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, 2022

☐ 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 27, 2022, there were 130,149,104 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, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	6
	Consolidated Schedule of Investments as of September 30, 2022 (unaudited)	7
	Consolidated Schedule of Investments as of December 31, 2021	18
	Notes to Consolidated Financial Statements (unaudited)	29
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76
Item 4.	Controls and Procedures	77
PART II. OTHER INFORMATION		78
Item 1.	Legal Proceedings	78
Item 1A.	Risk Factors	78
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits and Financial Statement Schedules	80
SIGNATURES		85

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc., its wholly owned subsidiaries, and its affiliated securitization trust 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, 2022		December 31, 2021
	(unaudited)
Assets
Investments, at fair value:
Non-control/Non-affiliate investments (cost of $2,782,220 and $2,293,398, respectively)	$	2,745,413	$	2,351,560
Control investments (cost of $87,249 and $84,039, respectively)		80,325		73,504
Affiliate investments (cost of $0 and $13,547, respectively)		—		9,458
Total investments, at fair value (cost of $2,869,469 and $2,390,984, respectively; fair value amounts related to a VIE $236,826 and $0, respectively)		2,825,738		2,434,522
Cash and cash equivalents		57,065		133,115
Restricted cash (amounts related to a VIE $8,346 and $0, respectively)		8,346		3,150
Interest receivable		25,494		17,365
Right of use asset		5,672		6,761
Other assets		2,207		5,100
Total assets	$	2,924,522	$	2,600,013

Liabilities
Debt (net of debt issuance costs - Note 5; amounts related to a VIE $147,810 and $0, respectively)	$	1,521,220	$	1,236,303
Accounts payable and accrued liabilities		34,492		47,781
Operating lease liability		6,092		7,382
Total liabilities	$	1,561,804	$	1,291,466

Net assets consist of:
Common stock, par value	$	131	$	117
Capital in excess of par value		1,288,341		1,091,907
Total distributable earnings		74,246		216,523
Total net assets	$	1,362,718	$	1,308,547
Total liabilities and net assets	$	2,924,522	$	2,600,013

Shares of common stock outstanding ($0.001 par value and 200,000 authorized)		130,191		116,619
Net asset value per share	$	10.47	$	11.22

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,
	2022			2021			2022			2021
Investment income:
Interest income:
Non-control/Non-affiliate investments	$	80,146		$	62,239		$	207,747		$	185,497
Control investments		1,181			1,072			3,440			2,900
Affiliate investments		81			1			1,204			3
Total interest income		81,408			63,312			212,391			188,400
Fee income:
Non-control/Non-affiliate investments		2,803			6,861			9,059			20,068
Control investments		18			20			51			43
Total fee income		2,821			6,881			9,110			20,111
Total investment income		84,229			70,193			221,501			208,511

Operating expenses:
Interest		14,499			13,069			38,844			42,309
Loan fees		2,183			1,674			5,517			6,694
General and administrative		4,364			4,085			12,504			11,749
Tax expenses		1,602			2,395			4,135			5,579
Employee compensation:
Compensation and benefits		10,968			8,898			30,357			27,051
Stock-based compensation		2,474			3,320			10,559			8,990
Total employee compensation		13,442			12,218			40,916			36,041
Total gross operating expenses		36,090			33,441			101,916			102,372
Expenses allocated to the Adviser Subsidiary		(1,863	)		(1,337	)		(6,335	)		(3,474	)
Total net operating expenses		34,227			32,104			95,581			98,898
Net investment income		50,002			38,089			125,920			109,613

Net realized gain (loss) and net change in unrealized appreciation (depreciation):
Net realized gain (loss):
Non-control/Non-affiliate investments		7,303			22,813			2,703			78,444
Affiliate investments		(2,014	)		—			1,758			(62,143	)
Loss on debt extinguishment		—			(1,702	)		(3,686	)		(1,702	)
Total net realized gain (loss)		5,289			21,111			775			14,599
Net change in unrealized appreciation (depreciation):
Non-control/Non-affiliate investments		(4,149	)		(31,759	)		(94,847	)		(10,662	)
Control investments		(2,571	)		(3,774	)		3,611			(7,327	)
Affiliate investments		4,631			(118	)		4,089			64,220
Total net change in unrealized appreciation (depreciation)		(2,089	)		(35,651	)		(87,147	)		46,231
Total net realized gain (loss) and net change in unrealized appreciation (depreciation)		3,200			(14,540	)		(86,372	)		60,830
Net increase (decrease) in net assets resulting from operations	$	53,202		$	23,549		$	39,548		$	170,443

Net investment income before investment gains and losses per common share:
Basic	$	0.39		$	0.33		$	1.01		$	0.95
Change in net assets resulting from operations per common share:
Basic	$	0.41		$	0.20		$	0.31		$	1.47
Diluted	$	0.41		$	0.20		$	0.30		$	1.46
Weighted average shares outstanding
Basic		127,484			114,805			123,379			114,590
Diluted		129,334			116,239			124,767			115,550
Distributions paid per common share:
Basic	$	0.50		$	0.39		$	1.46		$	1.15

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)


(amounts in thousands)						Capital in			Distributable
	Common Stock					excess			Earnings			Net
For the Three Months Ended September 30, 2022	Shares			Par Value		of par value			(loss)			Assets
Balance as of June 30, 2022		127,285		$	128	$	1,242,618		$	84,994		$	1,327,740
Net increase (decrease) in net assets resulting from operations		—			—		—			53,202			53,202
Public offering, net of offering expenses		2,866			3		42,851			—			42,854
Issuance of common stock due to stock option exercises		22			—		266			—			266
Retired shares from net issuance		(12	)		—		(176	)		—			(176	)
Issuance of common stock under restricted stock plan		23			—		—			—			—
Retired shares for restricted stock vesting		(56	)		—		(662	)		—			(662	)
Distributions reinvested in common stock		63			—		949			—			949
Distributions		—			—		—			(63,950	)		(63,950	)
Stock-based compensation (1)		—			—		2,495			—			2,495
Balance as of September 30, 2022		130,191		$	131	$	1,288,341		$	74,246		$	1,362,718

For the Nine Months Ended September 30, 2022
Balance as of December 31, 2021		116,619		$	117	$	1,091,907		$	216,523		$	1,308,547
Net increase (decrease) in net assets resulting from operations		—			—		—			39,548			39,548
Public offering, net of offering expenses		11,787			12		189,946			—			189,958
Issuance of common stock due to stock option exercises		59			—		720			—			720
Retired shares from net issuance		(14	)		—		(208	)		—			(208	)
Issuance of common stock under restricted stock plan		811			1		(1	)		—			—
Retired shares for restricted stock vesting		(236	)		—		(5,250	)		—			(5,250	)
Distributions reinvested in common stock		184			—		2,895			—			2,895
Issuance of common stock from conversion of 2022 Convertible Notes		981			1		(1	)		—			—
Distributions		—			—		—			(181,825	)		(181,825	)
Stock-based compensation (1)		—			—		8,333			—			8,333
Balance as of September 30, 2022		130,191		$	131	$	1,288,341		$	74,246		$	1,362,718

(1)

Stock-based compensation includes $36 thousand and $113 thousand of restricted stock and option expense related to director compensation for the three and nine months ended September 30, 2022, respectively.


(amounts 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 thousand and $86 thousand of restricted stock and option expense related to director compensation for the three and nine months ended September 30, 2021, respectively.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


(amounts in thousands)	For the Nine Months Ended September 30,
	2022			2021
Cash flows used in operating activities:
Net increase (decrease) in net assets resulting from operations	$	39,548		$	170,443
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments		(1,097,812	)		(1,033,189	)
Fundings assigned to Adviser Funds		247,848			107,793
Principal and fee repayments received and proceeds from the sale of debt investments		378,109			738,321
Proceeds from the sale of equity investments		14,303			98,567
Net unrealized (appreciation) depreciation		87,147			(46,231	)
Net realized (gain) loss on investments		(4,461	)		(16,301	)
Accretion of paid-in-kind principal		(14,888	)		(8,105	)
Accretion of loan discounts		(2,996	)		(2,737	)
Accretion of loan discount on convertible notes		112			504
Accretion of loan exit fees		364			(17,364	)
Change in loan income, net of collections		(18,398	)		21,730
Unearned fees related to unfunded commitments		19,412			(2,367	)
Realized loss on debt extinguishment		3,378			1,702
Amortization of debt issuance costs		4,051			4,957
Depreciation and amortization		160			255
Stock-based compensation and amortization of restricted stock grants (1)		8,333			7,785
Change in operating assets and liabilities:
Interest receivable		(8,039	)		1,218
Other assets		(1,196	)		2,380
Accrued liabilities		(14,856	)		(680	)
Net cash provided by (used in) operating activities		(359,881	)		28,681

Cash flows used in investing activities:
Purchases of capital equipment		(86	)		(12	)
Net cash used in investing activities		(86	)		(12	)

Cash flows provided by (used in) financing activities:
Issuance of common stock		192,011			—
Offering expenses		(2,053	)		(208	)
Retirement of employee shares, net		(4,738	)		(2,106	)
Distributions paid		(178,930	)		(130,086	)
Issuance of debt		1,169,237			1,396,406
Repayment of debt		(878,198	)		(1,272,712	)
Debt issuance costs		(6,581	)		(4,830	)
Fees paid for credit facilities and debentures		(1,635	)		(3,395	)
Net cash provided by (used in) financing activities		289,113			(16,931	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		(70,854	)		11,738
Cash, cash equivalents, and restricted cash at beginning of period		136,265			237,622
Cash, cash equivalents, and restricted cash at end of period	$	65,411		$	249,360

Supplemental disclosures of cash flow information and non-cash investing and financing activities:
Interest paid	$	44,382		$	44,985
Income tax, including excise tax, paid	$	7,341		$	3,731
Distributions reinvested	$	2,895		$	3,057

(1)

Stock-based compensation includes $113 thousand and $86 thousand of restricted stock and option expense related to director compensation for the nine months ended September 30, 2022 and 2021, 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)	2022		2021
Cash and cash equivalents	$	57,065	$	235,851
Restricted cash		8,346		13,509
Total cash, cash equivalents, and restricted cash presented in the Consolidated Statements of Cash Flows	$	65,411	$	249,360

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, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Debt Investments
Communications & Networking
1-5 Years Maturity
Aryaka Networks, Inc.	Senior Secured	July 2026	PRIME + 3.25%, Floor rate 6.75%, PIK Interest 1.05%, 3.55% Exit Fee	$	5,009	$	4,943	$	4,943	(14)(17)(19)
Cytracom Holdings LLC	Senior Secured	February 2025	3-Month LIBOR + 9.31%, Floor rate 10.31%	$	8,933		8,776		8,728	(11)(17)(18)
Rocket Lab Global Services, LLC	Senior Secured	June 2024	PRIME + 4.90%, Floor rate 8.15%, PIK Interest 1.25%, 3.20% Exit Fee	$	84,314		84,877		87,283	(11)(12)(13)(14)(16)
Subtotal: 1-5 Years Maturity							98,596		100,954
Subtotal: Communications & Networking (7.41%)*							98,596		100,954
Consumer & Business Products
1-5 Years Maturity
Grove Collaborative, Inc.	Senior Secured	April 2025	PRIME + 5.50%, Floor rate 8.75%, 8.75% Exit Fee	$	23,520		23,774		24,190	(19)
Subtotal: 1-5 Years Maturity							23,774		24,190
Subtotal: Consumer & Business Products (1.78%)*							23,774		24,190
Diversified Financial Services
1-5 Years Maturity
Gibraltar Business Capital, LLC	Unsecured	September 2026	FIXED 14.50%	$	15,000		14,701		13,033	(7)
	Unsecured	September 2026	FIXED 11.50%	$	10,000		9,844		9,006	(7)
Total Gibraltar Business Capital, LLC				$	25,000		24,545		22,039
Hercules Adviser LLC	Unsecured	June 2025	FIXED 5.00%	$	12,000		12,000		12,000	(7)
Subtotal: 1-5 Years Maturity							36,545		34,039
Subtotal: Diversified Financial Services (2.50%)*							36,545		34,039
Drug Discovery & Development
Under 1 Year Maturity
Chemocentryx, Inc.	Senior Secured	December 2022	PRIME + 3.30%, Floor rate 8.05%, 6.25% Exit Fee	$	11,451		12,677		12,780	(10)(13)
Nabriva Therapeutics	Senior Secured	June 2023	PRIME + 4.30%, Floor rate 9.80%, 9.95% Exit Fee	$	3,077		3,701		3,313	(5)(10)(13)
Subtotal: Under 1 Year Maturity							16,378		16,093
1-5 Years Maturity
Akero Therapeutics, Inc.	Senior Secured	January 2027	PRIME + 3.65%, Floor rate 7.65%, 5.85% Exit Fee	$	5,000		4,966		4,983	(10)(17)
Aldeyra Therapeutics, Inc.	Senior Secured	October 2023	PRIME + 3.10%, Floor rate 8.60%, 6.95% Exit Fee	$	15,000		15,817		15,608	(11)
Alladapt Immunotherapeutics Inc.	Senior Secured	September 2026	PRIME + 3.65%, Floor rate 8.40%, Cap rate 10.90%, 5.30% Exit Fee	$	15,000		14,858		14,858	(17)
Applied Genetic Technologies Corporation	Senior Secured	April 2024	PRIME + 6.50%, Floor rate 9.75%, 6.95% Exit Fee	$	15,609		16,450		16,308	(13)
ATAI Life Sciences N.V.	Senior Secured	August 2026	PRIME + 4.55%, Floor rate 8.55%, 6.95% Exit Fee	$	10,500		10,467		10,467	(5)(10)(17)
Aveo Pharmaceuticals, Inc.	Senior Secured	September 2024	PRIME + 6.40%, Floor rate 9.65%, Cap rate 15.00%, 6.95% Exit Fee	$	40,000		41,439		41,374	(11)(15)
Axsome Therapeutics, Inc.	Senior Secured	October 2026	PRIME + 5.70%, Floor rate 8.95%, Cap rate 10.70%, 5.31% Exit Fee	$	81,725		81,388		79,295	(10)(11)(12)(16)(17)
Bicycle Therapeutics PLC	Senior Secured	July 2025	PRIME + 4.55%, Floor rate 8.05%, Cap rate 9.05%, 5.00% Exit Fee	$	11,500		11,724		11,619	(5)(10)(11)(12)
BiomX, INC	Senior Secured	September 2025	PRIME + 5.70%, Floor rate 8.95%, 6.55% Exit Fee	$	9,000		9,125		9,004	(5)(10)(11)
BridgeBio Pharma, Inc.	Senior Secured	November 2026	FIXED 9.00%, 2.00% Exit Fee	$	37,022		36,694		33,561	(12)(13)(14)
Cellarity, Inc.	Senior Secured	June 2026	PRIME + 5.70%, Floor rate 8.95%, 3.75% Exit Fee	$	30,000		29,734		29,943	(13)(15)
Century Therapeutics, Inc.	Senior Secured	April 2024	PRIME + 6.30%, Floor rate 9.55%, 3.95% Exit Fee	$	10,000		10,197		10,261	(11)
Chemocentryx, Inc.	Senior Secured	February 2025	PRIME + 3.25%, Floor rate 8.50%, 7.15% Exit Fee	$	5,000		5,214		5,408	(10)(13)
Codiak Biosciences, Inc.	Senior Secured	October 2025	PRIME + 5.00%, Floor rate 8.25%, 5.50% Exit Fee	$	25,000		25,681		25,076	(11)

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Corium, Inc.	Senior Secured	September 2026	PRIME + 5.70%, Floor rate 8.95%, 7.75% Exit Fee	$	132,675	$	133,069	$	135,828	(13)(16)
Eloxx Pharmaceuticals, Inc.	Senior Secured	April 2025	PRIME + 6.25%, Floor rate 9.50%, 6.55% Exit Fee	$	12,500		12,673		12,408	(15)
enGene, Inc.	Senior Secured	July 2025	PRIME + 5.00%, Floor rate 8.25%, 6.35% Exit Fee	$	11,000		10,994		10,918	(5)(10)(13)
Finch Therapeutics Group, Inc.	Senior Secured	November 2026	PRIME + 4.05%, Floor rate 7.55%, Cap rate 8.80%, 5.50% Exit Fee	$	15,000		14,958		14,241	(17)
G1 Therapeutics, Inc.	Senior Secured	November 2026	PRIME + 5.90%, Floor rate 9.15%, 9.86% Exit Fee	$	58,125		58,472		58,006	(11)(12)(15)(17)
Geron Corporation	Senior Secured	October 2024	PRIME + 5.75%, Floor rate 9.00%, 6.55% Exit Fee	$	18,500		19,003		19,059	(10)(12)(13)
Gritstone Bio, Inc.	Senior Secured	July 2027	PRIME + 3.15%, Floor rate 7.15%, Cap rate 8.65%, PIK Interest 2.00%, 5.75% Exit Fee	$	15,037		14,989		14,989	(14)(17)
Hibercell, Inc.	Senior Secured	May 2025	PRIME + 5.40%, Floor rate 8.65%, 4.95% Exit Fee	$	17,000		17,244		17,225	(13)(15)
HilleVax, Inc.	Senior Secured	May 2027	PRIME + 1.05%, Floor rate 4.55%, Cap rate 6.05%, PIK Interest 2.85%, 7.15% Exit Fee	$	4,043		4,043		4,044	(14)(15)(17)
Iveric Bio Gene Therapy LLC	Senior Secured	August 2027	PRIME + 4.00%, Floor rate 8.75%, Cap rate 10.25%, 4.25% Exit Fee	$	24,750		24,530		24,531	(10)(17)
Locus Biosciences, Inc.	Senior Secured	July 2025	PRIME + 6.10%, Floor rate 9.35%, 4.95% Exit Fee	$	8,000		8,084		8,062	(15)
Madrigal Pharmaceutical, Inc.	Senior Secured	May 2026	PRIME + 3.95%, Floor rate 7.45%, 5.35% Exit Fee	$	34,000		33,807		33,807	(10)
Phathom Pharmaceuticals, Inc.	Senior Secured	October 2026	PRIME + 2.25%, Floor rate 5.50%, PIK Interest 3.35%, 7.50% Exit Fee	$	93,978		93,948		94,006	(10)(12)(14)(15)(16)(17)(22)
Provention Bio, Inc.	Senior Secured	September 2026	PRIME + 2.70%, Floor rate 8.20%, 6.60% Exit Fee	$	25,000		24,552		24,552
Redshift Bioanalytics, Inc.	Senior Secured	January 2026	PRIME + 4.25%, Floor rate 7.50%, 3.80% Exit Fee	$	5,000		4,936		4,935	(15)
Scynexis, Inc.	Senior Secured	March 2025	PRIME + 5.80%, Floor rate 9.05%, 3.95% Exit Fee	$	18,667		18,592		18,524	(12)(13)
Seres Therapeutics, Inc.	Senior Secured	October 2024	PRIME + 6.40%, Floor rate 9.65%, 4.98% Exit Fee	$	37,500		38,509		38,657	(12)(13)
Tarsus Pharmaceuticals, Inc.	Senior Secured	February 2027	PRIME + 5.20%, Floor rate 8.45%, 4.75% Exit Fee	$	8,250		8,255		8,388	(10)(13)(17)
TG Therapeutics, Inc.	Senior Secured	January 2026	PRIME + 2.15%, Floor rate 5.40%, PIK Interest 3.45%, 5.95% Exit Fee	$	47,567		47,267		47,137	(10)(11)(12)(14)
uniQure B.V.	Senior Secured	December 2025	PRIME + 4.70%, Floor rate 7.95%, 7.28% Exit Fee	$	70,000		72,015		73,205	(5)(10)(11)(12)(16)
Unity Biotechnology, Inc.	Senior Secured	August 2024	PRIME + 6.10%, Floor rate 9.35%, 6.25% Exit Fee	$	20,000		20,990		20,844	(13)
Valo Health, LLC	Senior Secured	May 2024	PRIME + 6.45%, Floor rate 9.70%, 3.85% Exit Fee	$	9,583		9,805		9,760	(11)(13)
Viridian Therapeutics, Inc.	Senior Secured	October 2026	PRIME + 4.20%, Floor rate 7.45%, Cap rate 8.95%, 4.76% Exit Fee	$	2,000		2,004		1,969	(10)(13)(17)
X4 Pharmaceuticals, Inc.	Senior Secured	July 2024	PRIME + 3.75%, Floor rate 8.75%, 8.80% Exit Fee	$	32,500		33,464		33,291	(11)(12)(13)
Subtotal: 1-5 Years Maturity							1,039,957		1,036,151
Subtotal: Drug Discovery & Development (77.22%)*							1,056,335		1,052,244
Healthcare Services, Other
1-5 Years Maturity
Better Therapeutics, Inc.	Senior Secured	August 2025	PRIME + 5.70%, Floor rate 8.95%, 5.95% Exit Fee	$	12,000		12,093		11,996	(15)
Blue Sprig Pediatrics, Inc.	Senior Secured	November 2026	1-Month LIBOR + 5.00%, Floor rate 6.00%, PIK Interest 4.45%	$	40,949		40,403		39,332	(11)(13)(14)(17)
Carbon Health Technologies, Inc.	Senior Secured	March 2025	PRIME + 5.60%, Floor rate 8.85%, 4.61% Exit Fee	$	46,125		46,399		46,158	(11)(12)(13)(17)(19)
Elation Health, Inc.	Senior Secured	March 2026	PRIME + 4.25%, Floor rate 9.00%, PIK Interest 1.95%, 3.95% Exit Fee	$	5,000		4,796		4,795	(17)(19)
Equality Health, LLC	Senior Secured	February 2026	PRIME + 6.25%, Floor rate 9.50%, PIK Interest 1.55%	$	53,388		52,928		53,644	(12)(14)
Subtotal: 1-5 Years Maturity							156,619		155,925
Greater than 5 Years Maturity
Oak Street Health, Inc.	Senior Secured	October 2027	PRIME + 2.45%, Floor rate 7.95%, Cap rate 9.45%, PIK Interest 1.00%	$	44,250		43,955		43,955	(10)(17)
Subtotal: Greater than 5 Years Maturity							43,955		43,955
Subtotal: Healthcare Services, Other (14.67%)*							200,574		199,880

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Information Services
1-5 Years Maturity
Capella Space Corp.	Senior Secured	November 2024	PRIME + 5.00%, Floor rate 8.25%, PIK Interest 1.10%, 7.00% Exit Fee	$	20,193	$	20,302	$	20,219	(14)(15)(19)
Signal Media Limited	Senior Secured	June 2025	PRIME + 5.50%, Floor rate 9.00%, Cap rate 12.00%, 3.45% Exit Fee	$	750		739		739	(5)(10)(17)
Yipit, LLC	Senior Secured	September 2026	1-Month LIBOR + 9.08%, Floor rate 10.08%	$	31,875		31,345		30,782	(17)(18)
Subtotal: 1-5 Years Maturity							52,386		51,740
Subtotal: Information Services (3.80%)*							52,386		51,740
Internet Consumer & Business Services
Under 1 Year Maturity
Nextroll, Inc.	Senior Secured	July 2023	PRIME + 3.75%, Floor rate 7.75%, PIK Interest 2.95%, 1.95% Exit Fee	$	22,046		21,952		21,952	(12)(14)
SeatGeek, Inc.	Senior Secured	June 2023	PRIME + 5.00%, Floor rate 10.50%, PIK Interest 0.50%	$	60,838		60,529		60,529	(11)(12)(13)(14)(16)
Subtotal: Under 1 Year Maturity							82,481		82,481
1-5 Years Maturity
AppDirect, Inc.	Senior Secured	April 2026	PRIME + 5.50%, Floor rate 8.75%, 9.70% Exit Fee	$	30,790		31,733		31,991	(12)(17)
Carwow LTD	Senior Secured	December 2024	PRIME + 4.70%, Floor rate 7.95%, PIK Interest 1.45%, 4.95% Exit Fee	£	18,798		25,845		21,021	(5)(10)(14)
Convoy, Inc.	Senior Secured	March 2026	PRIME + 3.20%, Floor rate 6.45%, PIK Interest 1.95%, 4.55% Exit Fee	$	73,623		72,447		73,092	(14)(16)(19)
LogicSource	Senior Secured	July 2027	3-Month SOFR + 8.93%, Floor rate 9.93%	$	13,300		13,017		13,017	(17)
Jobandtalent USA, Inc.	Senior Secured	February 2025	1-Month SOFR + 8.86%, Floor rate 9.75%, 3.00% Exit Fee	$	14,000		13,802		13,865	(5)(10)
Rhino Labs, Inc.	Senior Secured	March 2024	PRIME + 5.50%, Floor rate 8.75%, PIK Interest 2.25%	$	16,407		16,180		16,331	(14)(15)
RVShare, LLC	Senior Secured	December 2026	3-Month LIBOR + 5.50%, Floor rate 6.50%, PIK Interest 4.00%	$	20,489		20,138		20,130	(13)(14)(15)(17)
Salary.com, LLC	Senior Secured	September 2027	6-Month SOFR + 8.00%, Floor rate 9.00%	$	18,000		17,640		17,640	(18)
SeatGeek, Inc.	Senior Secured	May 2026	PRIME + 7.00%, Floor rate 10.50%, PIK Interest 0.50%	$	25,040		24,869		25,591	(11)(12)(13)(14)(16)
Skyword, Inc.	Senior Secured	September 2024	PRIME + 3.88%, Floor rate 9.38%, PIK Interest 1.90%, 4.00% Exit Fee	$	12,607		12,922		12,708	(13)(14)
Tectura Corporation	Senior Secured	July 2024	PIK Interest 5.00%	$	10,680		240		—	(7)(8)(14)
	Senior Secured	July 2024	FIXED 8.25%	$	8,250		8,250		8,250	(7)
	Senior Secured	July 2024	PIK Interest 5.00%	$	13,023		13,023		68	(7)(8)(14)
Total Tectura Corporation				$	31,953		21,513		8,318
Thumbtack, Inc.	Senior Secured	April 2026	PRIME + 4.95%, Floor rate 8.95%, PIK Interest 1.50%, 3.95% Exit Fee	$	10,065		9,985		9,938	(12)(14)(17)
Veem, Inc.	Senior Secured	March 2025	PRIME + 4.00%, Floor rate 7.25%, PIK Interest 1.25%, 4.50% Exit Fee	$	5,027		4,959		4,967	(13)(14)
	Senior Secured	March 2025	PRIME + 4.70%, Floor rate 7.95%, PIK Interest 1.50%, 4.50% Exit Fee	$	5,014		4,932		5,055
Total Veem, Inc.				$	10,041		9,891		10,022
Worldremit Group Limited	Senior Secured	February 2025	3-Month LIBOR + 9.25%, Floor rate 10.25%, 3.00% Exit Fee	$	94,500		94,115		92,293	(5)(10)(11)(12)(16)(19)
Subtotal: 1-5 Years Maturity							384,097		365,957
Greater than 5 Years Maturity
Houzz, Inc.	Convertible Debt	May 2028	PIK Interest 5.50%	$	21,252		21,252		20,354	(9)(14)
Subtotal: Greater than 5 Years Maturity							21,252		20,354
Subtotal: Internet Consumer & Business Services (34.40%)*							487,830		468,792
Manufacturing Technology
Under 1 Year Maturity
Bright Machines, Inc.	Senior Secured	November 2022	PRIME + 5.70%, Floor rate 8.95%, 6.95% Exit Fee	$	15,000		15,902		16,045	(11)(19)
Subtotal: Under 1 Year Maturity							15,902		16,045
1-5 Years Maturity
MacroFab, Inc.	Senior Secured	March 2026	PRIME + 4.35%, Floor rate 7.60%, PIK Interest 1.25%, 4.50% Exit Fee	$	17,083		16,616		16,469	(12)(14)
Ouster, Inc.	Senior Secured	May 2026	PRIME + 6.15%, Floor rate 9.40%, 7.45% Exit Fee	$	7,000		6,981		7,040	(10)(13)(17)
Subtotal: 1-5 Years Maturity							23,597		23,509
Subtotal: Manufacturing Technology (2.90%)*							39,499		39,554

