is recognized in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected. Fees generated in connection with our debt investments are recognized over the life of the loan or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital gains, if any, on warrants or other equity securities that we acquire from our portfolio companies. Our investments generally range from $15.0 million to $40.0 million, although we may make investments in amounts above or below that range. As of September 30, 2021, our debt investments generally have a term of between two and seven years and typically bear interest at a rate ranging from approximately 7.0% to approximately 14.5%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, balloon payment fees, commitment fees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.

Interest on debt securities is generally payable monthly, with amortization of principal typically occurring over the term of the investment. In addition, our loans may include an interest-only period ranging from three to eighteen months or longer. In limited instances in which we choose to defer amortization of the loan for a period of time from the date of the initial investment, the principal amount of the debt securities and any accrued but unpaid interest become due at the maturity date.

Loan origination and commitment fees which are received in full at the inception of a loan are deferred and amortized into fee income as an enhancement to the related loan’s yield over the contractual life of the loan. We recognize nonrecurring fees amortized

over the remaining term of the loan commencing in the quarter relating to specific loan modifications. We had approximately $39.2 million of unamortized fees as of September 30, 2021, of which approximately $33.7 million was included as an offset to the cost basis of our current debt investments and approximately $5.5 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2020, we had approximately $39.2 million of unamortized fees, of which approximately $32.2 million was included as an offset to the cost basis of our current debt investments and approximately $7.0 million was deferred contingent upon the occurrence of a funding or milestone.

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 September 30, 2021, we had approximately $38.4 million in exit fees receivable, of which approximately $35.1 million was included as a component of the cost basis of our current debt investments and approximately $3.3 million was a deferred receivable related to expired commitments. As of December 31, 2020, we had approximately $40.9 million in exit fees receivable, of which approximately $37.6 million was included as a component of the cost basis of our current debt investments and approximately $3.3 million was a deferred receivable related to expired commitments.

We have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our ability to be subject to tax as a RIC, this non-cash source of income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. We recorded approximately $2.9 million and $2.3 million in PIK income during the three months ended September 30, 2021 and 2020, respectively. We recorded approximately $8.1 million and $6.5 million in PIK income during the nine months ended September 30, 2021 and 2020, respectively.

The core yield on our debt investments, a non-GAAP measure, which 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, was 11.8% and 11.3% during the three months ended September 30, 2021 and 2020, respectively. The core yield is derived by dividing total GAAP investment income by the weighted average earning investment portfolio assets at amortized cost outstanding during the year, excluding fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events, but including income from expired commitments. We believe this measure 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 with our peer companies. The effective yield on our debt investments, which includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events, was 12.7% and 12.6% for the three months ended September 30, 2021 and 2020, respectively. The effective yield is derived by dividing total GAAP investment income by the weighted average earning investment portfolio assets at amortized cost outstanding during the quarter, excluding non-interest earning assets such as warrants and equity investments. We believe this measure is useful for our investors as it provides the yield for our entire debt portfolio, which investors can compare with that of our peer companies. Both the core yield and effective yield may be higher than what our common stockholders may realize as the core yield and effective yield do not reflect our expenses and any sales load paid by our common stockholders. The total yield, a non-GAAP measure, on our investment portfolio was 11.8% and 11.3% during the three months ended September 30, 2021 and 2020, respectively. The total yield is derived by dividing total GAAP investment income by the weighted average investment portfolio assets outstanding during the quarter, including non-interest earning assets such as warrants and equity investments at amortized cost. We believe this measure is useful for our investors as it provides the total yield for our investments comprising of debt, equity, and warrants at origination to allow a more meaningful comparison with our peer companies. The comparable total yield calculated on a GAAP basis on our investment portfolio was 11.1% and 11.5% for the three months ended September 30, 2021 and 2020, respectively. The comparable GAAP measure is calculated by dividing total GAAP investment income by our total investment portfolio assets at fair value outstanding at the beginning of the year.

The total return for our investors was approximately 23.1% and (10.2)% during the nine months ended September 30, 2021 and 2020, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that must be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

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.

The following table presents the fair value of the Company’s portfolio by industry sector as of September 30, 2021 and December 31, 2020:


	September 30, 2021					December 31, 2020
(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Drug Discovery & Development	$	974,136		38.8	%	$	757,163		32.2	%
Software		671,352		26.7	%		780,045		33.1	%
Internet Consumer & Business Services		452,019		18.0	%		514,538		21.9	%
All other industries (1)		414,347		16.5	%		302,332		12.8	%
Total	$	2,511,854		100.0	%	$	2,354,078		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. As of September 30, 2021, the fair value as a percentage of total portfolio does not exceed 4.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, or “Internet Consumer & Business Services”.

Industry and sector concentrations vary as new loans are recorded and loans are paid off. 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.

For the nine months ended September 30, 2021 and the year ended December 31, 2020, our ten largest portfolio companies represented approximately 32.8% and 27.9% of the total fair value of our investments in portfolio companies, respectively. As of September 30, 2021 and December 31, 2020, we had seven and three investments, respectively, that represented 5% or more of our net assets. As of September 30, 2021, we had seven equity investments representing approximately 57.7% of the total fair value of our equity investment portfolio, and each represented 5% or more of the total fair value of our equity investments. As of December 31, 2020, we had four equity investments which represented approximately 63.7% of the total fair value of our equity investment portfolio, and each represented 5% or more of the total fair value of our equity investments. No single portfolio investment represented more than 10% of the fair value of our total investments as of September 30, 2021 and December 31, 2020.

As of September 30, 2021, approximately 95.9% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime or LIBOR-based interest rate floor. Changes in interest rates, including Prime rate and LIBOR, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Our investments in senior secured debt may also have detachable equity enhancement features, typically in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of September 30, 2021, we held warrants in 94 portfolio companies, with a fair value of approximately $42.9 million. The fair value of our warrant portfolio increased by approximately $8.3 million, as compared to a fair value of $34.6 million as of December 31, 2020 primarily related to the increase in fair value of portfolio companies.

