Hercules Capital

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Section 1: 10-K (FORM 10-K)

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 

FORM 10-K 

(Mark One) 
☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 31, 2016

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from        to  

OR 

Commission File No. 814-00702 

Hercules Capital, Inc.

(Exact name of Registrant as specified in its charter) 

Maryland
(State or other jurisdiction of
incorporation or organization)

74-3113410
(I.R.S. Employer
Identification Number)

400 Hamilton Avenue, Suite 310
Palo Alto, California 94301
(Address of principal executive offices)

(650) 289-3060

(Registrant’s telephone number, including area code) 

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

Title of each class
Common Shares, par value $0.001 per share 
7.00% Notes due 2019
7.00% Notes due 2019
6.25% Notes due 2024

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☐ No  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.     Yes  ☐ No  ☒
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 period 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant 

to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐ No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in 

definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer, large accelerated filer” and “smaller 

reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒

Accelerated filer  ☐

Non-accelerated filer  ☐

Smaller reporting company  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐ No   ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal 

quarter was approximately $888.3 million based upon a closing price of $12.42 reported for such date on the New York Stock Exchange. Common shares held by each executive officer and director and 
by each person who owns 5% or more of the outstanding common shares have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not intended and 
shall not be deemed to be an admission that, such persons are affiliates of the Registrant.

On February 17, 2017, there were 82,791,403 shares outstanding of the registrant’s common stock, $0.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Documents incorporated by reference: Portions of the registrant’s Proxy Statement for its 2017 Annual Meeting of Shareholders to be filed within 120 days after the close of the registrant’s 

year end are incorporated by reference into Part III of this Annual Report on Form 10-K.

Business
Risk Factors
Unresolved SEC Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

HERCULES CAPITAL, INC.
FORM 10-K 
ANNUAL REPORT

Part I.

Part II.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services

Part III.

Part IV.

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Item 15.
Item 16.
Signatures

Exhibits and Financial Statement Schedules
Form 10-K Summary

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Hercules Capital, Inc., our logo and other trademarks of Hercules Capital, Inc. are the property of Hercules Capital, Inc. All other trademarks or trade names referred to in this 

Annual Report on Form 10-K are the property of their respective owners. 

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In this Annual Report on Form 10-K, or Annual Report, the “Company,” “Hercules,” “HTGC,” “we,” “us” and “our” refer to Hercules Capital, Inc. and its wholly owned 
subsidiaries and its affiliated securitization trusts on or after February 25, 2016 and “Hercules Technology Growth Capital, Inc.” and its wholly owned subsidiaries and its affiliated 
securitization trusts prior to February 25, 2016 unless the context otherwise requires. 

Item 1.

Business 

PART I 

GENERAL 

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life 

sciences and sustainable and renewable technology industries. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional 
offices in Boston, MA, New York, NY, Washington, DC, Santa Monica, CA, Hartford, CT and San Diego, CA.

Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticated and customized 
financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery and development, biotechnology, life 
sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We focus our investments in companies active in the technology 
industry sub-sectors characterized by products or services that require advanced technologies, including, but not limited to, computer software and hardware, networking systems, 
semiconductors, semiconductor capital equipment, information technology infrastructure or services, internet consumer and business services, telecommunications, 
telecommunications equipment, renewable or alternative energy, media and life sciences. Within the life sciences sub-sector, we generally focus on medical devices, bio-
pharmaceutical, drug discovery, drug delivery, health care services and information systems companies. Within the sustainable and renewable technology sub-sector, we focus on 
sustainable and renewable energy technologies and energy efficiency and monitoring technologies. We refer to all of these companies as “technology-related” companies and intend, 
under normal circumstances, to invest at least 80% of the value of our total assets in such businesses.

We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companies but also have 

investments in public companies. We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with 
an equity component, including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are secured by some 
or all of the assets of the portfolio company. 

Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and 
equity-related investments. Our primary business objectives are to increase our net income, net operating income and net asset value (“NAV”) by investing in structured debt with 
warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. Our 
equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the Investment Company Act of 1940, as 
amended, or the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio companies in connection with future equity financing rounds. 
Capital that we provide directly to venture capital-backed companies in technology-related industries is generally used for growth and general working capital purposes as well as in 
select cases for acquisitions or recapitalizations. 

We also make investments in qualifying small businesses through our two wholly-owned small business investment companies, or SBICs. Our SBIC subsidiaries, Hercules 

Technology II, L.P., or HT II, and Hercules Technology III, L.P., or HT III, hold approximately $100.0 million and $261.8 million in assets, respectively, and accounted for 
approximately 5.3% and 13.9% of our total assets, respectively, prior to consolidation at December 31, 2016. As of December 31, 2016, the maximum statutory limit on the dollar 
amount of combined outstanding Small Business Administration, or SBA, guaranteed debentures is $350.0 million, subject to periodic adjustments by the SBA. At December 31, 
2016, we have issued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries. See “— Regulation—Small Business Administration Regulations” for additional 
information regarding our SBIC subsidiaries. 

3

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

CORPORATE HISTORY AND OFFICES 

We are a Maryland corporation formed in December 2003 that began investment operations in September 2004. On February 25, 2016, we changed our name from “Hercules 

Technology Growth Capital, Inc.” to “Hercules Capital, Inc.” We are an internally managed, non-diversified closed-end investment company that has elected to be regulated as a 
business development company under the 1940 Act. As a business development company, 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,” including securities of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality 
debt investments that mature in one year or less. A business development company also must meet a coverage ratio of total net assets to total senior securities, which include all of our 
borrowings (including accrued interest payable) except for debentures issued by the SBA and any preferred stock we may issue in the future, of at least 200% subsequent to each 
borrowing or issuance of senior securities. See “Regulation.”

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. Consistent with regulatory requirements, we invest primarily in United States based companies and, to a lesser extent, in foreign companies. 

Effective January 1, 2006, we elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended, or the 
Code. Pursuant to this election, we generally will not have to pay corporate-level taxes on any income that we distribute to our stockholders. However, our qualification and election to
be treated as a RIC requires that we comply with provisions contained in the Code. For example, as a RIC we must receive 90% or more of our income from qualified earnings, 
typically referred to as “good income,” as well as satisfy asset diversification and income distribution requirements. As an investment company, we follow accounting and reporting 
guidance as set forth in Topic 946, Financial Services – Investment Companies, of the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards Codification, as 
amended (“ASC”).

Our principal executive offices are located at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, and our telephone number is (650) 289-3060. We also have 

offices in Boston, MA, New York, NY, Washington, DC, Santa Monica, CA, Hartford, CT and San Diego, CA. We maintain a website on the Internet at www.htgc.com. We make 
available, free of charge, on our website our proxy statement, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those 
reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. Information contained on 
our website is not incorporated by reference into this Annual Report, and you should not consider that information to be part of this Annual Report. 

We file annual, quarterly and current periodic reports, proxy statements and other information with the SEC, under the Securities Exchange Act of 1934, as amended, or the 

Exchange Act. This information is available at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the 
SEC’s public reference room by calling the SEC at (202) 551-8090. In addition, the SEC maintains an Internet website, at www.sec.gov, that contains reports, proxy and information 
statements, and other information regarding issuers, including us, who file documents electronically with the SEC. 

4

OUR MARKET OPPORTUNITY

We believe that technology-related companies compete in one of the largest and most rapidly growing sectors of the U.S. economy and that continued growth is supported by 

ongoing innovation and performance improvements in technology products as well as the adoption of technology across virtually all industries in response to competitive pressures. 
We believe that an attractive market opportunity exists for a specialty finance company focused primarily on investments in structured debt with warrants in technology- related 
companies for the following reasons:

•

•

•

technology-related companies have generally been underserved by traditional lending sources; 

unfulfilled demand exists for structured debt financing to technology-related companies due to the complexity of evaluating risk in these investments; and

structured debt with warrants products are less dilutive and complement equity financing from venture capital and private equity funds.

Technology-Related Companies are Underserved by Traditional Lenders. We believe many viable technology-related companies backed by financial sponsors have been 

unable to obtain sufficient growth financing from traditional lenders, including financial services companies such as commercial banks and finance companies because traditional 
lenders have continued to consolidate and have adopted a more risk-averse approach to lending. More importantly, we believe traditional lenders are typically unable to underwrite the 
risk associated with these companies effectively. 

The unique cash flow characteristics of many technology-related companies typically include significant research and development expenditures and high projected revenue 

growth thus often making such companies difficult to evaluate from a credit perspective. In addition, the balance sheets of these companies often include a disproportionately large 
amount of intellectual property assets, which can be difficult to value. Finally, the speed of innovation in technology and rapid shifts in consumer demand and market share add to the 
difficulty in evaluating technology-related companies. 

Due to the difficulties described above, we believe traditional lenders generally refrain from entering the structured debt financing marketplace, instead preferring the risk-

reward profile of asset based lending. Traditional lenders generally do not have flexible product offerings that meet the needs of technology-related companies. The financing products 
offered by traditional lenders typically impose on borrowers many restrictive covenants and conditions, including limiting cash outflows and requiring a significant depository 
relationship to facilitate rapid liquidation. 

Unfulfilled Demand for Structured Debt Financing to Technology-Related Companies. Private debt capital in the form of structured debt financing from specialty finance 

companies continues to be an important source of funding for technology-related companies. We believe that the level of demand for structured debt financing is a function of the 
level of annual venture equity investment activity. 

We believe that demand for structured debt financing is currently underserved. The venture capital market for the technology-related companies in which we invest has been 

active. Therefore, to the extent we have capital available, we believe this is an opportune time to be active in the structured lending market for technology-related companies. 

Structured Debt with Warrants Products Complement Equity Financing From Venture Capital and Private Equity Funds. We believe that technology-related companies 

and their financial sponsors will continue to view structured debt securities as an attractive source of capital because it augments the capital provided by venture capital and private 
equity funds. We believe that our structured debt with warrants products provide access to growth capital that otherwise may only be available through incremental investments by 
existing equity investors. As such, we provide portfolio companies and their financial sponsors with an opportunity to diversify their capital sources. Generally, we believe many 
technology-related companies at all stages of development target a portion of their capital to be debt in an attempt to achieve a higher valuation through internal growth. In addition, 
because financial sponsor-backed companies have reached a more mature stage prior to reaching a liquidity event, we believe our investments could provide the debt capital needed to 
grow or recapitalize during the extended period sometimes required prior to liquidity events. 

5

Our strategy to achieve our investment objective includes the following key elements: 

OUR BUSINESS STRATEGY

Leverage the Experience and Industry Relationships of Our Management Team and Investment Professionals. We have assembled a team of experienced investment 

professionals with extensive experience as venture capitalists, commercial lenders, and originators of structured debt and equity investments in technology-related companies. Our 
investment professionals have, on average, more than 15 years of experience as equity investors in, and/or lenders to, technology-related companies. In addition, our team members 
have originated structured debt, debt with warrants and equity investments in over 370 technology-related companies, representing almost $6.5 billion in commitments from inception 
to December 31, 2016, and have developed a network of industry contacts with investors and other participants within the venture capital and private equity communities. In addition, 
members of our management team also have operational, research and development and finance experience with technology-related companies. We have established contacts with 
leading venture capital and private equity fund sponsors, public and private companies, research institutions and other industry participants, which we believe will enable us to identify 
and attract well-positioned prospective portfolio companies.

We focus our investing activities generally in industries in which our investment professionals have investment experience. We believe that our focus on financing 
technology-related companies will enable us to leverage our expertise in structuring prospective investments, to assess the value of both tangible and intangible assets, to evaluate the 
business prospects and operating characteristics of technology-related companies and to identify and originate potentially attractive investments with these types of companies. 

Mitigate Risk of Principal Loss and Build a Portfolio of Equity-Related Securities. We expect that our investments have the potential to produce attractive risk-adjusted 

returns through current income, in the form of interest and fee income, as well as capital appreciation from warrant and equity-related securities. We believe that we can mitigate the 
risk of loss on our debt investments through the combination of loan principal amortization, cash interest payments, relatively short maturities (typically between 24-48 months), 
security interests in the assets of our portfolio companies, and on select investment covenants requiring prospective portfolio companies to have certain amounts of available cash at 
the time of our investment and the continued support from a venture capital or private equity firm at the time we make our investment. Although we do not currently engage in 
hedging transactions, we may engage in hedging transactions in the future utilizing instruments such as forward contracts, currency options and interest rate swaps, caps, collars, and 
floors. 

Historically our structured debt investments to technology-related companies typically include warrants or other equity interests, giving us the potential to realize equity-like 
returns on a portion of our investment. In addition, in some cases, we receive the right to make additional equity investments in our portfolio companies, including the right to convert 
some portion of our debt into equity, in connection with future equity financing rounds. We believe these equity interests will create the potential for meaningful long-term capital 
gains in connection with the future liquidity events of these technology-related companies. 

Provide Customized Financing Complementary to Financial Sponsors’ Capital. We offer a broad range of investment structures and possess expertise and experience to 

effectively structure and price investments in technology-related companies. Unlike many of our competitors that only invest in companies that fit a specific set of investment 
parameters, we have the flexibility to structure our investments to suit the particular needs of our portfolio companies. We offer customized financing solutions ranging from senior 
debt, including below-investment grade debt instruments (also known as “junk bonds”), to equity capital, with a focus on structured debt with warrants. 

We use our relationships in the financial sponsor community to originate investment opportunities. Because venture capital and private equity funds typically invest solely in 

the equity securities of their portfolio companies, we believe that our debt investments will be viewed as an attractive and complimentary source of capital, both by the portfolio 
company and by the portfolio company’s financial sponsor. In addition, we believe that many venture capital and private equity fund sponsors encourage their portfolio companies to 
use debt financing for a portion of their capital needs as a means of potentially enhancing equity returns, minimizing equity dilution and increasing valuations prior to a subsequent 
equity financing round or a liquidity event. 

Invest at Various Stages of Development. We provide growth capital to technology-related companies at all stages of development, including select publicly listed companies 

and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancings and established-stage companies. 
We believe that this provides us with a broader range of potential investment opportunities than those available to many of our competitors, who generally focus their investments on a 
particular stage in a company’s development. Because of the flexible structure of our investments and the extensive experience of our investment professionals, we believe we are well 
positioned to take advantage of these investment opportunities at all stages of prospective portfolio companies’ development. 

6

Benefit from Our Efficient Organizational Structure. We believe that the perpetual nature of our corporate structure enables us to be a long-term partner for our portfolio 

companies in contrast to traditional investment funds, which typically have a limited life. In addition, because of our access to the equity markets, we believe that we may benefit from 
a lower cost of capital than that available to private investment funds. We are not subject to requirements to return invested capital to investors nor do we have a finite investment 
horizon. Capital providers that are subject to such limitations are often required to seek a liquidity event more quickly than they otherwise might, which can result in a lower overall 
return on an investment. 

Deal Sourcing Through Our Proprietary Database. We have developed a proprietary and comprehensive structured query language-based (“SQL”) database system to track 

various aspects of our investment process including sourcing, originations, transaction monitoring and post-investment performance. As of December 31, 2016, our proprietary SQL-
based database system included approximately 46,500 technology-related companies and approximately 9,500 venture capital firms, private equity sponsors/investors, as well as 
various other industry contacts. This proprietary SQL system allows us to maintain, cultivate and grow our industry relationships while providing us with comprehensive details on 
companies in the technology-related industries and their financial sponsors. 

We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on structured debt with warrants. 

OUR INVESTMENTS AND OPERATIONS 

We generally seek to invest in companies that have been operating for at least six to 12 months prior to the date of our investment. We anticipate that such entities may, at the 

time of investment, be generating revenues or will have a business plan that anticipates generation of revenues within 24 to 48 months. Further, we anticipate that on the date of our 
investment we will generally obtain a lien on available assets, which may or may not include intellectual property, and these companies will have sufficient cash on their balance sheet 
to operate as well as potentially amortize their debt for at least three to nine months following our investment. We generally require that a prospective portfolio company, in addition 
to having sufficient capital to support leverage, demonstrate an operating plan capable of generating cash flows or raising the additional capital necessary to cover its operating 
expenses and service its debt, for an additional six to twelve months subject to market conditions. 

We expect that our investments will generally range from $12.0 million to $40.0 million, although we may make investments in amounts above or below this range. We 

typically structure our debt securities to provide for amortization of principal over the life of the loan, but may include a period of interest-only payments. Our loans will typically be 
collateralized by a security interest in the borrower’s assets, although we may not have the first claim on these assets and the assets may not include intellectual property. Our debt 
investments carry fixed or variable contractual interest rates which generally ranged from approximately 5.8% to 12.5% as of December 31, 2016. As of December 31, 2016, 
approximately 92.1% of our loans were at floating rates or floating rates with a floor and 7.9% of the loans were at fixed rates. 

In addition to the cash yields received on our loans, in some instances, our loans generally include one or more of the following: exit fees, balloon payment fees, commitment 

fees, success fees or prepayment fees. In some cases our loans also include contractual payment-in-kind (“PIK”) interest arrangements. The increases in loan balances as a result of 
contractual PIK arrangements are included in income for the period in which such PIK interest was accrued, which is often in advance of receiving cash payment, and are separately 
identified on our statements of cash flows. We also may be required to include in income for tax purposes certain other amounts prior to receiving the related cash. 

In addition, the majority of our investments in the structured debt of venture capital-backed companies generally have equity enhancement features, typically in the form of 

warrants or other equity-related securities that are considered original issue discounts (“OID”) to our loans and are designed to provide us with an opportunity for potential capital 
appreciation. The warrants typically will be immediately exercisable upon issuance and generally will remain exercisable for the lesser of five to ten years or three to five years after 
completion of an initial public offering (“IPO”). The exercise prices for the warrants varies from nominal exercise prices to exercise prices that are at or above the current fair market 
value of the equity for which we receive warrants. We may structure warrants to provide minority rights provisions or on a very select basis put rights upon the occurrence of certain 
events. We generally target a total annualized return (including interest, fees and value of warrants) of 12% to 25% for our debt investments. 

7

Typically, our structured debt and equity investments take one of the following forms: 

•

•

•

•

Structured Debt with Warrants. We seek to invest a majority of our assets in structured debt with warrants of prospective portfolio companies. Our investments in 
structured debt with warrants may be the only debt capital on the balance sheet of our portfolio companies, and in many cases we have a first priority security interest in 
all of our portfolio company’s assets, or in certain investments we may have a negative pledge on intellectual property. Our structured debt with warrants typically has a 
maturity of between two and seven years, and they may provide for full amortization after an interest only period. Our structured debt with warrants generally carries a 
contractual interest rate up to 12.5% and may include an additional exit fee payment or contractual PIK interest arrangements. We may structure our structured debt 
with warrants with restrictive affirmative and negative covenants, default penalties, prepayment penalties, lien protection, equity calls, change-in-control provisions or 
board observation rights. 

Senior Debt. We seek to invest a limited portion of our assets in senior debt. Senior debt may be collateralized by accounts receivable and/or inventory financing of 
prospective portfolio companies. Senior debt has a senior position with respect to a borrower’s scheduled interest and principal payments and holds a first priority 
security interest in the assets pledged as collateral. Senior debt also may impose covenants on a borrower with regard to cash flows and changes in capital structure, 
among other items. We generally collateralize our investments by obtaining security interests in our portfolio companies’ assets, which may include their intellectual 
property. In other cases we may obtain a negative pledge covering a company’s intellectual property. Our senior loans, in certain instances, may be tied to the financing 
of specific assets. In connection with a senior debt investment, we may also provide the borrower with a working capital line-of-credit that will carry an interest rate 
ranging from Prime or LIBOR plus a spread with a floor, generally maturing in one to three years, and typically secured by accounts receivable and/or inventory. 

Equipment Loans. We intend to invest a limited portion of our assets in equipment-based loans to early-stage prospective portfolio companies. Equipment-based loans 
are secured by a first priority security interest in only the specific assets financed. These loans are generally for amounts of $1.0 million to $3.0 million but may be up to 
$15.0 million, carry a contractual interest rate between Prime and Prime plus 9.0%, and have an average term between three and four years. Equipment loans may also 
include exit fee payments.

Equity-Related Securities. The equity-related securities we hold consist primarily of warrants or other equity interests generally obtained in connection with our 
structured debt investments. In addition to the warrants received as a part of a structured debt financing, we typically receive the right to make equity investments in a 
portfolio company in connection with that company’s next round of equity financing. We may also on certain debt investments have the right to convert a portion of the 
debt investment into equity. These rights will provide us with the opportunity to further enhance our returns over time through opportunistic equity investments in our 
portfolio companies. These equity-related investments are typically in the form of preferred or common equity and may be structured with a dividend yield, providing 
us with a current return, and with customary anti-dilution protection and preemptive rights. We may achieve liquidity through a merger or acquisition of a portfolio 
company, a public offering of a portfolio company’s stock or by exercising our right, if any, to require a portfolio company to buy back the equity-related securities we 
hold. We may also make stand-alone direct equity investments into portfolio companies in which we may not have any debt investment in the company. As of 
December 31, 2016, we held warrant and equity-related securities in 167 portfolio companies. 

A comparison of the typical features of our various investment alternatives is set forth in the chart below. 

Typical Structure

Term debt with warrants

Term or revolving debt

Term debt with warrants

Preferred stock or common stock

Structured Debt with Warrants

Senior Debt

Equipment Loans

Equity-Related Securities

Investment Horizon

Ranking/Security

Covenants

Risk Tolerance

Coupon/Dividend

Long-term, ranging from 2 to 7 years, with 
an average of 3 years

Senior secured, either first out or last out, 
or second lien

Usually under 3 years

Ranging from 3 to 4 years

Ranging from 3 to 7 years

Senior / First lien

Secured only by underlying equipment

None/unsecured

Less restrictive; mostly financial

Generally borrowing base and financial

Medium / High

Low

None

High

None

High

Cash pay - fixed and floating rate; PIK in 
limited cases

Cash pay - fixed or floating rate

Cash pay - fixed or floating rate and may 
include PIK

Generally none

Customization or Flexibility

Equity Dilution

More flexible

Low to medium

Little to none

None to low

8

Little to none

Low

Flexible

High

Investment Criteria 

We have identified several criteria, among others, that we believe are important in achieving our investment objective with respect to prospective portfolio companies. These 

criteria, while not inclusive, provide general guidelines for our investment decisions. 

Portfolio Composition. While we generally focus our investments in venture capital-backed companies in technology-related industries, we seek to invest across various 

financial sponsors as well as across various stages of companies’ development and various technology industry sub-sectors and geographies. As of December 31, 2016, approximately 
73.4% of the fair value of our portfolio was composed of investments in five industries: 29.7% was composed of investments in the drug discovery and development industry, 15.4% 
was composed of investments in the software industry, 10.9% was composed of investments in the sustainable and renewable technology industry, 9.7% was composed of investments 
in the media/ content/ info industry and 7.7% was composed of investments in the drug delivery industry. 

Continuing Support from One or More Financial Sponsors. We generally invest in companies in which one or more established financial sponsors have previously invested 

and continue to make a contribution to the management of the business. We believe that having established financial sponsors with meaningful commitments to the business is a key 
characteristic of a prospective portfolio company. In addition, we look for representatives of one or more financial sponsors to maintain seats on the Board of Directors of a 
prospective portfolio company as an indication of such commitment. 

Company Stage of Development. While we invest in companies at various stages of development, we generally require that prospective portfolio companies be beyond the 

seed stage of development and generally have received or anticipate having commitments for their first institutional round of equity financing for early stage companies. We expect a 
prospective portfolio company to demonstrate progress in its product development or demonstrate a path towards revenue generation or increase its revenues and operating cash flow over 
time. The anticipated growth rate of a prospective portfolio company is a key factor in determining the value that we ascribe to any warrants or other equity securities that we may acquire 
in connection with an investment in debt securities. 

Operating Plan. We generally require that a prospective portfolio company, in addition to having potential access to capital to support leverage, demonstrate an operating plan 
capable of generating cash flows or the ability to potentially raise the additional capital necessary to cover its operating expenses and service its debt for a specific period. Specifically, we 
require that a prospective portfolio company demonstrate at the time of our proposed investment that in addition to having sufficient capital to support leverage, it has an operating plan 
capable of generating cash flows or raising the additional capital necessary to cover its operating expenses and service its debt for an additional six to twelve months subject to market 
conditions. 

Security Interest. In many instances we seek a first priority security interest in all of the portfolio companies’ tangible and intangible assets as collateral for our debt 

investment, subject in some cases to permitted exceptions. In other cases we may obtain a negative pledge prohibiting a company from pledging or otherwise encumbering their 
intellectual property. Although we do not intend to operate as an asset-based lender, the estimated liquidation value of the assets, if any, collateralizing the debt securities that we hold 
is an important factor in our credit analysis and subject to assumptions that may change over the life of the investment especially when attempting to estimate the value of intellectual 
property. We generally evaluate both tangible assets, such as accounts receivable, inventory and equipment, and intangible assets, such as intellectual property, customer lists, 
networks and databases. 

Covenants. Our investments may include one or more of the following covenants: cross-default; material adverse change provisions; requirements that the portfolio company 

provide periodic financial reports and operating metrics; and limitations on the portfolio company’s ability to incur additional debt, sell assets, dividend recapture, engage in 
transactions with affiliates and consummate an extraordinary transaction, such as a merger or recapitalization without our consent. In addition, we may require other performance or 
financial based covenants, as we deem appropriate. 

Exit Strategy. Prior to making a debt investment that is accompanied by an equity-related security in a prospective portfolio company, we analyze the potential for that 

company to increase the liquidity of its equity through a future event that would enable us to realize appreciation in the value of our equity interest. Liquidity events may include an 
IPO, a private sale of our equity interest to a third party, a merger or an acquisition of the company or a purchase of our equity position by the company or one of its stockholders. 

9

Investment Process 

We have organized our management team around the four key elements of our investment process: 

•

•

•

•

Origination; 

Underwriting; 

Documentation; and 

Loan and Compliance Administration. 

Our investment process is summarized in the following chart: 

Origination 

The origination process for our investments includes sourcing, screening, preliminary due diligence and deal structuring and negotiation, all leading to an executed non-
binding term sheet. As of December 31, 2016, our investment origination team, which consists of approximately 33 investment professionals, is headed by our Chief Investment 
Officer and our Chief Executive Officer. The origination team is responsible for sourcing potential investment opportunities and members of the investment origination team use their 
extensive relationships with various leading financial sponsors, management contacts within technology-related companies, trade sources, technology conferences and various 
publications to source prospective portfolio companies. Our investment origination team is divided into life sciences, technology, sustainable and renewable technology, and special 
situation sub-teams to better source potential portfolio companies. 

In addition, we have developed a proprietary and comprehensive SQL-based database system to track various aspects of our investment process including sourcing, 
originations, transaction monitoring and post-investment performance. This proprietary SQL system allows our origination team to maintain, cultivate and grow our industry 
relationships while providing our origination team with comprehensive details on companies in the technology-related industries and their financial sponsors. 

If a prospective portfolio company generally meets certain underwriting criteria, we perform preliminary due diligence, which may include high level company and 
technology assessments, evaluation of its financial sponsors’ support, market analysis, competitive analysis, identifying key management, risk analysis and transaction size, pricing, 
return analysis and structure analysis. If the preliminary due diligence is satisfactory, and the origination team recommends moving forward, we then structure, negotiate and execute a 
non-binding term sheet with the potential portfolio company. Upon execution of a term sheet, the investment opportunity moves to the underwriting process to complete formal due 
diligence review and approval. 

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Underwriting 

The underwriting review includes formal due diligence and approval of the proposed investment in the portfolio company. 

Due Diligence. Our due diligence on a prospective investment is typically completed by two or more investment professionals whom we define as the underwriting team. The 

underwriting team for a proposed investment consists of the deal sponsor who typically possesses general industry knowledge and is responsible for originating and managing the 
transaction, other investment professional(s) who perform due diligence, credit and corporate financial analyses and, as needed, our legal professionals. To ensure consistent 
underwriting, we generally use our standardized due diligence methodologies, which include due diligence on financial performance and credit risk as well as an analysis of the 
operations and the legal and applicable regulatory framework of a prospective portfolio company. The members of the underwriting team work together to conduct due diligence and 
understand the relationships among the prospective portfolio company’s business plan, operations and financial performance. 

As part of our evaluation of a proposed investment, the underwriting team prepares an investment memorandum for presentation to the investment committee. In preparing the 
investment memorandum, the underwriting team typically interviews select key management of the company and select financial sponsors and assembles information necessary to the 
investment decision. If and when appropriate, the investment professionals may also contact industry experts and customers, vendors or, in some cases, competitors of the company. 

Approval Process. The sponsoring managing director or principal presents the investment memorandum to our investment committee for consideration. The approval of a 
majority of our investment committee and an affirmative vote by our Chief Executive Officer is required before we proceed with any investment. The members of our investment 
committee are our Chief Executive Officer, our Chief Financial Officer, and our Chief Investment Officer. The investment committee generally meets weekly and more frequently on 
an as-needed basis. 

Documentation 

Our legal department administers the documentation process for our investments. This department is responsible for documenting the transactions approved by our investment 
committee with a prospective portfolio company. This department negotiates loan documentation and, subject to appropriate approvals, final documents are prepared for execution by 
all parties. The legal department generally uses the services of external law firms to complete the necessary documentation. 

Loan and Compliance Administration 

Our investment committee, supported by our investment team, credit team, and finance department, administers loans and track covenant compliance, if applicable, of our 

investments and oversees periodic reviews of our critical functions to ensure adherence with our internal policies and procedures. After funding of a loan in accordance with the 
investment committee’s approval, the loan is recorded in our loan administration software and our SQL-based database system. The investment team, credit team, and finance 
department are responsible for ensuring timely interest and principal payments and collateral management as well as advising the investment committee on the financial performance 
and trends of each portfolio company, including any covenant violations that occur, to aid us in assessing the appropriate course of action for each portfolio company and evaluating 
overall portfolio quality. In addition, the investment team and credit team advise the investment committee and the Audit Committee of our Board of Directors, accordingly, regarding 
the credit and investment grading for each portfolio company as well as changes in the value of collateral that may occur. 

The investment team and credit team monitor our portfolio companies in order to determine whether the companies are meeting our financing criteria and their respective 

business plans and also monitors the financial trends of each portfolio company from its monthly or quarterly financial statements to assess the appropriate course of action for each 
company and to evaluate overall portfolio quality. In addition, our management team closely monitors the status and performance of each individual company through our SQL-based 
database system and periodic contact with our portfolio companies’ management teams and their respective financial sponsors. 

Credit and Investment Grading System. Our investment team and credit team use an investment grading system to characterize and monitor our outstanding loans. Our 
investment team and credit team monitors and, when appropriate, recommends changes to investment grading. Our investment committee reviews the recommendations and/or 
changes to the investment grading, which are submitted on a quarterly basis to the Audit Committee and our Board of Directors for approval. 

From time to time, we will identify investments that require closer monitoring or become workout assets. We develop a workout strategy for workout assets and our 
investment committee monitors the progress against the strategy. We may incur losses from our investing activities, however, we work with our troubled portfolio companies in order 
to recover as much of our investments as is practicable, including possibly taking control of the portfolio company. There can be no assurance that principal will be recovered.

11

We use the following investment grading system approved by our Board of Directors: 

Grade 1.

Grade 2.

Grade 3.

Grade 4. 

Grade 5. 

Loans involve the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk profile is generally favorable. 

The borrower is performing as expected and the risk profile is neutral to favorable. All new loans are initially 
graded 2. 

The borrower may be performing below expectations, and the loan’s risk has increased materially since origination. We increase procedures to monitor a 
borrower that may have limited amounts of cash remaining on the balance sheet, is approaching its next equity capital raise within the next three to six months, 
or if the estimated fair value of the enterprise may be lower than when the loan was originated. We will generally lower the loan grade to a level 3 even if the 
company is performing in accordance to plan as it approaches the need to raise additional cash to fund its operations. Once the borrower closes its new equity 
capital raise, we may increase the loan grade back to grade 2 or maintain it at a grade 3 as the company continues to pursue its business plan. 

The borrower is performing materially below expectations, and the loan risk has substantially increased since origination. Loans graded 4 may experience 
some partial loss or full return of principal but are expected to realize some loss of interest which is not anticipated to be repaid in full, which, to the extent not 
already reflected, may require the fair value of the loan to be reduced to the amount we anticipate will be recovered. Grade 4 investments are closely 
monitored. 

The borrower is in workout, materially performing below expectations and a significant risk of principal loss is probable. Loans graded 5 will experience some 
partial principal loss or full loss of remaining principal outstanding is expected. Grade 5 loans will require the fair value of the loans be reduced to the amount, 
if any, we anticipate will be recovered. 

At December 31, 2016, our investments had a weighted average investment grading of 2.41. 

Managerial Assistance 

As a business development company, we are required to offer, and provide upon request, managerial assistance to our portfolio companies. This assistance could involve, 

among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio 
companies and providing other organizational and financial guidance. We may, from time to time, receive fees for these services. In the event that such fees are received, they are 
incorporated into our operating income and are passed through to our stockholders, given the nature of our structure as an internally managed business development company. See “—
Regulation—Significant Managerial Assistance” for additional information.

COMPETITION 

Our primary competitors provide financing to prospective portfolio companies and include non-bank financial institutions, federally or state chartered banks, venture debt 

funds, financial institutions, venture capital funds, private equity funds, investment funds and investment banks. Many of these entities have greater financial and managerial resources 
than we have, and the 1940 Act imposes certain regulatory restrictions on us as a business development company to which many of our competitors are not subject. However, we 
believe that few of our competitors possess the expertise to properly structure and price debt investments to venture capital-backed companies in technology-related industries. We 
believe that our specialization in financing technology-related companies will enable us to determine a range of potential values of intellectual property assets, evaluate the business 
prospects and operating characteristics of prospective portfolio companies and, as a result, identify investment opportunities that produce attractive risk-adjusted returns. For 
additional information concerning the competitive risks we face, see “Item 1A. Risk Factors—Risks Related to our Business Structure—We operate in a highly competitive market for 
investment opportunities, and we may not be able to compete effectively.” 

12

BROKERAGE ALLOCATIONS AND OTHER PRACTICES 

Because we generally acquire and dispose of our investments in privately negotiated transactions, we typically do not use brokers in the normal course of business. However, 
from time to time, we may work with brokers to sell positions we have acquired in the securities of publicly listed companies or to acquire positions (principally equity) in companies 
where we see a market opportunity to acquire such securities at attractive valuations. In cases where we do use a broker, we do not execute transactions through any particular broker 
or dealer, but will seek to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size 
of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While we generally seek reasonably competitive 
execution costs, we may not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, we may select a broker based partly upon brokerage 
or research services provided to us. In return for such services, we may pay a higher commission than other brokers would charge if we determine in good faith that such commission 
is reasonable in relation to the services provided. 

As of December 31, 2016, we had 64 employees, including approximately 33 investment and portfolio management professionals, all of whom have extensive experience 

working on financing transactions for technology-related companies. 

EMPLOYEES 

REGULATION 

The following discussion is a general summary of the material prohibitions and descriptions governing business development companies. It does not purport to be a complete 

description of all of the laws and regulations affecting business development companies. 

A business development company primarily focuses on investing in or lending to private companies and making managerial assistance available to them, while providing its 

stockholders with the ability to retain the liquidity of a publicly-traded stock. The 1940 Act contains prohibitions and restrictions relating to transactions between business 
development companies and their directors and officers and principal underwriters and certain other related persons and requires that a majority of the directors be persons other than 
“interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw 
our election as, a business development company unless approved by a majority of our outstanding voting securities as defined in the 1940 Act. A majority of the outstanding voting 
securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of 
such company are present or represented by proxy, or (ii) more than 50% of the outstanding shares of such company. 

Qualifying Assets 

Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as 

qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets 
relevant to our proposed business are the following: 

(1)

Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an 
eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any 
other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: 

(a)

(b)

(c)

is organized under the laws of, and has its principal place of business in, the United States; 

is not an investment company (other than a SBIC wholly owned by the business development company) or a company that would be an investment company 
but for certain exclusions under the 1940 Act; and 

does not have any class of securities listed on a national securities exchange; or if it has securities listed on a national securities exchange such company has a 
market capitalization of less than $250 million; is controlled by the business development company and has an affiliate of a business development company on 
its Board of Directors; or meets such other criteria as may be established by the SEC. 

(2)

Securities of any portfolio company which we control.

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(3)

(4)

(5)

Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident 
thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations 
as they came due without material assistance other than conventional lending or financing arrangements. 

Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of 
the outstanding equity of the eligible portfolio company. 

Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights 
relating to such securities. 

(6)

Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment. 

Control, as defined by the 1940 Act, is presumed to exist where a business development company beneficially owns more than 25% of the outstanding voting securities of the 

portfolio company. 

We do not intend to acquire securities issued by any investment company, including other business development companies, that exceed the limits imposed by the 1940 Act. 

Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company (as defined in the 1940 Act), invest more than 5% of the value of our 
total assets in the securities of one such investment company or invest more than 10% of the value of our total assets in the securities of such other investment companies in the 
aggregate. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders 
to additional expenses. 

Significant Managerial Assistance 

Business development companies generally must offer to make available to the issuer of the securities significant managerial assistance, except in circumstances where either 

(i) the business development company controls such issuer of securities or (ii) the business development company purchases such securities in conjunction with one or more other 
persons acting together and one of the other persons in the group makes available such managerial assistance. Making available significant managerial assistance means, among other 
things, any arrangement whereby the business development company, through its directors, officers or employees, offers to provide and, if accepted, does so provide, significant 
guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, 
selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance. 

Temporary Investments 

Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high quality 
debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. We 
may invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its 
agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed 
upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of 
our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we 
generally would not meet the diversification tests imposed on us by the Code in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into 
repurchase agreements with a single counterparty in excess of this limit. We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement 
transactions. 

Warrants and Options 

Under the 1940 Act, a business development company is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stock 
that it may have outstanding at any time. In particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or other rights 
to purchase capital stock cannot exceed 25% of the business development company’s total outstanding shares of capital stock. This amount is reduced to 20% of the business 
development company’s total outstanding shares of capital stock if the amount of warrants, options or rights issued pursuant to an executive compensation plan would exceed 15% of 
the business development company’s total outstanding shares of capital stock. We have received exemptive relief from the SEC permitting us to issue stock options and restricted 
stock to our employees and directors subject to the above conditions, among others. For a discussion regarding the conditions of this exemptive relief, see “—Exemptive Relief” 
below and Note 7 to our consolidated financial statements. 

14

Senior Securities; Coverage Ratio 

We will be permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined 

in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, we may not be permitted to declare any cash dividend distribution on our outstanding 
common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% after deducting the amount of such 
distribution or purchase price. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes. For a discussion of the risks associated 
with the resulting leverage, see “Item 1A. Risk Factors—Risks Related to Our Business Structure—Because we have substantial indebtedness, there could be increased risk in 
investing in our company.” On April 5, 2007, we received approval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly-owned 
subsidiaries that are SBICs from the 200% asset coverage requirement applicable to us.

Capital Structure 

We are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, sell our common stock, at a price below the current NAV of 
the common stock, or sell warrants, options or other rights to acquire such common stock, at a price below the current NAV of the common stock if our Board of Directors determines 
that such sale is in the best interests of us and our stockholders have approved the practice of making such sales. 

In connection with the receipt of such stockholder approval, we will limit the number of shares that we issue at a price below NAV pursuant to this authorization so that the 
aggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties and regulatory requirements, has the discretion to 
determine the amount of the discount, and as a result, the discount could be up to 100% of NAV per share. 

Code of Ethics 

We have adopted and will maintain a code of ethics that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject

to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in 
accordance with the code’s requirements. Our code of ethics will generally not permit investments by our employees in securities that may be purchased or held by us. We may be 
prohibited under the 1940 Act from conducting certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, the 
prior approval of the SEC. 

Our current code of ethics is posted on our website at www.htgc.com and was filed with the SEC as an exhibit to a Form 8-K filing on July 13, 2015. You may read and copy 

the code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 
(202) 551-8090. In addition, the code of ethics is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain copies of the code of 
ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., 
Washington, D.C. 20549. 

Privacy Principles 

We are committed to maintaining the privacy of our stockholders and safeguarding their non-public personal information. The following information is provided to help you 

understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties. 

Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may 

become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders, except as permitted by law or as is necessary in order 
to service stockholder accounts (for example, to a transfer agent). 

We restrict access to non-public personal information about our stockholders to our employees with a legitimate business need for the information. We maintain physical, 

electronic and procedural safeguards designed to protect the non-public personal information of our stockholders. 

Proxy Voting Policies and Procedures 

We vote proxies relating to our portfolio securities in the best interest of our stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to 
determine its impact on the portfolio securities held by us. Although we generally vote against proposals that may have a negative impact on our portfolio securities, we may vote for 
such a proposal if there exists compelling long-term reasons to do so. 

15

Our proxy voting decisions are made by our investment committee, which is responsible for monitoring each of our investments. To ensure that our vote is not the product of 
a conflict of interest, we require that: (i) anyone involved in the decision making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and 
any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited 
from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties. 

Exemptive Relief 

On June 21, 2005, we filed a request with the SEC for exemptive relief to allow us to take certain actions that would otherwise be prohibited by the 1940 Act, as applicable to 
business development companies. Specifically, we requested that the SEC permit us to issue stock options to our non-employee directors as contemplated by Section 61(a)(3)(B)(i)(II) 
of the 1940 Act. On February 15, 2007, we received approval from the SEC on this exemptive request. In addition, in June 2007, we filed an amendment to the February 2007 order to 
adjust the number of shares issued to the non-employee directors. On October 10, 2007, we received approval from the SEC on this amended exemptive request. 

On April 5, 2007, we received approval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly-owned subsidiaries that 

are SBICs from the 200% asset coverage requirement applicable to us. 

On May 23, 2007, we received approval from the SEC on our request for exemptive relief that permits us to issue restricted stock to our employees, officers and directors. On 
June 21, 2007, our shareholders approved amendments to the 2004 Equity Incentive Plan and 2006 Non-Employee Incentive Plan (collectively, the “Plans”) permitting such restricted 
grants. The maximum amount of shares that may be issued under the Plans will be 10% of the outstanding shares of our common stock on the effective date of the Plans plus 10% of 
the outstanding number of shares of our common stock issued or delivered by us (other than pursuant to compensation plans) during the term of the Plans. The amount of voting 
securities that would result from the exercise of all of our outstanding warrants, options, and rights, if any, together with any restricted stock issued pursuant to the Plans, at the time of 
issuance shall not exceed 25% of our outstanding voting securities, except that if such amount would exceed 15% of our outstanding voting securities, then the total amount of voting 
securities that would result from the exercise of all outstanding warrants, options, and rights, if any, together with any restricted stock issued pursuant to the Plans, at the time of 
issuance shall not exceed 20% of our outstanding voting securities.

On June 22, 2010 we received approval from the SEC on our request for exemptive relief that permits our employees to exercise their stock options and restricted stock and 

pay any related income taxes using a cashless exercise program.

Other 

We will be periodically examined by the SEC for compliance with the Exchange Act and the 1940 Act. 

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a business 
development company, we are prohibited from protecting any director or officer against any liability to our stockholders arising from willful misfeasance, bad faith, gross negligence 
or reckless disregard of the duties involved in the conduct of such person’s office. 

We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and 

procedures annually for their adequacy and the effectiveness of their implementation. Our Chief Compliance Officer is responsible for administering these policies and procedures. 

16

Small Business Administration Regulations 

We make investments in qualifying small businesses through our two wholly-owned SBIC subsidiaries, HT II and HT III. With our net investments of $44.0 million and 

$74.5 million in HT II and HT III, respectively, we have the combined capacity to issue a total of $190.2 million of SBA guaranteed debentures, subject to SBA approval. At 
December 31, 2016, we have issued $190.2 million in SBA guaranteed debentures in our SBIC subsidiaries. 

We intend to seek an additional SBIC license to ensure continued access to the maximum statutory limit of SBA guaranteed debentures under the SBIC program, which 

currently is $350.0 million for a group of SBICs under common control, subject to periodic adjustments by the SBA. We have formed Hercules Technology IV, L.P. for that purpose. 
There can be no assurance of when or if we will receive SBA approval for another SBIC license.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businesses include businesses 

that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, 
SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is one that has a tangible net worth not exceeding $6.0 
million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to 
determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA 
regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Through 
our wholly-owned subsidiaries HT II and HT III, we plan to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments. 

HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails to comply with 

applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures 
immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited in their ability to make distributions to us if 
they do not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn, negatively us because HT II and III are our wholly owned 
subsidiaries. HT II and HT III were in compliance with the terms of the SBIC’s leverage as of December 31, 2016 as a result of having sufficient capital as defined under the SBA 
regulations. 

HT II and HT III hold approximately $100.0 million and $261.8 million in assets, respectively, and accounted for approximately 5.3% and 13.9% of our total assets prior to 

consolidation at December 31, 2016. 

The SBA restricts the ability of SBICs to repurchase their capital stock. SBA regulations also include restrictions on a “change of control” or transfer of an SBIC and require 

that SBICs invest idle funds in accordance with SBA regulations. In addition, HT II and HT III may also be limited in their ability to make distributions to us if they do not have 
sufficient capital and/or distributed earnings, in accordance with SBA regulations. 

Our SBIC subsidiaries are subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other 
covenants. Receipt of an SBIC license does not assure that our SBIC subsidiaries will receive SBA guaranteed debenture funding, which is dependent upon our SBIC subsidiaries 
continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to our SBIC subsidiaries’ assets over our stockholders in the 
event we liquidate our SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteed debentures issued by our SBIC subsidiaries upon an event of default. 

17

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 

The following discussion is a general summary of certain material U.S. federal income tax considerations relating to our qualification and taxation as a RIC and the 
acquisition, ownership and disposition of our preferred stock or common stock, but does not purport to be a complete description of the income tax considerations relating thereto. 
Except as otherwise noted, this discussion assumes you are a taxable U.S. person (as defined for U.S. federal income tax purposes) and that you hold your shares of our stock as 
capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion is based upon current provisions of the Code, the regulations promulgated 
thereunder and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or the Internal Revenue Service (the “IRS”), possibly 
with retroactive effect. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting us and our shareholders (including shareholders subject 
to special rules under U.S. federal income tax law).

The discussions set forth herein do not constitute tax advice. We have not sought and will not seek any ruling from the IRS regarding any matters discussed herein. No 

assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to those set forth below. This summary does not discuss any aspects of 
foreign, state or local tax. Prospective investors must consult their own tax advisers as to the U.S. federal income tax consequences (including the alternative minimum tax 
consequences) of acquiring, holding and disposing of shares of our stock, as well as the effects of state, local and non-U.S. tax laws. 

Election to be Subject to Tax as a RIC 

Through December 31, 2005, we were subject to U.S. federal income tax as an ordinary corporation under Subchapter C of the Code. Effective beginning on January 1, 2006 

we met the criteria specified below to qualify as a RIC, and elected to be treated as a RIC under Subchapter M of the Code with the filing of our U.S. federal income tax return for 
2006. To qualify as a RIC we must, among other things, meet certain source of income and asset diversification requirements (as described below). In addition, we must distribute to 
our stockholders, in respect of each taxable year, dividends for federal income tax purposes of an amount generally at least equal to 90% of our “investment company taxable income,” 
which is generally equal to the sum of our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, determined 
without regard to any deduction for distributions paid, or the “Annual Distribution Requirement.” Upon satisfying these requirements in respect of a taxable year, we generally will 
not be subject to corporate taxes on any income we distribute to our stockholders as dividends for federal income tax purposes, which will allow us to reduce or eliminate our liability 
for corporate-level income tax. 

On December 31, 2005, immediately before the effective date of our RIC election, we held assets with “built-in gains,” which are assets whose fair market value as of the 

effective date of the election exceeded their tax basis as of such date. We elected to recognize all of our net built-in gains on such assets at the time of the conversion and paid tax on 
the built-in gain with the filing of our 2005 federal income tax return. In making this election, we marked our portfolio investments and other assets to market at the time of our RIC 
election and paid approximately $294,000 in income tax on the resulting gains.

Taxation as a Regulated Investment Company 

For any taxable year in which we: 

•

•

qualify as a RIC; and 

distribute dividends for federal income tax purposes to our shareholders of an amount at least equal to the Annual Distribution Requirement; 

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) we distribute (or are deemed to distribute) as dividends for U.S. federal income tax purposes to stockholders with respect to 
that taxable year.

As described above, we made the election to recognize built-in gains as of the effective date of our election to be treated as a RIC and therefore were not subject to built-in 

gains tax when we sold those assets. However, if we subsequently acquire built-in gain assets from a C corporation in a carryover basis transaction, then we may be subject to tax on 
the gains recognized by us on dispositions of such assets unless we make a special election to pay corporate-level tax on such built-in gain at the time the assets are acquired. We will 
be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) as dividends for U.S. federal income tax 
purposes to our stockholders. 

18

In order to qualify as a RIC for federal income tax purposes and obtain the tax benefits of RIC status, in addition to satisfying the Annual Distribution Requirement, we must, 

among other things: 

•

•

•

have in effect at all times during each taxable year an election to be regulated as a business development company under the 1940 Act; 

derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale of stock 
or other securities, or other income derived with respect to our business of investing in such stock or securities and (b) net income derived from an interest in a 
“qualified publicly traded partnership” (the “90% Income Test”); 

diversify our holdings so that at the end of each quarter of the taxable year:  

o

o

at the close of each quarter of each taxable year, at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, 
securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more 
than 10% of the outstanding voting securities of such issuer; and 

at the close of each quarter of each taxable year, no more than 25% of the value of our assets is invested in (i) securities (other than U.S. government 
securities or securities of other RICs) of one issuer, (ii) securities of two or more issuers that are controlled, as determined under applicable tax rules, by 
us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly traded 
partnerships” (the “Diversification Tests”). 

We may invest in partnerships which may result in our being subject to state, local or foreign income, franchise or other tax liabilities.  In addition, some of the income and 

fees that we may recognize will not satisfy the 90% Income Test.  In order to mitigate the risk that such income and fees would disqualify us as a RIC as a result of a failure to satisfy 
the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities classified as corporations for U.S. federal income tax 
purposes.  Such corporations generally will be subject to corporate income taxes on their earnings, which ultimately will reduce our return on such income and fees.

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 sum of (1) 98% of our ordinary income for 
each calendar year (subject to certain deferrals and elections), (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 in 
that calendar year and (3) any income realized, but not distributed, in the preceding years (the “Excise Tax Avoidance Requirement”). We are not 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.

Under applicable Treasury regulations and other administrative guidance issued by the IRS, we are permitted to treat certain distributions payable in our stock as taxable 
distributions that will satisfy the Annual Distribution Requirement as well as the Excise Tax Avoidance Requirement provided that shareholders have the opportunity to elect to 
receive the distribution in cash. Taxable stockholders receiving such distributions will be required to include the full amount of the such distributions as ordinary income (or as long-
term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States 
federal income tax purposes. As a result, a U.S. stockholder may be subject to tax with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock 
it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price 
of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect 
of all or a portion of such distribution that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed 
on distributions, then such sales may put downward pressure on the trading price of our stock. We may in the future determine to make taxable distributions that are payable in part in 
our common stock. 

19

We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that 

are treated under applicable tax rules as having OID (such as debt instruments with PIK interest provisions or, in certain cases, increasing interest rates or debt instruments that were 
issued with warrants), we must include in income each taxable year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such 
income is received by us in the same taxable year. Because any OID accrued is generally required to be included in our investment company taxable income for the taxable year of 
accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, even 
though we will not have received any corresponding cash amount. 

Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as 

capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.  

We are authorized to borrow funds and to sell assets in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement (collectively, the 

“Distribution Requirements”). However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are 
outstanding unless certain “asset coverage” tests are met. See “Regulation—Senior Securities; Coverage Ratio.” We may be restricted from making distributions under the terms of 
our debt obligations themselves unless certain conditions are satisfied. Moreover, our ability to dispose of assets to meet the Distribution Requirements may be limited by (1) the 
illiquid nature of our portfolio, or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Distribution 
Requirements, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we are prohibited from making distributions or are unable to 
obtain cash from other sources to make the distributions, we may fail to be subject to tax as a RIC, which would result in us becoming subject to corporate-level income taxes. 

In addition, we will be partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC Distribution Requirements. Our SBIC subsidiaries may 

be limited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to 
maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiaries to make certain distributions to maintain our RIC status. We cannot 
assure you that the SBA will grant such waiver. If our SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to be subject to tax 
as a RIC, which would result in us becoming subject to corporate-level income taxes. 

Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) convert distributions that would 

otherwise constitute qualified dividend income into ordinary income, (ii) treat distributions that would otherwise be eligible for deductions available to certain U.S. corporations under 
the Code as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gains into short-term 
capital gains or ordinary income, (v) convert short-term capital losses into long-term capital losses, (vi) convert an ordinary loss or deduction into a capital loss (the deductibility of 
which is more limited), (vii) cause us to recognize income or gain without a corresponding receipt of cash, (viii) adversely alter the characterization of certain complex financial 
transactions, and (ix) produce gross income that will not constitute qualifying gross income for purposes of the 90% Income Test. These rules also could affect the amount, timing and 
character of distributions to stockholders.

A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income.” If our otherwise deductible expenses in a given taxable year exceed 

our ordinary taxable gross income (e.g., as the result of large amounts of equity-based compensation), we would incur a net operating loss for that taxable year. However, a RIC is not 
permitted to carry back or carry forward net operating losses, respectively, to prior and subsequent taxable years, and such net operating losses do not pass through to the RIC’s 
stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, 
realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and generally use 
them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several taxable 
years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the aggregate net income we actually earned during those taxable years. 
Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net 
capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions. 

20

Investment income received from sources within foreign countries, or capital gains earned by investing in securities of foreign issuers, may be subject to foreign income taxes withheld 

at the source. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty are often as high as 35% or more. The United States has entered into tax 
treaties with many foreign countries that may entitle us to a reduced rate of tax or exemption from tax on this related income and gains. The effective rate of foreign tax cannot be determined at 
this time since the amount of our assets to be invested within various countries is not now known. We do not anticipate being eligible for the special election that allows a RIC to treat foreign 
income taxes paid by such RIC as having been paid by its shareholders. 

If we acquire the equity securities of certain foreign corporations that earn at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, 

royalties or capital gain) or hold at least 50% of their total assets in investments producing such passive income (“passive foreign investment companies”), we could be subject to 
federal income tax and additional interest charges on “excess distributions” received from such companies or gain from the sale of stock in such companies, even if all income or gain 
actually received by us is timely distributed to our shareholders. We would not be able to pass through to our shareholders any credit or deduction for such a tax. Certain elections 
may, if available, ameliorate these adverse tax consequences, but any such election could require us to recognize taxable income or gain without the concurrent receipt of cash. We 
intend to limit and/or manage our holdings in passive foreign investment companies to minimize our liability for any such taxes and related interest charges. 

If we hold greater than 10% of the interests treated as equity for U.S. federal income tax purposes in a foreign corporation that is treated as a controlled foreign corporation 

(“CFC”), we may be treated as receiving a deemed distribution (taxable as ordinary income) each taxable year from such foreign corporation in an amount equal to our pro rata share 
of the corporation’s income for such taxable year (including both ordinary earnings and capital gains), whether or not the corporation makes an actual distribution during such taxable 
year. We would be required to include the amount of a deemed distribution from a CFC when computing our investment company taxable income as well as in determining whether 
we satisfy the distribution requirements applicable to RICs, even to the extent the amount of our income deemed recognized from the CFC exceeds the amount of any actual 
distributions from the CFC and our proceeds from any sales or other dispositions of CFC stock during a taxable year.  In general, a foreign corporation will be considered a CFC if 
greater than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Shareholders. A 
“U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares of a foreign 
corporation

Our functional currency, for U.S. federal income tax purposes, is the U.S. dollar. Under the Code, foreign exchange gains and losses realized by us in connection with certain 
transactions involving foreign currencies, or payables or receivables denominated in a foreign currency, as well as certain non-U.S. dollar denominated debt securities, certain foreign 
currency futures contracts, foreign currency option contracts, foreign currency forward contracts, and similar financial instruments are subject to Code provisions that generally treat 
such gains and losses as ordinary income and losses and may affect the amount, timing and character of distributions to our stockholders. Any such transactions that are not directly 
related to our investment in securities (possibly including speculative currency positions or currency derivatives not used for hedging purposes) also could, under future Treasury 
regulations, produce income not among the types of “qualifying income” from which a RIC must derive at least 90% of its annual gross income. 

Failure to Qualify as a Regulated Investment Company 

If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for such taxable year if certain 

relief provisions are applicable (which may, among other things, require us to pay certain corporate-level federal taxes or to dispose of certain assets). 

If we were unable to qualify for treatment as a RIC and the foregoing relief provisions are not applicable, we would be subject to tax on all of our taxable income at regular 

corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Such distributions would be taxable to our stockholders and 
provided certain holding period and other requirements were met, could qualify for treatment as “qualified dividend income” eligible for the 20% maximum U.S. federal income tax 
rate if earned by certain U.S. resident non-corporate stockholders to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, 
corporate distributions generally would be eligible for the dividends-received deduction with respect to distributions current and accumulated earnings and profits if earned by certain 
U.S. resident corporate stockholders. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the 
stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC 
qualification requirements for that taxable year and dispose of any earnings and profits from any taxable year in which we failed to qualify as a RIC. Subject to a limited exception 
applicable to a corporation that qualified as a RIC under Subchapter M of the Code for at least one taxable year prior to disqualification and that requalify as a RIC no later than the 
second taxable year following the nonqualifying taxable year, we also could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we 
failed to qualify as a RIC that are recognized within the subsequent five taxable years, unless we made a special election to incur a corporate-level income tax on such built-in gain at 
the time of our requalification as a RIC.

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DETERMINATION OF NET ASSET VALUE

We determine the NAV per share of our common stock quarterly. The NAV per share is equal to the value of our total assets minus liabilities and any preferred stock 

outstanding divided by the total number of shares of common stock outstanding. As of the date of this report, we do not have any preferred stock outstanding. 

At December 31, 2016, approximately 97.3% of our total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of 

Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other 
securities and assets, fair value is as determined in good faith by the Board of Directors. Our investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 
and measured in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. Our debt securities are primarily invested in venture capital-backed companies in 
technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages 
of development. Given the nature of lending to these types of businesses, substantially all of our investments in these portfolio companies are considered Level 3 assets under ASC 
Topic 820 because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. As such, we value substantially all of our 
investments at fair value as determined in good faith pursuant to a consistent valuation policy by our Board of Directors in accordance with the provisions of ASC Topic 820 and the 
1940 Act. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in 
good faith by our Board of Directors 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. 

We may from time to time engage an independent valuation firm to provide us with valuation assistance with respect to certain portfolio investments. We engage independent 

valuation firms on a discretionary basis. Specifically, on a quarterly basis, we will identify portfolio investments with respect to which an independent valuation firm will assist in 
valuing. We select these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, credit quality and 
the time lapse since the last valuation of the portfolio investment by an independent valuation firm.

We intend to continue to engage an independent valuation firm to provide management with assistance regarding our determination of the fair value of selected portfolio 

investments each quarter unless directed by the Board of Directors to cancel such valuation services. The scope of services rendered by an independent valuation firm is at the 
discretion of the Board of Directors. Our Board of Directors is ultimately and solely responsible for determining the fair value of our investments in good faith.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of 

Directors has approved a multi-step valuation process each quarter, as described below: 

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

(2) preliminary valuation conclusions are then documented and business based assumptions are discussed with our investment committee; 

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

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

ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs used to measure 

fair value and the effect of fair value measures on earnings. ASC Topic 820 also requires disclosures 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. ASC Topic 820 defines fair 
value 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. 

22

We have categorized 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. 