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Medical Devices & Equipment
1-5 Years Maturity
Lucira Health, Inc.	Senior Secured	February 2026	PRIME + 5.50%, Floor rate 8.75%, 5.25% Exit Fee	$	15,000	$	14,927	$	14,835	(13)
Subtotal: 1-5 Years Maturity							14,927		14,835
Subtotal: Medical Devices & Equipment (1.09%)*							14,927		14,835
Semiconductors
1-5 Years Maturity
Fungible, Inc.	Senior Secured	December 2024	PRIME + 5.00%, Floor rate 8.25%, 4.95% Exit Fee	$	20,000		19,492		19,647	(15)(19)
Subtotal: 1-5 Years Maturity							19,492		19,647
Subtotal: Semiconductors (1.44%)*							19,492		19,647
Software
Under 1 Year Maturity
Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.)	Senior Secured	July 2023	3-Month SOFR + 10.15%, Floor rate 11.15%	$	10,819		10,691		10,691	(18)
Subtotal: Under 1 Year Maturity							10,691		10,691
1-5 Years Maturity
3GTMS, LLC	Senior Secured	February 2025	3-Month LIBOR + 9.28%, Floor rate 10.28%	$	10,808		10,660		10,496	(11)(17)(18)
Agilence, Inc.	Senior Secured	October 2026	1-Month BSBY + 9.00%, Floor rate 10.00%	$	9,330		9,100		8,880	(12)(17)(18)
Annex Cloud	Senior Secured	February 2027	1-Month BSBY + 9.00%, Floor rate 10.00%	$	8,500		8,282		8,148	(13)(17)
Automation Anywhere, Inc.	Senior Secured	September 2027	PRIME + 4.25%, Floor rate 9.00%, 2.50% Exit Fee	$	19,600		19,008		19,008	(17)(19)
Brain Corporation	Senior Secured	April 2025	PRIME + 3.70%, Floor rate 6.95%, PIK Interest 1.00%, 3.95% Exit Fee	$	20,116		20,101		20,196	(13)(14)(15)(17)
Campaign Monitor Limited	Senior Secured	November 2025	3-Month SOFR + 8.90%, Floor rate 9.90%	$	33,000		32,546		32,944	(13)(19)
Catchpoint Systems, Inc.	Senior Secured	June 2026	3-Month SOFR + 8.76%, Floor rate 9.76%	$	10,200		10,034		10,043	(18)
Ceros, Inc.	Senior Secured	September 2026	6-month LIBOR + 8.89%, Floor rate 9.89%	$	19,855		19,420		19,482	(17)(18)
CloudBolt Software, Inc.	Senior Secured	October 2024	PRIME + 6.70%, Floor rate 9.95%, 3.45% Exit Fee	$	10,000		10,021		10,014	(11)(12)(19)
Constructor.io Corporation	Senior Secured	July 2027	1-Month SOFR + 8.44%, Floor rate 9.44%	$	4,688		4,569		4,569	(17)(18)
Copper CRM, Inc	Senior Secured	March 2025	PRIME + 4.50%, Floor rate 8.25%, Cap rate 10.25%, PIK Interest 1.95%, 4.50% Exit Fee	$	10,095		10,058		9,882	(11)(14)
Cutover, Inc.	Senior Secured	October 2025	PRIME + 5.20%, Floor rate 9.95%, 4.95% Exit Fee	$	5,000		4,927		4,927	(5)(10)
Cybermaxx Intermediate Holdings, Inc.	Senior Secured	August 2026	6-month LIBOR + 9.28%, Floor rate 10.28%	$	7,980		7,808		7,732	(13)(17)
Dashlane, Inc.	Senior Secured	July 2025	PRIME + 3.05%, Floor rate 7.55%, PIK Interest 1.10%, 4.95% Exit Fee	$	31,841		32,186		31,580	(11)(13)(14)(17)(19)
Demandbase, Inc.	Senior Secured	August 2025	PRIME + 2.25%, Floor rate 5.50%, PIK Interest 3.00%, 5.00% Exit Fee	$	28,288		28,010		28,187	(13)(14)(17)(19)
Eigen Technologies Ltd.	Senior Secured	April 2025	PRIME + 5.10%, Floor rate 8.35%, 2.95% Exit Fee	$	3,750		3,730		3,726	(5)(10)
Enmark Systems, Inc.	Senior Secured	September 2026	3-Month LIBOR + 6.83%, Floor rate 7.83%, PIK Interest 2.19%	$	8,178		8,001		7,948	(11)(14)(17)(18)
Esentire, Inc.	Senior Secured	May 2024	3-Month LIBOR + 9.96%, Floor rate 10.96%	$	8,468		8,380		8,425	(5)(10)(11)(18)
Esme Learning Solutions, Inc.	Senior Secured	February 2025	PRIME + 5.50%, Floor rate 8.75%, PIK Interest 1.50%, 3.00% Exit Fee	$	5,045		4,890		4,270	(14)
Gryphon Networks Corp.	Senior Secured	January 2026	1-Month LIBOR + 9.69%, Floor rate 10.69%	$	5,232		5,125		5,258	(11)(17)
Ikon Science Limited	Senior Secured	October 2024	3-Month Eurodollar + 9.00%, Floor rate 10.00%	$	6,650		6,510		6,572	(5)(10)(17)(18)

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Imperva, Inc.	Senior Secured	January 2027	3-Month LIBOR + 7.75%, Floor rate 8.75%	$	20,000	$	19,869	$	20,000	(19)
Khoros (p.k.a Lithium Technologies)	Senior Secured	January 2024	3-Month SOFR + 8.00%, Floor rate 9.00%	$	56,208		56,028		55,958	(17)
Logicworks	Senior Secured	January 2024	PRIME + 7.50%, Floor rate 10.75%	$	14,500		14,373		14,356	(12)
Mixpanel, Inc.	Senior Secured	August 2024	PRIME + 4.70%, Floor rate 7.95%, PIK Interest 1.80%, 3.00% Exit Fee	$	20,713		20,755		21,554	(14)(19)
Mobile Solutions Services	Senior Secured	December 2025	3-Month LIBOR + 9.06%, Floor rate 10.06%	$	17,668		17,283		16,984	(17)(18)
Nuvolo Technologies Corporation	Senior Secured	July 2025	PRIME + 5.25%, Floor rate 8.50%, 2.04% Exit Fee	$	17,500		17,525		17,586	(12)(13)(17)(19)
Omeda Holdings, LLC	Senior Secured	July 2027	3-Month SOFR + 8.05%, Floor rate 9.05%	$	7,500		7,251		7,251	(17)(18)
Pollen, Inc.	Senior Secured	November 2023	PRIME + 4.75%, Floor rate 8.00%, PIK Interest 0.50%, 4.50% Exit Fee	$	7,486		7,657		7,975	(14)
	Senior Secured	November 2023	PRIME + 5.25%, Floor rate 8.50%, PIK Interest 1.35%, 4.50% Exit Fee	$	13,176		13,373		14,039	(14)(15)
Total Pollen, Inc.				$	20,662		21,030		22,014
Riviera Partners LLC	Senior Secured	April 2027	6 Month SOFR + 7.53%, Floor rate 8.53%	$	26,184		25,595		25,595	(17)(18)
ShadowDragon, LLC	Senior Secured	December 2026	3-Month LIBOR + 9.00%, Floor rate 10.00%	$	6,000		5,849		5,780	(18)
Tact.ai Technologies, Inc.	Senior Secured	February 2024	PRIME + 4.00%, Floor rate 8.75%, PIK Interest 2.00%, 5.50% Exit Fee	$	5,009		5,213		4,885	(14)
ThreatConnect, Inc.	Senior Secured	May 2026	3-Month LIBOR + 9.00%, Floor rate 10.00%	$	11,060		10,791		10,832	(12)(17)(18)
Udacity, Inc.	Senior Secured	September 2024	PRIME + 4.50%, Floor rate 7.75%, PIK Interest 2.00%, 3.00% Exit Fee	$	51,675		51,851		52,330	(12)(14)
VideoAmp, Inc.	Senior Secured	February 2025	PRIME + 3.70%, Floor rate 6.95%, PIK Interest 1.25%, 5.25% Exit Fee	$	62,987		62,056		62,467	(14)(15)(19)
Zimperium, Inc.	Senior Secured	May 2027	3-Month SOFR + 8.31%, Floor rate 9.31%	$	16,313		15,984		15,984	(17)(18)
Subtotal: 1-5 Years Maturity							614,819		615,863
Greater than 5 Years Maturity
Alchemer LLC	Senior Secured	May 2028	1-Month SOFR + 7.89%, Floor rate 8.89%	$	15,125		14,778		14,778	(17)(18)
Dispatch Technologies, Inc.	Senior Secured	April 2028	1-Month SOFR + 8.01%, Floor rate 8.76%	$	7,500		7,288		7,288	(17)(18)
Subtotal: Greater than 5 Years Maturity							22,066		22,066
Subtotal: Software (47.60%)*							647,576		648,620
Sustainable and Renewable Technology
1-5 Years Maturity
Ampion, PBC	Senior Secured	May 2025	PRIME + 4.70%, Floor rate 7.95%, PIK Interest 1.45%, 3.95% Exit Fee	$	4,022		3,953		3,943	(13)(14)
Pineapple Energy LLC	Senior Secured	December 2024	PIK Interest 10.00%	$	3,156		3,156		2,961	(14)
Subtotal: 1-5 Years Maturity							7,109		6,904
Subtotal: Sustainable and Renewable Technology (0.51%)*							7,109		6,904
Total: Debt Investments (195.30%)*						$	2,684,643	$	2,661,399

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Equity Investments
Consumer & Business Products
Grove Collaborative, Inc.	Equity	4/30/2021	Common Stock		61,300	$	433	$	127	(4)(20)
TechStyle, Inc.	Equity	4/30/2010	Common Stock		42,989		128		58
Subtotal: Consumer & Business Products (0.01%)*							561		185
Diversified Financial Services
Gibraltar Business Capital, LLC	Equity	3/1/2018	Common Stock		830,000		1,884		1,134	(7)
	Equity	3/1/2018	Preferred Series A		10,602,752		26,122		14,489	(7)
Total Gibraltar Business Capital, LLC					11,432,752		28,006		15,623
Hercules Adviser LLC	Equity	3/26/2021	Member Units		1		35		21,945	(7)
Newfront Insurance Holdings, Inc.	Equity	9/30/2021	Preferred Series D-2		210,282		403		454
Subtotal: Diversified Financial Services (2.79%)*							28,444		38,022
Drug Delivery
AcelRx Pharmaceuticals, Inc.	Equity	12/10/2018	Common Stock		176,730		1,329		37	(4)
Aytu BioScience, Inc.	Equity	3/28/2014	Common Stock		13,600		1,500		3	(4)
BioQ Pharma Incorporated	Equity	12/8/2015	Preferred Series D		165,000		500		43
PDS Biotechnology Corporation	Equity	4/6/2015	Common Stock		2,498		309		7	(4)
Subtotal: Drug Delivery (0.01%)*							3,638		90
Drug Discovery & Development
Akero Therapeutics, Inc.	Equity	9/19/2022	Common Stock		38,461		1,000		1,310	(4)(10)
Albireo Pharma, Inc.	Equity	9/14/2020	Common Stock		25,000		1,000		484	(4)(10)
Applied Molecular Transport	Equity	4/6/2021	Common Stock		1,000		42		1	(4)(10)
Avalo Therapeutics, Inc.	Equity	8/19/2014	Common Stock		9,924		1,000		33	(4)
Aveo Pharmaceuticals, Inc.	Equity	7/31/2011	Common Stock		190,179		1,715		1,565	(4)
Axsome Therapeutics, Inc.	Equity	5/9/2022	Common Stock		127,021		4,165		5,360	(4)(10)(16)(20)
Bicycle Therapeutics PLC	Equity	10/5/2020	Common Stock		98,100		1,871		2,282	(4)(5)(10)
BridgeBio Pharma, Inc.	Equity	6/21/2018	Common Stock		231,329		2,255		2,299	(4)
Chemocentryx, Inc.	Equity	6/15/2020	Common Stock		17,241		1,000		891	(4)(10)
Concert Pharmaceuticals, Inc.	Equity	2/13/2019	Common Stock		70,796		1,367		474	(4)(10)
Dare Biosciences, Inc.	Equity	1/8/2015	Common Stock		13,550		1,000		14	(4)
Dynavax Technologies	Equity	7/22/2015	Common Stock		20,000		550		209	(4)(10)
Hibercell, Inc.	Equity	5/7/2021	Preferred Series B		3,466,840		4,250		2,917	(15)
HilleVax, Inc.	Equity	5/3/2022	Common Stock		235,295		4,000		4,021	(4)
Humanigen, Inc.	Equity	3/31/2021	Common Stock		43,243		800		8	(4)(10)
NorthSea Therapeutics	Equity	12/15/2021	Preferred Series C		983		2,000		1,515	(5)(10)
Paratek Pharmaceuticals, Inc.	Equity	2/26/2007	Common Stock		76,362		2,744		196	(4)
Rocket Pharmaceuticals, Ltd.	Equity	8/22/2007	Common Stock		944		1,500		15	(4)
Savara, Inc.	Equity	8/11/2015	Common Stock		11,119		203		17	(4)
Sio Gene Therapies, Inc.	Equity	2/2/2017	Common Stock		16,228		1,269		4	(4)
Tarsus Pharmaceuticals, Inc.	Equity	5/5/2022	Common Stock		155,555		2,100		2,663	(4)(10)
Tricida, Inc.	Equity	2/28/2018	Common Stock		68,816		863		721	(4)
uniQure B.V.	Equity	1/31/2019	Common Stock		17,175		332		322	(4)(5)(10)(16)
Valo Health, LLC	Equity	12/11/2020	Preferred Series B		510,308		3,000		3,622
X4 Pharmaceuticals, Inc.	Equity	11/26/2019	Common Stock		1,111,519		2,522		1,901	(4)
Subtotal: Drug Discovery & Development (2.41%)*							42,548		32,844
Electronics & Computer Hardware
Skydio, Inc.	Equity	3/8/2022	Preferred Series E		248,900		1,500		1,034
Subtotal: Electronics & Computer Hardware (0.08%)*							1,500		1,034
Healthcare Services, Other
23andMe, Inc.	Equity	3/11/2019	Common Stock		825,732		5,094		2,362	(4)
Carbon Health Technologies, Inc.	Equity	3/30/2021	Preferred Series C		217,880		1,688		836
Subtotal: Healthcare Services, Other (0.23%)*							6,782		3,198

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Information Services
Planet Labs, Inc.	Equity	6/21/2019	Common Stock		547,880	$	615	$	2,975	(4)
Yipit, LLC	Equity	12/30/2021	Preferred Series E		41,021		3,825		2,648
Zeta Global Corp.	Equity	11/20/2007	Common Stock		295,861		-		1,956	(4)
Subtotal: Information Services (0.56%)*							4,440		7,579
Internet Consumer & Business Services
Black Crow AI, Inc. affiliates	Equity	3/24/2021	Preferred Note		3		3,000		3,000	(21)
Carwow LTD	Equity	12/15/2021	Preferred Series D-4		199,742		1,151		216	(5)(10)
Contentful Global, Inc.	Equity	12/22/2020	Preferred Series C		41,000		138		239	(5)(10)
	Equity	11/20/2018	Preferred Series D		108,500		500		685	(5)(10)
Total Contentful Global, Inc.					149,500		638		924
DoorDash, Inc.	Equity	12/20/2018	Common Stock		81,996		945		4,055	(4)
Lyft, Inc.	Equity	12/26/2018	Common Stock		100,738		5,263		1,327	(4)
Nerdy Inc.	Equity	9/17/2021	Common Stock		100,000		1,000		209	(4)(20)
Nextdoor.com, Inc.	Equity	8/1/2018	Common Stock		1,019,255		4,854		2,844	(4)
OfferUp, Inc.	Equity	10/25/2016	Preferred Series A		286,080		1,663		418
	Equity	10/25/2016	Preferred Series A-1		108,710		632		159
Total OfferUp, Inc.					394,790		2,295		577
Oportun	Equity	6/28/2013	Common Stock		48,365		577		211	(4)
Reischling Press, Inc.	Equity	7/31/2020	Common Stock		1,163		15		—
Rhino Labs, Inc.	Equity	1/24/2022	Preferred Series B-2		7,063		1,000		866
Savage X Holding, LLC	Equity	4/30/2010	Class A Units		42,137		13		179
Tectura Corporation	Equity	5/23/2018	Common Stock		414,994,863		900		—	(7)
	Equity	6/6/2016	Preferred Series BB		1,000,000		—		—	(7)
Total Tectura Corporation					415,994,863		900		—
TFG Holding, Inc.	Equity	4/30/2010	Common Stock		42,989		89		95
Uber Technologies, Inc.	Equity	12/1/2020	Common Stock		32,991		318		874	(4)
Subtotal: Internet Consumer & Business Services (1.13%)*							22,058		15,377
Medical Devices & Equipment
Coronado Aesthetics, LLC	Equity	10/15/2021	Common Units		180,000		—		9	(7)
	Equity	10/15/2021	Preferred Series A-2		5,000,000		250		391	(7)
Total Coronado Aesthetics, LLC					5,180,000		250		400
Flowonix Medical Incorporated	Equity	11/3/2014	Preferred Series AA		221,893		1,500		—
Gelesis, Inc.	Equity	11/30/2009	Common Stock		1,490,700		871		1,611	(4)
ViewRay, Inc.	Equity	12/16/2013	Common Stock		36,457		332		132	(4)
Subtotal: Medical Devices & Equipment (0.16%)*							2,953		2,143
Semiconductors
Achronix Semiconductor Corporation	Equity	7/1/2011	Preferred Series C		277,995		160		259
Subtotal: Semiconductors (0.02%)*							160		259
Software
3GTMS, LLC	Equity	8/9/2021	Common Stock		1,000,000		1,000		675
CapLinked, Inc.	Equity	10/26/2012	Preferred Series A-3		53,614		51		5
Docker, Inc.	Equity	11/29/2018	Common Stock		20,000		4,284		494
Druva Holdings, Inc.	Equity	10/22/2015	Preferred Series 2		458,841		1,000		1,428
	Equity	8/24/2017	Preferred Series 3		93,620		300		330
Total Druva Holdings, Inc.					552,461		1,300		1,758
HighRoads, Inc.	Equity	1/18/2013	Common Stock		190		307		—
Lightbend, Inc.	Equity	12/4/2020	Common Stock		38,461		265		14
Palantir Technologies	Equity	9/23/2020	Common Stock		1,418,337		8,670		11,531	(4)
SingleStore, Inc.	Equity	11/25/2020	Preferred Series E		580,983		2,000		1,278
	Equity	8/12/2021	Preferred Series F		52,956		280		150
Total SingleStore, Inc.					633,939		2,280		1,428
Sprinklr, Inc.	Equity	3/22/2017	Common Stock		700,000		3,748		6,454	(4)
Verana Health, Inc.	Equity	7/8/2021	Preferred Series E		952,562		2,000		1,171
ZeroFox, Inc.	Equity	5/7/2020	Common Stock		289,992		101		1,467	(4)(20)
Subtotal: Software (1.83%)*							24,006		24,997

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Surgical Devices
Gynesonics, Inc.	Equity	1/18/2007	Preferred Series B		219,298	$	250	$	—
	Equity	6/16/2010	Preferred Series C		656,538		282		—
	Equity	2/8/2013	Preferred Series D		1,991,157		712		—
	Equity	7/14/2015	Preferred Series E		2,786,367		429		—
	Equity	12/18/2018	Preferred Series F		1,523,693		118		—
	Equity	12/18/2018	Preferred Series F-1		2,418,125		150		—
Total Gynesonics, Inc.					9,595,178		1,941		—
Subtotal: Surgical Devices (0.00%)*							1,941		—
Sustainable and Renewable Technology
Fulcrum Bioenergy, Inc.	Equity	9/13/2012	Preferred Series C-1		187,265		711		874
Impossible Foods, Inc.	Equity	5/10/2019	Preferred Series E-1		188,611		2,000		2,438
Modumetal, Inc.	Equity	6/1/2015	Common Stock		1,035		500		—
NantEnergy, LLC	Equity	8/31/2013	Common Units		59,665		102		—
Pineapple Energy LLC	Equity	12/10/2020	Common Stock		304,486		3,153		243	(4)(20)
Pivot Bio, Inc.	Equity	6/28/2021	Preferred Series D		593,080		4,500		2,571
Proterra, Inc.	Equity	5/28/2015	Common Stock		457,841		542		2,280	(4)
Subtotal: Sustainable and Renewable Technology (0.62%)*							11,508		8,406
Total: Equity Investments (9.84%)*						$	150,539	$	134,134
Warrant Investments
Communications & Networking
Aryaka Networks, Inc.	Warrant	6/28/2022	Common Stock		229,611	$	123	$	140
Spring Mobile Solutions, Inc.	Warrant	4/19/2013	Common Stock		2,834,375		418		—
Subtotal: Communications & Networking (0.01%)*							541		140
Consumer & Business Products
Gadget Guard, LLC	Warrant	6/3/2014	Common Stock		1,662,441		228		—
TechStyle, Inc.	Warrant	7/16/2013	Preferred Series B		206,185		1,101		365
The Neat Company	Warrant	8/13/2014	Common Stock		54,054		365		—
Whoop, Inc.	Warrant	6/27/2018	Preferred Series C		686,270		18		757
Subtotal: Consumer & Business Products (0.08%)*							1,712		1,122
Drug Delivery
Aerami Therapeutics Holdings, Inc.	Warrant	9/30/2015	Common Stock		110,882		74		—
BioQ Pharma Incorporated	Warrant	10/27/2014	Common Stock		459,183		1		—
PDS Biotechnology Corporation	Warrant	8/28/2014	Common Stock		3,929		390		—	(4)
Subtotal: Drug Delivery (0.00%)*							465		—
Drug Discovery & Development
Acacia Pharma Inc.	Warrant	6/29/2018	Common Stock		201,330		304		—	(5)(10)
ADMA Biologics, Inc.	Warrant	12/21/2012	Common Stock		89,750		295		2	(4)
Akero Therapeutics, Inc.	Warrant	6/15/2022	Common Stock		18,360		56		398	(4)(10)
Albireo Pharma, Inc.	Warrant	6/8/2020	Common Stock		5,311		61		26	(4)(10)
Axsome Therapeutics, Inc.	Warrant	9/25/2020	Common Stock		40,396		880		783	(4)(10)(16)
Fresh Tracks Therapeutics, Inc. (p.k.a. Brickell Biotech, Inc.)	Warrant	2/18/2016	Common Stock		200		119		—	(4)
Cellarity, Inc.	Warrant	12/8/2021	Preferred Series B		100,000		287		370	(15)
Century Therapeutics, Inc.	Warrant	9/14/2020	Common Stock		16,112		37		16	(4)
Dermavant Sciences Ltd.	Warrant	5/31/2019	Common Stock		223,642		101		104	(5)(10)(12)
enGene, Inc.	Warrant	12/30/2021	Preferred Series 3		133,692		72		31	(5)(10)
Evofem Biosciences, Inc.	Warrant	6/11/2014	Common Stock		520		266		—	(4)
Madrigal Pharmaceutical, Inc.	Warrant	5/9/2022	Common Stock		10,131		177		214	(4)(10)
Myovant Sciences, Ltd.	Warrant	10/16/2017	Common Stock		73,710		460		429	(4)(5)(10)
Paratek Pharmaceuticals, Inc.	Warrant	8/1/2018	Common Stock		426,866		520		72	(4)
Phathom Pharmaceuticals, Inc.	Warrant	9/17/2021	Common Stock		64,687		848		113	(4)(10)(15)(16)
Provention Bio, Inc.	Warrant	9/15/2022	Common Stock		111,934		281		224	(4)
Redshift Bioanalytics, Inc.	Warrant	3/23/2022	Preferred Series E		475,510		20		18	(15)
Scynexis, Inc.	Warrant	5/14/2021	Common Stock		106,035		296		47	(4)
Stealth Bio Therapeutics Corp.	Warrant	6/30/2017	Common Stock		500,000		158		—	(4)(5)(10)
TG Therapeutics, Inc.	Warrant	2/28/2019	Common Stock		231,613		1,033		335	(4)(10)(12)
Tricida, Inc.	Warrant	3/27/2019	Common Stock		31,352		280		22	(4)
Valo Health, LLC	Warrant	6/15/2020	Common Units		102,216		256		242
X4 Pharmaceuticals, Inc.	Warrant	3/18/2019	Common Stock		1,021,576		792		628	(4)
Yumanity Therapeutics, Inc.	Warrant	12/20/2019	Common Stock		15,414		110		—	(4)
Subtotal: Drug Discovery & Development (0.30%)*							7,709		4,074