Our existing warrant holdings would require us to invest approximately $63.6 million to exercise such warrants as of September 30, 2021. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Portfolio Grading

We use an investment grading system, which grades each debt investment on a scale of 1 to 5 to characterize and monitor our expected level of risk on the debt investments in our portfolio with 1 being the highest quality. The following table shows the

distribution of our outstanding debt investments on the 1 to 5 investment grading scale at fair value as of September 30, 2021 and December 31, 2020, respectively:


(in thousands)	September 30, 2021						December 31, 2020
Investment Grading	Number of Companies	Debt Investments at Fair Value		Percentage of Total Portfolio			Number of Companies	Debt Investments at Fair Value		Percentage of Total Portfolio
1	21	$	692,120		30.6	%	16	$	410,955		19.6	%
2	46		1,103,844		48.8	%	46		1,027,931		49.1	%
3	22		458,178		20.2	%	28		621,323		29.7	%
4	1		8,294		0.4	%	3		25,313		1.2	%
5	1		1,106		0.0	%	4		8,913		0.4	%
	91	$	2,263,542		100.0	%	97	$	2,094,435		100.0	%

As of September 30, 2021 and December 31, 2020, our debt investments had a weighted average investment grading of 1.92 and 2.16 on a cost basis, respectively. Our policy is to downgrade our portfolio companies as they approach the point in time when they will require additional equity capital. Additionally, we may downgrade our portfolio companies if they are not meeting our financing criteria or are underperforming relative to their respective business plans. Various companies in our portfolio will require additional funding in the near term or have not met their business plans and therefore have been downgraded until their funding is complete or their operations improve.

As the COVID-19 pandemic and related disruption to markets and businesses continues to evolve, we are continuing to monitor and work with the management teams and stakeholders of our portfolio companies to navigate the significant market, operational and economic challenges created by the continuing COVID-19 pandemic. This includes continuing to proactively assess and manage potential risks across our debt investment portfolio.

Non-accrual Investments

The following table shows the amortized cost of our performing and non-accrual investments as of September 30, 2021 and December 31, 2020:


	As of September 30,					As of December 31,
	2021					2020
(in millions)	Amortized Cost		Percentage of Total Portfolio at Amortized Cost			Amortized Cost		Percentage of Total Portfolio at Amortized Cost
Performing	$	2,401		99.0	%	$	2,284		98.7	%
Non-accrual		24		1.0	%		31		1.3	%
Total Investments	$	2,425		100.0	%	$	2,315		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. When a debt investment is placed on non-accrual status, we cease to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay our current and future contractual obligations. We may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Results of Operations

Comparison of the three and nine months ended September 30, 2021 and 2020

Investment Income

Total investment income for the three months ended September 30, 2021 was approximately $70.2 million as compared to approximately $70.3 million for the three months ended September 30, 2020. Total investment income for the nine months ended September 30, 2021 was approximately $208.5 million as compared to approximately $211.9 million for the nine months ended September 30, 2020.

Interest Income

For the three and nine months ended September 30, 2021 and 2020, the components of interest income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Contractual interest income	$	50,597	$	51,529	$	150,901	$	154,741
Exit fee interest income		9,029		10,824		26,599		30,271
PIK interest income		2,893		2,319		8,105		6,466
Other interest income (1)		793		703		2,795		3,656
Total interest income	$	63,312	$	65,375	$	188,400	$	195,134

(1)

Other interest income includes OID interest income and interest recorded on other assets.

Interest income for the three months ended September 30, 2021 totaled approximately $63.3 million as compared to approximately $65.4 million for the three months ended September 30, 2020. Interest income for the nine months ended September 30, 2021 totaled approximately $188.4 million as compared to approximately $195.1 million for the nine months ended September 30, 2020. The decrease in interest income for the three and nine months ended September 30, 2021 as compared to the same period ended September 30, 2020 is primarily attributable to decrease in the weighted average principal outstanding of loans.

Of the $63.3 million in interest income for the three months ended September 30, 2021, approximately $60.1 million represents recurring income from the contractual servicing of our loan portfolio and approximately $3.2 million represent income related to the acceleration of income due to early loan repayments and other one-time events during the period. Of the $65.4 million in interest income for the three months ended September 30, 2020, approximately $61.0 million represents income from recurring interest and approximately $4.4 million represents the acceleration of interest income due to early loan repayments and other one-time events during the period.

Of the $188.4 million in interest income for the nine months ended September 30, 2021, approximately $178.3 million represents recurring income from the contractual servicing of our loan portfolio and approximately $10.1 represents income related to the acceleration of income due to early loan repayments and other one-time events during the period. Of the $195.1 million in interest income for the nine months ended September 30, 2020, approximately $183.1 million represents recurring interest and approximately $12.0 million represents acceleration of interest income due to early loan repayments and other one-time events during the period.

The following table shows the PIK-related activity for the nine months ended September 30, 2021 and 2020, at cost:


	Nine Months Ended September 30,
(in thousands)	2021			2020
Beginning PIK interest receivable balance	$	14,817		$	14,498
PIK interest income during the period		8,105			6,466
PIK accrued (capitalized) to principal but not recorded as income during the period		—			(5,684	)
Payments received from PIK loans		(5,692	)		(1,330	)
Realized gain (loss)		(180	)		—
Ending PIK interest receivable balance	$	17,050		$	13,950

The increase in PIK interest income during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is due to an increase in the weighted average principal outstanding for loans on accrual which bear PIK interest. Payments on PIK loans are normally received only in the event of payoffs. PIK receivable at both September 30, 2021 and September 30, 2020 represents less than 1% of total debt investments.

Fee Income

Fee income from commitment, facility and loan related fees for the three and nine months ended September 30, 2021 totaled approximately $6.9 million and $20.1 million respectively, as compared to approximately $5.0 million and $16.8 million for the three and nine months ended September 30, 2020 respectively. The increase in fee income for the three and nine months ended September 30, 2021 is primarily due to an increase in the facilities fees and acceleration of fee income due to early repayments.

For the three and nine months ended September 30, 2021, of the $6.9 million and $20.1 million, respectively, in fee income from commitment, facility, and loan related fees, approximately $1.9 million and $5.6 million represents income from recurring fee amortization, approximately $0.9 million and $2.4 million represents the acceleration of unamortized fees from expired commitments,

and approximately $4.1 million and $12.1 million represents income due to the acceleration of unamortized fees related to early payoffs during the period, each respectively.

For the three and nine months ended September 30, 2020, of the $5.0 million and $16.8 million, respectively, in fee income, approximately $2.1 million and $7.8 million represents income from recurring fee amortization, and approximately $2.9 million and $9.0 million represents acceleration of unamortized fees due to early loan repayments, respectively.

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three and nine months ended September 30, 2021 or 2020.

Operating Expenses

Our operating expenses are comprised of interest and fees on our debt, general and administrative expenses, and employee compensation and benefits. During the three and nine months ended September 30, 2021 and 2020, our net operating expenses totaled approximately $32.1 million and $31.6 million, respectively for the three month periods, and approximately $98.9 million and $96.9 million, respectively for the nine months.

Interest and Fees on our Debt

Interest and fees on our debt totaled approximately $14.7 million and $16.6 million for the three months ended September 30, 2021 and 2020, respectively. Lower weighted average debt outstanding and lower borrowing costs during the three months ended September 30, 2021, resulted in a decline of interest and fee expenses as compared to the three months ended September 30, 2020. Interest and fees on our debt totaled approximately $49.0 million and $49.7 million, for the nine months ended September 30, 2021 and 2020, respectively. Our interest and fee expense during the nine months ended September 30, 2021, was also lower as compared to the nine months ended September 30, 2020 due to lower weighted average debt outstanding and borrowing costs.