Debt Investments

We follow the guidance set forth in ASC Topic 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy 

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

In making a good faith determination of the value of our investments, we generally start with the cost basis of the investment, which includes the value attributed to the OID, 

if any, and PIK interest or other receivables which have been accrued as earned. We then apply the valuation methods as set forth below.

We apply a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participant where buyers and sellers are 
willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid or extinguished, but includes an exit concept. We determine 
the yield at inception for each debt investment.

We then use senior secured, leveraged loan yields provided by third party providers to determine the change in market yields between inception of the debt security and the 

measurement date. Industry specific indices and other relevant market data are used to benchmark/assess market based movements.

Under this process, we also evaluate the collateral for recoverability of the debt investment. We consider 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.

Our 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. We value our syndicated debt 
investments using broker quotes and bond indices amongst other factors. If there is a significant deterioration of the credit quality of a debt investment, we may consider other factors 
to estimate fair value, including the proceeds that would be received in a liquidation analysis.

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

When originating a debt instrument, we generally receive warrants or other equity-related securities from the borrower. We determine the cost basis of the warrants or other 

equity-related 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-related 
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.

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

Equity-Related 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. We have 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.

We estimate the fair value of warrants using a Black Scholes option pricing model. At each reporting date, privately held warrant and equity-related securities are valued 

based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and 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 our valuation of the warrant and equity-
related securities. We periodically review the valuation of our 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.

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 December 31, 2016, there were no material past due escrow receivables. 

Determinations In Connection With Offerings 

In connection with each offering of shares of our common stock, the Board of Directors or a committee thereof is required to make the determination that we are not selling 
shares of our common stock at a price below our then current NAV at the time at which the sale is made, unless it is determined by the Board of Directors that such sale is in the best 
interests of our stockholders and such sale is otherwise approved by our stockholders. The Board of Directors considers the following factors, among others, in making such 
determination: 

•
•

•

the NAV of our common stock disclosed in the most recent periodic report we filed with the SEC; 
our management’s assessment of whether any material change in the NAV has occurred (including through the realization of net gains on the sale of our portfolio 
investments) from the period beginning on the date of the most recently disclosed NAV to the period ending two days prior to the date of the sale of our common stock; 
and 
the magnitude of the difference between (i) a value that our Board of Directors or an authorized committee thereof has determined reflects the current NAV of our 
common stock, which is generally based upon the NAV of our common stock disclosed in the most recent periodic report that we filed with the SEC, as adjusted to 
reflect our management’s assessment of any material change in the NAV of our common stock since the date of the most recently disclosed NAV of our common stock, 
and (ii) the offering price of the shares of our common stock in the proposed offering. 

Importantly, this determination does not require that we calculate NAV in connection with each offering of shares of our common stock, but instead it involves the 

determination by the Board of Directors or a committee thereof that we are not selling shares of our common stock at a price below the then current NAV at the time at which the sale 
is made. 

Moreover, to the extent that there is a possibility that we may (i) issue shares of our common stock at a price below the then current NAV of our common stock at the time at 

which the sale is made or (ii) trigger the undertaking (which we will provide to the SEC in a registration statement to which a prospectus will be a part) to suspend the offering of 
shares of our common stock pursuant to a prospectus if the NAV fluctuates by certain amounts in certain circumstances until such prospectus is amended, the Board of Directors or a 
committee thereof will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such, events or to 
undertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then current NAV, and, in the case of clause (ii) above, to comply 
with such undertaking or to undertake to determine NAV to ensure that such undertaking has not been triggered. 

These processes and procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinations described in this section 

and these records will be maintained with other records we are required to maintain under the 1940 Act. 

24

Item 1A.

Risk Factors 

Investing in our securities may be speculative and involves a high degree of risk. You should consider carefully the risks described below and all other information contained 
in this Annual Report, including our financial statements and the related notes and the schedules and exhibits to this Annual Report. The risks set forth below are not the only risks we 
face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our NAV and the trading price 
of our securities could decline, and you may lose all or part of your investment. 

Risks Related to our Business Structure 

As an internally managed business development company, we are dependent upon key management personnel for their time availability and for our future success and if we 
are not able to hire and retain qualified personnel, or if we lose any member of our senior management team, our ability to implement our business strategy could be 
significantly harmed. 

As an internally managed business development company, our ability to achieve our investment objectives and to make distributions to our stockholders depends upon the 
performance of our senior management. We depend upon the members of our senior management as well as other key personnel for the identification, final selection, structuring, 
closing and monitoring of our investments. These employees have critical industry experience and relationships on which we rely to implement our business plan. If we lose the 
services of any senior management members we may not be able to operate the business as we expect, and our ability to compete could be harmed, which could cause our operating 
results to suffer. Furthermore, we do not have an employment agreement with our senior management that restricts them from creating new investment vehicles subject to compliance 
with applicable law. We believe our future success will depend, in part, on our ability to identify, attract and retain sufficient numbers of highly skilled employees. If we do not 
succeed in identifying, attracting and retaining such personnel, we may not be able to operate our business as we expect. 

As an internally managed business development company, our compensation structure is determined and set by our Board of Directors. This structure currently includes salary 

and bonus and incentive compensation, which is issued through grants and subsequent vesting of restricted stock. We are not generally permitted by the 1940 Act to employ an 
incentive compensation structure that directly ties performance of our investment portfolio and results of operations to compensation owing to our granting of restricted stock as 
incentive compensation.

Members of our senior management may receive offers of more flexible and attractive compensation arrangements from other companies, particularly from investment 
advisers to externally managed business development companies that are not subject to the same limitations on incentive-based compensation that we, as an internally managed 
business development company are subject to.  We do not currently have agreements with our senior management that prohibit them from leaving and competing with our 
business.  A departure by one or more members of our senior management could have a negative impact on our business, financial condition and results of operations.    

Our business model depends to a significant extent upon strong referral relationships with venture capital and private equity fund sponsors, and our inability to develop or 
maintain these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. 

We expect that members of our management team will maintain their relationships with venture capital and private equity firms, and we will rely to a significant extent upon 
these relationships to provide us with our deal flow. If we fail to maintain our existing relationships, our relationships become strained as a result of enforcing our rights with respect 
to non-performing portfolio companies in protecting our investments or we fail to develop new relationships with other firms or sources of investment opportunities, then we will not 
be able to grow our investment portfolio. In addition, persons with whom members of our management team have relationships are not obligated to provide us with investment 
opportunities and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments. 

We operate in a highly competitive market for investment opportunities, and we may not be able to compete effectively. 

A number of entities compete with us to make the types of investments that we plan to make in prospective portfolio companies. We compete with a large number of venture 

capital and private equity firms, as well as with other investment funds, business development companies, investment banks and other sources of financing, including traditional 
financial services companies such as commercial banks and finance companies. Many of our competitors are substantially larger and have considerably greater financial, technical, 
marketing and other resources than we do. For example, some competitors may have a lower cost of funds and/or access to funding sources that are not available to us. This may 
enable some competitors to make loans with interest rates that are comparable to or lower than the rates that we typically offer. 

25

A significant increase in the number and/or the size of our competitors, including traditional commercial lenders and other financing sources, in technology-related industries 

could force us to accept less attractive investment terms. We may be unable to capitalize on certain opportunities if we do not match competitors’ pricing, terms and structure. If we do 
match competitors’ pricing, terms or structure, we may experience decreased net interest income and increased risk of credit losses. In addition, some of our competitors may have 
higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. 
Furthermore, many potential competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company or that the Code imposes on 
us as a RIC. If we are not able to compete effectively, our business, financial condition, and results of operations will be adversely affected. As a result of this competition, there can 
be no assurance that we will be able to identify and take advantage of attractive investment opportunities, or that we will be able to fully invest our available capital. 

If we are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our financial condition and 
results of operations and cause the value of your investment to decline. 

Our ability to achieve our investment objective will depend on our ability to sustain growth. Sustaining growth will depend, in turn, on our senior management team’s ability 

to identify, evaluate, finance and invest in suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our 
marketing capabilities, our management of the investment process, our ability to provide efficient services and our access to financing sources on acceptable terms. Organizational 
growth and scale-up of our investments could strain our existing managerial, investment, financial and other resources. Management of the Company's growth divert financial 
resources from other projects. Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations. 

Because we intend to distribute substantially all of our income to our stockholders in order to qualify as a RIC, we will continue to need additional capital to finance our 
growth. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired. 

In order to satisfy the tax requirements applicable to a RIC, to avoid being subject to excise taxes and to minimize or avoid being subject to income taxes, we intend to make 
distributions to our stockholders treated as dividends for federal income tax purposes generally of an amount at least equal to substantially all of our net ordinary income and realized 
net capital gains except for certain realized net capital gains, which we may retain, pay applicable income taxes with respect thereto and elect to treat as deemed distributions to our 
stockholders. As a business development company, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which includes all 
of our borrowings and any preferred stock that we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. This limitation may prevent us 
from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available 
to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. If we are unable to incur additional debt, we may be 
required to raise additional equity at a time when it may be disadvantageous to do so. In addition, shares of closed-end investment companies have recently traded at discounts to their 
NAVs. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether shares of our 
common stock will trade above, at or below our NAV. If our common stock trades below its NAV, we generally will not be able to issue additional shares of our common stock at its 
market price without first obtaining the approval for such issuance from our stockholders and our independent directors. If additional funds are not available to us, we could be forced 
to curtail or cease new lending and investment activities, and our NAV could decline. In addition, our results of operations and financial condition could be adversely affected. 

Because most of our investments typically are not in publicly-traded securities, there is uncertainty regarding the value of our investments, which could adversely affect the 
determination of our NAV. 

At December 31, 2016, portfolio investments, whose fair value is determined in good faith by the Board of Directors, were approximately 97.3% of our total assets. We 

expect our investments to continue to consist primarily of securities issued by privately-held companies, the fair value of which is not readily determinable. In addition, we are not 
permitted to maintain a general reserve for anticipated loan losses. Instead, we are required by the 1940 Act to specifically value each investment and record an unrealized gain or loss 
for any asset that we believe has increased or decreased in value.

There is no single standard for determining fair value in good faith. We value these securities at fair value as determined in good faith by our Board of Directors, based on the 
recommendations of our Audit Committee. In making a good faith determination of the value of these securities, we generally start with the cost basis of each security, which includes 
the amortized OID and PIK interest, if any. The Audit Committee uses its best judgment in arriving at the fair value of these securities. As a result, determining fair value requires that 
judgment be applied to the specific facts and circumstances of each portfolio investment while applying a valuation process for the types of investments we make, which includes but 
is not limited to deriving a hypothetical exit price.

26

However, the Board of Directors retains ultimate authority as to the appropriate valuation of each investment. Because such valuations are inherently uncertain and may be 

based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. We adjust quarterly the 
valuation of our portfolio to reflect the Board of Directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement 
of operations as net change in unrealized appreciation or depreciation. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were 
materially higher than the values that we ultimately realize upon the disposal of such securities. 

Because we have substantial indebtedness, there could be increased risk in investing in our company. 

Lenders have fixed dollar claims on our assets that are superior to the claims of stockholders, and we have granted, and may in the future grant, lenders a security interest in 

our assets in connection with borrowings. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. In addition, borrowings, also known as 
leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Leverage is generally considered a 
speculative investment technique. If the value of our assets increases, then leverage would cause the NAV attributable to our common stock to increase more than it otherwise would 
have had we not leveraged. Conversely, if the value of our assets decreases, leverage would cause the NAV attributable to our common stock to decline more than it otherwise would 
have had we not used leverage. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would 
without the leverage. Any decrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds and could negatively affect our ability 
to make distributions on common stock. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic 
conditions and competitive pressures. We and, indirectly, our stockholders will bear the cost associated with our leverage activity. If we are not able to service our substantial 
indebtedness, our business could be harmed materially. 

Our secured credit facilities with Wells Fargo Capital Finance LLC (the “Wells Facility”) and MUFG Union Bank, N.A. (the “Union Bank Facility,” and together with the 

Wells Facility, our “Credit Facilities”), our 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, our 2024 Notes and our 2021 Asset-Backed 
Notes (as each term is defined below) contain financial and operating covenants that could restrict our business activities, including our ability to declare dividend distributions if we 
default under certain provisions. 

As of December 31, 2016, we had approximately $5.0 million of indebtedness outstanding on the Wells Facility and no borrowings outstanding under the Union Bank 
Facility. In addition, as of December 31, 2016, we had approximately $190.2 million of indebtedness outstanding incurred by our SBIC subsidiaries, approximately $110.4 million in 
aggregate principal amount of 7.00% notes due 2019 (the “2019 Notes”), which we have publicly announced our intention to redeem on February 24, 2017, approximately $252.9 
million in aggregate principal amount of 6.25% notes due 2024 (the “2024 Notes”) and approximately $109.2 million in aggregate principal amount of fixed rate asset-backed 
notes  issued in November 2014 (the “2021 Asset-Backed Notes”) in connection with our $237.4 million debt securitization (the “2014 Debt Securitization”).

There can be no assurance that we will be successful in obtaining any additional debt capital on terms acceptable to us or at all. If we are unable to obtain debt capital, then 
our equity investors will not benefit from the potential for increased returns on equity resulting from leverage to the extent that our investment strategy is successful and we may be 
limited in our ability to make new commitments or fundings to our portfolio companies. 

As a business development company, generally, we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total 

borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). In addition, we may not be permitted to declare any cash distribution on our 
outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% after deducting the amount of 
such distribution or purchase price. If this ratio declines below 200%, we may not be able to incur additional debt and may need to sell a portion of our investments to repay some debt 
when it is disadvantageous to do so, and we may not be able to make distributions. As of December 31, 2016 our asset coverage ratio under our regulatory requirements as a business 
development company was 265.0% excluding our SBIC debentures as a result of our exemptive order from the SEC that allows us to exclude all SBA leverage from our asset 
coverage ratio and was 218.0% when including all SBA leverage.

Based on assumed leverage equal to 84.7% of our net assets as of December 31, 2016, our investment portfolio would have been required to experience an annual return of at 

least 2.7% to cover annual interest payments on our additional indebtedness.

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Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The 

calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. 

Corresponding return to stockholder(1)

-10%
(23.51%)

-5%
(14.22%)

0%
(4.93%)

5%
4.36%

10%
13.65%

(1)

Assumes $1.5 billion in total assets, $667.7 million in debt outstanding, $787.9 million in stockholders’ equity, and an average cost of funds of 5.8%, which is the approximate average cost of borrowed funds, including 
our Credit Facilities, 2019 Notes, 2024 Notes, our SBA debentures and our 2021 Asset-Backed Notes for the period ended December 31, 2016. Actual interest payments may be different. 

Annual Return on Our Portfolio
(Net of Expenses)

It is likely that the terms of any current or future long-term or revolving credit or warehouse facility we may enter into in the future could constrain our ability to grow our 
business. 

Under our borrowings and our Credit Facilities, current lenders have, and any future lender or lenders may have, fixed dollar claims on our assets that are senior to the claims 

of our stockholders and, thus, will have a preference over our stockholders with respect to our assets pledged as collateral under the Credit Facilities. Our Credit Facilities and 
borrowings also subject us to various financial and operating covenants, including, but not limited to, maintaining certain financial ratios and minimum tangible net worth amounts. 
Future credit facilities and borrowings will likely subject us to similar or additional covenants. In addition, we may grant a security interest in our assets in connection with any such 
credit facilities and borrowings. 

Our Credit Facilities generally contain customary default provisions such as a minimum net worth amount, a profitability test, and a restriction on changing our business and 

loan quality standards. In addition, our Credit Facilities require or are expected to require the repayment of all outstanding debt on the maturity which may disrupt our business and 
potentially the business of our portfolio companies that are financed through the facilities. An event of default under these facilities would likely result, among other things, in 
termination of the availability of further funds under the facilities and accelerated maturity dates for all amounts outstanding under the facilities, which would likely disrupt our 
business and, potentially, the business of the portfolio companies whose loans we finance through the facilities. This could reduce our revenues and, by delaying any cash payment 
allowed to us under our facilities until the lender has been paid in full, reduce our liquidity and cash flow and impair our ability to grow our business and our ability to make 
distributions sufficient to maintain our ability to be subject to tax as a RIC. 

The terms of future available financing may place limits on our financial and operation flexibility. If we are unable to obtain sufficient capital in the future, we may be forced 

to reduce or discontinue our operations, not be able to make new investments, or otherwise respond to changing business conditions or competitive pressures. 

In addition to regulatory requirements that restrict our ability to raise capital, our Credit Facilities, the 2019 Notes and the 2024 Notes contain various covenants which, if 
not complied with, could require accelerated repayment under the facility or require us to repurchase the 2019 Notes and the 2024 Notes thereby materially and adversely 
affecting our liquidity, financial condition, results of operations and ability to pay distributions. 

The credit agreements governing our Credit Facilities, the 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, and the 2024 Notes 

require us to comply with certain financial and operational covenants. These covenants require us to, among other things, maintain certain financial ratios, including asset coverage, 
debt to equity and interest coverage. Our ability to continue to comply with these covenants in the future depends on many factors, some of which are beyond our control. There are no 
assurances that we will be able to comply with these covenants. Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver from the 
lenders under our Credit Facilities and could accelerate repayment under the facilities or the 2019 Notes or 2024 Notes and thereby have a material adverse impact on our liquidity, 
financial condition, results of operations and ability to pay a sufficient amount of distributions and maintain our ability to be subject to tax as a RIC. We may not have enough 
available cash or be able to obtain financing at the time we are required to make repurchases. See “Item 7. Management’s Discussion and Analysis of Results of Operations and 
Financial Condition—Borrowings.” 

We may be unable to obtain debt capital on favorable terms or at all, in which case we would not be able to use leverage to increase the return on our investments. 

If we are unable to obtain debt capital, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage to the extent that our 

investment strategy is successful and we may be limited in our ability to make new commitments or fundings to our portfolio companies. An inability to obtain debt capital may also 
limit our ability to refinance existing indebtedness, particularly during periods of adverse credit market conditions when refinancing indebtedness may not be available under interest 
rates and other terms acceptable to us or at all.

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We are subject to certain risks as a result of our interests in connection with the 2014 Debt Securitization and our equity interest in the 2014 Securitization Issuer. 

On November 13, 2014, in connection with the 2014 Debt Securitization and the offering of the 2021 Asset-Backed Notes by Hercules Capital Funding Trust 2014-1 (the 

“2014 Securitization Issuer”), we sold and/or contributed to Hercules Capital Funding 2014-1 LLC, as trust depositor (the “2014 Trust Depositor”), certain senior loans made to 
certain of our portfolio companies (the “2014 Loans”), which the 2014 Trust Depositor in turn sold and/or contributed to the 2014 Securitization Issuer in exchange for 100% of the 
equity interest in the 2014 Securitization Issuer, cash proceeds and other consideration. Following these transfers, the 2014 Securitization Issuer, and not the 2014 Trust Depositor or 
us, held all of the ownership interest in the 2014 Loans. 

As a result of the 2014 Debt Securitization, we hold, indirectly through the 2014 Trust Depositor, 100% of the equity interests in the 2014 Securitization Issuer. As a result, 

we consolidate the financial statements of the 2014 Trust Depositor and the 2014 Securitization Issuer, as well as our other subsidiaries, in our consolidated financial statements. 
Because the 2014 Trust Depositor and the 2014 Securitization Issuer is disregarded as an entity separate from its owners for U.S. federal income tax purposes, the sale or contribution 
by us to the 2014 Trust Depositor, and by the 2014 Trust Depositor to the 2014 Securitization Issuer, as applicable, did not constitute a taxable event for U.S. federal income tax 
purposes. If the IRS were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. 

Further, a failure of the 2014 Securitization Issuer to be treated as a disregarded entity for U.S. federal income tax purposes would constitute an event of default pursuant to 
the indenture under the 2014 Debt Securitization, upon which the trustee under the 2014 Debt Securitization (the “2014 Trustee”), may and will at the direction of a supermajority of 
the holders of the 2021 Asset-Backed Notes (the “2021 Noteholders”), declare the 2021 Asset-Backed Notes, to be immediately due and payable and exercise remedies under the 
applicable indenture, including (i) to institute proceedings for the collection of all amounts then payable on the 2021 Asset-Backed Notes, or under the applicable indenture, enforce 
any judgment obtained, and collect from the 2014 Securitization Issuer and any other obligor upon the 2021 Asset-Backed Notes monies adjudged due; (ii) institute proceedings from 
time to time for the complete or partial foreclosure of the applicable indenture with respect to the property of the 2014 Securitization Issuer; (iii) exercise any remedies as a secured 
party under the relevant Uniform Commercial Code and take other appropriate action under applicable law to protect and enforce the rights and remedies of the 2014 Trustee and the 
2021 Noteholders; or (iv) sell the property of the 2014 Securitization Issuer or any portion thereof or rights or interest therein at one or more public or private sales called and 
conducted in any matter permitted by law. Any such exercise of remedies could have a material adverse effect on our business, financial condition, results of operations or cash flows. 

An event of default in connection with the 2014 Debt Securitization could give rise to a cross-default under our other material indebtedness. 

The documents governing our other material indebtedness contain customary cross-default provisions that could be triggered if an event of default occurs in connection with 

the 2014 Debt Securitization. An event of default with respect to our other indebtedness could lead to the acceleration of such indebtedness and the exercise of other remedies as 
provided in the documents governing such other indebtedness. This could have a material adverse effect on our business, financial condition, results of operations and cash flows and 
may result in our inability to make distributions sufficient to maintain our ability to be subject to tax as a RIC. 

We may not receive cash distributions in respect of our indirect ownership interests in the 2014 Securitization Issuer. 

Apart from fees payable to us in connection with our role as servicer of the 2014 Loans and the reimbursement of related amounts under the documents governing the 2014 

Debt Securitization, we receive cash in connection with the 2014 Debt Securitization only to the extent that the 2014 Trust Depositor receives payments in respect of its equity 
interests in the 2014 Securitization Issuer. The respective holders of the equity interests in the 2014 Securitization Issuer are the residual claimants on distributions, if any, made by the 
2014 Securitization Issuer after the respective 2014 Noteholders and other claimants have been paid in full on each payment date or upon maturity of the 2021 Asset-Backed Notes, 
subject to the priority of payments under the 2014 Debt Securitization documents governing the 2014 Debt Securitization.

29

To the extent that the value of a 2014 Securitization Issuer’s portfolio of loans is reduced as a result of conditions in the credit markets (relevant in the event of a liquidation 

event), other macroeconomic factors, distressed or defaulted loans or the failure of individual portfolio companies to otherwise meet their obligations in respect of the loans, or for any 
other reason, the ability of the 2014 Securitization Issuer to make cash distributions in respect of  the 2014 Trust Depositor’s equity interests would be negatively affected and 
consequently, the value of the equity interests in the 2014 Securitization Issuer would also be reduced. In the event that we fail to receive cash indirectly from the 2014 Securitization 
Issuer, we could be unable to make distributions, if at all, in amounts sufficient to maintain our ability to be subject to tax as a RIC. 

The interests of the 2014 Noteholders may not be aligned with our interests. 

The 2021 Asset-Backed Notes are debt obligations ranking senior in right of payment to the rights of the holder of the equity interests in the 2014 Securitization Issuer, as 

residual claimants in respect of distributions, if any, made by the 2014 Securitization Issuer. As such, there are circumstances in which the interests of the 2014 Noteholders may not 
be aligned with the interests of holders of the equity interests in the 2014 Securitization Issuer. For example, under the terms of the documents governing the 2014 Debt Securitization, 
the 2014 Noteholders have the right to receive payments of principal and interest prior to holders of the equity interests. 

For as long as the 2021 Asset-Backed Notes remain outstanding, the respective 2014 Noteholders have the right to act in certain circumstances with respect to the 2014 Loans 

in ways that may benefit their interests but not the interests of the respective holders of the equity interests in the 2014 Securitization Issuer, including by exercising remedies under 
the documents governing the 2014 Debt Securitization. 

If an event of default occurs, the 2014 Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governing the 2014 Debt 

Securitization. For example, upon the occurrence of an event of default with respect to the 2021 Asset-Backed Notes, the 2014 Trustee may and will at the direction of the holders of a 
supermajority of the applicable 2021 Asset-Backed Notes declare the principal, together with any accrued interest, of the notes to be immediately due and payable. This would have 
the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2014 Securitization Issuer. The 2021 Asset-Backed Notes then outstanding 
will be paid in full before any further payment or distribution on the equity interest is made. There can be no assurance that there will be sufficient funds through collections on the 
2014 Loans or through the proceeds of the sale of the 2014 Loans in the event of a bankruptcy or insolvency to repay in full the obligations under the 2021 Asset-Backed Notes, or to 
make any distribution to holders of the equity interests in the 2014 Securitization Issuer. 

Remedies pursued by the 2014 Noteholders could be adverse to our interests as the indirect holder of the equity interests in the 2014 Securitization Issuer. The 2014 
Noteholders have no obligation to consider any possible adverse effect on such other interests. Thus, there can be no assurance that any remedies pursued by the 2014 Noteholders will
be consistent with the best interests of the 2014 Trust Depositor or that we will receive, indirectly through the 2014 Trust Depositor, any payments or distributions upon an 
acceleration of the 2021 Asset-Backed Notes. Any failure of the 2014 Securitization Issuer to make distributions in respect of the equity interests that we indirectly hold, whether as a 
result of an event of default and the acceleration of payments on the 2021 Asset-Backed Notes or otherwise, could have a material adverse effect on our business, financial condition, 
results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our ability to be subject to tax as a RIC. 

Certain events related to the performance of 2014 Loans could lead to the acceleration of principal payments on the 2021 Asset-Backed Notes. 

The following constitute rapid amortization events (“Rapid Amortization Events”) under the documents governing the 2014 Debt Securitization: (i) the aggregate outstanding 
principal balance of delinquent 2014 Loans, and restructured 2014 Loans that would have been delinquent 2014 Loans had such loans not become restructured loans exceeds 10% of 
the current aggregate outstanding principal balance of the 2014 Loans for a period of three consecutive months; (ii) the aggregate outstanding principal balance of defaulted 2014 
Loans exceeds 5% of the initial outstanding principal balance of the 2014 Loans determined as November 13, 2014 for a period of three consecutive months; (iii) the aggregate 
outstanding principal balance of the 2021 Asset-Backed Notes exceeds the borrowing base for a period of three consecutive months; (iv) the 2014 Securitization Issuer’s pool of 2014 
Loans contains 2014 Loans to ten or fewer obligors; and (v) the occurrence of an event of default under the documents governing the 2014 Debt Securitization. After a Rapid 
Amortization Event has occurred, subject to the priority of payments under the documents governing the 2014 Debt Securitization, principal collections on the 2014 Loans will be 
used to make accelerated payments of principal on the 2021 Asset-Backed Notes until the principal balance of the 2021 Asset-Back Notes is reduced to zero. Such an event could 
delay, reduce or eliminate the ability of the 2014 Securitization Issuer to make distributions in respect of the equity interests that we indirectly hold, which could have a material 
adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our ability to be 
subject to tax as a RIC. 

30

We have certain repurchase obligations with respect to the 2014 Loans transferred in connection with the 2014 Debt Securitization. 

As part of the 2014 Debt Securitization, we entered into a sale and contribution agreement and a sale and servicing agreement under which we would be required to 
repurchase any 2014 Loan (or participation interest therein) which was sold to the 2014 Securitization Issuer in breach of certain customary representations and warranty made by us 
or by the 2014 Trust Depositors with respect to such 2014 Loan or the legal structure of the 2014 Debt Securitization. To the extent that there is a breach of such representations and 
warranties and we fail to satisfy any such repurchase obligation, a 2014 Trustee may, on behalf of the 2014 Securitization Issuer, bring an action against us to enforce these repurchase 
obligations. 

Our investments in a portfolio company, whether debt, equity, or a combination thereof, may lead to our receiving material non-public information (“MNPI”) or obtaining 
‘control’ of the target company.  Our ability to exit an investment where we have MNPI or control could be limited and could result in a realized loss on the investment. 

If we receive MNPI, or a controlling interest in a portfolio company, our ability to divest ourselves from a debt or equity investment could be restricted.  Causes of such 

restriction could include market factors, such as liquidity in a private stock, or limited trading volume in a public company’s securities, or regulatory factors, such as the receipt of 
MNPI or insider blackout periods, where we are under legal obligation not to sell. Additionally, we may choose not to take certain actions to protect a debt investment in a control 
investment portfolio company. As a result, we could experience a decrease in the value of our portfolio company holdings and potentially incur a realized loss on the investment. 

Regulations governing our operations as a business development company may affect our ability to, and the manner in which, we raise additional capital, which may expose 
us to risks. 

Our business will require a substantial amount of capital. We may acquire additional capital from the issuance of senior securities, including borrowings, securitization 
transactions or other indebtedness, or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future on favorable terms 
or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow money from banks or other financial institutions, which we refer to 
collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the 1940 Act, we are not permitted to incur indebtedness unless immediately after 
such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). In addition, we may not be 
permitted to declare any cash distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage 
of at least 200% after deducting the amount of such distribution or purchase price. Our ability to pay distributions or issue additional senior securities would be restricted if our asset 
coverage ratio were not at least 200%. 

If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of 

our indebtedness at a time when such transaction may be disadvantageous. As a result of issuing senior securities, we would also be exposed to risks associated with leverage, 
including an increased risk of loss. If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have 
separate voting rights and might have rights, preferences, or privileges more favorable than those of our common stockholders and the issuance of preferred stock could have the effect 
of delaying, deferring, or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest. 

To the extent that we are constrained in our ability to issue debt or other senior securities, we will depend on issuances of common stock to finance operations. Other than in 

certain limited situations such as rights offerings, as a business development company, we are generally not able to issue our common stock at a price below NAV without first 
obtaining required approvals from our stockholders and our independent directors. If we raise additional funds by issuing more common stock or senior securities convertible into, or 
exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you might experience dilution. Moreover, we can offer no 
assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all. 

When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and management of the company may make decisions 
that could decrease the value of our portfolio holdings. 

We make both debt and minority equity investments; therefore, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and 
the stockholders and management of such company may take risks or otherwise act in ways that do not serve our interests. As a result, a portfolio company may make decisions that 
could decrease the value of our portfolio holdings. 

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If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a business development company or be precluded from investing according 
to our current business strategy. 

As a business development company, we may not acquire any assets other than “qualifying assets” as defined under the 1940 Act, unless, at the time of and after giving effect 

to such acquisition, at least 70% of our total assets are qualifying assets. See “Item 1. Business –Regulation.” 

We believe that most of the senior loans we make will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive 
investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our 
status as a business development company, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could 
prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at 
inopportune times in order to comply with the 1940 Act. If we need to dispose of such investments quickly, it would be difficult to dispose of such investments on favorable terms. 
For example, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss. 

A failure on our part to maintain our qualification as a business development company would significantly reduce our operating flexibility. 

If we fail to continuously qualify as a business development company, we might be subject to regulation as a registered closed-end investment company under the 1940 Act, 

which would significantly decrease our operating flexibility, and lead to situations where we might have to restrict our borrowings, reduce our leverage, sell securities and pursue 
other activities that we are allowed to engage in as a business development company. In addition, failure to comply with the requirements imposed on business development 
companies by the 1940 Act could cause the SEC to bring an enforcement action against us. For additional information on the qualification requirements of a business development 
company, see “Item 1. Business – Regulation.”

To the extent OID and PIK interest constitute a portion of our income, we will be exposed to risks associated with such income being required to be included in taxable and 
accounting income prior to receipt of cash representing such income. 

Our investments may include OID instruments and contractual PIK interest arrangements, which represents contractual interest added to a loan balance and due at the end of 
such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to risks associated with such income being required to be included in taxable 
and accounting income prior to receipt of cash, including the following: 

•

•

•

•

•

The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK 
instruments generally represent a significantly higher credit risk than coupon loans.

Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the 
obligation.

OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred 
payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions.

For accounting purposes, any cash distributions to stockholders representing OID and PIK income are not treated as coming from paid-in capital, even though the cash 
to pay them comes from the offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested 
by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

The deferral of PIK interest may have a negative impact on our liquidity as it represents non-cash income that may require cash distributions to our stockholders in 
order to maintain our ability to be subject to tax as a RIC.

If we are unable to satisfy Code requirements for qualification as a RIC, then we will be subject to corporate-level income tax, which would adversely affect our results of 
operations and financial condition. 

We elected to be treated as a RIC for federal income tax purposes with the filing of our federal corporate income tax return for 2006. We will not qualify for the tax treatment 

allowable to RICs if we are unable to comply with the source of income, asset diversification and distribution requirements contained in Subchapter M of the Code, or if we fail to 
maintain our election to be regulated as a business development company under the 1940 Act. If we fail to qualify as a RIC for any reason and become subject to a corporate-level 
income tax, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution to our stockholders and the actual amount of our distributions. 
Such a failure would have a material adverse effect on us, the NAV of our common stock and the total return, if any, earned from your investment in our common stock.

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We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing such income.

In accordance with U.S. federal tax requirements, we are required to include in income for tax purposes certain amounts that we have not yet received in cash, such as OID 
and contractual PIK interest arrangements, which represent contractual interest added to a loan balance and due at the end of such loan’s term. In addition to the cash yields received 
on our loans, in some instances, our loans generally include one or more of the following: exit fees, balloon payment fees, commitment fees, success fees or prepayment fees. In some 
cases our loans also include contractual PIK interest arrangements. The increases in loan balances as a result of contractual PIK arrangements are included in income for the period in 
which such PIK interest was accrued, which is often in advance of receiving cash payment, and are separately identified on our statements of cash flows. We also may be required to 
include in income for tax purposes certain other amounts prior to receiving the related cash.

Any warrants that we receive in connection with our debt investments will generally be valued as part of the negotiation process with the particular portfolio company. As a 

result, a portion of the aggregate purchase price for the debt investments and warrants will be allocated to the warrants that we receive. This will generally result in OID for tax 
purposes, which we must recognize as ordinary income, increasing the amount that we are required to distribute in order to be subject to tax as a RIC. Because these warrants 
generally will not produce distributable cash for us at the same time as we are required to make distributions in respect of the related OID, if ever, we would need to obtain cash from 
other sources or to pay a portion of our distributions using shares of newly issued common stock, consistent with IRS requirements, to satisfy such distribution requirements. 

Other features of the debt instruments that we hold may also cause such instruments to generate OID in excess of current cash interest received. Since in certain cases we may 

recognize income before or without receiving cash representing such income, we may have difficulty meeting the RIC tax requirement to make distributions each taxable year to our 
stockholders treated as dividends for federal income tax purposes generally of an amount equal to at least 90% of our investment company taxable income, determined without regard 
to any deduction for dividends paid. Under such circumstances, we may have to sell some of our assets, raise additional debt or equity capital or reduce new investment originations to 
meet these distribution requirements. If we are unable to obtain cash from other sources and are otherwise unable to satisfy such distribution requirements, we may fail to qualify to be 
subject to tax as a RIC and, thus, become subject to a corporate-level income tax on all our taxable income (including any net realized securities gains). 

Furthermore, we may invest in the equity securities of non-U.S. corporations (or other non-U.S. entities classified as corporations for U.S. federal income tax purposes) that 

could be treated under the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.” The rules relating to investment in 
these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on an accelerated basis with respect to corporate level events) or 
taxed at increased tax rates at distribution or disposition. In certain circumstances, these rules also could require us to recognize taxable income or gains where we do not receive a 
corresponding payment in cash.

Our portfolio investments may present special tax issues.

Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for us. U.S. federal income tax rules are not entirely clear 

about issues such as when we may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless debt in equity 
securities, how payments received on obligations in default should be allocated between principal and interest income, as well as whether exchanges of debt instruments in a 
bankruptcy or workout context are taxable. Such matters could cause us to recognize taxable income for U.S. federal income tax purposes, even in the absence of cash or economic 
gain, and require us to make taxable distributions to our stockholders to maintain our RIC status or preclude the imposition of either U.S. federal corporate income or excise taxation. 
Additionally, because such taxable income may not be matched by corresponding cash received by us, we may be required to borrow money or dispose of other investments to be able 
to make distributions to our stockholders. These and other issues will be considered by us, to the extent determined necessary, in order that we minimize the level of any U.S. federal 
income or excise tax that we would otherwise incur. See “Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company”.

Legislative or regulatory tax changes could adversely affect you.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended.  Any of those new laws, 

regulations or interpretations may take effect retroactively and could adversely affect the taxation of us or of you as a stockholder.  Therefore, changes in tax laws, regulations or 
administrative interpretations or any amendments thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments.

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There is a risk that you may not receive distributions or that our distributions may not grow over time. 

We intend to make distributions on a quarterly basis to our stockholders. We cannot assure you that we will achieve investment results, or our business may not perform in a 

manner that will allow us to make a specified level of distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a 
business development company, we may be limited in our ability to make distributions. Also, our Credit Facilities limit our ability to declare distributions to our stockholders if we 
default under certain provisions of our Credit Facilities. 

We have and may in the future choose to pay distributions in our own stock, in which case you may be required to pay tax in excess of the cash you receive. 

Under applicable Treasury regulations and other administrative authorities issued by the IRS, RICs are permitted to treat certain distributions payable in their stock, as taxable 
dividends that will satisfy their annual distribution obligations for federal income tax and excise tax purposes provided that stockholders have the opportunity to elect to receive all or 
a portion of such distribution in cash. Taxable stockholders receiving distributions will be required to include the full amount of such distributions as ordinary income (or as long-term 
capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for federal income tax 
purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock it receives as 
a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at 
the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold federal income tax with respect to such distributions, including in respect of 
all or a portion of such distribution that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on 
such distributions, then such sales may put downward pressure on the trading price of our stock. We may in the future determine to distribute taxable distributions that are partially 
payable in our common stock. 

We are exposed to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability or the value of our 
portfolio 

General interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities, and, accordingly, may have a material adverse 

effect on our investment objective and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and 
the interest rate on the debt securities in which we invest. Because we will borrow money to make investments and may issue debt securities, preferred stock or other securities, our 
net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities, preferred stock or other 
securities and the rate at which we invest these funds. Typically, we anticipate that our interest-earning investments will accrue and pay interest at both variable and fixed rates, and 
that our interest-bearing liabilities will generally accrue interest at fixed rates. 

A significant increase in market interest rates could harm our ability to attract new portfolio companies and originate new loans and investments. We expect that most of our 

current initial investments in debt securities will be at floating rate with a floor. However, in the event that we make investments in debt securities at variable rates, a significant 
increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio 
companies may be unable to meet higher payment obligations. As of December 31, 2016, approximately 92.1% of our loans were at floating rates or floating rates with a floor and 
7.9% of the loans were at fixed rates. 

In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. In addition, a decrease in interest rates may reduce net

income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest rates may produce. We may, but will not be 
required to, hedge against the risk of adverse movement in interest rates in our short-term and long-term borrowings relative to our portfolio of assets. If we engage in hedging 
activities, it may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest 
rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations. 

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We may expose ourselves to risks if we engage in hedging transactions.

If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency 

options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates 
and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent 
losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in 
the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. It may not be 
possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. 
Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and there can be no assurance that any such hedging 
arrangements will achieve the desired effect. During the year ended December 31, 2016, we did not engage in any hedging activities.

Our realized gains are reduced by amounts paid pursuant to the warrant participation agreement. 

Citigroup Global Markets Realty Corp. (“Citigroup”), a former credit facility provider to Hercules, has an equity participation right through a warrant participation agreement 
on the pool of loans and certain warrants formerly collateralized under its then existing credit facility (the “Citibank Credit Facility”). Pursuant to the warrant participation agreement, 
we granted to Citigroup a 10% participation in all warrants held as collateral under the Citibank Credit Facility. As a result, Citigroup is entitled to 10% of the realized gains on certain 
warrants until the realized gains paid to Citigroup pursuant to the agreement equals $3,750,000 (the “Maximum Participation Limit”). The obligations under the warrant participation 
agreement continue even after the Citibank Credit Facility is terminated until the Maximum Participation Limit has been reached. 

During the year ended December 31, 2016, we reduced our realized gain by approximately $146,000 for Citigroup’s participation from the acquisition proceeds we received 

on equity exercised from warrants that were included in the collateral pool. We recorded a decrease on participation liability and an increase on unrealized appreciation by a net 
amount of approximately $16,000 primarily due to depreciation of fair value on the pool of warrants collateralized under the warrant participation and the acquisition proceeds 
received on our Ping Identity Corporation equity investment. The remaining value of their participation right on unrealized gains in the related equity investments was approximately 
$127,000 as of December 31, 2016 and is included in accrued liabilities. There can be no assurances that the unrealized appreciation of the warrants will not be higher or lower in 
future periods due to fluctuations in the value of the warrants, thereby increasing or reducing the effect on the cost of borrowing. Since inception of the agreement, we have paid 
approximately $2.4 million under the warrant participation agreement thereby reducing our realized gains by this amount. We will continue to pay Citigroup under the warrant 
participation agreement until the Maximum Participation Limit is reached or the warrants expire. Warrants subject to the Citigroup warrant participation agreement are set to expire in 
January 2017. 

Legislation may allow us to incur additional leverage. 

As a business development company, under the 1940 Act generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset 

coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). If recent legislation introduced in the U.S. House of 
Representatives is passed, or similar legislation is introduced, it would modify this section of the 1940 Act and increase the amount of debt that business development companies may 
incur. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase. However, the ultimate form and likely 
outcome of such legislation or any similar legislation cannot be predicted.

Two of our wholly-owned subsidiaries are licensed by the U.S. SBA, and as a result, we will be subject to SBA regulations, which could limit our capital or investment 
decisions. 

Our wholly-owned subsidiaries HT II and HT III are licensed to act as SBICs and are regulated by the SBA. HT II and HT III hold approximately $100.0 million and $261.8 

million in assets, respectively, and they accounted for approximately 5.3% and 13.9% of our total assets, respectively, prior to consolidation at December 31, 2016. The SBIC licenses 
allow our SBIC subsidiaries to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. 

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The SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations. The SBA 
prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10.0% or more of 
a class of capital stock of a licensed SBIC. If either HT II or HT III fail to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or 
prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures immediately due and payable, and/ or limit HT II or HT III from making new investments. Such actions 
by the SBA would, in turn, negatively affect us because HT II and HT III are our wholly owned subsidiaries. 

HT II and HT III were in compliance with the terms of the SBIC’s leverage as of December 31, 2016 as a result of having sufficient capital as defined under the SBA 
regulations. Compliance with SBA requirements may cause HT II and HT III to forego attractive investment opportunities that are not permitted under SBA regulations. See “Item 1. 
Business — Regulation—Small Business Administration Regulations.”

SBA regulations limit the outstanding dollar amount of SBA guaranteed debentures that may be issued by an SBIC or group of SBICs under common control. 

The SBA regulations currently limit the dollar amount of SBA-guaranteed debentures that can be issued by any one SBIC to $150.0 million or to a group of SBICs under 

common control to $350.0 million.

An SBIC may not borrow an amount in excess of two times (and in certain cases, up to three times) its regulatory capital. As of December 31, 2016, we have issued $190.2 

million in SBA-guaranteed debentures in our SBIC subsidiaries, which is the maximum combined capacity for our SBIC subsidiaries under our existing licenses. During times that we 
reach the maximum dollar amount of SBA-guaranteed debentures permitted, and if we require additional capital, our cost of capital is likely to increase, and there is no assurance that 
we will be able to obtain additional financing on acceptable terms. 

Moreover, the current status of our SBIC subsidiaries as SBICs does not automatically assure that our SBIC subsidiaries will continue to receive SBA-guaranteed debenture 

funding. Receipt of SBA leverage funding is dependent upon our SBIC subsidiaries continuing to be in compliance with SBA regulations and policies and available SBA funding. The 
amount of SBA leverage funding available to SBICs is dependent upon annual Congressional authorizations and in the future may be subject to annual Congressional appropriations. 
There can be no assurance that there will be sufficient debenture funding available at the times desired by our SBIC subsidiaries. 

The debentures guaranteed by the SBA have a maturity of ten years and require semi-annual payments of interest. Our SBIC subsidiaries will need to generate sufficient cash 

flow to make required interest payments on the debentures. If our SBIC subsidiaries are unable to meet their financial obligations under the debentures, the SBA, as a creditor, will 
have a superior claim to our SBIC subsidiaries’ assets over our stockholders in the event we liquidate our SBIC subsidiaries or the SBA exercises its remedies under such debentures 
as the result of a default by us. 

Our wholly-owned SBIC subsidiaries may be unable to make distributions to us that will enable us to maintain RIC status, which could result in the imposition of an entity-
level tax. 

In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level taxes, we will be required to distribute substantially all of our investment company 

taxable income, determined without regard to any deduction for dividends paid, and net capital gains, including income from certain of our subsidiaries, which includes the income 
from our SBIC subsidiaries. We will be partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC 
subsidiaries may be limited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions to us that may be 
necessary to maintain our ability to be subject to tax as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiaries to make certain distributions to 
maintain our ability to be subject to tax as a RIC. We cannot assure you that the SBA will grant such waiver. If our SBIC subsidiaries are unable to obtain a waiver, compliance with 
the SBA regulations may result in loss of RIC tax treatment and a consequent imposition of an entity-level tax on us. 

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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a 
result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. 

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are 
designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting 
obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, or the subsequent 
testing by our independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies in our internal controls over financial reporting that are 
deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or 
improvement. Inferior internal controls could also cause investors and lenders to lose confidence in our reported financial information, which could have a negative effect on the 
trading price of our common stock. 

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be 
adverse. 

Our Board of Directors has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies and strategies without prior notice 

and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a business 
development company. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and the market price of 
our common stock. Nevertheless, any such changes could materially and adversely affect our business and impair our ability to make distributions to our stockholders.

Changes in laws or regulations governing our business could negatively affect the profitability of our operations. 

Changes in the laws or regulations, or the interpretations of the laws and regulations, which govern business development companies, SBICs, RICs or non-depository 

commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations, in addition to applicable 
foreign and international laws and regulations, and are subject to judicial and administrative decisions that affect our operations, including our loan originations maximum interest 
rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures, and other trade practices. If these laws, 
regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, then 
we may have to incur significant expenses in order to comply or we may have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and 
decisions, then we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon 
our business results of operations or financial condition. 

Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that could adversely affect our business and financial 
results. 

We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock is listed. These entities, including 

the Public Company Accounting Oversight Board, the SEC and the New York Stock Exchange (“NYSE”) have issued a significant number of new and increasingly complex 
requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. On 
July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, as amended, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive 
compensation-related provisions in the Dodd-Frank Act, and the SEC has adopted, and will continue to adopt, additional rules and regulations that may impact us. Our efforts to 
comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. 

In addition, our failure to maintain compliance with such rules, or for our management to appropriately address issues relating to our compliance with such rules fully and in a 
timely manner, exposes us to an increasing risk of inadvertent non-compliance.  While our management team takes reasonable efforts to ensure that we are in full compliance with all 
laws applicable to its operations, the increasing rate and extent of regulatory change increases the risk of a failure to comply, which may result in our ability to operate our business in 
the ordinary course or may subject us to potential fines, regulatory findings or other matters that may materially impact our business.

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We incur significant costs as a result of being a publicly traded company.

As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company 

whose securities are registered under the Exchange Act as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act and other rules 
implemented by the SEC.

Results may fluctuate and may not be indicative of future performance. 

Our operating results may fluctuate and, therefore, you should not rely on current or historical period results to be indicative of our performance in future reporting periods. 

Factors that could cause operating results to fluctuate include, but are not limited to, variations in the investment origination volume and fee income earned, changes in the accrual 
status of our debt investments, variations in timing of prepayments, variations in and the timing of the recognition of net realized gains or losses and changes in unrealized 
appreciation or depreciation, the level of our expenses, the degree to which we encounter competition in our markets, and general economic conditions. 

We face cyber-security risks and the failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management 
continuity planning could impair our ability to conduct business effectively. 

Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, 

implementation and updating, our information technology systems could become subject to cyber-attacks. Network, system, application and data breaches could result in operational 
disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition. 

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, 

or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if 
those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the 
event of a disaster, our ability to effectively conduct our business could be severely compromised.

We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems 

could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to 
our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially 
jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions 
or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or 
loss.

We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common 
stock and our ability to pay distributions. 

Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the 
termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other 
operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our 
control and adversely affect our business. There could be: 

•
•
•
•
•

sudden electrical or telecommunication outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
events arising from local or larger scale political or social matters, including terrorist acts; and 
cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay 

distributions to our stockholders.

38

We may be subject to restrictions on our ability to make distributions to our stockholders.

Restrictions imposed on the declaration of dividends or other distributions to holders of our common stock, by both the 1940 Act and by requirements imposed by rating 

agencies, might impair our ability to be subject to tax as a RIC. While we intend to prepay our Notes and other debt to the extent necessary to enable us to distribute our income as 
required to maintain our ability to be subject to tax as a RIC, there can be no assurance that such actions can be effected in time or in a manner to satisfy the requirements set forth in 
the Code.

Risks Related to Current Economic and Market Conditions 

Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions could materially and 
adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business, financial condition and results of 
operations. 

The global capital markets have experienced a period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in the financial services sector, the

re-pricing of credit risk and the failure of certain major financial institutions. While the capital markets have improved, these conditions could deteriorate again in the future. During 
such market disruptions, we may have difficulty raising debt or equity capital, especially as a result of regulatory constraints. 

Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse 

effect on our business. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at 
which we have recorded our investments. In addition, significant changes in the capital markets, including the disruption and volatility, have had, and may in the future have, a 
negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our 
investments for liquidity purposes, could have a material adverse impact on our business, financial condition and results of operations. 

Various social and political tensions in the United States and around the world, including in the Middle East, Eastern Europe and Russia, may continue to contribute to 

increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause further economic uncertainties or deterioration in the 
United States and worldwide. Several European Union (“EU”) countries, including Greece, Ireland, Italy, Spain, and Portugal, continue to face budget issues, some of which may have 
negative long-term effects for the economies of those countries and other EU countries. There is also continued concern about national-level support for the euro and the 
accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In July and August 2015, Greece reached agreements with 
its creditors for bailouts that provide aid in exchange for certain austerity measures.  These and similar austerity measures may adversely affect world economic conditions and have 
an impact on our business and that of our portfolio companies.  In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued 
sell-off of trading in Chinese markets.  In August 2015, Chinese authorities sharply devalued China’s currency.

The government of the United Kingdom (“U.K.”) held an in-or-out referendum on the U.K.’s membership in the EU on June 23, 2016. The referendum resulted in a vote in 
favor of the exit of the U.K. from the EU (“Brexit”).  A process of negotiation will follow that will determine the future terms of the U.K.’s relationship with the EU The uncertainty 
in the wake of the referendum could have a negative impact on both the U.K. economy and the economies of other countries in Europe.  The Brexit process also may lead to greater 
volatility in the global currency and financial markets, which could adversely affect us.  In connection with investments in non-U.S. issuers, we may engage in foreign currency 
exchange transactions but is not required to hedge its currency exposure. As such, we make investments that are denominated in British pound sterling or euros. Our assets are 
generally valued in U.S. dollars, and the depreciation of the British pound sterling and/or the euro in relation to the U.S. dollar in anticipation of Brexit would adversely affect our 
investments denominated in British pound sterling or euros that are not fully hedged regardless of the performance of their underlying issuers. Global central banks may maintain 
historically low interest rates longer than was anticipated prior to the Brexit vote, which could adversely affect our income and the level of our distributions.

These market and economic disruptions affect, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets, which could 

adversely affect our business and that of our portfolio companies. We cannot predict the duration of the effects related to these or similar events in the future on the United States 
economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, 
but there can be no assurance that we will be successful in doing so. 

39

Depending on funding requirements, we may need to raise additional capital to meet our unfunded commitments either through equity offerings or through additional 
borrowings. 

As of December 31, 2016, we had approximately $59.7 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the 

portfolio company and unencumbered by milestones. 

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 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. Closed 
commitments generally fund 70-80% of the committed amount in aggregate over the life of the commitment. We believe that our assets provide adequate cover to satisfy all of our 
unfunded comments and we intend to use cash flow from normal and early principal repayments and proceeds from borrowings and notes to fund these commitments. However, there 
can be no assurance that we will have sufficient capital available to fund these commitments as they come due. 

Our ability to secure additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating 

performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, 
business and other factors, many of which are beyond our control. The prolonged continuation or worsening of current economic and capital market conditions could have a material 
adverse effect on our ability to secure financing on favorable terms, if at all. 

Changes relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debt securities. 

In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connection with the calculation of 
LIBOR, across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their 
derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates 
higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged 
manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing. 

Actions by the BBA, regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. 

Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-
rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported 
LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities. 

Risks Related to Our Investments 

Our investments are concentrated in certain industries and in a number of technology-related companies, which subjects us to the risk of significant loss if any of these 
companies default on their obligations under any of their debt securities that we hold, or if any of the technology-related industry sectors experience a downturn. 

We have invested and intend to continue investing in a limited number of technology-related companies. A consequence of this limited number of investments is that the 
aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. 
Beyond the asset diversification requirements to which we are subject as a business development company and a RIC, we do not have fixed guidelines for diversification or limitations 
on the size of our investments in any one portfolio company and our investments could be concentrated in relatively few issuers. In addition, we have invested in and intend to 
continue investing, under normal circumstances, at least 80% of the value of our total assets (including the amount of any borrowings for investment purposes) in technology-related 
companies. 

As of December 31, 2016, approximately 73.4% of the fair value of our portfolio was composed of investments in five industries: 29.7% was composed of investments in the 

drug discovery and development industry, 15.4% was composed of investments in the software industry, 10.9% was composed of investments in the sustainable and renewable 
technology industry, 9.7% was composed of investments in the media/content/info industry and 7.7% was composed of investments in the drug delivery industry.

40

As a result, a downturn in technology-related industry sectors and particularly those in which we are heavily concentrated could materially adversely affect our financial 

condition. 

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 December 31, 2016 that represent greater than 5% of our net assets: 

(in thousands)
Machine Zone, Inc.
Insmed, Incorporated
Sorrento Therapeutics, Inc.
Sungevity, Inc.
Proterra, Inc.
Actifio, Inc.
Paratek Pharmaceuticals, Inc.

Fair Value

$

December 31, 2016

Percentage of
Net Assets

105,812
55,495
48,701
44,626
41,476
41,091
40,784

13.4%
7.0%
6.2%
5.7%
5.3%
5.2%
5.2%

Machine Zone, Inc. is a technology company that is best known for building mobile Massively Multiplayer Online games with a focus on community-based gameplay.

Insmed Incorporated is a biopharmaceutical company that focuses on the development of inhaled pharmaceuticals for the site-specific treatment of serious lung diseases.

Sorrento Therapeutics, Inc. is an antibody-centric, clinical stage biopharmaceutical company developing new treatments for cancer, pain management, inflammation, and 

autoimmune diseases.

Sungevity Development, LLC. is a global residential solar energy provider focused on making it easy and affordable for homeowners to benefit from solar power.

Proterra, Inc. designs and manufactures zero-emission vehicles that enable bus fleet operators to eliminate the dependency on fossil fuels and to significantly reduce operating 

costs.

Actifio, Inc. is a software company that helps global enterprise customers and service provider partners virtualize their data in order to improve their data resiliency, agility, 

and mobility while reducing cost and operational complexity. 

Paratek Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of innovative therapies based upon its expertise in novel 

tetracycline chemistry.

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.

Our investments may be in portfolio companies that have limited operating histories and resources. 

We expect that our portfolio will continue to consist of investments that may have relatively limited operating histories. These companies may be particularly vulnerable to 

U.S. and foreign economic downturns may have more limited access to capital and higher funding costs, may have a weaker financial position and may need more capital to expand or 
compete. These businesses also may experience substantial variations in operating results. They may face intense competition, including from larger, more established companies with 
greater financial, technical and marketing resources. Furthermore, some of these companies do business in regulated industries and could be affected by changes in government 
regulation applicable to their given industry. Accordingly, these factors could impair their cash flow or result in other events, such as bankruptcy, which could limit their ability to 
repay their obligations to us, and may adversely affect the return on, or the recovery of, our investment in these companies. We cannot assure you that any of our investments in our 
portfolio companies will be successful. We may lose our entire investment in any or all of our portfolio companies. 

41

Investing in publicly traded companies can involve a high degree of risk and can be speculative. 

We have invested, and expect to continue to invest, a portion of our portfolio in publicly traded companies or companies that are in the process of completing their IPO. As 
publicly traded companies, the securities of these companies may not trade at high volumes, and prices can be volatile, particularly during times of general market volatility, which 
may restrict our ability to sell our positions and may have a material adverse impact on us. 

Our ability to invest in public companies may be limited in certain circumstances.

To maintain our status as a business development company, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the 

time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and 
distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a 
market capitalization that is less than $250 million at the time of such investment and meets the other specified requirements.

Our investment strategy focuses on technology-related companies, which are subject to many risks, including volatility, intense competition, shortened product life cycles, 
changes in regulatory and governmental programs and periodic downturns, and you could lose all or part of your investment. 

We have invested and will continue investing primarily in technology-related companies, many of which may have narrow product lines and small market shares, which tend 

to render them more vulnerable to competitors’ actions and market conditions, as well as to general economic downturns. The revenues, income (or losses), and valuations of 
technology-related companies can and often do fluctuate suddenly and dramatically. In addition, technology-related industries are generally characterized by abrupt business cycles 
and intense competition. Overcapacity in technology-related industries, together with cyclical economic downturns, may result in substantial decreases in the market capitalization of 
many technology-related companies. Such decreases in market capitalization may occur again, and any future decreases in technology-related company valuations may be substantial 
and may not be temporary in nature. Therefore, our portfolio companies may face considerably more risk of loss than do companies in other industry sectors. 

Because of rapid technological change, the average selling prices of products and some services provided by technology-related companies have historically decreased over 
their productive lives. As a result, the average selling prices of products and services offered by technology-related companies may decrease over time, which could adversely affect 
their operating results, their ability to meet obligations under their debt securities and the value of their equity securities. This could, in turn, materially adversely affect our business, 
financial condition and results of operations. 

Our investments in sustainable and renewable technology companies are subject to substantial operational risks, such as underestimated cost projections, unanticipated 

operation and maintenance expenses, loss of government subsidies, and inability to deliver cost-effective alternative energy solutions compared to traditional energy products. In 
addition, sustainable and renewable technology companies employ a variety of means of increasing cash flow, including increasing utilization of existing facilities, expanding 
operations through new construction or acquisitions, or securing additional long-term contracts. Thus, some energy companies may be subject to construction risk, acquisition risk or 
other risks arising from their specific business strategies. Furthermore, production levels for solar, wind and other renewable energies may be dependent upon adequate sunlight, wind, 
or biogas production, which can vary from market to market and period to period, resulting in volatility in production levels and profitability. Demand for sustainable and renewable 
technology is also influenced by the available supply and prices for other energy products, such as coal, oil and natural gases. A change in prices in these energy products could reduce 
demand for alternative energy. 

A natural disaster may also impact the operations of our portfolio companies, including our technology-related portfolio companies. The nature and level of natural disasters 

cannot be predicted and may be exacerbated by global climate change. A portion of our technology-related portfolio companies rely on items assembled or produced in areas 
susceptible to natural disasters, and may sell finished goods into markets susceptible to natural disasters. A major disaster, such as an earthquake, tsunami, flood or other catastrophic 
event could result in disruption to the business and operations of our technology-related portfolio companies. 

We will invest in technology-related companies that are reliant on U.S. and foreign regulatory and governmental programs. Any material changes or discontinuation, due to 

change in administration or U.S. Congress or otherwise could have a material adverse effect on the operations of a portfolio company in these industries and, in turn, impair our ability 
to timely collect principal and interest payments owed to us to the extent applicable. 

42

We have invested in and may continue investing in technology-related companies that do not have venture capital or private equity firms as equity investors, and these 
companies may entail a higher risk of loss than do companies with institutional equity investors, which could increase the risk of loss of your investment. 