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Electronics & Computer Hardware
908 Devices, Inc.	Warrant	3/15/2017	Common Stock		49,078	$	101	$	284	(4)
Locus Robotics Corp.	Warrant	6/21/2022	Common Stock		8,511		34		27
Skydio, Inc.	Warrant	11/8/2021	Common Stock		622,255		557		1,153
Subtotal: Electronics & Computer Hardware (0.11%)*							692		1,464
Healthcare Services, Other
Elation Health, Inc.	Warrant	9/12/2022	Common Stock		362,837		583		501
Vida Health, Inc.	Warrant	3/28/2022	Common Stock		100,618		114		20
Subtotal: Healthcare Services, Other (0.04%)*							697		521
Information Services
Capella Space Corp.	Warrant	10/21/2021	Common Stock		176,200		207		50	(15)
INMOBI Inc.	Warrant	11/19/2014	Common Stock		65,587		82		—	(5)(10)
NetBase Solutions, Inc.	Warrant	8/22/2017	Preferred Series 1		60,000		356		345
Signal Media Limited	Warrant	6/29/2022	Common Stock		94,857		35		21	(5)(10)
Subtotal: Information Services (0.03%)*							680		416
Internet Consumer & Business Services
Aria Systems, Inc.	Warrant	5/22/2015	Preferred Series G		231,535		74		—
Carwow LTD	Warrant	12/14/2021	Common Stock		174,163		164		33	(5)(10)
Cloudpay, Inc.	Warrant	4/10/2018	Preferred Series B		6,763		54		310	(5)(10)
Convoy, Inc.	Warrant	3/30/2022	Common Stock		165,456		974		582	(16)
First Insight, Inc.	Warrant	5/10/2018	Preferred Series B		75,917		95		35
Fulfil Solutions, Inc.	Warrant	7/29/2022	Common Stock		84,995		325		199
Houzz, Inc.	Warrant	10/29/2019	Common Stock		529,661		20		1
Landing Holdings Inc.	Warrant	3/12/2021	Common Stock		11,806		116		117	(15)
Lendio, Inc.	Warrant	3/29/2019	Preferred Series D		127,032		39		35
Rhino Labs, Inc.	Warrant	3/12/2021	Common Stock		13,106		470		344	(15)
RumbleON, Inc.	Warrant	4/30/2018	Common Stock		5,139		88		1	(4)
Savage X Holding, LLC	Warrant	6/27/2014	Class A Units		206,185		—		875
SeatGeek, Inc.	Warrant	6/12/2019	Common Stock		1,379,761		842		1,692	(16)
ShareThis, Inc.	Warrant	12/14/2012	Preferred Series C		493,502		547		—
Skyword, Inc.	Warrant	8/23/2019	Preferred Series B		444,444		83		2
Snagajob.com, Inc.	Warrant	4/20/2020	Common Stock		600,000		16		69	(12)
	Warrant	6/30/2016	Preferred Series A		1,800,000		782		120	(12)
	Warrant	8/1/2018	Preferred Series B		1,211,537		62		69	(12)
Total Snagajob.com, Inc.					3,611,537		860		258
TFG Holding, Inc.	Warrant	6/27/2014	Common Stock		206,185		—		17
The Faction Group LLC	Warrant	11/3/2014	Preferred Series AA		8,076		234		387
Thumbtack, Inc.	Warrant	5/1/2018	Common Stock		267,225		844		459
Veem, Inc.	Warrant	3/31/2022	Common Stock		98,428		126		48
Worldremit Group Limited	Warrant	2/11/2021	Preferred Series D		77,215		129		399	(5)(10)(16)
	Warrant	8/27/2021	Preferred Series E		1,868		26		6	(5)(10)(16)
Total Worldremit Group Limited					79,083		155		405
Subtotal: Internet Consumer & Business Services (0.43%)*							6,110		5,800
Manufacturing Technology
Bright Machines, Inc.	Warrant	3/31/2022	Common Stock		196,335		151		320
MacroFab, Inc.	Warrant	3/23/2022	Common Stock		1,111,111		528		603
Xometry, Inc.	Warrant	5/9/2018	Common Stock		87,784		47		3,415	(4)
Subtotal: Manufacturing Technology (0.32%)*							726		4,338
Media/Content/Info
Zoom Media Group, Inc.	Warrant	12/21/2012	Preferred Series A		1,204		348		—
Subtotal: Media/Content/Info (0.00%)*							348		—
Medical Devices & Equipment
Aspire Bariatrics, Inc.	Warrant	1/28/2015	Common Stock		22,572		455		—
Flowonix Medical Incorporated	Warrant	11/3/2014	Preferred Series AA		110,946		362		—	(12)
	Warrant	9/21/2018	Preferred Series BB		725,806		352		—
Total Flowonix Medical Incorporated					836,752		714		—
Intuity Medical, Inc.	Warrant	12/29/2017	Preferred Series B-1		3,076,323		294		30
Lucira Health, Inc.	Warrant	2/4/2022	Common Stock		59,642		110		—	(4)
Outset Medical, Inc.	Warrant	9/27/2013	Common Stock		62,794		401		413	(4)
Tela Bio, Inc.	Warrant	3/31/2017	Common Stock		15,712		61		—	(4)
Subtotal: Medical Devices & Equipment (0.03%)*							2,035		443

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Semiconductors
Achronix Semiconductor Corporation	Warrant	6/26/2015	Preferred Series D-2		750,000	$	99	$	638
Fungible, Inc.	Warrant	12/16/2021	Common Stock		800,000		751		77	(15)
Subtotal: Semiconductors (0.05%)*							850		715
Software
Automation Anywhere, Inc.	Warrant	9/23/2022	Common Stock		254,778		448		437
Bitsight Technologies, Inc.	Warrant	11/18/2020	Common Stock		29,691		284		597
Brain Corporation	Warrant	10/4/2021	Common Stock		194,629		165		61	(15)
CloudBolt Software, Inc.	Warrant	9/30/2020	Common Stock		211,342		117		2
Cloudian, Inc.	Warrant	11/6/2018	Common Stock		477,454		71		17
Couchbase, Inc.	Warrant	4/25/2019	Common Stock		105,350		462		563	(4)
Cutover, Inc.	Warrant	9/21/2022	Common Stock		102,898		26		25	(5)(10)
Dashlane, Inc.	Warrant	3/11/2019	Common Stock		453,641		353		120
Delphix Corp.	Warrant	10/8/2019	Common Stock		718,898		1,594		2,306
Demandbase, Inc.	Warrant	8/2/2021	Common Stock		727,047		545		140
DNAnexus, Inc.	Warrant	3/21/2014	Preferred Series C		909,091		97		114
DroneDeploy, Inc.	Warrant	6/30/2022	Common Stock		95,911		278		307
Eigen Technologies Ltd.	Warrant	4/13/2022	Common Stock		522		8		8	(5)(10)
Esme Learning Solutions, Inc.	Warrant	1/27/2022	Common Stock		56,765		198		-
Evernote Corporation	Warrant	9/30/2016	Common Stock		62,500		107		15
Lightbend, Inc.	Warrant	2/14/2018	Preferred Series D		89,685		131		1
Mixpanel, Inc.	Warrant	9/30/2020	Common Stock		82,362		252		233
Nuvolo Technologies Corporation	Warrant	3/29/2019	Common Stock		70,000		172		190
Poplicus, Inc.	Warrant	5/28/2014	Common Stock		132,168		—		—
Reltio, Inc.	Warrant	6/30/2020	Common Stock		69,120		215		296
SignPost, Inc.	Warrant	1/13/2016	Series Junior 1 Preferred		474,019		314		—
SingleStore, Inc.	Warrant	4/28/2020	Preferred Series D		312,596		103		258
Tact.ai Technologies, Inc.	Warrant	2/13/2020	Common Stock		1,041,667		206		90
Udacity, Inc.	Warrant	9/25/2020	Common Stock		486,359		218		21
VideoAmp, Inc.	Warrant	1/21/2022	Common Stock		152,048		1,275		416	(15)
Subtotal: Software (0.46%)*							7,639		6,217
Surgical Devices
Gynesonics, Inc.	Warrant	12/5/2012	Preferred Series C		33,670		13		—
TransMedics Group, Inc.	Warrant	11/7/2012	Common Stock		64,440		139		1,536	(4)
Subtotal: Surgical Devices (0.11%)*							152		1,536
Sustainable and Renewable Technology
Agrivida, Inc.	Warrant	6/20/2013	Preferred Series D		471,327		120		—
Ampion, PBC	Warrant	4/15/2022	Common Stock		18,472		53		42
Fulcrum Bioenergy, Inc.	Warrant	4/30/2013	Preferred Series C-1		93,632		64		220
Halio, Inc.	Warrant	4/22/2014	Preferred Series A		325,000		155		83
	Warrant	4/7/2015	Preferred Series B		131,883		63		28
Total Halio, Inc.					456,883		218		111
Polyera Corporation	Warrant	12/11/2012	Preferred Series C		311,612		337		—
Subtotal: Sustainable and Renewable Technology (0.03%)*							792		373
Total: Warrant Investments (1.99%)*							31,148		27,159
Total Investments in Securities (207.14%)*						$	2,866,330	$	2,822,692
Investment Funds & Vehicles Investments
Drug Discovery & Development
Forbion Growth Opportunities Fund I C.V.	Investment Funds & Vehicles	11/16/2020					2,353		2,291	(5)(10)(17)
Forbion Growth Opportunities Fund II C.V.	Investment Funds & Vehicles	6/23/2022					405		374	(5)(10)(17)
Subtotal: Drug Discovery & Development (0.20%)*							2,758		2,665
Software
Liberty Zim Co-Invest L.P.	Investment Funds & Vehicles	7/21/2022					381		381	(5)(10)
Subtotal: Software (0.03%)*							381		381
Total: Investment Funds & Vehicles Investments (0.22%)*						$	3,139	$	3,046
Total Investments before Cash and Cash Equivalents (207.36%)*						$	2,869,469	$	2,825,738

Cash & Cash Equivalents
GS Financial Square Government Fund	Cash & Cash Equivalents		FGTXX/38141W273				25,000		25,000
Total: Investments in Cash & Cash Equivalents (1.83%)*						$	25,000	$	25,000
Total: Investments after Cash and Cash Equivalents (209.19%)*						$	2,894,469	$	2,850,738

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2022 (unaudited)

(dollars in thousands)

* Value as a percent of net assets. All amounts are stated in U.S. Dollars unless otherwise noted. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(1)

Interest rate PRIME represents 6.25% as of September 30, 2022. 1-month LIBOR, 3-month LIBOR and 6-month LIBOR represent 3.1427%, 3.7547%, and 4.2320%, respectively, as of September 30, 2022.

(2)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $68.4 million, $110.0 million and $41.6 million, respectively. The tax cost of investments is $2.9 billion.

(3)

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

(4)

Except for warrants in 27 publicly traded companies and common stock in 42 publicly traded companies, all investments are restricted as of September 30, 2022 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s valuation committee (the “Valuation Committee”) and approved by the board of directors (the “Board”).

(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, 2022, and is therefore considered non-income producing. Note that as of September 30, 2022, 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 is pledged as collateral under the SMBC Facility (as defined in “Note 5 — Debt”).

(12)

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

(13)

Denotes that all or a portion of the debt investment secures the 2031 Asset-Backed Notes (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, 2022.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of September 30, 2022 (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.

(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 for Black Crow AI, Inc., subject to release upon repayment of the outstanding balance of the notes. As of September 30, 2022, the Black Crow AI, Inc. affiliates promissory notes had an outstanding balance of $3.0 million.

(22)

Denotes the security holds rights to royalty fee income associated with certain products of the portfolio company. The approximate cost and fair value of the royalty contract are $4.6 million and $4.3 million, respectively.

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Debt Investments
Communications & Networking
1-5 Years Maturity
Cytracom Holdings LLC	Senior Secured	February 2025	3-month LIBOR + 9.31% or Floor rate of 10.31%	$	9,000	$	8,802	$	8,725	(11)(16)(17)
Rocket Lab Global Services, LLC	Senior Secured	June 2024	PRIME + 4.90% or Floor rate of 8.15%, PIK Interest 1.25%, 3.25% Exit Fee	$	88,542		88,286		90,505	(13)(15)
Subtotal: 1-5 Years Maturity							97,088		99,230
Subtotal: Communications & Networking (7.58%)*							97,088		99,230
Consumer & Business Products
1-5 Years Maturity
Grove Collaborative, Inc.	Senior Secured	April 2025	PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee	$	23,520		23,162		23,298	(18)
Subtotal: 1-5 Years Maturity							23,162		23,298
Subtotal: Consumer & Business Products (1.78%)*							23,162		23,298
Diversified Financial Services
Under 1 Year Maturity
Newfront Insurance Holdings, Inc.	Convertible Note	August 2022	PIK Interest 0.19% or Floor rate of 0.19%	$	403		403		403	(9)
Subtotal: Under 1 Year Maturity							403		403
1-5 Years Maturity
Gibraltar Business Capital, LLC	Unsecured	September 2026	FIXED 14.50%	$	15,000		14,662		13,818	(7)
	Unsecured	September 2026	FIXED 11.50%	$	10,000		9,823		9,394	(7)
Total Gibraltar Business Capital, LLC				$	25,000		24,485		23,212
Hercules Adviser LLC	Unsecured	May 2023	FIXED 5.00%	$	8,850		8,850		8,850	(7)
Subtotal: 1-5 Years Maturity							33,335		32,062
Subtotal: Diversified Financial Services (2.48%)*							33,738		32,465
Drug Discovery & Development
Under 1 Year Maturity
Chemocentryx, Inc.	Senior Secured	December 2022	PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee	$	18,951		20,036		20,036	(10)
Subtotal: Under 1 Year Maturity							20,036		20,036
1-5 Years Maturity
Albireo Pharma, Inc.	Senior Secured	July 2024	PRIME + 5.90% or Floor rate of 9.15%, 6.95% Exit Fee	$	10,000		10,229		10,268	(10)(11)
Aldeyra Therapeutics, Inc.	Senior Secured	October 2023	PRIME + 3.10% or Floor rate of 8.60%, 6.95% Exit Fee	$	15,000		15,639		15,653
Applied Genetic Technologies Corporation	Senior Secured	April 2024	PRIME + 6.50% or Floor rate of 9.75%, 6.95% Exit Fee	$	20,000		20,416		20,339
Aveo Pharmaceuticals, Inc.	Senior Secured	September 2024	PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee	$	40,000		40,842		40,776	(11)(14)
Axsome Therapeutics, Inc.	Senior Secured	October 2026	PRIME + 5.70% or Floor rate of 8.95%, 5.82% Exit Fee	$	50,000		49,542		48,859	(10)(12)
Bicycle Therapeutics PLC	Senior Secured	October 2024	PRIME + 5.60% or Floor rate of 8.85%, 5.00% Exit Fee	$	24,000		24,271		24,454	(5)(10)(11)(12)(16)
BiomX, INC	Senior Secured	September 2025	PRIME + 5.70% or Floor rate of 8.95%, 6.55% Exit Fee	$	9,000		8,980		8,980	(5)(10)(11)
BridgeBio Pharma, Inc.	Senior Secured	November 2026	FIXED 9.00%, 2.00% Exit Fee	$	38,000		37,462		37,462
Cellarity, Inc.	Senior Secured	June 2026	PRIME + 5.70% or Floor rate of 8.95%, 3.75% Exit Fee	$	30,000		29,422		29,422	(14)
Center for Breakthrough Medicines Holdings, LLC	Senior Secured	May 2023	PRIME + 5.50% or Floor rate of 8.75%, 7.50% Exit Fee	$	5,000		5,005		5,005
Century Therapeutics	Senior Secured	April 2024	PRIME + 6.30% or Floor rate of 9.55%, 3.95% Exit Fee	$	10,000		10,075		10,361	(11)

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Chemocentryx, Inc.	Senior Secured	February 2025	PRIME + 3.25% or Floor rate of 8.50%, 7.15% Exit Fee	$	5,000	$	5,161	$	5,070	(10)
Codiak Biosciences, Inc.	Senior Secured	October 2025	PRIME + 5.00% or Floor rate of 8.25%, 5.50% Exit Fee	$	25,000		25,459		25,316	(11)
Corium, Inc.	Senior Secured	September 2026	PRIME + 5.70% or Floor rate of 8.95%, 7.75% Exit Fee	$	91,500		90,997		90,997	(15)
Eloxx Pharmaceuticals, Inc.	Senior Secured	April 2025	PRIME + 6.25% or Floor rate of 9.50%, 6.55% Exit Fee	$	12,500		12,443		12,443	(14)
enGene, Inc.	Senior Secured	July 2025	PRIME + 5.00% or Floor rate of 8.25%, 6.35% Exit Fee	$	7,000		6,858		6,858	(5)(10)
G1 Therapeutics, Inc.	Senior Secured	November 2026	PRIME + 5.90% or Floor rate of 9.15%, 9.86% Exit Fee	$	58,125		57,873		57,874	(10)(11)(12)(14)(16)
Geron Corporation	Senior Secured	October 2024	PRIME + 5.75% or Floor rate of 9.00%, 6.55% Exit Fee	$	32,500		32,704		32,744	(10)(12)
Hibercell, Inc.	Senior Secured	May 2025	PRIME + 5.40% or Floor rate of 8.65%, 4.95% Exit Fee	$	17,000		17,041		17,014	(14)
Humanigen, Inc.	Senior Secured	March 2025	PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee	$	20,000		20,235		19,985	(9)(10)
Kaleido Biosciences, Inc.	Senior Secured	January 2024	PRIME + 6.10% or Floor rate of 9.35%, 7.55% Exit Fee	$	22,500		23,505		23,384	(12)
Locus Biosciences	Senior Secured	July 2025	PRIME + 6.10% or Floor rate of 9.35%, 4.95% Exit Fee	$	8,000		7,977		7,900	(14)
Nabriva Therapeutics	Senior Secured	June 2023	PRIME + 4.30% or Floor rate of 9.80%, 6.95% Exit Fee	$	5,000		5,500		5,459	(5)(10)
Phathom Pharmaceuticals, Inc.	Senior Secured	October 2026	PRIME + 2.25% or Floor rate of 5.50%, PIK Interest 3.35%, 7.50% Exit Fee	$	87,116		86,075		86,075	(10)(12)(13)(14)(15)(16)
Scynexis, Inc.	Senior Secured	March 2025	PRIME + 5.80% or Floor rate of 9.05%, 3.95% Exit Fee	$	16,000		15,826		15,778
Seres Therapeutics, Inc.	Senior Secured	November 2023	PRIME + 4.40% or Floor rate of 9.65%, 4.85% Exit Fee	$	24,051		24,777		25,183
Syndax Pharmaceutics Inc.	Senior Secured	April 2024	PRIME + 6.00% or Floor rate of 9.25%, 4.99% Exit Fee	$	20,000		20,646		20,653	(12)(16)
TG Therapeutics, Inc.	Senior Secured	January 2026	PRIME + 2.15% or Floor rate of 5.40%, PIK Interest 3.45%, 5.95% Exit Fee	$	51,450		50,470		50,470	(10)
uniQure B.V.	Senior Secured	December 2025	PRIME + 4.70% or Floor rate of 7.95%, 7.28% Exit Fee	$	77,500		78,755		78,755	(5)(10)(11)(12)(15)
Unity Biotechnology, Inc.	Senior Secured	August 2024	PRIME + 6.10% or Floor rate of 9.35%, 6.25% Exit Fee	$	22,701		23,293		23,627	(9)
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Senior Secured	May 2024	PRIME + 6.45% or Floor rate of 9.70%, 3.85% Exit Fee	$	11,500		11,547		11,492	(11)
X4 Pharmaceuticals, Inc.	Senior Secured	July 2024	PRIME + 3.75% or Floor rate of 8.75%, 8.80% Exit Fee	$	32,500		34,140		34,085	(11)(12)
Yumanity Therapeutics, Inc.	Senior Secured	January 2024	PRIME + 4.00% or Floor rate of 8.75%, 5.92% Exit Fee	$	12,732		13,256		13,187
Subtotal: 1-5 Years Maturity							916,421		915,928
Subtotal: Drug Discovery & Development (71.53%)*							936,457		935,964
Healthcare Services, Other
1-5 Years Maturity
Better Therapeutics, Inc.	Senior Secured	August 2025	PRIME + 5.70% or Floor rate of 8.95%, 5.95% Exit Fee	$	8,000		7,966		7,966	(14)(16)
Blue Sprig Pediatrics, Inc.	Senior Secured	November 2026	3-month LIBOR + 5.00% or Floor rate of 6.00%, PIK Interest 4.45%	$	25,022		24,653		24,653	(13)(16)
Carbon Health Technologies, Inc.	Senior Secured	March 2025	PRIME + 5.60% or Floor rate of 8.85%, 4.61% Exit Fee	$	46,125		45,964		45,964	(16)(18)
Equality Health, LLC	Senior Secured	February 2026	PRIME + 6.25% or Floor rate of 9.50%, PIK Interest 1.55%	$	35,444		35,141		35,056	(12)(13)(16)
Subtotal: 1-5 Years Maturity							113,724		113,639
Subtotal: Healthcare Services, Other (8.68%)*							113,724		113,639
Information Services
1-5 Years Maturity
Capella Space	Senior Secured	November 2024	PRIME + 5.00% or Floor rate of 8.25%, PIK Interest 1.10%, 4.00% Exit Fee	$	20,025		19,751		19,424	(13)(14)(18)
Yipit, LLC	Senior Secured	September 2026	1-month LIBOR + 9.08% or Floor rate of 10.08%	$	45,900		45,022		45,022	(16)(17)
Subtotal: 1-5 Years Maturity							64,773		64,446
Subtotal: Information Services (4.93%)*							64,773		64,446

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Internet Consumer & Business Services
Under 1 Year Maturity
Nextroll, Inc.	Senior Secured	June 2022	PRIME + 3.75% or Floor rate of 7.00%, PIK Interest 2.95%, 3.50% Exit Fee	$	21,555	$	22,164	$	22,164	(12)(13)(18)
Subtotal: Under 1 Year Maturity							22,164		22,164
1-5 Years Maturity
AppDirect, Inc.	Senior Secured	August 2024	PRIME + 5.90% or Floor rate of 9.15%, 7.95% Exit Fee	$	30,790		31,416		32,248
Carwow LTD	Senior Secured	December 2024	PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.45%, 4.95% Exit Fee	£	21,250		28,632		28,632	(5)(10)(13)
ePayPolicy Holdings, LLC	Senior Secured	December 2024	3-month LIBOR + 8.50% or Floor rate of 9.50%	$	8,169		8,011		7,967	(11)(16)
Houzz, Inc.	Convertible Debt	May 2028	PIK Interest 5.50%	$	20,676		20,676		20,425	(9)(13)
Rhino Labs, Inc.	Senior Secured	March 2024	PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 2.25%	$	16,136		15,765		15,876	(13)(14)
RVShare, LLC	Senior Secured	December 2026	1-month LIBOR + 5.50% or Floor rate of 6.50%, PIK Interest 4.00%	$	15,000		14,701		14,701	(14)(16)
SeatGeek, Inc.	Senior Secured	June 2023	PRIME + 5.00% or Floor rate of 10.50%, PIK Interest 0.50%	$	60,607		59,983		60,316	(13)
Skyword, Inc.	Senior Secured	September 2024	PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.90%, 4.00% Exit Fee	$	12,426		12,665		12,521	(13)
Tectura Corporation	Senior Secured	July 2024	PIK Interest 5.00%	$	10,680		240		—	(7)(8)(13)
	Senior Secured	July 2024	FIXED 8.25%	$	8,250		8,250		8,250	(7)(8)
	Senior Secured	July 2024	PIK Interest 5.00%	$	13,023		13,023		19	(7)(8)(13)
Total Tectura Corporation				$	31,953		21,513		8,269
Thumbtack, Inc.	Senior Secured	September 2023	PRIME + 3.45% or Floor rate of 8.95%, PIK Interest 1.50%, 3.95% Exit Fee	$	25,618		25,965		26,372	(12)(13)
Zepz (p.k.a. Worldremit Group Limited)	Senior Secured	February 2025	3-month LIBOR + 9.25% or Floor rate of 10.25%, 3.00% Exit Fee	$	103,000		101,674		100,472	(5)(10)(12)(15)(18)
Subtotal: 1-5 Years Maturity							341,001		327,799
Subtotal: Internet Consumer & Business Services (26.74%)*							363,165		349,963
Manufacturing Technology
Under 1 Year Maturity
Bright Machines, Inc.	Senior Secured	November 2022	PRIME + 5.70% or Floor rate of 8.95%, 6.95% Exit Fee	$	15,000		14,995		14,995	(18)
Subtotal: Under 1 Year Maturity							14,995		14,995
Subtotal: Manufacturing Technology (1.15%)*							14,995		14,995
Semiconductors
1-5 Years Maturity
Fungible Inc.	Senior Secured	December 2024	PRIME + 5.00% or Floor rate of 8.25%, 4.95% Exit Fee	$	20,000		19,072		19,072	(14)(18)
Subtotal: 1-5 Years Maturity							19,072		19,072
Subtotal: Semiconductors (1.46%)*							19,072		19,072
Software
Under 1 Year Maturity
Khoros (p.k.a Lithium Technologies)	Senior Secured	October 2022	6-month LIBOR + 8.00% or Floor rate of 9.00%	$	56,208		55,834		55,834	(16)
Pymetrics, Inc.	Senior Secured	October 2022	PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.75%, 4.00% Exit Fee	$	9,667		9,845		9,845	(13)
Regent Education	Senior Secured	January 2022	FIXED 10.00%, PIK Interest 2.00%, 7.94% Exit Fee	$	2,951		3,064		2,608	(8)(13)
Subtotal: Under 1 Year Maturity							68,743		68,287
1-5 Years Maturity
3GTMS, LLC.	Senior Secured	February 2025	6-Month LIBOR + 9.28% or Floor rate of 10.28%	$	10,000		9,812		9,656	(16)(17)
Agilence, Inc.	Senior Secured	October 2026	1-month LIBOR + 9.00% or Floor rate of 10.00%	$	9,400		9,138		9,138	(16)