We had a weighted average cost of debt, comprised of interest and fees, of approximately 4.9% and 5.1% for the three months ended September 30, 2021 and 2020, respectively, and 5.1% and 5.1% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in the weighted average cost of debt for the three months ended September 30, 2021, as compared to 2020, was primarily driven by a lower average higher cost debt outstanding attributable to our refinancing activities during the period.

General and Administrative Expenses

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, taxes, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses increased to $6.5 million from $5.3 million for the three months ended September 30, 2021 and 2020, respectively, and increased to $17.3 million from $17.2 million for the nine months ended September 30, 2020. The increase in general and administrative expenses for the three and nine months ended September 30, 2021 is primarily attributable to an increase in excise tax expenses.

Employee Compensation

Employee compensation and benefits totaled $8.9 million and $27.1 million, respectively, for the three and nine months ended September 30, 2021 as compared to $7.2 million and $22.6 million respectively, for the three and nine months ended September 30, 2020. The increase between the three and nine months ended September 30, 2021 and 2020 was primarily due to increased variable compensation and payroll related expenses.

Employee stock-based compensation totaled $3.3 million and $9.0 million respectively, for the three and nine months ended September 30, 2021 as compared to $2.5 million and $7.5 million respectively, for the three and nine months ended September 30, 2020. The increase in employee stock-based compensation for the three and nine months ended September 30, 2021 was primarily attributable to the issuance of additional stock-based compensation awards and higher weighted average grant date fair value.

Expenses allocated to the Adviser Subsidiary

In March 2021, we entered into a shared services agreement with the Adviser Subsidiary (“Sharing Agreement”), through which the Adviser Subsidiary will utilize our human capital resources (including administrative functions) and other resources and infrastructure (including office space and technology). 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 three and nine months ended September 30, 2021

are net of expenses allocated to the Adviser Subsidiary of $1.3 million and $3.5 million respectively. As of September 30, 2021, no amounts remained receivable from the Adviser Subsidiary related to the expenses allocated during the period.

Net Realized Gains and Losses and Net Change in Unrealized Appreciation and Depreciation

Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of an investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. 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. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

A summary of net realized gains and losses on investments for the three and nine months ended September 30, 2021 and 2020 is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2021			2020			2021			2020
Realized gains on investments	$	24,999		$	1,463		$	82,364		$	16,182
Realized losses on investments		(2,186	)		(49,964	)		(66,063	)		(57,575	)
Realized loss on debt extinguishment		(1,702	)		—			(1,702	)		—
Net realized gains (losses)	$	21,111		$	(48,501	)	$	14,599		$	(41,393	)

During the three and nine months ended September 30, 2021, we recognized net realized gains of $21.1 million and $14.6 million, respectively. During the three and nine months ended September 30, 2021, we recorded gross realized gains of $25.0 million and $82.4 million, respectively, primarily from the sale of DoorDash, Inc., Palantir Technologies, Ology Bioservices, and TransMedics Group, Inc. Our gains were offset by gross realized losses of $2.2 million and $66.1 million, respectively, primarily from the write-off of our investments in Intent (p.k.a. Intent Media, Inc.) and Solar Spectrum Holdings, LLC.

During the three and nine months ended September 30, 2020, we recognized net realized gains of $48.5 million and $41.4 million, respectively, on the portfolio. During the three and nine months ended September 30, 2020, we recorded gross realized gains of $1.5 million and $16.2 million, respectively, primarily from the sale of public equity holdings. These gains were offset by gross realized losses of $50.0 million and $57.6 million, respectively, primarily from the write-off of our debt investments in Patron Techology and Motif BioSciences, Inc., as well as liquidation or write-off of our equity or warrant positions during the period.

Additionally, on July 1, 2021, we fully redeemed the aggregate outstanding $75.0 million of principal and $0.6 million of accrued interest pursuant to the redemption terms of the April 2025 Notes Indenture. Combined with other debt redemptions, we accelerated recognition of $1.7 million of debt issuance costs associated with the extinguishment of the debt, which is included as a realized loss within the “Loss on debt extinguishment” on the Consolidated Statement of Operations for the three and nine months ended September 30, 2021. There was no debt extinguishment losses recognized during the three and nine months ended September 30, 2020.

The net change in unrealized appreciation and depreciation on investments is based on the fair value of each investment determined in good faith by our Board. The following table summarizes the movements in net change in unrealized appreciation or depreciation on investments for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2021			2020			2021			2020
Gross unrealized appreciation on portfolio investments	$	27,946		$	30,238		$	142,016		$	101,271
Gross unrealized depreciation on portfolio investments		(35,827	)		(15,183	)		(88,866	)		(135,072	)
Reversal of prior period net unrealized appreciation (depreciation) upon a realization event		(27,770	)		37,779			(5,404	)		36,305
Net unrealized appreciation (depreciation) on debt, equity, warrant and fund investments		(35,651	)		52,834			47,746			2,504
Other net unrealized appreciation (depreciation)		—			—			(1,515	)		—
Total net unrealized appreciation (depreciation) on investments	$	(35,651	)	$	52,834		$	46,231		$	2,504

During the three months ended September 30, 2021, we recorded $35.6 million of net unrealized depreciation which was primarily from net unrealized depreciation from our debt, equity, warrant, and investment funds and vehicles investments.

For the three months ended September 30, 2021, we recorded a net $3.7 million of unrealized depreciation on our debt investments. The net unrealized depreciation of our debt investments was comprised of $4.1 million of unrealized depreciation due to

the reversal of unrealized appreciation upon write-off of our debt investments and pay-off of our portfolio companies during the period. The net unrealized depreciation was partially offset by $0.4 million unrealized appreciation during the period attributable to valuation movements.

For the three months ended September 30, 2021, we recorded net unrealized depreciation of $27.2 million on our equity investments, $4.6 million on our warrant investments and $0.1 million on our investment funds. The total net unrealized depreciation of $31.9 million on the equity, warrant portfolio, and investment fund portfolio for the three months ended September 30, 2021, was primarily attributable to $23.6 million of unrealized depreciation due to the reversal of unrealized appreciation upon acquisition or liquidation of our equity and warrant investments, and $8.3 million of net unrealized depreciation attributable to valuation movements on the equity, warrant portfolio, and investment fund portfolio.

During the nine months ended September 30, 2021 we recorded cumulative $46.2 million of net unrealized appreciation which was primarily from net unrealized appreciation from our debt, equity, warrant, and investment funds and vehicles investments.