Our portfolio companies will often require substantial additional equity financing to satisfy their continuing working capital and other cash requirements and, in most 
instances, to service the interest and principal payments on our investment. Portfolio companies that do not have venture capital or private equity investors may be unable to raise any 
additional capital to satisfy their obligations or to raise sufficient additional capital to reach the next stage of development. Portfolio companies that do not have venture capital or 
private equity investors may be less financially sophisticated and may not have access to independent members to serve on their boards, which means that they may be less successful 
than portfolio companies sponsored by venture capital or private equity firms. Accordingly, financing these types of companies may entail a higher risk of loss than would financing 
companies that are sponsored by venture capital or private equity firms. 

Sustainable and renewable technology companies are subject to extensive government regulation and certain other risks particular to the sectors in which they operate and 
our business and growth strategy could be adversely affected if government regulations, priorities and resources impacting such sectors change or if our portfolio companies 
fail to comply with such regulations. 

As part of our investment strategy, we plan to invest in portfolio companies in sustainable and renewable technology sectors that may be subject to extensive regulation by 

foreign, U.S. federal, state and/or local agencies. Changes in existing laws, rules or regulations, or judicial or administrative interpretations thereof, or new laws, rules or regulations 
could have an adverse impact on the business and industries of our portfolio companies. In addition, changes in government priorities or limitations on government resources could 
also adversely impact our portfolio companies. We are unable to predict whether any such changes in laws, rules or regulations will occur and, if they do occur, the impact of these 
changes on our portfolio companies and our investment returns. Furthermore, if any of our portfolio companies fail to comply with applicable regulations, they could be subject to 
significant penalties and claims that could materially and adversely affect their operations. Our portfolio companies may be subject to the expense, delay and uncertainty of the 
regulatory approval process for their products and, even if approved, these products may not be accepted in the marketplace. 

In addition, there is considerable uncertainty about whether foreign, U.S., state and/or local governmental entities will enact or maintain legislation or regulatory programs that

mandate reductions in greenhouse gas emissions or provide incentives for sustainable and renewable technology companies. Without such regulatory policies, investments in 
sustainable and renewable technology companies may not be economical and financing for sustainable and renewable technology companies may become unavailable, which could 
materially adversely affect the ability of our portfolio companies to repay the debt they owe to us. Any of these factors could materially and adversely affect the operations and 
financial condition of a portfolio company and, in turn, the ability of the portfolio company to repay the debt they owe to us. 

Cyclicality within the energy sector may adversely affect some of our portfolio companies.

Industries within the energy sector are cyclical with fluctuations in commodity prices and demand for, and production of commodities driven by a variety of factors. The 

highly cyclical nature of the industries within the energy sector may lead to volatile changes in commodity prices, which may adversely affect the earnings of energy companies in 
which we may invest and the performance and valuation of our portfolio.

Volatility of oil and natural gas prices could impair certain of our portfolio companies’ operations and ability to satisfy obligations to their respective lenders and investors, 
including us, which could negatively impact our financial condition. 

Some of our portfolio companies’ businesses are heavily dependent upon the prices of, and demand for, oil and natural gas, which have recently declined significantly and 

such volatility could continue or increase in the future. A substantial or extended decline in oil and natural gas demand or prices may adversely affect the business, financial condition, 
cash flow, liquidity or results of operations of these portfolio companies and might impair their ability to meet capital expenditure obligations and financial commitments. A prolonged 
or continued decline in oil prices could therefore have a material adverse effect on our business, financial condition and results of operations.

43

Our investments in the life sciences industry are subject to extensive government regulation, litigation risk and certain other risks particular to that industry. 

We have invested and plan to continue investing in companies in the life sciences industry that are subject to extensive regulation by the Food and Drug Administration, or the 

FDA, and to a lesser extent, other federal, state and other foreign agencies. If any of these portfolio companies fail to comply with applicable regulations, they could be subject to 
significant penalties and claims that could materially and adversely affect their operations. Portfolio companies that produce medical devices or drugs are subject to the expense, delay 
and uncertainty of the regulatory approval process for their products and, even if approved, these products may not be accepted in the marketplace. In addition, governmental 
budgetary constraints effecting the regulatory approval process, new laws, regulations or judicial interpretations of existing laws and regulations might adversely affect a portfolio 
company in this industry. Portfolio companies in the life sciences industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers 
for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers when needed. Any of these factors could 
materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us. 

Our investments in the drug discovery industry are subject to numerous risks, including competition, extensive government regulation, product liability and commercial 
difficulties. 

Our investments in the drug discovery industry are subject to numerous risks. The successful and timely implementation of the business model of our drug discovery portfolio 

companies depends on their ability to adapt to changing technologies and introduce new products. As competitors continue to introduce competitive products, the development and 
acquisition of innovative products and technologies that improve efficacy, safety, patient’s and clinician’s ease of use and cost-effectiveness are important to the success of such 
portfolio companies. The success of new product offerings will depend on many factors, including the ability to properly anticipate and satisfy customer needs, obtain regulatory 
approvals on a timely basis, develop and manufacture products in an economic and timely manner, obtain or maintain advantageous positions with respect to intellectual property, and 
differentiate products from those of competitors. Failure by our portfolio companies to introduce planned products or other new products or to introduce products on schedule could 
have a material adverse effect on our business, financial condition and results of operations. 

Further, the development of products by drug discovery companies requires significant research and development, clinical trials and regulatory approvals. The results of 

product development efforts may be affected by a number of factors, including the ability to innovate, develop and manufacture new products, complete clinical trials, obtain 
regulatory approvals and reimbursement in the U.S. and abroad, or gain and maintain market approval of products. In addition, regulatory review processes by U.S. and foreign 
agencies may extend longer than anticipated as a result of decreased funding and tighter fiscal budgets. Further, patents attained by others can preclude or delay the commercialization 
of a product. There can be no assurance that any products now in development will achieve technological feasibility, obtain regulatory approval, or gain market acceptance. Failure 
can occur at any point in the development process, including after significant funds have been invested. Products may fail to reach the market or may have only limited commercial 
success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, failure to achieve market adoption, 
limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or the infringement of intellectual property rights of 
others. 

Future legislation, and/or regulations and policies adopted by the FDA or other U.S. or foreign regulatory authorities may increase the time and cost required by some of our 
portfolio companies to conduct and complete clinical trials for the product candidates that they develop, and there is no assurance that these companies will obtain regulatory 
approval to market and commercialize their products in the U.S. and in foreign countries. 

The FDA has established regulations, guidelines and policies to govern the drug development and approval process, as have foreign regulatory authorities, which affect some 

of our portfolio companies. Any change in regulatory requirements due to the adoption by the FDA and/or foreign regulatory authorities of new legislation, regulations, or policies 
may require some of our portfolio companies to amend existing clinical trial protocols or add new clinical trials to comply with these changes. Such amendments to existing protocols 
and/or clinical trial applications or the need for new ones, may significantly impact the cost, timing and completion of the clinical trials. 

In addition, increased scrutiny by the U.S. Congress of the FDA’s and other authorities approval processes may significantly delay or prevent regulatory approval, as well as 

impose more stringent product labeling and post-marketing testing and other requirements. Foreign regulatory authorities may also increase their scrutiny of approval processes 
resulting in similar delays. Increased scrutiny and approvals processes may limit the ability of our portfolio companies to market and commercialize their products in the U.S. and in 
foreign countries. 

44

Life sciences companies, including drug development companies, device manufacturers, service providers and others, are also subject to material pressures when there are 

changes in the outlook for healthcare insurance markets.  The ability for individuals, along with private and public insurers, to account for the costs of paying for healthcare insurance 
can place strain on the ability of new technology, devices and services to enter those markets, particularly when they are new or untested.  As a result, it is not uncommon for changes 
in the insurance market place to lead to a slower rate of adoption, price pressure and other forces that may materially limit the success of companies bringing such technologies to 
market.  Changes in the health insurance sector might then have an impact on the value of companies in our portfolio or our ability to invest in the sector generally.

Changes in healthcare laws and other regulations, or the enforcement or interpretation of such laws or regulations, applicable to some of our portfolio companies’ businesses 
may constrain their ability to offer their products and services. 

Changes in healthcare or other laws and regulations, or the enforcement or interpretation of such laws or regulations, applicable to the businesses of some of our portfolio 

companies may occur that could increase their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less 
profitable or obsolete, any of which could have a material adverse effect on their results of operations. There has also been an increased political and regulatory focus on healthcare 
laws in recent years, and new legislation could have a material effect on the business and operations of some of our portfolio companies. 

Additionally, following the inauguration of President-elect Trump on January 20, 2017, it is possible that new legislation will be introduced and passed by the Republican-

controlled Congress repealing certain healthcare laws and regulation in whole or in part and signed into law by President Trump, consistent with statements made by him during his 
presidential campaign indicating his intention to do so within a short time following his inauguration.  Because of the continued uncertainty surrounding the healthcare industry, 
including the potential for further legal challenges or repeal of existing legislation, we cannot quantify or predict with any certainty the likely impact on our portfolio companies, our 
business model, prospects, financial condition or results of operations. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess 
alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental 
changes in the healthcare delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any 
such potential legislation on certain of our portfolio companies, our business model, prospects, financial condition or results of operations.

Price declines and illiquidity in the corporate debt markets could adversely affect the fair value of our portfolio investments, reducing our NAV through increased net 
unrealized depreciation. 

As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at fair market value as determined in 

good faith by or under the direction of our Board of Directors. As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the 
fair value of our investments: the enterprise value of a portfolio company (an estimate of the total fair value of the portfolio company’s debt and equity), the nature and realizable 
value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a 
comparison of the portfolio company’s securities to similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the 
price at which similar investments may be made in the future and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity 
sale occurs, we use the pricing indicated by the external event to corroborate our valuation. While most of our investments are not publicly traded, applicable accounting standards 
require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its 
maturity). As a result, volatility in the capital markets can also adversely affect our investment valuations. Decreases in the market values or fair values of our investments are 
recorded as unrealized depreciation. The effect of all of these factors on our portfolio can reduce our NAV by increasing net unrealized depreciation in our portfolio. 

Depending on market conditions, we could incur substantial realized losses and may suffer substantial unrealized depreciation in future periods, which could have a material 

adverse impact on our business, financial condition and results of operations. 

45

Economic recessions or slowdowns could impair the ability of our portfolio companies to repay loans, which, in turn, could increase our non-performing assets, decrease the 
value of our portfolio, reduce our volume of new loans and have a material adverse effect on our results of operations. 

Many of our portfolio companies may be susceptible to economic slowdowns or recessions in both the U.S. and foreign countries, and may be unable to repay our loans 

during such periods. Therefore, during such periods, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease. Adverse economic conditions 
also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our 
portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in 
a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results. 

In particular, intellectual property owned or controlled by our portfolio companies may constitute an important portion of the value of the collateral of our loans to our 
portfolio companies. Adverse economic conditions may decrease the demand for our portfolio companies’ intellectual property and consequently its value in the event of a bankruptcy 
or required sale through a foreclosure proceeding. As a result, our ability to fully recover the amounts owed to us under the terms of the loans may be impaired by such events. 

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of the portfolio 

company’s loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations 
under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interests rates may make it more difficult 
for portfolio companies to make periodic payments on their loans.

Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. This risk and the risk of default is increased to the 
extent that the loan documents do not require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. In addition, if general interest rates rise, 
there is a risk that our portfolio companies will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Any failure of one or 
more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments following an increase in 
contractual interest rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The disposition of our investments may result in contingent liabilities.

We currently expect that a portion of our investments will involve private securities. In connection with the disposition of an investment in private securities, we may be 

required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be 
required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These 
arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us.

The health and performance of our portfolio companies could be adversely affected by political and economic conditions in the countries in which they conduct business. 

Some of the products of our portfolio companies are developed, manufactured, assembled, tested or marketed outside the U.S. Any conflict or uncertainty in these countries, 

including due to natural disasters, public health concerns, political unrest or safety concerns, among other things, could harm their business, financial condition and results of 
operations. In addition, if the government of any country in which their products are developed, manufactured or sold sets technical or regulatory standards for products developed or 
manufactured in or imported into their country that are not widely shared, it may lead some of their customers to suspend imports of their products into that country, require 
manufacturers or developers in that country to manufacture or develop products with different technical or regulatory standards and disrupt cross-border manufacturing, marketing or 
business relationships which, in each case, could harm their businesses. 

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Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for 
distribution and could impair our ability to service our borrowings. 

As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith 
by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Any unrealized depreciation in our investment 
portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected investments. This could result in realized losses 
in the future and ultimately in reductions of our income available for distribution in future periods and could materially adversely affect our ability to service our outstanding 
borrowings. 

A lack of IPO or merger and acquisition opportunities may cause companies to stay in our portfolio longer, leading to lower returns, unrealized depreciation, or realized 
losses. 

A lack of IPO or merger and acquisition (“M&A”) opportunities for venture capital-backed companies could lead to companies staying longer in our portfolio as private 
entities still requiring funding. This situation may adversely affect the amount of available funding for early-stage companies in particular as, in general, venture-capital firms are 
being forced to provide additional financing to late-stage companies that cannot complete an IPO or M&A transaction. In the best case, such stagnation would dampen returns, and in 
the worst case, could lead to unrealized depreciation and realized losses as some companies run short of cash and have to accept lower valuations in private fundings or are not able to 
access additional capital at all. A lack of IPO or M&A opportunities for venture capital-backed companies can also cause some venture capital firms to change their strategies, leading 
some of them to reduce funding of their portfolio companies and making it more difficult for such companies to access capital and to fulfill their potential, which can result in 
unrealized depreciation and realized losses in such companies by other companies such as ourselves who are co-investors in such companies. 

The majority of our portfolio companies will need multiple rounds of additional financing to repay their debts to us and continue operations. Our portfolio companies may 
not be able to raise additional financing, which could harm our investment returns. 

The majority of our portfolio companies will often require substantial additional equity financing to satisfy their continuing working capital and other cash requirements and, 

in most instances, to service the interest and principal payments on our investment. Each round of venture financing is typically intended to provide a company with only enough 
capital to reach the next stage of development. We cannot predict the circumstances or market conditions under which our portfolio companies will seek additional capital. It is 
possible that one or more of our portfolio companies will not be able to raise additional financing or may be able to do so only at a price or on terms unfavorable to us, either of which 
would negatively impact our investment returns. Some of these companies may be unable to obtain sufficient financing from private investors, public capital markets or traditional 
lenders. This may have a significant impact if the companies are unable to obtain certain federal, state or foreign agency approval for their products or the marketing thereof, of if 
regulatory review processes extend longer than anticipated, and the companies need continued funding for their operations during these times. Accordingly, financing these types of 
companies may entail a higher risk of loss than would financing companies that are able to utilize traditional credit sources. 

If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses. 

To attempt to mitigate credit risks, we will typically take a security interest in the available assets of our portfolio companies. There is no assurance that we will obtain or 

properly perfect our liens. 

There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate 

in value based upon the success of the business and market conditions, including as a result of the inability of a portfolio company to raise additional capital. In some circumstances, 
our lien could be subordinated to claims of other creditors. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments 
according to the loan’s terms, or that we will be able to collect on the loan should we be forced to enforce our remedies. 

In addition, because we invest in technology-related companies, a substantial portion of the assets securing our investment may be in the form of intellectual property, if any, 

inventory and equipment and, to a lesser extent, cash and accounts receivable. Intellectual property, if any, that is securing our loan could lose value if, among other things, the 
company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property is revoked or expires, the technology fails to achieve its intended 
results or a new technology makes the intellectual property functionally obsolete. Inventory may not be adequate to secure our loan if our valuation of the inventory at the time that we 
made the loan was not accurate or if there is a reduction in the demand for the inventory. 

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Similarly, any equipment securing our loan may not provide us with the anticipated security if there are changes in technology or advances in new equipment that render the 
particular equipment obsolete or of limited value, or if the company fails to adequately maintain or repair the equipment. Any one or more of the preceding factors could materially 
impair our ability to recover earned interest and principal in a foreclosure. 

At December 31, 2016, approximately 42.0% of our portfolio company debt investments were secured by a first priority security in all of the assets of the portfolio company, 

including their intellectual property, 46.7% of the debt investments were to portfolio companies that were prohibited from pledging or encumbering their intellectual property, or 
subject to a negative pledge, 8.2% of the our portfolio company debt investments were secured by a second priority security interest in all of the portfolio company’s assets, other than 
intellectual property and 3.1%  of our portfolio company debt investments were secured by a first priority security in all of the assets of the portfolio company, including its 
intellectual property, with a second lien on the portfolio company’s cash and accounts receivable. At December 31, 2016 we had no equipment only liens on any of our portfolio 
companies. 

We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient. 

In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlying collateral value is less 
than the loan amount, we will suffer a loss. In addition, we sometimes make loans that are unsecured, which are subject to the risk that other lenders may be directly secured by the 
assets of the portfolio company. In the event of a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying assets. In 
cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the portfolio company prior to a default, and as a result the 
value of the collateral may be reduced by acts or omissions by owners or managers of the assets. 

In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject to “equitable 
subordination.” This means that depending on the facts and circumstances, including the extent to which we actually provided significant “managerial assistance,” if any, to that 
portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors. In addition, certain of our loans 
are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loan or on debt senior to our loan, or in the event of a portfolio company bankruptcy, our 
loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our 
loan documents, assign our loans, accept prepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the 
portfolio company. Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral in the event 
of a default, during which time the collateral may decline in value, causing us to suffer losses. 

If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain the necessary funds 

to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a portfolio company’s ability to refinance our loan because 
the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer 
a loss which may adversely impact our financial performance. 

The inability of our portfolio companies to commercialize their technologies or create or develop commercially viable products or businesses would have a negative impact on 
our investment returns. 

The possibility that our portfolio companies will not be able to commercialize their technology, products or business concepts presents significant risks to the value of our 

investment. Additionally, although some of our portfolio companies may already have a commercially successful product or product line when we invest, technology-related products 
and services often have a more limited market- or life-span than have products in other industries. Thus, the ultimate success of these companies often depends on their ability to 
continually innovate, or raise additional capital, in increasingly competitive markets. Their inability to do so could affect our investment return. In addition, the intellectual property 
held by our portfolio companies often represents a substantial portion of the collateral, if any, securing our investments. We cannot assure you that any of our portfolio companies will 
successfully acquire or develop any new technologies, or that the intellectual property the companies currently hold will remain viable. Even if our portfolio companies are able to 
develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Neither our portfolio companies nor we have any control 
over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful. 

48

An investment strategy focused on privately-held companies presents certain challenges, including the lack of available information about these companies, a dependence on 
the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns. 

We invest primarily in privately-held companies. Generally, very little public information exists about these companies, and we are required to rely on the ability of our 

management and investment teams to obtain adequate information to evaluate the potential returns from investing in these companies. Such small, privately held companies as we 
routinely invest in may also lack quality infrastructures, thus leading to poor disclosure standards or control environments. If we are unable to uncover all material information about 
these companies, then we may not make a fully informed investment decision, and we may not receive the expected return on our investment or lose some or all of the money invested 
in these companies.

Also, privately-held companies frequently have less diverse product lines and a smaller market presence than do larger competitors. Privately-held companies are, thus, 
generally more vulnerable to economic downturns and may experience more substantial variations in operating results than do larger competitors. These factors could affect our 
investment returns and our results of operations and financial condition. 

In addition, our success depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible for the day-to-day 
operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company’s development, and high turnover of personnel is common in 
technology-related companies. The loss of one or more key managers can hinder or delay a company’s implementation of its business plan and harm its financial condition. Our 
portfolio companies may not be able to attract and retain qualified managers and personnel. Any inability to do so may negatively impact our investment returns and our results of 
operations and financial condition. 

If our portfolio companies are unable to protect their intellectual property rights, or are required to devote significant resources to protecting their intellectual property rights, 
then our investments could be harmed. 

Our future success and competitive position depend in part upon the ability of our portfolio companies to obtain and maintain proprietary technology used in their products 
and services, which will often represent a significant portion of the collateral, if any, securing our investment. The portfolio companies will rely, in part, on patent, trade secret and 
trademark law to protect that technology, but competitors may misappropriate their intellectual property, and disputes as to ownership of intellectual property may arise. Portfolio 
companies may, from time to time, be required to institute litigation in order to enforce their patents, copyrights or other intellectual property rights, to protect their trade secrets, to 
determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of 
resources. Similarly, if a portfolio company is found to infringe upon or misappropriate a third party’s patent or other proprietary rights, that portfolio company could be required to 
pay damages to such third party, alter its own products or processes, obtain a license from the third party and/or cease activities utilizing such proprietary rights, including making or 
selling products utilizing such proprietary rights. Any of the foregoing events could negatively affect both the portfolio company’s ability to service our debt investment and the value 
of any related debt and equity securities that we own, as well as any collateral securing our investment. 

Our financial condition, results of operations and cash flows could be negatively affected if we are unable to recover our principal investment as a result of a negative pledge 
or lack of a security interest on the intellectual property of our venture growth stage companies. 

In some cases, we collateralize our loans with a secured collateral position in a portfolio company's assets, which may include a negative pledge or, to a lesser extent, no 
security on their intellectual property. In the event of a default on a loan, the intellectual property of the portfolio company will most likely be liquidated to provide proceeds to pay the 
creditors of the company. There can be no assurance that our security interest, if any, in the proceeds of the intellectual property will be enforceable in a court of law or bankruptcy 
court or that there will not be others with senior or pari passu credit interests. 

Our relationship with certain portfolio companies may expose us to our portfolio companies' trade secrets and confidential information which may require us to be parties to 
non-disclosure agreements and restrict us from engaging in certain transactions. 

Our relationship with some of our portfolio companies may expose us to our portfolio companies' trade secrets and confidential information (including transactional data and 
personal data about their employees and clients) which may require us to be parties to non-disclosure agreements and restrict us from engaging in certain transactions. Unauthorized 
access or disclosure of such information may occur, resulting in theft, loss or other misappropriation. Any theft, loss, improper use, such as insider trading or other misappropriation of 
confidential information could have a material adverse impact on our competitive positions, our relationship with our portfolio companies and our reputation and could subject us to 
regulatory inquiries, enforcement and fines, civil litigation (which may cause us to incur significant expense or expose us to losses) and possible financial liability or costs. 

49

Portfolio company litigation could result in additional costs, the diversion of management time and resources and have an adverse impact on the fair value of our investment. 

To the extent that litigation arises with respect to any of our portfolio companies, we may be named as a defendant, which could result in additional costs and the diversion of 

management time and resources. Furthermore, if we are providing managerial assistance to the portfolio company or have representatives on the portfolio company’s Board of 
Directors, our costs and diversion of our management’s time and resources in assessing the portfolio company could be substantial in light of any such litigation regardless of whether 
we are named as a defendant. In addition, litigation involving a portfolio company may be costly and affect the operations of the portfolio company’s business, which could in turn 
have an adverse impact on the fair value of our investment in such company. 

We may not be able to realize our entire investment on equipment-based loans, if any, in the case of default. 

We may from time-to-time provide loans that will be collateralized only by equipment of the portfolio company. If the portfolio company defaults on the loan we would take 
possession of the underlying equipment to satisfy the outstanding debt. The residual value of the equipment at the time we would take possession may not be sufficient to satisfy the 
outstanding debt and we could experience a loss on the disposition of the equipment. At December 31, 2016, we had no equipment-based loans. 

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. 

Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Our total investments at value in foreign companies were 

approximately $61.7 million or 4.3% of total investments at December 31, 2016. Investing in foreign companies may expose us to additional risks not typically associated with 
investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets 
and less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed 
bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility, among other things.

If our investments do not meet our performance expectations, you may not receive distributions. 

We intend to make distributions on a quarterly basis to our stockholders. We may not be able to achieve operating results that will allow us to make distributions at a specific 

level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may be 
limited in our ability to make distributions. Also, restrictions and provisions in any future credit facilities may limit our ability to make distributions. As a RIC, if we do not distribute 
a certain percentage of our income each taxable year, we will suffer adverse tax consequences, including failure to obtain, or possible loss of, the federal income tax benefits allowable 
to RICs. We cannot assure you that you will receive distributions at a particular level or at all. 

We may not have sufficient funds to make follow-on investments. Our decision not to make a follow-on investment may have a negative impact on a portfolio company in 
need of such an investment or may result in a missed opportunity for us. 

After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity or need to 

increase our investment in a successful situation, for example, the exercise of a warrant to purchase common stock, or a negative situation, to protect an existing investment. Any 
decision we make not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an 
investment or may result in a missed opportunity for us to increase our participation in a successful operation and may dilute our equity interest or otherwise reduce the expected yield 
on our investment. Moreover, a follow-on investment may limit the number of companies in which we can make initial investments. In determining whether to make a follow-on 
investment, our management will exercise its business judgment and apply criteria similar to those used when making the initial investment. There is no assurance that we will make, 
or will have sufficient funds to make, follow-on investments and this could adversely affect our success and result in the loss of a substantial portion or all of our investment in a 
portfolio company. 

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The lack of liquidity in our investments may adversely affect our business and, if we need to sell any of our investments, we may not be able to do so at a favorable price. As a 
result, we may suffer losses. 

We generally invest in debt securities with terms of up to seven years and hold such investments until maturity, and we do not expect that our related holdings of equity 

securities will provide us with liquidity opportunities in the near-term. We invest and expect to continue investing in companies whose securities have no established trading market 
and whose securities are and will be subject to legal and other restrictions on resale or whose securities are and will be less liquid than are publicly-traded securities. The illiquidity of 
these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may 
realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. 
However, to maintain our qualification as a business development company and as a RIC, we may have to dispose of investments if we do not satisfy one or more of the applicable 
criteria under the respective regulatory frameworks. 

Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies. 

We invest primarily in debt securities issued by our portfolio companies. In some cases, portfolio companies will be permitted to incur other debt, or issue other equity 
securities, that rank equally with, or senior to, our investment. Such instruments may provide that the holders thereof are entitled to receive payment of distributions, interest or 
principal on or before the dates on which we are entitled to receive payments in respect of our investments. These debt instruments would usually prohibit the portfolio companies 
from paying interest on or repaying our investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, 
reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in that portfolio company would typically be entitled to receive payment in 
full before we receive any distribution in respect of our investment. After repaying such holders, the portfolio company might not have any remaining assets to use for repaying its 
obligation to us. In the case of securities ranking equally with our investments, we would have to share on a pari passu basis any distributions with other security holders in the event 
of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. 

The rights we may have with respect to the collateral securing any junior priority loans we make to our portfolio companies may also be limited pursuant to the terms of one 
or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, we may 
forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the 
collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the 
right to waive past defaults under collateral documents. We may not have the ability to control or direct such actions, even if as a result our rights as junior lenders are adversely 
affected. 

Our warrant and equity-related investments are highly speculative, and we may not realize gains from these investments. If our warrant and equity-related investments do not 
generate gains, then the return on our invested capital will be lower than it would otherwise be, which could result in a decline in the value of shares of our common stock. 

When we invest in debt securities, we generally expect to acquire warrants or other equity-related securities as well. Our goal is ultimately to dispose of these equity interests 

and realize gains upon disposition of such interests. Over time, the gains that we realize on these equity interests may offset, to some extent, losses that we experience on defaults 
under debt securities that we hold. However, the equity interests that we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to 
realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses that we experience. 

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. 

During 2016, we received debt investment early principal repayments and pay down of working capital debt investments of approximately $435.2 million. We are subject to 

the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary 
investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and 
we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a 
result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could 
negatively impact our return on equity, which could result in a decline in the market price of our common stock. 

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We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these 
companies. 

We structure the debt investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligations on the operation of the 

company’s business and its financial condition. However, from time to time we may elect to waive breaches of these covenants, including our right to payment, or waive or defer 
enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending upon the financial condition and prospects of the particular portfolio company. 
These actions may reduce the likelihood of receiving the full amount of future payments of interest or principal and be accompanied by a deterioration in the value of the underlying 
collateral as many of these companies may have limited financial resources, may be unable to meet future obligations and may go bankrupt. This could negatively impact our ability to 
pay distributions, could adversely affect our results of operation and financial condition and cause the loss of all or part of your investment. 

We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is 

possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance or actions to compel and collect 
payments from the borrower outside the ordinary course of business. 

Our loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans or we could be subject to lender liability 
claims. 

Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of other creditors of the borrower, 

when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine of equitable subordination when a 
lender or its affiliates is found to have exerted inappropriate control over a client, including control resulting from the ownership of equity interests in a client or providing of 
significant managerial assistance. We have made direct equity investments or received warrants in connection with loans. These investments represent approximately 6.7% of the 
outstanding value of our investment portfolio as of December 31, 2016. Payments on one or more of our loans, particularly a loan to a client in which we also hold an equity interest, 
may be subject to claims of equitable subordination. If we were deemed to have the ability to control or otherwise exercise influence over the business and affairs of one or more of 
our portfolio companies resulting in economic hardship to other creditors of that company, this control or influence may constitute grounds for equitable subordination and a court 
may treat one or more of our loans as if it were unsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, we would be entitled to 
repayment of our loan on a pro-rata basis with other unsecured debt or, if the effect of subordination was to place us at the level of common equity, then on an equal basis with other 
holders of the portfolio company’s common equity only after all of its obligations relating to its debt and preferred securities had been satisfied. 

In addition to these risks, in the event we elect to convert our debt position to equity, or otherwise take control of a portfolio company (such as through placing a member of 

our management team on its Board of Directors), as part of a restructuring, we face additional risks acting in that capacity.  It is not uncommon for unsecured, or otherwise unsatisfied 
creditors, to sue parties that elect to use their debt positions to later control a company following a restructuring or bankruptcy.  Apart from lawsuits, key customers and suppliers 
might act in a fashion contrary to the interests of a portfolio company if they were left unsatisfied in a restructuring or bankruptcy.  Any combination of these factors might lead to the 
loss in value of a company subject to such activity and may divert the time and attention of our management team and investment team to help to address such issues in a portfolio 
company. 

The potential inability of our portfolio companies’ in the healthcare industry to charge desired prices with respect to prescription drugs could impact their revenues and in 
turn their ability to repay us.

Some of our portfolio companies in the healthcare industry are subject to risks associated with the pricing for prescription drugs. It is uncertain whether customers of our 

healthcare industry portfolio companies will continue to utilize established prescription drug pricing methods, or whether other pricing benchmarks will be adopted for establishing 
prices within the industry. Legislation may lead to changes in the pricing for Medicare and Medicaid programs. Regulators have conducted investigations into the use of prescription 
drug pricing methods for federal program payment, and whether such methods have inflated drug expenditures by the Medicare and Medicaid programs. Federal and state proposals 
have sought to change the basis for calculating payment of certain drugs by the Medicare and Medicaid programs. Any changes to the method for calculating prescription drug costs 
may reduce the revenues of our portfolio companies in the healthcare industry which could in turn impair their ability to timely make any principal and interest payments owed to us.

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Risks Related to Our Securities 

Investing in shares of our common stock involves an above average degree of risk. 

The investments we make in accordance with our investment objective may result in a higher amount of risk, volatility or loss of principal than alternative investment options. 
Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not be suitable for investors with lower risk 
tolerance. 

Our common stock may trade below its NAV per share, which limits our ability to raise additional equity capital. 

If our common stock is trading below its NAV per share, we will generally not be able to issue additional shares of our common stock at its market price without first 
obtaining the approval for such issuance from our stockholders and our independent directors. If our common stock trades below NAV, the higher cost of equity capital may result in 
it being unattractive to raise new equity, which may limit our ability to grow. The risk of trading below NAV is separate and distinct from the risk that our NAV per share may 
decline. We cannot predict whether shares of our common stock will trade above, at or below our NAV. 

Provisions of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. 

Our charter and bylaws contain provisions that may have the effect of discouraging, delaying, or making difficult a change in control of our company or the removal of our 
incumbent directors. Under our charter, our Board of Directors is divided into three classes serving staggered terms, which will make it more difficult for a hostile bidder to acquire 
control of us. In addition, our Board of Directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock. 
Subject to compliance with the 1940 Act, our Board of Directors may, without stockholder action, amend our charter to increase the number of shares of stock of any class or series 
that we have authority to issue. The existence of these provisions, among others, may have a negative impact on the price of our common stock and may discourage third party bids 
for ownership of our company. These provisions may prevent any premiums being offered to you for shares of our common stock in connection with a takeover.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

Sales of substantial amounts of our common stock, or the availability of such common stock for sale (including as a result of the conversion of our 4.375% convertible notes 
issued in January 2017 and due in 2022, or “2022 Convertible Notes”, into common stock),  could adversely affect the prevailing market prices for our common stock. If this occurs 
and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

We may periodically obtain the approval of our stockholders to issue shares of our common stock at prices below the then current NAV per share of our common stock. If we 
receive such approval from the stockholders, we may issue shares of our common stock at a price below the then current NAV per share of common stock. Any such issuance 
could materially dilute your interest in our common stock and reduce our NAV per share. 

We may periodically obtain the approval of our stockholders to issue shares of our common stock at prices below the then current NAV per share of our common stock. Such 
approval has allowed and may again allow us to access the capital markets in a way that we typically are unable to do as a result of restrictions that, absent stockholder approval, apply 
to business development companies under the 1940 Act. Any decision to sell shares of our common stock below the then current NAV per share of our common stock is subject to the 
determination by our Board of Directors that such issuance and sale is in our and our stockholders’ best interests. 

Any sale or other issuance of shares of our common stock at a price below NAV per share has resulted and will continue to result in an immediate dilution to your interest in 

our common stock and a reduction of our NAV per share. This dilution would occur as a result of a proportionately greater decrease in a stockholder’s interest in our earnings and 
assets and voting interest in us than the increase in our assets resulting from such issuance. Because the number of future shares of common stock that may be issued below our NAV 
per share and the price and timing of such issuances are not currently known, we cannot predict the actual dilutive effect of any such issuance. We also cannot determine the resulting 
reduction in our NAV per share of any such issuance at this time. We caution you that such effects may be material, and we undertake to describe all the material risks and dilutive 
effects of any offering that we make at a price below our then current NAV in the future in a prospectus supplement issued in connection with any such offering. We cannot predict 
whether shares of our common stock will trade above, at or below our NAV. 

53

If we conduct an offering of our common stock at a price below NAV, investors are likely to incur immediate dilution upon the closing of the offering. 

We are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, sell our common stock, at a price below the current NAV of 
the common stock, or sell warrants, options or other rights to acquire such common stock, at a price below the current NAV of the common stock if our Board of Directors determines 
that such sale is in our best interests and the best interests of our stockholders and our stockholders have approved the practice of making such sales. 

In connection with the receipt of such stockholder approval, we will limit the number of shares that it issues at a price below NAV pursuant to this authorization so that the 

aggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties and regulatory requirements, has the discretion to 
determine the amount of the discount, and as a result, the discount could be up to 100% of NAV per share. If we were to issue shares at a price below NAV, such sales would result in 
an immediate dilution to existing common stockholders, which would include a reduction in the NAV per share as a result of the issuance. This dilution would also include a 
proportionately greater decrease in a stockholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance.

In addition, if we determined to conduct additional offerings in the future there may be even greater dilution if we determine to conduct such offerings at prices below NAV. 

As a result, investors will experience further dilution and additional discounts to the price of our common stock. Because the number of shares of common stock that could be so 
issued and the timing of any issuance is not currently known, the actual dilutive effect of an offering cannot be predicted. We did not sell any of our securities at a price below NAV 
during the year ended December 31, 2016.

We may allocate the net proceeds from an offering in ways with which you may not agree. 

We have significant flexibility in investing the net proceeds of an offering and may use the net proceeds from an offering in ways with which you may not agree or for 

purposes other than those contemplated at the time of the offering. 

If we issue preferred stock, debt securities or convertible debt securities, the NAV and market value of our common stock may become more volatile. 

We cannot assure you that the issuance of preferred stock and/or debt securities would result in a higher yield or return to the holders of our common stock. The issuance of 

preferred stock, debt securities or convertible debt would likely cause the NAV and market value of our common stock to become more volatile. If the distribution rate on the 
preferred stock, or the interest rate on the debt securities, were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common 
stock would be reduced. If the distribution rate on the preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of 
leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or debt securities. Any decline in the NAV of our 
investment would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease 
in NAV to the holders of our common stock than if we were not leveraged through the issuance of preferred stock. This decline in NAV would also tend to cause a greater decline in 
the market price for our common stock. 

There is also a risk that, in the event of a sharp decline in the value of our net assets, we would be in danger of failing to maintain required asset coverage ratios which may be 

required by the preferred stock, debt securities, convertible debt or units or of a downgrade in the ratings of the preferred stock, debt securities, convertible debt or our current 
investment income might not be sufficient to meet the distribution requirements on the preferred stock or the interest payments on the debt securities. If we do not maintain our 
required asset coverage ratios, we may not be permitted to declare dividend distributions. In order to counteract such an event, we might need to liquidate investments in order to fund 
redemption of some or all of the preferred stock, debt securities or convertible debt. 

In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, 

debt securities, convertible debt or any combination of these securities. Holders of preferred stock, debt securities or convertible debt may have different interests than holders of 
common stock and may at times have disproportionate influence over our affairs.

54

Holders of any preferred stock that we may issue will have the right to elect members of the Board of Directors and have class voting rights on certain matters.

The 1940 Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of the directors if 
distributions on such preferred stock are in arrears by two years or more, until such arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of 
the holders of any issued and outstanding preferred stock, including changes in fundamental investment restrictions and conversion to open-end status and, accordingly, preferred 
stockholders could veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred 
stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair our ability to maintain our ability to be subject to tax as a RIC.

Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue. 

If your debt securities are redeemable at our option, we may choose to redeem your debt securities at times when prevailing interest rates are lower than the interest rate paid 

on your debt securities. In addition, if your debt securities are subject to mandatory redemption, we may be required to redeem your debt securities also at times when prevailing 
interest rates are lower than the interest rate paid on your debt securities. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an 
effective interest rate as high as your debt securities being redeemed. 

Our shares may trade at discounts from NAV or at premiums that are unsustainable over the long term. 

Shares of business development companies may trade at a market price that is less than the NAV that is attributable to those shares. Our shares have historically traded above 

and below our NAV. The possibility that our shares of common stock will trade at a discount from NAV or at a premium that is unsustainable over the long term is separate and 
distinct from the risk that our NAV may decrease. It is not possible to predict whether our shares will trade at, above or below NAV in the future.

Our credit ratings may not reflect all risks of an investment in our debt securities. 

Our credit ratings are an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings will generally affect 

the market value of our debt securities. Our credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed 
herein on the market value of or trading market for the publicly issued debt securities. 

A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our debt securities, if any, or change in the debt markets could cause the 
liquidity or market value of our debt securities to decline significantly.  

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally 

affect the market value of our outstanding debt securities. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of such debt securities. 
Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. 

Neither we nor any underwriter undertakes any obligation to maintain our credit ratings or to advise holders of our debt securities of any changes in our credit ratings. There 

can be no assurance that a credit rating will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely if future circumstances relating to 
the basis of the credit rating, such as adverse changes in our company, so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the past and 
are likely to fluctuate in the future.

Our stockholders may experience dilution upon the conversion of our 2022 Convertible Notes. 

Our 2022 Convertible Notes, issued in January 2017, are convertible into shares of our common stock beginning on August 1, 2021 or, under certain circumstances, earlier. 
Upon conversion of the 2022 Convertible Notes, we have the choice to pay or deliver, as the case may be, at our election, cash, shares of our common stock or a combination of cash 
and shares of our common stock. The initial conversion price of the 2022 Convertible Notes is $16.41, subject to adjustment in certain circumstances. If we elect to deliver shares of 
common stock upon a conversion at the time our NAV per share exceeds the conversion price in effect at such time, our stockholders may incur dilution. In addition, our stockholders 
will experience dilution in their ownership percentage of common stock upon our issuance of common stock in connection with the conversion of the 2022 Convertible Notes and any 
distributions paid on our common stock will also be paid on shares issued in connection with such conversion after such issuance. 

55

Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan. 

All distributions in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of our common stock. As a 

result, our stockholders that opt out of our dividend reinvestment plan will experience dilution in their ownership percentage of our common stock over time.

Our distribution proceeds may exceed our earnings. Therefore, portions of the distributions that we make may represent a return of capital to stockholders, which will lower 
their tax basis in their shares.

The tax treatment and characterization of our distributions may vary significantly from time to time due to the nature of our investments. The ultimate tax characterization of 

our distributions made during a taxable year generally will not finally be determined until after the end of that taxable year. We may make distributions during a taxable year that 
exceed our investment company taxable income, determined without regard to any deduction for dividends paid, and net capital gains for that taxable year. In such a situation, the 
amount by which our total distributions exceed investment company taxable income, determined without regard to any deduction for dividends paid, and net capital gains generally 
would be treated as a return of capital up to the amount of a stockholder’s tax basis in the shares, with any amounts exceeding such tax basis generally treated as a gain from the sale 
or exchange of such shares. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. 
Moreover, we may pay all or a substantial portion of our distributions from the proceeds of the sale of shares of our common stock or from borrowings in anticipation of future cash 
flow, which could constitute a return of stockholders’ capital and will lower such stockholders’ tax basis in our shares, which may result in increased tax liability to stockholders when 
they sell such shares. The tax liability to stockholders upon the sale of shares may increase even if such shares are sold at a loss. 

Our common stock price has been and continues to be volatile and may decrease substantially. 

As with any company, the price of our common stock will fluctuate with market conditions and other factors, which include, but are not limited to, the following: 

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

price and volume fluctuations in the overall stock market from time to time; 

significant volatility in the market price and trading volume of securities of RICs, business development companies or other financial services companies; 

any inability to deploy or invest our capital; 

fluctuations in interest rates; 

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; 

the financial performance of specific industries in which we invest in on a recurring basis; 

announcement of strategic developments, acquisitions, and other material events by us or our competitors, or operating performance of companies comparable to us; 

changes in regulatory policies or tax guidelines with respect to RICs, SBICs or business development companies; 

losing our ability to either qualify or be subject to U.S. federal income tax as a RIC; 

actual or anticipated changes in our earnings or fluctuations in our operating results, or changes in the expectations of securities analysts; 

changes in the value of our portfolio of investments; 

realized losses in investments in our portfolio companies; 

general economic conditions and trends; 

inability to access the capital markets; 

loss of a major funded source; or 

departure of key personnel. 

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to 
the potential volatility of our stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and could divert management’s 
attention and resources from our business. 

56

Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our NAV per 
share, then you will experience an immediate dilution of the aggregate NAV of your shares. 

In the event we issue subscription rights, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of a rights offering 

pursuant to this prospectus, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any 
such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of such rights offering. 

In addition, if the subscription price is less than the NAV per share of our common stock, then our stockholders would experience an immediate dilution of the aggregate 

NAV of their shares as a result of the offering. The amount of any decrease in NAV is not predictable because it is not known at this time what the subscription price and NAV per 
share will be on the expiration date of a rights offering or what proportion of the shares will be purchased as a result of such rights offering. Such dilution could be substantial. 

The trading market or market value of our publicly issued debt securities may fluctuate. 

Our publicly issued debt securities may or may not have an established trading market. We cannot assure you that a trading market for our publicly issued debt securities will 
ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, our publicly 
issued debt securities. These factors include, but are not limited to, the following: 

•

•

•

•

•

•

•
•

the time remaining to the maturity of these debt securities;

the outstanding principal amount of debt securities with terms identical to these debt securities;

the ratings assigned by national statistical ratings agencies;

the general economic environment; 

the supply of debt securities trading in the secondary market, if any; 

the redemption or repayment features, if any, of these debt securities; 

the level, direction and volatility of market interest rates generally; and 
market rates of interest higher or lower than rates borne by the debt securities. You should also be aware that there may be a limited number of buyers when you decide 
to sell your debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.

The 2019 Notes and 2024 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future. 

The 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, and 2024 Notes are not secured by any of our assets or any of the assets of 
our subsidiaries. As a result, the 2019 Notes and 2024 Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in 
the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any 
liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may 
assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including 
the holders of the 2019 Notes and 2024 Notes. 

The 2019 Notes and 2024 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries. 

The 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, and 2024 Notes are obligations exclusively of Hercules Capital, Inc. 

(formerly known as Hercules Technology Growth Capital, Inc.) and not of any of our subsidiaries. None of our subsidiaries are or act as guarantors of the 2019 Notes and 2024 Notes 
and neither the 2019 Notes nor the 2024 Notes is required to be guaranteed by any subsidiaries we may acquire or create in the future. Our secured indebtedness with respect to the 
SBA debentures is held through our SBIC subsidiaries. The assets of any such subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the 2019 
Notes and 2024 Notes. 

57

Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of preferred stock, if any, of our subsidiaries) 

will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the 2019 Notes and 2024 Notes) with respect to the 
assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be structurally subordinated to any security interests in the 
assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the 2019 Notes and 2024  Notes are structurally 
subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing 
vehicles or otherwise. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2019 Notes and 2024 
Notes. 

The indentures under which the 2019 Notes and 2024 Notes were issued contain limited protection for their respective holders. 

The indentures under which the 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, and 2024 Notes were issued offers limited 

protection to their respective holders. The terms of the indenture and the 2019 Notes and 2024 Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be 
a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on an investment in the 2019 Notes and 2024 Notes. In particular, the terms 
of the indentures and the 2019 Notes and 2024 Notes do not place any restrictions on our or our subsidiaries’ ability to: 

issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment 
to the 2019 Notes and 2024 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2019 
Notes and 2024 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which 
therefore would rank structurally senior to the 2019 Notes and 2024 Notes and (4) securities, indebtedness or other obligations issued or incurred by our subsidiaries that 
would be senior in right of payment to our equity interests in our subsidiaries and therefore would rank structurally senior in right of payment to the 2019 Notes and 2024 
Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)
(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act or any successor provisions;

pay distributions on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2019 Notes and 
2024 Notes, in each case other than distributions, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) of the 1940 Act as modified by 
Section 61(a)(1) of the 1940 Act or any successor provisions giving effect to any exemptive relief granted to us by the SEC (these provisions generally prohibit us from 
declaring any cash distributions upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at 
the time of the declaration of the distribution or the purchase and after deducting the amount of such distribution or purchase); 

sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); 

enter into transactions with affiliates; 

create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; 

make investments; or 

create restrictions on the payment of distributions or other amounts to us from our subsidiaries.

In the indenture and the 2019 Notes and 2024 Notes do not require us to offer to purchase the 2019 Notes and 2024 Notes in connection with a change of control or any other 

•

•

•

•

•

•

•

event.

Furthermore, the terms of the indenture and the 2019 Notes and 2024 Notes do not protect their respective holders in the event that we experience changes (including 
significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or 
specified levels of net worth, revenues, income, cash flow or liquidity, except as required under the 1940 Act. 

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the 2019 Notes and 2024 Notes may have important 

consequences for their holders, including making it more difficult for us to satisfy our obligations with respect to the 2019 Notes and 2024 Notes or negatively affecting their trading 
value. 

58

Certain of our current debt instruments include more protections for their respective holders than the indenture and the 2019 Notes and 2024 Notes. In addition, other debt we 
issue or incur in the future could contain more protections for its holders than the indenture and the 2019 Notes and 2024 Notes, including additional covenants and events of default. 
The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2019 Notes and 2024 Notes. 

An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them.

Although the 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, are listed on the NYSE under the symbol “HTGZ,” in the case of 
the April 2019 Notes, “HTGY” in the case of the September 2019 Notes “HTGX,” in the case of the 2024 Notes, we cannot provide any assurances that an active trading market will 
develop or be sustained for the April 2019 Notes, the September 2019 Notes and the 2024 Notes or that any of the notes will be able to be sold. At various times, the 2019 Notes and 
2024 Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic 
conditions, our financial condition, performance and prospects and other factors. To the extent an active trading market is not sustained, the liquidity and trading price for the 2019 
Notes and 2024 Notes may be harmed.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2019 Notes and 2024 Notes. 

Any default under the agreements governing our indebtedness, including a default under the Wells Facility, the Union Bank Facility or other indebtedness to which we may be 
a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and 
interest on the 2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, and 2024 Notes and substantially decrease the market value of the 2014 
Notes and 2024 Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, 
and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our 
indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to 
declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Wells Facility and the Union Bank Facility or other 
debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced 
into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the Wells Facility or Union 
Bank Facility or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Wells Facility or Union Bank Facility or other debt and seek 
a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default under the Wells Facility or Union Bank Facility or other 
debt, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having 
secured obligations, including the lenders under the Wells Facility and the Union Bank Facility, could proceed against the collateral securing the debt. Because the Wells Facility and 
the Union Bank Facility have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the 2019 Notes and the 2024 Notes, the 
Wells Facility, Union Bank Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. 

59

Item 1B.

Unresolved Staff Comments 

None. 

Item 2.

Properties 

Neither we nor any of our subsidiaries own any real estate or other physical properties materially important to our operation or any of our subsidiaries. Currently, we lease 

approximately 14,500 square feet of office space in Palo Alto, CA for our corporate headquarters. We also lease office space in Boston, MA, New York, NY, Washington, DC, Santa 
Monica, CA, Hartford, CT and San Diego, CA.

Item 3.

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 4.

Mine Safety Disclosures 

Not applicable. 

60

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 

PART II

PRICE RANGE OF COMMON STOCK 

Our common stock is traded on the NYSE under the symbol “HTGC.” The following table sets forth the range of high and low sales prices of our common stock for each 

fiscal quarter during the two most recently completed fiscal years as reported on the NYSE. 

Quarter Ended
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016

Price Range

High

Low

15.27
13.37
12.23
12.44
12.39
12.43
14.00
14.25

$
$
$
$
$
$
$
$

13.47
11.25
9.99
10.23
10.03
11.74
12.42
12.90

$
$
$
$
$
$
$
$

The last reported price for our common stock on February 17, 2017 was $15.17 per share. 

As of January 25, 2017, we had approximately 50,923 stockholders of record. Most of the shares of our common stock are held by brokers and other institutions on behalf of 

stockholders. There are currently approximately 87 additional beneficial holders of our common stock. 

Shares of business development companies may trade at a market price that is less than the NAV per share. The possibilities that our shares of common stock will trade at a 

discount from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. At times, our shares of common stock 
have traded at a premium to NAV or at a significant discount to the NAV per share. 

SALES OF UNREGISTERED SECURITIES

During 2016 and 2015, the Board of Directors elected to receive approximately $250,000 and $300,000, respectively, of their compensation in the form of common stock and 

we issued 18,600 and 27,132 shares, respectively, to the directors based on the closing prices of the common stock on the specified election dates.  During 2014, the Board of 
Directors did not elect to receive compensation in the form of common stock.

During 2016, 2015 and 2014, we issued approximately 144,308, 199,894 and 96,976 shares, respectively, of common stock to shareholders in connection with the dividend 

reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended, or the Securities Act. The aggregate value of the shares 
of our common stock issued under our dividend reinvestment plan during the years ended December 31, 2016, 2015 and 2014 were approximately $1.8 million, $2.4 million and $1.5 
million, respectively.

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 

EQUITY COMPENSATION PLAN INFORMATION

61

DISTRIBUTION POLICY 

In order to be subject to tax as a RIC, we must distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount 

generally at least equal to the Annual Distribution Requirement. Upon satisfying this requirement in respect of a taxable year, we generally will not be subject to corporate taxes on 
any income we distribute to our stockholders as dividends for U.S. federal income tax purposes.

However, 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 borrowings. 
Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.  See “Item 1. Business— Regulation.” 

62

The following table summarizes our distributions declared and paid, to be paid or reinvested on all shares, including restricted stock, to date: 

Date Declared
October 27, 2005
December 9, 2005
April 3, 2006
July 19, 2006
October 16, 2006
February 7, 2007
May 3, 2007
August 2, 2007
November 1, 2007
February 7, 2008
May 8, 2008
August 7, 2008
November 6, 2008
February 12, 2009
May 7, 2009
August 6, 2009
October 15, 2009
December 16, 2009
February 11, 2010
May 3, 2010
August 2, 2010
November 4, 2010
March 1, 2011
May 5, 2011
August 4, 2011
November 3, 2011
February 27, 2012
April 30, 2012
July 30, 2012
October 26, 2012
February 26, 2013
April 29, 2013
July 29, 2013
November 4, 2013
February 24, 2014
April 28, 2014
July 28, 2014
October 29, 2014
February 24, 2015
May 4, 2015
July 29, 2015
October 28, 2015
February 17, 2016
April 27, 2016
July 27, 2016
October 24, 2016
February 16, 2017

Record Date

Payment Date

Amount Per Share

November 1, 2005
January 6, 2006
April 10, 2006
July 31, 2006
November 6, 2006
February 19, 2007
May 16, 2007
August 16, 2007
November 16, 2007
February 15, 2008
May 16, 2008
August 15, 2008
November 14, 2008
February 23, 2009
May 15, 2009
August 14, 2009
October 20, 2009
December 24, 2009
February 19, 2010
May 12, 2010
August 12, 2010
November 10, 2010
March 10, 2011
May 11, 2011
August 15, 2011
November 14, 2011
March 12, 2012
May 18, 2012
August 17, 2012
November 14, 2012
March 11, 2013
May 14, 2013
August 13, 2013
November 18, 2013
March 10, 2014
May 12, 2014
August 18, 2014
November 17, 2014
March 12, 2015
May 18, 2015
August 17, 2015
November 16, 2015
March 7, 2016
May 16, 2016
August 15, 2016
November 14, 2016
March 6, 2017

November 17, 2005
January 27, 2006
May 5, 2006
August 28, 2006
December 1, 2006
March 19, 2007
June 18, 2007
September 17, 2007
December 17, 2007
March 17, 2008
June 16, 2008
September 19, 2008
December 15, 2008
March 30, 2009
June 15, 2009
September 14, 2009
November 23, 2009
December 30, 2009
March 19, 2010
June 18, 2010
September 17,2010
December 17, 2010
March 24, 2011
June 23, 2011
September 15, 2011
November 29, 2011
March 15, 2012
May 25, 2012
August 24, 2012
November 21, 2012
March 19, 2013
May 21, 2013
August 20, 2013
November 25, 2013
March 17, 2014
May 19, 2014
August 25, 2014
November 24, 2014
March 19, 2015
May 25, 2015
August 24, 2015
November 23, 2015
March 14, 2016
May 23, 2016
August 22, 2016
November 21, 2016
March 13, 2017

$

$

0.03
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.34
0.34
0.34
0.32 *
0.30
0.30
0.30
0.04
0.20
0.20
0.20
0.20
0.22
0.22
0.22
0.22
0.23
0.24
0.24
0.24
0.25
0.27
0.28
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
12.78

*

Distributions paid in cash and stock. 

On February 16, 2017 the Board of Directors declared a cash distribution of $0.31 per share to be paid on March 13, 2017 to shareholders of record as of March 6, 2017. This 

distribution represents our forty-sixth consecutive distribution since our initial public offering, bringing the total cumulative distribution to date to $12.78 per share. 

63

Our Board of Directors 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 of Directors may choose to pay an additional 
special distribution, or fifth distribution, 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 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 distributions paid in excess of a stockholder’s tax basis in our shares would generally 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 and is generally based upon our taxable income for the full taxable year and distributions paid for the full taxable year. 
Of the distributions declared during the fiscal years ended December 31, 2016, 2015, and 2014, 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 the tax attributes of the 2017 distributions that we anticipate would be made to 
stockholders. 

We maintain an “opt-out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, cash distributions will be automatically 
reinvested in additional shares of our common stock unless the stockholder specifically “opts out” of the dividend reinvestment plan and chooses to receive cash distributions.  During 
2016, 2015, and 2014, the Company issued approximately 144,308, 199,894 and 96,976 shares, respectively, of common stock to shareholders in connection with the dividend 
reinvestment plan. 

The following stock performance graph compares the cumulative stockholder return assuming that, on January 1, 2012, a person invested $100 in each of our common stock, 
the NYSE Composite Index, the NASDAQ Financial 100 Index, and the Wells Fargo BDC Index. The graph measures total shareholder return, which takes into account both changes 
in stock price and distributions. It assumes that distributions paid are reinvested in like securities. 

PERFORMANCE GRAPH 

This graph and other information furnished under Part II. Item 5 of the Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to 
Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock 
price performance. 

Copyright© 2017 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

64

Item 6.

Selected Consolidated Financial Data 

Selected Consolidated Financial Data

The following consolidated financial data is derived from our audited consolidated financial statements. The selected consolidated financial data should be read in 
conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included 
elsewhere herein. Historical data is not necessarily indicative of results to be expected for any future period. 

(in thousands, except per share amounts)

2016

2015

2014

2013

2012

For the Year Ended December 31,

Balance sheet data:
Investments, at value

Cash and cash equivalents

Total assets

Total liabilities
Total net assets

Other Data:
Total return (3)
Total debt investments, at value

Total warrant investments, at value

Total equity investments, at value
Unfunded Commitments (2)
Net asset value per share (1)

$

1,423,942

$

1,200,638

$

1,020,737

$

13,044

1,464,204

676,260
787,943

95,196

1,334,761

617,627
717,134

227,116

1,299,223

640,359
658,864

26.87%

1,328,803

(9.70%)

1,110,209

27,485

67,654

59,683
9.90

$

22,987

67,442

75,402
9.94

$

$

(1.75 %)

923,906

25,098

71,733

147,689
10.18

$

910,295

268,368

1,221,715

571,708
650,007

58.49%

821,988

35,637

52,670

69,091
10.51

$

$

906,300

182,994

1,123,643

607,675
515,968

28.28%

827,540

29,550

49,210

19,265
9.75

(1)
(2) 

(3)

Based on common shares outstanding at period end
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.
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 issuance. The total return does not reflect any sales load that must be paid by investors.

(in thousands, except per share amounts)

2016

2015

2014

2013

2012

For the Year Ended December 31,

Investment income:

Interest
Fees

Total investment income

Operating expenses:

Interest
Loan fees

General and administrative:

Legal expenses

Other expenses

Total general and administrative

Employee Compensation:

Compensation and benefits

Stock-based compensation

Total employee compensation

Total operating expenses

Other income (loss)

Net investment income

Net realized gain on investments
Net change in unrealized appreciation (depreciation) on investments

Total net realized and unrealized gain (loss)

Net increase in net assets resulting from operations

Change in net assets per common share (basic)

Distributions declared per common share:

$

$

$

$

$

158,727
16,324

175,051

$

140,266
16,866

157,132

$

126,618
17,047

143,665

$

123,671
16,042

139,713

30,834
6,055

3,079

13,579

16,658

20,713

9,370

30,083

83,630

(1)

73,501

5,147
(35,732)

(30,585)

42,916

0.60

1.24

$

$

$

28,041
5,919

1,366

8,843

10,209

16,604

9,561

26,165

70,334

(1,581)

71,750

20,112
(20,674)

(562)

71,188

1.12

1.24

$

$

$

30,334
4,807

1,440

7,914

9,354

16,179

5,974

22,153

66,648

—

73,065

14,836
11,545

26,381

99,446

1.67

1.11

$

$

$

32,016
5,042

4,823

11,283

16,106

22,500

7,043

29,543

82,707

8,000

100,344

4,576
(36,217)

(31,641)

68,703

0.91

1.24

65

$

$

$

87,603
9,917

97,520

19,835
3,917

799

7,309

8,108

13,326

4,227

17,553

49,413

—

48,107

3,168
(4,516)

(1,348)

46,759

0.93

0.95

Item 7.

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 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 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 business development company, 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 losses. 

For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this report, please see the discussion under “Item 1A. 
Risk Factors.” 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” and “Forward-Looking 
Statements” of this Item 7. 

66

Overview 

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life 

sciences and sustainable and renewable technology industries. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional 
offices in Boston, MA, New York, NY, Washington, DC, Santa Monica, CA, Hartford, CT and San Diego, CA. 