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Brain Corporation	Senior Secured	April 2025	PRIME + 3.70% or Floor rate of 6.95%, PIK Interest 1.00%, 3.95% Exit Fee	$	10,016	$	9,943	$	9,943	(13)(14)(16)
Campaign Monitor Limited	Senior Secured	November 2025	6-month LIBOR + 7.90% or Floor rate of 11.15%	$	33,000		32,459		33,000	(18)
Ceros, LLC	Senior Secured	September 2026	3-month LIBOR + 8.89% or Floor rate of 9.89%	$	17,978		17,474		17,474	(16)(17)
Cloud 9 Software	Senior Secured	April 2024	3-month LIBOR + 8.20% or Floor rate of 9.20%	$	9,953		9,856		9,953	(12)
CloudBolt Software, Inc.	Senior Secured	October 2024	PRIME + 6.70% or Floor rate of 9.95%, 2.95% Exit Fee	$	10,000		9,923		10,035	(11)(12)(18)
Cybermaxx Intermediate Holdings, Inc.	Senior Secured	August 2026	6-month LIBOR + 9.28% or Floor rate of 10.28%	$	8,000		7,801		7,801	(16)
Dashlane, Inc.	Senior Secured	July 2025	PRIME + 3.05% or Floor rate of 7.55%, PIK Interest 1.10%, 7.10% Exit Fee	$	20,719		21,807		21,734	(11)(13)(16)(18)
Delphix Corp.	Senior Secured	February 2023	PRIME + 5.50% or Floor rate of 10.25%, 5.00% Exit Fee	$	60,000		61,736		62,345	(12)(15)(18)
Demandbase, Inc.	Senior Secured	August 2025	PRIME + 5.25% or Floor rate of 8.50%, 2.00% Exit Fee	$	16,875		16,463		16,463	(16)(18)
Enmark Systems	Senior Secured	September 2026	6-Month LIBOR + 6.83% or Floor rate of 7.83%, PIK Interest 2.19%	$	8,000		7,798		7,798	(11)(16)(17)
Esentire, Inc.	Senior Secured	May 2024	3-month LIBOR + 9.96% or Floor rate of 10.96%	$	21,000		20,699		20,750	(5)(10)(11)(17)
Gryphon Networks Corp.	Senior Secured	January 2026	3-month LIBOR + 9.69% or Floor rate of 10.69%	$	5,232		5,106		5,088	(11)(16)
Ikon Science Limited	Senior Secured	October 2024	3-month LIBOR + 9.00% or Floor rate of 10.00%	$	6,913		6,719		6,767	(5)(10)(16)(17)
Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.)	Senior Secured	July 2023	3-month LIBOR + 10.14% or Floor rate of 11.14%	$	8,571		8,403		8,375	(17)
Logicworks	Senior Secured	January 2024	PRIME + 7.50% or Floor rate of 10.75%	$	10,000		9,862		9,965	(12)(16)
Mixpanel, Inc.	Senior Secured	August 2024	PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.80%, 3.00% Exit Fee	$	20,431		20,292		21,030	(12)(13)(18)
Mobile Solutions Services	Senior Secured	December 2025	6-month LIBOR + 9.87% or Floor rate of 10.87%	$	19,074		18,575		18,834	(16)(17)
Nuvolo Technologies Corporation	Senior Secured	July 2025	PRIME + 7.70% or Floor rate of 10.95%, 1.75% Exit Fee	$	15,000		14,967		15,017	(12)(18)
Pollen, Inc.	Senior Secured	November 2023	PRIME + 4.75% or Floor rate of 8.00%, PIK Interest 0.50%, 4.50% Exit Fee	$	7,457		7,528		7,314	(13)
	Senior Secured	November 2023	PRIME + 5.25% or Floor rate of 8.50%, PIK Interest 1.35%, 4.50% Exit Fee	$	13,041		13,005		13,092	(13)(14)
Total Pollen, Inc.				$	20,498		20,533		20,406
Reltio, Inc.	Senior Secured	July 2023	PRIME + 5.70% or Floor rate of 8.95%, PIK Interest 1.70%, 4.95% Exit Fee	$	10,248		10,336		10,542	(13)(18)
ShadowDragon, LLC	Senior Secured	December 2026	3-month LIBOR + 9.00% or Floor rate of 10.00%	$	6,000		5,828		5,828	(16)(17)
Tact.ai Technologies, Inc.	Senior Secured	February 2024	PRIME + 4.00% or Floor rate of 8.75%, PIK Interest 2.00%, 5.50% Exit Fee	$	5,185		5,305		5,245	(13)
ThreatConnect, Inc.	Senior Secured	May 2026	3-month LIBOR + 9.00% or Floor rate of 10.00%	$	11,144		10,831		10,859	(12)(16)(17)
Udacity, Inc.	Senior Secured	September 2024	PRIME + 4.50% or Floor rate of 7.75%, PIK Interest 2.00%, 3.00% Exit Fee	$	50,895		50,646		51,722	(12)(13)
Zimperium, Inc.	Senior Secured	July 2024	1-month LIBOR + 8.95% or Floor rate of 9.95%	$	15,633		15,347		15,347	(12)(17)
Subtotal: 1-5 Years Maturity							437,659		441,115
Greater than 5 Years Maturity
Imperva, Inc.	Senior Secured	January 2027	3-month LIBOR + 7.75% or Floor rate of 8.75%	$	20,000		19,851		20,000	(18)
Subtotal: Greater than 5 Years Maturity							19,851		20,000
Subtotal: Software (40.46%)*							526,253		529,402

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Maturity Date	Interest Rate and Floor (1)	Principal Amount		Cost (2)		Value		Footnotes
Sustainable and Renewable Technology
Under 1 Year Maturity
Impossible Foods, Inc.	Senior Secured	July 2022	PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee	$	15,022	$	19,379	$	19,378	(12)
Pineapple Energy LLC	Senior Secured	January 2022	FIXED 10.00%	$	280		280		247	(6)(9)(16)
Subtotal: Under 1 Year Maturity							19,659		19,625
1-5 Years Maturity
Pineapple Energy LLC	Senior Secured	December 2023	PIK Interest 10.00%	$	7,500		7,500		7,500	(6)(8)(13)(16)
Subtotal: 1-5 Years Maturity							7,500		7,500
Subtotal: Sustainable and Renewable Technology (2.07%)*							27,159		27,125
Total: Debt Investments (168.86%)*						$	2,219,586	$	2,209,599


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Equity Investments
Communications & Networking
Peerless Network Holdings, Inc.	Equity	10/21/2020	Common Stock		3,328	$	—	$	18
	Equity	4/11/2008	Preferred Series A		1,135,000		1,230		6,242
Total Peerless Network Holdings, Inc.					1,138,328		1,230		6,260
Subtotal: Communications & Networking (0.48%)*							1,230		6,260
Consumer & Business Products
TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)	Equity	4/30/2010	Common Stock		42,989		128		447
Subtotal: Consumer & Business Products (0.03%)*							128		447
Diversified Financial Services
Gibraltar Business Capital, LLC	Equity	3/1/2018	Common Stock		830,000		1,884		1,225	(7)
	Equity	3/1/2018	Preferred Series A		10,602,752		26,122		19,393	(7)
Total Gibraltar Business Capital, LLC					11,432,752		28,006		20,618
Hercules Adviser LLC	Equity	3/26/2021	Member Units		1		35		11,990	(7)
Subtotal: Diversified Financial Services (2.49%)*							28,041		32,608
Drug Delivery
AcelRx Pharmaceuticals, Inc.	Equity	12/10/2018	Common Stock		176,730		1,329		99	(4)
Aytu BioScience, Inc. (p.k.a. Neos Therapeutics, Inc.)	Equity	3/28/2014	Common Stock		13,600		1,500		18	(4)
BioQ Pharma Incorporated	Equity	12/8/2015	Preferred Series D		165,000		500		168
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.)	Equity	4/6/2015	Common Stock		2,498		309		20	(4)
Subtotal: Drug Delivery (0.02%)*							3,638		305
Drug Discovery & Development
Albireo Pharma, Inc.	Equity	9/14/2020	Common Stock		25,000		1,000		582	(4)(10)
Applied Molecular Transport	Equity	4/6/2021	Common Stock		1,000		42		14	(4)(10)
Avalo Therapeutics, Inc. (p.k.a. Cerecor, Inc.)	Equity	8/19/2014	Common Stock		119,087		1,000		202	(4)
Aveo Pharmaceuticals, Inc.	Equity	7/31/2011	Common Stock		190,179		1,715		892	(4)
Bicycle Therapeutics PLC	Equity	10/5/2020	Common Stock		98,100		1,871		5,971	(4)(5)(10)
BridgeBio Pharma, Inc.	Equity	6/21/2018	Common Stock		231,329		2,255		3,859	(4)
Chemocentryx, Inc.	Equity	6/15/2020	Common Stock		17,241		1,000		628	(4)(10)
Concert Pharmaceuticals, Inc.	Equity	2/13/2019	Common Stock		70,796		1,367		223	(4)(10)
Dare Biosciences, Inc.	Equity	1/8/2015	Common Stock		13,550		1,000		27	(4)
Dynavax Technologies	Equity	7/22/2015	Common Stock		20,000		550		281	(4)(10)
Genocea Biosciences, Inc.	Equity	11/20/2014	Common Stock		27,933		2,000		32	(4)
Hibercell, Inc.	Equity	5/7/2021	Preferred Series B		3,466,840		4,250		3,264	(14)
Humanigen, Inc.	Equity	3/31/2021	Common Stock		43,243		800		161	(4)(10)
Kaleido Biosciences, Inc.	Equity	2/10/2021	Common Stock		86,585		1,000		207	(4)
NorthSea Therapeutics	Equity	12/15/2021	Preferred Series C		983		2,000		2,000	(5)(10)
Paratek Pharmaceuticals, Inc.	Equity	2/26/2007	Common Stock		76,362		2,744		343	(4)
Rocket Pharmaceuticals, Ltd.	Equity	8/22/2007	Common Stock		944		1,500		21	(4)
Savara, Inc.	Equity	8/11/2015	Common Stock		11,119		202		14	(4)
Sio Gene Therapies, Inc. (p.k.a. Axovant Gene Therapies Ltd.)	Equity	2/2/2017	Common Stock		16,228		1,269		21	(4)(10)
Tricida, Inc.	Equity	2/28/2018	Common Stock		68,816		863		658	(4)

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
uniQure B.V.	Equity	1/31/2019	Common Stock		17,175	$	332	$	356	(4)(5)(10)(15)
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Equity	12/11/2020	Preferred Series B		510,308		3,000		4,650
X4 Pharmaceuticals, Inc.	Equity	11/26/2019	Common Stock		198,277		1,641		454	(4)
Subtotal: Drug Discovery & Development (1.90%)*							33,401		24,860
Healthcare Services, Other
23andMe, Inc.	Equity	3/11/2019	Common Stock		825,732		5,094		5,500	(4)
Carbon Health Technologies, Inc.	Equity	3/30/2021	Preferred Series C		217,880		1,687		1,864
Subtotal: Healthcare Services, Other (0.56%)*							6,781		7,364
Information Services
Planet Labs, Inc.	Equity	6/21/2019	Common Stock		547,880		615		3,369	(4)
Yipit, LLC	Equity	12/30/2021	Preferred Series E		41,021		3,825		3,825
Zeta Global Corp.	Equity	11/20/2007	Common Stock		295,861		—		2,220	(4)(19)
Subtotal: Information Services (0.72%)*							4,440		9,414
Internet Consumer & Business Services
Black Crow AI, Inc.	Equity	3/24/2021	Preferred Series Seed		872,797		1,000		1,120	(6)
Black Crow AI, Inc. affiliates	Equity	3/24/2021	Preferred Note		3		3,000		3,000	(20)
Brigade Group, Inc.	Equity	3/1/2013	Common Stock		9,023		93		—
Carwow LTD	Equity	12/15/2021	Preferred Series D-4		199,742		1,151		608	(5)(10)
Contentful Global, Inc. (p.k.a. Contentful, Inc.)	Equity	12/22/2020	Preferred Series C		41,000		138		506	(5)(10)
	Equity	11/20/2018	Preferred Series D		108,500		500		1,388	(5)(10)
Total Contentful Global, Inc. (p.k.a. Contentful, Inc.)					149,500		638		1,894
DoorDash, Inc.	Equity	12/20/2018	Common Stock		81,996		945		12,209	(4)
Lyft, Inc.	Equity	12/26/2018	Common Stock		100,738		5,263		4,305	(4)
Nerdy Inc.	Equity	9/17/2021	Common Stock		100,000		1,000		450	(4)
Nextdoor.com, Inc.	Equity	8/1/2018	Common Stock		1,019,255		4,854		6,624	(4)(19)
OfferUp, Inc.	Equity	10/25/2016	Preferred Series A		286,080		1,663		1,791
	Equity	10/25/2016	Preferred Series A-1		108,710		632		680
Total OfferUp, Inc.					394,790		2,295		2,471
Oportun	Equity	6/28/2013	Common Stock		48,365		577		980	(4)
Reischling Press, Inc. (p.k.a. Blurb, Inc.)	Equity	7/31/2020	Common Stock		1,163		15		—
Savage X Holding, LLC	Equity	4/30/2010	Class A Units		42,137		13		71
Tectura Corporation	Equity	5/23/2018	Common Stock		414,994,863		900		—	(7)
	Equity	6/6/2016	Preferred Series BB		1,000,000		—		—	(7)
Total Tectura Corporation					415,994,863		900		—
TFG Holding, Inc.	Equity	4/30/2010	Common Stock		42,989		89		216
Uber Technologies, Inc. (p.k.a. Postmates, Inc.)	Equity	12/1/2020	Common Stock		32,991		318		1,383	(4)
Subtotal: Internet Consumer & Business Services (2.70%)*							22,151		35,331
Medical Devices & Equipment
Coronado Aesthetics, LLC	Equity	10/15/2021	Common Units		180,000		—		65	(7)
	Equity	10/15/2021	Preferred Series A-2		5,000,000		250		500	(7)
Total Coronado Aesthetics, LLC					5,180,000		250		565
Flowonix Medical Incorporated	Equity	11/3/2014	Preferred Series AA		221,893		1,500		—
Gelesis, Inc.	Equity	11/30/2009	Common Stock		227,013		—		3,351
	Equity	12/30/2011	Preferred Series A-1		243,432		503		3,593
	Equity	12/31/2011	Preferred Series A-2		191,626		500		2,828
Total Gelesis, Inc.					662,071		1,003		9,772
Medrobotics Corporation	Equity	9/12/2013	Preferred Series E		136,798		250		—
	Equity	10/22/2014	Preferred Series F		73,971		155		—
	Equity	10/16/2015	Preferred Series G		163,934		500		—
Total Medrobotics Corporation					374,703		905		—
ViewRay, Inc.	Equity	12/16/2013	Common Stock		36,457		333		201	(4)
Subtotal: Medical Devices & Equipment (0.81%)*							3,991		10,538

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Semiconductors
Achronix Semiconductor Corporation	Equity	7/1/2011	Preferred Series C		277,995	$	160	$	725
Subtotal: Semiconductors (0.06%)*							160		725
Software
3GTMS, LLC.	Equity	8/9/2021	Common Stock		1,000,000		1,000		985
CapLinked, Inc.	Equity	10/26/2012	Preferred Series A-3		53,614		51		65
Docker, Inc.	Equity	11/29/2018	Common Stock		20,000		4,284		3
Druva Holdings, Inc. (p.k.a. Druva, Inc.)	Equity	10/22/2015	Preferred Series 2		458,841		1,000		2,387
	Equity	8/24/2017	Preferred Series 3		93,620		300		529
Total Druva Holdings, Inc. (p.k.a. Druva, Inc.)					552,461		1,300		2,916
HighRoads, Inc.	Equity	1/18/2013	Common Stock		190		307		—
Lightbend, Inc.	Equity	12/4/2020	Common Stock		38,461		265		5
Palantir Technologies	Equity	9/23/2020	Common Stock		1,418,337		8,670		25,828	(4)
SingleStore, Inc. (p.k.a. memsql, Inc.)	Equity	11/25/2020	Preferred Series E		580,983		2,000		2,239
	Equity	8/12/2021	Preferred Series F		52,956		279		240
Total SingleStore, Inc. (p.k.a. memsql, Inc.)					633,939		2,279		2,479
Sprinklr, Inc.	Equity	3/22/2017	Common Stock		700,000		3,749		11,109	(4)
Verana Health, Inc.	Equity	7/8/2021	Preferred Series E		952,562		2,000		1,697
Subtotal: Software (3.45%)*							23,905		45,087
Surgical Devices
Gynesonics, Inc.	Equity	1/18/2007	Preferred Series B		219,298		250		9
	Equity	6/16/2010	Preferred Series C		656,538		282		26
	Equity	2/8/2013	Preferred Series D		1,991,157		712		81
	Equity	7/14/2015	Preferred Series E		2,786,367		429		131
	Equity	12/18/2018	Preferred Series F		1,523,693		118		123
	Equity	12/18/2018	Preferred Series F-1		2,418,125		150		173
Total Gynesonics, Inc.					9,595,178		1,941		543
Subtotal: Surgical Devices (0.04%)*							1,941		543
Sustainable and Renewable Technology
Impossible Foods, Inc.	Equity	5/10/2019	Preferred Series E-1		188,611		2,000		3,430
Modumetal, Inc.	Equity	6/1/2015	Common Stock		1,035		500		—
NantEnergy, LLC (p.k.a. Fluidic, Inc.)	Equity	8/31/2013	Common Units		59,665		102		—
Pineapple Energy LLC	Equity	12/10/2020	Class A Units		3,000,000		4,767		591	(6)
Pivot Bio, Inc.	Equity	6/28/2021	Preferred Series D		593,080		4,500		3,164
Proterra, Inc.	Equity	5/28/2015	Common Stock		457,841		543		4,043	(4)
Subtotal: Sustainable and Renewable Technology (0.86%)*							12,412		11,228
Total: Equity Investments (14.12%)*						$	142,219	$	184,710
Warrant Investments
Communications & Networking
Spring Mobile Solutions, Inc.	Warrant	4/19/2013	Common Stock		2,834,375	$	418	$	—
Subtotal: Communications & Networking (0.00%)*							418		—
Consumer & Business Products
Grove Collaborative, Inc.	Warrant	4/30/2021	Common Stock		83,625		433		326
Penumbra Brands, LLC (p.k.a. Gadget Guard)	Warrant	6/3/2014	Common Stock		1,662,441		228		—
TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)	Warrant	7/16/2013	Preferred Series B		206,185		1,101		2,181
The Neat Company	Warrant	8/13/2014	Common Stock		54,054		365		—
Whoop, Inc.	Warrant	6/27/2018	Preferred Series C		686,270		18		1,847
Subtotal: Consumer & Business Products (0.33%)*							2,145		4,354

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Drug Delivery
Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.)	Warrant	9/30/2015	Common Stock		110,882	$	74	$	—
BioQ Pharma Incorporated	Warrant	10/27/2014	Common Stock		459,183		1		62
PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.)	Warrant	8/28/2014	Common Stock		3,929		390		1	(4)
Subtotal: Drug Delivery (0.00%)*							465		63
Drug Discovery & Development
Acacia Pharma Inc.	Warrant	6/29/2018	Common Stock		201,330		305		6	(4)(5)(10)
ADMA Biologics, Inc.	Warrant	12/21/2012	Common Stock		89,750		295		1	(4)
Albireo Pharma, Inc.	Warrant	6/8/2020	Common Stock		5,311		61		42	(4)(10)
Axsome Therapeutics, Inc.	Warrant	9/25/2020	Common Stock		15,541		681		142	(4)(10)
Brickell Biotech, Inc.	Warrant	2/18/2016	Common Stock		9,005		119		—	(4)
Cellarity, Inc.	Warrant	12/8/2021	Preferred Series B		100,000		287		287	(14)
Century Therapeutics	Warrant	9/14/2020	Common Stock		16,112		37		64	(4)
Concert Pharmaceuticals, Inc.	Warrant	6/8/2017	Common Stock		61,273		178		3	(4)(10)
Dermavant Sciences Ltd.	Warrant	5/31/2019	Common Stock		223,642		101		354	(10)(12)
enGene, Inc.	Warrant	12/30/2021	Preferred Series 3 Class C		84,714		64		64	(5)(10)
Evofem Biosciences, Inc.	Warrant	6/11/2014	Common Stock		7,806		266		—	(4)
Genocea Biosciences, Inc.	Warrant	4/24/2018	Common Stock		41,176		165		1	(4)
Motif Bio PLC	Warrant	1/27/2020	Common Stock		121,337,041		282		—	(10)
Myovant Sciences, Ltd.	Warrant	10/16/2017	Common Stock		73,710		460		267	(4)(10)
Paratek Pharmaceuticals, Inc.	Warrant	6/27/2017	Common Stock		432,240		546		427	(4)
Phathom Pharmaceuticals, Inc.	Warrant	9/17/2021	Common Stock		64,687		848		307	(4)(10)(14)(15)
Scynexis, Inc.	Warrant	5/14/2021	Common Stock		90,887		188		142	(4)
Stealth Bio Therapeutics Corp.	Warrant	6/30/2017	Common Stock		500,000		158		—	(4)(10)
TG Therapeutics, Inc.	Warrant	2/28/2019	Common Stock		231,613		1,033		2,172	(4)(10)(12)
Tricida, Inc.	Warrant	3/27/2019	Common Stock		31,352		280		20	(4)
Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)	Warrant	6/15/2020	Common Units		102,216		256		441
X4 Pharmaceuticals, Inc.	Warrant	3/18/2019	Common Stock		108,334		673		2	(4)
Yumanity Therapeutics, Inc.	Warrant	12/20/2019	Common Stock		15,414		110		3	(4)
Subtotal: Drug Discovery & Development (0.36%)*							7,393		4,745
Electronics & Computer Hardware
908 Devices, Inc.	Warrant	3/15/2017	Common Stock		49,078		101		618	(4)
Skydio, Inc.	Warrant	11/8/2021	Common Stock		124,451		557		422
Subtotal: Electronics & Computer Hardware (0.08%)*							658		1,040
Information Services
Capella Space	Warrant	10/21/2021	Common Stock		176,200		207		139	(14)
InMobi Inc.	Warrant	11/19/2014	Common Stock		65,587		82		—	(10)
Netbase Solutions, Inc.	Warrant	8/22/2017	Preferred Series 1		60,000		356		418
Subtotal: Information Services (0.04%)*							645		557
Internet Consumer & Business Services
Aria Systems, Inc.	Warrant	5/22/2015	Preferred Series G		231,535		74		—
Carwow LTD	Warrant	12/14/2021	Common Stock		174,163		164		160	(5)(10)
Cloudpay, Inc.	Warrant	4/10/2018	Preferred Series B		6,763		54		348	(5)(10)
First Insight, Inc.	Warrant	5/10/2018	Preferred Series B		75,917		96		105
Houzz, Inc.	Warrant	10/29/2019	Common Stock		529,661		20		116
Interactions Corporation	Warrant	6/16/2015	Preferred Series G-3		68,187		204		505
Landing Holdings Inc.	Warrant	3/12/2021	Common Stock		11,806		116		141	(14)
Lendio, Inc.	Warrant	3/29/2019	Preferred Series D		127,032		39		84

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
LogicSource	Warrant	3/21/2016	Preferred Series C		79,625	$	30	$	210
Rhino Labs, Inc.	Warrant	3/12/2021	Common Stock		13,106		470		77	(14)
RumbleON, Inc.	Warrant	4/30/2018	Common Stock		5,139		88		33	(4)
SeatGeek, Inc.	Warrant	6/12/2019	Common Stock		1,379,761		842		1,140
ShareThis, Inc.	Warrant	12/14/2012	Preferred Series C		493,502		547		—
Skyword, Inc.	Warrant	8/23/2019	Preferred Series B		444,444		83		7
Snagajob.com, Inc.	Warrant	4/20/2020	Common Stock		600,000		16		121	(12)
	Warrant	6/30/2016	Preferred Series A		1,800,000		782		171	(12)
	Warrant	8/1/2018	Preferred Series B		1,211,537		62		90	(12)
Total Snagajob.com, Inc.					3,611,537		860		382
Tapjoy, Inc.	Warrant	7/1/2014	Preferred Series D		748,670		317		443
The Faction Group LLC	Warrant	11/3/2014	Preferred Series AA		8,076		234		650
Thumbtack, Inc.	Warrant	5/1/2018	Common Stock		190,953		552		786
Xometry, Inc.	Warrant	5/9/2018	Common Stock		87,784		47		3,038	(4)
Zepz (p.k.a. Worldremit Group Limited)	Warrant	2/11/2021	Preferred Series D		77,215		129		1,962	(5)(10)(15)
	Warrant	8/27/2021	Preferred Series E		1,868		26		25	(5)(10)(15)
Total Zepz (p.k.a. Worldremit Group Limited)					79,083		155		1,987
Subtotal: Internet Consumer & Business Services (0.78%)*							4,992		10,212
Media/Content/Info
Zoom Media Group, Inc.	Warrant	12/21/2012	Preferred Series A		1,204		348		—
Subtotal: Media/Content/Info (0.00%)*							348		—
Medical Devices & Equipment
Aspire Bariatrics, Inc.	Warrant	1/28/2015	Common Stock		22,572		455		—
Flowonix Medical Incorporated	Warrant	11/3/2014	Preferred Series AA		155,325		363		—	(12)
	Warrant	9/21/2018	Preferred Series BB		725,806		351		—
Total Flowonix Medical Incorporated					881,131		714		—
Intuity Medical, Inc.	Warrant	12/29/2017	Preferred Series B-1		3,076,323		294		264
Medrobotics Corporation	Warrant	3/13/2013	Preferred Series E		455,539		370		—
Outset Medical, Inc.	Warrant	9/27/2013	Common Stock		62,794		401		1,797	(4)
SonaCare Medical, LLC	Warrant	9/28/2012	Preferred Series A		6,464		188		—
Tela Bio, Inc.	Warrant	3/31/2017	Common Stock		15,712		61		13	(4)
Subtotal: Medical Devices & Equipment (0.16%)*							2,483		2,074
Semiconductors
Achronix Semiconductor Corporation	Warrant	6/26/2015	Preferred Series D-2		750,000		99		1,950
Fungible Inc.	Warrant	12/16/2021	Common Stock		800,000		751		751	(14)
Subtotal: Semiconductors (0.21%)*							850		2,701
Software
Bitsight Technologies, Inc.	Warrant	11/18/2020	Common Stock		29,691		284		1,272
Brain Corporation	Warrant	10/4/2021	Common Stock		194,629		165		132	(14)
CloudBolt Software, Inc.	Warrant	9/30/2020	Common Stock		211,342		117		85
Cloudian, Inc.	Warrant	11/6/2018	Common Stock		477,454		71		33
Couchbase, Inc.	Warrant	4/25/2019	Common Stock		105,350		462		1,343	(4)(19)
Dashlane, Inc.	Warrant	3/11/2019	Common Stock		560,536		404		415
Delphix Corp.	Warrant	10/8/2019	Common Stock		718,898		1,594		3,275	(15)
Demandbase, Inc.	Warrant	8/2/2021	Common Stock		483,248		404		443
DNAnexus, Inc.	Warrant	3/21/2014	Preferred Series C		909,091		97		102
Evernote Corporation	Warrant	9/30/2016	Common Stock		62,500		106		65
Fuze, Inc.	Warrant	6/30/2017	Preferred Series F		256,158		89		—

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)


Portfolio Company	Type of Investment	Acquisition Date (4)	Series (3)	Shares		Cost (2)		Value		Footnotes
Lightbend, Inc.	Warrant	2/14/2018	Preferred Series D		89,685	$	131	$	—
Mixpanel, Inc.	Warrant	9/30/2020	Common Stock		82,362		252		906
Nuvolo Technologies Corporation	Warrant	3/29/2019	Common Stock		50,000		88		283
Poplicus, Inc.	Warrant	5/28/2014	Common Stock		132,168		—		—
Pymetrics, Inc.	Warrant	9/15/2020	Common Stock		150,943		77		218
RapidMiner, Inc.	Warrant	11/28/2017	Preferred Series C-1		4,982		24		54
Reltio, Inc.	Warrant	6/30/2020	Common Stock		69,120		215		637
Signpost, Inc.	Warrant	1/13/2016	Series Junior 1 Preferred		474,019		314		—
SingleStore, Inc. (p.k.a. memsql, Inc.)	Warrant	4/28/2020	Preferred Series D		312,596		103		704
Tact.ai Technologies, Inc.	Warrant	2/13/2020	Common Stock		1,041,667		206		162
Udacity, Inc.	Warrant	9/25/2020	Common Stock		486,359		218		345
ZeroFox, Inc.	Warrant	5/7/2020	Preferred Series C-1		648,350		101		603
Zimperium, Inc.	Warrant	7/2/2021	Common Stock		20,563		72		56
Subtotal: Software (0.85%)*							5,594		11,133
Surgical Devices
Gynesonics, Inc.	Warrant	2/8/2012	Preferred Series C		151,123		67		6
TransMedics Group, Inc. (p.k.a Transmedics, Inc.)	Warrant	11/7/2012	Common Stock		64,440		139		480	(4)
Subtotal: Surgical Devices (0.04%)*							206		486
Sustainable and Renewable Technology
Agrivida, Inc.	Warrant	6/20/2013	Preferred Series D		471,327		120		—
Fulcrum Bioenergy, Inc.	Warrant	9/13/2012	Preferred Series C-1		280,897		274		699
Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)	Warrant	4/22/2014	Preferred Series A		325,000		155		249
	Warrant	4/7/2015	Preferred Series B		131,883		63		86
Total Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)					456,883		218		335
Polyera Corporation	Warrant	12/11/2012	Preferred Series C		311,609		338		—
Subtotal: Sustainable and Renewable Technology (0.08%)*							950		1,034
Total: Warrant Investments (2.93%)*						$	27,147	$	38,399
Total: Investments in Securities (185.91%)*						$	2,388,952	$	2,432,708

Investment Funds & Vehicles
Forbion Growth Opportunities Fund I C.V.	Investment Funds & Vehicles	11/16/2020					2,032		1,814	(5)(10)(16)
Total: Investments in Investment Funds & Vehicles (0.14%)*						$	2,032	$	1,814
Total: Investments (186.05%)*						$	2,390,984	$	2,434,522

See notes to consolidated financial statements

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

(1)

Interest rate PRIME represents 3.25% as of December 31, 2021. 1-month LIBOR, 3-month LIBOR, and 6-month LIBOR represent, 0.14%, 0.24%, and 0.26%, respectively, as of December 31, 2021.