For the nine months ended September 30, 2021, we recorded $5.9 million of net unrealized appreciation on our debt investments. The net unrealized on our debt investments was comprised of $2.9 million of net unrealized appreciation attributable to valuation movements and $3.0 million of unrealized appreciation due to the reversal of unrealized depreciation upon write-off of our debt investments and pay-off of our portfolio companies during the period.

For the nine months ended September 30, 2021, we recorded $34.0 million of net unrealized appreciation on our equity investments, $8.1 million of net unrealized appreciation on our warrant investments and $0.2 million of net unrealized depreciation on our investment funds. The total net unrealized appreciation of $41.9 million on the equity, warrant portfolio, and investment fund portfolio for the nine months ended September 30, 2021, was primarily attributable to $50.3 million of unrealized appreciation due to valuation movements on the equity, warrant portfolio, and investment fund portfolio and $8.4 million of unrealized depreciation due to the reversal of unrealized appreciation upon acquisition or liquidation of our equity and warrant investments.

During the three months ended September 30, 2020, we recorded cumulative $52.8 million of net unrealized appreciation, from our debt, equity and warrant investments. During the nine months ended September 30, 2020, we recorded $2.5 million of net unrealized depreciation, from our debt, equity, and warrant investments.

We recorded $43.3 million of net unrealized appreciation on our debt investments for the three and nine months ended September 30, 2020. The total net unrealized appreciation on our debt investments was comprised of $7.4 million of net unrealized appreciation on the debt portfolio and $35.9 million of unrealized appreciation due to the reversal of unrealized depreciation upon write-off or pay-off of our debt investments during the period.

During the nine months ended September 30, 2020 we recorded $2.3 million of net unrealized appreciation on our debt investments. The net unrealized appreciation was primarily related to $34.9 million of unrealized depreciation on the debt portfolio offset by $37.2 million of unrealized appreciation due to the reversal of unrealized depreciation upon write-off or pay-off of our debt investments.

We recorded $6.5 million of net unrealized appreciation on our equity investments and $3.0 million appreciation on our warrant investments during the three months ended September 30, 2020. The total net unrealized appreciation of $9.5 million on our equity and warrant investments was primarily attributable to $7.6 million of unrealized appreciation on the equity and warrant portfolio and $1.9 million of unrealized appreciation due to the reversal of unrealized depreciation upon acquisition or liquidation of our equity and warrant investments.

We recorded $7.6 million of net unrealized depreciation on our equity investments and $7.8 million of net unrealized appreciation on our warrant investments during the nine months ended September 30, 2020. The total net unrealized appreciation of $0.2 million on our equity and warrant investments, was primarily attributable to $1.1 million of unrealized appreciation on the equity and warrant portfolio and $0.9 million of unrealized depreciation due to the reversal of unrealized appreciation upon acquisition or liquidation of our equity and warrant investments.

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. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. 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.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

Net Change in Net Assets Resulting from Operations and Earnings Per Share

For the three and nine months ended September 30, 2021, we had a net increase in net assets resulting from operations of approximately $23.5 million and $170.4 million, respectively. For the three and nine months ended September 30, 2020, we had a net increase in net assets resulting from operations of approximately $43.0 million and $76.1 million, respectively.

The basic and fully diluted net change in net assets per common share were $0.20 and $0.20 per share and $1.47 and $1.46 per share for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020 the basic net change in net assets per common share was $0.38 and $0.68 per share, respectively. For the same period, the diluted net change in net assets per common share were $0.38 and $0.67 per share, respectively.

For the purpose of calculating diluted earnings per share for the three and nine months ended September 30, 2021, the dilutive effect of the 2022 Convertible Notes, outstanding options, restricted stock units and awards and Retention PSUs under the treasury stock method was considered. As disclosed in “Note 9 – Earnings Per Share”, the dilutive impact of the 2022 Convertible Notes includes only the portion expected to be settled in stock in the calculations of diluted shares outstanding for the three and nine months ended September 30, 2021. The effect of the 2022 Convertible Notes was excluded from these calculations for the three and nine months ended September 30, 2020 as our share price was less than the conversion price in effect which results in anti-dilution.

Hercules Adviser LLC

Hercules Adviser LLC, the Adviser Subsidiary, receives fee income for the services provided to the Adviser Funds. The Adviser Subsidiary’s contribution to our net investment income is derived from dividend income declared by the Adviser Subsidiary. For the three and nine months ended September 30, 2021 and 2020, no dividends were declared by the Adviser Subsidiary.

In March and July 2021, the Adviser Subsidiary 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 and certain incentive fees. The Adviser Funds are privately offered investment funds exempt from registration under the 1940 Act that invests in debt and equity investments in venture or institutionally backed technology related and life sciences companies.

Financial Condition, Liquidity, and Capital Resources

Our liquidity and capital resources are derived from our debt borrowings and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our debt and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We may also raise additional equity or debt capital through registered offerings off a shelf registration, ATM, and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBICs. This “Financial Condition, Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Developments” section above.

During the nine months ended September 30, 2021, we principally funded our operations from (i) cash receipts from interest, dividend, and fee income from our investment portfolio and (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments, and (iii) debt offerings along with borrowings on our credit facilities.

During the nine months ended September 30, 2021, our operating activities provided $28.7 million of cash and cash equivalents, compared to $24.0 million used during the nine months ended September 30, 2020. This $52.7 million increase in cash provided by operating activities was primarily driven by a $257.6 million increase in principal and fee payments received on investments and

$76.5 million of proceeds from the sale of equity investments, which was offset by an increase of $294.0 million in purchases of investments (net of assignments to Adviser Funds).

During the nine months ended September 30, 2021, our investing activities used approximately $12 thousand of cash, compared to $115 thousand used during the nine months ended September 30, 2020. The $103 thousand decrease in cash used in investing activities was due to a decrease in purchases of capital equipment.

During the nine months ended September 30, 2021, our financing activities used $16.9 million of cash, compared to $42.8 million used in financing activities during the nine months ended September 30, 2020. The $25.9 million decrease of cash flows used in financing activities was primarily due to $439.5 million of new debt issuances related to the September 2026 Notes, March 2026 B Notes, and HC IV SBA Debentures. The debt issuances were offset by repayments of $99.0 million of HT III related SBA Debentures, $75.0 million to retire the April 2025 Notes, and pay downs of $65.6 million and $76.2 million on the 2027 Asset-Backed Notes and 2028 Asset-Based Notes, respectively, during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. Additionally, we distributed $130.0 million in dividends during the nine months ended September 30, 2021, which increased from $114.4 million compared to the nine months ended September 30, 2020. Lastly, we did not issue any new common stock during the nine months ended September 30, 2021, compared to the $73.6 million issued during the nine months ended September 30, 2020.

As of September 30, 2021, our net assets totaled $1.3 billion, with a NAV per share of $11.54. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.