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

We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, 

including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of 
the portfolio company. 

Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and 

equity-related investments. Our primary business objectives are to increase our net income, net operating income and NAV by investing in structured debt with warrants and equity of 
venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. Our equity ownership in 
our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the 1940 Act. In some cases, we receive the right to make 
additional equity investments in our portfolio companies in connection with future equity financing rounds. Capital that we provide directly to venture capital-backed companies in 
technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations. 

We also make investments in qualifying small businesses through our two wholly-owned SBICs. Our SBIC subsidiaries, HT II and HT III, hold approximately $100.0 million 

and $261.8 million in assets, respectively, and accounted for approximately 5.3% and 13.9% of our total assets, respectively, prior to consolidation at December 31, 2016. As of 
December 31, 2016, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteed debentures is $350.0 million, subject to periodic adjustments by the 
SBA. In aggregate, at December 31, 2016, with our net investment of $118.5 million, HT II and HT III have the capacity to issue a total of $190.2 million of SBA-guaranteed 
debentures, subject to SBA approval. At December 31, 2016, we have issued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries. 

We have qualified as and have elected to be treated for tax purposes as a RIC under Subchapter M of the Code. Pursuant to this election, we generally will not be subject to 

corporate-level taxes on any income and gains that we distribute as dividends for federal income tax purposes to our stockholders. However, our qualification and election to be 
treated as a RIC requires that we comply with provisions contained in Subchapter M of the Code. For example, as a RIC we must earn 90% or more of our gross income during each 
taxable year from qualified earnings, typically referred to as “good income,” as well as satisfy certain quarterly asset diversification and annual income distribution requirements. 

We are an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the 1940 Act. As a 

business development company, 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. 

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. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent in foreign companies. 

We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio of investments or an entire 
company or sell a portion of our portfolio on an opportunistic basis. We, our subsidiaries or our affiliates may also agree to manage certain other funds that invest in debt, equity or 
provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. We may also invest in the equity of these 
funds, along with other third parties, from which we would seek to earn a return and/or future incentive allocations. Some of these transactions could be material to our business. 
Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final 
definitive documentation as well as a number of other factors and conditions including, without limitation, the approval of our board of directors and required regulatory or third party 
consents and, in certain cases, the approval of our stockholders. 

67

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 $1.4 billion at December 31, 2016 as compared to $1.2 billion at December 31, 2015. The fair value of our debt 
investment portfolio at December 31, 2016 was approximately $1.3 billion, compared to a fair value of approximately $1.1 billion at December 31, 2015. The fair value of the equity 
portfolio at December 31, 2016 was approximately $67.6 million, compared to a fair value of approximately $67.4 million at December 31, 2015. The fair value of the warrant 
portfolio at December 31, 2016 was approximately $27.5 million, compared to a fair value of approximately $23.0 million at December 31, 2015. 

Portfolio Activity 

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. From time to time, unfunded contractual 

commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. 
These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over 
the two succeeding quarters from close. Not all debt commitments represent future cash requirements. Similarly, unfunded contractual commitments may expire without being drawn and thus 
do not represent future cash requirements. 

Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company. Non-binding term sheets are subject to 

completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. 
These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close and do not 
necessarily represent future cash requirements. 

Our portfolio activity for the years ended December 31, 2016 and 2015 was comprised of the following: 

(in millions)
Debt Commitments (1)

New portfolio company
Existing portfolio company
Total

Funded and Restructured Debt Investments (2)

New portfolio company
Existing portfolio company
Total

Funded Equity Investments
New portfolio company
Existing portfolio company
Total

Unfunded Contractual Commitments (3)

Total

Non-Binding Term Sheets
New portfolio company
Existing portfolio company
Total

December 31, 2016

December 31, 2015

$

$

$

$

$

$

$

$

$

624.0 $
171.8
795.8 $

479.0 $
181.5
660.5 $

17.1 $
3.1
20.2 $

59.7 $

55.0 $
—
55.0 $

544.0
181.7
725.7

352.5
341.6
694.1

1.0
17.6
18.6

75.4

81.0
5.0
86.0

(1)
(2)
(3)

Includes restructured loans and renewals in addition to new commitments.
Funded amounts include borrowings on revolving facilities.
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.

68

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 
year ended December 31, 2016, we received approximately $435.2 million in aggregate principal repayments. Of the approximately $435.2 million of aggregate principal repayments, 
approximately $111.2 million were scheduled principal payments, and approximately $324.0 million were early principal repayments related to 37 portfolio companies. Of the 
approximately $324.0 million early principal repayments, approximately $54.9 million were early repayments due to merger and acquisition transactions for three portfolio 
companies.  

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable, escrow receivables and Citigroup warrant participation) as of 

and for each of the years ended December 31, 2016 and 2015 was as follows: 

(in millions)
Beginning portfolio
New fundings and restructures
Warrants not related to current period fundings
Principal payments received on investments
Early payoffs
Accretion of loan discounts and paid-in-kind principal
Net acceleration of loan discounts and loan fees due to early payoff or restructure
New loan fees
Warrants converted to equity
Sale of investments
Loss on investments due to write offs
Net change in unrealized depreciation
Ending portfolio

December 31, 2016

December 31, 2015

$

$

1,200.6
680.7
0.6
(111.2)
(324.0)
43.6
(6.3)
(10.1)
0.3
(4.4)
(10.0)
(35.9)
1,423.9

$

$

1,020.7
712.3
0.1
(115.1)
(388.5)
31.7
(1.7)
(9.5)
0.4
(5.2)
(7.5)
(37.1)
1,200.6

The following table shows the fair value of our portfolio of investments by asset class as of December 31, 2016 and December 31, 2015. 

(in thousands)
Senior Secured Debt with Warrants
Senior Secured Debt
Preferred Stock
Common Stock
Total

December 31, 2016

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

1,078,779
277,509
39,418
28,236
1,423,942

75.7% $
19.5%
2.8%
2.0%
100.0% $

961,464
171,732
35,245
32,197
1,200,638

80.1%
14.3%
2.9%
2.7%
100.0%

A summary of our investment portfolio at value by geographic location is as follows: 

(in thousands)
United States
Netherlands
England
Switzerland
Canada
Israel
India
Total

December 31, 2016

Investments at
Fair Value

Percentage of
Total Portfolio

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

1,362,223
20,089
18,395
12,377
8,095
2,763
—
1,423,942

95.6% $
1.4%
1.3%
0.9%
0.6%
0.2%
0.0%
100.0% $

1,167,281
20,112
8,884
—
595
3,764
2
1,200,638

97.2%
1.7%
0.8%
0.0%
0.0%
0.3%
0.0%
100.0%

As of December 31, 2016, we held warrants or equity positions in four companies that have filed registration statements on Form S-1 with the SEC in contemplation of 

potential IPOs. All four companies filed confidentially under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. There can be no assurance that companies that have 
yet to complete their IPO will do so in a timely manner or at all. 

69

Changes in Portfolio 

We generate revenue in the form of interest income, primarily from our investments in debt securities and 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-related 
securities that we acquire from our portfolio companies. Our investments generally range from $12.0 million to $40.0 million, although we may make investments in amounts above 
or below that range. As of December 31, 2016, our debt investments have a term of between two and seven years and typically bear interest at a rate ranging from approximately 5.8% 
to approximately 12.5%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, 
balloon payment fees, commitment fees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.

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

Loan origination and commitment fees 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 $38.2 million of unamortized fees at December 31, 2016, of which approximately $35.8 million was included as an offset to the cost basis of our current debt 
investments and approximately $2.4 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2015 we had approximately $26.1 million of 
unamortized fees, of which approximately $23.6 million was included as an offset to the cost basis of our current debt investments and approximately $2.5 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. At December 31, 2016 we had approximately 
$32.8 million in exit fees receivable, of which approximately $30.3 million was included as a component of the cost basis of our current debt investments and approximately $2.5 
million was a deferred receivable related to expired commitments. At December 31, 2015 we had approximately $22.7 million in exit fees receivable, of which approximately $17.4 
million was included as a component of the cost basis of our current debt investments and approximately $5.3 million was a deferred receivable related to expired commitments.

We have debt investments in our portfolio that contain a PIK provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as 
interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our ability to be subject to tax as a RIC, this non-cash source of income 
must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected the cash. Amounts necessary to pay these 
distributions may come from available cash or the liquidation of certain investments. We recorded approximately $7.8 million and $4.7 million in PIK income in the years ended 
December 31, 2016 and December 31, 2015, respectively. 

The core yield on our debt investments, which excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-
time events and includes income from expired commitments, was 13.1% and 13.0% during the years ended December 31, 2016 and 2015, respectively. The effective yield on our debt 
investments, which includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events, was 14.1% and 14.3% 
for the years ended December 31, 2016 and 2015, respectively. 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. Both the core yield and effective yield may be higher than 
what our common stockholders may realize as the core yield and effective yield do not reflect our expenses and any sales load paid by our common stockholders.

The total return for our investors was approximately 26.9% and -9.7% during the years ended December 31, 2016 and 2015, respectively. The total return equals the change in 
the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is 
reinvested on the date of the distribution. The total return does not reflect any sales load that must be paid by investors. See “Note 9 – Financial Highlights.”

70

Portfolio Composition 

Our portfolio companies are primarily privately held companies and public companies which are active in the drug discovery and development, software, sustainable and 

renewable technology, media/content/info, drug delivery, medical devices and equipment, internet consumer and business services, consumer and business products, specialty 
pharmaceuticals, healthcare services, communications and networking, surgical devices, semiconductors, electronics and computer hardware, biotechnology tools, information 
services, and diagnostic industry 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. 

As of December 31, 2016, approximately 73.4% of the fair value of our portfolio was composed of investments in five industries: 29.7% was composed of investments in the 

drug discovery and development industry, 15.4% was composed of investments in the software industry, 10.9% was composed of investments in the sustainable and renewable 
technology industry, 9.7% was composed of investments in the media/content/info industry and 7.7% was composed of investments in the drug delivery industry. 

The following table shows the fair value of our portfolio by industry sector at December 31, 2016 and December 31, 2015: 

(in thousands)
Drug Discovery & Development
Software
Sustainable and Renewable Technology
Media/Content/Info
Drug Delivery
Medical Devices & Equipment
Internet Consumer & Business Services
Consumer & Business Products
Specialty Pharmaceuticals
Healthcare Services, Other
Communications & Networking
Surgical Devices
Semiconductors
Electronics & Computer Hardware
Biotechnology Tools
Information Services
Diagnostic
Total

December 31, 2016

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

422,550
219,559
154,406
137,567
109,834
107,695
97,047
42,713
38,944
30,200
18,019
12,553
11,326
7,664
7,200
6,091
574
1,423,942

29.7% $
15.4%
10.9%
9.7%
7.7%
7.6%
6.8%
3.0%
2.7%
2.1%
1.3%
0.9%
0.8%
0.5%
0.5%
0.4%
0.0%
100.0% $

284,266
147,237
159,487
95,488
164,665
90,560
88,377
26,611
52,088
15,131
33,213
11,185
22,705
6,928
719
1,657
321
1,200,638

23.7%
12.3%
13.3%
7.9%
13.7%
7.5%
7.4%
2.2%
4.3%
1.3%
2.8%
0.9%
1.9%
0.6%
0.1%
0.1%
0.0%
100.0%

Industry and sector concentrations vary as new loans are recorded and loans pay off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrants 

or other equity-related 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 years ended December 31, 2016 and 2015, our ten largest portfolio companies represented approximately 34.0% and 32.1% of the total fair value of our investments in 

portfolio companies, respectively. At December 31, 2016 and December 31, 2015, we had seven and two investments, respectively, that represented 5% or more of our net assets. At 
December 31, 2016 and December 31, 2015, we had seven and four equity investments representing approximately 54.7% and 53.2%, respectively, of the total fair value of our equity 
investments, and each represented 5% or more of the total fair value of our equity investments. No single portfolio investment represents more than 10% of the fair value of our total 
investments as of December 31, 2016 and 2015.

As of December 31, 2016, 91.8% of our debt investments were in a senior secured first lien position with the remaining 8.2% secured by a senior second priority security 

interest in all of the portfolio company’s assets, other than intellectual property. In the majority of cases, we collateralize our investments by obtaining a first priority security interest 
in a portfolio company’s assets, which may include its intellectual property. In other cases, we may obtain a negative pledge covering a company’s intellectual property. At December 
31, 2016, of the approximately 91.8% of our debt investments in a senior secured first lien position, 42.0% were secured by a first priority security in all of the assets of the portfolio 
company, including its intellectual property; 46.7% were 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, or subject to a negative pledge; and 3.1% were secured by a first priority security in all of the assets of the portfolio company, 
including its intellectual property, with a second lien on the portfolio company’s cash and accounts receivable. At December 31, 2016 we had no equipment only liens on material 
investments in our portfolio companies.

71

Our investments in senior secured debt with warrants have detachable equity enhancement features, typically in the form of warrants or other equity-related 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 December 31, 2016, we held warrants in 140 portfolio companies, with a fair value of approximately $27.5 million. The fair value of our warrant 
portfolio increased by approximately $4.5 million, as compared to a fair value of $23.0 million at December 31, 2015 primarily related to the addition of warrants in 23 new and 13 
existing portfolio companies during the period.

Our existing warrant holdings would require us to invest approximately $101.0 million to exercise such warrants as of December 31, 2016. Warrants may appreciate or 

depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. Of the warrants that we have monetized since inception, 
we have realized multiples in the range of approximately 1.02x to 29.22x based on the historical rate of return on our investments. However, our warrants may not appreciate in value 
and, in fact, may decline in value. Accordingly, we may experience losses from our warrant portfolio. 

As required by the 1940 Act, we classify our investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that we are 

deemed to “control”, which, in general, includes a company in which we own 25% or more of the voting securities of such company or have greater than 50% representation on its 
board. “Affiliate investments” are investments in those companies that are “affiliated companies” of ours, as defined in the 1940 Act, which are not control investments. We are 
deemed to be an “affiliate” of a company in which we have invested if we own 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. The following table summarizes our realized and unrealized gain and loss and 
changes in our unrealized appreciation and depreciation on control and affiliate investments for the years ended December 31, 2016, 2015, and 2014. 

Fair Value at
December 31, 2016

Investment
Income

— $

(in thousands)

Portfolio Company
Control Investments
SkyCross, Inc.
Achilles Technology Management Co II, Inc.
Total Control Investments

Affiliate Investments
Optiscan BioMedical, Corp.
Stion Corporation
Total Affiliate Investments
Total Control & Affiliate Investments

(in thousands)

Portfolio Company
Optiscan BioMedical, Corp.
Stion Corporation
Total

(in thousands)

Portfolio Company
Gelesis, Inc.
Optiscan BioMedical, Corp.
Stion Corporation
Total

(1)

Represents reversals of prior period collateral based impairments. 

Type

Control
Control

Affiliate
Affiliate

Type
Affiliate
Affiliate

Type
Affiliate
Affiliate
Affiliate

$

$

$

$
$

$

$

$

$

$

$

$
$

$

$

$

$

4,700
4,700

4,699
333
5,032
9,732

Fair Value at
December 31, 2015

6,973
1,013
7,986

Fair Value at
December 31, 2014

327
6,072
1,600
7,999

72

Year Ended December 31, 2016

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

— $
84
84

$

12
148
160
244

$

$
$

(3,421) $
(604)
(4,025) $

(3,409) $
539
(2,870) $
(6,895) $

— $
—
— $

— $

648
648
648

$
$

Year Ended December 31, 2015

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

Investment
Income

— $
348
348

$

901
206
1,107

$

$

— $
—
— $

Year Ended December 31, 2014

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

Investment
Income

— $
—
1,876
1,876

$

(146) $
(24)
(3,112)
(3,282) $

— $
—
—
— $

—
—
—

—
—
—
—

—
—
—

—
—
—
—

In June 2016 our investments in SkyCross, Inc. became classified as a control investment as a result of obtaining more than 50% representation on the portfolio company’s 
board. In June 2016 we also acquired 100% ownership of the equity of Achilles Technology Management Co II, Inc. and classified it as a control investment in accordance with the 
requirements of the 1940 Act. In June 2016, Achilles Technology Management Co II, Inc. acquired the assets of a global antenna company that produces radio frequency system 
solutions as part of an article 9 consensual foreclosure and public auction for total consideration in the amount of $4.0 million. In September and November 2016 we made a $1.0 
million and $250,000 debt investment, respectively, in Achilles Technology Management II to provide working capital under the terms of a loan servicing agreement. Our investments 
in Achilles Technology Management Co II, Inc. are carried on the consolidated statement of assets and liabilities at fair value.

During the year ended December 31, 2015, changes to the capitalization structure of our portfolio company Gelesis, Inc.  reduced our investment below the threshold for 

classification as an affiliate investment.

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. See “Item 1. Business—Investment Process—Loan and Compliance Administration.” The following table shows the distribution of 
our outstanding debt investments on the 1 to 5 investment grading scale at fair value as of December 31, 2016 and 2015, respectively: 

(in thousands)

Investment Grading
1
2
3
4
5

Number of Companies
15
32
25
8
8
88

$

$

December 31, 2016
Debt Investments
at Fair Value

Percentage of
Total Portfolio

275,832
590,547
329,393
58,874
74,157
1,328,803

20.8%
44.4%
24.8%
4.4%
5.6%
100.0%

Number of Companies
18
47
6
4
10
85

$

$

December 31, 2015
Debt Investments
at Fair Value

Percentage of
Total Portfolio

215,202
759,274
44,837
34,153
56,743
1,110,209

19.4%
68.4%
4.0%
3.1%
5.1%
100.0%

As of December 31, 2016, our debt investments had a weighted average investment grading of 2.41, as compared to 2.16 at December 31, 2015. Our policy is to lower the 
grading on our portfolio companies as they approach the point in time when they will require additional equity capital. Additionally, we may downgrade our portfolio companies if 
they are not meeting our financing criteria or are underperforming relative to their respective business plans. Various companies in our portfolio will require additional funding in the 
near term or have not met their business plans and therefore have been downgraded until their funding is complete or their operations improve. 

The decline in weighted average investment grading at December 31, 2016 from December 31, 2015 is primarily due to the net increase of rated 3 and 4 portfolio companies 
due to underperformance or near term funding requirements. During the year ended December 31, 2016, a net of nineteen existing portfolio companies were downgraded to a 3 rating 
and a net of five existing portfolio companies were downgraded to a 4 rating.

At December 31, 2016, we had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $43.9 million and $6.2 million, 
respectively. At December 31, 2015, we had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $47.4 million and $23.2 million, 
respectively. In addition, at December 31, 2015, we had one debt investment with an investment cost and fair value of approximately $20.1 million and $14.9 million, respectively, for 
which only the PIK interest was on non-accrual. The decrease in the cumulative cost and fair value of debt investments on non-accrual between December 31, 2016 and December 31, 
2015 is the result of placing two new debt investments on non-accrual status, offset by the liquidation of three debt investments that were on non-accrual at December 31, 2015. For 
the year ended December 31, 2016, we recognized a realized loss of approximately $6.2 million on the settlement of one debt investment that was on non-accrual at December 31, 
2015.  In addition, we recognized realized losses of $419,000 and $430,000 on the liquidation and partial write off, respectively, of two debt investments that were on non-accrual as 
of December 31, 2015.

73

Results of Operations 

Comparison of periods ended December 31, 2016 and 2015 

Investment Income 

Interest Income 

Total investment income for the year ended December 31, 2016 was approximately $175.1 million as compared to approximately $157.1 million for the year ended 

December 31, 2015. 

Interest income for the year ended December 31, 2016 totaled approximately $158.7 million as compared to approximately $140.3 million for the year ended December 31, 
2015. The increase in interest income for the year ended December 31, 2016 as compared to the year ended December 31, 2015 is primarily attributable to debt investment portfolio 
growth, specifically an increase in the weighted average principal outstanding between the periods, slightly offset by a reduction in the acceleration of income due to early repayments 
and other one-time events during the period.

Of the $158.7 million in interest income for the year ended December 31, 2016, approximately $152.1 million represents recurring income from the contractual servicing of 
our loan portfolio and approximately $6.6 million represents income related to the acceleration of income due to early loan repayments and other one-time events during the period. 
Income from recurring interest and the acceleration of interest income due to early loan repayments represented $130.4 million and $9.9 million, respectively, of the $140.3 million 
interest income for the year ended December 31, 2015.

The following table shows the PIK-related activity, for the years ended December 31, 2016 and 2015, at cost: 

(in thousands)
Beginning PIK loan balance
PIK interest income during the period
PIK accrued (capitalized) to principal but not recorded as income 
during the period
Payments received from PIK loans
Realized loss
Ending PIK loan balance

$

$

Year Ended December 31,

2016

2015

5,149
7,825

(2,146)
(632)
(266)
9,930

$

$

6,250
4,658

—
(5,483)
(276)
5,149

The increase in PIK interest income during the year ended December 31, 2016 as compared to the year ended December 31, 2015 is due to overall portfolio growth, or more 
specifically, an increase in the weighted average principal outstanding for loans which bear PIK interest and a decrease in the number of PIK loans which paid-off during the period. 
PIK receivable represents less than 1% of total debt investments as of December 31, 2016 and December 31, 2015, respectively 

Fee Income 

Income from commitment, facility and loan related fees for the year ended December 31, 2016 totaled approximately $16.3 million as compared to approximately $16.9 

million for the year ended December 31, 2015. The decrease in fee income is primarily attributable to a decrease in the acceleration of unamortized fees due to early repayments and 
one-time fees during the period.

Of the $16.3 million in income from commitment, facility and loan related fees for the year ended December 31, 2016, approximately $9.5 million represents income from 

recurring fee amortization and approximately $6.8 million represents income related to the acceleration of unamortized fees during the period.  Income from recurring fee amortization 
and the acceleration of unamortized fees due to early loan repayments represented $5.8 million and $11.1 million, respectively, of the $16.9 million income for the year ended 
December 31, 2015.

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the years ended December 31, 2016 

and 2015, respectively. 

Operating Expenses 

Our operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits. Operating 

expenses totaled approximately $82.7 million and $83.6 million during the years ended December 31, 2016 and 2015, respectively. 

74

Interest and Fees on our Borrowings 

Interest and fees on our borrowings totaled approximately $37.1 million and $36.9 million for the years ended December 31, 2016 and 2015, respectively. Interest and fee 
expense for the year ended December 31, 2016 as compared to December 31, 2015 increased primarily due to higher weighted average principal balances outstanding on our 2024 
Notes related to the issuance of $149.9 million of aggregate principal during the period. The increase in interest and fee expense incurred related to our 2024 notes was partially offset 
by principal pay-offs and paydowns on our 2016 Convertible Notes, Asset Backed Notes and Credit Facilities during the period.

We had a weighted average cost of debt, comprised of interest and fees and loss on debt extinguishment (long-term liabilities –convertible notes), of approximately 5.8% and 
6.0% for the years ended December 31, 2016 and 2015, respectively. The decrease between comparative periods was primarily driven by a reduction in the weighted average principal 
outstanding on our higher yielding debt instruments compared to the prior period, specifically due to the full impact of redemptions on our 2019 Notes and 2016 Convertible Notes 
which occurred in the prior period, offset by the incremental issuance of our 2024 Notes in fiscal year 2016. Note that we have publicly announced our intention to redeem the 
remaining 2019 Notes in full on February 24, 2017.

General and Administrative 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 decreased to $16.1 million from $16.7 million for the years ended December 31, 
2016 and 2015, respectively. This decrease was primarily attributable to a reduction in costs related to strategic hiring objectives and travel and entertainment, slightly offset by an 
increase in corporate legal and other expenses. 

Employee Compensation 

Employee compensation and benefits totaled approximately $22.5 million for the year ended December 31, 2016 as compared to approximately $20.7 million for the year 

ended December 31, 2015. The increase between comparative periods was primarily due to changes in variable incentive compensation related to the achievement of origination and 
strategic corporate objectives.

Employee stock-based compensation totaled approximately $7.0 million for the year ended December 31, 2016 as compared to approximately $9.4 million for the year ended 
December 31, 2015. The decrease between comparative periods was primarily related to the number and amount of restricted stock award vesting, specifically the vesting of retention 
grants issued in 2014 which occurred in the first half of 2016.

Other Income (Loss)

Other income (loss) generally consists of income or losses generated from sources other than our investment portfolio. For the years ended December 31, 2016 and December 

31, 2015 it consists of $8.0 million of litigation settlement proceeds and $1,000 of loss on extinguishment of debt, respectively. 

Litigation Settlement Proceeds

On December 19, 2016, we entered into a Confidential Settlement Agreement (the “Settlement Agreement”) with all defendants in connection with a litigation matter (“the 

Action”) filed in November 2014. In connection with the Settlement Agreement, the Action was settled among the parties and the Company received a settlement payment in the 
amount of $8.0 million. The Settlement Agreement also provides a mutual release by the Company and the defendants of any and all claims and cross-claims that were asserted in the 
Action, the circumstances and events underlying the Action and attorney’s fees and costs related thereto. The Settlement Agreement does not constitute an admission of liability, fault, 
or wrongdoing by any party. The settlement payment was classified as a component of net investment income in the Company’s Consolidated Statement of Operations.

Loss on Extinguishment of Convertible Notes 

Our 6.00% convertible notes due 2016 (the “2016 Convertible Notes”) were fully settled on or before their contractual maturity date of April 15, 2016. Throughout their life, 
holders of approximately $74.8 million of our 2016 Convertible Notes exercised their conversion rights. These 2016 Convertible Notes were settled with a combination of cash equal 
to the outstanding principal amount of the 2016 Convertible Notes and approximately 1.6 million shares of our common stock, or $24.3 million. 

We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and OID. The loss was partially offset by a gain in the amount 
of the difference between the outstanding principal balance of the converted notes and the fair value of the debt instrument. The net loss on extinguishment of debt we recorded for the 
year ended December 31, 2015 was approximately $1,000. We did not record a loss on extinguishment of debt for the year ended December 31, 2016. The loss on extinguishment of 
debt was classified as a component of net investment income in our Consolidated Statements of Operations.

75

Net Investment Realized Gains and Losses and Net Unrealized Appreciation and Depreciation 

Realized gains or losses 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. Net change in unrealized appreciation or depreciation 
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 realized gains and losses for the years ended December 31, 2016 and 2015 is as follows: 

(in thousands)
Realized gains
Realized losses
Net realized gains

Year Ended December 31,

2016

2015

$

$

15,202
(10,626)
4,576

$

$

12,677
(7,530)
5,147

During the year ended December 31, 2016, we recognized net realized gains of approximately $4.6 million on the portfolio. These net realized gains included gross realized 

gains of approximately $15.2 million, primarily from the sale of investments in six portfolio companies, including Box, Inc. ($9.3 million), Celator Pharmaceuticals, Inc. ($1.5 
million), Touchcommerce, Inc. ($1.5 million), Ping Identity Corporation ($1.3 million), ReachLocal ($610,000) and Hillcreast Laboratories, Inc. ($225,000). These gains were 
partially offset by gross realized losses of approximately $10.6 million, primarily from the liquidation or write off of our warrant and equity investments in eight portfolio companies 
and our debt investments in five portfolio companies, including the settlement of our outstanding debt investment in The Neat Company ($6.2 million).

During the year ended December 31, 2015, we recognized net realized gains of approximately $5.1 million on the portfolio. These net realized gains included gross realized 

gains of approximately $12.6 million from the sale of investments in seven portfolio companies, including Box, Inc. ($3.2 million), Atrenta, Inc. ($2.6 million), Cempra, Inc. ($2.0 
million), Celladon Corporation ($1.4 million), Egalet Corporation ($652,000), Everyday Health, Inc. ($387,000) and Identiv, Inc. ($304,000) and $1.5 million from subsequent 
recoveries on two previously written-off debt investments. These gains were partially offset by gross realized losses of approximately $7.5 million primarily from the liquidation or 
write off of our investments in sixteen portfolio companies.

The net unrealized appreciation and depreciation of our investments is based on the fair value of each investment determined in good faith by our Board of Directors. The 

following table summarizes the change in net unrealized appreciation/depreciation of investments for the years ended December 31, 2016 and 2015: 

(in thousands)
Gross unrealized appreciation on portfolio investments
Gross unrealized depreciation on portfolio investments
Reversal of prior period net unrealized appreciation upon a realization event
Reversal of prior period net unrealized depreciation upon a realization event
Net unrealized appreciation (depreciation) attributable to taxes payable
Citigroup warrant participation
Net unrealized depreciation on portfolio investments

Year Ended December 31,

2016

2015

75,264
(115,867)
(8,525)
13,186
(259)
(16)
(36,217)

$

$

78,991
(111,926)
(8,707)
4,599
1,322
(11)
(35,732)

$

$

During the year ended December 31, 2016, we recorded approximately $36.2 million of net unrealized depreciation, of which $35.9 million is net unrealized depreciation 

from our debt, equity and warrant investments. Of the $35.9 million, approximately $14.0 million is attributed to net unrealized depreciation on our debt investments which primarily 
relates to $50.0 million unrealized depreciation for collateral based impairments on eight portfolio companies, offset by the reversal of prior period collateral based impairments of 
$17.3 million on six portfolio companies and the reversal of  $13.1 million of prior period unrealized depreciation upon payoff or settling of our debt investments. Approximately 
$22.2 million is attributed to net unrealized depreciation on our equity investments which primarily relates to approximately $7.4 million of unrealized depreciation for collateral 
based impairments on two portfolio companies, $6.6 million of unrealized depreciation on our public equity portfolio, with the largest concentration in our investment in Box, Inc. and 
the reversal of $5.4 million of prior period net unrealized appreciation upon being realized as a gain for our sale of shares of Box, Inc. This unrealized depreciation was partially offset 
by approximately $245,000 of unrealized appreciation on our warrant investments, which primarily related to $4.8 million of unrealized appreciation on our private portfolio 
companies, offset by $2.9 million unrealized depreciation on our public portfolio companies related to individual portfolio company performance.   

76

Net unrealized depreciation increased by approximately $259,000 as a result of increased estimated taxes payable on investments held in subsidiaries subject to corporate 

taxes for the year ended December 31, 2016. 

Net unrealized depreciation further increased by approximately $16,000 due to net depreciation on the pool of warrants collateralized under the warrant participation 
agreement and a decrease in the liability for the acquisition proceeds received on our Ping Identity Corporation equity investment, which had been exercised from warrants that were 
included in the collateral pool, during the year ended December 31, 2016.

During the year ended December 31, 2015, we recorded approximately $35.7 million of net unrealized depreciation, of which $37.1 million is net unrealized depreciation 

from our debt, equity and warrant investments. Of the $37.1 million, approximately $14.0 million is attributed to net unrealized depreciation on our debt investments which primarily 
related to $20.4 million unrealized depreciation for collateral based impairments on ten portfolio companies offset by the reversal of collateral based impairments of $5.6 million on 
three portfolio companies. Approximately $19.1 million is attributed to net unrealized depreciation on our equity investments which primarily related to $11.4 million unrealized 
depreciation on our public equity portfolio with the largest concentration in our investment in Box, Inc. and the reversal of $7.8 million of prior period net unrealized appreciation 
upon being realized as a gain for our sale of shares of Box, Inc., Atrenta, Inc., Cempra, Inc. Celladon Corporation, Egalet Corporation, Everyday Health, and Identiv, Inc. as discussed 
above. Finally, approximately $4.0 million is attributed to net unrealized depreciation on our warrant investments which primarily related to $6.0 million of unrealized depreciation on 
our private portfolio companies related to declining industry performance offset by the reversal of $3.2 million of prior period net unrealized depreciation upon being realized as a loss 
on the liquidation of our investments in thirteen portfolio companies. 

Net unrealized depreciation was offset by approximately $1.3 million as a result of estimated taxes payable on investments held in subsidiaries subject to corporate taxes for 

the year ended December 31, 2015. 

Net unrealized depreciation increased by approximately $11,000 as a result of appreciation of fair value on the pool of warrants collateralized under the warrant participation 

agreement offset by a decrease in the liability for the acquisition proceeds we received on our Atrenta, Inc. equity investment, which had been exercised from warrants that were 
included in the collateral pool. 

The following table summarizes the change in net unrealized appreciation (depreciation) in the investment portfolio by investment type, excluding net unrealized appreciation 

(depreciation) on taxes payable, escrow receivables and Citigroup warrant participation,  for the years ended December 31, 2016 and December 31, 2015. 

(in millions)
Collateral Based Impairments
Reversals of Prior Period Collateral Based Impairments
Reversals due to Debt Payoffs & Warrant/Equity Sales
Fair Value Market/Yield Adjustments*

Level 1 & 2 Assets
Level 3 Assets

Total Fair Value Market/Yield Adjustments

Total Unrealized Appreciation (Depreciation)

(in millions)
Collateral Based Impairments
Reversals of Prior Period Collateral Based Impairments
Reversals due to Debt Payoffs & Warrant/Equity Sales
Fair Value Market/Yield Adjustments*

Level 1 & 2 Assets
Level 3 Assets

Total Fair Value Market/Yield Adjustments

Total Unrealized Depreciation

Debt

Year Ended December 31, 2016
Equity

Warrants

Total

$

$

$

$

(50.0)
17.3
13.1

(1.3)
6.9
5.6
(14.0)

(20.4)
5.6
6.2

(1.1)
(4.3)
(5.4)
(14.0)

$

$

$

$

Debt

(7.4)
—
(5.4)

(6.6)
(2.8)
(9.4)
(22.2)

$

$

Year Ended December 31, 2015
Equity

Warrants

(0.2)
—
(7.8)

(11.4)
0.3
(11.1)
(19.1)

$

$

(1.1)
0.5
(1.0)

(2.9)
4.8
1.9
0.3

(0.4)
0.4
3.2

(1.2)
(6.0)
(7.2)
(4.0)

$

$

$

(58.5)
17.8
6.7

(10.8)
8.9
(1.9)
(35.9)

(21.0)
6.0
1.6

(13.7)
(10.0)
(23.7)
(37.1)

Total

*

Level 1 assets are generally equities listed in active markets and Level 2 assets are generally warrants held in a public company. Observable market prices are typically the primary input in valuing Level 1 and 2 assets. 
Level 3 asset valuations require inputs that are both significant and unobservable. Generally, level 3 assets are debt investments and warrants and equities held in a private company. See Note 2 to the financial statements 
discussing ASC 820. 

77

Income and Excise Taxes 

We account for income taxes in accordance with the provisions of ASC Topic 740, Income Taxes, under which income taxes are provided for amounts currently payable and 

for amounts deferred based upon the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the 
enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. Based upon our previous election and anticipated continued 
qualification to be subject to taxation as a RIC, we are typically not subject to a material level of federal income taxes. We intend to distribute 100% of our spillover earnings, which 
consists of ordinary income and long term capital gains, from our taxable year ended December 31, 2016 to our shareholders during 2017. 

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

For the years ended December 31, 2016 and 2015, the net increase in net assets resulting from operations totaled approximately $68.7 million and approximately $42.9 

million, respectively. These changes are made up of the items previously described. 

The basic and fully diluted net change in net assets per common share for the year ended December 31, 2016 was $0.91, whereas the basic and fully diluted net change in net 

assets per common share for the year ended December 31, 2015 were $0.60 and $0.59, respectively. 

For the purpose of calculating diluted earnings per share for year ended December 31, 2015, the dilutive effect of the 2016 Convertible Notes under the treasury stock method 
is included in this calculation as our share price was greater than the conversion price in effect ( $11.03 as of December 31, 2015) for the 2016 Convertible Notes for such period. The 
2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016, as such, there is no potential additional dilutive effect for the year ended 
December 31, 2016.

Comparison of periods ended December 31, 2015 and 2014 

Investment Income 

Interest Income 

Total investment income for the year ended December 31, 2015 was approximately $157.1 million as compared to approximately $143.7 million for the year ended 

December 31, 2014. 

Interest income for the year ended December 31, 2015 totaled approximately $140.3 million as compared to approximately $126.6 million for the year ended December 31, 
2014. The increase in interest income for the year ended December 31, 2015 as compared to the year ended December 31, 2014 is primarily attributable to debt investment portfolio 
growth, specifically an increase in the weighted average principal outstanding between the periods.

Of the $140.3 million in interest income for the year ended December 31, 2015, approximately $130.4 million represents recurring income from the contractual servicing of 
our loan portfolio and approximately $9.9 million represents income related to the acceleration of income due to early loan repayments and other one-time events during the period. 
Income from recurring interest and the acceleration of interest income due to early loan repayments represented $106.8 million and $19.8 million, respectively, of the $126.6 million 
interest income for the year ended December 31, 2014.

The following table shows the PIK-related activity, for the years ended December 31, 2015 and 2014, at cost:

(in thousands)
Beginning PIK loan balance
PIK interest income during the period
Payments received from PIK loans
Realized loss
Ending PIK loan balance

Year Ended December 31,

2015

2014

6,250
4,658
(5,483)
(276)
5,149

$

$

5,603
3,346
(2,699)
—
6,250

$

$

The increase in payments received from PIK loans and the increase in PIK interest capitalized during the year ended December 31, 2015 as compared to the year ended 
December 31, 2014 is due to an increase in the weighted average principal outstanding for loans which bear PIK interest and the number of PIK loans which paid-off during the 
period. 

78

Fee Income 

Income from commitment, facility and loan related fees for the year ended December 31, 2015 totaled approximately $16.9 million as compared to approximately $17.0 

million for the year ended December 31, 2014. The decrease in fee income is primarily attributable to the acceleration of early loan repayments and restructures, slightly offset by an 
increase in normal fee amortization due to a higher weighted average debt investment portfolio outstanding during the period.

Of the $16.9 million in income from commitment, facility and loan related fees for the year ended December 31, 2015, approximately $5.8 million represents income from 

recurring fee amortization and approximately $11.1 million represents income related to the acceleration of unamortized fees for the period.  Income from recurring fee amortization 
and the acceleration of unamortized fees due to early loan repayments represented $5.2 million and $11.8 million, respectively, of the $17.0 million income for the year ended 
December 31, 2014. 

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the years ended December 31, 2015 

and 2014, respectively. 

Operating Expenses 

Our operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits. Operating 

expenses totaled approximately $83.6 million and $70.3 million during the years ended December 31, 2015 and 2014, respectively. 

Interest and Fees on our Borrowings 

Interest and fees on our borrowings totaled approximately $36.9 million and $34.0 million for the years ended December 31, 2015 and 2014, respectively. Interest and fee 
expense for the year ended December 31, 2015 as compared to December 31, 2014 increased primarily due to higher weighted average principal balances outstanding on our Asset 
Backed Notes, Credit Facilities, 2019 Notes and  2024 Notes (together with the 2019 Notes, the “Baby Bonds”), slightly offset by a reduction in weighted average principal balances 
outstanding on our SBA debentures, 2016 Convertible Notes and lower debt issuance cost amortization related to our 2016 Convertible Notes and Asset Backed Notes. 

We had a weighted average cost of debt, comprised of interest and fees and loss on debt extinguishment (long-term liabilities –convertible notes), of approximately 6.0% and 
6.6% for the years ended December 31, 2015 and 2014, respectively. The decrease between comparative periods was primarily driven by a reduction in the weighted average principal 
outstanding on our higher yielding debt instruments and a reduction in non-cash acceleration of debt issuance costs related to our SBA debentures, 2016 Convertible Notes and Asset 
Backed Notes as compared to the prior period, slightly offset by non-cash accelerations of debt issuance costs due to early pay downs on our Baby Bonds.

General and Administrative 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 $16.7 million from $10.2 million for the years ended December 31, 
2015 and 2014, respectively. This increase was primarily due to increased recruiting costs related to strategic hiring objectives, corporate legal expenses and outside consulting 
services.

Employee Compensation 

Employee compensation and benefits totaled approximately $20.7 million for the year ended December 31, 2015 as compared to approximately $16.6 million for the year 

ended December 31, 2014. The increase between comparative periods was primarily due to changes in variable incentive compensation. 

Employee stock-based compensation totaled approximately $9.4 million for the year ended December 31, 2015 as compared to approximately $9.6 million for the year ended 

December 31, 2014. The decrease between comparative periods was primarily due to new grants issued related to incentive compensation and strategic hiring objectives, slightly 
offset by vesting and forfeitures. 

79

Loss on Extinguishment of Convertible Notes 

Upon meeting the stock trading price conversion requirement during the three months ended June 30, 2014, September 30, 2014 and December 31, 2014, the 2016 

Convertible Notes became convertible on July 1, 2014 and continued to be convertible during each of the three months ended September 30, 2014, December 31, 2014 and March 31, 
2015, respectively. During this period and as of December 31, 2015, holders of approximately $57.4 million of our 2016 Convertible Notes have exercised their conversion rights and 
these 2016 Convertible Notes were settled with a combination of cash equal to the outstanding principal amount of the 2016 Convertible Notes and approximately 1.5 million shares 
of the Company’s common stock, or $24.3 million.

We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and OID. The loss was partially offset by a gain in the amount 
of the difference between the outstanding principal balance of the converted notes and the fair value of the debt instrument. The net loss on extinguishment of debt we recorded for the 
years ended December 31, 2015 and 2014 was approximately $1,000 and $1.6 million, respectively. The loss on extinguishment of debt was classified as a component of net 
investment income in our Consolidated Statements of Operations 

Net Investment Realized Gains and Losses and Net Unrealized Appreciation and Depreciation 

Realized gains or losses 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. Net change in unrealized appreciation or depreciation 
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 realized gains and losses for the years ended December 31, 2015 and 2014 is as follows: 

(in thousands)
Realized gains
Realized losses
Net realized gains

Year Ended December 31,
2014
2015

$

$

12,677
(7,530)
5,147

$

$

24,027
(3,915)
20,112

During the year ended December 31, 2015, we recognized net realized gains of approximately $5.1 million on the portfolio. These net realized gains included gross realized 

gains of approximately $12.6 million from the sale of investments in seven portfolio companies, including Box, Inc. ($3.2 million), Atrenta, Inc. ($2.6 million), Cempra, Inc. ($2.0 
million), Celladon Corporation ($1.4 million), Egalet Corporation ($652,000), Everyday Health, Inc. ($387,000) and Identiv, Inc. ($304,000), and $1.5 million from subsequent 
recoveries received on two previously written-off debt investments. These gains were partially offset by gross realized losses of approximately $7.5 million primarily from the 
liquidation or write off of our investments in sixteen portfolio companies.

During the year ended December 31, 2014, we recognized net realized gains of approximately $20.1 million on the portfolio. These net realized gains included gross realized 

gains of approximately $24.0 million primarily from the sale of investments in seven portfolio companies including Acceleron Pharma, Inc., ($7.9 million), Merrimack 
Pharmaceuticals, Inc., ($4.3 million), Neuralstem, Inc., ($2.7 million), IPA Holdings, LLC., ($1.5 million), Cell Therapeutics, Inc., ($1.3 million), Trulia, Inc. ($1.0 million), and 
Portola Pharmaceuticals, Inc. ($700,000). These gains were partially offset by gross realized losses of approximately $3.9 million primarily from the liquidation of our investments in 
fifteen portfolio companies.

The net unrealized appreciation and depreciation of our investments is based on the fair value of each investment determined in good faith by our Board of Directors. The 

following table summarizes the change in net unrealized appreciation/depreciation of investments for the years ended December 31, 2015 and 2014: 

(in thousands)
Gross unrealized appreciation on portfolio investments
Gross unrealized depreciation on portfolio investments
Reversal of prior period net unrealized appreciation upon a realization event
Reversal of prior period net unrealized depreciation upon a realization event
Net unrealized appreciation (depreciation) attributable to taxes payable
Net unrealized depreciation on escrow receivables
Citigroup warrant participation
Net unrealized depreciation on portfolio investments

80

Year Ended December 31,

2015

2014

$

$

78,991
(111,926)
(8,707)
4,599
1,322
—
(11)
(35,732)

$

$

72,968
(79,412)
(15,335)
3,182
(1,882)
(465)
270
(20,674)

During the year ended December 31, 2015, we recorded approximately $35.7 million of net unrealized depreciation, of which $37.1 million is net unrealized depreciation 

from our debt, equity and warrant investments. Of the $37.1 million, approximately $14.0 million is attributed to net unrealized depreciation on our debt investments which primarily 
related to $20.4 million unrealized depreciation for collateral based impairments on ten portfolio companies offset by the reversal of collateral based impairments of $5.6 million on 
three portfolio companies. Approximately $19.1 million is attributed to net unrealized depreciation on our equity investments which primarily relates to approximately $11.4 million 
unrealized depreciation on our public equity portfolio with the largest concentration in our investment in Box, Inc. and the reversal of $7.8 million of prior period net unrealized 
appreciation upon being realized as a gain for our sale of shares of Box, Inc., Atrenta, Inc., Cempra, Inc. Celladon Corporation, Egalet Corporation, Everyday Health, and Identiv, Inc. 
as discussed above. Finally, approximately $4.0 million is attributed to net unrealized depreciation on our warrant investments which primarily related to $6.0 million of unrealized 
depreciation on our private portfolio companies related to declining industry performance offset by the reversal of $3.2 million of prior period net unrealized depreciation upon being 
realized as a loss on the liquidation of our investments in thirteen portfolio companies.

Net unrealized depreciation was offset by approximately $1.3 million as a result of decreased estimated taxes payable on investments held in subsidiaries subject to corporate 

taxes for the year ended December 31, 2015. 

Net unrealized depreciation increased by approximately $11,000 due to appreciation of fair value on the pool of warrants collateralized under the warrant participation 

agreement offset by a decrease in the liability for the acquisition proceeds we received on our Atrenta, Inc. equity investment, which had been exercised from warrants that were 
included in the collateral pool.

During the year ended December 31, 2014, we recorded approximately $20.7 million of net unrealized depreciation, of which $18.6 million is net unrealized depreciation 

from our debt, equity and warrant investments. Of the $18.6 million, approximately $14.2 million is attributed to net unrealized depreciation on our debt investments which primarily 
related to $23.2 million unrealized depreciation for collateral based impairments on 12 portfolio companies offset by the reversal of collateral based impairments of $4.1 million on 
two portfolio companies. Approximately $15.8 million is attributed to net unrealized depreciation on our warrant investments which primarily related to $8.3 million of net unrealized 
depreciation due to the exercise of our warrants in Box, Inc. to equity and $2.4 million of net unrealized depreciation due to the reversal of prior period net unrealized appreciation 
upon being realized as a gain. This unrealized depreciation was offset by approximately $11.4 million attributed to net unrealized appreciation on our equity investments, including 
approximately $13.0 million of net unrealized appreciation on Box, Inc., including the exercise of our remaining warrants in Box, Inc. to equity and approximately $7.7 million of net 
unrealized appreciation on our public equity portfolio. This was offset by approximately $12.7 million unrealized depreciation due to reversal of prior period net unrealized 
appreciation upon being realized as a gain. 

Net unrealized appreciation decreased by approximately $1.9 million as a result of estimated taxes payable on investments held in subsidiaries subject to corporate taxes for 

the year ended December 31, 2014. 

Net unrealized appreciation further decreased by approximately $465,000 as a result of reducing escrow receivables for the year ended December 31, 2014 related to merger 

and acquisition transactions closed on former portfolio companies. 

During the year ended December 31, 2014, net unrealized depreciation was offset by approximately $270,000 due to net depreciation of fair value on the pool of warrants 

collateralized under the Citigroup warrant participation agreement as a result of the sale of shares in Acceleron Pharma, Inc., Merrimack Pharmaceuticals, Inc., Portola 
Pharmaceuticals, Inc. and Everyday Health, Inc. that were subject to the Citigroup warrant participation agreement. 

81

The following table summarizes the change in net unrealized appreciation/ (depreciation) in the investment portfolio by investment type, excluding net unrealized appreciation 

(depreciation) on taxes payable, escrow receivables and Citigroup warrant participation,  for the years ended December 31, 2015 and December 31, 2014:

(in millions)
Collateral based impairments
Reversals of Prior Period Collateral based impairments
Reversals due to Debt Payoffs & Warrant/Equity sales
Fair Value Market/Yield Adjustments*

Level 1 & 2 Assets
Level 3 Assets

Total Fair Value Market/Yield Adjustments

Total Unrealized Depreciation

(in millions)
Collateral based impairments
Reversals of Prior Period Collateral based impairments
Reversals due to Debt Payoffs & Warrant/Equity sales
Fair Value Market/Yield Adjustments*

Level 1 & 2 Assets
Level 3 Assets

Total Fair Value Market/Yield Adjustments

Total Unrealized Appreciation (Depreciation)

Debt

Year Ended December 31, 2015
Equity

Warrants

Total

$

$

$

$

(20.4)
5.6
6.2

(1.1)
(4.3)
(5.4)
(14.0)

(23.2)
4.1
—

—
4.9
4.9
(14.2)

$

$

$

$

Debt

(0.2)
—
(7.8)

(11.4)
0.3
(11.1)
(19.1)

$

$

(0.4)
0.4
3.2

(1.2)
(6.0)
(7.2)
(4.0)

Year Ended December 31, 2014
Equity

Warrants

(1.2)
0.6
(11.1)

7.6
15.5
23.1
11.4

$

$

(3.3)
—
(9.7)

(2.9)
0.1
(2.8)
(15.8)

$

$

$

(21.0)
6.0
1.6

(13.7)
(10.0)
(23.7)
(37.1)

(27.7)
4.7
(20.8)

4.7
20.5
25.2
(18.6)

Total

*

Level 1 assets are generally equities listed in active markets and Level 2 assets are generally warrants held in a public company. Observable market prices are typically the primary input in valuing Level 1 and 2 assets. 
Level 3 asset valuations require inputs that are both significant and unobservable. Generally, level 3 assets are debt investments and warrants and equities held in a private company. See Note 2 to the financial statements 
discussing ASC Topic 820. 

Income and Excise Taxes 

We account for income taxes in accordance with the applicable 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 statement 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. Based upon our qualification and election to be subject to 
taxation as a RIC, we are typically not subject to a material level of federal income taxes. We distributed 100% of our spillover earnings from ordinary income for our taxable year 
ended December 31, 2015 to our shareholders during 2016. 

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

For the years ended December 31, 2015 and 2014, the net increase in net assets resulting from operations totaled approximately $42.9 million and approximately $71.2 

million, respectively. These changes are made up of the items previously described. 

The basic and fully diluted net change in net assets per common share for the year ended December 31, 2015 were $0.60 and $0.59, respectively, whereas the basic and fully 

diluted net change in net assets per common share for the year ended December 31, 2014 was $1.12 and $1.10, respectively. 

For the purpose of calculating diluted earnings per share for years ended December 31, 2015 and 2014, the dilutive effect of the 2016 Convertible Notes under the treasury 

stock method is included in this calculation as our share price was greater than the conversion price of $11.03 in effect as of December 31, 2015 and $11.36 as of December 31, 2014 
for the 2016 Convertible Notes for such periods. 

82

Financial Condition, Liquidity and Capital Resources 

Our liquidity and capital resources are derived from our Credit Facilities, SBA debentures, 2019 Notes, which we have publicly announced our intention to redeem on 
February 24, 2017, 2024 Notes, 2021 Asset-Backed Notes 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 
borrowings and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We may raise additional equity 
or debt capital through both registered offerings off a shelf registration, “At-The-Market”, or ATM, and private offerings of securities, by securitizing a portion of our investments or 
borrowing, including from the SBA through our SBIC subsidiaries. 

On August 16, 2013, we entered into an ATM equity distribution agreement (the “Equity Distribution Agreement”) with JMP Securities LLC (“JMP”) and on March 7, 2016 

we renewed the Equity Distribution Agreement. The Equity Distribution Agreement provides that we may offer and sell up to 8.0 million shares of our common stock from time to 
time through JMP, as our sales agent. On December 21, 2016 the Equity Distribution Agreement was further amended to increase the numbers of shares by 4.0 million to a total of up 
to 12.0 million shares available. 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. 

During the year ended December 31, 2016 we sold 7.3 million shares of common stock for total accumulated net proceeds of approximately $92.8 million, including $2.2 

million of offering expenses. We did not sell any shares under the program during the year ended December 31, 2015. We generally use the net proceeds from these offerings to make 
investments, repurchase or pay down liabilities and for general corporate purposes. As of December 31, 2016, approximately 4.1 million shares remained available for issuance and 
sale under the ATM. See “– Subsequent Events.”

On February 24, 2015, our Board of Directors authorized a stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock. This plan expired on 

August 24, 2015. On August 27, 2015, our Board of Directors authorized a replacement stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock 
and on February 17, 2016, our Board of Directors extended the program until August 23, 2016, after which the plan expired. In January 2016, we repurchased 449,588 shares of our 
common stock at an average price per share of $10.64 per share and a total cost of approximately $4.8 million. We did not repurchase additional shares in subsequent months during 
2016. During the year ended December 31, 2015, the Company repurchased 437,006 shares of its common stock at an average price per share of $10.61 per share and a total cost of 
approximately $4.6 million. 

On March 27, 2015, we raised approximately $100.1 million, after deducting offering expenses of $323,000, in a public offering of 7,590,000 shares of our common stock.

At the 2015 Annual Meeting of Stockholders on July 7, 2015, our common stockholders approved a proposal to allow us to issue common stock at a discount from our then 

current NAV per share, which was effective until the 2016 annual meeting of stockholders on July 7, 2016. Such authorization was not sought at the 2016 annual meeting of 
stockholders. During the years ended December 31, 2016 and December 31, 2015, we have not issued common stock at a discount to NAV.

Our 2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016. Throughout the life of the 2016 Convertible Notes , holders of 

approximately $74.8 million of our 2016 Convertible Notes exercised their conversion rights. These 2016 Convertible Notes were settled with a combination of cash equal to the 
outstanding principal amount of the converted notes and approximately 1.6 million shares of our common stock, or $24.3 million. 

On May 2, 2016, we closed an underwritten public offering of an additional $72.9 million in aggregate principal amount of our 2024 Notes. The $72.9 million in aggregate 

principal amount includes $65.4 million from the initial offering on April 21, 2016 and $7.5 million as a result of underwriters exercising a portion of their option to purchase up to an 
additional $9.8 million in aggregate principal to cover overallotments on April 29, 2016. 

On May 5, 2016, we, through a special purpose wholly-owned subsidiary, Hercules Funding III, as borrower, entered into the Union Bank Facility with MUFG Union Bank, 

as the arranger and administrative agent, and the lenders party thereto from time to time. The Union Bank Facility replaced our credit facility (the “Prior Union Bank Facility”) entered 
into on August 14, 2014 (as amended and restated from time to time) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Prior Union Bank 
Facility from time to time.  Any references to amounts related to the Union Bank Facility prior to May 5, 2016 were incurred and relate to the Prior Union Bank Facility.

83

On June 27, 2016, we closed an underwritten public offering of an additional $60.0 million in aggregate principal amount of the 2024 Notes. On June 30, 2016, the 
underwriters exercised their option to purchase up to an additional $9.0 million in aggregate principal to cover overallotments, resulting in total aggregate principal of $69.0 million 
from the offering. The 2024 Notes rank equally in right of payment and form a single series of notes. The 2024 Notes will bear interest at a rate of 6.25% per year payable quarterly on 
January 30, April 30, July 30 and October 30, of each year, beginning July 30, 2016. We intend to invest the net proceeds of these public offerings to fund investments in debt and 
equity securities in accordance with its investment objective and for other general corporate purposes.

On October 11, 2016, we entered into a debt distribution agreement, pursuant to which we may offer for sale, from time to time, up to $150.0 million in aggregate principal 
amount of 2024 Notes through FBR Capital Markets & Co. acting as our sales agent. Sales of the 2024 Notes, if any, may be made in negotiated transactions or transactions that are 
deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or similar securities exchange or sales made 
through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

As of December 31, 2016, we sold 317,125 notes for approximately $7.9 million in aggregate principal amount. As of December 31, 2016 approximately $142.1 million in 

aggregate principal amount remains available for issuance and sale under the debt distribution agreement. See “– Subsequent Events”.

At December 31, 2016, we had $110.4 million of 2019 Notes, $252.9 million of 2024 Notes, $109.2 million of 2021 Asset-Backed Notes, $190.2 million of SBA debentures 
payable and $5.0 million of borrowings outstanding on the Wells Facility. We had no borrowings outstanding under the Union Bank Facility. Note that we have publicly announced 
our intention to redeem the remaining outstanding 2019 Notes on February 24, 2017. See “– Subsequent Events”. 

At December 31, 2016, we had $203.0 million in available liquidity, including $13.0 million in cash and cash equivalents. We had available borrowing capacity of 
approximately $115.0 million under the Wells Facility and $75.0 million under the Union Bank Facility, subject to existing terms and advance rates and regulatory requirements. We 
primarily invest cash on hand in interest bearing deposit accounts. 

At December 31, 2016, we had $118.5 million of cash in restricted accounts related to our SBIC that we may use to fund new investments in the SBIC. With our net 
investments of $44.0 million and $74.5 million in HT II and HT III, respectively, we have the combined capacity to issue a total of $190.2 million of SBA guaranteed debentures, both 
subject to SBA approval. At December 31, 2016, we have issued $190.2 million in SBA guaranteed debentures in our SBIC subsidiaries. 

At December 31, 2016, we had approximately $8.3 million of restricted cash, which consists of collections of interest and principal payments on assets that are securitized. In 
accordance with the terms of the related securitized 2021 Asset-Backed Notes, based on current characteristics of the securitized debt investment portfolio, the restricted funds may be 
used to pay monthly interest and principal on the securitized debt and are not distributed to us or available for our general operations. During the year ended December 31, 2016, 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.

During the year ended December 31, 2016, our operating activities used $138.4 million of cash and cash equivalents, compared to $114.4 million used during the year ended 
December 31, 2015. This $24.0 million increase in cash used by operating activities is primarily due to a reduction in payments received on investments of $64.8 million and an increase in 
accredited loan exit fees of approximately $7.7 million, offset by decreases in investment purchases and an increase in net assets resulting from operations of approximately $25.8 million.

During the year ended December 31, 2016, our investing activities provided $617,000 of cash, compared to approximately $3.3 million provided during the year ended 

December 31, 2015. The $2.7 million decrease is primarily related to a decrease in restricted cash on securitized assets.  

During the year ended December 31, 2016, our financing activities provided $55.6 million of cash, compared to $20.8 million used during the year ended December 31, 2015. 

The $76.4 million increase in cash was primarily due to the net issuance of $144.6 million in 2024 Notes in the current period and the payment of $60.0 million in 2019 Notes in the 
prior period. The increase was offset by net payment activity on our credit facilities of approximately $95.0 million as well as amortization on our 2021 Asset-Backed Notes.

As of December 31, 2016, net assets totaled $787.9 million, with a NAV per share of $9.90. We intend to generate additional cash primarily from 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. 

84

As required by the 1940 Act, our asset coverage must be at least 200% after each issuance of senior securities. As of December 31, 2016 our asset coverage ratio under our 

regulatory requirements as a business development company was 265.0%, excluding our SBA debentures as a result of our exemptive order from the SEC that 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 
200%, which while providing increased investment flexibility, also may increase our exposure to risks associated with leverage. Total leverage when including our SBA debentures 
was 218.0% at December 31, 2016. 

Outstanding Borrowings 

At December 31, 2016 and December 31, 2015, we had the following available borrowings and outstanding amounts: 

(in thousands)
SBA Debentures (2)
2019 Notes
2024 Notes
2021 Asset-Backed Notes
2016 Convertible Notes (3)
Wells Facility (4)
Union Bank Facility (4)
Total

Total Available

Principal

Carrying Value (1)

Total Available

Principal

Carrying Value (1)

December 31, 2016

December 31, 2015

$

$

190,200 $
110,364
252,873
109,205
—
120,000
75,000
857,642 $

190,200 $
110,364
252,873
109,205
—
5,016
—

667,658 $

187,501 $
108,818
245,490
107,972
—
5,016
—

654,797 $

190,200
110,364
103,000
129,300
17,604
75,000
75,000
700,468

$

$

190,200
110,364
103,000
129,300
17,604
50,000
—
600,468

$

$

186,829
108,179
100,128
126,995
17,478
50,000
—
589,609

(1)

(2)

(3) 
(4)

Except for the Wells Facility and Union Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted discount, if any, associated with 
the loan as of the balance sheet date. See below for the amount of debt issuance cost associated with each borrowing.
At both December 31, 2016 and December 31, 2015, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and $149.0 million was available in HT 
III.
The 2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016.
Availability subject to us meeting the borrowing base requirements. As the Union Bank Facility was replaced on May 5, 2016, amounts included above prior to May 5, 2016 relate to the Prior Union Bank Facility.