(2)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $121.0 million, $75.7 million, and $45.3 million, respectively. The tax cost of investments is $2.4 billion.

(3)

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

(4)

Except for warrants in 26 publicly traded companies and common stock in 36 publicly traded companies, all investments are restricted as of December 31, 2021 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s Board.

(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 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 December 31, 2021, and is therefore considered non-income producing. Note that only the PIK portion is on non-accrual for the Company’s debt investment in Tectura Corporation and Pineapple Energy LLC.

(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 is pledged as collateral under the SMBC Facility (as defined in “Note 5 — Debt”).

(12)

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

(13)

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

(14)

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

(15)

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, 2021.

(16)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of December 31, 2021. Refer to “Note 11 — Commitments and Contingencies”.

(17)

(18)

Denotes second lien senior secured debt.

(19)

(20)

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 December 31, 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.

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 and institutional-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, San Diego, CA, and London, United Kingdom. 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” under the Commodity Exchange Act (“CEA”), pursuant to Rule 4.5 under the CEA. The Company is not, therefore, subject to registration or regulation as a "commodity pool operator" under the CEA.

Hercules Capital IV, L.P. (“HC IV”) is our wholly owned Delaware limited partnership that was formed in December 2010. HC IV received a license to operate as a Small Business Investment Company (“SBIC”) under the authority of the Small Business Administration (“SBA”) on October 27, 2020. 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. Hercules Technology SBIC Management, LLC (“HTM”), is a wholly owned limited liability company subsidiary of the Company, which was formed in November 2003 and serves as the general partner of HC IV.

The Company has 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 subsidiaries are taxable entities and are not consolidated with Hercules for income tax purposes. The Company's taxable subsidiaries 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, 2021. 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 (“ASC Topic 946”) 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 the 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, other macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war), 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 Variable Interest Entities (“VIE”) for 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, 2022, the Company's Consolidated Financial Statements included the accounts of the securitization trust, a VIE, formed in conjunction with the issuance of the 2031 Asset-Backed Notes (as defined in “Note 5 – Debt”). The Company held no interests in a VIE as of December 31, 2021. The assets of the Company's securitization VIE are restricted to be used to settle obligations of its consolidated securitization VIE, which are disclosed parenthetically on the Consolidated Statements of Assets and Liabilities. The liabilities are the only obligations of its consolidated securitization VIE, and the creditors (or beneficial interest holders) do not have recourse to the Company's general credit.

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, 2022, approximately 96.6% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the Company's Valuation Committee and approved 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 valuation designee of 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 and institutional-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 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 pursuant to a consistent valuation policy established by the Board 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 the Company's Valuation Committee and approved by the 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. Pursuant to the amended SEC Rule 2a-5 of the 1940 Act, the Board has designated the Company’s Valuation Committee as the “valuation designee”. The quarterly Board approved multi-step valuation process is 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 and business-based assumptions, along with any applicable fair value marks provided by an independent firm, are reviewed with the Company’s investment committee and certain member(s) of credit group as necessary;

(3)

The Valuation Committee reviews the preliminary valuations recommended by the investment committee and certain member(s) of the credit group of each investment in the portfolio and determines the fair value of each investment in the Company’s portfolio in good faith and recommends the valuation determinations to the Audit Committee of the Board;

(4)

The Audit Committee of the Board provides oversight of the quarterly valuation process in accordance with Rule 2a-5, which includes a review of the quarterly reports prepared by the Valuation Committee, reviews the fair valuation determinations made by the Valuation Committee, and approves such valuations for inclusion in public reporting and disclosures, as appropriate; and

(5)

The Board, upon the recommendation of the Audit Committee, discusses valuations and approves the fair value of each investment in the Company’s portfolio.

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 the Valuation Committee and approved by 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 the Valuation Committee and approved by the Board.

As part of the overall process noted above, 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 Valuation Committee and subject to approval of the Board, and the Company may engage an independent valuation firm to value all or some of our portfolio investments. 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 change in fair value of each individual investment is recorded as an adjustment to the investment's fair value and the change is reflected in unrealized appreciation or depreciation.

Debt Investments

The Company’s debt securities are primarily invested in venture capital-backed and institutional-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. The Company may, from time to time, invest in public debt of companies that meet the Company’s investment objectives, and to the extent market quotations or other pricing indicators (i.e. broker quotes) are available, these investments are considered Level 1 or 2 assets in line with ASC Topic 820.

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 assumes the sale of each debt security 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 calibrate 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 for reasonableness. As part of determining the fair value, 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 debt securities that are traded on a public exchange at the prevailing market price as of the valuation date. For syndicated debt investments, for which sufficient market data is available and liquidity, the Company values debt securities 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.

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.

Cash, Cash Equivalents, and Restricted Cash

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. As of September 30, 2022, the Company held $679 thousand (Cost basis $726 thousand) of foreign cash. As of December 31, 2021, the Company held $95 thousand (Cost basis $93 thousand) of foreign cash. Restricted cash includes amounts that are held as collateral securing certain of the Company’s financing transactions, including amounts held in a securitization trust by trustees related to our 2031 Asset-Backed Notes (refer to “Note 5 – Debt”).

Other Assets

Other assets generally consist of prepaid expenses, debt issuance costs on our Credit Facilities net of accumulated amortization, 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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021 was $1.3 million and $0.6 million, 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 obligations 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 $53.6 million of unamortized fees as of September 30, 2022, of which approximately $42.1 million was included as an offset to the cost basis of its current debt investments and approximately $11.5 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2021, the Company had approximately $42.9 million of unamortized fees, of which approximately $36.5 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $6.4 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 $0.5 million and $1.7 million in one-time fee income during the three months ended September 30, 2022 and 2021, respectively. The Company recorded approximately $1.3 million and $6.2 million in one-time fee income during the nine months ended September 30, 2022 and 2021, 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, 2022, the Company had approximately $36.5 million in exit fees receivable, of which approximately $32.0 million was included as a component of the cost basis of its current debt investments and approximately $4.5 million was a deferred receivable related to expired commitments. As of December 31, 2021, the Company had approximately $35.0 million in exit fees receivable, of which approximately $29.6 million was included as a component of the cost basis of its current debt investments and approximately $5.4 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 $4.9 million and $2.9 million in PIK income during the three months ended September 30, 2022 and 2021, respectively. The Company recorded approximately $14.9 million and $8.1 million in PIK income during the nine months ended September 30, 2022 and 2021, 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, 2022 and 2021.

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, restricted stock, and other stock based compensation awards to employees and directors. Management follows the guidance set forth under ASC Topic 718, to account for stock-based compensation awards 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. This includes certain assumptions such as stock price volatility, forfeiture rate, expected outcome probability, and expected option life, as applicable to each award. 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 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.

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.

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 U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and net 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 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 stockholders 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, 2022 or 2021. 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, 2022, the Company issued 62,726 shares and 184,197 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan. During the three and nine months ended September 30, 2021, the Company issued 55,413 shares and 189,356 shares, of common stock to stockholders 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.

Recent Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments  Credit Losses (Topic 326)”, which is intended to address issues identified during the post-implementation review of ASU 2016-13, “Financial Instruments  Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, “Receivables  Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning after December 15, 2022. The Company does not anticipate the new standard will have a material impact to the consolidated financial statements and related disclosures.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820)  Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2023. The Company does not anticipate the new standard will have a material impact to the consolidated financial statements and related disclosures.

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, 2022 and December 31, 2021.


(in thousands)	Balance as of September 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2022		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money Market Fund	$	25,000	$	25,000	$	—	$	—

Other assets
Escrow Receivables	$	1,282	$	—	$	—	$	1,282

Investments
Senior Secured Debt	$	2,607,006	$	—	$	—	$	2,607,006
Unsecured Debt		54,393		—		—		54,393
Preferred Stock		41,038		—		—		41,038
Common Stock		93,096		58,319		7,175		27,602
Warrants		27,159		—		9,520		17,639
	$	2,822,692	$	58,319	$	16,695	$	2,747,678
Investment Funds & Vehicles measured at Net Asset Value (1)		3,046
Total Investments excluding cash equivalents	$	2,825,738

Total Investments including cash equivalents	$	2,850,738
(in thousands)	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2021		(Level 1)		(Level 2)		(Level 3)
Other assets
Escrow Receivables	$	561	$	—	$	—	$	561

Investments
Senior Secured Debt	$	2,156,709	$	—	$	—	$	2,156,709
Unsecured Debt		52,890		—		—		52,890
Preferred Stock		69,439		—		—		69,439
Common Stock		115,271		84,460		8,843		21,968
Warrants		38,399		—		10,922		27,477
	$	2,432,708	$	84,460	$	19,765	$	2,328,483
Investment Funds & Vehicles measured at Net Asset Value (1)		1,814
Total Investments excluding cash equivalents	$	2,434,522

Total Investments including cash equivalents	$	2,434,522

(1)

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, 2022 and 2021.


(in thousands)	Balance as of January 1, 2022		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, 2022
Investments
Senior Secured Debt	$	2,156,709	$	(1,883	)	$	(11,377	)	$	854,978	$	(73,500	)	$	(314,417	)	$	—	$	(3,504	)	$	2,607,006
Unsecured Debt		52,890		—			(1,880	)		3,383		—			—			—		—			54,393
Preferred Stock		69,439		7,966			(22,458	)		3,614		(11,101	)		—			—		(6,422	)		41,038
Common Stock		21,968		(74	)		9,462			—		(19	)		—			207		(3,942	)		27,602
Warrants		27,477		992			(13,795	)		6,127		(3,162	)		—			—		—			17,639
Other Assets
Escrow Receivable		561		401			(328	)		1,148		(500	)		—			—		—			1,282
Total	$	2,329,044	$	7,402		$	(40,376	)	$	869,250	$	(88,282	)	$	(314,417	)	$	207	$	(13,868	)	$	2,748,960

(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 (4)		Gross Transfers out of Level 3 (4)			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

(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, 2022 related to the initial public offerings of Gelesis, Inc., Pineapple Energy, LLC, and the conversion of Level 3 debt investments into common stock investments. Transfers into Level 3 during the nine months ended September 30, 2022 related to the decline of liquidity of Kaleido Biosciences, Inc. shares.

(4)

Transfers out of Level 3 during the nine months ended September 30, 2021, related 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.

(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, 2022, approximately $23.2 million in net unrealized depreciation and $9.5 million in net unrealized appreciation relating to assets still held at the reporting date were recorded for preferred stock and common stock Level 3 investments, respectively. For the same period, approximately $12.2 million and $13.4 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

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.

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of September 30, 2022 and December 31, 2021. 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.


Investment Type - Level 3 Debt Investments	Fair Value as of September 30, 2022 (in thousands)		Valuation Techniques/Methodologies	Unobservable Input (1)	Range	Weighted Average (2)

Pharmaceuticals	$	37,851	Originated Within 4-6 Months	Origination Yield	9.28% - 10.26%	10.16%
		982,922	Market Comparable Companies	Hypothetical Market Yield	10.48% - 18.10%	13.17%
				Premium/(Discount)	(0.75)% - 1.50%	0.02%

Technology		43,732	Originated Within 4-6 Months	Origination Yield	9.90% - 12.53%	10.41%
		910,488	Market Comparable Companies	Hypothetical Market Yield	11.72% - 17.52%	14.22%
				Premium/(Discount)	(0.75)% - 1.50%	0.16%
		20,354	Convertible Note Analysis	Probability weighting of alternative outcomes	1.00% - 50.00%	35.83%
		4,270	Liquidation (3)	Probability weighting of alternative outcomes	15.00% - 55.00%	46.57%

Sustainable and Renewable Technology		2,961	Market Comparable Companies	Hypothetical Market Yield	13.67%-13.67%	13.67%
				Premium/(Discount)	0.75%-0.75%	0.75%

Medical Devices		14,835	Originated Within 4-6 Months	Origination Yield	14.84% - 14.84%	14.84%
				Premium/(Discount)	0.50% - 0.50%	0.50%

Lower Middle Market		25,595	Originated Within 4-6 Months	Origination Yield	9.67% - 9.67%	9.67%
		308,155	Market Comparable Companies	Hypothetical Market Yield	12.71% - 17.82%	13.94%
				Premium/(Discount)	(2.00)% - 1.50%	(0.38)%
		8,318	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 80.00%	80.00%

Debt Investments for which Cost Approximates Fair Value
		130,945	Debt Investments originated within 3 months
		77,801	Imminent Payoffs (4)
		93,172	Debt Investments Maturing in Less than One Year
	$	2,661,399	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” and “Healthcare Services, Other” industries.

•

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

•

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.

(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)

Expected realizable value 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, 2021 (in thousands)		Valuation Techniques/Methodologies	Unobservable Input (1)	Range	Weighted Average (2)
Pharmaceuticals	$	206,461	Originated Within 4-6 Months	Origination Yield	11.23% - 12.84%	11.40%
		451,587	Market Comparable Companies	Hypothetical Market Yield	9.69% - 13.89%	11.34%
				Premium/(Discount)	(0.50)% - 0.75%	0.06%

Technology		109,904	Originated Within 4-6 Months	Origination Yield	11.12% - 11.68%	11.39%
		654,320	Market Comparable Companies	Hypothetical Market Yield	8.98% - 14.54%	11.64%
				Premium/(Discount)	(0.50)% - 0.75%	0.12%
		2,608	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 50.00%	40.48%
		20,425	Convertible Note Analysis	Probability weighting of alternative outcomes	1.00% - 35.00%	32.95%

Sustainable and Renewable Technology		247	Convertible Note Analysis	Probability weighting of alternative outcomes	40.00% - 60.00%	51.84%
		7,500	Expected Realizable Value (4)	Probability weighting of alternative outcomes	100% - 100%	100.00%

Lower Middle Market		3,100	Originated Within 4-6 Months	Origination Yield	5.17% - 5.17%	5.17%
		81,566	Market Comparable Companies	Hypothetical Market Yield	12.23% - 16.01%	13.22%
				Premium/(Discount)	0.00% - 1.50%	0.43%
		90,504	Expected Realizable Value (4)	Probability weighting of alternative outcomes	30.00% - 70.00%	57.74%
				Hypothetical Market Yield	10.64% - 10.64%	10.64%
				Premium/(Discount)	(1.00)% - (1.00)%	(1.00)%
		8,269	Liquidation (3)	Probability weighting of alternative outcomes	20.00% - 80.00%	80.00%

Debt Investments for which Cost Approximates Fair Value
		441,524	Debt Investments originated within 3 months
		131,584	Debt Investments Maturing in Less than One Year
	$	2,209,599	Total Level 3 Debt Investments

(1)

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” and “Healthcare Services, Other” industries.

•

(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)

Expected realizable value 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, 2022
(in thousands)

Valuation Techniques/
Methodologies

Unobservable Input (1)

Range

Weighted Average (5)

Equity Investments

29,721

Market Comparable Companies

EBITDA Multiple (2)

11.5x - 11.5x

11.5x

Revenue Multiple (2)

0.6x - 15.4x

6.6x

Tangible Book Value Multiple (2)

1.7x - 1.7x

1.7x

Discount for Lack of Marketability (3)

7.19% - 32.68%

20.53%

13,397

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(97.29)% - 7.80%

(16.68)%

21,945

Discounted Cash Flow

Discount Rate (7)

17.08% - 28.80%

23.32%

—

Liquidation

Revenue Multiple (2)

2.1x - 2.1x

2.1x

Discount for Lack of Marketability (3)

84.00% - 84.00%

84.00%

3,577

Other (6)

Warrant Investments

10,968

Market Comparable Companies

EBITDA Multiple (2)

11.5x - 11.5x

11.5x

Revenue Multiple (2)

0.6x - 9.3x

3.6x

Discount for Lack of Marketability (3)

0.00% - 32.7%

21.35%

6,671

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(97.29)% - 10.57%

(18.68)%

—

Liquidation

Revenue Multiple (2)

7.1x - 7.1x

7.1x

Discount for Lack of Marketability (3)

90.00% - 90.00%

90.00%

—

Other (6)

Total Level 3
Warrant and Equity Investments

86,279

(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, 2021
(in thousands)

Valuation Techniques/
Methodologies

Unobservable Input (1)

Range

Weighted Average (5)

Equity Investments

26,587

Market Comparable Companies

EBITDA Multiple (2)

20.6x - 20.6x

20.6x

Revenue Multiple (2)

1.0x - 18.4x

11.8x

Tangible Book Value Multiple (2)

2.5x - 2.5x

2.5x

Discount for Lack of Marketability (3)

18.81% - 34.69%

25.53%

24,910

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(88.67)% - 47.22%

0.81%

11,990

Discounted Cash Flow

Discount Rate (7)

15.93% - 25.30%

20.46%

—

Liquidation

Revenue Multiple (2)

2.1x - 2.1x

2.1x

Discount for Lack of Marketability (3)

84.00% - 84.00%

84.00%

27,920

Other (6)

Warrant Investments

14,517

Market Comparable Companies

EBITDA Multiple (2)

20.6x - 26.0x

20.7x

Revenue Multiple (2)

0.6x - 9.5x

4.5x

Discount for Lack of Marketability (3)

18.81% - 37.35%

26.93%

11,914

Market Adjusted OPM Backsolve

Market Equity Adjustment (4)

(88.67)% - 47.22%

(7.76)%

1,046

Other (6)

Total Level 3 Warrant and Equity Investments

118,884

(1)

(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 market transactions.

(7)

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

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 obligations of the Company are 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 obligations are based on observable market trading prices or quotations and unobservable market rates as applicable for each instrument.

As of September 30, 2022, the 2033 Notes were trading on the New York Stock Exchange (“NYSE”) at $23.48 per unit at par value. The par value at underwriting for the 2033 Notes was $25.00 per unit. Based on market quotations on or around September 30, 2022, the 2031 Asset-Backed Notes were quoted for 0.970. The fair values of the SBA debentures, July 2024 Notes, February 2025 Notes, June 2025 Notes, June 2025 3-Year Notes, March 2026 A Notes, March 2026 B Notes, September 2026, and January 2027 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 MUFG Bank Facility and the SMBC Facility are equal to their outstanding principal balances as of September 30, 2022.

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, 2022 and December 31, 2021:


(in thousands)	September 30, 2022
	Carrying		Approximate		Identical Assets		Observable Inputs		Unobservable Inputs
Description	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
SBA Debentures	$	169,591	$	153,614	$	—	$	—	$	153,614
July 2024 Notes		104,459		99,364		—		—		99,364
February 2025 Notes		49,723		45,739		—		—		45,739
June 2025 Notes		69,555		63,834		—		—		63,834
June 2025 3-Year Notes		49,577		47,626		—		—		47,626
March 2026 A Notes		49,676		44,107		—		—		44,107
March 2026 B Notes		49,647		44,181		—		—		44,181
September 2026 Notes		321,112		261,406		—		—		261,406
January 2027 Notes		344,271		286,885		—		—		286,885
2031 Asset-Backed Notes		147,810		145,500		—		145,500		—
2033 Notes		38,799		37,568		—		37,568		—
MUFG Bank Facility(1)		102,000		102,000		—		—		102,000
SMBC Facility		25,000		25,000		—		—		25,000
Total	$	1,521,220	$	1,356,824	$	—	$	183,068	$	1,173,756


(in thousands)	December 31, 2021
	Carrying		Approximate		Identical Assets		Observable Inputs		Unobservable Inputs
Description	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)
SBA Debentures	$	145,498	$	151,471	$	—	$	—	$	151,471
2022 Notes		149,563		152,906		—		152,906		—
July 2024 Notes		104,238		110,496		—		—		110,496
February 2025 Notes		49,637		51,983		—		—		51,983
June 2025 Notes		69,433		72,031		—		—		72,031
March 2026 A Notes		49,605		52,646		—		—		52,646
March 2026 B Notes		49,570		52,751		—		—		52,751
September 2026 Notes		320,376		315,495		—		—		315,495
2033 Notes		38,718		42,672		—		42,672		—
2022 Convertible Notes		229,740		236,049		—		236,049		—
Union Bank Facility(1)		—		—		—		—		—
SMBC Facility		29,925		29,925		—		—		29,925
Total	$	1,236,303	$	1,268,425	$	—	$	431,627	$	836,798

(1)

The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

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.

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, 2022 and 2021.


(in thousands)				Three Months Ended September 30, 2022										Nine Months Ended September 30, 2022
Portfolio Company(1)	Type	Fair Value as of September 30, 2022		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
Coronado Aesthetics, LLC	Control	$	400	$	—	$	—	$	(22	)	$	—		$	—	$	—	$	(165	)	$	—
Gibraltar Business Capital, LLC	Control		37,662		853		18		(1,423	)		—			2,531		51		(6,228	)		—
Hercules Adviser LLC	Control		33,945		154		—		(1,236	)		—			393		—		9,955			—
Tectura Corporation	Control		8,318		174		—		110			—			516		—		49			—
Total Control Investments		$	80,325	$	1,181	$	18	$	(2,571	)	$	—		$	3,440	$	51	$	3,611		$	—

Affiliate Investments
Black Crow AI, Inc.(2)	Affiliate	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	(120	)	$	3,772
Pineapple Energy LLC(2)	Affiliate		—		81		—		4,631			(2,014	)		1,204		—		4,209			(2,014	)
Total Affiliate Investments		$	—	$	81	$	—	$	4,631		$	(2,014	)	$	1,204	$	—	$	4,089		$	1,758
Total Control & Affiliate Investments		$	80,325	$	1,262	$	18	$	2,060		$	(2,014	)	$	4,644	$	51	$	7,700		$	1,758

(in thousands)				Three Months Ended September 30, 2021										Nine Months Ended September 30, 2021
Portfolio Company(1)	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	)

(1)

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, 2022 and September 30, 2021, there were no unconsolidated subsidiaries that are considered “significant subsidiaries”.

(2)

As of September 30, 2022, Black Crow AI, Inc. and Pineapple Energy LLC are no longer affiliates as defined under the 1940 Act.

Portfolio Composition

The following table shows the fair value of the Company’s portfolio of investments by asset class as of September 30, 2022 and December 31, 2021:


	September 30, 2022					December 31, 2021

(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Senior Secured Debt	$	2,607,006		92.3	%	$	2,156,709		88.6	%
Unsecured Debt		54,393		1.9	%		52,890		2.2	%
Preferred Stock		41,038		1.4	%		69,439		2.8	%
Common Stock		93,096		3.3	%		115,271		4.7	%
Warrants		27,159		1.0	%		38,399		1.6	%
Investment Funds & Vehicles		3,046		0.1	%		1,814		0.1	%
Total	$	2,825,738		100.0	%	$	2,434,522		100.0	%

A summary of the Company’s investment portfolio, at value, by geographic location as of September 30, 2022 and December 31, 2021 is shown as follows:


	September 30, 2022					December 31, 2021
(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
United States	$	2,545,973		90.1	%	$	2,138,184		87.8	%
United Kingdom		158,491		5.6	%		169,407		7.0	%
Netherlands		88,174		3.1	%		82,925		3.4	%
Canada		19,373		0.7	%		27,673		1.1	%
Israel		9,005		0.3	%		8,980		0.4	%
Ireland		3,313		0.1	%		5,459		0.2	%
Germany		924		0.1	%		1,894		0.1	%
Other		485		0.0	%		—		0.0	%
Total	$	2,825,738		100.0	%	$	2,434,522		100.0	%

The following table shows the fair value of the Company’s portfolio by industry sector as of September 30, 2022 and December 31, 2021:


(in thousands)	September 30, 2022					December 31, 2021
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Drug Discovery & Development	$	1,091,827		38.6	%	$	967,383		39.7	%
Software		680,216		24.1	%		585,622		24.1	%
Internet Consumer & Business Services		489,968		17.3	%		395,506		16.3	%
Healthcare Services, Other		203,599		7.2	%		121,003		5.0	%
Communications & Networking		101,094		3.6	%		105,490		4.3	%
Diversified Financial Services		72,061		2.5	%		65,073		2.7	%
Information Services		59,735		2.1	%		74,417		3.1	%
Manufacturing Technology		43,892		1.6	%		14,995		0.6	%
Consumer & Business Products		25,497		0.9	%		28,099		1.2	%
Semiconductors		20,621		0.7	%		22,498		0.9	%
Medical Devices & Equipment		17,421		0.6	%		12,612		0.5	%
Sustainable and Renewable Technology		15,683		0.6	%		39,387		1.6	%
Electronics & Computer Hardware		2,498		0.1	%		1,040		0.0	%
Surgical Devices		1,536		0.1	%		1,029		0.0	%
Drug Delivery		90		0.0	%		368		0.0	%
Total	$	2,825,738		100.0	%	$	2,434,522		100.0	%

No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of September 30, 2022 or December 31, 2021.