As described above, our diverse and well-structured balance sheet is designed to provide a long-term focused and sustainable investment platform. Currently, we believe we have ample liquidity to support our near-term capital requirements. As the impact of the COVID-19 pandemic and related disruption to markets and businesses 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.

Available liquidity and capital resources as of September 30, 2021

As of September 30, 2021, we had $818.4 million in available liquidity, including $235.9 million in cash and cash equivalents. We had available borrowing capacity of $72.0 million under the Wells Facility, $400.0 million under the Union Bank Facility, and an additional $110.5 million available from our SBA license, as applicable, subject to existing terms, borrowing base, advance rates, regulatory requirements and regulatory approval. The Credit Facilities each have accordion provisions through which the available borrowing capacity can be increased by an aggregate $250.0 million.

The 1940 Act as amended, permits BDCs to incur borrowings, issue debt securities, or issue preferred stock unless immediately after the borrowings or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is less than 200% (or 150% if certain requirements are met). On September 4, 2018 and December 6, 2018, our Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) and our stockholders, respectively, approved the application to us of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As of September 30, 2021, our asset coverage ratio under our regulatory requirements as a BDC was 198.3% excluding our SBA debentures. Our exemptive order from the SEC allows us to exclude all SBA leverage from our asset coverage ratio. 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 193.9% as of September 30, 2021.

As of September 30, 2021, we had $64.5 million of SBA debentures, $150.0 million of 2022 Notes, $105.0 million of July 2024 Notes, $50.0 million of February 2025 Notes, $70.0 million of June 2025 Notes, $50.0 million of March 2026 A Notes, $50.0 million of March 2026 B Notes, $325.0 million of September 2026 Notes, $40.0 million of 2033 Notes, $115.4 million of 2027 Asset-Backed Notes, $173.8 million of 2028 Asset-Backed Notes, and $230.0 million of 2022 Convertible Notes payable. No amounts were outstanding with the Union Facility and Wells Facility.

On March 4, 2021, we issued $50.0 million in aggregate principal amount of March 2026 B Notes pursuant to the First Supplement to the 2025 Note Purchase Agreement. The sale of the March 2026 B Notes generated net proceeds of approximately $49.5 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $0.5 million.

On September 16, 2021, we issued $325.0 million in aggregate principal amount of unsecured notes, the September 2026 Notes. The issuance of the notes generated net proceeds of approximately $320.1 million, which has primarily been used to repay the remaining outstanding principal and accrued interest related to the 2027 Asset-Backed Notes and 2028 Asset-Backed Notes in October 2021. Aggregate offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $4.1 million of costs and $0.8 million related to the discount.

Additionally, we have gained access to $175.0 million of capital through the SBA debenture program. This is in addition to our regulatory capital commitment of $87.5 million to HC IV which will be used for investment purposes. As of September 30, 2021, we have contributed $59.5 million of regulatory capital to HC IV, and drew $64.5 million of SBA debentures during the nine months ended September 30, 2021, which were available to us through HC IV. On May 5, 2021, we paid down the remaining outstanding $34.0 million of HT III SBA Debentures, and on June 15, 2021 surrendered our license for HT III.

As of September 30, 2021, we had approximately $13.5 million of restricted cash, which consists of collections of interest and principal payments on assets that are securitized. In accordance with the terms of the related securitized 2027 Asset-Backed Notes and 2028 Asset-Backed Notes, based on current characteristics of the securitized debt investment portfolios, the restricted funds may be used to pay monthly interest and principal on the securitized debt with any excess distributed to us or available for our general operations. As disclosed in “Note 5 – Debt” on October 20, 2021, the Company fully repaid the aggregate outstanding $289.2 million of principal and $1.1 million of accrued interest and fees pursuant to the redemption terms of the 2027 Asset-Backed Notes & 2028 Asset-Backed Notes agreements using the available liquidity from the September 2026 Notes. During the nine months ended September 30, 2021, $65.6 million and $76.2 million was paid down on the 2027 Asset-Backed Notes and 2028 Asset-Based Notes, respectively.

Refer to “Note 5 – Debt” included in the notes to our consolidated financial statements appearing elsewhere in this report for a further discussion of our debt.

Equity Distribution Agreement

On May 6, 2019, we entered into the 2019 Equity Distribution Agreement. The 2019 Equity Distribution Agreement provided that we may offer and sell up to 12.0 million shares of our common stock from time to time through JMP, as our sales agent.

On July 2, 2020, we terminated the 2019 Equity Distribution Agreement and entered into a new ATM equity distribution agreement with JMP (the “2020 Equity Distribution Agreement”). As a result, the remaining shares that were available under the 2019 Equity Distribution Agreement are no longer available for issuance.

The 2020 Equity Distribution Agreement provides that we may offer and sell up to 16.5 million shares of our common stock from time to time through JMP, as our sales agent. Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

There were no shares of common stock sold under the 2020 Equity Distribution Agreement during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, we sold 6.0 million shares of common stock under the 2019 Equity Distribution Agreement. As of September 30, 2021, approximately 16.2 million shares remain available for issuance and sale under the 2020 Equity Distribution Agreement.

Commitments

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded contractual commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded contractual commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitments are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, our credit agreements contain customary lending provisions which allow us relief from funding obligations for previously made unfunded commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As such, our disclosure of unfunded contractual commitments includes only

those which are available at the request of the portfolio company and unencumbered by future and unachieved milestones. See “Note 11 – Commitments and Contingencies” included as part of the notes to our consolidated financial statements.

As of September 30, 2021, we had approximately $309.9 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones. This excludes $7.2 million of unfunded commitments which represent the portion of portfolio company commitments assigned to or directly committed by the Adviser Funds. We intend to use cash flow from normal and early principal repayments, and proceeds from debt to fund these commitments.

As of September 30, 2021, we also had approximately $248.2 million of non-binding term sheets outstanding to seven new companies and two existing companies, which generally convert to contractual commitments within approximately 90 days of signing. 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 fair value of our unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

Additionally, as of September 30, 2021 certain premises are leased or licensed under agreements which expire at various dates through June 2027. Total rent expense, including short-term leases, amounted to approximately $0.8 million and $2.4 million respectively during the three and nine months ended September 30, 2021 and approximately $0.8 million and $2.3 million during the three and nine months ended September 30, 2020.

Indemnification Agreements

We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements are intended to provide our directors and executive officers the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.

We and our executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by us to the maximum extent permitted by Maryland law subject to the restrictions in the 1940 Act.

Distributions

Our Board maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates 90% - 100% of our taxable quarterly income or potential annual income for a particular taxable year. In addition, our Board may choose to pay additional supplemental distributions, so that we may distribute approximately all of our annual taxable income in the taxable year in which it was earned or may elect to maintain the option to spill over our excess taxable income into the following taxable year as part of any future distribution payments.