Debt issuance costs are fees and other direct incremental costs we incur 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 Accounting Standards
Update (“ASU”) 2015-03 and ASU 2015-15 debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statement of Assets and Liabilities,
except for debt issuance costs associated with line-of-credit arrangements. Debt issuance, net of accumulated amortization, as of December 31, 2016 and December 31, 2015 were as
follows:

(in thousands)
SBA Debentures
2019 Notes
2024 Notes
2021 Asset-Backed Notes
2016 Convertible Notes
Wells Facility (1)
Union Bank Facility (1)
Total

December 31, 2016

December 31, 2015

2,699
1,546
7,482
1,233
—
501
768
14,229

$

$

3,371
2,185
2,872
2,305
44
669
229
11,675

$

$

(1)

As the Wells Facility and Union Bank Facility are line-of-credit arrangements, the debt issuance costs associated with these instruments are presented separately as an asset on the Consolidated Statement of Assets and 
Liabilities in accordance with ASU 2015-15. As the Union Bank Facility was replaced on May 5, 2016, amounts included above prior to May 5, 2016 relate to the Prior Union Bank Facility.

As of January 1, 2016, we adopted ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15 “Presentation and Subsequent Measurement of 
Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated 
debt liability, except for debt issuance costs associated with line-of-credit arrangements. Adoption of these standards results in the reclassification of debt issuance costs from Other 
Assets and the presentation of our SBA debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and 2016 Convertible Notes net of the associated debt issuance costs for each 
instrument in the liabilities section on the Consolidated Statement of Assets and Liabilities. There is no impact to the Consolidated Statement of Operations. In addition, there is no 
change to the presentation of the Wells Facility or Union Bank Facility as debt issuance costs are presented separately as an asset on the Consolidated Statement of Assets and 
Liabilities.  Refer to “– Critical Accounting Policies”.

85

Commitments 

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded contractual commitments to extend 

credit, in the form of loans, to our portfolio companies. Unfunded contractual commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our 
unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitments are dependent upon the portfolio company reaching 
certain milestones before the debt commitment becomes available. Furthermore, our credit agreements contain customary lending provisions which allow us relief from funding 
obligations for previously made 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 commits includes only those which are available at the request of the portfolio company and unencumbered by milestones. 

At December 31, 2016, we had approximately $59.7 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the 

portfolio company and unencumbered by milestones. We intend to use cash flow from normal and early principal repayments, and proceeds from borrowings and notes to fund these 
commitments.

We also had approximately $55.0 million of non-binding term sheets outstanding to four new and 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 a market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing 
agreements.

As of December 31, 2016, our unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and 

unencumbered by milestones are as follows:

(in thousands)
Portfolio Company
NewVoiceMedia Limited
Evernote Corporation
Aquantia Corp.
WP Technology, Inc. (Wattpad, Inc.)
Edge Therapeutics, Inc.
Achronix Semiconductor Corporation
Druva, Inc.
RedSeal Inc.
Total

Unfunded Commitments (1)

15,000
14,000
11,500
7,500
5,000
3,318
3,000
365
59,683

$

$

(1)

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.

Contractual Obligations 

The following table shows our contractual obligations as of December 31, 2016: 

Contractual Obligations(1)(2)
Borrowings (3)(4)(6)
Operating Lease Obligations (5)
Total

Total

Less than 1 year

1 - 3 years

3 - 5 years

After 5 years

$

$

667,658
3,362
671,020

$

$

110,364
1,699
112,063

$

$

136,021
1,604
137,625

$

$

83,150
59
83,209

$

$

338,123
—
338,123

Payments due by period  (in thousands)

(1)
(2)
(3)

(4)
(5)
(6)

Excludes commitments to extend credit to our portfolio companies. 
We also have a warrant participation agreement with Citigroup. See Note 4 to our consolidated financial statements. 
Includes $190.2 million in borrowings under the SBA debentures, $110.4 million of the 2019 Notes, $252.9 million of the 2024 Notes, $109.2 million of the 2021 Asset-Backed Notes and $5.0 million of the Wells 
Facility in outstanding borrowings on the Wells Facility as of December 31, 2016. 
Amounts represent future principal repayments and not the carrying value of each liability. See “– Outstanding Borrowings.”
Long-Term facility leases.
Reflects announced redemption of the remaining 2019 Notes in 2017. See “– Subsequent Events.”

86

Certain premises are leased under agreements which expire at various dates through March 2020. Total rent expense amounted to approximately $1.7 million, $1.7 million and

$1.6 million during the years ended December 31, 2016, 2015, and 2014, respectively. 

Indemnification Agreements

We have entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification 

permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director 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. 

Borrowings 

Long-Term SBA Debentures 

On September 27, 2006, HT II received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and 
additional contributions to regulatory capital. Under the Small Business Investment Company Act and current SBA policy applicable to SBICs, a SBIC can have outstanding at any 
time SBA guaranteed debentures up to twice the amount of its regulatory capital. With our net investment of $44.0 million in HT II as of December 31, 2015, HT II has the capacity to 
issue a total of $41.2 million of SBA guaranteed debentures, subject to SBA approval, of which $41.2 million was outstanding as of December 31, 2016. As of December 31, 2016, 
HT II has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of December 31, 2016 we held investments in HT II in 36 
companies with a fair value of approximately $84.3 million, accounting for approximately 5.9% of our total investment portfolio. HT II held approximately $100.0 million in assets 
and accounted for approximately 5.3% of our total assets prior to consolidation at December 31, 2016.  

On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and 
additional contributions to regulatory capital. With our net investment of $74.5 million in HT III as of December 31, 2015, HT III has the capacity to issue a total of $149.0 million of 
SBA guaranteed debentures, subject to SBA approval, of which $149.0 million was outstanding as of December 31, 2016. As of December 31, 2016, HT III has paid the SBA 
commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of December 31, 2016, we held investments in HT III in 51 companies with a fair 
value of approximately $261.2 million accounting for approximately 18.3% of our total portfolio. HT III held approximately $261.8 million in assets and accounted for approximately 
13.9% of our total assets prior to consolidation at December 31, 2016.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businesses include businesses 

that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, 
SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is one that has a tangible net worth not exceeding $6.0 
million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to 
determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA 
regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Through 
our wholly-owned subsidiaries HT II and HT III, we plan to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments. 

HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails to comply with 
applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures immediately 
due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited in their ability to make distributions to us if they do not have 
sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn, negatively affect us because HT II and HT III are our wholly owned subsidiaries. HT II and HT 
III were in compliance with the terms of the SBIC’s leverage as of December 31, 2016 as a result of having sufficient capital as defined under the SBA regulations.

87

The rates of borrowings under various draws from the SBA beginning in March 2009 are set semiannually in March and September and range from 2.25% to 4.62% excluding 

annual fees. Interest payments on SBA debentures are payable semiannually. There are no principal payments required on these issues prior to maturity and no prepayment penalties. 
Debentures under the SBA generally mature ten years after being borrowed. Based on the initial draw down date of March 2009, the initial maturity of SBA debentures will occur in 
March 2019. In addition, the SBA charges a fee that is set annually, depending on the Federal fiscal year the leverage commitment was delegated by the SBA, regardless of the date 
that the leverage was drawn by the SBIC. The annual fees related to HT II debentures that pooled on September 22, 2010 were 0.406% and 0.285%, depending upon the year in which 
the underlying commitment was closed. The annual fees on other debentures have been set at 0.906%. The annual fees related to HT III debentures that pooled on March 27, 2013 
were 0.804%. The annual fees on other debentures have been set at 0.515%. The rates of borrowings on our SBA debentures range from 3.05% to 5.53% when including these annual 
fees.

The average amount of debentures outstanding for the year ended December 31, 2016 for HT II was approximately $41.2 million with an average interest rate of 

approximately 4.52%. The average amount of debentures outstanding for the year ended December 31, 2016 for HT III was approximately $149.0 million with an average interest rate 
of approximately 3.43%. 

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the SBA debentures are as 

follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

6,988
671
7,659
6,961

$

$
$

6,969
667
7,636
6,942

$

$
$

As of December 31, 2016, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteed debentures is $350.0 million, subject to periodic 

adjustments by the SBA. In aggregate, at December 31, 2016, with our net investment of $118.5 million, HT II and HT III have the capacity to issue a total of $190.2 million of SBA-
guaranteed debentures, subject to SBA approval. At December 31, 2016, we have issued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries. 

We reported the following SBA debentures outstanding principal balance as of December 31, 2016 and December 31, 2015: 

(in thousands)
Issuance/Pooling Date
March 25, 2009
September 23, 2009
September 22, 2010
September 22, 2010
March 29, 2011
September 21, 2011
March 21, 2012
March 21, 2012
September 19, 2012
March 27, 2013
Total SBA Debentures

(1)

Interest rate includes annual charge 

2019 Notes 

Maturity Date

March 1, 2019
September 1, 2019
September 1, 2020
September 1, 2020
March 1, 2021
September 1, 2021
March 1, 2022
March 1, 2022
September 1, 2022
March 1, 2023

Interest Rate (1)
5.53%
4.64%
3.62%
3.50%
4.37%
3.16%
3.28%
3.05%
3.05%
3.16%

$

$

December 31, 2016

December 31, 2015

18,400
3,400
6,500
22,900
28,750
25,000
25,000
11,250
24,250
24,750
190,200

$

$

18,400
3,400
6,500
22,900
28,750
25,000
25,000
11,250
24,250
24,750
190,200

On March 6, 2012, we and U.S. Bank National Association (the “2019 Trustee”) entered into an indenture (the “Base Indenture”). On April 17, 2012, we and the 2019 Trustee 

entered into the First Supplemental Indenture to the Base Indenture (the “First Supplemental Indenture”), dated April 17, 2012, relating to our issuance, offer and sale of $43.0 million 
aggregate principal amount of 7.00% notes due 2019 (“the April 2019 Notes”).

In July 2012, we reopened our April 2019 Notes and issued an additional $41.5 million in aggregate principal amount of April 2019 Notes, which included the exercise of an 

over-allotment option, bringing the total amount of the April 2019 Notes issued to approximately $84.5 million in aggregate principal amount. 

On September 24, 2012, we and the 2019 Trustee, entered into the Second Supplemental Indenture to the Base Indenture (the “Second Supplemental Indenture”), dated as of 

September 24, 2012, relating to our issuance, offer and sale of $75.0 million aggregate principal amount of 7.00% notes due 2019 (the “September 2019 Notes”).

88

In October 2012, the underwriters exercised their over-allotment option for an additional $10.9 million of the September 2019 Notes, bringing the total amount of the 

September 2019 Notes issued to approximately $85.9 million in aggregate principal outstanding. 

In April 2015, we redeemed $20.0 million of the $84.5 million issued and outstanding aggregate principal amount of April 2019 Notes, as previously approved by the Board 

of Directors. In December 2015, we redeemed $40.0 million of the $85.9 million issued and outstanding aggregate principal amount of September 2019 Notes, as previously approved 
by the Board of Directors. We have publicly announced our intention to redeem the remaining outstanding 2019 Notes on February 24, 2017. See “ – Subsequent Events”.

As of December 31, 2016 and December 31, 2015, the 2019 Notes payable is comprised of: 

(in thousands)
April 2019 Notes
September 2019 Notes

Total 2019 Notes principal outstanding

December 31, 2016

December 31, 2015

$

$

64,490
45,874
110,364

$

$

64,490
45,874
110,364

April 2019 Notes 

The April 2019 Notes will mature on April 30, 2019 and may be redeemed in whole or in part at our option at any time or from time to time on or after April 30, 2015, upon 
not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount 
thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. The April 
2019 Notes bear interest at a rate of 7.00% per year payable quarterly on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2012, and trade on the 
NYSE under the trading symbol “HTGZ.” 

The April 2019 Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any of 
our future indebtedness that expressly provides it is subordinated to the April 2019 Notes; (iii) effectively subordinated to all our existing and future secured indebtedness (including 
indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all 
existing and future indebtedness and other obligations of any of our subsidiaries. 

The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring our compliance with (regardless of 

whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act to comply with the 
restrictions on dividends or other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act 
and to provide financial information to the holders of the April 2019 Notes and the 2019 Trustee if we should no longer be subject to the reporting requirements under the Exchange 
Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the First Supplemental Indenture. The Base 
Indenture provides for customary events of default and further provides that the 2019 Trustee or the holders of 25% in aggregate principal amount of the outstanding April 2019 Notes 
in a series may declare such April 2019 Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. 

September 2019 Notes 

The September 2019 Notes will mature on September 30, 2019 and may be redeemed in whole or in part at our option at any time or from time to time on or after 
September 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the 
outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date 
fixed for redemption. The September 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on March 30, June 30, September 30 and December 30 of each year, 
commencing on December 30, 2012, and trade on the NYSE under the trading symbol “HTGY.”

The September 2019 Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any 

of our future indebtedness that expressly provides it is subordinated to the September 2019 Notes; (iii) effectively subordinated to all our existing and future secured indebtedness 
(including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness; (iv) structurally 
subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. 

89

The Base Indenture, as supplemented by the Second Supplemental Indenture, contains certain covenants including covenants requiring us to comply with (regardless of 

whether it is subject to) the asset coverage requirements set forth in Section 18 (a) (1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act to comply with the 
restrictions on dividends or other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act 
and to provide financial information to the holders of the September 2019 Notes and the 2019 Trustee if we should no longer be subject to the reporting requirements under the 
Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the Second Supplemental Indenture. 
The Base Indenture provides for customary events of default and further provides that the 2019 Trustee or the holders of 25% in aggregate principal amount of the outstanding 
September 2019 Notes in a series may declare such September 2019 Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable 
grace period. 

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2019 Notes are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

7,725
639
8,364
7,726

$

$
$

10,899
2,167
13,066
11,132

$

$
$

As of December 31, 2016, we were in compliance with the terms of the Base Indenture, and respective supplemental indentures thereto, governing the April 2019 Notes and 

September 2019 Notes. See Note 4 to our consolidated financial statements for more detail on the 2019 Notes.

2024 Notes 

On July 14, 2014, we and U.S. Bank N.A. (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the Base Indenture 
between us and the 2024 Trustee, dated July 14, 2014, relating to our issuance, offer and sale of $100.0 million aggregate principal amount of 2024 Notes. On August 6, 2014, the 
underwriters issued notification to exercise their over-allotment option for an additional $3.0 million in aggregate principal amount of the 2024 Notes.

On May 2, 2016, we closed an underwritten public offering of an additional $72.9 million in aggregate principal amount of the 2024 Notes. The $72.9 million in aggregate 

principal amount includes $65.4 million from the initial offering on April 21, 2016 and $7.5 million as a result of underwriters exercising a portion of their option to purchase up to an 
additional $9.8 million in aggregate principal to cover overallotments on April 29, 2016. 

On June 27, 2016, we closed an underwritten public offering of an additional $60.0 million in aggregate principal amount of the 2024 Notes. On June 30, 2016, the 
underwriters exercised their option to purchase up to an additional $9.0 million in aggregate principal to cover overallotments, resulting in total aggregate principal of $69.0 million 
from the offering.

On October 11, 2016, we entered into a debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $150.0 million in aggregate principal 

amount 2024 Notes through FBR Capital Markets & Co. acting as its sales agent (the “2024 Notes Agent”). Sales of the 2024 Notes, may be made in negotiated transactions or 
transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or similar securities exchange 
or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

The 2024 Notes Agent receives a commission from us equal to up to 2.00% of the gross sales of any 2024 Notes sold through the 2024 Notes Agent under the debt 
distribution agreement. The 2024 Notes Agent is not required to sell any specific principal amount of 2024 Notes, but will use its commercially reasonable efforts consistent with its 
sales and trading practices to sell the 2024 Notes. The 2024 Notes are expected to trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not 
receive, any accrued and unpaid interest on the 2024 Notes that is not reflected in the trading price.

Subsequent to October 11, 2016 and as of December 31, 2016, we sold 317,125 notes for approximately $7.9 million in aggregate principal amount. As of December 31, 2016 

approximately $142.1 million in aggregate principal amount remains available for issuance and sale under the debt distribution agreement. See “– Subsequent Events”.

All issuances of 2024 Notes rank equally in right of payment and form a single series of notes.

90

The 2024 Notes will mature on July 30, 2024 and may be redeemed in whole or in part at our option at any time or from time to time on or after July 30, 2017, upon not less 

than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount thereof 
plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. The 2024 Notes 
bear interest at a rate of 6.25% per year payable quarterly on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2014, and trade on the NYSE under 
the trading symbol “HTGX.” 

The 2024 Notes are our direct unsecured obligations and  rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any of our 

future indebtedness that expressly provides it is subordinated to the 2024 Notes; (iii) effectively subordinated to all of our existing and future secured indebtedness (including 
indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all 
existing and future indebtedness and other obligations of any of our subsidiaries. 

The Base Indenture, as supplemented by the Third Supplemental Indenture, contains certain covenants including covenants requiring us to comply with (regardless of whether 
it is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act and to comply with the restrictions on 
dividends or other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act. These 
covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the Third Supplemental Indenture. The Base Indenture, as 
supplemented by the Third Supplemental Indenture, also contains certain reporting requirements, including a requirement that we provide financial information to the holders of the 
2024 Notes and the 2024 Trustee if we should no longer be subject to the reporting requirements under the Exchange Act. The Base Indenture provides for customary events of default 
and further provides that the 2024 Trustee or the holders of 25% in aggregate principal amount of the outstanding 2024 Notes in a series may declare such 2024 Notes immediately 
due and payable upon the occurrence of any event of default after expiration of any applicable grace period. As of December 31, 2016, we were in compliance with the terms of the 
Base Indenture, as supplemented by the Third Supplemental Indenture.

As of December 31, 2016 and December 31, 2015, the components of the carrying value of the 2024 Notes were as follows:

(in thousands)
Principal amount of debt
Unamortized debt issuance cost
Original issue premium, net of accretion
Carrying value of 2024 Notes

December 31, 2016

December 31, 2015

$

$

252,873
(7,482)
99
245,490

$

$

103,000
(2,872)
—
100,128

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notes are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)
Accretion of original issue premium
Total interest expense and fees
Cash paid for interest expense and fees

2021 Asset-Backed Notes 

Year Ended December 31,

2016

2015

$

$
$

11,775
686
3
12,464
10,873

$

$
$

6,437
333
—
6,770
6,437

On November 13, 2014, we completed a $237.4 million term debt securitization in connection with which an affiliate of ours  made an offer of $129.3 million in aggregate 
principal amount of fixed-rate asset-backed notes (the “2021 Asset-Backed Notes”), which were rated A(sf) by Kroll Bond Rating Agency, Inc. The 2021 Asset-Backed Notes were 
sold by Hercules Capital Funding Trust 2014-1 pursuant to a note purchase agreement, dated as of November 13, 2014, by and among us, the 2014 Trust Depositor, the 2014 
Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, and are backed by a pool of senior loans made to certain of our portfolio companies and secured by certain
assets of those portfolio companies and are to be serviced by us. The securitization has an 18-month reinvestment period during which time principal collections may be reinvested 
into additional eligible loans. Interest on the 2021 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 3.524% per annum. The 2021 Asset-Backed 
Notes have a stated maturity of April 16, 2021. 

As part of this transaction, we entered into a sale and contribution agreement with the 2014 Trust Depositor under which we have agreed to sell or have contributed to the 

2014 Trust Depositor the 2014 Loans. We have made customary representations, warranties and covenants in the sale and contribution agreement with respect to the 2014 Loans as of 
the date of their transfer to the 2014 Trust Depositor.

91

In connection with the issuance and sale of the 2021 Asset-Backed Notes, we have made customary representations, warranties and covenants in the note purchase agreement. 

The 2021 Asset-Backed Notes are secured obligations of the 2014 Securitization Issuer and are non-recourse to us. The 2014 Securitization Issuer also entered into an indenture 
governing the 2021 Asset-Backed Notes, which includes customary representations, warranties and covenants. The 2021 Asset-Backed Notes were sold without being registered under 
the Securities Act (A) in the United States to “qualified institutional buyers” as defined in Rule 144A under the Securities Act and to institutional “accredited investors” (as defined in 
Rules 501(a)(1), (2), (3) or (7) under the Securities Act) who in each case, are “qualified purchasers” as defined in Sec. 2(a)(51)(A) of the 1940 Act and pursuant to an exemption 
under the Securities Act and (B) to non-U.S. purchasers acquiring interest in the 2021 Asset-Backed Notes outside the United States in accordance with Regulation S under the 
Securities Act. The 2014 Securitization Issuer is not registered under the 1940 Act in reliance on an exemption provided by Section 3(c)(7) thereof and Rule 3a-7 thereunder. In 
addition, the 2014 Trust Depositor entered into an amended and restated trust agreement in respect of the 2014 Securitization Issuer, which includes customary representation, 
warranties and covenants. 

The 2014 Loans are serviced by us pursuant to a sale and servicing agreement, which contains customary representations, warranties and covenants. We perform certain 

servicing and administrative functions with respect to the 2014 Loans. We are entitled to receive a monthly fee from the 2014 Securitization Issuer for servicing the 2014 Loans. This 
servicing fee is equal to the product of one-twelfth (or in the case of the first payment date, a fraction equal to the number of days from and including October 5, 2014 through and 
including December 5, 2014 over 360) of 2.00% and the aggregate outstanding principal balance of the 2014 Loans plus collections on deposit in the 2014 Securitization Issuer’s 
collections account, as of the first day of the related collection period (the period from the 5th day of the immediately preceding calendar month through the 4th day of the calendar 
month in which a payment date occurs, and for the first payment date, the period from and including October 5, 2014, to the close of business on December 5, 2014). 

We also serve as administrator to the 2014 Securitization Issuer under an administration agreement, which includes customary representations, warranties and covenants. 

At December 31, 2016 and December 31, 2015, the 2021 Asset-Backed Notes had an outstanding principal balance of $109.2 million and $129.3 million, respectively.

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2021 Asset-Backed Notes are 

as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

4,366
1,071
5,437
4,396

$

$
$

4,557
902
5,459
4,557

$

$
$

Under the terms of the 2021 Asset Backed Notes, we are required to maintain a reserve cash balance, funded through interest and principal collections from the underlying 

securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2021 Asset-Backed Notes. We have segregated these funds and classified them as 
restricted cash. There was approximately $8.3 million and $9.2 million of restricted cash as of December 31, 2016 and December 31, 2015, respectively, funded through interest 
collections. See Note 4 to our consolidated financial statements for more detail on the 2021 Asset-Backed Notes. 

2016 Convertible Notes 

In April 2011, we issued $75.0 million in aggregate principal amount of 2016 Convertible Notes. The 2016 Convertible Notes were fully settled on or before their contractual 

maturity date of April 15, 2016. 

Prior to the close of business on October 14, 2015, holders were able to convert their 2016 Convertible Notes only under certain circumstances set forth in the indenture 

governing the 2016 Convertible Notes. On or after October 15, 2015 until the close of business on the scheduled trading day immediately preceding the maturity date, holders were 
able to convert their 2016 Convertible Notes at any time. Throughout the life of the 2016 Convertible Notes, holders of approximately $74.8 million of the 2016 Convertible Notes 
exercised their conversion rights. These 2016 Convertible Notes were settled with a combination of cash equal to the outstanding principal amount of the 2016 Convertible Notes and 
approximately 1.6 million shares of our common stock, or $24.3 million.

92

We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount. The loss was partially offset by a 

gain in the amount of the difference between the outstanding principal balance of the 2016 Convertible Notes and the fair value of the debt instrument. The net loss on extinguishment 
of debt we recorded for the year ended December 31, 2015 was $1,000. We did not record a loss on extinguishment of debt for the year ended December 31, 2016. The loss on 
extinguishment of debt was classified as a component of net investment income in our Consolidated Statement of Operations. 

The 2016 Convertible Notes were accounted for in accordance with ASC Subtopic 470-20 (“Debt Instruments with Conversion and Other Options”). In accounting for the 

2016 Convertible Notes, we estimated at the time of issuance that the values of the debt and the embedded conversion feature of the 2016 Convertible Notes were approximately 
92.8% and 7.2%, respectively. The original issue discount of 7.2% attributable to the conversion feature was recorded in “capital in excess of par value” in the Consolidated Statement 
of Assets and Liabilities. As a result, we recorded interest expense comprised of both stated interest expense as well as accretion of the original issue discount resulting in an estimated 
effective interest rate of approximately 8.1%.

As of December 31, 2015, the components of the carrying value of the 2016 Convertible Notes were as follows:

(in thousands)
Principal amount of debt
Unamortized debt issuance cost
Original issue discount, net of accretion

Carrying value of 2016 Convertible Notes

December 31, 2015

17,604
(44)
(82)
17,478

$

$

For the years ended December 31, 2016 and 2015, the components of interest expense, fees and cash paid for interest expense for the 2016 Convertible Notes were as follows:

(in thousands)
Interest expense
Accretion of original issue discount
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

352
82
44
478
440

$

$
$

1,007
246
131
1,384
1,057

$

$
$

The estimated effective interest rate of the debt component of the 2016 Convertible Notes, equal to the stated interest of 6.0% plus the accretion of the original issue discount, 

was approximately 8.1% for the years ended December 31, 2016 and December 31, 2015.

Credit Facilities

As of December 31, 2016 and December 31, 2015, we have two available secured credit facilities, the Wells Facility and the Union Bank Facility.

Wells Facility 

On June 29, 2015, we, through a special purpose wholly-owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into the Wells Facility with Wells 

Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent, and the lenders party thereto from time to time.

The Wells Facility matures on August 2, 2019, unless terminated sooner in accordance with its terms.

Under the Wells Facility, Wells Fargo Capital Finance, LLC made commitments of $75.0 million. Alostar Bank of Commerce made commitments of $20.0 million, and 

Everbank Commercial Finance Inc. made commitments of $25.0 million. The Wells Facility contains an accordion feature, in which we can increase the credit line up to an aggregate 
of $300.0 million, funded by additional lenders and with the agreement of Wells Fargo and subject to other customary conditions. We expect to continue discussions with various 
other potential lenders to join the facility; however, there can be no assurances that additional lenders will join the Wells Facility. Borrowings under the Wells Facility generally bear 
interest at a rate per annum equal to LIBOR plus 3.25%, and the Wells Facility has an advance rate of 50% against eligible debt investments. The Wells Facility is secured by all of the
assets of Hercules Funding II. The Wells Facility requires payment of a non-use fee on a scale of 0.0% to 0.50% depending on the average monthly outstanding balance under the 
facility relative to the maximum amount of commitments at such time. For the years ended December 31, 2016 and 2015, this non-use fee was approximately $483,000 and $294,000, 
respectively.

93

The Wells Facility also includes various financial and other covenants applicable to us and our subsidiaries, in addition to those applicable to Hercules Funding II, including 

covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require us to maintain certain financial ratios, 
including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum tangible net worth in an amount, when added to 
outstanding subordinated indebtedness, that is in excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014. As of December 31, 2016, the 
minimum tangible net worth covenant has increased to $675.9 million as a result of the March 2015 follow-on public offering of 7.6 million shares of common stock for total gross 
proceeds of approximately $100.4 million and the 7.3 million shares of common stock issued under the Equity Distribution Agreement with JMP for gross proceeds of $95.0 million 
during the year ended December 31, 2016. The Wells Facility provides for customary events of default, including, without limitation, with respect to payment defaults, breach of 
representations and covenants, certain key person provisions, cross acceleration provisions to certain other debt, lien and judgment limitations, and bankruptcy.

On June 20, 2011 we paid $1.1 million in structuring fees in connection with the original Wells Facility. In connection with an amendment to the original Wells Facility in 

August 2014, we paid an additional $750,000 in structuring fees and in connection with the amendment in December 2015, we paid an additional $188,000 in structuring fees. These 
fees are being amortized through the end of the term of the Wells Facility.

We had aggregate draws of $195.9 million on the available facility during the year ended December 31, 2016 offset by repayments of $240.9 million. There was $5.0 million 

and $50.0 million of borrowings outstanding on this facility as of December 31, 2016 and 2015, respectively. 

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the Wells Facility are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

$

$
$

539
492
1,031
577

$

$
$

578
361
939
402

See Note 4 to our consolidated financial statements for more detail on the Wells Facility. 

Union Bank Facility 

On May 5, 2016, we, through a special purpose wholly owned subsidiary, Hercules Funding III LLC (“Hercules Funding III”), as borrower, entered into the Union Bank 

Facility with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union Bank Facility replaced the 
Prior Union Bank Facility.  Any references to amounts related to the Union Bank Facility prior to May 5, 2016 were incurred and relate to the Prior Union Bank Facility.

On July 18, 2016, we entered into the First Amendment to the Loan and Security Agreement, dated as of May 5, 2016 with MUFG Union Bank, N.A. The Amendment 

amends certain definitions relating to borrowings which accrue interest based on the London Interbank Offered Rate (“LIBOR Loans”) and (ii) the method(s) for calculating interest 
on and the paying of certain fees related to such LIBOR Loans.

Under the Union Bank Facility, MUFG Union Bank made commitments of $75.0 million. The Union Bank Facility contains an accordion feature, in which we can increase 

the credit line up to an aggregate of $200.0 million, funded by additional lenders and with the agreement of MUFG Union Bank and subject to other customary conditions. There can 
be no assurances that additional lenders will join the Union Bank Facility to increase available borrowings. Borrowings under the Union Bank Facility generally bear interest at either 
(i) if such borrowing is a base rate loan, a base rate per annum equal to the federal funds rate plus 1.00%, LIBOR plus 1.00% or MUFG Union Bank’s prime rate, in each case, plus a 
margin of 1.25% or (ii) if such borrowing is a LIBOR loan, a rate per annum equal to LIBOR plus 3.25%, and the Union Bank Facility generally has an advance rate of 50% against 
eligible debt investments. The Union Bank Facility is secured by all of the assets of Hercules Funding III.

The Union Bank Facility requires payment of a non-use fee during the revolving credit availability period on a scale of 0.25% to 0.50% depending on the average monthly 

outstanding balance under the facility relative to the maximum amount of commitments at such time. We paid a one-time $562,500 structuring fee in connection with the Union Bank 
Facility. Although we did not incur any non-use fees under the Union Bank Facility prior to May 5, 2016, for the years ended December 31, 2016, we incurred non-use fees under the 
existing and previous Union Bank Facility of $356,000 and $380,000, respectively. 

94

The Union Bank Facility also includes various financial and other covenants applicable to us and our subsidiaries, in addition to those applicable to Hercules Funding III, 

including covenants relating to certain changes of control of the Company and Hercules Funding III. Among other things, these covenants also require us to maintain certain financial 
ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum tangible net worth in an amount that is in 
excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014. As of December 31, 2016, the minimum tangible net worth covenant increased to 
$723.6 million as a result of the March 2015 follow-on public offering of 7.6 million shares of common stock for total net proceeds of approximately $100.1 million and the 7.3 
million shares of common stock issued under the Equity Distribution Agreement with JMP for net proceeds of $92.8 million during the year ended December 31, 2016. The Union 
Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person 
provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.

The Union Bank Facility matures on May 5, 2020, unless sooner terminated in accordance with its terms.

In connection with the Union Bank Facility, we and Hercules Funding III also entered into the Sale and Servicing Agreement, dated May 5, 2016 (the “Sale Agreement”) by 

and among Hercules Funding III, as borrower, us, as originator and servicer, and MUFG Union Bank, as agent. Under the Sale Agreement, we agree to (i) sell or transfer certain loans 
to Hercules Funding III under the Union Bank Facility and (ii) act as servicer for the loans sold or transferred.

We had aggregate draws of $90.0 million on the available facility during the nine months ended September 30, 2016 offset by repayments of $90.0 million. At December 31, 

2016 there were no borrowings outstanding on the Union Bank Facility.

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the previous and current Union 

Bank Facility are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Citibank Credit Facility 

Year Ended December 31,

2016

2015

$

$
$

189
356
545
38

$

$
$

—
61
61
—

We, through Hercules Funding Trust I, an affiliated statutory trust, entered into the Citibank Credit Facility with Citigroup, which expired under normal terms. During the first 
quarter of 2009, we paid off all principal and interest owed under the Citibank Credit Facility. Citigroup has an equity participation right through a warrant participation agreement on 
the pool of debt investments and warrants collateralized under the Citibank Credit Facility. Pursuant to the warrant participation agreement, we granted to Citigroup a 10% 
participation in all warrants held as collateral. However, no additional warrants were included in collateral subsequent to the facility amendment on May 2, 2007. As a result, 
Citigroup is entitled to 10% of the realized gains on the warrants until the realized gains paid to Citigroup pursuant to the agreement equal to the Maximum Participation Limit. The 
obligations under the warrant participation agreement continue even after the Citibank Credit Facility is terminated until the Maximum Participation Limit has been reached. 

During the year ended December 31, 2016, we reduced our realized gain by approximately $146,000 for Citigroup’s participation from the acquisition proceeds we received 

on equity exercised from warrants that were included in the collateral pool. We also recorded a decrease in participation liability and an increase in unrealized appreciation by a net 
amount of approximately $16,000 primarily due to depreciation of fair value on the pool of warrants collateralized under the warrant participation and the acquisition proceeds 
received on our Ping Identity Corporation equity investment. The remaining value of Citigroup’s participation right on unrealized gains in the related equity investments is 
approximately $127,000 as of December 31, 2016 and is included in accrued liabilities.  There can be no assurances that the unrealized appreciation of the warrants will not be higher 
or lower in future periods due to fluctuations in the value of the warrants, thereby increasing or reducing the effect on the cost of borrowing. Since inception of the agreement, we have 
paid Citigroup approximately $2.4 million under the warrant participation agreement thereby reducing realized gains by this amount. We will continue to pay Citigroup under the 
warrant participation agreement until the Maximum Participation Limit is reached or the warrants expire. The remaining warrants subject to the Citigroup participation agreement are 
set to expire in January 2017. 

95

Distributions 

The following table summarizes our distributions declared and paid, to be paid or reinvested on all shares, including restricted stock, to date: 

Date Declared
October 27, 2005
December 9, 2005
April 3, 2006
July 19, 2006
October 16, 2006
February 7, 2007
May 3, 2007
August 2, 2007
November 1, 2007
February 7, 2008
May 8, 2008
August 7, 2008
November 6, 2008
February 12, 2009
May 7, 2009
August 6, 2009
October 15, 2009
December 16, 2009
February 11, 2010
May 3, 2010
August 2, 2010
November 4, 2010
March 1, 2011
May 5, 2011
August 4, 2011
November 3, 2011
February 27, 2012
April 30, 2012
July 30, 2012
October 26, 2012
February 26, 2013
April 29, 2013
July 29, 2013
November 4, 2013
February 24, 2014
April 28, 2014
July 28, 2014
October 29, 2014
February 24, 2015
May 4, 2015
July 29, 2015
October 28, 2015
February 17, 2016
April 27, 2016
July 27, 2016
October 24, 2016
February 16, 2017

Record Date

Payment Date

Amount Per Share

November 1, 2005
January 6, 2006
April 10, 2006
July 31, 2006
November 6, 2006
February 19, 2007
May 16, 2007
August 16, 2007
November 16, 2007
February 15, 2008
May 16, 2008
August 15, 2008
November 14, 2008
February 23, 2009
May 15, 2009
August 14, 2009
October 20, 2009
December 24, 2009
February 19, 2010
May 12, 2010
August 12, 2010
November 10, 2010
March 10, 2011
May 11, 2011
August 15, 2011
November 14, 2011
March 12, 2012
May 18, 2012
August 17, 2012
November 14, 2012
March 11, 2013
May 14, 2013
August 13, 2013
November 18, 2013
March 10, 2014
May 12, 2014
August 18, 2014
November 17, 2014
March 12, 2015
May 18, 2015
August 17, 2015
November 16, 2015
March 7, 2016
May 16, 2016
August 15, 2016
November 14, 2016
March 6, 2017

November 17, 2005
January 27, 2006
May 5, 2006
August 28, 2006
December 1, 2006
March 19, 2007
June 18, 2007
September 17, 2007
December 17, 2007
March 17, 2008
June 16, 2008
September 19, 2008
December 15, 2008
March 30, 2009
June 15, 2009
September 14, 2009
November 23, 2009
December 30, 2009
March 19, 2010
June 18, 2010
September 17,2010
December 17, 2010
March 24, 2011
June 23, 2011
September 15, 2011
November 29, 2011
March 15, 2012
May 25, 2012
August 24, 2012
November 21, 2012
March 19, 2013
May 21, 2013
August 20, 2013
November 25, 2013
March 17, 2014
May 19, 2014
August 25, 2014
November 24, 2014
March 19, 2015
May 25, 2015
August 24, 2015
November 23, 2015
March 14, 2016
May 23, 2016
August 22, 2016
November 21, 2016
March 13, 2017

$

$

0.03
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.34
0.34
0.34
0.32 *
0.30
0.30
0.30
0.04
0.20
0.20
0.20
0.20
0.22
0.22
0.22
0.22
0.23
0.24
0.24
0.24
0.25
0.27
0.28
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
12.78

*

Distribution paid in cash and stock. 

On February 16, 2017 the Board of Directors declared a cash distribution of $0.31 per share to be paid on March 13, 2017 to shareholders of record as of March 6, 2017. This 

distribution represents our forty-sixth consecutive distribution since our initial public offering, bringing the total cumulative distribution to date $12.78 per share. 

96

Our Board of Directors 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 of Directors may choose to pay an additional 
special distribution, or fifth distribution, 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 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. Of the distributions declared during the fiscal years ended December 31, 
2016, 2015, and 2014, 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 the tax attributes of our 2017 distributions to stockholders.

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 of Directors 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 borrowings. 
Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act. 

We intend to distribute 100% of our spillover earnings, which consists of ordinary income and long term capital gains, from the year ended December 31, 2016 to our 

stockholders during 2017. 

97

Critical Accounting Policies 

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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. 

Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation.

Change in Accounting Principle

As of January 1, 2016, we adopted ASU 2015-03 and ASU 2015-15, which collectively require debt issuance costs to be presented on the balance sheet as a direct deduction 

from the associated debt liability, except for debt issuance costs associated with line-of-credit arrangements.  Adoption of these standards results in the reclassification of debt issuance 
costs from Other Assets and the presentation of our SBA debentures, 2019 Notes, 2024 Notes, and 2021 Asset-Backed Notes net of the associated debt issuance costs for each 
instrument in the liabilities section on the Consolidated Statement of Assets and Liabilities. In addition, the comparative Consolidated Statement of Assets and Liabilities as of 
December 31, 2015 has been adjusted to apply the change in accounting principle retrospectively. Specifically, the presentation of our Other Assets, SBA debentures, 2019 Notes, 
2024 Notes, 2021 Asset-Backed Notes, line items were adjusted by the amount of unamortized debt issuance costs for each instrument. There is no impact to the Consolidated 
Statement of Operations.  In addition, there is no change to the presentation of the Wells Facility or Union Bank Facility as debt issuance costs are presented separately as an asset on 
the Consolidated Statement of Assets and Liabilities. Refer to “– Outstanding Borrowings” for the amount of unamortized debt issuance costs for each instrument

Valuation of Investments 

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

appreciation and depreciation of investments recorded. 

At December 31, 2016, approximately 97.3% of our total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of 

Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other 
securities and assets, fair value is as determined in good faith by the Board of Directors. Our investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 
and measured in accordance with ASC Topic 820. Our debt securities are primarily invested in venture capital-backed companies in technology-related industries including 
technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of 
lending to these types of businesses, substantially all of our investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there is no known or 
accessible market or market indexes for these investment securities to be traded or exchanged. As such, we value substantially all of our investments at fair value as determined in 
good faith pursuant to a consistent valuation policy by our Board of Directors in accordance with the provisions of ASC Topic 820 and the 1940 Act. Due to the inherent uncertainty 
in determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by our Board of Directors 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. See “Determination of 
Net Asset Value” for a discussion of our investment valuation process. 

98

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 
December 31, 2016 and as of December 31, 2015. We transfer investments in and out of Level 1, 2 and 3 as of the beginning balance sheet date, based on changes in the use of 
observable and unobservable inputs utilized to perform the valuation for the period. During the year ended December 31, 2016, there were no transfers between Levels 1 or 2.

(in thousands)
Description
Senior Secured Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

(in thousands)
Description
Senior Secured Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

Balance
December 31,
2016
1,328,803
39,418
28,236
27,485
1,382
1,425,324

Balance
December 31,
2015
1,110,209
35,245
32,197
22,987
2,967
1,203,605

$

$

$

$

Quoted Prices In
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

$

$

— $
—
17,271
—
—
17,271

$

4,825
—
—
3,239
—
8,064

$

$

1,323,978
39,418
10,965
24,246
1,382
1,399,989

Quoted Prices In
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

$

$

— $
—
30,670
—
—
30,670

$

7,813
—
—
4,422
—
12,235

$

$

1,102,396
35,245
1,527
18,565
2,967
1,160,700

The table below presents a reconciliation 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 years ended December 31, 2016 and December 31, 2015.

(in thousands)
Senior Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

(in thousands)
Senior Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

Balance
January 1, 2016

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
December 31, 2016

1,102,396 $
35,245
1,527
18,565
2,967
1,160,700 $

(6,968) $
(334)
—
(116)
(6)
(7,424) $

(12,675) $
(7,864)
(1,404)
3,465
—
(18,478) $

687,353 $
13,873
6,081
4,082
2,009
713,398 $

— $

(1,367 )
—
(1,186)
(3,588 )
(6,141 ) $

(441,567) $

— $

—
—
—
—

(441,567) $

626
4,761
—
—
5,387

$

(4,561) $
(761)
—
(564)
—
(5,886) $

1,323,978
39,418
10,965
24,246
1,382
1,399,989

Balance
January 1, 2015

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
December 31, 2015

923,906 $
57,548
1,387
21,923
3,598
1,008,362 $

(2,295) $
2,598
(298)
(3,849)
71
(3,773) $

(12,930) $
(1,539)
743
(4,749)
—
(18,475) $

699,555 $
15,076
—
5,311
511
720,453 $

— $

(4,542 )
(305 )
1,220
(1,032 )
(4,659 ) $

(505,274) $

—
—
—
(181)
(505,455) $

— $

685
—
—
—
685

$

(566) $

(34,581)
—
(1,291)
—
(36,438) $

1,102,396
35,245
1,527
18,565
2,967
1,160,700

$

$

$

$

(1)
(2)
(3)

(4)

(5)

(6)

Included in net realized gains or losses in the accompanying Consolidated Statement of Operations. 
Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations. 
Transfers out of Level 3 during the year ended December 31, 2016 relate to the exercise of warrants in TPI Composites, Inc. and Touchcommerce, Inc. to common stock in an initial public offering, or IPO,  and acquisition, 
respectively; the exercise of warrants in Ping Identity Corporation to preferred stock; the conversion of debt to equity in Optiscan Biomedical Corp and Achilles Technology Management Co II, Inc. and the conversion of 
our preferred shares to common shares in SCIEnergy, Inc. Transfers into Level 3 during the year ended December 31, 2016 relate to the acquisition of preferred stock as a result of the exercise of warrants in Ping Identity 
Corporation, the conversion of debt to equity in Optiscan Biomedical Corp and Achilles Technology Management Co II, Inc. and the conversion of our preferred shares to common shares in SCIEnergy, Inc.
Transfers out of Level 3 during the year ended December 31, 2015 relate to the IPOs of Box, Inc., ZP Opco, Inc. (p.k.a. Zosano Pharma, Inc.), Neos Therapeutics, Edge Therapeutics Inc., ViewRay, Inc., and Cerecor, Inc. 
in addition to the exercise of warrants in both Forescout, Inc. and Atrenta, Inc. to preferred stock. Transfers into Level 3 during the year ended December 31, 2015 relate to the acquisition of preferred stock as a result of the 
exercise of warrants in both Forescout, Inc. and Atrenta, Inc. and the conversion of debt to equity in Home Dialysis Plus and Gynesonics.
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 listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures.

99

For the year ended December 31, 2016, approximately $9.1 million and $1.4 million in net unrealized depreciation was recorded for preferred stock and common stock Level 

3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $25.7 million in net unrealized depreciation and $2.8 million in net 
unrealized appreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date. 

For the year ended December 31, 2015, approximately $179,000 in net unrealized depreciation and $745,000 in net unrealized appreciation was recorded for preferred stock 

and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $13.7 million and $5.9 million in net 
unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date. 

The following tables provide quantitative information about our Level 3 fair value measurements as of December 31, 2016 and December 31, 2015. In addition to the 

techniques and inputs noted in the tables below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our 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 our fair value measurements.

The significant unobservable input used in the fair value measurement of our escrow receivables is the amount recoverable at the contractual maturity date of the escrow 

receivable.

Investment Type - Level Three
Debt Investments
Pharmaceuticals

Technology

Sustainable and Renewable
Technology

Medical Devices

Lower Middle Market

Fair Value at
December 31, 2016
(in thousands)

Valuation Techniques/
Methodologies

$

102,412 Originated Within 6 Months
434,718 Market Comparable Companies

2,693 Liquidation(c)
93,674 Originated Within 6 Months
325,553 Market Comparable Companies

24,706 Liquidation(c)
99,286 Market Comparable Companies

44,626 Liquidation(c)
88,983 Market Comparable Companies

25,017 Market Comparable Companies

13,148 Liquidation(c)

Unobservable Input (a)

Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes

Debt Investments Where Fair Value Approximates Cost

25,000 Imminent Payoffs (d)
44,162 Debt Investments Maturing in Less than One Year

$

1,323,978 Total Level Three Debt Investments

Range
12.24% - 14.59%
9.07% - 15.62%
(0.25%) - 0.75%
25.00% - 100.00%
7.29% - 16.53%
10.14% - 21.66%
(0.50%) - 0.50%
20.00% - 100.00%
11.77% - 16.84%
0.00% - 0.25%
10.00% - 40.00%
10.25% - 18.60%
(0.25%) - 0.75%
8.85% - 15.79%
0.00% - 0.25%
100.00%

Weighted
Average (b)
13.64%
12.44%

13.69%
12.69%

13.45%

14.01%

10.10%

(a)

The significant unobservable inputs used in the fair value measurement of our 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 our Consolidated Schedule of Investments are included in the industries noted above as follows: 

•

•

•
•

•

Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development and Drug Delivery and Biotechnology Tools industries in the Consolidated 
Schedule of Investments. 

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

Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. 
Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments. 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet 
Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments. 

(b)

(c)
(d)

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

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes. 
Imminent payoffs represent debt investments that we expect to be fully repaid within the next three months, prior to their scheduled maturity date.

100

Investment Type - Level
Three Debt Investments
Pharmaceuticals

Technology

Sustainable and Renewable
Technology

Medical Devices

Lower Middle Market

Fair Value at
December 31, 2015
(in thousands)

Valuation Techniques/
Methodologies

$

72,981 Originated Within 6 Months
406,590 Market Comparable Companies

6,873 Originated Within 6 Months
283,045 Market Comparable Companies

36,815 Liquidation(c)
11,045 Originated Within 6 Months
105,382 Market Comparable Companies

1,013 Liquidation(c)
80,530 Market Comparable Companies

3,764 Liquidation(c)
17,811 Originated Within 6 Months
15,151 Liquidation(c)

Unobservable Input (a)

Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Probability weighting of alternative outcomes

Debt Investments Where Fair Value Approximates Cost

12,434 Imminent Payoffs (d)
48,962 Debt Investments Maturing in Less than One Year

$

1,102,396 Total Level Three Debt Investments

Range
10.35% - 16.16%
9.55% - 16.75%
(0.75%) - 0.00%
15.19%
6.57% - 23.26%
(0.25%) - 0.50%
10.00% - 100.00%
19.74%
10.62% - 27.31%
0.00%
100.00%
11.65% - 19.90%
0.00% - 0.50%
50.00%
12.70% - 14.50%
25.00% - 75.00%

Weighted
Average (b)
12.29%
12.67%

15.19%
13.22%

19.74%
15.91%

15.26%

13.00%

(a)

The significant unobservable inputs used in the fair value measurement of our 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 our Consolidated Schedule of Investments are included in the industries noted above as follows: 

•

•

•

•

•

Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development and Drug Delivery industries in the Consolidated Schedule of Investments. 

Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products, Information Services, and 
Communications and Networking industries in the Consolidated Schedule of Investments. 
Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. 

Medical Devices, above, is comprised of debt investments in the Surgical Devices, Medical Devices and Equipment and Biotechnology Tools industries in the Consolidated Schedule of Investments. 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet 
Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.  

(b)
(c)

(d)

The weighted averages are calculated based on the fair market value of each investment. 
The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes. 

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

101

Investment Type - Level Three
Equity and Warrant Investments
Equity Investments

Fair Value at
December 31, 2016
(in thousands)

Valuation Techniques/
Methodologies
9,258 Market Comparable Companies

$

Warrant Investments

19,836 Market Adjusted OPM Backsolve

21,289 Other(f)

8,959 Market Comparable Companies

9,713 Market Adjusted OPM Backsolve

5,574 Other(f)

Unobservable Input (a)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

Range
0.0x - 38.7x
0.9x - 8.7x
13.75% - 25.97%
45.54% - 113.16%
0.79% - 1.50%
10 - 38
29.93%- 109.95%
0.65% - 1.44%
10 - 34

2.6x - 51.4x
0.4x - 6.1x
11.74% - 27.25%
38.58% - 111.15%
0.68% - 1.68%
7 - 47
29.93% - 116.29%
0.45% - 1.84%
3 - 47

Weighte
Average 
12.3x
3.1x
16.73%
61.06%
0.91%
15
73.49%
0.92%
15

13.8x
2.5x
19.02%
62.03%
1.04%
20
67.20%
0.99%
20

Total Level Three Warrant and Equity 
Investments

$

74,629

(a)

(b)

(c)

(d)
(e)

(f)

The significant unobservable inputs used in the fair value measurement of our warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack of marketability. Additional inputs used in 
the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation may 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. 

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

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

Represents the range of industry volatility used by market participants when pricing the investment. 
Weighted averages are calculated based on the fair market value of each investment.

The fair market value of these investments is derived based on recent private market and M&A transaction prices.

Investment Type - Level Three
Equity and Warrant Investments
Equity Investments

$

Fair Value at
December 31, 2015
(in thousands)

Valuation Techniques/
Methodologies
5,898 Market Comparable Companies

Warrant Investments

7,904 Market Comparable Companies

30,874 Market Adjusted OPM Backsolve

Total Level Three Warrant and Equity 
Investments

$

55,337

10,661 Market Adjusted OPM Backsolve

Unobservable Input (a)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

Range
3.3x - 19.5x
0.7x - 3.7x
14.31% - 25.11%
37.72% - 109.64%
0.61% - 1.09%
10 - 26
28.52% - 86.41%
0.36% - 1.51%
10 - 47
5.1x - 57.9x
0.4x - 9.6x
10.09% - 31.37%
39.51% - 73.36%
0.32% - 1.51%
4 - 47
28.52% - 109.64%
0.36% - 1.45%
10 - 44

Weighted 
Average (e)
7.6x
2.1x
18.05%
60.27%
0.74%
15
65.40%
0.80%
17
16.0x
3.0x
23.11%
41.19%
0.87%
23
64.31%
0.85%
20

(a)

(b)

(c)

(d)

(e)

The significant unobservable inputs used in the fair value measurement of our warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack of marketability. Additional inputs used in 
the Black Scholes OPM include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation may 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. 
Represents amounts used when we have determined that market participants would use such multiples when pricing the investments. 

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

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

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

102

Cash and Cash Equivalents

Cash and cash equivalents consists 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.

Other Assets

Other Assets generally consists of prepaid expenses, deferred financing costs net of accumulated amortization, fixed assets net of accumulated depreciation, deferred revenues 
and deposits and other assets, including escrow receivable. The escrow receivable balance as of December 31, 2016 and December 31, 2015 was approximately $1.4 million and $3.0 
million, respectively, and was fair valued and held in accordance with ASC Topic 820.

Income Recognition 

We record interest income on an accrual basis and recognize 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. When a loan becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and 
other obligations due will be collected in full, we will generally place the loan on non-accrual status and cease recognizing interest income on that loan until all principal and interest 
due has been paid or we believe the portfolio company has demonstrated the ability to repay our current and future contractual obligations. Any uncollected interest related to prior 
periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, we may make exceptions to this policy if the investment 
has sufficient collateral value and is in the process of collection. 

At December 31, 2016, we had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $43.9 million and $6.2 million, 
respectively. At December 31, 2015, we had five debt investments on non-accrual at with a cumulative investment cost and fair value of approximately $47.4 million and $23.2 
million, respectively. In addition, at December 31, 2015, we had one debt investment with an investment cost and fair value of approximately $20.1 million and $14.9 million, 
respectively, for which only the PIK interest was on non-accrual. The decrease in the cumulative cost and fair value of debt investments on non-accrual between December 31, 2016 
and December 31, 2015 is the result of placing two new debt investments on non-accrual status, offset by the liquidation of three debt investments that were on non-accrual at 
December 31, 2015. For the year ended December 31, 2016, we recognized a realized loss of approximately $6.2 million on the settlement of one debt investment that was on non-
accrual at December 31, 2015. In addition, we recognized realized losses of $419,000 and $430,000 on the liquidation and partial write off, respectively, of two debt investments that 
were on non-accrual as of December 31, 2015.

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 us to portfolio companies and other third parties. Loan and commitment 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. 

We recognize 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 fees, 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. In addition, we 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. 

We have debt investments in our 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 the accrual basis to the extent such amounts are expected to be collected. We 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. We recorded 
approximately $7.8 million and $4.7 million in PIK income in the years ended December 31, 2016 and 2015, respectively. 

In certain investment transactions, we 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. We had no income from advisory services in the years ended December 31, 2016 and 
December 31, 2015. 

103

Other Income (Loss)

Other Income (loss) generally consists of income or losses generated from sources other than our investment portfolio. For the year ended December 31, 2016 it consists of 
litigation settlement proceeds and for the years ended December 31, 2015 and December 31, 2014 it consists of loss on extinguishment of debt. Other income (loss) is classified as a 
component of net investment income in our Consolidated Statement of Operations. 

Stock Based Compensation 

We have issued and may, from time to time, issue additional stock options and restricted stock to employees under our 2004 Equity Incentive Plan and members of the Board 

of Directors under our 2006 Equity Incentive Plan. We follow the guidelines set forth under ASC Topic 718, (“Compensation – Stock Compensation”) to account for stock options 
granted. Under ASC Topic 718, compensation expense associated with stock based compensation is measured at the grant date based on the fair value of the award and is recognized 
over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating 
stock price volatility, forfeiture rate and expected option life.

On December 29, 2016, our Board of Directors approved a further amendment and restatement of the 2004 Equity Incentive Plan. The amended plan provides, in addition to 
the preexisting types of awards available for grant thereunder and among other things, (1) for the grant of restricted stock units; (2) for the deferral of the receipt of the shares of our 
common stock underlying vested restricted stock units; (3) that grantees may receive up to 10% of the value of the tentative restricted stock unit grants proposed for any grantee in the 
form of an option to acquire shares of our common stock; (4) that awards of restricted stock units may include performance vesting conditions; (5) that awards may require that all or a 
portion of the shares of our common stock delivered in respect of any vested restricted stock unit award be subject to a specified post-delivery holding period; and (6) that restricted 
stock unit awards may accrue dividend equivalents in respect of our common stock underlying any restricted stock unit award payable in the form of cash or additional shares of our 
common stock to the extent, and in respect of, any vested restricted stock units. As of December 31, 2016, we have not issued any restricted stock units based on the December 2016 
amended terms. 

Income Taxes 

We intend to operate to qualify so as to be taxed 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 and gains distributed as dividends to stockholders. Generally, a RIC is entitled to deduct dividends it distributes to its shareholders in determining its “taxable 
income.” Taxable income includes our taxable interest, dividend and fee income, reduced by certain deductible expenses, as well as taxable net realized securities gains. Taxable 
income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally 
excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized. 

As a RIC, 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 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 intend to distribute 100% of our spillover earnings, which consists of ordinary income and long term capital gains, from the taxable year ended December 31, 2016 to our 

shareholders during 2017.  We distributed 100% of our spillover earnings from ordinary income from our taxable year ended December 31, 2015 to our stockholders during 2016.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ 

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

104

Recent Accounting Pronouncements 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial 

Liabilities,” which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value 
through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the 
instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU 
changes the disclosure requirements for financial instruments.  ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after 
December 15, 2017. Early adoption is permitted for certain provisions. We do not believe that ASU 2016-01 will have a material impact on our consolidated financial statements and 
disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which, among other things, requires recognition of lease assets and lease liabilities by lessees for 
those leases classified as operating leases under previous GAAP. Additionally, the ASU requires the classification of all cash payments on leases within operating activities in the 
Consolidated Statement of Cash Flows.  ASU 2016-02 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2018. 
Early adoption is permitted. We do not believe that ASU 2016-02 will have a material impact on our consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which, 

among other things, simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity 
or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for annual reporting periods, and the interim periods within those periods, beginning after 
December 15, 2016. Early adoption is permitted. We do not believe that ASU 2016-09 will have a material impact on our consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight 

specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs.  ASU 2016-15 is effective for annual reporting periods, 
and the interim periods within those periods, beginning after December 15, 2017. Early adoption is permitted. We do not believe that ASU 2016-15 will have a material impact on our 
consolidated financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230),” which requires that a statement of cash flows explain the change during the 
period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash 
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement 
of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The amendment should be adopted 
retrospectively. We do not believe that ASU 2016-18 will have a material impact on our consolidated financial statements and disclosures.

105

Subsequent Events 

Distribution Declaration 

On February 16, 2017 our Board of Directors declared a cash distribution of $0.31 per share to be paid on March 13, 2017 to shareholders of record as of March 6, 2017.This 

distribution represents our forty-sixth consecutive distribution since our initial public offering, bringing the total cumulative distribution to date to $12.78 per share.

Restricted Stock Unit Grants

In January 2017, we granted 600,461 restricted stock units pursuant to the Plans.

4.375% Convertible Notes due 2022 

On January 25, 2017, we issued $230.0 million in aggregate principal amount of 2022 Convertible Notes, which amount includes the additional $30.0 million aggregate 

principal amount of 2022 Convertible Notes issued pursuant to the initial purchaser’s exercise in full of its overallotment option. The 2022 Convertible Notes were issued pursuant to 
an Indenture, dated January 25, 2017 (the “2022 Convertible Notes Indenture”), between us and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 
Convertible Notes generated net proceeds of approximately $224.3 million. Aggregate estimated offering expenses in connection with the transaction, including the initial purchaser’s 
discount of approximately $5.2 million, were approximately $5.7 million.

We intend to use the net proceeds from this offering (i) to repurchase or otherwise redeem all of our 2019 Notes, (ii) to fund investments in debt and equity securities in 

accordance with our investment objective and (iii) for working capital and other general corporate purposes. The 2022 Convertible Notes will mature on February 1, 2022, unless 
previously converted or repurchased in accordance with their terms. The 2022 Convertible Notes bear interest at a rate of 4.375% per year payable semiannually in arrears on February 
1 and August 1 of each year, commencing on August 1, 2017.