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”, “Healthcare Services, Other”, and “Communications & Networking" 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.

As of September 30, 2022 and December 31, 2021, the Company’s ten largest portfolio companies represented approximately 30.1% and 30.5% of the total fair value of the Company’s investments in portfolio companies, respectively. As of September 30, 2022 and December 31, 2021, the Company had eight and six portfolio companies, respectively, that represented 5% or more of the Company’s net assets. As of September 30, 2022, the Company had three equity investments representing approximately 36.6% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of the Company’s equity investments. As of December 31, 2021, the Company had six equity investments which represented approximately 49.6% of the total fair value of the Company’s equity investments, 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, 2022, approximately 77.4% of the Company’s debt investments at fair value were in a senior secured first lien position, with 40.2% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 27.9% 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 9.3% 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 20.6% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 2.0% were unsecured.

As of December 31, 2021, approximately 77.0% of the Company’s debt investments at fair value were in a senior secured first lien position, with 37.5% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 31.6% 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 7.9% 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 20.6% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 2.4% were unsecured.

5. Debt

As of September 30, 2022 and December 31, 2021, the Company had the following available and outstanding debt:


(in thousands)	September 30, 2022						December 31, 2021
	Total Available		Principal		Carrying Value (1)		Total Available		Principal		Carrying Value (1)
SBA Debentures	$	175,000	$	175,000	$	169,591	$	175,000	$	150,500	$	145,498
2022 Notes		—		—		—		150,000		150,000		149,563
July 2024 Notes		105,000		105,000		104,459		105,000		105,000		104,238
February 2025 Notes		50,000		50,000		49,723		50,000		50,000		49,637
June 2025 Notes		70,000		70,000		69,555		70,000		70,000		69,433
June 2025 3-Year Notes		50,000		50,000		49,577		—		—		—
March 2026 A Notes		50,000		50,000		49,676		50,000		50,000		49,605
March 2026 B Notes		50,000		50,000		49,647		50,000		50,000		49,570
September 2026 Notes		325,000		325,000		321,112		325,000		325,000		320,376
January 2027 Notes		350,000		350,000		344,271		—		—		—
2031 Asset-Backed Notes		150,000		150,000		147,810		—		—		—
2033 Notes		40,000		40,000		38,799		40,000		40,000		38,718
2022 Convertible Notes		—		—		—		230,000		230,000		229,740
MUFG Bank Facility (2)(3)		545,000		102,000		102,000		400,000		—		—
SMBC Facility (2)		225,000		25,000		25,000		100,000		29,925		29,925
Total	$	2,185,000	$	1,542,000	$	1,521,220	$	1,745,000	$	1,250,425	$	1,236,303

(1)

Except for the SMBC Facility and MUFG Bank Facility (f.k.a. 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)

Availability subject to the Company meeting the borrowing base requirements.

(3)

The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

Debt issuance costs, net of accumulated amortization, were as follows as of September 30, 2022 and December 31, 2021:


(in thousands)	September 30, 2022		December 31, 2021
SBA Debentures	$	5,409	$	5,002
2022 Notes		—		300
July 2024 Notes		541		762
February 2025 Notes		277		363
June 2025 Notes		445		567
June 2025 3-Year Notes		423		—
March 2026 A Notes		324		395
March 2026 B Notes		353		430
September 2026 Notes		3,888		4,624
January 2027 Notes		5,729		—
2031 Asset-Backed Notes		2,190		—
2033 Notes		1,201		1,282
2022 Convertible Notes		—		149
MUFG Bank Facility (1)		1,346		1,239
SMBC Facility (1)		1,574		922
Total	$	23,700	$	16,035

(1)

The MUFG Bank Facility (f.k.a. Union Bank Facility) and SMBC 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, 2022, the components of interest expense, related fees, losses on debt extinguishment and cash paid for interest expense for debt were as follows:


(in thousands)	Three Months Ended September 30, 2022										Nine Months Ended September 30, 2022
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	$	1,160	$	148	$	—	$	1,308	$	2,086	$	2,848	$	434	$	—	$	3,282	$	2,835
2022 Notes		—		—		—		—		—		1,011		50		—		1,061		2,293
July 2024 Notes		1,252		74		—		1,326		2,504		3,756		222		—		3,978		5,008
February 2025 Notes		535		29		—		564		1,070		1,605		86		—		1,691		2,140
June 2025 Notes		754		40		—		794		—		2,263		121		—		2,384		1,509
June 2025 3-Year Notes		750		38		—		788		—		817		42		—		859		—
March 2026 A Notes		563		24		—		587		1,125		1,688		72		—		1,760		2,250
March 2026 B Notes		569		26		—		595		1,137		1,706		78		—		1,784		2,275
September 2026 Notes		2,174		204		—		2,378		4,266		6,523		612		—		7,135		8,532
January 2027 Notes		3,079		207		—		3,286		5,906		8,552		575		—		9,127		5,906
2031 Asset-Backed Notes		1,903		100		—		2,003		1,815		2,072		109		—		2,181		1,815
2033 Notes		625		27		—		652		625		1,875		81		—		1,956		1,875
2022 Convertible Notes		—		—		—		—		—		923		149		—		1,072		5,004
MUFG Bank Facility(2)		1,000		253		720		1,973		1,025		2,483		665		1,682		4,830		2,240
SMBC Facility		135		98		195		428		181		722		211		328		1,261		700
Total	$	14,499	$	1,268	$	915	$	16,682	$	21,740	$	38,844	$	3,507	$	2,010	$	44,361	$	44,382

(1)

Interest expense includes amortization of original issue discounts for the three months ended September 30, 2022 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. For the nine months ended September 30, 2022, $23 thousand, $112 thousand, $125 thousand, $349 thousand, and $51 thousand related to the 2022 Notes, 2022 Convertible Notes, September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.

(2)

The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

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


(in thousands)	Three Months Ended September 30, 2021										Nine Months Ended September 30, 2021
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(3)		—		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(3)		1,344		72		—		1,416		1,348		4,593		922		—		5,515		4,677
2028 Asset-Backed Notes(3)		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(3)		—		43		146		189		—		—		132		460		592		—
MUFG Bank Facility(4)		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.

(3)

The April 2025 Notes, 2027 Asset-Backed Notes and 2028 Asset-Backed Notes were retired on July 1, 2021 and October 20, 2021, respectively. The Wells
Facility was terminated on November 29, 2021.

(4)

The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

As of September 30, 2022 and December 31, 2021, 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

The Company reported the following SBA debentures outstanding principal balances as of September 30, 2022 and December 31, 2021:


(in thousands) Issuance/Pooling Date	Maturity Date	Interest Rate (1)	September 30, 2022		December 31, 2021
March 26, 2021	September 1, 2031	1.58%	$	37,500	$	37,500
June 25, 2021	September 1, 2031	1.58%		16,200		16,200
July 28, 2021	September 1, 2031	1.58%		5,400		5,400
August 20, 2021	September 1, 2031	1.58%		5,400		5,400
October 21, 2021	March 1, 2032	3.21%		14,000		14,000
November 1, 2021	March 1, 2032	3.21%		21,000		21,000
November 15, 2021	March 1, 2032	3.21%		5,200		5,200
November 30, 2021	March 1, 2032	3.21%		20,800		20,800
December 20, 2021	March 1, 2032	3.21%		10,000		10,000
December 23, 2021	March 1, 2032	3.21%		10,000		10,000
December 28, 2021	March 1, 2032	3.21%		5,000		5,000
January 14, 2022	March 1, 2032	3.21%		4,500		—
January 21, 2022	March 1, 2032	3.21%		20,000		—
Total SBA Debentures			$	175,000	$	150,500

(1)

Interest rates are fixed rates set based on the pooling date of each debenture. The rates shown above are inclusive of annual SBA charges.

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 SBA as part of its oversight periodically examines and audits to determine SBICs compliance with SBA regulations. Our SBIC was in compliance with all SBIC terms, including those pertaining to the SBA Debentures as of September 30, 2022 and December 31, 2021.

HC IV received its license to operate as a SBIC on October 27, 2020. The license has a 10-year term. Through the license, HC IV has access to $175.0 million of capital through the SBA debenture program, that is in addition to the Company’s regulatory capital commitment of $87.5 million to HC IV. As of September 30, 2022, HC IV has issued a total of $175.0 million in SBA guaranteed debentures and has paid the SBA commitment fees and facility fees of approximately $1.75 million and $4.2 million, respectively.

As of September 30, 2022, the Company held investments in HC IV in 18 companies with a fair value of approximately $277.1 million, accounting for approximately 9.8% of the Company’s total investment portfolio. Further, HC IV held approximately $287.6 million in tangible assets which accounted for approximately 9.8% of the Company’s total assets as of September 30, 2022.

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. On February 22, 2022, pursuant to the redemption terms of the 2025 Notes indenture, the Company fully repaid the aggregate outstanding $150.0 million of principal and $2.3 million of accrued interest. In addition, the Company paid $3.3 million of prepayment premium fees, which together with the accelerated recognition of $0.3 million of debt issuance costs was recognized as a realized loss on extinguishment of the debt.

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 $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. On February 1, 2022, the Company fully repaid the aggregate outstanding $230.0 million principal, $5.0 million of accrued interest and fees, and issued 981,169 shares related to noteholders who elected to convert pursuant to the redemption terms of the 2022 Convertible Notes indenture.

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.

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. 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.

June 2025 3-Year Notes

On June 23, 2022, the Company issued $50.0 million in aggregate principal amount of 6.00% interest-bearing unsecured notes due June 23, 2025 (the “June 2025 3-Year Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 3-Year Notes is due semiannually. The June 2025 3-Year 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 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.

January 2027 Notes

On January 20, 2022, the Company issued $350.0 million in aggregate principal amount of 3.375% interest-bearing unsecured notes due January 20, 2027 (the “January 2027 Notes”), unless repurchased in accordance with the terms of the Eight Supplemental Indenture, dated January 20, 2022. The issuance of the January 2027 Notes generated net proceeds of approximately $343.4 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 $2.5 million related to the discount. Interest on the January 2027 Notes is payable semi-annually in arrears on January 20 and July 20 of each year, commencing on July 20, 2022. The January 2027 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 January 2027 Notes at any time, or from time to time, at the redemption price set forth under the terms of the January 2027 Notes Indenture.

2031 Asset-Backed Notes

On June 22, 2022, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $150.0 million in aggregate principal amount of 4.95% interest-bearing asset-backed notes due on July 20, 2031 (the “2031 Asset-Backed Notes”). The 2031 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2022-1 LLC (the “2022 Securitization Issuer”) pursuant to a note purchase agreement, dated as of June 22, 2022, by and among the Company, Hercules Capital Funding 2022-1 LLC, as trust depositor, the 2022 Securitization Issuer, and U.S. Bank Trust Company, N. A., as trustee, 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. Interest on the 2031 Asset-Backed Notes will be paid, to the extent of funds available.

Under the terms of the 2031 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2031 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 2031 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of September 30, 2022, there was approximately $8.3 million and none as of December 31, 2021 of funds segregated as restricted cash related to the 2031 Asset-Backed Notes.

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. 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.

Credit Facilities

As of September 30, 2022 and December 31, 2021, the Company has two available credit facilities, the MUFG Bank Facility and the SMBC Facility (together, the “Credit Facilities”). For the nine months ended September 30, 2022 and year ended December 31, 2021, the weighted average interest rate was 3.70% and 2.54%, respectively, and the average debt outstanding under the Credit Facilities was $115.6 million and $28.8 million, respectively.

MUFG Bank Facility

On June 10, 2022, the Company entered into a second amended credit facility agreement, which amends the agreement dated as of 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 “MUFG Bank Facility”) with MUFG Bank Ltd. (formerly MUFG Union Bank and known as the “Union Bank Facility”) as the arranger and administrative agent, and the lenders party to the MUFG Bank Facility from time to time.

Under the MUFG Bank Facility, the lenders have made commitments of $545.0 million, which is an increase from $400.0 million as of December 31, 2021. The MUFG Bank Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $600.0 million, funded by existing or additional lenders and with the agreement of MUFG Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the MUFG Bank Facility to increase available borrowings. Debt under the MUFG Bank Facility generally bears interest at a rate per annum equal to SOFR plus 2.60% for SOFR loans with a one-month interest period and 2.65% for SOFR loans with a three-month interest period. The MUFG Bank Facility matures on February 22, 2024, unless sooner terminated in accordance with its terms. The MUFG Bank Facility is secured by all of the assets of Hercules Funding IV. The MUFG Bank Facility requires payment of a non-use fee during the revolving credit availability period.

The MUFG 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 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 MUFG 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.

SMBC Facility

On June 14, 2022, the Company entered into a second amendment to a revolving credit agreement, which amends the revolving credit agreement, dated as of November 9, 2021, with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”), as administrative agent, and the lenders and issuing banks to the SMBC Facility. As of September 30, 2022, the SMBC Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies of up to $225.0 million, from which the Company may access subject to certain conditions. As of December 31, 2021, the Company had access to $100.0 million, subject to certain conditions. Additionally, the SMBC Facility provides for the issuance of letters of credit on the account of the Company or its designee in U.S. dollars and certain agreed upon foreign currencies in an aggregate face amount not to exceed $15.0 million. The Company’s obligations under the SMBC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and the subsidiary guarantors thereunder. Availability under the SMBC Facility will terminate on November 7, 2025, and the outstanding loans under the SMBC Facility will mature on November 9, 2026. Borrowings under the SMBC Facility are subject to compliance with a borrowing base and an aggregate portfolio balance.

Interest under the SMBC Facility is determined by the nature and denomination of the borrowing. Interest rates are determined by the appropriate benchmark rate (SOFR, EURIBOR, Prime, CDOR, or TIBOR) as applicable for the type of borrowing plus an applicable margin adjustment which can range from 0.875% to 2.0% per annum subject to certain conditions. In addition to interest, the SMBC Facility is subject to a non-usage fee of 0.375% per annum (based on the immediately preceding period’s average usage) on the unused portion of the commitment under the SMBC Facility during the revolving period. The Company is required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lender’s exposure with respect to any letters of credit issued under the SMBC Facility.

The SMBC Facility contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default and cross-acceleration to other indebtedness and bankruptcy. The SMBC Facility also includes financial and other covenants

applicable to the Company and the Company’s subsidiaries, including covenants relating to minimum stockholders' equity, asset coverage ratios, and our status as a RIC.

6. Income Taxes

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.

As previously noted, 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. 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, income is required to be recognized for tax purposes no later than when recognized for financial reporting purposes, with certain exceptions.

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 (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, 2022, was approximately $49.1 million or $0.39 per share. Taxable net realized losses for the same period were $(2.0) million or approximately $(0.02) per share. 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 nine months ended September 30, 2022, was approximately $122.2 million or $0.99 per share. Taxable net realized losses for the same period were $(0.1) million or approximately $(0.00) 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.

For the three and nine months ended September 30, 2022, the Company paid approximately $0.1 million and $7.3 million of income tax, respectively, including excise tax, and had $4.0 million of accrued but unpaid tax expense as of September 30, 2022. 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.

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.

During the three and nine months ended September 30, 2022, the Company declared and paid distributions of $0.50 and $1.46 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, 2022, 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 2022 distributions to stockholders will be.

7. Stockholders’ Equity

On May 9, 2022, the Company entered into an At-The-Market (“ATM”) equity distribution agreement with JMP Securities LLC (“JMP”) and Jefferies LLC (“Jeffries”) (the “2022 Equity Distribution Agreement”). The 2022 Equity Distribution Agreement provides that the Company may offer and sell up to 17.5 million shares of its common stock from time to time through JMP or Jeffries, as its sales agents. 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. The 2022 Equity Distribution Agreement replaces the ATM equity distribution agreement between the Company and JMP executed on July 2, 2020 (the “2020 Equity Distribution Agreement”).

Under the 2020 Equity Distribution Agreement, the Company sold no shares and approximately 5.6 million shares, respectively, of common stock during the three and nine months ended September 30, 2022. From the sale of shares under the 2020 Equity Distribution Agreement during the nine months ended September 30, 2022, the Company received total accumulated net proceeds of approximately $98.5 million, including $1.1 million of offering expenses. Under the 2022 Equity Distribution agreement, the Company sold common stock shares of approximately 2.9 million and 6.2 million for the three and nine months ended September 30, 2022. From the sale of shares, the Company received total accumulated net proceeds of approximately $42.9 million and $91.5 million including $0.4 million and $1.0 million of offering expenses for the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, there were no shares sold under the existing equity distribution agreement.

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, 2022, approximately 11.3 million shares remain available for issuance and sale under the 2022 Equity Distribution Agreement. The 2020 Equity Distribution Agreement is no longer effective. The Company has issued stock options for common stock subject to future issuance, of which 207,794 and 210,569 were outstanding as of September 30, 2022 and December 31, 2021, respectively.

8. Equity Incentive Plans

The Company grants equity-based awards to employees and non-employee directors for the purpose of attracting and retaining the services of its executive officers, key employees, and members of the Board. The Company’s equity-based awards are granted under the 2018 Equity Incentive Plan (the “2018 Plan”) for employees and 2018 Non-Employee Director Plan (the “Director Plan”) for non-employee directors. The 2018 Plan and the Director Plan were approved by stockholders on June 28, 2018, and authorize us to issue up to 18.7 million shares of common stock and 300,000 shares of restricted stock under the 2018 Plan and Director Plan, respectively. Unless earlier terminated by the Board, the 2018 Plan and Director Plan will terminate on May 12, 2028. Outstanding awards issued under plans that precede the 2018 Plan and Director Plan remain outstanding, unchanged and subject to the terms of such plans and their respective award agreements, until the vesting, expiration or lapse of such awards in accordance with their terms.

The Company has received exemptive relief from the SEC 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 Plan. The exemptive order also allows participants in the Director Plan and the 2018 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 has granted equity-based awards that have service and performance conditions. Certain of the Company’s equity-based awards are classified as liability awards in accordance with ASC Topic 718, Compensation – Stock Compensation. All of the Company’s equity-based awards require future service, and are expensed over the relevant service period. The Company does not estimate forfeitures, and reverses all unvested costs associated with equity-based awards in the period they are forfeited. For the three months ended September 30, 2022, and 2021, the Company recognized $2.5 million and $3.3 million of stock based compensation expense in the Consolidated Statement of Operations, respectively. For the nine months ended September 30, 2022, and 2021, the Company recognized $10.6 million and $9.0 million of stock based compensation expense in the Consolidated Statement of

Operations, respectively. As of September 30, 2022, and 2021, approximately $16.0 million and $18.3 million of total unrecognized compensation costs expected to be recognized over the next 1.8 and 1.9 years, respectively.

Service-Vesting Awards

The Company grants equity-based awards which have service conditions, and generally begin to vest one-third after one year after the date of grant and ratably over the succeeding 2 years in accordance with the individual award terms (the “Service Vesting Awards”). The grant date fair value of Service Vesting Awards granted during the nine months ended September 30, 2022, and 2021, were approximately $11.1 million, and $11.2 million, respectively.

The Company has granted restricted stock equity awards in the form of restricted stock awards and restricted stock units. The Company determines the grant date fair values of restricted stock equity awards using the grant date stock close price. The activities for the Company's unvested restricted stock equity awards for each of the nine months ended September 30, 2022, and 2021, are summarized below:


	Nine Months Ended September 30,
	2022					2021
	Shares			Weighted Average Grant Date Fair Value per Share		Shares			Weighted Average Grant Date Fair Value per Share
Unvested Shares Beginning of Period		1,037,848		$	14.51		989,100		$	13.69
Granted		632,831		$	17.24		748,519		$	14.80
Vested (1)		(578,579	)	$	14.39		(517,076	)	$	13.71
Forfeited		(25,407	)	$	15.99		(71,020	)	$	14.16
Unvested Shares End of Period		1,066,693		$	16.16		1,149,523		$	14.42

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

In addition to the restricted stock equity based awards, the Company has also issued stock options to certain employees. The fair value of options granted during the nine months ended September 30, 2022 and 2021, was approximately $143,000 and $123,000, respectively. During the nine months ended September 30, 2022 and 2021, approximately $52,000, and $23,000, of share-based cost due to stock option grants was expensed, respectively.

Performance-Vesting Awards

The Company has granted equity-based awards, which have market and performance conditions in addition to a service condition (“Performance Awards”). The value of these awards may increase dependent on increases to the Company’s total stockholder return (“TSR”). The total compensation will be determined by the Company’s TSR relative to specified BDCs during a specified performance period. Depending on the results achieved during the specified performance period, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the target shares granted. The Performance Awards typically vest after four years, and generally may not be disposed until one year post vesting. The Company determines the fair values of the Performance Awards at the grant date using a Monte-Carlo simulation multiplied by the target payout level and is recognized over the service period. During the nine months ended September 30, 2022, all 487,409 Performance Award shares vested. Additionally, 241,770 distribution equivalent units (“DEUs”) were issued with a grant date fair value of $4.0 million. During the nine months ended September 30, 2021, there were no Performance Awards or DEUs granted or vested. As of September 30, 2022 and 2021, there were no shares and 487,409 shares of unvested Performance Awards.

Liability Classified Awards

The Company has granted equity-based awards which are subject to both service and performance conditions. These awards are settled either in cash or a fixed dollar value of shares, subject to the terms of each individual award, and therefore classified as liability awards (the “Liability Awards”). The remaining maximum total potential value of the Liability Awards granted is $4.3 million, which assumes all performance conditions are met for each Liability award. If the performance conditions are not met, the total compensation expense related to the Liability Awards may be less than the maximum granted value of the awards. The awards are recorded as deferred compensation within Accounts Payable and Accrued Liabilities included on the Consolidated Statement of Assets and Liabilities.

Certain Liability Awards are structured similar to the Performance Awards, and increase in value with corresponding increases to the Company’s TSR and vest after four years. The Company remeasures the value of these awards each period based on the Company’s TSR achieved to date. Certain other Liability Awards are linked to attainment of investment funding goals. The Company determines the fair value of these Liability Awards based on the expected probability of the performance conditions being met and recognized over the service period. As of September 30, 2022, the Company determined that the weighted average expected probability of the performance conditions being met within each Liability Award was 100%. The expected probability is re-evaluated each period, and may be adjusted to reflect changes in this assumption. These other Liability Awards vest over a three year service term.

As of September 30, 2022, all Liability Awards are unvested and there was approximately $2.3 million of total unrecognized compensation costs expected to be recognized over a weighted average period of 1.6 years. For the nine months ended September 30, 2022, there was approximately $2.3 million of compensation expense related to the Liability Awards recognized in the Consolidated Statement of Operations and $2.0 million accrued within Accounts Payable and Accrued Liabilities in the Consolidated Statements of Assets and Liabilities. During the nine months ended September 30, 2022 and 2021, $6.0 million and $0 of the Liability Awards vested.

As of September 30, 2021, all Liability Awards are unvested and there was approximately $4.2 million of total unrecognized compensation costs expected to be recognized over a weighted average period of 2.2 years. For the nine months ended September 30, 2021, there was approximately $1.3 million of compensation expense related to the Liability Awards recognized in the Consolidated Statement of Operations and $5.3 million accrued within Accounts Payable and Accrued Liabilities in the Consolidated Statements of Assets and Liabilities. No Liability Awards vested during the periods presented.

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)	2022			2021			2022			2021
Numerator
Net increase in net assets resulting from operations	$	53,202		$	23,549		$	39,548		$	170,443
Less: Distributions declared-common and restricted shares		(63,950	)		(45,190	)		(181,825	)		(133,143	)
(Over-)Undistributed earnings (loss)		(10,748	)		(21,641	)		(142,277	)		37,300

Undistributed earnings-common shares		(10,748	)		(21,641	)		(142,277	)		36,931
Add: Distributions declared-common shares		63,421			44,770			180,114			131,829
Numerator for basic and diluted change in net assets per common share	$	52,673		$	23,129		$	37,837		$	168,760

Denominator
Basic weighted average common shares outstanding		127,484			114,805			123,379			114,590
Incremental shares from assumed conversion of 2022 Convertible Notes		—			661			—			293
Common shares issuable		1,850			773			1,388			667
Weighted average common shares outstanding assuming dilution		129,334			116,239			124,767			115,550

Change in net assets per common share
Basic	$	0.41		$	0.20		$	0.31		$	1.47
Diluted	$	0.41		$	0.20		$	0.30		$	1.46

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”, on February 1, 2022, the Company fully repaid the 2022 Convertible Notes. As these notes were fully repaid, there is no dilutive impact for the current period ended September 30, 2022. In July 2021, the Company irrevocably elected combination settlement for the 2022 Convertible Notes. Therefore the dilutive impact of the 2022 Convertible Notes, was calculated for only the portion expected to be settled in stock as it relates to the diluted shares outstanding for the three and nine months ended September 30, 2021.

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, 2022, and 2021, 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	2022		2021		2022		2021
2022 Convertible Notes		—		—		—		—
Unvested common stock options		865		198		1,725		88
Restricted stock units*		—		—		—		—
Unvested restricted stock awards		3,982		710		1,611		720
Performance awards*		—		—		—		—

*Included in these amounts are shares related to certain equity-based awards, which are fully-vested but have not been delivered and thus not outstanding for purposes of calculating earnings per share.