Distributions from our taxable income (including gains) to a stockholder generally will be treated as a dividend for U.S. federal income tax purposes to the extent of such stockholder’s allocable share of our current or accumulated earnings and profits. Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of a stockholder’s tax basis in our shares, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is made annually as of the end of our taxable year based upon our taxable income for the full taxable year and distributions paid for the full taxable year. As a result, any determination of the tax attributes of our distributions made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full taxable year. Of the distributions declared during the year ended December 31, 2020, 100% were distributions derived from our current and accumulated earnings and profits. There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2021 distributions to stockholders will actually be.

We maintain an “opt out” dividend reinvestment plan that provides for reinvestment of our distribution on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash distribution, then

our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.

Shortly after the close of each calendar year information identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution, if any) will be provided to our stockholders subject to information reporting. To the extent our taxable earnings fall below the total amount of our distributions for any taxable year, a portion of those distributions may be deemed a tax return of capital to our stockholders.

We expect to qualify to be subject to tax as a RIC under Subchapter M of the Code. In order to be subject to tax as a RIC, we are required to satisfy certain annual gross income and quarterly asset composition tests, as well as make distributions to our stockholders each taxable year treated as dividends for federal income tax purposes of an amount at least equal to 90% of the sum of our investment company taxable income, determined without regard to any deduction for dividends paid, plus our net tax-exempt income, if any. Upon being eligible to be subject to tax as a RIC, we would be entitled to deduct such distributions we pay to our stockholders in determining the overall components of our “taxable income.” Components of our taxable income include our taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes net unrealized appreciation or depreciation as such gains or losses are not included in taxable income until they are realized. In connection with maintaining our ability to be subject to tax as a RIC, among other things, we have made and intend to continue to make the requisite distributions to our stockholders each taxable year, which generally should relieve us from corporate-level U.S. federal income taxes.

As a RIC, we will be subject to a 4% nondeductible 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 Excise Tax Avoidance Requirement. We will not be subject to this excise tax on any amount on which we incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, we may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry over taxable income into the next taxable year, distributions declared and paid by us in a taxable year may differ from our taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our debt. Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.

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.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the period reported. On an ongoing basis, our management evaluates its estimates and assumptions, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in our estimates and assumptions could materially impact our results of operations and financial condition.

Valuation of Investments

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

As of September 30, 2021, approximately 90.0% of our total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board. 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. Our investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820. Our debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of our investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there generally is no known or accessible market or market indices for these investment securities to be traded or exchanged. As such, we value substantially all of our investments at fair value as determined in good faith by our Board pursuant to a consistent valuation policy in accordance with the provisions of ASC Topic 820 and the 1940 Act. 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.

The Company engages one or more independent valuation firm(s) to provide management with assistance in determining the fair value of selected portfolio investments each quarter. In selecting which portfolio investments to engage an independent valuation firm, the Company considers a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, size, credit quality, and the time lapse since the last valuation of the portfolio investment by an independent valuation firm. The scope of services rendered by the independent valuation firm is at the discretion of the Board, and the Company may engage an independent valuation firm to value all or some of our portfolio investments. The Board are ultimately, and solely, responsible for determining the fair value of the Company’s investments in good faith. In determining the fair value of a portfolio investment in good faith, the Company recognizes these determinations are made using the best available information that is knowable or reasonably knowable. In addition, changes in the market environment, portfolio company performance and other events that may occur over the duration of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. The Company determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.

Refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report for an additional discussion of our valuation policies for the three and nine months ended September 30, 2021 and 2020.

Income Recognition

Refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of our income recognition policy for the three and nine months ended September 30, 2021 and 2020.

Income Taxes

Refer to “Note 2 – Summary of Significant Accounting Policies” and “Note 6 – Income Taxes” included in the notes to our consolidated financial statements appearing elsewhere in this report, and also “Distributions” for a discussion of our income tax policy.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. 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 LIBOR and Prime rates, to the extent our debt investments include variable interest rates. As of September 30, 2021, approximately 95.9% of the loans in our portfolio had variable rates based on floating Prime or LIBOR rates with a floor. Our debt under the Credit Facilities bear interest at a floating rate and the debt under our SBA Debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, June 2025 Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes bear interest at a fixed rate. 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.

Based on our Consolidated Statements of Assets and Liabilities as of September 30, 2021, 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:


(in thousands)	Interest			Interest			Net
Basis Point Change	Income			Expense			Income			EPS
(75)	$	(49	)	$	(11	)	$	(38	)	$	(0.00	)
(50)	$	(49	)	$	(11	)	$	(38	)	$	(0.00	)
(25)	$	(38	)	$	(11	)	$	(27	)	$	(0.00	)
25	$	3,920		$	28		$	3,892		$	0.03
50	$	7,840		$	56		$	7,784		$	0.07
75	$	11,760		$	84		$	11,676		$	0.10
100	$	15,730		$	111		$	15,619		$	0.14
200	$	32,869		$	223		$	32,646		$	0.28

We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate fluctuations and foreign currency by using standard hedging instruments such as futures, options, and forward contracts. While hedging activities may insulate us against changes in interest rates and foreign currency, they may also limit our ability to participate in the benefits of lower interest rates with respect to our borrowed funds and higher interest rates with respect to our portfolio of investments. During the nine months ended September 30, 2021, we did not engage in interest rate or foreign currency hedging activities.

Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including debt under our SBA Debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, June 2025 Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes and Credit Facilities that could affect the net increase in net assets resulting from operations, or net income. It also does not assume any repayments from borrowers. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by variable rate assets in our investment portfolio.

For additional information regarding the interest rate associated with each of our SBA Debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, June 2025 Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes, and Credit Facilities, refer to Item 2  “Financial Condition, Liquidity and Capital Resources” in this quarterly report on Form 10-Q and “Note 5 – Debt” included in the notes to our consolidated financial statements appearing elsewhere in this report.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive and chief financial officers, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. As of the end of the period covered by this quarterly report on Form 10-Q, our chief executive and chief financial officers have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financing reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reporting period.

ITEM 1A. RISK FACTORS

In addition to the risks discussed below, important risk factors that could cause results or events to differ from current expectations are described in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 23, 2021 (the “Annual Report”) and Part II, Item 1A "Risk Factors" of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed with the SEC on April 29, 2021.

Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.

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. The following table shows the fair value of the totals of investments held in portfolio companies at September 30, 2021 that represent greater than 5% of our net assets:


	September 30, 2021
(in thousands)	Fair Value		Percentage of Net Assets
BridgeBio Pharma LLC	$	115,523		8.6	%
Zepz (p.k.a. Worldremit Group Limited)		103,068		7.7	%
Corium, Inc.		90,618		6.8	%
Rocket Lab Global Services, LLC		87,722		6.6	%
Phathom Pharmaceuticals, Inc.		85,827		6.4	%
EverFi, Inc.		85,210		6.4	%
uniQure B.V.		72,593		5.4	%



BridgeBio Pharma LLC is a clinical-stage biopharmaceutical company that discovers and develops drugs for patients with genetic diseases.