The 2022 Convertible Notes will be our unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of 

payment to the 2022 Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of 
our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all 
existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

Prior to the close of business on the business day immediately preceding August 1, 2021, holders may convert their 2022 Convertible Notes only under certain circumstances 

set forth in the 2022 Convertible Notes Indenture. On or after August 1, 2021 until the close of business on the scheduled trading day immediately preceding the Maturity Date, 
holders may convert their Convertible Notes at any time. Upon conversion, we will pay or deliver, as the case may be, at our election, cash, shares of our common stock or a 
combination of cash and shares of our common stock. The conversion rate is initially 60.9366 shares of common stock per $1,000 principal amount of 2022 Convertible Notes 
(equivalent to an initial conversion price of approximately $16.41 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be 
adjusted for any accrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, we will increase the conversion rate for a holder who elects to 
convert our 2022 Convertible Notes in connection with such a corporate event in certain circumstances.

We may not redeem the 2022 Convertible Notes at our option prior to maturity. No sinking fund is provided for the 2022 Convertible Notes. In addition, if certain corporate 

events occur, holders of the 2022 Convertible Notes may require us to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100% of the 
principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

The 2022 Convertible Notes Indenture contains certain covenants, including covenants requiring us to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 

1940 Act, as amended, and to provide financial information to the holders of the 2022 Convertible Notes and the 2022 Trustee if we cease to be subject to the reporting requirements 
of the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the 2022 Convertible Notes Indenture. We offered and sold the 2022 
Convertible Notes to the initial purchaser in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, for resale by the initial purchaser to 
qualified institutional buyers (as defined in the Securities Act) pursuant to the exemption from registration provided by Rule 144A under the Securities Act. We relied on these 
exemptions from registration based in part on representations made by the initial purchaser in connection with the sale of the 2022 Convertible Notes.

106

2019 Notes – Redemption

On January 25, 2017, our Board of Directors approved a redemption of the remaining $110.4 million of outstanding aggregate principal amount of the 2019 Notes, and notice 

for such redemption has been provided. We have publicly announced our intention to redeem the remaining 2019 Notes on February 24, 2017. 

ATM Debt Program Issuances

Subsequent to December 31, 2016 and as of February 17, 2017, we sold 225,457 notes of the 2024 Notes through the 2024 Notes Agent for approximately $5.6 million in 

aggregate principal amount under our ATM debt distribution agreement with FBR Capital Markets & Co. As of February 17, 2017, approximately $136.4 million in aggregate 
principal amount remains available for issuance and sale under the debt distribution agreement. 

ATM Equity Program Issuances

Subsequent to December 31, 2016 and as of February 17, 2017, we sold 3.3 million shares of common stock for total accumulated net proceeds of approximately $47.1 

million, including $356,000 of offering expenses, under our Equity Distribution Agreement with JMP. As of February 17, 2017 approximately 751,000 shares remain available for 
issuance and sale under the equity distribution agreement.

Portfolio Company Developments 

As of February 17, 2017, we held warrants or equity positions in six companies that have filed registration statements on Form S-1 with the SEC in contemplation of potential 

initial public offerings. All six companies filed confidentially under the JOBS Act. There can be no assurance that these companies will complete their initial public offerings in a 
timely manner or at all. In addition, subsequent to December 31, 2106, our portfolio companies announced the following liquidity events: 

1.

In February 2017, our portfolio company Jaguar Animal Health, Inc. entered into a binding agreement to merge with Napo Pharmaceuticals, a company that focuses on 
the development and commercialization of proprietary pharmaceuticals for the global marketplace in collaboration with local partners.

107

Item 7A.

Quantitative and Qualitative Disclosure 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 funds investments. Our investment 
income will be affected by changes in various interest rates, including LIBOR and Prime rates, to the extent our debt investments include variable interest rates. As of December 31, 
2016, approximately 92.1% of the loans in our portfolio had variable rates based on floating Prime or LIBOR rates with a floor. 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 Statement of Assets and Liabilities as of December 31, 2016, 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 borrowings. 

(in thousands)
Basis Point Change

(100)
100
200
300
400
500

Interest Income

Interest Expense

Net Income

$
$
$
$
$
$

(2,465)
9,084
20,187
32,329
44,552
56,857

$
$
$
$
$
$

(115)
155
309
464
619
773

$
$
$
$
$
$

(2,350)
8,929
19,878
31,865
43,933
56,084

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 
year ended December 31, 2016, 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 borrowings under our Credit Facilities, SBA debentures, 
2019 Notes, which we have publicly announced our intention to redeem on February 24, 2017, 2024 Notes and 2021 Asset-Backed Notes that could affect the net increase in net 
assets resulting from operations, or net income. It also does not assume any repayments from borrowers. Accordingly, no assurances can be given that actual results would not differ 
materially from the statement above. 

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

For additional information regarding the interest rate associated with each of our Credit Facilities, SBA debentures, 2019 Notes, 2024 Notes and 2021 Asset-Backed Notes 

please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—
Outstanding Borrowings” in this report on Form 10-K. 

108

Item 8.

Financial Statements and Supplementary Data 

INDEX TO FINANCIAL STATEMENTS 

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Assets and Liabilities as of December 31, 2016 and 2015
Consolidated Statements of Operations for the three years ended December 31, 2016
Consolidated Statements of Changes in Net Assets for the three years ended December 31, 2016
Consolidated Statements of Cash Flows for the three years ended December 31, 2016
Consolidated Schedule of Investments as of December 31, 2016
Consolidated Schedule of Investments as of December 31, 2015
Notes to Consolidated Financial Statements
Consolidated Schedule of Investments in and Advances to Affiliates as of December 31, 2016

109

110
111
113
114
115
116
131
146
187

To Board of Directors and Shareholders of 
Hercules Capital, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

In our opinion, the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, and the related consolidated 

statements of operations, of changes in net assets, and of cash flows present fairly, in all material respects, the financial position of Hercules Capital, Inc. and its subsidiaries at 
December 31, 2016 and 2015, and the results of their operations, their changes in net assets and their cash flows for each of the three years in the period ended December 31, 2016 in 
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying 
index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the 
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated 
Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial 
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over 
financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these 
financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in 
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable 
assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material 
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the 
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial 
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and 
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We 
believe that our audits, which included confirmation of securities as of December 31, 2016 by correspondence with the custodian, borrowers and brokers, and the application of 
alternative auditing procedures where replies have not been received provide a reasonable basis for our opinions. 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation 
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies 
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; 
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, 
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable 
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to 

future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate. 

/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 23, 2017

110

HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES 
(in thousands, except per share data)

December 31, 2016

December 31, 2015

Assets
Investments:

Non-control/Non-affiliate investments (cost of $1,475,918 and $1,238,539, respectively)
Control investments (cost of $22,598 and $0, respectively)
Affiliate investments (cost of $13,010 and $13,742, respectively)

Total investments, at value (cost of $1,511,526 and $1,252,281, respectively)
Cash and cash equivalents
Restricted cash
Interest receivable
Other assets
Total assets

Liabilities
Accounts payable and accrued liabilities
Convertible Notes, net (principal of $0 and $17,604) (1)
Credit Facilities
2021 Asset-Backed Notes, net (principal of $109,205 and $129,300, respectively) (1)
2019 Notes, net (principal of $110,364 and $110,364, respectively) (1)
2024 Notes, net (principal of $252,873 and $103,000, respectively) (1)
Long-Term SBA Debentures, net (principal of $190,200 and $190,200, respectively) (1)
Total liabilities
Commitments and Contingencies (Note 10)

Net assets consist of:

Common stock, par value
Capital in excess of par value
Unrealized depreciation on investments (2)
Accumulated undistributed realized gains on investments
Distributions in excess of net investment income

Total net assets
Total liabilities and net assets

Shares of common stock outstanding ($0.001 par value, 200,000,000 and 100,000,000 authorized, respectively)
Net asset value per share

$

$

$

$

$
$

$

1,414,210
4,700
5,032
1,423,942
13,044
8,322
11,614
7,282
1,464,204

21,463
—
5,016
107,972
108,818
245,490
187,501
676,260

80
839,657
(89,025)
37,603
(371)
787,944
1,464,204

79,555
9.90

$

$

$

$

$
$

$

1,192,652
—
7,986
1,200,638
95,196
9,191
9,239
9,720
1,323,984

17,241
17,478
50,000
126,995
108,179
100,128
186,829
606,850

73
752,244
(52,808 )
27,993
(10,368 )
717,134
1,323,984

72,118
9.94

(1)

(2)

The Company’s SBA debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and Convertible Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. 
See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

Amounts includes $1.4 million and $1.2 million in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrant participation 
agreement liabilities as of December 31, 2016 and 2015, respectively.

See notes to consolidated financial statements. 

111

The following table presents the assets and liabilities of our consolidated securitization trust for the 2021 Asset-Backed Notes (see Note 4), which is a variable interest entity 
(“VIE”). The assets of our securitization VIE can only be used to settle obligations of our consolidated securitization VIE, these liabilities are only the obligations of our consolidated 
securitization VIE, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities are included in the Consolidated Statements 
of Assets and Liabilities above.

(Dollars in thousands)
Assets
Restricted Cash
Total investments, at value (cost of $244,695 and $258,748, respectively)
Total assets

Liabilities
2021 Asset-Backed Notes, net (principal of $109,205 and $129,300, respectively) (1)
Total liabilities

December 31, 2016

December 31, 2015

$

$

$
$

8,322
242,349
250,671

107,972
107,972

$

$

$
$

9,191
257,657
266,848

126,995
126,995

(1)

The Company’s 2021 Asset-Backed Notes are presented net of the associated debt issuance costs for each instrument. See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

See notes to consolidated financial statements. 

112

HERCULES CAPITAL, INC. 
CONSOLIDATED STATEMENT OF OPERATIONS 
(in thousands, except per share data) 

2016

For the Year Ended December 31,
2015

2014

Investment income:

Interest income

Non-control/Non-affiliate investments
Control investments
Affiliate investments

Total interest income

Fee income

Non-control/Non-affiliate investments
Control investments
Affiliate investments

Total fees

Total investment income
Operating expenses:
Interest
Loan fees
General and administrative:

Legal expenses
Other expenses

Total general and administrative

Employee compensation:

Compensation and benefits
Stock-based compensation

Total employee compensation

Total operating expenses
Other income (loss)
Net investment income
Net realized gain on investments

Non-control/Non-affiliate investments

Total net realized gain on investments

Net change in unrealized appreciation (depreciation) on investments

Non-control/Non-affiliate investments
Control investments
Affiliate investments

Total net unrealized depreciation on investments

Total net realized and unrealized loss
Net increase in net assets resulting from operations

Net investment income before investment gains and losses per common share:

Basic

Change in net assets resulting from operations per common share:

Basic

Diluted

Weighted average shares outstanding

Basic

Diluted

Distributions declared per common share:

Basic

$

$

$

$

$

$

$

$

$

$

$

158,489
78
160
158,727

16,318
6
—
16,324
175,051

32,016
5,042

4,823
11,283
16,106

22,500
7,043
29,543
82,707
8,000
100,344

4,576
4,576

(29,970)
(4,025)
(2,222)
(36,217)
(31,641)
68,703

1.34

0.91

0.91

73,753

73,775

$

$

$

$

$

139,919
—
347
140,266

16,865
—
1
16,866
157,132

30,834
6,055

3,079
13,579
16,658

20,713
9,370
30,083
83,630
(1)
73,501

5,147
5,147

(36,839)
—
1,107
(35,732)
(30,585)
42,916

1.04

0.60

0.59

69,479

69,663

1.24

$

1.24

$

124,776
—
1,842
126,618

17,013
—
34
17,047
143,665

28,041
5,919

1,366
8,843
10,209

16,604
9,561
26,165
70,334
(1,581)
71,750

20,112
20,112

(17,392)
—
(3,282)
(20,674)
(562)
71,188

1.13

1.12

1.10

61,862

63,225

1.24

See notes to consolidated financial statements. 

113

HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS 
(dollars and shares in thousands)

Common Stock

Shares

Par Value

Capital in
excess
of par value

Unrealized
Appreciation
(Depreciation)
on Investments

Accumulated
Undistributed
Realized
Gains (Losses)
on Investments

Undistributed
Net Investment
Income/
(Distributions
in Excess of
Investment
Income)

Provision
for Income
Taxes on
Investment
Gains

Net
Assets

Balance at December 31, 2013

Net increase (decrease) in net assets resulting from operations
Public offering, net of offering expenses
Issuance of common stock due to stock option exercises
Retired shares from net issuance
Issuance of common stock under restricted stock plan
Retired shares for restricted stock vesting
Distributions reinvested in common stock
Distributions
Stock-based compensation (1)
Tax reclassification of stockholders' equity in accordance with generally accepted accounting 
principles

Balance at December 31, 2014

Net increase (decrease) in net assets resulting from operations
Public offering, net of offering expenses
Acquisition of common stock under repurchase plan
Issuance of common stock due to stock option exercises
Retired shares from net issuance
Issuance of common stock under restricted stock plan
Retired shares for restricted stock vesting
Distributions reinvested in common stock
Distributions
Stock-based compensation (1)
Tax reclassification of stockholders' equity in accordance with generally accepted accounting 
principles

Balance at December 31, 2015

Net increase (decrease) in net assets resulting from operations
Public offering, net of offering expenses
Acquisition of common stock under repurchase plan
Issuance of common stock due to stock option exercises
Retired shares from net issuance
Issuance of common stock under restricted stock plan
Retired shares for restricted stock vesting
Distributions reinvested in common stock
Distributions
Stock-based compensation (1)
Tax reclassification of stockholders' equity in accordance with generally accepted accounting 
principles

Balance at December 31, 2016

61,837 $
—
2,111
354
(277)
990
(397)
97
—
—

—
64,715 $

— $

7,591
(437)
64
(29)
676
(662)
200
—
—

—
72,118 $

$

— $

7,428
(450)
55
(17)
556
(279)
144
—
—

—
79,555 $

62 $
—
2
—
—
1
—
—
—
—

—
65 $

— $
8
—
—
—
1
(1)
—
—
—

—
73 $

— $
7
(1)
—
—
1
—
—
—
—

—
80 $

656,594 $
—
9,007
3,955
(4,564)
(1)
(3,292)
1,485
—
9,638

(15,589)
657,233 $

— $

100,084
(4,644)
427
(423)
(1)
(4,566 )
2,446
—
9,461

(7,773)
752,244 $

— $

92,820
(4,789)
654
(235)
(1)
(2,944 )
1,799
—
7,129

(7,020)
839,657 $

3,598 $

(20,674)
—
—
—
—
—
—
—
—

—
(17,076) $

(35,732) $
—

—
—
—
—
—
—
—

—
(52,808) $

(36,217) $
—
—
—
—
—
—
—
—
—

—
(89,025) $

(15,240) $
20,112
—
—
—
—
—
—
—
—

9,207
14,079 $

5,147 $
—

—
—
—
—
—
—
—

8,767
27,993 $

4,576 $
—
—
—
—
—
—
—
—
—

5,034
37,603 $

5,335 $

71,750
—
—
—
—
—
—
(78,562)
—

6,382
4,905 $

73,501 $
—

—
—
—
—
—
(87,438)
—

(994)
(10,026) $

100,344 $
—
—
—
—
—
—
—
(92,333)
—

(342) $ 650,007
71,188
9,009
3,955
(4,564 )
—
(3,292 )
1,485
(78,562 )
9,638

—
—
—
—
—
—
—
—
—

—

—
(342) $ 658,864

— $
—

—
—
—
—
—
—
—

42,916
100,092
(4,644 )
427
(423 )
—
(4,567 )
2,446
(87,438 )
9,461

—

—
(342) $ 717,134

— $
—
—
—
—
—
—
—
—
—

68,703
92,827
(4,790 )
654
(235 )
—
(2,944 )
1,799
(92,333 )
7,129

1,644
(371) $

342

—
— $ 787,944

(1)

Stock-based compensation includes $87, $90 and $77 of restricted stock and option expense related to director compensation for the years ended December 31, 2016, 2015 and 2014, respectively.

See notes to consolidated financial statements. 

114

HERCULES CAPITAL, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 

Cash flows from operating activities:

Net increase in net assets resulting from operations
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by (used in) operating activities:

Purchase of investments
Principal and fee payments received on investments
Proceeds from the sale of investments
Net unrealized depreciation on investments
Net realized gain on investments
Accretion of paid-in-kind principal
Accretion of loan discounts
Accretion of loan discount on convertible notes
Loss on debt extinguishment (convertible notes)
Payment of loan discount on convertible notes
Accretion of loan exit fees
Change in deferred loan origination revenue
Unearned fees related to unfunded commitments
Amortization of debt fees and issuance costs
Depreciation
Stock-based compensation and amortization of restricted stock grants (1)
Change in operating assets and liabilities:

Interest and fees receivable
Prepaid expenses and other assets
Accounts payable
Accrued liabilities

Net cash used in operating activities

Cash flows from investing activities:
Purchases of capital equipment
Reduction of (investment in) restricted cash
Other long-term assets

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Issuance of common stock, net
Repurchase of common stock, net
Retirement of employee shares
Distributions paid
Issuance of 2024 Notes
Issuance of 2021 Asset-Backed Notes
Repayments of 2017 Asset-Backed Notes
Repayments of 2021 Asset-Backed Notes
Repayments of Long-Term SBA Debentures
Repayments of 2019 Notes
Borrowings of credit facilities
Repayments of credit facilities
Cash paid for debt issuance costs
Cash paid for redemption of convertible notes
Fees paid for credit facilities and debentures
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Supplemental non-cash investing and financing activities:

Interest paid
Income taxes paid
Distributions reinvested

2016

For the Year Ended December 31,
2015

2014

$

68,703

$

42,916

$

71,188

(680,971)
444,758
18,998
36,217
(4,576 )
(7,319 )
(7,163)
82
—
—
(22,614)
347
(758)
3,773
202
7,129

(2,375)
3,234
56
3,892
(138,385)

(252)
869
—
617

92,827
(4,790)
(2,525)
(90,534)
149,873
—
—
(20,095)
—
—
285,891
(330,877)
(5,289)
(17,604)
(1,261)
55,616
(82,152)
95,196
13,044

31,011
184
1,799

$

$
$
$

(712,701)
509,593
17,892
35,732
(5,147)
(4,037)
(8,049)
246
1
(5)
(14,947)
1,904
(2,064)
5,161
193
9,461

213
4,826
(639)
5,090
(114,361)

(187)
3,469
—
3,282

100,092
(4,645)
(4,562 )
(84,992)
—
—
(16,049)
—
—
(60,000)
138,689
(88,689)
—
(65)
(620)
(20,841)
(131,920)
227,116
95,196

30,527
973
2,446

$

$
$
$

(623,232 )
503,003
33,432
20,674
(20,112)
(2,549 )
(9,792 )
843
1,581
(4,195)
(11,541)
(281)
(259)
5,256
266
9,638

(490)
1,351
271
(1,583)
(26,531)

(190)
(6,389 )
25
(6,554)

9,837
—
(3,901)
(77,076 )
103,000
129,300
(73,508)
—
(34,800)
—
—
—
(6,669 )
(53,131)
(1,219 )
(8,167 )
(41,252)
268,368
227,116

25,738
133
1,485

$

$
$
$

(1)

Stock-based compensation includes $87, $90 and $77 of restricted stock and option expense related to director compensation for the years ended December 31, 2016, 2015 and 2014, respectively.

See notes to consolidated financial statements. 

115

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Portfolio Company
Debt Investments
Biotechnology Tools
1-5 Years Maturity
Exicure, Inc. (11) (14A)

Subtotal: 1-5 Years Maturity
Subtotal: Biotechnology Tools (0.77%)*

Communications & Networking
Under 1 Year Maturity
Achilles Technology Management Co II, Inc.

(6) (13) (14B)
OpenPeak, Inc. (7)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Avanti Communications Group (4) (9)
SkyCross, Inc. (6) (7) (13) (14B) (15)

Biotechnology Tools

Senior Secured

September 2019

Interest rate PRIME + 6.45%
or Floor rate of 9.95%

$

6,000

$

Communications & Networking

Senior Secured

August 2017

PIK Interest 10.50%

Communications & Networking

Senior Secured

April 2017

Communications & Networking
Communications & Networking

Senior Secured
Senior Secured

October 2019
January 2018

Spring Mobile Solutions, Inc. (12) (14B)

Communications & Networking

Senior Secured

January 2019

Subtotal: 1-5 Years Maturity
Subtotal: Communications & Networking (1.16%)*

Consumer & Business Products
1-5 Years Maturity
Antenna79 (p.k.a. Pong Research 

Corporation) (14A) (15)

Consumer & Business Products

Senior Secured

December 2019

Consumer & Business Products

Senior Secured

December 2018

Total Antenna79 (p.k.a. Pong Research Corporation)

Nasty Gal (14B) (15)

Consumer & Business Products

Senior Secured

May 2019

Second Time Around (Simplify Holdings, 

Consumer & Business Products

Senior Secured

February 2019

LLC) (14A) (15)

Subtotal: 1-5 Years Maturity
Subtotal: Consumer & Business Products (4.60%)*

Interest rate PRIME + 8.75%
or Floor rate of 12.00%

Interest rate FIXED 10.00%
Interest rate FIXED 10.95%,
PIK Interest 5.00%
Interest rate PRIME + 6.70%
or Floor rate of 9.95%

Interest rate PRIME + 7.45%
or Floor rate of 10.95%
Interest rate PRIME + 6.00%
or Floor rate of 9.50%

Interest rate PRIME + 5.45%
or Floor rate of 8.95%
Interest rate PRIME + 7.25%
or Floor rate of 10.75%

$

$

$

$

$

$

$
$

$

$

1,278

12,211

8,025

16,758

3,000

20,000

1,000
21,000

13,241

2,280

$

5,971
5,971
5,971

1,304

8,975
10,279

7,212

16,900

3,038
27,150
37,429

19,837

965
20,802

13,148

2,302
36,252
36,252

6,035
6,035
6,035

1,304

—
1,304

4,825

—

3,044
7,869
9,173

19,837

965
20,802

13,148

2,283
36,233
36,233

See notes to consolidated financial statements.

116

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Portfolio Company
Drug Delivery
Under 1 Year Maturity
AcelRx Pharmaceuticals, Inc. (9) (10) (14A) 

(15)

Celsion Corporation (10) (14A)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Agile Therapeutics, Inc. (10) (14A)

Drug Delivery

Drug Delivery

Senior Secured

October 2017

Senior Secured

June 2017

Drug Delivery

Senior Secured

December 2018

Aprecia Pharmaceuticals Company (11) (14A) Drug Delivery

Senior Secured

January 2020

BioQ Pharma Incorporated (10) (14A) (14B)

Drug Delivery

Total BioQ Pharma Incorporated
Edge Therapeutics, Inc. (11) (14A) (17)

Pulmatrix Inc. (8) (10) (14A)

Drug Delivery

Drug Delivery

Drug Delivery

ZP Opco, Inc (p.k.a. Zosano Pharma) (10) 

Drug Delivery

(14A)

Subtotal: 1-5 Years Maturity
Subtotal: Drug Delivery (13.23%)*

Senior Secured

May 2018

Senior Secured

May 2018

Senior Secured

February 2020

Senior Secured

July 2018

Senior Secured

December 2018

Interest rate PRIME + 3.85%
or Floor rate of 9.10%
Interest rate PRIME + 8.00%
or Floor rate of 11.25%

Interest rate PRIME + 4.75%
or Floor rate of 9.00%
Interest rate PRIME + 5.75%
or Floor rate of 9.25%
Interest rate PRIME + 8.00%
or Floor rate of 11.25%
Interest rate PRIME + 7.00%
or Floor rate of 10.25%

Interest rate PRIME + 4.65%
or Floor rate of 9.15%
Interest rate PRIME + 6.25%
or Floor rate of 9.50%
Interest rate PRIME + 2.70%
or Floor rate of 7.95%

$

$

$

$

$

$
$

$

$

$

20,466

$

21,151

$ 21,151

2,246

16,500

20,000

8,231

2,464
10,695

15,000

5,954

12,123

2,575
23,726

2,575
23,726

16,524

16,434

19,700

19,706

8,636

8,577

2,511
11,147

2,509
11,086

15,004

15,045

6,022

6,013

12,325
80,722
104,448

12,238
80,522
104,248

See notes to consolidated financial statements.

117

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Portfolio Company
Drug Discovery & Development
Under 1 Year Maturity
Cerecor, Inc. (11) (14A)

Drug Discovery & Development

Senior Secured

August 2017

Neuralstem, Inc. (14A) (15)

Drug Discovery & Development

Senior Secured

April 2017

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Auris Medical Holding, AG (4) (9) (14B)

Drug Discovery & Development

Senior Secured

January 2020

Aveo Pharmaceuticals, Inc. (9) (12) (14A) (14B) Drug Discovery & Development

Senior Secured

December 2019

Drug Discovery & Development

Senior Secured

December 2019

Total Aveo Pharmaceuticals, Inc.
Bellicum Pharmaceuticals, Inc. (14A) (14B) 

(15)

Total Bellicum Pharmaceuticals, Inc.

Brickell Biotech, Inc. (11) (14B)

Drug Discovery & Development

Senior Secured

March 2020

Drug Discovery & Development

Senior Secured

March 2020

Drug Discovery & Development

Senior Secured

September 2019

Cerulean Pharma, Inc. (12) (14B)

Drug Discovery & Development

Senior Secured

July 2018

CTI BioPharma Corp. (p.k.a. Cell 
Therapeutics, Inc.) (10) (14A)
CytRx Corporation (10) (14B) (15)

Drug Discovery & Development

Senior Secured

December 2018

Drug Discovery & Development

Senior Secured

February 2020

Epirus Biopharmaceuticals, Inc. (7) (14A)

Drug Discovery & Development

Senior Secured

April 2018

Genocea Biosciences, Inc. (10) (14A)

Drug Discovery & Development

Senior Secured

January 2019

Immune Pharmaceuticals (10) (14B)

Drug Discovery & Development

Senior Secured

September 2018

Insmed, Incorporated (10) (14A)

Drug Discovery & Development

Senior Secured

October 2020

Mast Therapeutics, Inc. (14A) (15)

Drug Discovery & Development

Senior Secured

January 2019

Melinta Therapeutics (12) (14A)

Drug Discovery & Development

Senior Secured

June 2018

Merrimack Pharmaceuticals, Inc. (9)
Metuchen Pharmaceuticals LLC (13) (14A)

Drug Discovery & Development
Drug Discovery & Development

Senior Secured
Senior Secured

December 2022
October 2020

Paratek Pharmaceuticals, Inc. (p.k.a. 

Drug Discovery & Development

Senior Secured

September 2020

Transcept Pharmaceuticals, Inc.) (14A) 
(15)

PhaseRx,Inc. (14B) (15)

Drug Discovery & Development

Senior Secured

December 2019

Sorrento Therapeutics, Inc. (9) (14B)

Drug Discovery & Development

Senior Secured

December 2020

uniQure B.V. (4) (9) (10) (14B)

Drug Discovery & Development

Senior Secured

May 2020

XOMA Corporation (9) (14B) (15)

Drug Discovery & Development

Senior Secured

September 2018

Subtotal: 1-5 Years Maturity
Subtotal: Drug Discovery & Development (52.53%)*

Interest rate PRIME + 4.70%
or Floor rate of 7.95%
Interest rate PRIME + 6.75%
or Floor rate of 10.00%

Interest rate PRIME + 6.05%
or Floor rate of 9.55%
Interest rate PRIME + 6.90%
or Floor rate of 11.90%
Interest rate PRIME + 6.90%
or Floor rate of 11.90%

Interest rate PRIME + 5.85%
or Floor rate of 9.35%
Interest rate PRIME + 5.85%
or Floor rate of 9.35%

Interest rate PRIME + 5.70%
or Floor rate of 9.20%
Interest rate PRIME + 1.55%
or Floor rate of 7.30%
Interest rate PRIME + 7.70%
or Floor rate of 10.95%
Interest rate PRIME + 6.00%
or Floor rate of 9.50%
Interest rate PRIME + 4.70%
or Floor rate of 7.95%
Interest rate PRIME + 2.25%
or Floor rate of 7.25%
Interest rate PRIME + 4.75%
or Floor rate of 10.00%
Interest rate PRIME + 4.75%
or Floor rate of 9.25%
Interest rate PRIME + 5.70%
or Floor rate of 8.95%
Interest rate PRIME + 3.75%
or Floor rate of 8.25%
Interest rate FIXED 11.50%
Interest rate PRIME + 7.25%
or Floor rate of 10.75%,
PIK Interest 1.35%
Interest rate PRIME + 2.75%
or Floor rate of 8.50%

Interest rate PRIME + 5.75%
or Floor rate of 9.25%
Interest rate PRIME + 5.75%
or Floor rate of 9.25%
Interest rate PRIME + 3.00%
or Floor rate of 8.25%
Interest rate PRIME + 2.15%
or Floor rate of 9.40%

$

$

$

$

$
$

$

$
$

$

$

$

$

$

$

$

$

$

$
$

$

$

$

$

$

$

2,374

$

2,499

$

2,499

3,766

12,500

10,000

5,000
15,000

15,000

5,000
20,000

7,500

13,078

19,548

25,000

3,066

17,000

3,271

55,000

3,347

24,502
25,000

3,996
6,495

3,996
6,495

12,317

12,326

10,269

10,218

4,926
15,195

4,918
15,136

15,212

15,387

4,981
20,193

5,049
20,436

7,521

7,560

13,994

13,908

19,276

19,372

25,086

25,166

3,349

—

17,313

17,376

3,350

2,693

54,695

54,559

3,921

3,923

25,001
25,000

24,945
25,000

35,081

34,541

34,541

40,000

6,000

50,000

20,000

16,380

39,388

39,504

5,921

5,945

48,069

48,069

20,133

20,081

16,970
411,233
417,728

16,901
407,441
413,936

See notes to consolidated financial statements.

118

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Portfolio Company
Electronics & Computer Hardware
1-5 Years Maturity
Persimmon Technologies (11) (13) (14B)

Electronics & Computer Hardware

Senior Secured

June 2019

Interest rate PRIME + 7.50%
or Floor rate of 11.00%,
PIK Interest 1.50%

$

7,012

$

Subtotal: 1-5 Years Maturity
Subtotal: Electronics & Computer Hardware (0.91%)*

Healthcare Services, Other
1-5 Years Maturity
InstaMed Communications, LLC (14B) (15)

Healthcare Services, Other

Senior Secured

February 2019

PH Group Holdings

Healthcare Services, Other

Senior Secured

September 2020

Subtotal: 1-5 Years Maturity
Subtotal: Healthcare Services, Other (3.82%)*

Internet Consumer & Business Services
1-5 Years Maturity
Aria Systems, Inc. (10) (13)

Internet Consumer & Business Services

Senior Secured

June 2019

Internet Consumer & Business Services

Senior Secured

June 2019

Total Aria Systems, Inc.

CloudOne, Inc. (10) (14B)

Internet Consumer & Business Services

Senior Secured

April 2019

Intent Media, Inc. (13) (14A) (15)

Internet Consumer & Business Services

Senior Secured

December 2018

LogicSource (14B) (15)

Internet Consumer & Business Services

Senior Secured

October 2019

Snagajob.com, Inc. (12) (13) (14A)

Internet Consumer & Business Services

Senior Secured

July 2020

Tectura Corporation (7) (8) (13)

Internet Consumer & Business Services

Senior Secured

June 2021

Internet Consumer & Business Services

Senior Secured

June 2021

Total Tectura Corporation
Subtotal: 1-5 Years Maturity
Subtotal: Internet Consumer & Business Services (11.50%)*

Media/Content/Info
1-5 Years Maturity
FanDuel, Inc. (14B)

Media/Content/Info

Senior Secured

November 2019

Machine Zone, Inc. (13) (16)

Media/Content/Info

Senior Secured

May 2018

WP Technology, Inc. (Wattpad, Inc.) (4) (9) 

Media/Content/Info

Senior Secured

April 2020

(11) (14B) (17)

Media/Content/Info

Senior Secured

April 2020

Total WP Technology, Inc. (Wattpad, Inc.)

Subtotal: 1-5 Years Maturity
Subtotal: Media/Content/Info (16.50%)*

Interest rate PRIME + 6.75%
or Floor rate of 10.00%
Interest rate PRIME + 7.45%
or Floor rate of 10.95%

Interest rate PRIME + 3.20%
or Floor rate of 6.95%,
PIK Interest 1.95%
Interest rate PRIME + 5.20%
or Floor rate of 8.95%,
PIK Interest 1.95%

Interest rate PRIME + 6.35%
or Floor rate of 9.85%
Interest rate PRIME + 5.25%
or Floor rate of 8.75%,
PIK Interest 1.00%
Interest rate PRIME + 6.25%
or Floor rate of 9.75%
Interest rate PRIME + 5.15%
or Floor rate of 9.15%,
PIK Interest 1.95%
Interest rate FIXED 6.00%,
PIK Interest 3.00%
PIK Interest 8.00%

Interest rate PRIME + 7.25%
or Floor rate of 10.75%
Interest rate PRIME + 2.50%
or Floor rate of 6.75%,
PIK Interest 3.00%
Interest rate PRIME + 4.75%
or Floor rate of 8.25%
Interest rate PRIME + 4.75%
or Floor rate of 8.25%

See notes to consolidated financial statements.

119

7,096
7,096
7,096

$

7,134
7,134
7,134

$

$

$

$
$

$

$

$

$

$
$
$

10,000

20,000

10,125

10,261

19,802
29,927
29,927

19,802
30,063
30,063

2,061

2,045

1,728

18,463
20,524

5,000

5,000

8,500

35,293

19,691
11,015
30,706

18,307
20,352

15,467
17,195

5,091

5,138

4,851

8,533

4,851

8,649

34,517

35,067

19,691
240
19,931
93,275
93,275

19,691
—
19,691
90,591
90,591

$

20,000

19,352

19,352

$ 103,785

102,444

103,083

$

$
$

5,000

2,500
7,500

5,029

5,099

2,471
7,500
129,296
129,296

2,510
7,609
130,044
130,044

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Medical Devices & Equipment

Senior Secured

June 2017

Interest rate PRIME + 5.00%
or Floor rate of 10.50%

$

2,237

$

Portfolio Company
Medical Devices & Equipment
Under 1 Year Maturity
InspireMD, Inc. (4) (9) (14B)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Amedica Corporation (8) (14B) (15)

Medical Devices & Equipment

Senior Secured

January 2018

Aspire Bariatrics, Inc. (14B) (15)

Medical Devices & Equipment

Senior Secured

October 2018

Avedro, Inc. (14A) (15)

Medical Devices & Equipment

Senior Secured

June 2018

Flowonix Medical Incorporated (12) (14B)

Medical Devices & Equipment

Senior Secured

May 2018

Medical Devices & Equipment

Senior Secured

March 2019

Total Flowonix Medical Incorporated

Gamma Medica, Inc. (10) (14B)

Medical Devices & Equipment

Senior Secured

January 2018

IntegenX, Inc. (14B) (15)

Medical Devices & Equipment

Senior Secured

June 2019

Medical Devices & Equipment

Senior Secured

June 2019

Total IntegenX, Inc.

Micell Technologies, Inc. (11) (14B)

Medical Devices & Equipment

Senior Secured

August 2019

Quanta Fluid Solutions (4) (9) (10) (14B)

Medical Devices & Equipment

Senior Secured

April 2020

Quanterix Corporation (10) (14A)

Medical Devices & Equipment

Senior Secured

February 2018

SynergEyes, Inc. (14B) (15)

Medical Devices & Equipment

Senior Secured

January 2018

Subtotal: 1-5 Years Maturity
Subtotal: Medical Devices & Equipment (12.15%)*

Interest rate PRIME + 7.70%
or Floor rate of 10.95%
Interest rate PRIME + 4.00%
or Floor rate of 9.25%
Interest rate PRIME + 6.00%
or Floor rate of 9.25%
Interest rate PRIME + 4.75%
or Floor rate of 10.00%
Interest rate PRIME + 6.50%
or Floor rate of 10.00%

Interest rate PRIME + 6.50%
or Floor rate of 9.75%
Interest rate PRIME + 6.05%
or Floor rate of 10.05%
Interest rate PRIME + 6.05%
or Floor rate of 10.05%

Interest rate PRIME + 7.25%
or Floor rate of 10.50%
Interest rate PRIME + 8.05%
or Floor rate of 11.55%
Interest rate PRIME + 2.75%
or Floor rate of 8.00%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%

$

$

$

$

$
$

$

$

$
$

$

$

$

$

7,417

5,295

9,777

10,905

4,255
15,160

2,500

15,000

1,750
16,750

8,277

12,500

9,964

2,347

Semiconductors
Under 1 Year Maturity
Achronix Semiconductor Corporation (14B) 

(15) (17)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Achronix Semiconductor Corporation (14B) 

(15) (17)

Semiconductors

Senior Secured

November 2017

Interest rate PRIME + 7.00%
or Floor rate of 10.50%

$

1,682

Semiconductors

Senior Secured

July 2018

Avnera Corporation (10) (14A)

Semiconductors

Senior Secured

April 2018

Subtotal: 1-5 Years Maturity
Subtotal: Semiconductors (1.40%)*

See notes to consolidated financial statements.

120

Interest rate PRIME + 8.25%
or Floor rate of 11.50%
Interest rate PRIME + 5.25%
or Floor rate of 8.50%

$

$

3,341

5,577

2,743
2,743

$

2,743
2,743

8,816

5,400

9,975

8,715

5,368

9,982

11,340

11,275

4,243
15,583

4,214
15,489

2,650

2,645

15,068

15,168

1,694
16,762

1,730
16,898

8,255

8,321

12,547

12,500

10,276

10,316

2,762
93,026
95,769

2,719
92,953
95,696

1,682
1,682

1,682
1,682

3,546

3,530

5,699
9,245
10,927

5,816
9,346
11,028

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Portfolio Company
Software
Under 1 Year Maturity
JumpStart Games, Inc. (p.k.a Knowledge 

Holdings, Inc.) (7) (13) (14C) (15) (18)

RedSeal Inc. (15) (17)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Actifio, Inc. (13) (14A)

Total Actifio, Inc.
Clickfox, Inc. (12) (14C)

Software

Software

Software

Software

Software

Cloud Technology Partners, Inc. (14A)

Software

Total Cloud Technology Partners, Inc.

Druva, Inc. (10) (12) (14B) (17)

Total Druva, Inc.

Evernote Corporation (15) (17)

Software

Software

Software

Software

Senior Secured

October 2016

Senior Secured

June 2017

Senior Secured

January 2019

Senior Secured

January 2019

Senior Secured

May 2018

Senior Secured

June 2018

Senior Secured

December 2019

Senior Secured

March 2018

Senior Secured

May 2018

Senior Secured

October 2020

Interest rate FIXED 5.75%,
PIK Interest 10.75%
Interest rate PRIME + 3.25%
or Floor rate of 6.50%

Interest rate PRIME + 4.25%
or Floor rate of 8.25%,
PIK Interest 2.25%
Interest rate PRIME + 4.75%
or Floor rate of 8.75%,
PIK Interest 2.50%

Interest rate PRIME + 8.00%
or Floor rate of 11.50%
Interest rate PRIME + 3.05%
or Floor rate of 7.05%
Interest rate PRIME + 5.75%
or Floor rate of 9.75%

Interest rate PRIME + 4.60%
or Floor rate of 7.85%
Interest rate PRIME + 4.60%
or Floor rate of 7.85%

Interest rate PRIME + 5.45%
or Floor rate of 8.95%
Interest rate PRIME + 6.45%
or Floor rate of 9.95%,
PIK Interest 1.80%
Interest rate FIXED 5.75%,
PIK Interest 10.75%
Interest rate PRIME + 6.25%
or Floor rate of 9.75%,
PIK Interest 2.15%
Interest rate PRIME + 6.45%
or Floor rate of 9.95%,
PIK Interest 3.25%
Interest rate PRIME + 4.75%
or Floor rate of 8.25%,
PIK Interest 2.25%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%
Interest rate PRIME + 7.75%
or Floor rate of 11.25%

Interest rate PRIME + 4.15%
or Floor rate of 8.15%,
PIK Interest 1.75%

$

$

$

$
$

$

$

$
$

$

$
$

$

$

$

$

$

$

$

$
$

$

1,566

$

1,698

$

730

2,635

2,635
4,333

2,635
3,365

30,961

30,830

30,918

10,171
41,132

12,000

3,000

10,000
13,000

9,157

10,000
19,157

6,000

25,019

13,000

9,929
40,759

10,036
40,954

12,261

12,273

2,966

2,966

9,863
12,829

9,863
12,829

9,604

9,613

10,066
19,670

10,141
19,754

5,961

5,961

24,999

24,999

12,747

5,477

22,664

22,023

22,280

15,369

15,249

15,488

8,116

5,000

5,000
10,000

15,237

8,126

5,120

4,880
10,000

8,220

5,107

4,880
9,987

15,022
199,646
203,979

15,190
193,412
196,777

Lithium Technologies, Inc. (13) (14A) (15) (19)

Software

Senior Secured

June 2020

JumpStart Games, Inc. (p.k.a Knowledge 

Software

Senior Secured

March 2018

Holdings, Inc.) (7) (13) (14A) (15)
Mattersight Corporation (11) (13)

OneLogin, Inc. (13) (15)

Quid, Inc. (13) (14A) (15)

RedSeal Inc. (14A) (15) (17)

Total RedSeal Inc.
Signpost, Inc. (13) (14A) (15)

Subtotal: 1-5 Years Maturity
Subtotal: Software (24.97%)*

Software

Software

Software

Software

Software

Software

Senior Secured

February 2020

Senior Secured

August 2019

Senior Secured

October 2019

Senior Secured

June 2018

Senior Secured

January 2020

Senior Secured

February 2020

See notes to consolidated financial statements.

121

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost(2)

Value(3)

Specialty Pharmaceuticals

Senior Secured

November 2020

Jaguar Animal Health, Inc. (10) (14B)

Specialty Pharmaceuticals

Senior Secured

August 2018

Subtotal: 1-5 Years Maturity
Subtotal: Specialty Pharmaceuticals (4.89%)*

Interest rate PRIME + 7.50%
or Floor rate of 11.00%,
PIK Interest 1.00%
Interest rate PRIME + 5.65%
or Floor rate of 9.90%

$

$

3,511

35,041

$

34,606

$

34,798

Surgical Devices

Senior Secured

February 2020

Interest rate PRIME + 5.30%
or Floor rate of 9.55%

$

8,500

Portfolio Company
Specialty Pharmaceuticals
1-5 Years Maturity
Alimera Sciences, Inc. (10) (13) (14A)

Surgical Devices
1-5 Years Maturity
Transmedics, Inc. (12) (14B)

Subtotal: 1-5 Years Maturity
Subtotal: Surgical Devices (1.08%)*

Sustainable and Renewable Technology
Under 1 Year Maturity
American Superconductor Corporation (10) 

(14B)

Sustainable and Renewable Technology

Senior Secured

June 2017

Modumetal, Inc. (11) (14C) (14D)

Sustainable and Renewable Technology

Senior Secured

March 2017

Sustainable and Renewable Technology

Senior Secured

October 2017

Total Modumetal, Inc.
Stion Corporation (5) (14A)

Sustainable and Renewable Technology

Senior Secured

February 2017

Sungevity, Inc. (12) (14D)

Sustainable and Renewable Technology

Senior Secured

October 2017

Sustainable and Renewable Technology

Senior Secured

October 2017

Total Sungevity, Inc.

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
FuelCell Energy, Inc. (11) (14B)

Sustainable and Renewable Technology

Senior Secured

October 2018

Proterra, Inc. (10) (14A) (14B)

Sustainable and Renewable Technology

Senior Secured

June 2019

Sustainable and Renewable Technology

Senior Secured

June 2019

Total Proterra, Inc.

Rive Technology, Inc. (14A) (15)

Sustainable and Renewable Technology

Senior Secured

January 2019

Tendril Networks (11) (14B)
Verdezyne, Inc. (14B) (15)

Sustainable and Renewable Technology
Sustainable and Renewable Technology

Senior Secured
Senior Secured

June 2019
April 2019

Subtotal: 1-5 Years Maturity
Subtotal: Sustainable and Renewable Technology (19.14%)*
Total: Debt Investments (168.64%)*

Interest rate PRIME + 7.25%
or Floor rate of 11.00%
Interest rate PRIME + 8.70%
or Floor rate of 11.95%
Interest rate PRIME + 6.00%
or Floor rate of 9.25%

Interest rate PRIME + 8.75%
or Floor rate of 12.00%
Interest rate PRIME + 3.70%
or Floor rate of 6.95%
Interest rate PRIME + 3.70%
or Floor rate of 6.95%

Interest rate PRIME + 5.50%
or Floor rate of 9.50%
Interest rate PRIME + 6.95%
or Floor rate of 10.20%
Interest rate PRIME + 5.75%
or Floor rate of 9.25%

Interest rate PRIME + 6.20%
or Floor rate of 9.45%
Interest rate FIXED 7.25%
Interest rate PRIME + 8.25%
or Floor rate of 11.75%

$

$

$
$

$

$

$
$

$

$

$
$

$
$

$

1,500

376

3,370
3,746

333

35,000

20,000
55,000

20,000

30,000

10,000
40,000

7,500
15,000

15,000

3,803
38,409
38,409

8,497
8,497
8,497

1,550

882

4,115
4,997

333

39,834

20,000
59,834
66,714

20,488

30,670

9,921
40,591

7,586
15,405

3,725
38,523
38,523

8,529
8,529
8,529

1,550

882

4,115
4,997

333

29,709

14,917
44,626
51,506

20,707

30,592

9,916
40,508

7,650
15,324

15,084
99,154
165,868
1,384,871

15,098
99,287
150,793
1,328,803

See notes to consolidated financial statements.

122

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Portfolio Company
Equity Investments
Biotechnology Tools
NuGEN Technologies, Inc. (15)
Subtotal: Biotechnology Tools (0.07%)*

Biotechnology Tools

Equity

Preferred Series C

189,394

$

$

500
500

Communications & Networking
Achilles Technology Management Co II, Inc. (6) (15)
GlowPoint, Inc. (3)
Peerless Network Holdings, Inc.
Subtotal: Communications & Networking (1.07%)*

Communications & Networking
Communications & Networking
Communications & Networking

Consumer & Business Products
Market Force Information, Inc.

Total Market Force Information, Inc.
Subtotal: Consumer & Business Products (0.07%)*

Consumer & Business Products
Consumer & Business Products

Equity
Equity
Equity

Equity
Equity

Common Stock
Common Stock
Preferred Series A

Common Stock
Preferred Series B-1

100
114,192
1,000,000

480,261
187,970
668,231

Diagnostic
Singulex, Inc.
Subtotal: Diagnostic (0.07%)*

Drug Delivery
AcelRx Pharmaceuticals, Inc. (3) (9)
BioQ Pharma Incorporated (15)
Edge Therapeutics, Inc. (3)
Merrion Pharmaceuticals, Plc (4) (9)
Neos Therapeutics, Inc. (3) (15)
Revance Therapeutics, Inc. (3)
Subtotal: Drug Delivery (0.50%)*

Drug Discovery & Development
Aveo Pharmaceuticals, Inc. (3) (9) (15)
Cerecor, Inc. (3)
Cerulean Pharma, Inc. (3)
Dicerna Pharmaceuticals, Inc. (3) (15)
Dynavax Technologies (3) (9)
Epirus Biopharmaceuticals, Inc.
Genocea Biosciences, Inc. (3)
Inotek Pharmaceuticals Corporation (3)
Insmed, Incorporated (3)
Melinta Therapeutics
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept 

Pharmaceuticals, Inc.) (3)

Subtotal: Drug Discovery & Development (0.76%)*

Electronics & Computer Hardware
Identiv, Inc. (3)
Subtotal: Electronics & Computer Hardware (0.00%)*

Information Services
DocuSign, Inc. (15)
Subtotal: Information Services (0.77%)*

Diagnostic

Equity

Common Stock

937,998

Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery

Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development

Equity
Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity

Equity

Common Stock
Preferred Series D
Common Stock
Common Stock
Common Stock
Common Stock

Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series 4

Common Stock

54,240
165,000
161,856
20,000
125,000
22,765

426,931
119,087
135,501
142,858
20,000
200,000
223,463
3,778
70,771
1,914,448

76,362

Electronics & Computer Hardware

Equity

Common Stock

6,700

Information Services

Equity

Common Stock

385,000

See notes to consolidated financial statements.

123

4,000
101
1,000
5,101

—
500
500
500

750
750

108
500
1,000
9
1,500
557
3,674

1,060
1,000
1,000
1,000
550
1,000
2,000
1,500
1,000
2,000

2,743
14,853

34
34

6,081
6,081

575
575

3,396
31
4,990
8,417

279
273
552
552

574
574

141
542
2,023
—
731
472
3,909

231
105
96
411
79
—
921
23
936
2,042

1,175
6,019

21
21

6,081
6,081

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Portfolio Company
Internet Consumer & Business Services
Blurb, Inc. (15)
Brigade Group, Inc. (p.k.a. Philotic, Inc.)
Lightspeed POS, Inc. (4) (9)

Total Lightspeed POS, Inc.

OfferUp, Inc. (15)

Total OfferUp, Inc.

Oportun (p.k.a. Progress Financial)

Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services

Internet Consumer & Business Services
Internet Consumer & Business Services

Internet Consumer & Business Services
Internet Consumer & Business Services

Total Oportun (p.k.a. Progress Financial)

RazorGator Interactive Group, Inc.
Tectura Corporation
Subtotal: Internet Consumer & Business Services (0.46%)*

Internet Consumer & Business Services
Internet Consumer & Business Services

Equity
Equity
Equity
Equity

Equity
Equity

Equity
Equity

Equity
Equity

Preferred Series B
Common Stock
Preferred Series C
Preferred Series D

Preferred Series A
Preferred Series A-1

Preferred Series G
Preferred Series H

Preferred Series AA
Preferred Series BB

$

220,653
9,023
230,030
198,677
428,707
286,080
108,710
394,790
218,351
87,802
306,153
34,783
1,000,000

Media/Content/Info
Pinterest, Inc.
Subtotal: Media/Content/Info (0.52%)*

Medical Devices & Equipment
AtriCure, Inc. (3) (15)
Flowonix Medical Incorporated
Gelesis, Inc. (15)

Total Gelesis, Inc.

Medrobotics Corporation (15)

Total Medrobotics Corporation
Optiscan Biomedical, Corp. (5) (15)

Total Optiscan Biomedical, Corp.

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)
Quanterix Corporation
Subtotal: Medical Devices & Equipment (1.21%)*

Software
Box, Inc. (3)
CapLinked, Inc.
Druva, Inc.
ForeScout Technologies, Inc.

Total ForeScout Technologies, Inc.

HighRoads, Inc.
NewVoiceMedia Limited (4) (9)
Palantir Technologies
WildTangent, Inc. (15)
Subtotal: Software (2.36%)*

Specialty Pharmaceuticals
QuatRx Pharmaceuticals Company

Total QuatRx Pharmaceuticals Company 
Subtotal: Specialty Pharmaceuticals (0.00%)*

Media/Content/Info

Equity

Preferred Series Seed

620,000

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment

Software
Software
Software
Software
Software

Software
Software
Software
Software

Specialty Pharmaceuticals
Specialty Pharmaceuticals
Specialty Pharmaceuticals

Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity

Equity
Equity
Equity
Equity

Equity
Equity

Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity

Equity
Equity
Equity

Common Stock
Preferred Series AA
Common Stock
Preferred Series A-1
Preferred Series A-2

Preferred Series E
Preferred Series F
Preferred Series G

Preferred Series B
Preferred Series C
Preferred Series D
Preferred Series E

Preferred Series B
Preferred Series D

Common Stock
Preferred Series A-3
Preferred Series 2
Preferred Series D
Preferred Series E

Common Stock
Preferred Series E
Preferred Series E
Preferred Series 3

Preferred Series E
Preferred Series E-1
Preferred Series G

7,536
221,893
198,202
191,210
191,626
581,038
136,798
73,971
163,934
374,703
6,185,567
1,927,309
55,103,923
13,573,546
76,790,345
232,061
272,479

611,442
53,614
458,841
319,099
80,587
399,686
190
669,173
727,696
100,000

241,829
26,955
4,667,636
4,936,420

See notes to consolidated financial statements.

124

$

175
93
250
250
500
1,663
632
2,295
250
250
500
15
—
3,578

4,085
4,085

266
1,500
—
425
500
925
250
155
500
905
3,000
655
5,257
1,136
10,048
527
1,000
15,171

4,709
51
1,000
398
131
529
307
963
5,431
402
13,392

750
—
—
750
750

197
—
228
221
449
1,663
632
2,295
431
249
680
34
—
3,655

4,085
4,085

147
359
634
687
650
1,971
216
188
514
918
292
85
3,014
1,138
4,529
548
1,086
9,558

8,475
86
1,288
1,725
440
2,165
—
1,025
5,431
148
18,618

—
—
—
—
—

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Portfolio Company
Surgical Devices
Gynesonics, Inc. (15)

Total Gynesonics, Inc.

Transmedics, Inc.

Total Transmedics, Inc.

Subtotal: Surgical Devices (0.42%)*

Surgical Devices
Surgical Devices
Surgical Devices
Surgical Devices

Surgical Devices
Surgical Devices
Surgical Devices
Surgical Devices

Sustainable and Renewable Technology
Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, 

Sustainable and Renewable Technology

Inc.)

Glori Energy, Inc. (3)
Modumetal, Inc.
Proterra, Inc.
Sungevity, Inc. (15)
TPI Composites, Inc. (3)
Subtotal: Sustainable and Renewable Technology (0.29%)*
Total: Equity Investments (8.59%)*

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity
Equity
Equity

Preferred Series B
Preferred Series C
Preferred Series D
Preferred Series E

Preferred Series B
Preferred Series C
Preferred Series D
Preferred Series F

Common Stock
Common Stock
Preferred Series C
Preferred Series 5
Preferred Series D
Common Stock

$

219,298
656,538
1,991,157
2,786,367
5,653,360
88,961
119,999
260,000
100,200
569,160

19,250
18,208
3,107,520
99,280
68,807,339
78,018

$

250
282
712
429
1,673
1,100
300
650
500
2,550
4,223

761
165
500
500
6,750
273
8,949
81,641

37
52
671
450
1,210
357
291
912
523
2,083
3,293

—
1
533
512
—
1,251
2,297
67,654

See notes to consolidated financial statements.

125

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Biotechnology Tools
Biotechnology Tools

Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking

Consumer & Business Products
Consumer & Business Products
Consumer & Business Products
Consumer & Business Products
Consumer & Business Products

Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Preferred Series C
Preferred Series C

Common Stock
Common Stock
Preferred Series B
Preferred Series A
Preferred Series F
Common Stock

Common Stock
Preferred Series B
Preferred Series D
Preferred Series C
Preferred Series C-1

Common Stock
Common Stock
Preferred Series A-1
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series B
Common Stock
Common Stock
Common Stock

104,348
1,127,624

$

$

107
323
430

117,958
108,982
298,779
135,000
9,762,777
2,834,375

1,662,441
190,234
1,155,821
845,194
540,540

176,730
180,274
735,981
152,586
459,183
194,986
110,882
78,595
82,500
70,833
25,150
72,379

102
149
61
95
394
418
1,219

228
230
1,076
23
365
1,922

785
730
366
488
1
428
74
390
594
285
116
266
4,523

181
409
590

—
—
14
415
—
—
429

—
354
5,574
—
—
5,928

92
269
242
—
264
—
—
402
391
17
—
—
1,677

Portfolio Company
Warrant Investments
Biotechnology Tools
Exicure, Inc.
Labcyte, Inc. (15)
Subtotal: Biotechnology Tools (0.07%)*

Communications & Networking
Intelepeer, Inc. (15)
OpenPeak, Inc.
PeerApp, Inc.
Peerless Network Holdings, Inc.
SkyCross, Inc. (6) (15)
Spring Mobile Solutions, Inc.
Subtotal: Communications & Networking (0.05%)*

Consumer & Business Products
Antenna79 (p.k.a. Pong Research Corporation) (15)
Intelligent Beauty, Inc. (15)
IronPlanet, Inc.
Nasty Gal (15)
The Neat Company (15)
Subtotal: Consumer & Business Products (0.75%)*

Drug Delivery
AcelRx Pharmaceuticals, Inc. (3) (9) (15)
Agile Therapeutics, Inc. (3)
Aprecia Pharmaceuticals Company
BIND Therapeutics, Inc. (15)
BioQ Pharma Incorporated
Celsion Corporation (3)
Dance Biopharm, Inc. (15)
Edge Therapeutics, Inc. (3)
Kaleo, Inc. (p.k.a. Intelliject, Inc.)
Neos Therapeutics, Inc. (3) (15)
Pulmatrix Inc. (3)
ZP Opco, Inc (p.k.a. Zosano Pharma) (3)
Subtotal: Drug Delivery (0.21%)*

See notes to consolidated financial statements.

126

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Portfolio Company
Drug Discovery & Development
Drug Discovery & Development
ADMA Biologics, Inc. (3)
Drug Discovery & Development
Anthera Pharmaceuticals, Inc. (3) (15)
Drug Discovery & Development
Auris Medical Holding, AG (3) (4) (9)
Aveo Pharmaceuticals, Inc. (3) (9)
Drug Discovery & Development
Drug Discovery & Development
Brickell Biotech, Inc.
Cerecor, Inc. (3)
Drug Discovery & Development
Cerulean Pharma, Inc. (3)
Drug Discovery & Development
Chroma Therapeutics, Ltd. (4) (9)
Drug Discovery & Development
Cleveland BioLabs, Inc. (3) (15)
Drug Discovery & Development
Concert Pharmaceuticals, Inc. (3)
Drug Discovery & Development
CTI BioPharma Corp. (p.k.a. Cell Therapeutics, Inc.) (3) Drug Discovery & Development
CytRx Corporation (3) (15)
Drug Discovery & Development
Drug Discovery & Development
Dicerna Pharmaceuticals, Inc. (3) (15)
Drug Discovery & Development
Epirus Biopharmaceuticals, Inc.
Drug Discovery & Development
Fortress Biotech, Inc. (p.k.a. Coronado Biosciences, Inc.)

(3)

Genocea Biosciences, Inc. (3)
Immune Pharmaceuticals (3)
Mast Therapeutics, Inc. (3) (15)
Melinta Therapeutics
Nanotherapeutics, Inc. (15)
Neothetics, Inc. (p.k.a. Lithera, Inc) (3) (15)
Neuralstem, Inc. (3) (15)
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept 

Pharmaceuticals, Inc.) (3) (15)

PhaseRx,Inc. (3) (15)
Sorrento Therapeutics, Inc. (3) (9)
uniQure B.V. (3) (4) (9)
XOMA Corporation (3) (9) (15)
Subtotal: Drug Discovery & Development (0.33%)*

Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development

Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development

Electronics & Computer Hardware
Clustrix, Inc.
Persimmon Technologies
Subtotal: Electronics & Computer Hardware (0.06%)*

Electronics & Computer Hardware
Electronics & Computer Hardware

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series C
Common Stock
Common Stock
Preferred Series D
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock

Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series 3
Common Stock
Common Stock
Common Stock

Common Stock
Common Stock
Common Stock
Common Stock
Common Stock

Common Stock
Preferred Series D

$

89,750
40,178
156,726
2,069,880
26,086
22,328
171,901
325,261
7,813
70,796
292,398
634,146
200
64,194

73,009
73,725
214,853
2,272,724
1,382,323
171,389
46,838
75,187

69,840
63,000
306,748
37,174
9,063

50,000
63,348

$

295
984
249
396
119
70
369
490
105
367
165
416
28
276

142
266
164
203
626
838
266
77

152
125
890
218
279
8,575

12
40
52

157
157

43
—
51
123
139
—
14
—
—
56
8
78
—
—

13
75
—
85
295
767
29
1

157
15
632
8
6
2,595

—
509
509

137
137

Healthcare Services, Other
Chromadex Corporation (3) (15)
Subtotal: Healthcare Services, Other (0.02%)*

Healthcare Services, Other

Warrant

Common Stock

139,673

See notes to consolidated financial statements.