As of both September 30, 2022 and December 31, 2021, the Company was authorized to issue 200.0 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, 2022 and 2021:


(in thousands, except per share data and ratios)	Nine Months Ended September 30,
	2022			2021
Per share data (1):
Net asset value at beginning of period	$	11.22		$	11.26
Net investment income		1.01			0.95
Net realized gain (loss)		0.01			0.12
Net unrealized appreciation (depreciation)		(0.71	)		0.40
Total from investment operations		0.31			1.47
Net increase (decrease) in net assets from capital share transactions (1)		0.31			(0.11	)
Distributions of net investment income (6)		(1.11	)		(1.06	)
Distributions of capital gains (6)		(0.35	)		(0.09	)
Stock-based compensation expense included in investment income (2)		0.09			0.07
Net asset value at end of period	$	10.47		$	11.54

Ratios and supplemental data:
Per share market value at end of period	$	11.58		$	16.61
Total return (3)		(24.34	)%		23.05	%
Shares outstanding at end of period		130,191			115,925
Weighted average number of common shares outstanding		123,379			114,590
Net assets at end of period	$	1,362,718		$	1,337,532
Ratio of total expense to average net assets (4)		9.51	%		9.93	%
Ratio of net investment income before investment gains and losses to average net assets (4)		12.53	%		11.01	%
Portfolio turnover rate (5)		14.12	%		33.14	%
Weighted average debt outstanding	$	1,430,814		$	1,246,769
Weighted average debt per common share	$	11.60		$	10.88

(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, 2022, and 2021, 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, 2022, and 2021, 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 unfunded commitments to extend credit in the form of loans to the Company’s portfolio companies. As of September 30, 2022, a portion of these unfunded contractual commitments 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 portfolio company experiences materially adverse events that affect its financial condition or business outlook. 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, 2022, and December 31, 2021, the Company had approximately $659.0 million and $286.8 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. These amounts also exclude 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, 2022, and December 31, 2021, 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, 2022		December 31, 2021
Debt Investments:
Phathom Pharmaceuticals, Inc.	$	66,500	$	43,250
Oak Street Health, Inc.		44,250		—
Axsome Therapeutics, Inc.		42,000		—
Thumbtack, Inc.		40,000		—
Vida Health		40,000		—
Skydio, Inc.		37,500		37,500
HilleVax, Inc.		36,000		—
Automation Anywhere, Inc.		29,400		—
Iveric Bio Gene Therapy LLC		24,750		—
Brain Corporation		20,020		20,000
Aryaka Networks, Inc.		20,000		—
Finch Therapeutics Group, Inc.		20,000		—
G1 Therapeutics, Inc.		19,375		19,375
Tarsus Pharmaceuticals, Inc.		18,563		—
Locus Robotics Corporation		18,281		—
Alladapt Immunotherapeutics Inc.		15,000		—
ATAI Life Sciences N.V.		14,000		—
Dronedeploy, Inc.		12,500		—
Carbon Health Technologies, Inc.		11,625		11,625
Nuvolo Technologies Corporation		10,200		—
AppDirect, Inc.		10,000		—
Blue Sprig Pediatrics, Inc.		10,000		30,000
Dashlane, Inc.		10,000		19,300
RVShare, LLC		8,500		13,500
Viridian Therapeutics, Inc.		8,000		—
Elation Health, Inc.		7,500		—
Gritstone Bio, Inc.		7,500		—
Ouster, Inc.		7,000		—
Akero Therapeutics, Inc.		5,000		—
Alamar Biosciences, Inc.		5,000		—
Fulfil Solutions, Inc.		5,000		—
Demandbase, Inc.		3,750		9,375
Signal Media Limited		3,750		—
Riviera Partners LLC		3,500		—
Yipit, LLC		2,250		2,250
Khoros (p.k.a Lithium Technologies)		1,812		1,812
Ceros, Inc.		1,707		3,845
ThreatConnect, Inc.		1,600		1,600
Dispatch Technologies, Inc.		1,250		—
LogicSource		1,209		—
Zimperium, Inc.		1,088		—
Ikon Science Limited		1,050		1,050
Omeda Holdings, LLC		938		—
Alchemer LLC		890		—
Agilence, Inc.		800		800
Mobile Solutions Services		742		424
3GTMS, LLC		725		1,583
Constructor.io Corporation		625		—
Cybermaxx Intermediate Holdings, Inc.		471		471
Enmark Systems, Inc.		457		457
Annex Cloud		386		—
Gryphon Networks Corp.		268		268
Cytracom Holdings LLC		225		225
Syndax Pharmaceutics Inc.		—		30,000
Equality Health, LLC		—		17,500
Bicycle Therapeutics PLC		—		10,000
Better Therapeutics, Inc.		—		4,000
Logicworks		—		2,000
ShadowDragon, LLC		—		333
ePayPolicy Holdings, LLC		—		250
Pineapple Energy LLC		—		120
Total Unfunded Debt Commitments:		652,957		282,913

Investment Funds & Vehicles:(2)
Forbion Growth Opportunities Fund I C.V.		3,187		3,839
Forbion Growth Opportunities Fund II C.V.		2,826		—
Total Unfunded Commitments in Investment Funds & Vehicles:		6,013		3,839

Total Unfunded Commitments	$	658,970	$	286,752

(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. These amounts also exclude $203.2 million and $34.9 million of unfunded commitments as of September 30, 2022, and December 31, 2021, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds as described in "Note -12 Related Party Transactions".

(2)

For investment funds and vehicles, the amount represents uncalled capital commitments in private equity funds.

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


(in thousands)	September 30, 2022		December 31, 2021
Unfunded Debt Commitments:
Expiring during:
2022	$	198,281	$	199,681
2023		312,457		43,675
2024		121,586		25,800
2025		1,694		2,232
2026		9,053		11,525
2027		7,745		—
2028		2,141		—
Total Unfunded Debt Commitments		652,957		282,913
Unfunded Commitments in Investment Funds & Vehicles:
Expiring during:
2030		3,187		3,839
2032		2,826		—
Total Unfunded Commitments in Investment Funds & Vehicles		6,013		3,839
Total Unfunded Commitments	$	658,970	$	286,752

The following tables provide the Company’s contractual obligations as of September 30, 2022 and December 31, 2021:


As of September 30, 2022:	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)	$	1,542,000	$	—	$	377,000	$	800,000	$	365,000
Lease and License Obligations (4)		6,821		3,060		1,908		1,853		—
Total	$	1,548,821	$	3,060	$	378,908	$	801,853	$	365,000

As of December 31, 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 (5)(3)	$	1,250,425	$	380,000	$	105,000	$	574,925	$	190,500
Lease and License Obligations (4)		8,283		3,120		2,958		1,427		778
Total	$	1,258,708	$	383,120	$	107,958	$	576,352	$	191,278

(1)

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

(2)

Includes $175.0 million in principal outstanding under the SBA Debentures, $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 June 2025 3-Year Notes, $50.0 million of the March 2026 A Notes, $50.0 million of the March 2026 B Notes, $150.0 million of the 2031 Asset-Backed Notes, $40.0 million of the 2033 Notes, $325.0 million of the September 2026 Notes and $350.0 million of the January 2027 Notes as of September 30, 2022. There was also $25.0 million outstanding under the SMBC Facility and $102.0 million outstanding under the MUFG Bank Facility as of September 30, 2022.

(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 $150.5 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, and $230.0 million of the 2022 Convertible Notes as of December 31, 2021. There was also $29.9 million outstanding under the SMBC Facility and no amounts outstanding under the Union Facility as of December 31, 2021.

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, 2022, 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, 2021, total rent expense, including short-term leases, amounted to approximately $0.8 million and $2.4 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, 2022, and 2021:


(in thousands)	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Total operating lease cost	$	744	$	724	$	2,185	$	2,196
Cash paid for amounts included in the measurement of lease liabilities	$	642	$	578	$	2,411	$	1,733


	As of September 30, 2022			As of September 30, 2021
Weighted-average remaining lease term (in years)		4.17			4.37
Weighted-average discount rate		4.53	%		4.87	%

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, 2022:


(in thousands)	As of September 30, 2022
2022	$	652
2023		2,500
2024		848
2025		887
Thereafter		1,804
Total lease payments		6,691
Less: imputed interest		(599	)
Total operating lease liability	$	6,092

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 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, 2022, are net of expenses allocated to the Adviser Subsidiary of $1.9 million and $6.3 million, respectively. As of September 30, 2022, the Adviser Subsidiary owed $0.5 million to the Company. 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 December 31, 2021, there was $0.1 million receivable from 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 nine months ended September 30, 2022, $610.9 million of all investment commitments of the Company and the Adviser Subsidiary were assigned to or directly committed by the Adviser Funds. During the nine months ended September 30, 2022, fundings of $247.8 million were assigned to, directly originated, or funded by the Adviser Funds. The Company received $114.9 million from the Adviser Funds relating to the assigned investments during the nine months ended September 30, 2022. Additionally, on May 31, 2022, the Company sold $73.5 million of assets to the Adviser Funds and realized a $0.1 million gain.

During the nine months ended September 30, 2021, $204.5 million of all investment commitments of the Company and the Adviser Subsidiary were assigned to or directly committed by the Adviser Funds, respectively. During the nine months ended September 30, 2021, fundings of $139.6 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.

13. Subsequent Events

Dividend Distribution Declaration

On October 13, 2022, the Board declared a cash distribution of $0.36 per share to be paid on November 17, 2022 to stockholders of record as of November 10, 2022. In addition to the cash distribution, and as part of the declared supplemental cash distribution of $0.60 per share to be paid in four quarterly distributions of $0.15, the Board declared a supplemental cash distribution of $0.15 per share to be paid on November 17, 2022 to stockholders of record as of November 10, 2022. Including the $0.15 per share supplemental cash distributions paid to stockholders of record as of March 9, 2022, May 17, 2022, and August 9, 2022, the Board has declared the full $0.60 per share supplemental cash distribution declared on February 16, 2022.

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 occurrence and impact of macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war) on us and our portfolio companies;

•

the ability of our portfolio companies to achieve their objectives;

•

our expected financings and investments;

•

our regulatory structure and tax status;

•

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 22, 2022 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.

Overview

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. Our goal is to be the leading structured debt financing provider for venture capital-backed and institutional-backed companies in a variety of 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. Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology related companies at various stages of their development.

We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. 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. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent in foreign companies. 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, San Diego, CA, and London, United Kingdom.

We have elected to be treated for tax purposes as RIC under Subchapter M of the Code. As a RIC, we generally will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (i.e., net realized long-term capital gains in excess of net realized short-term capital losses) that we distribute (or are deemed to distribute) as dividends for U.S. federal income tax purposes to stockholders with respect to that taxable year. We will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed taxable income and capital 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 subject to certain requirements as defined for RICs. In order to qualify as a RIC requires that we must 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 have established Hercules Adviser LLC, a wholly owned registered investment adviser subsidiary. The Adviser Subsidiary provides investment advisory and related services to the Adviser Funds and External Parties. The Adviser Subsidiary is not consolidated for reporting purposes as noted in “Note 1  Description of Business”. In addition to the Adviser Subsidiary, we have established other wholly owned subsidiaries which are consolidated for reporting. However, certain of these subsidiaries are not consolidated for income tax purposes and may generate income tax expense or benefit, as well as tax assets and liabilities as a result of their ownership of certain portfolio investments.

Our primary business objectives are to increase our net income, net investment income, and NAV by investing in debt, typically with warrants or equity, of venture capital-backed and institutional-backed companies in a variety of technology-related industries at attractive current yields and the potential for equity appreciation and realized gains. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. 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 is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations. We invest primarily in private companies but also have investments in public companies.

We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. 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 invest in “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position. In addition to our debt investments, we regularly engage in discussions with third parties with respect to various potential transactions to explore all alternatives. Through such alternatives we may acquire an investment, a portfolio of investments, an entire company, or sell portions 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 which may include, depending on the transaction and without limitation, the approval of our Board, required regulatory or third-party consents, and/or 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 $2.8 billion and $2.4 billion as of September 30, 2022 and December 31, 2021, respectively. The fair value of our debt investment portfolio as of September 30, 2022 was approximately $2.7 billion, compared to a fair value of approximately $2.2 billion at December 31, 2021. The fair value of the equity portfolio as of September 30, 2022 was approximately $134.1 million, compared to a fair value of approximately $184.7 million as of December 31, 2021. The fair value of the warrant portfolio as of September 30, 2022 was approximately $27.2 million, compared to a fair value of approximately $38.4 million as of December 31, 2021.

Portfolio Activity

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. Not all debt commitments represent future cash requirements. 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. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements.

Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company. 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 and some portion may be assigned or allocated to or directly originated by the Adviser Funds prior to or after closing. 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, 2022, Hercules and the Adviser Funds directly committed or originated an aggregate total of $2,476.4 million of investment commitments. Of the aggregated total directly committed or originated by Hercules and the Adviser Funds, $610.9 million of investment commitments were directly committed or originated by the Adviser Funds. Of the aggregate total direct fundings or originations, $247.8 million of debt, equity, and warrant fundings during the period, were assigned to, directly funded or originated by the Adviser Funds.

During the nine months ended September 30, 2021, Hercules and the Adviser Funds directly committed or originated an aggregate total of $1,691.4 million of investment commitments. Of the aggregated total directly committed or originated by Hercules and the Adviser Funds, $204.5 million of investment commitments were directly committed or originated by the Adviser Funds. Of the aggregate total direct fundings or originations, $139.6 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, 2022 and September 30, 2021 was comprised of the following:


(in millions)	September 30, 2022			September 30, 2021
Gross Debt Commitments Originated by Hercules Capital and the Adviser Funds (1)
New portfolio company	$	2,083.5		$	1,258.1
Existing portfolio company		369.7			413.6
Sub-total	$	2,453.2		$	1,671.7
Less: Debt commitments assigned to or directly committed by the Adviser Funds (3)		(606.5	)		(202.5	)
Net Total Debt Commitments	$	1,846.7		$	1,469.2
Gross Debt Fundings by Hercules Capital and the Adviser Funds (2)
New portfolio company	$	758.4		$	786.2
Existing portfolio company		318.3			258.4
Sub-total	$	1,076.7		$	1,044.6
Less: Debt fundings assigned to or directly funded by the Adviser Funds (3)		(243.4	)		(137.6	)
Net Total Debt Fundings	$	833.3		$	907.0
Equity Investments and Investment Funds and Vehicles Fundings by Hercules Capital and the Adviser Funds
New portfolio company	$	5.0		$	15.3
Existing portfolio company		16.1			5.2
Sub-total	$	21.1		$	20.5
Less: Equity fundings assigned to or directly funded by the Adviser Funds (3)		(4.4	)		(2.0	)
Net Total Equity and Investments Funds and Vehicle Fundings	$	16.7		$	18.5
Unfunded Contractual Commitments (4)
Total	$	659.0		$	309.9
Non-Binding Term Sheets
New portfolio company	$	208.0		$	185.2
Existing portfolio company		2.1			63.0
Total	$	210.1		$	248.2

(1)

Includes restructured loans and renewals in addition to new commitments.

(2)

Funded amounts include borrowings 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 $203.2 million and $7.2 million, of unfunded commitments as of September 30, 2022, and 2021, respectively, 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, 2022, we received approximately $301.1 million in aggregate principal repayments. Approximately $58.7 million of the aggregate principal repayments related to scheduled principal payments and approximately $242.4 million represented early principal repayments from 18 portfolio companies. Further, $26.7 million of the early principal repayments was an early repayment due to merger and acquisition transaction of two portfolio companies. Additionally, we sold $73.5 million of assets and realized a $0.1 million gain on May 31, 2022.

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, 2022 and September 30, 2021 was as follows:


(in millions)	September 30, 2022			September 30, 2021
Beginning portfolio	$	2,434.5		$	2,354.1
New fundings and restructures		1,097.8			1,065.1
Fundings assigned to or directly funded by the Adviser Funds(1)		(247.8	)		(139.6	)
Warrants not related to current period fundings		1.5			0.7
Principal repayments received on investments		(58.7	)		(62.0	)
Early payoffs		(242.4	)		(678.3	)
Proceeds from sale of debt investments		(73.5	)		—
Proceeds from sale of equity investments		(16.7	)		(97.9	)
Accretion of loan discounts and paid-in-kind principal		40.2			32.7
Net acceleration of loan discounts and loan fees due to early payoff or restructure		(13.3	)		(14.0	)
New loan fees		(10.0	)		(12.2	)
Gain (loss) on investments due to sales or write offs		1.5			15.5
Net change in unrealized appreciation (depreciation)		(87.4	)		47.8
Ending portfolio	$	2,825.7		$	2,511.9

(1)

Funded amounts include $132.9 million and $31.9 million direct fundings of investments made by the Adviser Funds, for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Periodically, we may hold investments held in debt, warrant, or equity positions of portfolio companies that have filed a registration statement on Form S-1 with the SEC in contemplation of a potential initial public offering. 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, 2022 and December 31, 2021:


	September 30, 2022			December 31, 2021
Number of portfolio companies with debt outstanding		116			92
Percentage of debt bearing a floating rate		95.1	%		94.0	%
Percentage of debt bearing a fixed rate		4.9	%		6.0	%
Weighted average core yield (1)		12.4	%		11.4	%
Weighted average effective yield (2)		12.9	%		12.9	%
Prime rate at the end of the period		6.25	%		3.25	%

(1)

The core yield is a Non-GAAP financial measure. The core yield on our debt investments excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, other one-time events, and includes income from expired commitments. Please refer to the "Portfolio Yield" section below for further discussion of this measure.

(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, which is primarily comprised of 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, 2022, our debt investments generally have a term of between two and five years and typically bear interest at a rate ranging from approximately 6.0% to approximately 13.8%. 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 are generally 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 $53.6 million of unamortized fees as of September 30, 2022, of which approximately $42.1 million was included as an offset to the cost basis of our current debt investments and approximately $11.5 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2021, we had approximately $42.9 million of unamortized fees, of which approximately $36.5 million was included as an offset to the cost basis of our current debt investments and approximately $6.4 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, 2022, we had approximately $36.5 million in exit fees receivable, of which approximately $32.0 million was included as a component of the cost basis of our current debt investments and approximately $4.5 million was a deferred receivable related to expired commitments. As of December 31, 2021, we had approximately $35.0 million in exit fees receivable, of which approximately $29.6 million was included as a component of the cost basis of our current debt investments and approximately $5.4 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 status as a RIC, the non-cash PIK 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 $4.9 million and $2.9 million in PIK income during the three months ended September 30, 2022 and 2021, respectively. We recorded approximately $14.9 million and $8.1 million in PIK income during the nine months ended September 30, 2022 and 2021, respectively.

Portfolio Yield

We report our financial results on a GAAP basis. We monitor the performance of our total investment portfolio and total debt portfolio using both GAAP and Non-GAAP financial measures. In particular, we evaluate performance through monitoring the portfolio yields as we consider them to be effective indicators, for both management and stockholders, of the financial performance of our total investment portfolio and total debt portfolio. The key metrics that we monitor with respect to yields are as described below:

•

“Total Yield” - The total yield is derived by dividing GAAP basis 'Total investment income' by the weighted average GAAP basis value of investment portfolio assets outstanding during the year, including non-interest earning assets such as warrants and equity investments at amortized cost.

•

“Effective Yield” on total debt investments - The effective yield is derived by dividing GAAP basis 'Total investment income' by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year.

•

“Core Yield” on total debt investments – The core yield is a Non-GAAP financial measure. The core yield is derived by dividing “Core investment income” by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year. “Core investment income” adjusts GAAP basis 'Total investment income' to exclude fee and other income accelerations attributed to early payoffs, deal restructuring, loan modifications, and other one-time income events, but includes income from expired commitments.


	Three months ended
	September 30, 2022			September 30, 2021
Total Yield		12.0	%		11.8	%
Effective Yield		12.9	%		12.7	%
Core Yield (Non-GAAP)		12.4	%		11.4	%

We believe that these measures are useful for our stockholders as it provides the yield of our portfolio to allow a more meaningful comparison with our competitors. As noted above, Core Yield, a Non-GAAP financial measure, is derived by dividing Core investment income, as defined above, by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding. The reconciliation to calculate “Core investment income” from GAAP basis 'Total investment income' are as follows:


(in thousands)	Three months ended
	September 30, 2022			September 30, 2021
GAAP Basis:
Total investment income	$	84,229		$	70,193
Less: fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events, but including income from expired commitments		(3,140	)		(7,212	)
Non-GAAP Basis:
Core investment income	$	81,089		$	62,981

We believe the Core Yield is useful for our investors as it provides the yield at which our debt investments are originated and eliminates one-off items that can fluctuate significantly from period to period, thereby allowing for a more meaningful comparison over time. Although the Core Yield, a Non-GAAP financial measure, is intended to enhance our stockholders’ understanding of our performance, the Core Yield should not be considered in isolation from or as an alternative to the GAAP financial metrics presented. The aforementioned Non-GAAP financial measure may not be comparable to similar Non-GAAP financial measures used by other companies.

Another financial measure that we monitor is the total return for our investors, was approximately (24.3)% and 23.1% during the nine months ended September 30, 2022 and 2021, 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 may 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, 2022 and December 31, 2021:


	September 30, 2022					December 31, 2021
(in thousands)	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
Drug Discovery & Development	$	1,091,827		38.6	%	$	967,383		39.7	%
Software		680,216		24.1	%		585,622		24.1	%
Internet Consumer & Business Services		489,968		17.3	%		395,506		16.3	%
All other industries (1)		563,727		20.0	%		486,011		19.9	%
Total	$	2,825,738		100.0	%	$	2,434,522		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, 2022, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, "Healthcare Services, Other", 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, 2022 and the year ended December 31, 2021, our ten largest portfolio companies represented approximately 30.1% and 30.5% of the total fair value of our investments in portfolio companies, respectively. As of September 30, 2022 and December 31, 2021, we had eight and six investments that represented 5% or more of our net assets, respectively. As of September 30, 2022, we had three equity investments representing approximately 36.6% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. As of December 31, 2021, we had six equity investments which represented approximately 49.6% 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, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, approximately 95.1% and 94.0% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, LIBOR, SOFR, Eurodollar, or BSBY-based interest rate floor, respectively. Changes in interest rates, including Prime, LIBOR, SOFR, BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Our investments in structured debt 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, 2022, we held warrants in 107 portfolio companies, with a fair value of approximately $27.2 million. The fair value of our warrant portfolio decreased by approximately $11.2 million, as compared to a fair value of $38.4 million as of December 31, 2021, primarily related to the decrease in fair value of the portfolio companies.

Our existing warrant holdings would require us to invest approximately $71.5 million to exercise such warrants as of September 30, 2022. 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, 2022 and December 31, 2021, respectively:


(in thousands)	September 30, 2022						December 31, 2021
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	15	$	412,141		15.5	%	15	$	408,975		18.5	%
2	53		1,380,414		51.9	%	47		1,208,323		54.7	%
3	44		827,379		31.1	%	28		581,424		26.3	%
4	4		41,465		1.5	%	1		8,269		0.4	%
5	0		—		0.0	%	1		2,608		0.1	%
	116	$	2,661,399		100.0	%	92	$	2,209,599		100.0	%

As of September 30, 2022, our debt investments had a weighted average investment grading of 2.20 on a cost basis, as compared to 2.10 as of December 31, 2021. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact the current macroeconomic environment.

As the recent macro-economic events continue to cause disruption in the capital markets and to businesses, 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 these events. This includes increasing our proactive assessments of credit performance, in an effort to 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, 2022 and December 31, 2021:


(in millions)	As of September 30,					As of December 31,
	2022					2021
	Amortized Cost		Percentage of Total Portfolio at Amortized Cost			Amortized Cost		Percentage of Total Portfolio at Amortized Cost
Performing	$	2,856		99.5	%	$	2,367		99.0	%
Non-accrual		13		0.5	%		24		1.0	%
Total Investments	$	2,869		100.0	%	$	2,391		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.

Macroeconomic Market Developments

Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more resilient to economic cycles. However, the U.S and global capital markets continue to evolve as a result of the increasing market volatility caused by the ongoing COVID-19 pandemic, recent geopolitical events, and the related supply chain and inflation issues. We are continuing to closely monitor the impact of these macro market developments on all aspects of our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and financial markets. As a result, pressure on liquidity and financial results to certain of our portfolio companies have persisted, and our 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 ongoing macroeconomic market events will continue to affect the financial condition and liquidity of our portfolio companies’ results of operations are highly uncertain and cannot be predicted.

Equally the extent of the impact of the COVID-19 pandemic, geopolitical events, and related supply chain and inflation issues have 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 these matters. Inflation has not historically had a significant effect on our results of operations in any of the reporting periods presented herein. However, the impact that these macroeconomic events have on our portfolio companies could have a negative impact on the fair value of our investments in these portfolio companies. Further, an extended period of global supply chain and economic disruption, including inflation, could materially affect our business, results of operations, access to sources of liquidity and financial condition. Given the fluidity of these market events, neither our management nor our Board is able to predict the full impact of the current macroeconomic events on our business, future results of operations, financial position, or cash flows at this time.

Results of Operations

Refer below for a discussion of our operating results for three and nine months ended September 30, 2022 as compared to the same periods for 2021.

Investment Income

Total investment income for the three and nine months ended September 30, 2022 was approximately $84.2 million and $221.5 million, respectively as compared to approximately $70.2 million and $208.5 million, respectively for the three and nine months ended

September 30, 2021. Investment income is primarily composed of interest income earned on our debt investments and fee income from commitments, facilities, and other loan related fees.

Interest Income

The following table summarizes the components of interest income for the three and nine months ended September 30, 2022 and 2021:


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Contractual interest income	$	66,451	$	50,597	$	172,057	$	150,901
Exit fee interest income		8,696		9,029		22,077		26,599
PIK interest income		4,944		2,893		14,888		8,105
Other interest income (1)		1,317		793		3,369		2,795
Total interest income	$	81,408	$	63,312	$	212,391	$	188,400

(1)

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

Interest income for the three months ended September 30, 2022 totaled approximately $81.4 million as compared to approximately $63.3 million for the three months ended September 30, 2021. Interest income for the nine months ended September 30, 2022 totaled approximately $212.4 million as compared to approximately $188.4 million for the nine months ended September 30, 2021. The increase in interest income for the three and nine months ended September 30, 2022 as compared to the same periods ended September 30, 2021, was attributable to a higher weighted average principal outstanding and increase in core yield due to the increase in benchmark rates during the three and nine months ended September 30, 2022.