Zepz (p.k.a. WorldRemit Group Limited) is a global online money transfer business.



Corium, Inc. develops, engineers, and manufactures drug delivery products and devices that utilize the skin and mucosa as a primary means of transport.



Rocket Lab Global Services, LLC is a commercial space provider of high-frequency, low-cost launches.



Phathom Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of novel treatments for gastrointestinal diseases and disorders.



EverFi, Inc. is a technology company that offers a web-based media platform to teach and certify students in the core concepts of financial literacy, from student loan defaults and sub-prime mortgages to credit card debt and rising bankruptcy rates.



uniQure B.V. is a leader in the field of gene therapy, developing proprietary therapies to treat patients with severe genetic diseases of the central nervous system and liver.

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dividend Reinvestment Plan

During the nine months ended September 30, 2021, we issued 189,356 shares 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. The aggregate value of the shares of our common stock issued under our dividend reinvestment plan was approximately $3.1 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS


Exhibit Number	Description

4.2	Seventh Supplemental Indenture, dated as of September 16, 2021, between the Company and U.S. Bank National Association. (1)

4.3	Form of 2.625% Global Note. (1)

31.1*	Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

(1) Incorporated by reference to Exhibits 4.2 and 4.3, as applicable, to the Company's Form 8-K (File No. 814-00702), filed on September 16, 2021.

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Nine Months Ended September 30, 2021 (unaudited)

(in thousands)


Portfolio Company	Investment (1)	Amount of Interest Credited to Income (2)		Realized Gain (Loss)			As of December 31, 2020 Fair Value		Gross Additions (3)		Gross Reductions (4)			Net Change in Unrealized Appreciation/ (Depreciation)			As of September 30, 2021 Fair Value
Control Investments
Majority Owned Control Investments
Gibraltar Business Capital, LLC (5)	Unsecured Debt	$	2,325	$	—		$	14,970	$	9,627	$	—		$	(1,194	)	$	23,403
	Preferred Stock		—		—			31,554		—		—			(15,386	)		16,168
	Common Stock		—		—			2,276		—		—			(1,110	)		1,166
Hercules Adviser LLC (6)	Unsecured Debt		59		—			—		6,100		—			—			6,100
	Member Units		—		—			—		35					10,669			10,704
Total Majority Owned Control Investments		$	2,384	$	—		$	48,800	$	15,762	$	—		$	(7,021	)	$	57,541
Other Control Investments
Tectura Corporation(7)	Senior Debt	$	516	$	—		$	8,600	$	—	$	—		$	(306	)	$	8,294
	Preferred Stock		—		—			—		—		—			—			—
	Common Stock		—		—			—		—		—			—			—
Total Other Control Investments		$	516	$	—		$	8,600	$	—	$	—		$	(306	)	$	8,294
Total Control Investments		$	2,900	$	—		$	57,400	$	15,762	$	—		$	(7,327	)	$	65,835

Affiliate Investments
Black Crow AI, Inc. (8)	Preferred Stock	$	—	$	—		$	—	$	1,000	$	—		$	243		$	1,243
	Convertible Debt		—		—			—		2,208		(3,993	)		1,785			—
Pineapple Energy LLC (9)	Senior Debt		3		—			7,500		120		—			—			7,620
	Common Stock		—		—			840		—		—			9			849
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (10)	Senior Debt		—		(641	)		—		—		(681	)		681			—
	Common Stock		—		(61,502	)		—		—		(61,502	)		61,502			—
Total Affiliate Investments		$	3	$	(62,143	)	$	8,340	$	3,328	$	(66,176	)	$	64,220		$	9,712
Total Control and Affiliate Investments		$	2,903	$	(62,143	)	$	65,740	$	19,090	$	(66,176	)	$	56,893		$	75,547

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

Represents the total amount of interest or dividends credited to income for the period an investment was an affiliate or control investment.

(3)

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closing fees and the exchange of one or more existing securities for one or more new securities.

(4)

Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include previously recognized depreciation on investments that become control or affiliate investments during the period.

(5)

As of March 31, 2018, the Company's investment in Gibraltar Business Capital, LLC became classified as a control investment as a result of obtaining a controlling financial interest.

(6)

Hercules Adviser LLC is a wholly-owned subsidiary providing investment management and other services to External Parties.

(7)

As of March 31, 2017, the Company's investment in Tectura Corporation became classified as a control investment as of result of obtaining more than 50% representation on the portfolio company's board. In May 2018, the Company purchased common shares, thereby obtaining greater than 25% of voting securities of Tectura as of June 30, 2018.

(8)

As of March 23, 2021, the Company's investment in Black Crow AI, Inc. became classified as an affiliate investment as a result of obtaining more than 5% but less than 25% of the voting securities of the portfolio company.

(9)

As of December 11, 2020, the Company’s investment in Pineapple Energy LLC became classified as an affiliate investment as a result of obtaining more than 5% but less than 25% of the voting securities of the portfolio company.

(10)

As of June 30, 2021, the Company’s investments in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) were written off for a realized loss.

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of September 30, 2021 (unaudited)

(in thousands)


Portfolio Company	Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor	Principal or Shares		Cost		Value (2)
Control Investments
Majority Owned Control Investments
Gibraltar Business Capital, LLC	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 14.50%	$	15,000	$	14,651	$	13,957
	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 11.50%	$	10,000		9,815		9,446
	Diversified Financial Services	Preferred Series A Equity				10,602,752		26,122		16,168
	Diversified Financial Services	Common Stock				830,000		1,884		1,166
Total Gibraltar Business Capital, LLC							$	52,472	$	40,737
Hercules Adviser LLC		Unsecured Debt	May 2023	Interest rate FIXED 5.00%	$	6,100	$	6,100	$	6,100
		Member Units						35		10,704
Total Hercules Adviser LLC							$	6,135	$	16,804
Total Majority Owned Control Investments (4.30%)*							$	58,607	$	57,541
Other Control Investments
Tectura Corporation	Internet Consumer & Business Services	Senior Secured Debt	July 2024	PIK Interest 5.00%	$	10,680	$	240	$	—
	Internet Consumer & Business Services	Senior Secured Debt	July 2024	Interest rate FIXED 8.25%	$	8,250		8,250		8,250
	Internet Consumer & Business Services	Senior Secured Debt	July 2024	PIK Interest 5.00%	$	13,023		13,023		44
	Internet Consumer & Business Services	Preferred Series BB Equity				1,000,000		—		—
	Internet Consumer & Business Services	Common Stock				414,994,863		900		—
Total Tectura Corporation							$	22,413	$	8,294
Total Other Control Investments (0.62%)*							$	22,413	$	8,294
Total Control Investments (4.92%)*							$	81,020	$	65,835