127

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Portfolio Company
Information Services
INMOBI Inc. (4) (9)
InXpo, Inc. (15)

Total InXpo, Inc.
RichRelevance, Inc. (15)
Subtotal: Information Services (0.00%)*

Information Services
Information Services
Information Services

Information Services

Internet Consumer & Business Services
Aria Systems, Inc.
Blurb, Inc. (15)
CashStar, Inc. (15)
CloudOne, Inc.
Intent Media, Inc. (15)
Just Fabulous, Inc.
Lightspeed POS, Inc. (4) (9)
LogicSource (15)
Oportun (p.k.a. Progress Financial)
Prism Education Group, Inc. (15)
ShareThis, Inc. (15)
Snagajob.com, Inc.
Tapjoy, Inc.
Tectura Corporation
Subtotal: Internet Consumer & Business Services (0.36%)*

Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services

Media/Content/Info
FanDuel, Inc.
Machine Zone, Inc. (16)
Rhapsody International, Inc. (15)
WP Technology, Inc. (Wattpad, Inc.) (4) (9)
Zoom Media Group, Inc.
Subtotal: Media/Content/Info (0.44%)*

Media/Content/Info
Media/Content/Info
Media/Content/Info
Media/Content/Info
Media/Content/Info

Medical Devices & Equipment
Medical Devices & Equipment
Amedica Corporation (3) (15)
Aspire Bariatrics, Inc. (15)
Medical Devices & Equipment
Avedro, Inc. (15)
Medical Devices & Equipment
Medical Devices & Equipment
Flowonix Medical Incorporated
Medical Devices & Equipment
Gamma Medica, Inc.
Gelesis, Inc. (15)
Medical Devices & Equipment
InspireMD, Inc. (3) (4) (9)
Medical Devices & Equipment
IntegenX, Inc. (15)
Medical Devices & Equipment
Medrobotics Corporation (15)
Medical Devices & Equipment
Medical Devices & Equipment
Micell Technologies, Inc.
Medical Devices & Equipment
NetBio, Inc.
Medical Devices & Equipment
NinePoint Medical, Inc. (15)
Medical Devices & Equipment
Optiscan Biomedical, Corp. (5) (15)
Medical Devices & Equipment
Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)
Medical Devices & Equipment
Quanterix Corporation
SonaCare Medical, LLC (p.k.a. US HIFU, LLC)
Medical Devices & Equipment
Strata Skin Sciences, Inc. (p.k.a. MELA Sciences, Inc.) (3) Medical Devices & Equipment
ViewRay, Inc. (3) (15)
Medical Devices & Equipment
Subtotal: Medical Devices & Equipment (0.31%)*

Warrant
Warrant
Warrant

Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Common Stock
Preferred Series C
Preferred Series C-1

Preferred Series E

Preferred Series E
Preferred Series C
Preferred Series C-2
Preferred Series E
Common Stock
Preferred Series B
Preferred Series C
Preferred Series C
Preferred Series G
Preferred Series B
Preferred Series C
Preferred Series A
Preferred Series D
Preferred Series B-1

Preferred Series E-1
Common Stock
Common Stock
Common Stock
Preferred Series A

Common Stock
Preferred Series D
Preferred Series AA
Preferred Series AA
Preferred Series A
Preferred Series A-1
Common Stock
Preferred Series C
Preferred Series E
Preferred Series D-2
Preferred Series A
Preferred Series A-1
Preferred Series D
Preferred Series A
Preferred Series C
Preferred Series A
Common Stock
Common Stock

$

46,874
648,400
1,165,183
1,813,583
112,612

239,692
234,280
727,272
968,992
140,077
206,184
245,610
79,625
174,562
200,000
493,502
1,575,000
748,670
253,378

4,648
1,552,710
715,755
127,909
1,204

103,225
395,000
300,000
155,325
450,956
74,784
39,364
547,752
455,539
84,955
7,841
587,840
10,535,275
500,000
173,428
6,464
69,320
128,231

$

82
98
74
172
98
352

73
636
130
19
168
1,102
20
30
78
43
547
640
316
51
3,853

730
1,958
385
1
348
3,422

459
455
401
362
170
78
242
15
370
262
408
170
1,252
402
180
188
402
333
6,149

—
4
6
10
—
10

—
96
24
46
167
1,093
31
59
190
—
1
1,075
19
—
2,801

682
2,729
7
6
14
3,438

14
217
254
21
234
153
20
35
292
347
158
65
170
355
104
—
—
2
2,441

See notes to consolidated financial statements.

128

Portfolio Company
Semiconductors
Achronix Semiconductor Corporation (15)

Total Achronix Semiconductor Corporation

Aquantia Corp.
Avnera Corporation
Subtotal: Semiconductors (0.04%)*

Software
Actifio, Inc.

Total Actifio, Inc.

Braxton Technologies, LLC
CareCloud Corporation (15)
Clickfox, Inc. (15)

Semiconductors
Semiconductors

Semiconductors
Semiconductors

Software
Software

Software
Software
Software
Software
Software

Total Clickfox, Inc.

Cloud Technology Partners, Inc.
Evernote Corporation (15)
JumpStart Games, Inc. (p.k.a Knowledge Holdings, Inc.)

Software
Software
Software

(15)

Mattersight Corporation (3)
Message Systems, Inc. (15)
Mobile Posse, Inc. (15)
Neos, Inc. (15)
NewVoiceMedia Limited (4) (9)
OneLogin, Inc. (15)
Poplicus, Inc. (15)
Quid, Inc. (15)
RedSeal Inc. (15)
Signpost, Inc. (15)
Soasta, Inc. (15)
Sonian, Inc. (15)
Subtotal: Software (0.53%)*

Software
Software
Software
Software
Software
Software
Software
Software
Software
Software
Software
Software

Specialty Pharmaceuticals
Alimera Sciences, Inc. (3)
QuatRx Pharmaceuticals Company
Subtotal: Specialty Pharmaceuticals (0.05%)*

Specialty Pharmaceuticals
Specialty Pharmaceuticals

Surgical Devices
Gynesonics, Inc. (15)

Total Gynesonics, Inc.

Transmedics, Inc.

Total Transmedics, Inc.

Subtotal: Surgical Devices (0.09%)*

Surgical Devices

Surgical Devices

Surgical Devices
Surgical Devices
Surgical Devices

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Warrant
Warrant

Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant

Preferred Series C
Preferred Series D-1

Preferred Series G
Preferred Series E

Common Stock
Preferred Series F

Preferred Series A
Preferred Series B
Preferred Series B
Preferred Series C
Preferred Series C-A

Preferred Series C
Common Stock

Preferred Series E
Common Stock
Preferred Series C
Preferred Series C
Common Stock
Preferred Series E
Common Stock
Preferred Series C
Preferred Series D
Preferred Series C-Prime
Preferred Series C
Preferred Series E
Preferred Series C

Common Stock
Preferred Series E

Preferred Series C
Preferred Series D

Preferred Series B
Preferred Series D
Preferred Series F

$

360,000
500,000
860,000
196,831
141,567

73,584
31,673
105,257
168,750
413,433
1,038,563
592,019
2,218,214
3,848,796
113,960
62,500

614,333
357,143
503,718
396,430
221,150
225,586
228,972
2,595,230
71,576
640,603
324,005
410,800
185,949

1,717,709
155,324

180,480
1,575,965
1,756,445
40,436
175,000
50,544
265,980

$

160
7
167
4
46
217

249
343
592
188
258
330
730
230
1,290
34
106

16
538
334
130
22
33
150
—
1
66
314
691
106
4,869

860
308
1,168

75
320
395
225
100
38
363
758

71
25
96
88
114
298

83
54
137
—
488
63
76
1,604
1,743
35
110

—
386
325
102
64
45
188
6
8
65
167
190
105
4,164

421
—
421

14
240
254
16
405
56
477
731

See notes to consolidated financial statements.

129

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
(dollars in thousands)

Sub-Industry

Type of
Investment(1)

Series

Shares

Cost(2)

Value(3)

Portfolio Company
Sustainable and Renewable Technology
Agrivida, Inc. (15)
Alphabet Energy, Inc. (15)
American Superconductor Corporation (3)
Beamreach Solar (p.k.a. Solexel, Inc.) (15)
Brightsource Energy, Inc.
Calera, Inc. (15)
EcoMotors, Inc. (15)
Fluidic, Inc.
Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, 

Inc.)

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Sustainable and Renewable Technology

Total Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

Fulcrum Bioenergy, Inc.
GreatPoint Energy, Inc. (15)
Polyera Corporation (15)
Proterra, Inc.
Rive Technology, Inc. (15)
Stion Corporation (5)
Sungevity, Inc.

Total Sungevity, Inc.

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

TAS Energy, Inc.
Tendril Networks
Trilliant, Inc. (15)
Subtotal: Sustainable and Renewable Technology (0.17%)*
Total: Warrant Investments (3.49%)*
Total Investments (180.72%)*

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant

Preferred Series D
Preferred Series A
Common Stock
Preferred Series C
Preferred Series 1
Preferred Series C
Preferred Series B
Preferred Series D

Common Stock
Preferred Series 2-A

Preferred Series C-1
Preferred Series D-1
Preferred Series C
Preferred Series 4
Preferred Series E
Preferred Series Seed
Common Stock
Preferred Series C

Preferred Series AA
Preferred Series 3-A
Preferred Series A

471,327
86,329
58,823
1,171,625
116,666
44,529
437,500
61,804

530,811
6,229
537,040
280,897
393,212
311,609
477,517
234,477
2,154
20,000,000
32,472,222
52,472,222
428,571
1,019,793
320,000

$

$

120
82
39
1,162
104
513
308
102

181
50
231
275
548
338
41
12
1,378
543
902
1,445
299
189
162
7,348
45,014
$  1,511,526

$ 

99
—
85
—
—
—
30
20

—
—
—
201
—
—
457
3
—
—
—
—
—
219
202
1,316
27,485
1,423,942

*
(1)
(2)

(3)

(4)
(5)
(6)
(7)

(8)
(9)

(10)
(11)
(12)
(13)
(14)

(15)

(16)
(17)
(18)
(19)

Value as a percent of net assets 
Preferred and common stock, warrants, and equity interests are generally non-income producing. 
Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $24.7 million, $114.5 million and $89.8 million respectively. The tax cost of investments is $1.5 
billion. 
Except for warrants in 37 publicly traded companies and common stock in 19 publicly traded companies, all investments are restricted at December 31, 2016 and were valued at fair value as determined in good faith by 
the Company’s board of directors (the “Board of Directors”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its 
portfolio companies. 
Non-U.S. company or the company’s principal place of business is outside the United States. 
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.
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. 
Debt is on non-accrual status at December 31, 2016, and is therefore considered non-income producing. Note that at December 31, 2016, only the $11.0 million PIK, or payment-in-kind, loan is on non-accrual for the 
Company’s debt investment in Tectura Corporation.
Denotes that all or a portion of the debt investment is convertible debt. 
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. 
Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitization (as defined in Note 4). 
Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in Note 4).
Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in Note 4).
Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.
Denotes that all or a portion of the debt investment includes an exit fee receivable. 

A. This fee ranges from 1.0% to 5.0% of the total debt commitment based on the contractual terms of our loan servicing agreements.
B. This fee ranges from 5.0% to 10.0% of the total debt commitment based on the contractual terms of our loan servicing agreements.
C. This fee ranges from 10.0% to 15.0% of the total debt commitment based on the contractual terms of our loan servicing agreements.
D. This fee is greater than 15.0% of the total debt commitment based on the contractual terms of our loan servicing agreements.

Denotes that all or a portion of the investment in this portfolio company is held by Hercules Technology II, L.P., or HT II, or Hercules Technology III, L.P., or HT III, the Company’s wholly owned small business 
investment companies, or SBIC, subsidiaries.
Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total assets at December 31, 2016.
Denotes that there is an unfunded contractual commitment available at the request of this portfolio company at December 31, 2016. Refer to Note 10.
Repayment of debt investment is delinquent of the contractual maturity date as of December 31, 2016.
The stated PIK interest rate may be reduced to 1.45% subject to achievement of a milestone by the portfolio company.

See notes to consolidated financial statements.

130

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost  (2)

Value (3)

Portfolio Company
Debt Investments
Communications & Networking
1-5 Years Maturity
Avanti Communications Group (4)(9)
OpenPeak, Inc. (7)

Communications & Networking
Communications & Networking

Senior Secured
Senior Secured

October 2019
April 2017

SkyCross, Inc. (7)(12)(13)(14)

Communications & Networking

Senior Secured

January 2018

Spring Mobile Solutions, Inc. (13)

Communications & Networking

Senior Secured

January 2019

Subtotal: 1-5 Years Maturity
Subtotal: Communications & Networking (3.91%)*

Consumer & Business Products
Under 1 Year Maturity
Antenna79 (p.k.a. Pong Research 

Corporation) (12)(14)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Antenna79 (p.k.a. Pong Research 

Corporation) (12)(13)(14)

Consumer & Business Products

Senior Secured

June 2016

Consumer & Business Products

Senior Secured

December 2017

Miles, Inc. (p.k.a. Fluc, Inc.) (8)
Nasty Gal (13)(14)

Consumer & Business Products
Consumer & Business Products

Convertible Debt
Senior Secured

March 2017
May 2019

The Neat Company (7)(12)(13)(14)

Consumer & Business Products

Senior Secured

September 2017

Subtotal: 1-5 Years Maturity
Subtotal: Consumer & Business Products (3.55%)*

Interest rate FIXED 10.00%
Interest rate PRIME + 8.75%
or Floor rate of 12.00%
Interest rate PRIME + 7.70%
or Floor rate of 10.95%,
PIK Interest 5.00%
Interest rate PRIME + 6.70%
or Floor rate of 9.95%

Interest rate PRIME + 8.75%
or Floor rate of 12.00%

Interest rate PRIME + 6.75%
or Floor rate of 10.00%,
PIK Interest 2.50%
Interest rate FIXED 4.00%
Interest rate PRIME + 5.45%
or Floor rate of 8.95%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%,
PIK Interest 1.00%

$

$

$

$

$

$
$

$

$

10,000

$

8,900

$

12,370

9,134

19,649

3,000

308

4,955
100

15,000

15,936

20,080

2,935
41,049
41,049

308
308

4,785
100

14,876

15,545
35,306
35,614

7,812

2,444

14,859

2,935
28,050
28,050

308
308

4,783
—

14,876

5,527
25,186
25,494

See notes to consolidated financial statements.

131

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Drug Delivery
1-5 Years Maturity
AcelRx Pharmaceuticals, Inc. (9)(10)(13)(14) Drug Delivery

Senior Secured

October 2017

Agile Therapeutics, Inc. (10)(13)

Drug Delivery

Senior Secured

December 2018

BIND Therapeutics, Inc. (13)(14)

Drug Delivery

BioQ Pharma Incorporated (10)(13)

Drug Delivery

Senior Secured

July 2018

Senior Secured

May 2018

Drug Delivery

Senior Secured

May 2018

Total BioQ Pharma Incorporated 
Celator Pharmaceuticals, Inc. (10)(13)

Drug Delivery

Senior Secured

June 2018

Celsion Corporation (10)(13)

Drug Delivery

Senior Secured

June 2017

Dance Biopharm, Inc. (13)(14)

Drug Delivery

Senior Secured

November 2017

Edge Therapeutics, Inc. (10)(13)

Drug Delivery

Senior Secured

March 2018

Egalet Corporation (11)(13)

Drug Delivery

Senior Secured

July 2018

Neos Therapeutics, Inc. (10)(13)(14)

Drug Delivery

Senior Secured

October 2017

Total Neos Therapeutics, Inc.

Pulmatrix Inc. (8)(10)(13)

Drug Delivery

Drug Delivery

Drug Delivery

Senior Secured

October 2017

Senior Secured

October 2017

Senior Secured

July 2018

ZP Opco, Inc. (p.k.a. Zosano Pharma) (10)

Drug Delivery

Senior Secured

December 2018

(13)

Subtotal: 1-5 Years Maturity
Subtotal: Drug Delivery (21.73%)*

Interest rate PRIME + 3.85%
or Floor rate of 9.10%
Interest rate PRIME + 4.75%
or Floor rate of 9.00%
Interest rate PRIME + 5.10%
or Floor rate of 8.35%
Interest rate PRIME + 8.00%
or Floor rate of 11.25%
Interest rate PRIME + 7.00%
or Floor rate of 10.50%

Interest rate PRIME + 6.50%
or Floor rate of 9.75%
Interest rate PRIME + 8.00%
or Floor rate of 11.25%
Interest rate PRIME + 7.40%
or Floor rate of 10.65%
Interest rate PRIME + 6.45%
or Floor rate of 9.95%
Interest rate PRIME + 6.15%
or Floor rate of 9.40%
Interest rate PRIME + 5.75%
or Floor rate of 9.00%
Interest rate PRIME + 7.25%
or Floor rate of 10.50%
Interest rate PRIME + 5.75%
or Floor rate of 9.00%

Interest rate PRIME + 6.25%
or Floor rate of 9.50%
Interest rate PRIME + 2.70%
or Floor rate of 7.95%

$

$

$

$

$
$

$

$

$

$

$

$

$

$
$

$

$

20,466

$

20,772

$

20,678

16,500

15,000

10,000

3,000
13,000

14,573

6,346

2,705

5,466

15,000

10,000

10,000

5,000
25,000

7,000

15,000

16,231

15,119

10,180

2,962
13,142

14,594

6,501

2,776

5,431

14,967

10,000

10,043

4,977
25,020

6,877

16,107

15,044

10,066

2,962
13,028

14,609

6,544

2,757

5,455

15,036

10,007

9,998

4,957
24,962

6,856

14,925
156,355
156,355

14,781
155,857
155,857

See notes to consolidated financial statements.

132

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Drug Discovery & Development
1-5 Years Maturity
Aveo Pharmaceuticals, Inc. (9)(13)

Drug Discovery & Development

Senior Secured

January 2018

Cerecor, Inc. (13)

Drug Discovery & Development

Senior Secured

August 2017

Cerulean Pharma, Inc. (11)(13)

Drug Discovery & Development

Senior Secured

July 2018

CTI BioPharma Corp. (p.k.a. Cell 

Drug Discovery & Development

Senior Secured

December 2018

Therapeutics, Inc.) (10)(13)

Epirus Biopharmaceuticals, Inc. (11)(13)

Drug Discovery & Development

Senior Secured

April 2018

Genocea Biosciences, Inc. (10)(13)

Drug Discovery & Development

Senior Secured

January 2019

Immune Pharmaceuticals (10)(13)

Drug Discovery & Development

Senior Secured

September 2018

Insmed, Incorporated  (10)(13)

Drug Discovery & Development

Senior Secured

January 2018

Mast Therapeutics, Inc. (13)(14)

Drug Discovery & Development

Senior Secured

January 2019

Melinta Therapeutics (11)(13)

Drug Discovery & Development

Senior Secured

June 2018

Merrimack Pharmaceuticals, Inc.(9)
Drug Discovery & Development
Neothetics, Inc. (p.k.a. Lithera, Inc.) (13)(14) Drug Discovery & Development

Senior Secured
Senior Secured

December 2022
January 2018

Neuralstem, Inc. (13)(14)

Drug Discovery & Development

Senior Secured

April 2017

Paratek Pharmaceuticals, Inc. (p.k.a. 

Drug Discovery & Development

Senior Secured

September 2020

Transcept Pharmaceuticals, Inc.)(13)(14)

uniQure B.V. (4)(9)(10)(13)

Drug Discovery & Development

Senior Secured

June 2018

XOMA Corporation (9)(13)(14)

Drug Discovery & Development

Senior Secured

September 2018

Subtotal: 1-5 Years Maturity
Subtotal: Drug Discovery & Development (37.79%)*

10,000

$

10,076

$

Interest rate PRIME + 6.65%
or Floor rate of 11.90%
Interest rate PRIME + 4.70%
or Floor rate of 7.95%
Interest rate PRIME + 1.55%
or Floor rate of 7.30%
Interest rate PRIME + 7.70%
or Floor rate of 10.95%
Interest rate PRIME + 4.70%
or Floor rate of 7.95%
Interest rate PRIME + 3.75%
or Floor rate of 7.25%
Interest rate PRIME + 6.50%
or Floor rate of 10.00%
Interest rate PRIME + 4.75%
or Floor rate of 9.25%
Interest rate PRIME + 5.70%
or Floor rate of 8.95%
Interest rate PRIME + 3.75%
or Floor rate of 8.25%
Interest rate FIXED 11.50%
Interest rate PRIME + 5.75%
or Floor rate of 9.00%
Interest rate PRIME + 6.75%
or Floor rate of 10.00%
Interest rate PRIME + 2.75%
or Floor rate of 8.50%
Interest rate PRIME + 5.00%
or Floor rate of 10.25%
Interest rate PRIME + 2.15%
or Floor rate of 9.40%

$

$

$

$

$

$

$

$

$

$
$

$

$

$

$

$

5,688

21,000

25,000

15,000

17,000

4,500

25,000

15,000

30,000
25,000

10,000

8,335

20,000

20,000

20,000

5,705

21,132

25,507

14,852

17,008

4,374

25,128

14,808

29,843
25,000

9,966

8,418

19,828

19,956

9,944

5,740

21,109

25,550

14,924

16,948

4,374

24,991

14,808

29,703
25,000

9,940

8,397

19,828

19,929

19,974
271,575
271,575

19,815
271,000
271,000

See notes to consolidated financial statements.

133

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Electronics & Computer Hardware
1-5 Years Maturity
Persimmon Technologies (13)

Electronics & Computer Hardware

Senior Secured

June 2019

Interest rate PRIME + 7.50%
or Floor rate of 11.00%

$

7,000

$

Subtotal: 1-5 Years Maturity
Subtotal: Electronics & Computer Hardware (0.96%)*

Sustainable and Renewable Technology
Under 1 Year Maturity
Agrivida, Inc. (13)(14)

Sustainable and Renewable Technology

Senior Secured

December 2016

American Superconductor Corporation (10)

Sustainable and Renewable Technology

Senior Secured

November 2016

(13)

Fluidic, Inc. (10)(13)

Sustainable and Renewable Technology

Senior Secured

March 2016

Polyera Corporation (13)(14)

Sustainable and Renewable Technology

Senior Secured

April 2016

Stion Corporation (5)(13)

Sustainable and Renewable Technology

Senior Secured

March 2016

Sungevity, Inc. (11)

Sustainable and Renewable Technology

Senior Secured

April 2016

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
American Superconductor Corporation (10)

(13)

Amyris, Inc. (9)(11)(13)

Total Amyris, Inc.

Modumetal, Inc. (13)

Total Modumetal, Inc.

Polyera Corporation (13)

Sustainable and Renewable Technology

Senior Secured

June 2017

Sustainable and Renewable Technology

Senior Secured

February 2017

Sustainable and Renewable Technology

Senior Secured

February 2017

Sustainable and Renewable Technology

Senior Secured

February 2017

Sustainable and Renewable Technology

Senior Secured

March 2017

Sustainable and Renewable Technology

Senior Secured

October 2017

Sustainable and Renewable Technology

Senior Secured

January 2017

Proterra, Inc. (10)(13)

Sustainable and Renewable Technology

Senior Secured

December 2018

Sungevity, Inc. (11)(13)

Sustainable and Renewable Technology

Senior Secured

October 2017

Tendril Networks (13)
Subtotal: 1-5 Years Maturity
Subtotal: Sustainable and Renewable Technology (20.83%)*

Sustainable and Renewable Technology

Senior Secured

June 2019

Healthcare Services, Other
1-5 Years Maturity
Chromadex Corporation (13)(14)

Healthcare Services, Other

Senior Secured

April 2018

InstaMed Communications, LLC (13)(14)

Healthcare Services, Other

Senior Secured

February 2019

Subtotal: 1-5 Years Maturity
Subtotal: Healthcare Services, Other (2.09%)*

Interest rate PRIME + 6.75%
or Floor rate of 10.00%
Interest rate PRIME + 7.25%
or Floor rate of 11.00%
Interest rate PRIME + 8.00%
or Floor rate of 11.25%
Interest rate PRIME + 6.75%
or Floor rate of 10.00%
Interest rate PRIME + 8.75%
or Floor rate of 12.00%
Interest rate PRIME + 3.70%
or Floor rate of 6.95%

Interest rate PRIME + 7.25%
or Floor rate of 11.00%
Interest rate PRIME + 6.25%
or Floor rate of 9.50%
Interest rate PRIME + 5.25%
or Floor rate of 8.50%
Interest rate PRIME + 6.25%
or Floor rate of 9.50%

Interest rate PRIME + 8.70%
or Floor rate of 11.95%
Interest rate PRIME + 6.00%
or Floor rate of 9.25%

Interest rate PRIME + 6.70%
or Floor rate of 9.95%
Interest rate PRIME + 6.95%
or Floor rate of 10.20%
Interest rate PRIME + 3.70%
or Floor rate of 6.95%
Interest rate FIXED 7.25%

Interest rate PRIME + 6.10%
or Floor rate of 9.35%
Interest rate PRIME + 6.75%
or Floor rate of 10.00%

$

$

$

$

$

$

$

$

$

$
$

$

$
$

$

$

$
$

$

$

4,362

3,667

784

637

2,200

20,000

1,500

17,543

3,497

10,960
32,000

1,759

7,061
8,820

1,254

25,000

35,000
15,000

5,000

10,000

See notes to consolidated financial statements.

134

$

6,873
6,873
6,873

6,873
6,873
6,873

4,587

4,106

931

890

2,200

20,000
32,714

1,496

17,543

3,497

11,045
32,085

2,062

7,101
9,163

1,455

24,995

34,733
14,735
118,662
151,376

4,907

10,048
14,955
14,955

4,587

4,106

931

890

1,013

20,000
31,527

1,484

17,499

3,488

11,045
32,032

2,032

7,080
9,112

1,455

24,550

34,773
14,477
117,883
149,410

4,918

10,049
14,967
14,967

Portfolio Company
Information Services
Under 1 Year Maturity
Eccentex Corporation (13)(16)

InXpo, Inc. (13)(14)

Information Services

Information Services

Subtotal: Under 1 Year Maturity
Subtotal: Information Services (0.23%)*

Internet Consumer & Business Services
Under 1 Year Maturity
NetPlenish (7)(8)(14)

Total NetPlenish

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Aria Systems, Inc. (10)(12)

Total Aria Systems, Inc.

One Planet Ops Inc. (p.k.a. Reply! 

Inc.) (7)(12)

Internet Consumer & 
Business Services
Internet Consumer & 
Business Services

Internet Consumer & 
Business Services

Internet Consumer & 
Business Services

Internet Consumer & 
Business Services
Internet Consumer & 
Business Services

Total One Planet Ops Inc. (p.k.a. Reply! Inc.)

ReachLocal  (13)

Tapjoy, Inc. (11)(13)

Tectura Corporation (7)(12)(15)

Internet Consumer & 
Business Services
Internet Consumer & 
Business Services
Internet Consumer & 
Business Services
Internet Consumer & 
Business Services

Internet Consumer & 
Business Services
Internet Consumer & 
Business Services

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Senior Secured

May 2015

Senior Secured

October 2016

Interest rate PRIME + 7.00%
or Floor rate of 10.25%
Interest rate PRIME + 7.50%
or Floor rate of 10.75%

Convertible Debt

September 2016

Interest rate FIXED 10.00%

Senior Secured

April 2016

Interest rate FIXED 10.00%

Senior Secured

June 2019

Senior Secured

June 2019

Senior Secured

March 2019

Senior Secured

March 2019

Senior Secured

April 2018

Senior Secured

July 2018

Senior Secured

May 2014

Senior Secured

May 2014

Senior Secured

May 2014

Senior Secured

May 2014

Interest rate PRIME + 5.20%
or Floor rate of 8.95%,
PIK Interest 1.95%
Interest rate PRIME + 3.20%
or Floor rate of 6.95%,
PIK Interest 1.95%

Interest rate PRIME + 4.25%
or Floor rate of 7.50%
PIK Interest 2.00%

Interest rate PRIME + 8.50%
or Floor rate of 11.75%
Interest rate PRIME + 6.50%
or Floor rate of 9.75%
Interest rate LIBOR + 10.00%
or Floor rate of 13.00%
Interest rate LIBOR + 8.00%
or Floor rate of 11.00%,
PIK Interest 1.00%
Interest rate LIBOR + 10.00%
or Floor rate of 13.00%
Interest rate LIBOR + 10.00%
or Floor rate of 13.00%

Interest rate PRIME + 5.25%
or Floor rate of 8.50%

Interest rate PRIME + 2.50%
or Floor rate of 6.75%,
PIK Interest 3.00%

See notes to consolidated financial statements.

135

$

$

$

$
$

13 $

28 $

1,589

381

45
426

1,624
1,652
1,652

373

45
418
418

28

1,624
1,652
1,652

—

—
—
—

$ 18,101

17,850

17,673

$
2,021
$ 20,122

$

$
$

6,321

2,129
8,450

$ 25,000

$ 20,000

$

6,468

$

$

8,170

563

$
5,000
$ 20,201

$

5,060

$ 90,729

1,995
19,845

5,811

2,129
7,940

24,868

19,598

6,468

8,170

563

5,000
20,201
92,452
92,870

5,060
5,060

88,730
88,730
93,790

1,972
19,645

5,811

55
5,866

24,769

19,514

4,851

6,128

422

3,750
15,151
84,945
84,945

5,060
5,060

88,101
88,101
93,161

Total Tectura Corporation
Subtotal: 1-5 Years Maturity
Subtotal: Internet Consumer & Business Services (11.85%)*

Media/Content/Info
Under 1 Year Maturity
Zoom Media Group, Inc.

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Machine Zone, Inc. (12)

Media/Content/Info

Senior Secured

January 2016

Media/Content/Info

Senior Secured

May 2018

Subtotal: 1-5 Years Maturity
Subtotal: Media/Content/Info (12.99%)*

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Medical Devices & Equipment
Under 1 Year Maturity
Medrobotics Corporation (13)(14)

Medical Devices & Equipment

Senior Secured

March 2016

SonaCare Medical, LLC (p.k.a. US HIFU, 

Medical Devices & Equipment

Senior Secured

April 2016

LLC) (13)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Amedica Corporation (8)(13)(14)

Medical Devices & Equipment

Senior Secured

January 2018

Aspire Bariatrics, Inc. (13)(14)

Medical Devices & Equipment

Senior Secured

October 2018

Avedro, Inc. (13)(14)

Medical Devices & Equipment

Senior Secured

June 2018

Flowonix Medical Incorporated (11)(13)

Medical Devices & Equipment

Senior Secured

May 2018

Gamma Medica, Inc. (10)(13)

Medical Devices & Equipment

Senior Secured

January 2018

InspireMD, Inc. (4)(9)(13)

Medical Devices & Equipment

Senior Secured

February 2017

Quanterix Corporation (10)(13)

Medical Devices & Equipment

Senior Secured

February 2018

SynergEyes, Inc. (13)(14)

Medical Devices & Equipment

Senior Secured

January 2018

Subtotal: 1-5 Years Maturity
Subtotal: Medical Devices & Equipment (10.40%)*

Semiconductors
Under 1 Year Maturity
Achronix Semiconductor Corporation (14)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Achronix Semiconductor Corporation (13)

(14)

Aquantia Corp.

Semiconductors

Senior Secured

July 2016

Semiconductors

Semiconductors

Senior Secured

July 2018

Senior Secured

February 2017

Avnera Corporation (10)(13)

Semiconductors

Senior Secured

April 2018

Subtotal: 1-5 Years Maturity
Subtotal: Semiconductors (3.15%)*

Interest rate PRIME + 7.85%
or Floor rate of 11.10%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%

Interest rate PRIME + 9.20%
or Floor rate of 12.45%
Interest rate PRIME + 4.00%
or Floor rate of 9.25%
Interest rate PRIME + 6.00%
or Floor rate of 9.25%
Interest rate PRIME + 6.50%
or Floor rate of 10.00%
Interest rate PRIME + 6.50%
or Floor rate of 9.75%
Interest rate PRIME + 5.00%
or Floor rate of 10.50%
Interest rate PRIME + 2.75%
or Floor rate of 8.00%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%

Interest rate PRIME + 4.75%
or Floor rate of 8.00%

Interest rate PRIME + 8.25%
or Floor rate of 11.50%
Interest rate PRIME + 2.95%
or Floor rate of 6.20%
Interest rate PRIME + 5.25%
or Floor rate of 8.50%

576

$

735

$

$

$

$

$

$

$

$

$

$

$

292

17,051

7,000

12,500

15,000

4,000

5,009

9,661

4,263

$

5,000

$

$

$

5,000

5,001

7,500

700
1,435

17,642

6,771

12,391

15,071

4,009

5,380

9,718

4,516
75,498
76,933

5,000
5,000

5,027

5,001

7,498
17,526
22,526

735

700
1,435

17,350

6,739

12,201

14,974

3,989

3,764

9,659

4,464
73,140
74,575

5,000
5,000

4,999

5,001

7,568
17,568
22,568

See notes to consolidated financial statements.

136

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Software
Under 1 Year Maturity
Clickfox, Inc. (13)(14)(16)

Software

Senior Secured

December 2015

JumpStart Games, Inc. (p.k.a. Knowledge 

Software

Senior Secured

October 2016

Adventure, Inc.) (12)(13)(14)

Neos, Inc. (13)(14)

Touchcommerce, Inc. (14)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Actifio, Inc. (12)

Clickfox, Inc. (13)(14)

Druva, Inc. (10)(13)

Software

Software

Software

Software

Software

Senior Secured

May 2016

Senior Secured

August 2016

Senior Secured

January 2019

Senior Secured

March 2018

Senior Secured

March 2018

JumpStart Games, Inc. (p.k.a. Knowledge 

Software

Senior Secured

March 2018

Adventure, Inc.) (12)(13)(14)

Message Systems, Inc. (14)

Total Message Systems, Inc.

RedSeal Inc. (13)(14)

Total RedSeal Inc.

Soasta, Inc. (13)(14)

Total Soasta, Inc.

Touchcommerce, Inc. (13)(14)

Subtotal: 1-5 Years Maturity
Subtotal: Software (16.96%)*

Software

Software

Software

Software

Software

Software

Software

Senior Secured

February 2019

Senior Secured

February 2017

Senior Secured

June 2017

Senior Secured

June 2018

Senior Secured

February 2018

Senior Secured

February 2018

Senior Secured

February 2018

Interest rate PRIME + 8.75%
or Floor rate of 12.00%
Interest rate FIXED 5.75%,
PIK Interest 10.75%
Interest rate PRIME + 6.75%
or Floor rate of 10.50%
Interest rate PRIME + 2.25%
or Floor rate of 6.50%

Interest rate PRIME + 4.25%
or Floor rate of 8.25%,
PIK Interest 2.25%
Interest rate PRIME + 8.25%
or Floor rate of 11.50%
Interest rate PRIME + 4.60%
or Floor rate of 7.85%
Interest rate FIXED 5.75%,
PIK Interest 10.75%
Interest rate PRIME + 7.25%
or Floor rate of 10.50%
Interest rate PRIME + 2.75%
or Floor rate of 6.00%

Interest rate PRIME + 3.25%
or Floor rate of 6.50%
Interest rate PRIME + 7.75%
or Floor rate of 11.00%

Interest rate PRIME + 2.25%
or Floor rate of 5.50%
Interest rate PRIME + 4.75%
or Floor rate of 8.00%

Interest rate PRIME + 6.00%
or Floor rate of 10.25%

$

$

$

$

$

$

$

$

$

$
$

$

$
$

$

$
$

$

3,300

$

3,465

$

3,465

1,335

729

5,511

30,263

5,475

12,000

11,082

17,500

1,618
19,118

3,000

5,000
8,000

3,500

15,000
18,500

12,000

1,350

895

5,511
11,221

30,019

5,490

12,080

11,174

17,103

1,618
18,721

3,000

5,006
8,006

3,432

14,699
18,131

11,853
115,474
126,695

875

895

5,511
10,746

29,712

5,490

12,034

7,245

17,013

1,616
18,629

2,987

4,979
7,966

3,419

14,646
18,065

11,721
110,862
121,608

See notes to consolidated financial statements.

137

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Maturity Date

Interest Rate and Floor

Principal 
Amount

Cost (2)

Value (3)

Portfolio Company
Specialty Pharmaceuticals
Under 1 Year Maturity
Cranford Pharmaceuticals, LLC (10)(12)

Subtotal: Under 1 Year Maturity
1-5 Years Maturity
Alimera Sciences, Inc. (10)(13)

Specialty Pharmaceuticals

Senior Secured

August 2016

Specialty Pharmaceuticals

Senior Secured

May 2018

Cranford Pharmaceuticals, LLC (10)(12)(13)

Specialty Pharmaceuticals

Senior Secured

August 2017

(14)

Jaguar Animal Health, Inc. (10)(13)

Specialty Pharmaceuticals

Senior Secured

August 2018

Subtotal: 1-5 Years Maturity
Subtotal: Specialty Pharmaceuticals (7.20%)*

Interest rate LIBOR + 8.25%
or Floor rate of 9.50%

Interest rate PRIME + 7.65%
or Floor rate of 10.90%
Interest rate LIBOR + 9.55%
or Floor rate of 10.80%,
PIK Interest 1.35%
Interest rate PRIME + 5.65%
or Floor rate of 9.90%

$

1,100

$

$

1,100
1,100

1,100
1,100

$

$

$

35,000

34,296

34,309

10,041

6,000

10,164

6,009
50,469
51,569

10,235

6,009
50,553
51,653

Surgical Devices
1-5 Years Maturity
Transmedics, Inc. (13)

Subtotal: 1-5 Years Maturity
Subtotal: Surgical Devices (1.17%)*
Total Debt Investments (154.81%)*

Surgical Devices

Senior Secured

March 2019

Interest rate PRIME + 5.30%
or Floor rate of 9.55%

$

8,500

8,471
8,471
8,471
1,152,303

8,396
8,396
8,396
1,110,209

See notes to consolidated financial statements.

138

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Biotechnology Tools

Equity

Preferred Series C

189,394

$

$

500
500

Portfolio Company
Equity Investments
Biotechnology Tools
NuGEN Technologies, Inc. (14)
Subtotal: Biotechnology Tools (0.07%)*

Communications & Networking
GlowPoint, Inc. (3)
Peerless Network, Inc.
Subtotal: Communications & Networking (0.62%)*

Communications & Networking
Communications & Networking

Consumer & Business Products
Market Force Information, Inc.

Total Market Force Information, Inc.

Subtotal: Consumer & Business Products (0.03%)*

Consumer & Business Products
Consumer & Business Products

Equity
Equity

Equity
Equity

Common Stock
Preferred Series A

Common Stock
Preferred Series B-1

114,192
1,000,000

480,261
187,970
668,231

Diagnostic
Singulex, Inc.
Subtotal: Diagnostic (0.04%)*

Drug Delivery
AcelRx Pharmaceuticals, Inc. (3)(9)
BioQ Pharma Incorporated (14)
Edge Therapeutics, Inc. (3)
Merrion Pharmaceuticals, Plc (3)(4)(9)
Neos Therapeutics, Inc. (3)(14)
Revance Therapeutics, Inc. (3)
Subtotal: Drug Delivery (0.75%)*

Drug Discovery & Development
Aveo Pharmaceuticals, Inc. (3)(9)(14)
Cerecor, Inc. (3)
Cerulean Pharma, Inc. (3)
Dicerna Pharmaceuticals, Inc. (3)(14)
Dynavax Technologies (3)(9)
Epirus Biopharmaceuticals, Inc. (3)
Genocea Biosciences, Inc. (3)
Inotek Pharmaceuticals Corporation (3)
Insmed, Incorporated (3)
Melinta Therapeutics
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept 

Pharmaceuticals, Inc.) (3)

Subtotal: Drug Discovery & Development (1.36%)*

Electronics & Computer Hardware
Identiv, Inc. (3)
Subtotal: Electronics & Computer Hardware (0.00%)*

Diagnostic

Equity

Common Stock

937,998

Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery

Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development
Drug Discovery & Development

Equity
Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity

Common Stock
Preferred Series D
Common Stock
Common Stock
Common Stock
Common Stock

Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series 4
Common Stock

54,240
165,000
157,190
20,000
125,000
22,765

167,864
119,087
135,501
142,858
20,000
200,000
223,463
3,778
70,771
1,914,448

76,362

Electronics & Computer Hardware

Equity

Common Stock

6,700

Sustainable and Renewable Technology
Glori Energy, Inc. (3)
Modumetal, Inc.
SCIEnergy, Inc.
Sungevity, Inc. (14)
Subtotal: Sustainable and Renewable Technology (1.03%)*

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Equity
Equity
Equity
Equity

Common Stock
Preferred Series C
Preferred Series 1
Preferred Series D

18,208
3,107,520
385,000
68,807,339

102
1,000
1,102

—
500
500
500

750
750

108
500
1,000
9
1,500
557
3,674

842
1,000
1,000
1,000
550
1,000
2,000
1,500
1,000
2,000

2,743
14,635

34
34

165
500
761
6,750
8,176

See notes to consolidated financial statements.

139

532
532

57
4,380
4,437

217
3
220
220

304
304

209
660
1,965
—
1,790
778
5,402

212
399
379
1,695
483
618
1,178
43
1,284
2,026

1,450
9,767

13
13

6
455
—
6,912
7,373

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Portfolio Company
Internet Consumer & Business Services
Blurb, Inc. (14)
Lightspeed POS, Inc. (4)(9)

Total Lightspeed POS, Inc.
Oportun (p.k.a. Progress Financial)

Total Oportun (p.k.a. Progress Financial)

Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services

Internet Consumer & Business Services
Internet Consumer & Business Services

Philotic, Inc.
RazorGator Interactive Group, Inc.
Taptera, Inc.
Subtotal: Internet Consumer & Business Services (0.21%)*

Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services

Medical Devices & Equipment
AtriCure, Inc. (3)(14)
Flowonix Medical Incorporated
Gelesis, Inc. (14)

Total Gelesis, Inc.

Medrobotics Corporation (14)

Total Medrobotics Corporation

Novasys Medical, Inc.
Optiscan Biomedical, Corp. (5)(14)

Total Optiscan Biomedical, Corp.

Oraya Therapeutics, Inc.
Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)
Subtotal: Medical Devices & Equipment (1.89%)*

Software
Box, Inc. (3)(14)
CapLinked, Inc.
Druva, Inc.
ForeScout Technologies, Inc.

Total ForeScout Technologies, Inc.

HighRoads, Inc.
NewVoiceMedia Limited (4)(9)
WildTangent, Inc. (14)
Subtotal: Software (3.07%)*

Specialty Pharmaceuticals
QuatRx Pharmaceuticals Company

Total QuatRx Pharmaceuticals Company
Subtotal: Specialty Pharmaceuticals (0.00%)*

Surgical Devices
Gynesonics, Inc. (14)

Total Gynesonics, Inc.

Transmedics, Inc.

Total Transmedics, Inc.

Subtotal: Surgical Devices (0.33%)*
Total: Equity Investments (9.40%)*

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment

Software
Software
Software
Software
Software

Software
Software
Software

Specialty Pharmaceuticals
Specialty Pharmaceuticals
Specialty Pharmaceuticals

Surgical Devices
Surgical Devices
Surgical Devices
Surgical Devices

Surgical Devices
Surgical Devices
Surgical Devices
Surgical Devices

Equity
Equity
Equity

Equity
Equity

Equity
Equity
Equity

Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity

Equity
Equity
Equity
Equity

Equity
Equity

Equity
Equity
Equity
Equity
Equity

Equity
Equity
Equity

Equity
Equity
Equity

Equity
Equity
Equity
Equity

Equity
Equity
Equity
Equity

Preferred Series B
Preferred Series C
Preferred Series D

Preferred Series G
Preferred Series H

Common Stock
Preferred Series AA
Preferred Series B

Common Stock
Preferred Series E
Common Stock
Preferred Series A-1
Preferred Series A-2

Preferred Series E
Preferred Series F
Preferred Series G

Preferred Series D-1
Preferred Series B
Preferred Series C
Preferred Series D

Preferred Series 1
Preferred Series B

Common Stock
Preferred Series A-3
Preferred Series 2
Preferred Series D
Preferred Series E

Preferred Series B
Preferred Series E
Preferred Series 3

Preferred Series E
Preferred Series E-1
Preferred Series G

Preferred Series B
Preferred Series C
Preferred Series D
Preferred Series E

Preferred Series B
Preferred Series C
Preferred Series D
Preferred Series F

220,653 $
230,030
198,677
428,707
218,351
87,802
306,153
9,023
34,783
454,545

175 $
250
250
500
250
250
500
93
15
150
1,433

7,536
221,893
198,202
191,210
191,626
581,038
136,798
73,971
163,934
374,703
4,118,444
6,185,567
1,927,309
55,103,923
63,216,799
1,086,969
232,061

1,287,347
53,614
458,841
319,099
80,587
399,686
190,170
669,173
100,000

241,829
26,955
4,667,636
4,936,420

219,298
656,538
1,991,157
2,785,402
5,652,395
88,961
119,999
260,000
100,200
569,160

266
1,500
—
425
500
925
250
155
500
905
1,000
3,000
655
5,257
8,912
500
527
14,535

5,653
51
1,000
398
131
529
307
963
402
8,905

750
—
—
750
750

250
282
712
429
1,673
1,100
300
650
500
2,550
4,223
59,217

244
264
249
513
349
248
597
—
28
99
1,481

155
1,953
1,005
1,051
1,012
3,068
208
189
500
897
—
565
169
5,927
6,661
266
543
13,543

17,957
79
1,031
1,368
350
1,718
—
1,016
190
21,991

—
—
—
—
—

32
46
637
422
1,137
154
96
521
471
1,242
2,379
67,442

See notes to consolidated financial statements.

140

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Biotechnology Tools

Warrant

Preferred Series C

1,127,624

$

$

323
323

Portfolio Company
Warrant Investments
Biotechnology Tools
Labcyte, Inc. (14)
Subtotal: Biotechnology Tools (0.03%)*

Communications & Networking
Intelepeer, Inc. (14)
OpenPeak, Inc.
PeerApp, Inc.
Peerless Network, Inc.
Ping Identity Corporation
SkyCross, Inc. (14)
Spring Mobile Solutions, Inc.
Subtotal: Communications & Networking (0.10%)*

Consumer & Business Products
Antenna79 (p.k.a. Pong Research Corporation) (14)
Intelligent Beauty, Inc. (14)
IronPlanet, Inc.
Market Force Information, Inc.
Nasty Gal (14)
The Neat Company (14)
Subtotal: Consumer & Business Products (0.13%)*

Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking
Communications & Networking

Consumer & Business Products
Consumer & Business Products
Consumer & Business Products
Consumer & Business Products
Consumer & Business Products
Consumer & Business Products

Diagnostic
Navidea Biopharmaceuticals, Inc. (p.k.a. Neoprobe) (3)(14)
Subtotal: Diagnostic (0.00%)*

Diagnostic

Drug Delivery
AcelRx Pharmaceuticals, Inc. (3)(9)(14)
Agile Therapeutics, Inc. (3)
BIND Therapeutics, Inc. (3)(14)
BioQ Pharma Incorporated
Celator Pharmaceuticals, Inc. (3)
Celsion Corporation (3)
Dance Biopharm, Inc. (14)
Edge Therapeutics, Inc. (3)
Kaleo, Inc. (p.k.a. Intelliject, Inc.)
Neos Therapeutics, Inc. (3)(14)
Pulmatrix Inc. (3)
ZP Opco, Inc. (p.k.a. Zosano Pharma) (3)
Subtotal: Drug Delivery (0.47%)*

Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery
Drug Delivery

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Common Stock
Common Stock
Preferred Series B
Preferred Series A
Preferred Series B
Preferred Series F
Preferred Series D

Preferred Series A
Preferred Series B
Preferred Series D
Preferred Series A-1
Preferred Series C
Preferred Series C-1

117,958
108,982
298,779
135,000
1,136,277
9,762,777
2,834,375

1,662,441
190,234
1,155,821
150,212
845,194
540,540

Warrant

Common Stock

333,333

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series B
Common Stock
Common Stock
Common Stock

176,730
180,274
152,586
459,183
210,675
194,986
43,813
78,595
82,500
70,833
25,150
72,379

102
149
61
95
52
394
418
1,271

228
230
1,076
24
23
365
1,946

244
244

786
730
488
1
138
428
74
390
594
285
116
266
4,296

187
187

—
—
62
375
236
—
53
726

2
214
651
10
20
—
897

17
17

238
680
6
423
59
20
55
417
1,217
275
12
4
3,406

See notes to consolidated financial statements.

141

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Sub-Industry

Portfolio Company
Drug Discovery & Development
ADMA Biologics, Inc. (3)
Drug Discovery & Development
Anthera Pharmaceuticals, Inc. (3)(14)
Drug Discovery & Development
Aveo Pharmaceuticals, Inc. (3)(9)
Drug Discovery & Development
Cerecor, Inc. (3)
Drug Discovery & Development
Cerulean Pharma, Inc. (3)
Drug Discovery & Development
Chroma Therapeutics, Ltd. (4)(9)
Drug Discovery & Development
Cleveland BioLabs, Inc. (3)(14)
Drug Discovery & Development
Concert Pharmaceuticals, Inc. (3)
Drug Discovery & Development
Drug Discovery & Development
CTI BioPharma Corp. (p.k.a. Cell Therapeutics, Inc.) (3)
Drug Discovery & Development
Dicerna Pharmaceuticals, Inc. (3)(14)
Drug Discovery & Development
Epirus Biopharmaceuticals, Inc. (3)
Fortress Biotech, Inc. (p.k.a. Coronado Biosciences, Inc.) (3) Drug Discovery & Development
Drug Discovery & Development
Genocea Biosciences, Inc. (3)
Drug Discovery & Development
Immune Pharmaceuticals (3)
Drug Discovery & Development
Mast Therapeutics, Inc. (3)(14)
Drug Discovery & Development
Melinta Therapeutics
Nanotherapeutics, Inc. (14)
Drug Discovery & Development
Neothetics, Inc. (p.k.a. Lithera, Inc.) (3)(14)
Drug Discovery & Development
Neuralstem, Inc. (3)(14)
Drug Discovery & Development
Drug Discovery & Development
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept 

Pharmaceuticals, Inc.) (3)(14)

uniQure B.V. (3)(4)(9)
XOMA Corporation (3)(9)(14)
Subtotal: Drug Discovery & Development (0.49%)*

Electronics & Computer Hardware
Clustrix, Inc.
Persimmon Technologies
Subtotal: Electronics & Computer Hardware (0.01%)*

Drug Discovery & Development
Drug Discovery & Development

Electronics & Computer Hardware
Electronics & Computer Hardware

Sustainable and Renewable Technology
Agrivida, Inc. (14)
Alphabet Energy, Inc. (14)
American Superconductor Corporation (3)
Brightsource Energy, Inc.
Calera, Inc. (14)
EcoMotors, Inc. (14)
Fluidic, Inc.
Fulcrum Bioenergy, Inc.
GreatPoint Energy, Inc. (14)
Polyera Corporation (14)
Proterra, Inc.
SCIEnergy, Inc.

Total SCIEnergy, Inc.

Scifiniti (p.k.a. Integrated Photovoltaics, Inc.) (14)
Solexel, Inc. (14)
Stion Corporation (5)
Sungevity, Inc.

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Total Sungevity, Inc.

TAS Energy, Inc.
Tendril Networks
TPI Composites, Inc.
Trilliant, Inc. (14)
Subtotal: Sustainable and Renewable Technology (0.38%)*

Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology
Sustainable and Renewable Technology

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant

Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series D
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Preferred Series 3
Common Stock
Common Stock
Common Stock
Common Stock

Common Stock
Common Stock

Common Stock
Preferred Series C

Preferred Series D
Preferred Series A
Common Stock
Preferred Series 1
Preferred Series C
Preferred Series B
Preferred Series D
Preferred Series C-1
Preferred Series D-1
Preferred Series C
Preferred Series 4
Common Stock
Preferred Series 1

Preferred Series A-1
Preferred Series C
Preferred Series Seed
Common Stock
Preferred Series C

Preferred Series AA
Preferred Series 3-A
Preferred Series B
Preferred Series A

89,750 $
40,178
608,696
22,328
171,901
325,261
7,813
70,796
292,398
200
64,194
73,009
73,725
214,853
1,524,389
1,382,323
171,389
46,838
75,187

21,467
37,174
181,268

50,000
43,076

471,327
86,329
58,823
116,667
44,529
437,500
61,804
280,897
393,212
311,609
397,931
530,811
145,811
676,622
390,000
1,171,625
2,154
20,000,000
32,472,222
52,472,222
428,571
1,019,793
160
320,000

295 $
984
194
70
369
490
105
367
165
28
276
142
266
164
203
626
838
266
77

129
218
279
6,551

12
40
52

120
82
39
104
513
308
102
275
548
338
37
181
50
231
82
1,162
1,378
543
902
1,445
299
188
273
162
7,686

157
157

98
—
216
10
90
—
5
368
59
—
55
11
92
40
215
130
1,762
2
12

36
183
115
3,499

—
42
42

38
159
82
6
—
176
43
152
—
10
50
—
—
—
48
466
—
569
525
1,094
—
242
85
53
2,704

164
164

Healthcare Services, Other
Chromadex Corporation (3)(14)
Subtotal: Healthcare Services, Other (0.02%)*

Healthcare Services, Other

Warrant

Common Stock

419,020

See notes to consolidated financial statements.

142

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Portfolio Company
Information Services
Cha Cha Search, Inc. (14)
INMOBI Inc. (4)(9)
InXpo, Inc. (14)

Total InXpo, Inc.
RichRelevance, Inc. (14)
Subtotal: Information Services (0.00%)*

Information Services
Information Services
Information Services
Information Services

Information Services

Internet Consumer & Business Services
Aria Systems, Inc.
Blurb, Inc. (14)
CashStar, Inc. (14)
Just Fabulous, Inc.
Lightspeed POS, Inc. (4)(9)
Oportun (p.k.a. Progress Financial)
Prism Education Group, Inc. (14)
ReachLocal (3)
ShareThis, Inc. (14)
Tapjoy, Inc.
Tectura Corporation
Subtotal: Internet Consumer & Business Services (0.27%)*

Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services
Internet Consumer & Business Services

Media/Content/Info
Machine Zone, Inc.
Rhapsody International, Inc. (14)
Zoom Media Group, Inc.
Subtotal: Media/Content/Info (0.32%)*

Medical Devices & Equipment
Amedica Corporation (3)(14)
Aspire Bariatrics, Inc. (14)
Avedro, Inc. (14)
Flowonix Medical Incorporated
Gamma Medica, Inc.
Gelesis, Inc. (14)
InspireMD, Inc. (3)(4)(9)
Medrobotics Corporation (14)
NetBio, Inc.
NinePoint Medical, Inc. (14)
Novasys Medical, Inc.

Total Novasys Medical, Inc.
Optiscan Biomedical, Corp. (5)(14)
Oraya Therapeutics, Inc.

Total Oraya Therapeutics, Inc.

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)
Quanterix Corporation
SonaCare Medical, LLC (p.k.a. US HIFU, LLC)
Strata Skin Sciences, Inc. (p.k.a. MELA Sciences, Inc.) (3)
ViewRay, Inc. (3)(14)
Subtotal: Medical Devices & Equipment (0.34%)*

Media/Content/Info
Media/Content/Info
Media/Content/Info

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment
Medical Devices & Equipment

Warrant
Warrant
Warrant
Warrant

Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant

Preferred Series G
Common Stock
Preferred Series C
Preferred Series C-1

Preferred Series E

Preferred Series E
Preferred Series C
Preferred Series C-2
Preferred Series B
Preferred Series C
Preferred Series G
Preferred Series B
Common Stock
Preferred Series C
Preferred Series D
Preferred Series B-1

Common Stock
Common Stock
Preferred Series A

Common Stock
Preferred Series D
Preferred Series AA
Preferred Series E
Preferred Series A
Preferred Series A-1
Common Stock
Preferred Series E
Common Stock
Preferred Series A-1
Common Stock
Preferred Series D
Preferred Series D-1

Preferred Series D
Common Stock
Preferred Series 1

Preferred Series A
Preferred Series C
Preferred Series A
Common Stock
Common Stock

48,232 $
46,874
648,400
1,032,416
1,680,816
112,612

58 $
82
98
74
172
98
410

239,692
234,280
727,272
206,184
245,610
174,562
200,000
300,000
493,502
748,670
253,378

143,626
715,755
1,204

1,548,387
395,000
300,000
110,947
357,500
74,784
16,835
455,539
2,568
587,840
109,449
526,840
53,607
689,896
10,535,275
954
1,632,084
1,633,038
500,000
115,618
6,464
69,320
128,231

73
636
130
1,102
20
78
43
155
547
316
51
3,151

1,802
384
348
2,534

459
455
401
203
170
78
242
370
408
170
2
125
6
133
1,252
66
676
742
402
156
188
402
333
6,564

—
3
2
—
2
—
5

88
148
34
1,104
82
104
—
290
93
8
—
1,951

2,086
218
23
2,327

31
236
142
428
144
262
—
244
19
119
—
—
—
—
312
—
63
63
298
60
—
—
84
2,442

See notes to consolidated financial statements.

143

Portfolio Company
Semiconductors
Achronix Semiconductor Corporation (14)

Total Achronix Semiconductor Corporation

Aquantia Corp.
Avnera Corporation
Subtotal: Semiconductors (0.02%)*

Software
Actifio, Inc.
Braxton Technologies, LLC
CareCloud Corporation (14)
Clickfox, Inc. (14)

Total Clickfox, Inc.

Hillcrest Laboratories, Inc. (14)
JumpStart Games, Inc. (p.k.a Knowledge Holdings, Inc.)

(14)

Message Systems, Inc. (14)
Mobile Posse, Inc. (14)
Neos, Inc. (14)
NewVoiceMedia Limited (4)(9)
Poplicus, Inc. (14)
Soasta, Inc. (14)
Sonian, Inc. (14)
Touchcommerce, Inc. (14)
Subtotal: Software (0.51%)*

Semiconductors
Semiconductors

Semiconductors
Semiconductors

Software
Software
Software
Software
Software
Software

Software
Software

Software
Software
Software
Software
Software
Software
Software
Software

Specialty Pharmaceuticals
Alimera Sciences, Inc. (3)
QuatRx Pharmaceuticals Company
Subtotal: Specialty Pharmaceuticals (0.06%)*

Specialty Pharmaceuticals
Specialty Pharmaceuticals

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant

Warrant
Warrant

Preferred Series C
Preferred Series D-1

Preferred Series G
Preferred Series E

Common Stock
Preferred Series A
Preferred Series B
Preferred Series B
Preferred Series C
Preferred Series C-A

Preferred Series E
Preferred Series E

Preferred Series B
Preferred Series C
Common Stock
Preferred Series E
Preferred Series C
Preferred Series E
Preferred Series C
Preferred Series E

Common Stock
Preferred Series E

$

360,000
500,000

860,000

196,831
141,567

$

160
6
166
4
47
217

73,584
168,750
413,433
1,038,563
592,019
46,109
1,676,691
1,865,650

614,333
408,011
396,430
221,150
225,586
2,595,230
410,800
185,949
2,282,968

660,377
155,324

249
188
258
330
730
13
1,073
55

16
334
130
22
33
—
691
106
446
3,601

729
307
1,036

27
6
33

39
65
137

210
—
625
362
272
16
650
138

—
497
59
113
55
110
561
39
581
3,638

435
—
435

See notes to consolidated financial statements.

144

Portfolio Company
Surgical Devices
Gynesonics, Inc. (14)

Total Gynesonics, Inc.

Transmedics, Inc.