Interest income is comprised of recurring interest income from the contractual servicing of loans and non-recurring interest income that is related to the acceleration of income due to early loan repayments and other one-time events during the period. The following table summarizes recurring and non-recurring interest income for the three and nine months ended September 30, 2022 and 2021:


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Recurring interest income	$	78,984	$	60,116	$	208,479	$	178,283
Non-recurring interest income		2,424		3,196		3,912		10,117
Total interest income	$	81,408	$	63,312	$	212,391	$	188,400

The following table shows the PIK-related activity for the nine months ended September 30, 2022 and 2021, at cost:


(in thousands)	Nine Months Ended September 30,
	2022			2021
Beginning PIK interest receivable balance	$	11,801		$	14,817
PIK interest income during the period		14,888			8,105
Payments received from PIK loans		(4,482	)		(5,692	)
Realized gain (loss)		(367	)		(180	)
Ending PIK interest receivable balance	$	21,840		$	17,050

The increase in PIK interest income during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is primarily due to an increase in the weighted average principal outstanding of loans which earn PIK interest. Payments on PIK loans are normally received only in the event of payoffs. As of both September 30, 2022 and December 31, 2021 PIK receivable represented 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, 2022 totaled approximately $2.8 million and $9.1 million, respectively, as compared to approximately $6.9 million and $20.1 million, for the three and nine months ended September 30, 2021, respectively. The decrease in fee income for the three and nine months ended September 30, 2022 is primarily due to a decrease in the acceleration of unamortized fees, and one-time fees as a result of a lower volume of early repayments on our loan portfolio.

Fee income is comprised or recurring fee income from commitment, facility, and loan related fees, acceleration of fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three and nine months ended September 30, 2022 and 2021:


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Recurring fee income	$	2,076	$	1,903	$	5,762	$	5,625
Accelerated fee income - expired commitments		29		960		550		2,372
Accelerated fee income - early repayments		716		4,018		2,798		12,114
Total fee income	$	2,821	$	6,881	$	9,110	$	20,111

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, 2022 or 2021.

Operating Expenses

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, and employee compensation and benefits. During the three and nine months ended September 30, 2022 and 2021, our net operating expenses totaled approximately $34.2 million and $32.1 million, respectively for the three month periods, and approximately $95.6 million and $98.9 million, respectively for the nine month periods.

Interest and Fees on our Debt

Interest and fees on our debt totaled approximately $16.7 million and $14.7 million for the three months ended September 30, 2022 and 2021, respectively. Our higher weighted average borrowings offset the lower weighted average borrowing costs during the three months ended September 30, 2022, resulting in higher interest and fee expenses as compared to the three months ended September 30, 2021. Interest and fees on our debt totaled approximately $44.4 million and $49.0 million for the nine months ended September 30, 2022 and 2021, respectively. The decline of interest and fee expenses during the nine months ended September 30, 2022, was a result of our lower weighted average borrowing costs as compared to the nine months ended September 30, 2021.

We had a weighted average cost of debt of approximately 4.4% and 4.9% for the three months ended September 30, 2022 and 2021, respectively and 4.1% and 5.1%, for the nine months ended September 30, 2022, and 2021, respectively. The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt. The decrease in the weighted average cost of debt during 2022 as compared to 2021, was attributable to our debt refinancing activities completed over the past two years.

General and Administrative Expenses and Tax Expenses

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses increased to $4.4 million from $4.1 million for the three months ended September 30, 2022 and 2021, respectively and increased to $12.5 million from $11.7 million for the nine months ended September 30, 2022. The increase in general and administrative expenses for the three and nine months ended September 30, 2022 is primarily attributable to an increase in information technology related expenses. Tax expenses primarily relate to excise tax accruals. Tax expenses were $1.6 million and $2.4 million during the three months ended September 30, 2022 and 2021, respectively and $4.1 million and $5.6 million for nine months ended September 30, 2022 and 2021, respectively.

Employee Compensation

Employee compensation and benefits totaled approximately $11.0 million and $30.4 million, for the three and nine months ended September 30, 2022 as compared to approximately $8.9 million and $27.1 million respectively, for the three and nine months ended September 30, 2021. The increase between the three and nine months ended September 30, 2022 and 2021 was primarily due to an increase in variable compensation.

Employee stock-based compensation totaled approximately $2.5 million and $10.6 million, for the three and nine months ended September 30, 2022 as compared to approximately $3.3 million and $9.0 million, respectively for the three and nine months ended September 30, 2021. The decrease between the three month comparative periods was primarily attributable to the Performance Awards, which fully vested as of the quarter ended June 30, 2022. The increase between the nine month comparative periods 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 (the “Sharing Agreement”), pursuant to which the Adviser Subsidiary utilizes our human capital resources, including deal professional, finance, and administrative functions, as well as other resources including infrastructure assets such as 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 months ended September 30, 2022 and 2021, are net of expenses allocated to the Adviser Subsidiary of $1.9 million and $1.3 million, respectively and $6.3 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in expenses allocated to the Adviser Subsidiary is a result of higher average assets under management and higher allocations to the Adviser Funds. As of September 30, 2022, $0.5 million was receivable from the Adviser Subsidiary related to investment allocation transactions during the period. As of December 31, 2021, $0.1 million was due from the Adviser Subsidiary.

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 for the three and nine months ended September 30, 2022 and 2021 is as follows:


(in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Realized gains	$	6,050		$	24,999		$	12,264		$	82,364
Realized losses		(3,091	)		(2,186	)		(10,079	)		(66,063	)
Realized foreign exchange gains (losses)		2,330			—			2,276			—
Realized loss on debt extinguishment		—			(1,702	)		(3,686	)		(1,702	)
Net realized gains (losses)	$	5,289		$	21,111		$	775		$	14,599

During the three and nine months ended September 30, 2022, we recognized net realized gains of $5.3 million and $0.8 million. The net realized gain was comprised of gross realized gains of $6.1 million and $12.3 million primarily from the sale of our equity position in Black Crow AI, Inc and Peerless Network Holdings, Inc. Our gains were offset by gross realized losses of $3.1 million and $10.1 million primarily from the write-off of our investments in Regent Education, Medrobotics Corporation, Genocea Biosciences, Inc, Kaleido Biosciences, Inc., and Pineapple Energy LLC during the period. During the three months ended September 30, 2022, we repaid £19.4 million of principal borrowings under our SMBC Facility and realized a $2.3 million foreign exchange gain. In addition, as part of the retirement of the 2022 Notes in Q1 2022, we incurred a $3.7 million loss on debt extinguishment. The realized loss on debt extinguishment was related to fees, accrued interest, and the acceleration of debt issuance costs amortization, and is included as a realized loss within the “Loss on debt extinguishment” on the Consolidated Statement of Operations.

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. 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.

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 Valuation Committee and approved by the Board. The following table summarizes the movements in net change in unrealized appreciation or depreciation for the three and nine months ended September 30, 2022 and 2021:



	For the three months ended September 30						Nine Months Ended September 30,
(in thousands)	2022			2021			2022			2021
Gross unrealized appreciation	$	30,010		$	27,946		$	68,824		$	142,016
Gross unrealized depreciation		(27,483	)		(35,827	)		(154,939	)		(88,866	)
Reversal of prior period net unrealized appreciation (depreciation) upon a realization event		373			(27,770	)		4,267			(5,404	)
Net unrealized appreciation (depreciation) on debt, equity, warrant and fund investments		2,900			(35,651	)		(81,848	)		47,746
Other net unrealized appreciation (depreciation)		(4,989	)		—			(5,299	)		(1,515	)
Total net unrealized appreciation (depreciation)	$	(2,089	)	$	(35,651	)	$	(87,147	)	$	46,231

During the three months ended September 30, 2022 and 2021, we recorded approximately $2.1 million and $35.6 million of net unrealized depreciation on our investments, respectively. During the nine months ended September 30, 2022, and 2021, we recorded approximately $87.1 million of net unrealized depreciation and $46.2 million of net unrealized appreciation on our investments, respectively. The following table summarizes the key drivers of change in net unrealized appreciation (depreciation) of investments for the three months ended September 30, 2022 and 2021:


	For the three months ended September 30																		For the Nine Months Ended September 30,
	2022									2021									2022									2021
(in thousands)	Debt			Equity, Warrants and Investment Funds			Total			Debt			Equity, Warrants and Investment Funds			Total			Debt			Equity, Warrants and Investment Funds			Total			Debt		Equity, Warrants and Investment Funds			Total
Valuation appreciation (depreciation)	$	3,690		$	(1,163	)	$	2,527		$	450		$	(8,331	)	$	(7,881	)	$	(11,817	)	$	(74,298	)	$	(86,115	)	$	2,864	$	50,286		$	53,150
Reversal of prior period net unrealized appreciation (depreciation) upon a realization event		3,558			(3,185	)		373			(4,109	)		(23,661	)		(27,770	)		3,394			873		$	4,267			3,007		(8,411	)		(5,404	)
Other net unrealized appreciation (depreciation)		(4,418	)		(571	)		(4,989	)		—			—			—			(4,383	)		(916	)		(5,299	)		—		(1,515	)		(1,515	)
Net realized appreciation (depreciation)	$	2,830		$	(4,919	)	$	(2,089	)	$	(3,659	)	$	(31,992	)	$	(35,651	)	$	(12,806	)	$	(74,341	)	$	(87,147	)	$	5,871	$	40,360		$	46,231

Income and Excise Taxes

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. 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 months ended September 30, 2022 and 2021, we had net increases in net assets of approximately $53.2 million and $23.5 million resulting from operations, respectively. For the nine months ended September 30, 2022 and 2021, our net increase in net assets were approximately $39.6 million and $170.4 million resulting from operations, respectively. For the three and nine months ended September 30, 2022, the basic net increase in net assets per common share was $0.41 and $0.31 per share, and for the three and nine months ended September 30, 2021 was $0.20 and $1.47 per share. On a fully diluted basis, the net increase in net assets per common share was $0.41 and $0.30 per share and $0.20 and $1.46 per share, for the same periods each respectively.

Hercules Adviser LLC

The Adviser Subsidiary has entered into investment management agreements (the “IMAs”) with the Adviser Funds. Pursuant to the IMAs, the Adviser Subsidiary provides investment advisory and management services to the Adviser Funds in exchange for an asset-based fee and certain incentive fees. The Adviser Funds are privately offered investment funds exempt from registration under the 1940 Act that invest in debt and equity investments in venture or institutionally backed technology related and life sciences companies.

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 and interest income earned on loans to the Adviser Subsidiary. For the three and nine months ended September 30, 2022 and 2021, no dividends were declared by the Adviser Subsidiary.

Financial Condition, Liquidity, Capital Resources and Obligations

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, At-the-Market (“ATM”), and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiary. 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, 2022, 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, (iii) debt offerings along with borrowings on our credit facilities, and (iv) equity offerings.

During the nine months ended September 30, 2022, our operating activities used $359.9 million of cash and cash equivalents, compared to $28.7 million provided during the nine months ended September 30, 2021. The $388.6 million increase in cash used in operating activities was primarily due to a $360.2 million decrease in principal, fee repayments, and proceeds received from the sale of debt investments, $84.3 million fewer proceeds received from the sale of equity investments, which was offset by a decrease of $75.4 million in net purchases of investments due to increased assignments to the Adviser Funds.

During the nine months ended September 30, 2022, our investing activities used approximately $86 thousand of cash, compared to $12 thousand used during the nine months ended September 30, 2021. The $74 thousand increase in cash used in investing activities was due to an increase in purchases of capital equipment.

During the nine months ended September 30, 2022, our financing activities provided $289.1 million of cash, compared to $16.9 million used in financing activities during the nine months ended September 30, 2021. The $306.0 million increase of cash flows from financing activities was primarily due to $1,169.2 million of new debt issuances related to the issuance of our January 2027 Notes, June 2025 3-Year Notes, 2031 Asset-Backed Notes, SBA Debenture borrowings, and increased utilization of our Credit Facilities during the nine months ended September 30, 2022. The debt issuances were used in our operating activities and to repay the $230.0 million of 2022 Convertible Notes and $150.0 million to retire the 2022 Notes. Additionally, we issued $190.0 million of ATM equity (net of offering costs) during the nine months ended September 30, 2022. We did not issue any common stock issued during the nine months ended September 30, 2021. These amounts offset the $48.8 million increase in dividend distributions, which totaled $178.9 million during the nine months ended September 30, 2022, compared to $130.1 million during the nine months ended September 30, 2021.

As of September 30, 2022, our net assets totaled $1.4 billion, with a NAV per share of $10.47. 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.

Available liquidity and capital resources as of September 30, 2022

As of September 30, 2022, we had $700.1 million in available liquidity, including $57.1 million in cash and cash equivalents. We had available borrowing capacity of $200.0 million under the SMBC Facility and $443.0 million under the MUFG Bank Facility. In addition, the MUFG Bank Facility has accordion provision through which the available borrowing capacity can be increased by $55.0 million, subject to certain conditions.

The 1940 Act 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, 2022, our asset coverage ratio under our regulatory requirements as a BDC was 199.4% 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 188.1% as of September 30, 2022.

As of September 30, 2022, we had $127.0 million outstanding under our Credit Facilities, which are floating interest rate obligations. As of September 30, 2022, the remaining $1,415.0 million of debt outstanding are all fixed interest rate debt obligations.

During the nine months ended September 30, 2022, we issued $350 million in aggregate principal amount of January 2027 Notes, which generated net proceeds of approximately $343.4 million. The net proceeds from the January 2027 Notes generated was primarily used to repay the 2022 Convertible Notes and to retire the 2022 Notes. In addition, we issued $150 million and $50 million in aggregate principal which generated net proceeds of approximately $147.7 million and $49.5 million related to the 2031 Asset-Backed Notes and June 2025 3-Year Notes, respectively. We also borrowed the remaining $24.5 million of capital available through our SBIC, and raised $190.0 million through ATM equity offerings of common shares.

Lastly, as of September 30, 2022, $8.3 million of cash was classified as restricted cash. Our restricted cash relates to amounts that are held as collateral securing certain of the Company’s financing transactions, including collections of interest and principal payments on assets that are securitized related to the 2031 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. Refer to “Note 5 – Debt” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional discussion of our debt obligations.

As detailed 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

current macro-economic events, including the COVID-19 pandemic, war in Ukraine, and the related disruption to markets and business continues to impact the economy, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.

Equity Offerings

On May 9, 2022, we entered into an ATM equity distribution agreement (the “2022 Equity Distribution Agreement”) with JMP and Jeffries (the “Sales Agents”). The 2022 Equity Distribution Agreement provides that we may offer and sell up to 17.5 million shares of our common stock from time to time through the Sales Agents. 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. The 2022 Equity Distribution Agreement replaces the ATM equity distribution agreement between the Company and JMP executed on July 2, 2020 (the “2020 Equity Distribution Agreement”).

Commitments and Obligations

Our significant cash requirements generally relate to our debt obligations. As of September 30, 2022, we had $1,542.0 million of debt outstanding, which includes $377.0 million within 1 to 3 years, and $1,165.0 million beyond 3 years. In addition to our debt obligations, in the normal course of business, we are party to financial instruments with off-balance sheet risk. 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 milestones. Refer to “Note 11 – Commitments and Contingencies” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional discussion of our unfunded commitments.

As of September 30, 2022, we had approximately $659.0 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, as well as uncalled capital commitments to make investments in private equity funds. This excludes $203.2 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 borrowings and notes to fund these commitments.

As of September 30, 2022, we also had approximately $210.1 million of non-binding term sheets outstanding to three 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.

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, at the end of our taxable year, our Board may choose to pay additional special 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, 2021, 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 2022 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.

For a description of our critical accounting policies, refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report. We consider the most significant accounting policies to be those related to our Valuation of Investments, Fair Valuation Measurements, Income Recognition, and Income Taxes. The valuation of investments is our most significant critical estimate. The most significant input to this estimate is the yield interest rate, which includes the hypothetical market yield plus premium or discount adjustment, used in determining the fair value of our debt investments. The following table shows the approximate increase (decrease) to the fair value of our debt investments from hypothetical change to the yield interest rates used for each valuation, assuming no other changes:


(in thousands)	Change in unrealized
Basis Point Change	appreciation (depreciation)
(100)	$	37,153
(50)	$	19,429
50	$	(19,631	)
100	$	(39,185	)

For a further discussion and disclosure of key inputs and considerations related to this estimate, refer to “Note 3 – Fair Value of Financial Instruments” included in the notes to our consolidated financial statements appearing elsewhere in this report.

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 Prime, LIBOR, SOFR, Eurodollar, and BSBY rates, to the extent our debt investments include variable interest rates. As of September 30, 2022, approximately 95.1% of the loans in our portfolio had variable rates based on floating Prime, LIBOR, SOFR, Eurodollar, or BSBY rates with a floor. As of September 30, 2022, approximately 11.6% of our debt investments have variable rates based on LIBOR and 9.6% of our debt investments have variable rates based on SOFR, BSBY or Euordollar rates. Additionally, all of our LIBOR rate based debt securities have interest rate floors. We are actively considering and discussing the preferred alternative benchmark with our portfolio companies and prioritize the inclusion of LIBOR fallback language in our documentation. The Alternative Reference Rates Committee ("ARRC") has recommended for US based debt securities to use the SOFR rate as the alternative benchmark. Our debt borrowings under the Credit Facilities bear interest at a floating rate, all other outstanding debt borrowings 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, 2022, 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)	$	(18,645	)	$	(711	)	$	(17,934	)	$	(0.14	)
(50)	$	(12,413	)	$	(504	)	$	(11,909	)	$	(0.09	)
(25)	$	(6,207	)	$	(262	)	$	(5,945	)	$	(0.05	)
25	$	6,145		$	262		$	5,883		$	0.05
50	$	12,288		$	525		$	11,763		$	0.09
75	$	18,431		$	787		$	17,644		$	0.14
100	$	24,463		$	1,050		$	23,413		$	0.18
200	$	48,442		$	2,099		$	46,343		$	0.36

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, 2022, 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 our debt borrowings and use of our 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 our portfolio companies. 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 may 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 debt borrowings 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, 2021 filed with the SEC on February 22, 2022 (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, 2022 filed with the SEC on May 5, 2022.

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, 2022 that represent greater than 5% of our net assets:


(in thousands)	September 30, 2022
	Fair Value		Percentage of Net Assets
Corium, Inc.	$	135,828		10.0	%
Phathom Pharmaceuticals, Inc.	$	94,119		6.9	%
Worldremit Group Limited	$	92,698		6.8	%
SeatGeek, Inc.	$	87,812		6.4	%
Rocket Lab Global Services, LLC	$	87,283		6.4	%
Axsome Therapeutics, Inc.	$	85,438		6.3	%
Convoy, Inc.	$	73,674		5.4	%
uniQure B.V.	$	73,527		5.4	%

•

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

•

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

•

Worldremit Group Limited is a global online money transfer business.

•

SeatGeek, Inc. is a mobile-focused ticket platform that enables users to buy and sell tickets for live sports, concerts and theater events.

•

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

•

Axsome Therapeutics, Inc. is a biopharmaceutical company developing novel therapies for the management of central nervous system disorders for which there are limited treatment options.

•

Convoy, Inc. is a developer for on-demand shipment services.

•

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, 2022, we issued 184,197 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 $2.9 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
10.1*	Form of Dividend Reinvestment Plan, dated September 22, 2022
10.2*	Transfer Agency and Service Agreement, dated October 3, 2022, between Hercules Capital, Inc. and Computershare Trust Company, N.A. and Computershare Inc.
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.
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL

* Filed herewith.

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Nine Months Ended September 30, 2022 (unaudited)


(in thousands)	Investment (1)	Amount of Interest and Fees Credited to Income (2)		Realized Gain (Loss)			Fair Value as of December 31, 2021		Gross Additions (3)		Gross Reductions (4)			Net Change in Unrealized Appreciation/ (Depreciation)			Fair Value as of September 30, 2022
Portfolio Company
Control Investments
Majority Owned Control Investments
Coronado Aesthetics, LLC (10)	Preferred Stock	$	—	$	—		$	500	$	—	$	—		$	(109	)	$	391
	Common Stock		—		—			65		—		—			(56	)		9
Gibraltar Business Capital, LLC (5)	Unsecured Debt		2,581		—			23,212		60		—			(1,233	)		22,039
	Preferred Stock		—		—			19,393		—		—			(4,904	)		14,489
	Common Stock		—		—			1,225		—		—			(91	)		1,134
Hercules Adviser LLC (6)	Unsecured Debt		393		—			8,850		3,150		—			—			12,000
	Member Units		—		—			11,990		—		—			9,955			21,945
Total Majority Owned Control Investments		$	2,974	$	—		$	65,235	$	3,210	$	—		$	3,562		$	72,007
Other Control Investments
Tectura Corporation(7)	Senior Debt	$	516	$	—		$	8,269	$	—	$	—		$	49		$	8,318
	Preferred Stock		—		—			—		—		—			—			—
	Common Stock		—		—			—		—		—			—			—
Total Other Control Investments		$	516	$	—		$	8,269	$	—	$	—		$	49		$	8,318
Total Control Investments		$	3,490	$	—		$	73,504	$	3,210	$	—		$	3,611		$	80,325

Affiliate Investments
Black Crow AI, Inc. (8)	Preferred Stock	$	—	$	3,772		$	1,120	$	—	$	(1,000	)	$	(120	)	$	—
Pineapple Energy LLC (9)	Senior Debt		1,204		(2,014	)		7,747		—		(7,780	)		33			—
	Common Stock		—		—			591		—		(4,767	)		4,176			—
Total Affiliate Investments		$	1,204	$	1,758		$	9,458	$	—	$	(13,547	)	$	4,089		$	—
Total Control and Affiliate Investments		$	4,694	$	1,758		$	82,962	$	3,210	$	(13,547	)	$	7,700		$	80,325

(1)

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

(2)

Represents the total amount of interest, fees, 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 the Adviser Funds and other 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)

During the nine months ended September 30, 2022, the Company sold its investments in Black Crow AI, Inc., as a result it is no longer an affiliate investment.

(9)

During the three months ended September 30, 2022, the Company sold a portion of its investments in Pineapple Energy LLC, as a result it is no longer an affiliate investment..

(10)

As of December 31, 2021, the Company's investment in Coronado Aesthetics, LLC became classified as a control investment as a result of obtaining more than 25% of the voting securities of the portfolio company.

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)	Investment (1)	Amount of Interest and Fees Credited to Income (2)		Realized Gain (Loss)			Fair Value as of December 31, 2020		Gross Additions (3)		Gross Reductions (4)			Net Change in Unrealized Appreciation/ (Depreciation)			Fair Value as of September 30, 2021
Portfolio Company
Control Investments
Majority Owned Control Investments
Gibraltar Business Capital, LLC (5)	Unsecured Debt	$	2,363	$	—		$	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		$	2,422	$	—		$	48,800	$	15,762	$	—		$	(7,021	)	$	57,541
Other Control Investments
Tectura Corporation (7)	Senior Debt	$	521	$	—		$	8,600	$	—	$	—		$	(306	)	$	8,294
	Preferred Stock		—		—			—		—		—			—			—
	Common Stock		—		—			—		—		—			—			—
Total Other Control Investments		$	521	$	—		$	8,600	$	—	$	—		$	(306	)	$	8,294
Total Control Investments		$	2,943	$	—		$	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		$	2,946	$	(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, fees, 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)

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, 2022 (unaudited)


(in thousands)	Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor	Principal or Shares		Cost		Value (2)
Portfolio Company
Control Investments
Majority Owned Control Investments
Coronado Aesthetics, LLC	Medical Devices & Equipment	Preferred Series A Equity				5,000,000	$	250	$	391
	Medical Devices & Equipment	Common Stock				180,000		—		9
Total Coronado Aesthetics, LLC							$	250	$	400
Gibraltar Business Capital, LLC	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 14.50%	$	15,000	$	14,701	$	13,033
	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 11.50%	$	10,000		9,844		9,006
	Diversified Financial Services	Preferred Series A Equity				10,602,752		26,122		14,489
	Diversified Financial Services	Common Stock				830,000		1,884		1,134
Total Gibraltar Business Capital, LLC							$	52,551	$	37,662
Hercules Adviser LLC		Unsecured Debt	June 2025	Interest rate FIXED 5.00%	$	12,000	$	12,000	$	12,000
		Member Units				1		35		21,945
Total Hercules Adviser LLC							$	12,035	$	33,945
Total Majority Owned Control Investments (5.28%)*							$	64,836	$	72,007
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		68
	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	$	8,318
Total Other Control Investments (0.61%)*							$	22,413	$	8,318
Total Control Investments (5.89%)*							$	87,249	$	80,325

Total Control and Affiliate Investments (5.89%)*							$	87,249	$	80,325

* 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.

(10)

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended December 31, 2021


(in thousands)	Industry	Type of Investment (1)	Maturity Date	Interest Rate and Floor	Principal or Shares		Cost		Value (2)
Portfolio Company
Control Investments
Majority Owned Control Investments
Coronado Aesthetics, LLC	Medical Devices & Equipment	Preferred Series A Equity				5,000,000	$	250	$	500
	Medical Devices & Equipment	Common Stock				180,000		—		65
Total Coronado Aesthetics, LLC							$	250	$	565
Gibraltar Business Capital, LLC	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 14.50%	$	15,000	$	14,662	$	13,818
	Diversified Financial Services	Unsecured Debt	September 2026	Interest rate FIXED 11.50%	$	10,000		9,823		9,394
	Diversified Financial Services	Preferred Series A Equity				10,602,752		26,122		19,393
	Diversified Financial Services	Common Stock				830,000		1,884		1,225
Total Gibraltar Business Capital, LLC							$	52,491	$	43,830
Hercules Adviser LLC	Diversified Financial Services	Unsecured Debt	May 2023	Interest rate FIXED 5.00%	$	8,850	$	8,850	$	8,850
	Diversified Financial Services	Member Units				1		35		11,990
Total Hercules Adviser LLC							$	8,885	$	20,840
Total Majority Owned Control Investments (4.99%)*							$	61,626	$	65,235
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		19
	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	$	8,269
Total Other Control Investments (0.63%)*							$	22,413	$	8,269
Total Control Investments (5.62%)*							$	84,039	$	73,504
Affiliate Investments
Black Crow AI, Inc.	Internet Consumer & Business Services	Preferred Series Seed				872,797	$	1,000	$	1,120
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%	$	280		280		247
	Sustainable and Renewable Technology	Common Stock				3,000,000		4,767		591
Total Pineapple Energy LLC							$	12,547	$	8,338
Total Affiliate Investments (0.72%)*							$	13,547	$	9,458
Total Control and Affiliate Investments (6.34%)*							$	97,586	$	82,962

* 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: November 2, 2022		/S/ SCOTT BLUESTEIN
		Scott Bluestein
		President, Chief Executive Officer, and Chief Investment Officer

Dated: November 2, 2022		/S/ SETH H. MEYER
		Seth H. Meyer
		Chief Financial Officer, and Chief Accounting Officer