Affiliate Investments
Black Crow Al, Inc.	Internet Consumer & Business Services	Preferred Series Seed				872,797	$	1,000	$	1,243
Pineapple Energy LLC	Sustainable and Renewable Technology	Senior Secured Debt	December 2023	PIK Interest 10.00%	$	7,500		7,500		7,500
	Sustainable and Renewable Technology	Senior Secured Debt	January 2022	Interest rate FIXED 10.00%	$	120		120		120
	Sustainable and Renewable Technology	Common Stock				17,647		4,767		849
Total Pineapple Energy LLC							$	12,387	$	8,469
Total Affiliate Investments (0.73%)*							$	13,387	$	9,712
Total Control and Affiliate Investments (5.65%)*							$	94,407	$	75,547

* Value as a percent of net assets

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

All of the Company’s control and affiliate investments are Level 3 investments valued using significant unobservable inputs.

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended December 31, 2020

(in thousands)


Portfolio Company	Investment (1)	Amount of Interest Credited to Income (2)		Realized Gain (Loss)			As of December 31, 2019 Fair Value		Gross Additions (3)		Gross Reductions (4)			Net Change in Unrealized Appreciation/ (Depreciation)			As of December 31, 2020 Fair Value
Control Investments
Majority Owned Control Investments
Gibraltar Business Capital, LLC (5)	Unsecured Debt	$	2,249	$	—		$	14,780	$	59	$	—		$	131		$	14,970
	Preferred Stock		—		—			33,000		—		—			(1,446	)		31,554
	Common Stock		—		—			2,380		—		—			(104	)		2,276
Total Majority Owned Control Investments		$	2,249	$	—		$	50,160	$	59	$	—		$	(1,419	)	$	48,800
Other Control Investments
Tectura Corporation (6)	Senior Debt	$	608	$	—		$	9,586	$	—	$	(134	)	$	(852	)	$	8,600
	Preferred Stock		—		—			—		—		—			—			—
	Common Stock		—		—			—		—		—			—			—
Total Other Control Investments		$	608	$	—		$	9,586	$	—	$	(134	)	$	(852	)	$	8,600
Total Control Investments		$	2,857	$	—		$	59,746	$	59	$	(134	)	$	(2,271	)	$	57,400

Affiliate Investments
Optiscan BioMedical, Corp. (7)	Convertible Debt	$	13	$	(421	)	$	—	$	408	$	(408	)	$	—		$	—
	Preferred Warrants		—		(573	)		209		—		(573	)		364			—
	Preferred Stock		—		(13,152	)		8,984		—		(13,152	)		4,168			—
Pineapple Energy LLC (8)	Senior Debt		—		—			—		7,500		—			—			7,500
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (9)	Common Stock		—		—			—		4,767		—			(3,927	)		840
	Senior Debt		520		(3	)		12,615		—		(12,269	)		(346	)		—
	Common Stock		—		—			—		—		—			—			—
Total Affiliate Investments		$	533	$	(14,149	)	$	21,808	$	12,675	$	(26,402	)	$	259		$	8,340
Total Control and Affiliate Investments		$	3,390	$	(14,149	)	$	81,554	$	12,734	$	(26,536	)	$	(2,012	)	$	65,740

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

Represents the total amount of interest or dividends credited to income for the period an investment was an affiliate or control investment.

(3)

(4)

(5)

As of March 31, 2018, the Company's investment in Gibraltar Business Capital, LLC became classified as a control investment as a result of obtaining a controlling financial interest.

(6)

(7)

As of December 31, 2020, the Company’s investments in Optiscan BioMedical, Corp. were deemed wholly worthless and written off for a realized loss.

(8)

(9)

As of September 30, 2017, the Company's investment in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) became classified as an affiliate investment due to a reduction in equity ownership.

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended December 31, 2020

(in thousands)


Portfolio Company	Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor	Principal or Shares		Cost		Value (2)
Control Investments
Majority Owned Control Investments
Gibraltar Business Capital, LLC	Diversified Financial Services	Unsecured Debt	March 2023	Interest rate FIXED 14.50%	$	15,000	$	14,838	$	14,970
	Diversified Financial Services	Preferred Series A Equity				10,602,752		26,122		31,554
	Diversified Financial Services	Common Stock				830,000		1,884		2,276
Total Gibraltar Business Capital, LLC							$	42,844	$	48,800
Total Majority Owned Control Investments (3.78%)*							$	42,844	$	48,800
Other Control Investments
Tectura Corporation	Internet Consumer & Business Services	Senior Secured Debt	March 2021	PIK Interest 5.00%	$	10,680	$	240	$	—
	Internet Consumer & Business Services	Senior Secured Debt	March 2021	Interest rate FIXED 8.25%	$	8,250		8,250		8,250
	Internet Consumer & Business Services	Senior Secured Debt	March 2021	PIK Interest 5.00%	$	13,023		13,023		350
	Internet Consumer & Business Services	Preferred Series BB Equity				1,000,000		—		—
	Internet Consumer & Business Services	Common Stock				414,994,863		900		—
Total Tectura Corporation							$	22,413	$	8,600
Total Other Control Investments (0.67%)*							$	22,413	$	8,600
Total Control Investments (4.44%)*							$	65,257	$	57,400
Affiliate Investments
Pineapple Energy LLC	Sustainable and Renewable Technology	Senior Secured Debt	December 2023	PIK Interest 10.00%	$	7,500	$	7,500	$	7,500
	Sustainable and Renewable Technology	Common Stock				17,647		4,767		840
Total Pineapple Energy LLC							$	12,267	$	8,340
Solar Spectrum Holdings LLC, (p.k.a. Sungevity, Inc.)	Sustainable and Renewable Technology	Senior Secured Debt	January 2021	PIK Interest 10.00%	$	681	$	681	$	—
	Sustainable and Renewable Technology	Common Stock				488		61,502		—
	Sustainable and Renewable Technology	Class A Warrants				0.69		—		—
Total Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)							$	62,183	$	—
Total Affiliate Investments (0.65%)*							$	74,450	$	8,340
Total Control and Affiliate Investments (5.09%)*							$	139,707	$	65,740

* Value as a percent of net assets

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

All of the Company’s control and affiliate investments are Level 3 investments valued using significant unobservable inputs.

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		HERCULES CAPITAL, INC. (Registrant)

Dated: October 28, 2021		/S/ SCOTT BLUESTEIN
		Scott Bluestein
		President, Chief Executive Officer, and Chief Investment Officer

Dated: October 28, 2021		/S/ SETH H. MEYER
		Seth H. Meyer
		Chief Financial Officer, and Chief Accounting Officer