Total Transmedics, Inc.

Subtotal: Surgical Devices (0.06%)*
Total: Warrant Investments (3.21%)*
Total Investments (167.42%)*

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2015
(dollars in thousands)

Sub-Industry

Type of
Investment (1)

Series

Shares

Cost (2)

Value (3)

Surgical Devices
Surgical Devices

Surgical Devices
Surgical Devices
Surgical Devices

Warrant
Warrant

Warrant
Warrant
Warrant

Preferred Series C
Preferred Series D

Preferred Series B
Preferred Series D
Preferred Series F

180,480 $

1,575,965
1,756,445
40,436
175,000
16,476
231,912

$

75 $
320
395
224
100
3
327
722
40,761
1,252,281 $

12
223
235
2
170
3
175
410
22,987
1,200,638

*
(1)
(2)

(3)

(4)
(5)
(6)

(7)

(8)
(9)

Value as a percent of net assets
Preferred and common stock, warrants, and equity interests are generally non-income producing.
Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $29.3 million, $81.4 million and $52.1 million respectively. The tax cost of investments is $1.3 
billion.
Except for warrants in 37 publicly traded companies and common stock in 20 publicly traded companies, all investments are restricted at December 31, 2015 and were valued at fair value as determined in good faith by the 
Board of Directors. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.
Non-U.S. company or the company’s principal place of business is outside the United States. 
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.
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.  There were no control investments at 
December 31, 2015.
Debt is on non-accrual status at December 31, 2015, and is therefore considered non-income producing. Note that at December 31, 2015, only the PIK interest is on non-accrual for the Company’s debt investment in 
SkyCross, Inc. and only the $2.1 million PIK loan is on non-accrual for the Company’s debt investment in One Planet Ops Inc. (p.k.a. Reply! Inc.).
Denotes that all or a portion of the debt investment is convertible senior debt.
Indicates assets that the Company deems not “qualifying assets” under section 55(a) of the 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.

(10) Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitizations.
(11) Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility.
(12) Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.
(13) Denotes that all or a portion of the debt investment includes an exit fee receivable. This fee ranges from 0.8% to 17.1% of the total debt commitment based on the contractual terms of our loan servicing agreements.
(14) Denotes that all or a portion of the investment in this portfolio company is held by HT II or HT III, the Company’s wholly-owned SBIC subsidiaries.
(15) The stated ‘maturity date’ for the Tectura assets reflects the last extension of the forbearance period on these loans. The borrower loans remain outstanding and management is continuing to work with the borrower to 

satisfy the obligations. The Company’s investment team and Investment Committee continue to closely monitor developments at the borrower company.

(16) Repayment of debt investment is delinquent of the contractual maturity date.

See notes to consolidated financial statements.

145

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation 

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

The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company 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, 
or RIC, under Subchapter M of the Code (see Note 5). As an investment company, the Company follows accounting and reporting guidance as set forth in Topic 946 (“Financial 
Services – Investment Companies”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”).

Hercules Technology II, L.P. (“HT II”), Hercules Technology III, L.P. (“HT III”), and Hercules Technology IV, L.P. (“HT IV”), are Delaware limited partnerships that were 
formed in January 2005, September 2009 and December 2010, respectively. HT II and HT III were licensed to operate as small business investment companies (“SBICs”) under the 
authority of the Small Business Administration (“SBA”) on September 27, 2006 and May 26, 2010, respectively. As SBICs, HT II and HT III 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. HT IV was formed in anticipation of receiving 
an additional SBIC license; however, the Company has not received such license, and HT IV currently has no material assets or liabilities. The Company also formed Hercules 
Technology SBIC Management, LLC, or (“HTM”), a limited liability company in November 2003. HTM is a wholly owned subsidiary of the Company and serves as the limited 
partner and general partner of HT II and HT III (see Note 4 to the Company’s consolidated financial statements). 

HT II and HT III hold approximately $100.0 million and $261.8 million in assets, respectively, and they accounted for approximately 5.3% and 13.9% of the Company’s total 

assets, respectively, prior to consolidation at December 31, 2016. 

The Company also established wholly owned subsidiaries, all of which are structured as Delaware corporations and limited liability companies, to hold portfolio companies 

organized as limited liability companies, or LLCs (or other forms of pass-through entities). By investing through these wholly owned subsidiaries, the Company is able to benefit from 
the tax treatment of these entities and create a tax structure that is more advantageous with respect to the Company’s RIC status. These taxable subsidiaries are consolidated for 
financial reporting purposes and in accordance with U.S. generally accepted accounting principles (“GAAP”), and the portfolio investments held by these taxable subsidiaries are 
included in the Company’s consolidated financial statements and recorded at fair value. These taxable subsidiaries are not consolidated with Hercules for income tax purposes and 
may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments.

The consolidated financial statements include the accounts of the Company, its subsidiaries and its consolidated securitization VIE. All significant inter-company accounts 

and transactions have been eliminated in consolidation. In accordance with Articles 6 and 10 of Regulation S-X, the Company does not consolidate portfolio company investments. It 
is not appropriate for an investment company to consolidate a portfolio company that is not an investment company or that provides 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.

Financial statements prepared on a GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated 

financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts 
reported and disclosed herein. 

146

2. Summary of Significant Accounting Policies 

Principles of Consolidation 

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all VIEs of which the Company is the primary beneficiary. All 

intercompany accounts and transactions have been eliminated in consolidation. 

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors 

who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most 
significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could be significant to the VIE. 

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts 

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

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

As of the date of this report, the only VIE consolidated by the Company is its securitization VIE formed in conjunction with the issuance of the 2021 Asset-Backed Notes (as 

defined herein). See “Note 4 – Borrowings”. 

Change in Accounting Principle

As of January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15 

“Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which collectively require debt issuance costs to be presented on 
the balance sheet as a direct deduction from the associated debt liability, except for debt issuance costs associated with line-of-credit arrangements. Adoption of these standards results 
in the reclassification of debt issuance costs from Other Assets and the presentation of the Company’s SBA debentures, 2019 Notes, 2024 Notes, and 2021 Asset-Backed Notes net of 
the associated debt issuance costs for each instrument in the liabilities section on the Consolidated Statement of Assets and Liabilities. In addition, the comparative Consolidated 
Statement of Assets and Liabilities as of December 31, 2015 has been adjusted to apply the change in accounting principle retrospectively. Specifically, the presentation of the 
Company’s Other Assets, SBA debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and 2016 Convertible Notes line items were adjusted by the amount of unamortized 
debt issuance costs for each instrument. There is no impact to the Company’s Consolidated Statement of Operations. In addition, there is no change to the presentation of the Wells 
Facility or Union Bank Facility as debt issuance costs are presented separately as an asset on the Consolidated Statement of Assets and Liabilities. 

147

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 
ASU 2015-03 and ASU 2015-15 debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statement of Assets and Liabilities, except for 
debt issuance costs associated with line-of-credit arrangements. Debt issuance costs, net of accumulated amortization, were as follows as of December 31, 2016 and December 31, 
2015.

(in thousands)
SBA Debentures
2019 Notes
2024 Notes
2021 Asset-Backed Notes
2016 Convertible Notes
Wells Facility (1)
Union Bank Facility (1)
Total

December 31, 2016

December 31, 2015

2,699
1,546
7,482
1,233
—
501
768
14,229

$

$

3,371
2,185
2,872
2,305
44
669
229
11,675

$

$

(1)

As the Wells Facility and Union Bank Facility are line-of-credit arrangements, the debt issuance costs associated with these instruments are presented separately as an asset on the Consolidated Statement of Assets and 
Liabilities in accordance with ASU 2015-15. As the Union Bank Facility was replaced on May 5, 2016, amounts included above prior to May 5, 2016 relate to the Prior Union Bank Facility (as defined herein, see Note 4).

Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation.

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. 

At December 31, 2016, approximately 97.3% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the

Board of Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all 
other securities and assets, fair value is as determined in good faith by the Board of Directors. 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 (“Fair Value Measurements”). The Company’s debt securities are primarily invested in venture capital-backed 
companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology 
at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 
3 assets under ASC Topic 820 because there 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 by the Company’s Board of Directors in accordance with 
the provisions of ASC Topic 820 and the 1940 Act. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the 
fair value of the Company’s investments determined in good faith by its Board of Directors may differ significantly from the value that would have been used had a readily available 
market existed for such investments, and the differences could be material. 

The Company may from time to time engage an independent valuation firm to provide the Company with valuation assistance with respect to certain portfolio investments. 

The Company engages independent valuation firms on a discretionary basis. Specifically, on a quarterly basis, the Company will identify portfolio investments with respect to which 
an independent valuation firm will assist in valuing. The Company selects these portfolio investments based on a number of factors, including, but not limited to, the potential for 
material fluctuations in valuation results, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm.

The Company intends to continue to engage an independent valuation firm to provide management with assistance regarding the Company’s determination of the fair value of 

selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services. The scope of services rendered by an independent valuation 
firm is at the discretion of the Board of Directors. The Company’s Board of Directors is ultimately and solely responsible for determining the fair value of the Company’s investments 
in good faith. 

148

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, the Company’s 

Board of Directors has approved a multi-step valuation process each quarter, as described below: 

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

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

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

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

ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs used to measure 

fair value and the effect of fair value measures on earnings. 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. ASC Topic 820 defines fair 
value 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. 

The Company has categorized 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. 

149

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 

December 31, 2016 and 2015. The Company transfers investments in and out of Level 1, 2 and 3 as of the beginning balance sheet date, based on changes in the use of observable and 
unobservable inputs utilized to perform the valuation for the period. During the year ended December 31, 2016, there were no transfers between Levels 1 or 2. 

(in thousands)
Description
Senior Secured Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

(in thousands)
Description
Senior Secured Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

Balance
December 31,
2016
1,328,803
39,418
28,236
27,485
1,382
1,425,324

Balance
December 31,
2015
1,110,209
35,245
32,197
22,987
2,967
1,203,605

$

$

$

$

Quoted Prices In
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

$

$

— $
—
17,271
—
—
17,271

$

4,825
—
—
3,239
—
8,064

$

$

1,323,978
39,418
10,965
24,246
1,382
1,399,989

Quoted Prices In
Active Markets For
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

$

$

— $
—
30,670
—
—
30,670

$

7,813
—
—
4,422
—
12,235

$

$

1,102,396
35,245
1,527
18,565
2,967
1,160,700

The table below presents a reconciliation 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 years ended December 31, 2016 and December 31, 2015. 

(in thousands)
Senior Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

(in thousands)
Senior Debt
Preferred Stock
Common Stock
Warrants
Escrow Receivable
Total

Balance
January 1, 2016

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
December 31, 2016

1,102,396 $
35,245
1,527
18,565
2,967
1,160,700 $

(6,968) $
(334)
—
(116)
(6)
(7,424) $

(12,675) $
(7,864)
(1,404)
3,465
—
(18,478) $

687,353 $
13,873
6,081
4,082
2,009
713,398 $

— $

(1,367)
—
(1,186)
(3,588)
(6,141) $

(441,567) $

—
—
—
—

(441,567) $

— $
626
4,761
—
—
5,387

$

(4,561 ) $
(761 )
—
(564 )
—
(5,886 ) $

1,323,978
39,418
10,965
24,246
1,382
1,399,989

Balance
January 1, 2015

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
December 31, 2015

923,906 $
57,548
1,387
21,923
3,598
1,008,362 $

(2,295) $
2,598
(298)
(3,849)
71
(3,773) $

(12,930) $
(1,539)
743
(4,749)
—
(18,475) $

699,555 $
15,076
—
5,311
511
720,453 $

— $

(4,542)
(305)
1,220
(1,032)
(4,659) $

(505,274) $

—
—
—
(181)
(505,455) $

— $
685
—
—
—
685

$

(566 ) $

(34,581 )
—
(1,291 )
—
(36,438 ) $

1,102,396
35,245
1,527
18,565
2,967
1,160,700

$

$

$

$

(1)
(2)
(3)

(4)

(5)

(6)

Included in net realized gains or losses in the accompanying Consolidated Statement of Operations. 
Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations.
Transfers out of Level 3 during the year ended December 31, 2016 relate to the exercise of warrants in TPI Composites, Inc. and Touchcommerce, Inc. to common stock in an initial public offering, or IPO, and acquisition, 
respectively; the exercise of warrants in Ping Identity Corporation to preferred stock; the conversion of debt to equity in Optiscan Biomedical Corp and Achilles Technology Management Co II, Inc. and the conversion of 
the Company’s preferred shares to common shares in SCIEnergy, Inc. Transfers into Level 3 during the year ended December 31, 2016 relate to the acquisition of preferred stock as a result of the exercise of warrants in 
Ping Identity Corporation, the conversion of debt to equity in Optiscan Biomedical Corp and Achilles Technology Management Co II, Inc. and the conversion of the Company’s preferred shares to common shares in 
SCIEnergy, Inc.
Transfers out of Level 3 during the year ended December 31, 2015 relate to the IPOs of Box, Inc., ZP Opco, Inc. (p.k.a. Zosano Pharma, Inc.), Neos Therapeutics, Edge Therapeutics Inc., ViewRay, Inc., and Cerecor, Inc. 
in addition to the exercise of warrants in both Forescout, Inc. and Atrenta, Inc. to preferred stock. Transfers into Level 3 during the year ended December 31, 2015 relate to the acquisition of preferred stock as a result of the 
exercise of warrants in both Forescout, Inc. and Atrenta, Inc. and the conversion of debt to equity in Home Dialysis Plus and Gynesonics.
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 listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures.

150

For the year ended December 31, 2016, approximately $9.1 million and $1.4 million in net unrealized depreciation was recorded for preferred stock and common stock Level 

3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $25.7 million in net unrealized depreciation and $2.8 million in net 
unrealized appreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date. 

For the year ended December 31, 2015, approximately $179,000 in net unrealized depreciation and $745,000 in net unrealized appreciation was recorded for preferred stock 

and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $13.7 million and $5.9 million in net 
unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date. 

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of December 31, 2016 and December 31, 2015. 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. 

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 Three
Debt Investments
Pharmaceuticals

Technology

Sustainable and Renewable
Technology

Medical Devices

Lower Middle Market

Fair Value at
December 31, 2016
(in thousands)

Valuation Techniques/
Methodologies

$

102,412 Originated Within 6 Months
434,718 Market Comparable Companies

2,693 Liquidation(c)
93,674 Originated Within 6 Months
325,553 Market Comparable Companies

24,706 Liquidation(c)
99,286 Market Comparable Companies

44,626 Liquidation(c)
88,983 Market Comparable Companies

25,017 Market Comparable Companies

13,148 Liquidation(c)

Unobservable Input (a)

Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes

Debt Investments Where Fair Value Approximates Cost

25,000 Imminent Payoffs (d)
44,162 Debt Investments Maturing in Less than One Year

$

1,323,978 Total Level Three Debt Investments

Range
12.24% - 14.59%
9.07% - 15.62%
(0.25%) - 0.75%
25.00% - 100.00%
7.29% - 16.53%
10.14% - 21.66%
(0.50%) - 0.50%
20.00% - 100.00%
11.77% - 16.84%
0.00% - 0.25%
10.00% - 40.00%
10.25% - 18.60%
(0.25%) - 0.75%
8.85% - 15.79%
0.00% - 0.25%
100.00%

Weighted
Average (b)
13.64%
12.44%

13.69%
12.69%

13.45%

14.01%

10.10%

(a)

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 Specialty Pharmaceuticals, Drug Discovery and Development, Drug Delivery and Biotechnology Tools industries in the Consolidated Schedule 
of Investments. 

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

Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. 
Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments. 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet 
Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments. 

(b)

(c)
(d)

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

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes. 
Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

151

Investment Type - Level
Three Debt Investments
Pharmaceuticals

Technology

Sustainable and Renewable
Technology

Medical Devices

Lower Middle Market

Fair Value at
December 31, 2015
(in thousands)

Valuation Techniques/
Methodologies

$

72,981 Originated Within 6 Months
406,590 Market Comparable Companies

6,873 Originated Within 6 Months
283,045 Market Comparable Companies

Liquidation(c)

36,815
11,045 Originated Within 6 Months
105,382 Market Comparable Companies

1,013
80,530 Market Comparable Companies

Liquidation(c)

Liquidation(c)

3,764
17,811 Originated Within 6 Months
15,151

Liquidation(c)

Unobservable Input (a)

Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Hypothetical Market Yield
Premium/(Discount)
Probability weighting of alternative outcomes
Origination Yield
Probability weighting of alternative outcomes

Range
10.35% - 16.16%
9.55% - 16.75%
(0.75%) - 0.00%
15.19%
6.57% - 23.26%
(0.25%) - 0.50%
10.00% - 100.00%
19.74%
10.62% - 27.31%
0.00%
100.00%
11.65% - 19.90%
0.00% - 0.50%
50.00%
12.70% - 14.50%
25.00% - 75.00%

Weighted
Average (b)
12.29%
12.67%

15.19%
13.22%

19.74%
15.91%

15.26%

13.00%

Debt Investments Where Fair Value Approximates Cost
Imminent Payoffs (d)

12,434
48,962 Debt Investments Maturing in Less than One Year

$

1,102,396 Total Level Three Debt Investments

(a)

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 Specialty Pharmaceuticals, Drug Discovery and Development and Drug Delivery industries in the Consolidated Schedule of Investments. 

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

Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. 
Medical Devices, above, is comprised of debt investments in the Surgical Devices, Medical Devices and Equipment and Biotechnology Tools industries in the Consolidated Schedule of Investments. 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet 
Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments. 

(b)

(c)
(d)

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

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes. 
Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

152

Investment Type - Level Three
Equity and Warrant Investments
Equity Investments

Fair Value at
December 31, 2016
(in thousands)

$

9,258

Valuation Techniques/
Methodologies
Market Comparable Companies

Warrant Investments

19,836

Market Adjusted OPM Backsolve

21,289
8,959

Other(f)
Market Comparable Companies

9,713

Market Adjusted OPM Backsolve

Total Level Three Warrant and Equity 
Investments

$

5,574

Other(f)

74,629

Unobservable Input (a)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

Range
0.0x - 38.7x
0.9x - 8.7x
13.75% - 25.97%
45.54% - 113.16%
0.79% - 1.50%
10 - 38
29.93%- 109.95%
0.65% - 1.44%
10 - 34

2.6x - 51.4x
0.4x - 6.1x
11.74% - 27.25%
38.58% - 111.15%
0.68% - 1.68%
7 - 47
29.93% - 116.29%
0.45% - 1.84%
3 - 47

Weighted 
Average (e)
12.3x
3.1x
16.73%
61.06%
0.91%
15
73.49%
0.92%
15

13.8x
2.5x
19.02%
62.03%
1.04%
20
67.20%
0.99%
20

(a)

(b)

(c)
(d)

(e)

(f)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack of marketability. Additional 
inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation may 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. 

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

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments. 
Represents the range of industry volatility used by market participants when pricing the investment. 

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

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

Investment Type - Level Three
Equity and Warrant Investments
Equity Investments

$

Fair Value at
December 31, 2015
(in thousands)

Valuation Techniques/
Methodologies
5,898 Market Comparable Companies

Warrant Investments

7,904 Market Comparable Companies

30,874 Market Adjusted OPM Backsolve

Total Level Three Warrant and Equity 
Investments

$

55,337

10,661 Market Adjusted OPM Backsolve

Unobservable Input (a)

EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
EBITDA Multiple (b)
Revenue Multiple (b)
Discount for Lack of Marketability (c)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)
Average Industry Volatility (d)
Risk-Free Interest Rate
Estimated Time to Exit (in months)

Range
3.3x - 19.5x
0.7x - 3.7x
14.31% - 25.11%
37.72% - 109.64%
0.61% - 1.09%
10 - 26
28.52% - 86.41%
0.36% - 1.51%
10 - 47
5.1x - 57.9x
0.4x - 9.6x
10.09% - 31.37%
39.51% - 73.36%
0.32% - 1.51%
4 - 47
28.52% - 109.64%
0.36% - 1.45%
10 - 44

Weighted 
Average (e)
7.6x
2.1x
18.05%
60.27%
0.74%
15
65.40%
0.80%
17
16.0x
3.0x
23.11%
41.19%
0.87%
23
64.31%
0.85%
20

(a)

(b)

(c)

(d)

(e)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack of marketability. Additional 
inputs used in the Black Scholes OPM include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation may 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. 

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

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

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

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

153

Debt Investments 

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

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

The Company applies a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participant where buyers 

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

Under this process, the Company also evaluates the collateral for recoverability of the debt investments. The Company considers each portfolio company’s credit rating, 

security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment as of the measurement date. The 
anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fair value as of the measurement date. 

The Company’s process includes an analysis of, among other things, the underlying investment performance, the current portfolio company’s financial condition and market 

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

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

When originating a debt instrument, the Company generally receives warrants or other equity-related securities from the borrower. The Company determines the cost basis of 

the warrants or other equity-related 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-related securities received. Any resulting discount on the debt investments from recordation of the warrant or other equity instruments is accreted into interest income 
over the life of the debt investment. 

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

Equity-Related 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. 

154

The Company estimates the fair value of warrants using a Black Scholes OPM. At each reporting date, privately held warrant and equity-related securities are valued based on 

an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and 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-related 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.

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 December 31, 2016 there were no material past due escrow receivables.

Portfolio Composition

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.

The following table summarizes the Company’s realized and unrealized gain and loss and changes in the Company’s unrealized appreciation and depreciation on control and 

affiliate investments for the years ended December 31, 2016, 2015, and 2014. The Company did not hold any control investments at December 31, 2015 or 2014. 

Fair Value at
December 31, 2016

Investment
Income

— $

(in thousands)

Portfolio Company
Control Investments
SkyCross, Inc.
Achilles Technology Management Co II, Inc.
Total Control Investments

Affiliate Investments
Optiscan BioMedical, Corp.
Stion Corporation
Total Affiliate Investments
Total Control & Affiliate Investments

(in thousands)

Portfolio Company
Optiscan BioMedical, Corp.
Stion Corporation
Total

(in thousands)

Portfolio Company
Gelesis, Inc.
Optiscan BioMedical, Corp.
Stion Corporation
Total

(1)

Represents reversals of prior period collateral based impairments. 

Type

Control
Control

Affiliate
Affiliate

Type
Affiliate
Affiliate

Type
Affiliate
Affiliate
Affiliate

$

$

$

$
$

$

$

$

$

$

$

$
$

$

$

$

$

4,700
4,700

4,699
333
5,032
9,732

Fair Value at
December 31, 2015

6,973
1,013
7,986

Fair Value at
December 31, 2014

327
6,072
1,600
7,999

155

Year Ended December 31, 2016

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

— $
84
84

$

12
148
160
244

$

$
$

— $

348
348

$

(3,421)
(604)
(4,025)

(3,409)
539
(2,870)
(6,895)

$

$

$

$
$

— $
—
— $

— $

648
648
648

$
$

Year Ended December 31, 2015

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

901
206
1,107

$

$

— $
—
— $

Investment
Income

Year Ended December 31, 2014

Investment
Income

Net Change in
Unrealized
Appreciation/
(Depreciation)

Reversal of Unrealized
Appreciation/
(Depreciation) (1)

Realized
Gain/(Loss)

— $
—
1,876
1,876

$

(146)
(24)
(3,112)
(3,282)

$

$

— $
—
—
— $

—
—
—

—
—
—
—

—
—
—

—
—
—
—

In June 2016, the Company’s investments in SkyCross, Inc. became classified as a control investment as a result of obtaining more than 50% representation on the portfolio 
company’s board. In June 2016 the Company also acquired 100% ownership of the equity of Achilles Technology Management Co II, Inc. and classified it as a control investment in 
accordance with the requirements of the 1940 Act. In June 2016, Achilles Technology Management Co II, Inc. acquired the assets of a global antenna company that produces radio 
frequency system solutions as part of an article 9 consensual foreclosure and public auction for total consideration in the amount of $4.0 million. In September and November 2016, 
the Company made a $1.0 million and $250,000 debt investment, respectively, in Achilles Technology Management II to provide working capital under the terms of a loan servicing 
agreement. The Company’s investments in Achilles Technology Management Co II, Inc. are carried on the consolidated statement of assets and liabilities at fair value.

As of December 31, 2015, changes to the capitalization structure of the portfolio company Gelesis, Inc. reduced the Company’s investment below the threshold for 

classification as an affiliate investment.

The following table shows the fair value of the Company’s portfolio of investments by asset class as of December 31, 2016 and December 31, 2015:

(in thousands)
Senior Secured Debt with Warrants
Senior Secured Debt
Preferred Stock
Common Stock
Total

December 31, 2016

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

1,078,779
277,509
39,418
28,236
1,423,942

75.7% $
19.5%
2.8%
2.0%
100.0% $

961,464
171,732
35,245
32,197
1,200,638

80.1%
14.3%
2.9%
2.7%
100.0%

A summary of the Company’s investment portfolio, at value, by geographic location as of December 31, 2016 and December 31, 2015 is shown as follows: 

(in thousands)
United States
Netherlands
England
Switzerland
Canada
Israel
India
Total

December 31, 2016

Investments at
Fair Value

Percentage of
Total Portfolio

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

1,362,223
20,089
18,395
12,377
8,095
2,763
—
1,423,942

156

95.6% $
1.4%
1.3%
0.9%
0.6%
0.2%
0.0%
100.0% $

1,167,281
20,112
8,884
—
595
3,764
2
1,200,638

97.2%
1.7%
0.8%
0.0%
0.0%
0.3%
0.0%
100.0%

The following table shows the fair value of the Company’s portfolio by industry sector at December 31, 2016 and December 31, 2015: 

(in thousands)
Drug Discovery & Development
Software
Sustainable and Renewable Technology
Media/Content/Info
Drug Delivery
Medical Devices & Equipment
Internet Consumer & Business Services
Consumer & Business Products
Specialty Pharmaceuticals
Healthcare Services, Other
Communications & Networking
Surgical Devices
Semiconductors
Electronics & Computer Hardware
Biotechnology Tools
Information Services
Diagnostic
Total

December 31, 2016

Investments at
Fair Value

Percentage of
Total Portfolio

December 31, 2015

Investments at
Fair Value

Percentage of
Total Portfolio

$

$

422,550
219,559
154,406
137,567
109,834
107,695
97,047
42,713
38,944
30,200
18,019
12,553
11,326
7,664
7,200
6,091
574
1,423,942

29.7% $
15.4%
10.9%
9.7%
7.7%
7.6%
6.8%
3.0%
2.7%
2.1%
1.3%
0.9%
0.8%
0.5%
0.5%
0.4%
0.0%
100.0% $

284,266
147,237
159,487
95,488
164,665
90,560
88,377
26,611
52,088
15,131
33,213
11,185
22,705
6,928
719
1,657
321
1,200,638

23.7%
12.3%
13.3%
7.9%
13.7%
7.5%
7.4%
2.2%
4.3%
1.3%
2.8%
0.9%
1.9%
0.6%
0.1%
0.1%
0.0%
100.0%

No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of December 31, 2016 and December 31, 2015.

Portfolio Activity

During the year ended December 31, 2016, the Company funded and or restructured investments in debt and equity securities totaling approximately $660.5 million and $20.2 

million, respectively. During the year ended December 31, 2016, the Company converted approximately $4.6 million of debt to equity in two portfolio companies. During the year 
ended December 31, 2016, the Company converted approximately $512,000 of warrants to equity in two portfolio companies.

During the year ended December 31, 2015, the Company funded investments in debt securities and equity investments totaling approximately $694.1 million and $18.6 

million, respectively. The Company converted approximately $566,000 of debt to equity in two portfolio companies in the year ended December 31, 2015. During the year ended 
December 31, 2015, the Company converted approximately $330,000 of warrants to equity in three portfolio companies.

During the year ended December 31, 2016, the Company recognized net realized gains of approximately $4.6 million on the portfolio. These net realized gains included gross 
realized gains of approximately $15.2 million primarily from the sale of investments in six portfolio companies, including Box, Inc. ($9.3 million), Celator Pharmaceuticals, Inc. ($1.5 
million), TouchCommerce, Inc. ($1.5 million), Ping Identity Corporation ($1.3 million), ReachLocal ($610,000) and Hillcrest Laboratories, Inc. ($225,000). These gains were 
partially offset by gross realized losses of approximately $10.6 million primarily from the liquidation or write off of the Company’s warrant and equity investments in eight portfolio 
companies and the Company’s debt investments in five portfolio companies, including the settlement of the Company’s outstanding debt investment in The Neat Company ($6.2 
million).

During the year ended December 31, 2015, the Company recognized net realized gains of approximately $5.1 million on the portfolio. These net realized gains included gross 

realized gains of approximately $12.6 million primarily from the sale of investments in seven portfolio companies, including Box, Inc. ($3.2 million), Atrenta, Inc. ($2.6 million), 
Cempra, Inc. ($2.0 million), Celladon Corporation ($1.4 million), Egalet Corporation ($652,000), Everyday Health, Inc. ($387,000) and Identiv, Inc. ($304,000), and $1.5 
million  from subsequent recoveries received on two previously written-off debt investments. These gains were partially offset by gross realized losses of approximately $7.5 million 
primarily from the liquidation of the Company’s investments in sixteen portfolio companies. 

157

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. At December 31, 2016, approximately 91.8% of the 
Company’s debt investments were in a senior secured first lien position, with 42.0% secured by a first priority security in all of the assets of the portfolio company, including its 
intellectual property; 46.7% 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 3.1% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, with a second lien on the portfolio 
company’s cash and accounts receivable. The remaining 8.2% of the Company’s debt investments were secured by a second priority security interest in all of the portfolio company’s 
assets, other than intellectual property.  At December 31, 2016 the Company had no equipment only liens on material investments in the Company’s portfolio companies.

Cash and Cash Equivalents

Cash and cash equivalents consists 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.

Other Assets

Other Assets generally consists of prepaid expenses, deferred financing costs net of accumulated amortization, fixed assets net of accumulated depreciation, deferred revenues 
and deposits and other assets, including escrow receivable. The escrow receivable balance as of December 31, 2016 and December 31, 2015 was approximately $1.4 million and $3.0 
million, respectively, and was fair valued and held in accordance with ASC Topic 820.

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. When a loan becomes 90 days or more past due, or if management otherwise does not expect that principal, 
interest, and other obligations due will be collected in full, the Company will generally place the loan on non-accrual status and cease recognizing interest income on that loan until all 
principal and interest due has been paid or the Company believes the portfolio company has demonstrated the ability to repay the Company’s current and future contractual 
obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the 
Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. 

At December 31, 2016, the Company had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $43.9 million and $6.2 

million, respectively. At December 31, 2015, the Company had five debt investments on non-accrual at December 31, 2015 with a cumulative investment cost and fair value of 
approximately $47.4 million and $23.2 million, respectively. In addition, at December 31, 2015, the Company had one debt investment with an investment cost and fair value of 
approximately $20.1 million and $14.9 million, respectively, for which only the PIK interest was on non-accrual. The decrease in the cumulative cost and fair value of debt 
investments on non-accrual between December 31, 2016 and December 31, 2015 is the result of placing two new debt investments on non-accrual status, offset by the liquidation of 
three debt investments that were on non-accrual at December 31, 2015. For the year ended December 31, 2016, the Company recognized a realized loss of approximately $6.2 million 
on the settlement of one debt investment that was on non-accrual at December 31, 2015.  In addition, the Company recognized realized losses of $419,000 and $430,000 on the 
liquidation and partial write off, respectively, of two debt investments that were on non-accrual as of December 31, 2015.

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 and commitment 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 $38.2 million of unamortized fees at December 31, 2016, of which approximately $35.8 million was included as an offset to the cost basis of its current debt 
investments and approximately $2.4 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2015 the Company had approximately $26.1 
million of unamortized fees, of which approximately $23.6 million was included as an offset to the cost basis of its current debt investments and approximately $2.5 million was 
deferred contingent upon the occurrence of a funding or milestone. 

158

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 fees, 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.

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. At December 31, 2016, the Company had approximately $32.8 million in exit fees receivable, of which 
approximately $30.3 million was included as an offset to the cost basis of its current debt investments and approximately $2.5 million was deferred related to expired commitments. 
At December 31, 2015 the Company had approximately $22.7 million in exit fees receivable, of which approximately $17.4 million was included as an offset to the cost basis of its 
current debt investments and approximately $5.3 million was 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 the 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 $7.8 million and $4.7 million in PIK income in the years ended December 31, 2016 and 2015, respectively. 

To maintain the Company’s status as a RIC, PIK and exit fee income must be paid out to stockholders in the form of dividend distributions 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 years ended 
December 31, 2016 and December 31, 2015. 

Other Income (Loss)

Other Income (loss) generally consists of income or losses generated from sources other than the Company’s investment portfolio. For the year ended December 31, 2016 it 

consists of litigation settlement proceeds (refer to “Note 10 - Commitments and Contingencies”). For the years ended December 31, 2015 and December 31, 2014 it consists of loss on 
extinguishment of debt (refer to “Note 4 – Borrowings”).  Other income (loss) is classified as a component of net investment income in the Company’s Consolidated Statement of 
Operations.

Equity Offering Expenses 

The Company’s offering costs are charged against the proceeds from equity offerings when received. 

Stock Based Compensation 

The Company has issued and may, from time to time, issue additional stock options and restricted stock to employees under the Company’s 2004 Equity Incentive Plan and 
members of the Board of Directors under the Company’s 2006 Equity Incentive Plan. Management follows the guidelines set forth under ASC Topic 718, (“Compensation – Stock 
Compensation”) to account for stock options granted. Under ASC Topic 718, compensation expense associated with stock-based compensation is measured at the grant date based on 
the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant 
date requires judgment, including estimating stock price volatility, forfeiture rate and expected option life. 

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 and gains distributed to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as 
well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the 
recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are 
realized. 

159

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 the 
Company’s ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of the Company’s 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 Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a 
RIC’s retained net capital gains). 

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

The Company intends to distribute 100% of its spillover earnings, which consists of ordinary income and capital gains, from the taxable year ended December 31, 2016 to the 

Company’s shareholders during 2017. The Company distributed 100% of its spillover earnings from ordinary income from its taxable year ended December 31, 2015 to the 
Company’s stockholders during 2016.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ 

from net investment income and net realized securities gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are 
reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of 
certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are 
recognized at some time in the future. 

Earnings Per Share (“EPS”) 

Basic EPS is calculated by dividing net earnings applicable to common shareholders by the weighted average number of common shares outstanding. Common shares 

outstanding includes common stock and restricted stock for which no future service is required as a condition to the delivery of the underlying common stock. Diluted EPS includes 
the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable pursuant to stock options and to restricted stock for which future service is 
required as a condition to the delivery of the underlying common stock. 

Comprehensive Income 

The Company reports all changes in comprehensive income in the Consolidated Statement of Operations. The Company did not have other comprehensive income in 2016, 

2015, or 2014. 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 of Directors 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 2016, 2015, and 2014, the Company issued 
approximately 144,308, 199,894, and 96,976 shares, respectively, of common stock to shareholders in connection with the dividend reinvestment plan. 

160

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 lending and investment segment. 

Recent Accounting Pronouncements 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial 

Liabilities,” which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value 
through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the 
instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU 
changes the disclosure requirements for financial instruments.  ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after 
December 15, 2017. Early adoption is permitted for certain provisions. The Company does not believe that ASU 2016-01 will have a material impact on its consolidated financial 
statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which, among other things, requires recognition of lease assets and lease liabilities by lessees for 
those leases classified as operating leases under previous GAAP. Additionally, the ASU requires the classification of all cash payments on leases within operating activities in the 
Consolidated Statement of Cash Flows.  ASU 2016-02 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2018. 
Early adoption is permitted. The Company does not believe that ASU 2016-02 will have a material impact on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which, 

among other things, simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity 
or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for annual reporting periods, and the interim periods within those periods, beginning after 
December 15, 2016. Early adoption is permitted. The Company does not believe that ASU 2016-09 will have a material impact on its consolidated financial statements and 
disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight 

specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs.  ASU 2016-15 is effective for annual reporting periods, 
and the interim periods within those periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not believe that ASU 2016-15 will have a material 
impact on its consolidated financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230),” which requires that a statement of cash flows explain the change during the 
period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash 
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement 
of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The amendment should be adopted 
retrospectively. The Company does not believe that ASU 2016-18 will have a material impact on its consolidated financial statements and disclosures.

161

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. The Company believes that the carrying amounts of its financial instruments, consisting 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 April 2019 Notes, the September 2019 Notes (together with the April 2019 Notes, the “2019 Notes”), which the Company has publicly announced its intention to redeem on 
February 24, 2017, the 2024 Notes, the 2021 Asset-Backed Notes, and the SBA debentures, provide a strategic advantage as sources of liquidity due to their flexible structure, long-
term duration, and low fixed interest rates. At December 31, 2016, the April 2019 Notes were trading on the New York Stock Exchange, or “NYSE” for $25.55 per share at par value, 
the September 2019 Notes were trading on the NYSE for $25.57 per share at par value and the 2024 Notes were trading on the NYSE for $25.40 per share at par value. The par value 
at underwriting for each of these notes was $25.00 per share. Based on market quotations on or around December 31, 2016, the 2021 Asset-Backed Notes were quoted for 1.002 per 
dollar at par value. 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 value 
of the SBA debentures would be approximately $202.4 million, compared to the principal outstanding amount of $190.2 million as of December 31, 2016. The fair value of the 
outstanding borrowings under the Wells Facility at December 31, 2016 is equal to its transaction price as the Company renegotiated the terms of the agreement with Wells Fargo 
Capital Finance, LLC in December 2015 and added two additional lenders to the facility at the same terms during 2016.

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.

The liabilities of the Company are recorded at amortized cost and not at fair value on the Consolidated Statement of Assets and Liabilities. The following tables provide 

additional information about the fair value and level in the fair value hierarchy of the Company’s liabilities at December 31, 2016 and December 31, 2015: 

(in thousands)
Description (1)
Wells Facility
2021 Asset-Backed Notes
April 2019 Notes
September 2019 Notes
2024 Notes
SBA Debentures
Total

(in thousands)
Description
2016 Convertible Notes (1)
Wells Facility
2021 Asset-Backed Notes
April 2019 Notes
September 2019 Notes
2024 Notes
SBA Debentures
Total

December 31, 2016

Identical Assets
(Level 1)

Observable Inputs
(Level 2)

Unobservable Inputs
(Level 3)

5,016
109,376
65,909
46,920
256,919
202,364
686,504

$

—

—

—

—
—

—
— $

—
109,376
65,909
46,920
256,919
—
479,124

December 31, 2015

Identical Assets
(Level 1)

Observable Inputs
(Level 2)

19,540
50,000
128,775
65,573
46,297
104,401
194,121
608,707

$

$

— $
—

—

—
—

—

—
— $

19,540
—
128,775
65,573
46,297
104,401
—
364,586

5,016
—

—

—
—
202,364
207,380

Unobservable Inputs
(Level 3)

—
50,000
—

—
—

—
194,121
244,121

$

$

$

$

$

$

(1) 

The 2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016.

162

4. Borrowings

Outstanding Borrowings 

At December 31, 2016 and December 31, 2015, the Company had the following available and outstanding borrowings: 

(in thousands)
SBA Debentures (2)
2019 Notes
2024 Notes
2021 Asset-Backed Notes
2016 Convertible Notes (3)
Wells Facility (4)
Union Bank Facility (4)
Total

Total Available

Principal

Carrying Value (1)

Total Available

Principal

Carrying Value (1)

December 31, 2016

December 31, 2015

$

$

190,200 $
110,364
252,873
109,205
—
120,000
75,000
857,642 $

190,200 $
110,364
252,873
109,205
—
5,016
—

667,658 $

187,501 $
108,818
245,490
107,972
—
5,016
—
654,797 $

190,200
110,364
103,000
129,300
17,604
75,000
75,000
700,468

$

$

190,200
110,364
103,000
129,300
17,604
50,000
—
600,468

$

$

186,829
108,179
100,128
126,995
17,478
50,000
—
589,609

(1) 

(2)

(3)
(4)

Except for the Wells Facility and Union Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, 
associated with the loan as of the balance sheet date. See “Note 2 – Summary of Significant Accounting Policies” for the amount of debt issuance cost associated with each borrowing.
At both December 31, 2016 and December 31, 2015, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and $149.0 million was available in HT 
III. 
The 2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016.
Availability subject to the Company meeting the borrowing base requirements. As the Union Bank Facility was replaced on May 5, 2016, amounts included above prior to May 5, 2016 relate to the Prior Union Bank 
Facility (as defined herein).

Long-Term SBA Debentures 

On September 27, 2006, HT II received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and 
additional contributions to regulatory capital. Under the Small Business Investment Company Act and current SBA policy applicable to SBICs, a SBIC can have outstanding at any 
time SBA guaranteed debentures up to twice the amount of its regulatory capital. With the Company’s net investment of $44.0 million in HT II as of December 31, 2016, HT II has 
the capacity to issue a total of $41.2 million of SBA guaranteed debentures, subject to SBA approval, of which $41.2 million was outstanding as of December 31, 2016. As of 
December 31, 2016, HT II has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of December 31, 2016, the Company 
held investments in HT II in 36 companies with a fair value of approximately $84.3 million, accounting for approximately 5.9% of the Company’s total investment portfolio. HT II 
held approximately $100.0 million in assets and accounted for approximately 5.3% of the Company’s total assets prior to consolidation at December 31, 2016. 

On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and 

additional contributions to regulatory capital. With the Company’s net investment of $74.5 million in HT III as of December 31, 2016, HT III has the capacity to issue a total of 
$149.0 million of SBA guaranteed debentures, subject to SBA approval, of which $149.0 million was outstanding as of December 31, 2016. As of December 31, 2016, HT III has paid 
the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of December 31, 2016, the Company held investments in HT III in 51 
companies with a fair value of approximately $261.2 million, accounting for approximately 18.3% of the Company’s total portfolio. HT III held approximately $261.8 million in 
assets and accounted for approximately 13.9% of the Company’s total assets prior to consolidation at December 31, 2016. 

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businesses include businesses 

that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, 
SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is one that has a tangible net worth not exceeding $6.0 million and
has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, 
which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make 
long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Through the Company’s wholly-owned 
subsidiaries HT II and HT III, the Company plans to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments. 

163

HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails to comply with 

applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures 
immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited in their ability to make distributions to the 
Company if they do not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn, negatively affect the Company because HT II and HT III 
are the Company’s wholly owned subsidiaries. HT II and HT III were in compliance with the terms of the SBIC’s leverage as of December 31, 2016 as a result of having sufficient 
capital as defined under the SBA regulations. 

The rates of borrowings under various draws from the SBA beginning in March 2009 are set semiannually in March and September and range from 2.25% to 4.62% excluding 

annual fees. Interest payments on SBA debentures are payable semiannually. There are no principal payments required on these issues prior to maturity and no prepayment penalties. 
Debentures under the SBA generally mature ten years after being borrowed. Based on the initial draw down date of March 2009, the initial maturity of SBA debentures will occur in 
March 2019. In addition, the SBA charges a fee that is set annually, depending on the Federal fiscal year the leverage commitment was delegated by the SBA, regardless of the date 
that the leverage was drawn by the SBIC. The annual fees related to HT II debentures that pooled on September 22, 2010 were 0.406% and 0.285%, depending upon the year in which 
the underlying commitment was closed. The annual fees on other debentures have been set at 0.906%. The annual fees related to HT III debentures that pooled on March 27, 2013 
were 0.804%. The annual fees on other debentures have been set at 0.515%. The rates of borrowings on the Company’s SBA debentures range from 3.05% to 5.53% when including 
these annual fees.

The average amount of debentures outstanding for the year ended December 31, 2016 for HT II was approximately $41.2 million with an average interest rate of 

approximately 4.52%. The average amount of debentures outstanding for the year ended December 31, 2016 for HT III was approximately $149.0 million with an average interest rate 
of approximately 3.43%.

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the SBA debentures are as 

follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

6,988
671
7,659
6,961

$

$
$

6,969
667
7,636
6,942

$

$
$

As of December 31, 2016, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteed debentures is $350.0 million, subject to periodic 
adjustments by the SBA. In aggregate, at December 31, 2016, with the Company’s net investment of $118.5 million, HT II and HT III have the capacity to issue a total of $190.2 
million of SBA-guaranteed debentures, subject to SBA approval. At December 31, 2016, the Company has issued $190.2 million in SBA-guaranteed debentures in the Company’s 
SBIC subsidiaries. 

The Company reported the following SBA debentures outstanding principal balances as of December 31, 2016 and December 31, 2015: 

(in thousands)
Issuance/Pooling Date
March 25, 2009
September 23, 2009
September 22, 2010
September 22, 2010
March 29, 2011
September 21, 2011
March 21, 2012
March 21, 2012
September 19, 2012
March 27, 2013
Total SBA Debentures

(1)

Interest rate includes annual charge  

Maturity Date

March 1, 2019
September 1, 2019
September 1, 2020
September 1, 2020
March 1, 2021
September 1, 2021
March 1, 2022
March 1, 2022
September 1, 2022
March 1, 2023

164

Interest Rate (1)
5.53%
4.64%
3.62%
3.50%
4.37%
3.16%
3.28%
3.05%
3.05%
3.16%

$

$

December 31, 2016

December 31, 2015

18,400
3,400
6,500
22,900
28,750
25,000
25,000
11,250
24,250
24,750
190,200

$

$

18,400
3,400
6,500
22,900
28,750
25,000
25,000
11,250
24,250
24,750
190,200

2019 Notes 

On March 6, 2012, the Company and U.S. Bank National Association (the “2019 Trustee”) entered into an indenture (the “Base Indenture”). On April 17, 2012, the Company 

and the 2019 Trustee entered into the First Supplemental Indenture to the Base Indenture (the “First Supplemental Indenture”), dated April 17, 2012, relating to the Company’s 
issuance, offer and sale of $43.0 million aggregate principal amount of 7.00% notes due 2019 (the “April 2019 Notes”). 

In July 2012, the Company reopened the Company’s April 2019 Notes and issued an additional $41.5 million in aggregate principal amount of April 2019 Notes, which 

included the exercise of an over-allotment option, bringing the total amount of the April 2019 Notes issued to approximately $84.5 million in aggregate principal amount.

On September 24, 2012, the Company and the 2019 Trustee, entered into the Second Supplemental Indenture to the Base Indenture (the “Second Supplemental Indenture”), 

dated as of September 24, 2012, relating to the Company’s issuance, offer and sale of $75.0 million aggregate principal amount of 7.00% notes due 2019 (the “September 2019 
Notes”). 

In October 2012, the underwriters exercised their over-allotment option for an additional $10.9 million of the September 2019 Notes, bringing the total amount of the 

September 2019 Notes issued to approximately $85.9 million in aggregate principal outstanding.

In April 2015, the Company redeemed $20.0 million of the $84.5 million issued and outstanding aggregate principal amount of April 2019 Notes, as previously approved by 

the Board of Directors. In December 2015, the Company redeemed $40.0 million of the $85.9 million issued and outstanding aggregate principal amount of September 2019 Notes, as 
previously approved by the Board of Directors. The Company has publicly announced its intention to redeem the remaining outstanding 2019 Notes on February 24, 2017. See “Note 
14 – Subsequent Events”.

As of December 31, 2016 and December 31, 2015, the 2019 Notes payable is comprised of:

(in thousands)
April 2019 Notes
September 2019 Notes

Total 2019 Notes principal outstanding

December 31, 2016

December 31, 2015

$

$

64,490
45,874
110,364

$

$

64,490
45,874
110,364

April 2019 Notes 

The April 2019 Notes will mature on April 30, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after April 30, 

2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding 
principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for 
redemption. The April 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 
2012, and trade on the NYSE under the trading symbol “HTGZ.” 

The April 2019 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future senior unsecured 

indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the April 2019 Notes; (iii) effectively subordinated to all the 
Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grant security), to the extent of the value 
of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. 

The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring the Company’s compliance with 
(regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act to comply with
the restrictions on dividends and other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 
Act and to provide financial information to the holders of the April 2019 Notes and the 2019 Trustee if the Company should no longer be subject to the reporting requirements under 
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These covenants are subject to important limitations and exceptions that are described in the Base Indenture, 
as supplemented by the First Supplemental Indenture. The Base Indenture provides for customary events of default and further provides that the 2019 Trustee or the holders of 25% in 
aggregate principal amount of the outstanding April 2019 Notes in a series may declare such April 2019 Notes immediately due and payable upon the occurrence of any event of 
default after expiration of any applicable grace period. 

165

September 2019 Notes 

The September 2019 Notes will mature on September 30, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after 

September 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the 
outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date 
fixed for redemption. The September 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on March 30, June 30, September 30 and December 30 of each year, 
commencing on December 30, 2012, and trade on the NYSE under the trading symbol “HTGY.”

The September 2019 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future senior unsecured 

indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the September 2019 Notes; (iii) effectively subordinated to all the 
Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value 
of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. 

The Base Indenture, as supplemented by the Second Supplemental Indenture, contains certain covenants including covenants requiring the Company to comply with 
(regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act to comply with
the restrictions on dividends and other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 
Act and to provide financial information to the holders of the September 2019 Notes and the 2019 Trustee if the Company should no longer be subject to the reporting requirements 
under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the Second Supplemental 
Indenture. The Base Indenture provides for customary events of default and further provides that the 2019 Trustee or the holders of 25% in aggregate principal amount of the 
outstanding September 2019 Notes in a series may declare such September 2019 Notes immediately due and payable upon the occurrence of any event of default after expiration of 
any applicable grace period. 

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2019 Notes are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

7,725
639
8,364
7,726

$

$
$

10,899
2,167
13,066
11,132

$

$
$

As of December 31, 2016, the Company was in compliance with the terms of the Base Indenture, and respective supplemental indentures thereto, governing the April 2019 

Notes and September 2019 Notes.

2024 Notes 

On July 14, 2014, the Company and U.S. Bank, N.A. (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the Base 

Indenture between the Company and the 2024 Trustee, dated July 14, 2014, relating to the Company’s issuance, offer and sale of $100.0 million aggregate principal amount of 6.25% 
unsecured notes due 2024 (the “2024 Notes”). On August 6, 2014, the underwriters issued notification to exercise their over-allotment option for an additional $3.0 million in 
aggregate principal amount of the 2024 Notes. 

On May 2, 2016, the Company closed an underwritten public offering of an additional $72.9 million in aggregate principal amount of the 2024 Notes. The $72.9 million in 

aggregate principal amount includes $65.4 million from the initial offering on April 21, 2016 and $7.5 million as a result of underwriters exercising a portion of their option to 
purchase up to an additional $9.8 million in aggregate principal to cover overallotments on April 29, 2016. 

On June 27, 2016, the Company closed an underwritten public offering of an additional $60.0 million in aggregate principal amount of the 2024 Notes. On June 30, 2016, the 

underwriters exercised their option to purchase up to an additional $9.0 million in aggregate principal to cover overallotments, resulting in total aggregate principal of $69.0 million 
from the offering.

166

On October 11, 2016, the Company entered into a debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $150.0 million in aggregate 

principal amount of 2024 Notes through FBR Capital Markets & Co. acting as its sales agent (the “2024 Notes Agent”). Sales of the 2024 Notes may be made in negotiated 
transactions or transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or similar 
securities exchange or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

The 2024 Notes Agent receives a commission from the Company equal to up to 2.00% of the gross sales of any 2024 Notes sold through the 2024 Notes Agent under the debt 

distribution agreement. The 2024 Notes Agent is not required to sell any specific principal amount of 2024 Notes, but will use its commercially reasonable efforts consistent with its 
sales and trading practices to sell the 2024 Notes. The 2024 Notes are expected to trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not 
receive, any accrued and unpaid interest on the 2024 Notes that is not reflected in the trading price.

Subsequent to October 11, 2016 and as of December 31, 2016, the Company sold 317,125 notes for approximately $7.9 million in aggregate principal amount. As of 
December 31, 2016 approximately $142.1 million in aggregate principal amount remains available for issuance and sale under the debt distribution agreement. See “Note 14 –
Subsequent Events”.

All issuances of 2024 Notes rank equally in right of payment and form a single series of notes.

The 2024 Notes will mature on July 30, 2024 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after July 30, 2017, 

upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal 
amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. 
The 2024 Notes bear interest at a rate of 6.25% per year payable quarterly on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2014, and trade on 
the NYSE under the trading symbol “HTGX.” 

The 2024 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future senior unsecured indebtedness; 
(ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2024 Notes; (iii) effectively subordinated to all the Company’s existing and 
future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing 
such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. 

The Base Indenture, as supplemented by the Third Supplemental Indenture, contains certain covenants including covenants requiring the Company to comply with (regardless 

of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act and to comply with the 
restrictions on dividends and other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 
Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the Third Supplemental Indenture. The Base 
Indenture, as supplemented by the Third Supplemental Indenture, also contains certain reporting requirements, including a requirement that the Company provide financial 
information to the holders of the 2024 Notes and the 2024 Trustee if the Company should no longer be subject to the reporting requirements under the Exchange Act. The Base 
Indenture provides for customary events of default and further provides that the 2024 Trustee or the holders of 25% in aggregate principal amount of the outstanding 2024 Notes in a 
series may declare such 2024 Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. As of December 31, 
2016, the Company was in compliance with the terms of the Base Indenture as supplemented by the Third Supplemental Indenture.

As of December 31, 2016 and December 31, 2015, the components of the carrying value of the 2024 Notes were as follows:

(in thousands)
Principal amount of debt
Unamortized debt issuance cost
Original issue premium, net of accretion
Carrying value of 2024 Notes

December 31, 2016

December 31, 2015

$

$

252,873
(7,482)
99
245,490

$

$

103,000
(2,872)
—
100,128

167

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notes are as follows: 

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)
Accretion of original issue premium
Total interest expense and fees
Cash paid for interest expense and fees

2021 Asset-Backed Notes 

Year Ended December 31,

2016

2015

$

$
$

11,775
686
3
12,464
10,873

$

$
$

6,437
333
—
6,770
6,437

On November 13, 2014, the Company completed a $237.4 million term debt securitization in connection with which an affiliate of the Company made an offer of $129.3 

million in aggregate principal amount of fixed-rate asset-backed notes (the “2021 Asset-Backed Notes”), which were rated A(sf) by Kroll Bond Rating Agency, Inc. The 2021 Asset-
Backed Notes were sold by Hercules Capital Funding Trust 2014-1 pursuant to a note purchase agreement, dated as of November 13, 2014, by and among the Company, Hercules 
Capital Funding 2014-1, LLC as trust depositor (the “2014 Trust Depositor”), Hercules Capital Funding Trust 2014-1 as issuer (the “2014 Securitization Issuer”), and Guggenheim 
Securities, LLC, as initial purchaser, and are backed by a pool of senior loans made to certain of the Company’s portfolio companies and secured by certain assets of those portfolio 
companies and are to be serviced by the Company. The securitization has an 18-month reinvestment period during which time principal collections may be reinvested into additional 
eligible loans. Interest on the 2021 Asset-Backed Notes is paid, to the extent of funds available, at a fixed rate of 3.524% per annum. The 2021 Asset-Backed Notes have a stated 
maturity of April 16, 2021. 

As part of this transaction, the Company entered into a sale and contribution agreement with the 2014 Trust Depositor under which the Company has agreed to sell or have 

contributed to the 2014 Trust Depositor certain senior loans made to certain of the Company’s portfolio companies (the “2014 Loans”). The Company has made customary 
representations, warranties and covenants in the sale and contribution agreement with respect to the 2014 Loans as of the date of their transfer to the 2014 Trust Depositor. 

In connection with the issuance and sale of the 2021 Asset-Backed Notes, the Company has made customary representations, warranties and covenants in the note purchase 

agreement. The 2021 Asset-Backed Notes are secured obligations of the 2014 Securitization Issuer and are non-recourse to the Company. The 2014 Securitization Issuer also entered 
into an indenture governing the 2021 Asset-Backed Notes, which includes customary representations, warranties and covenants. The 2021 Asset-Backed Notes were sold without 
being registered under the Securities Act of 1933, as amended, (the “Securities Act”) (A) in the United States to “qualified institutional buyers” as defined in Rule 144A under the 
Securities Act and to institutional “accredited investors” (as defined in Rules 501(a)(1), (2), (3) or (7) under the Securities Act) who in each case, are “qualified purchasers” as defined 
in Sec. 2(a)(51)(A) of the 1940 Act and pursuant to an exemption under the Securities Act and (B) to non-U.S. purchasers acquiring interest in the 2021 Asset-Backed Notes outside 
the United States in accordance with Regulation S under the Securities Act. The 2014 Securitization Issuer is not registered under the 1940 Act in reliance on an exemption provided 
by Section 3(c)(7) thereof and Rule 3a-7 thereunder. In addition, the 2014 Trust Depositor entered into an amended and restated trust agreement in respect of the 2014 Securitization 
Issuer, which includes customary representation, warranties and covenants. 

The 2014 Loans are serviced by the Company pursuant to a sale and servicing agreement, which contains customary representations, warranties and covenants. The Company 

performs certain servicing and administrative functions with respect to the 2014 Loans. The Company is entitled to receive a monthly fee from the 2014 Securitization Issuer for 
servicing the 2014 Loans. This servicing fee is equal to the product of one-twelfth (or in the case of the first payment date, a fraction equal to the number of days from and including 
October 5, 2014 through and including December 5, 2014 over 360) of 2.00% and the aggregate outstanding principal balance of the 2014 Loans plus collections on deposit in the 
2014 Securitization Issuer’s collections account, as of the first day of the related collection period (the period from the 5th day of the immediately preceding calendar month through 
the 4th day of the calendar month in which a payment date occurs, and for the first payment date, the period from and including October 5, 2014, to the close of business on December 
5, 2014). 

The Company also serves as administrator to the 2014 Securitization Issuer under an administration agreement, which includes customary representations, warranties and 

covenants. 

At December 31, 2016 and December 31, 2015, the 2021 Asset-Backed Notes had an outstanding principal balance of $109.2 million and $129.3 million, respectively.

168

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the 2021 Asset-Backed Notes are 

as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

4,366
1,071
5,437
4,396

$

$
$

4,557
902
5,459
4,557

$

$
$

Under the terms of the 2021 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through interest and principal collections from the 

underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2021 Asset-Backed Notes. The Company has segregated these funds 
and classified them as restricted cash. There was approximately $8.3 million and $9.2 million of restricted cash as of December 31, 2016 and December 31, 2015, respectively, funded 
through interest collections.

2016 Convertible Notes 

In April 2011, the Company issued $75.0 million in aggregate principal amount of 6.00% convertible notes due 2016 (the “2016 Convertible Notes”). The 2016 Convertible 

Notes were fully settled on or before their contractual maturity date of April 15, 2016.

Prior to the close of business on October 14, 2015, holders were able to convert their 2016 Convertible Notes only under certain circumstances set forth in the indenture 

governing the 2016 Convertible Notes. On or after October 15, 2015 until the close of business on the scheduled trading day immediately preceding the maturity date, holders were 
able to convert their 2016 Convertible Notes at any time. Throughout the life of the 2016 Convertible Notes, holders of approximately $74.8 million of the 2016 Convertible Notes 
exercised their conversion rights. These 2016 Convertible Notes were settled with a combination of cash equal to the outstanding principal amount of the 2016 Convertible Notes and 
approximately 1.6 million shares of the Company’s common stock, or $24.3 million.

The Company recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount. The loss was partially 

offset by a gain in the amount of the difference between the outstanding principal balance of the 2016 Convertible Notes and the fair value of the debt instrument. The net loss on 
extinguishment of debt the Company recorded for the year ended December 31, 2015 was $1,000. The Company did not record a loss on extinguishment of debt for the year ended 
December 31, 2016. The loss on extinguishment of debt was classified as a component of net investment income in the Company’s Consolidated Statement of Operations. 

The 2016 Convertible Notes were accounted for in accordance with ASC Subtopic 470-20 (“Debt Instruments with Conversion and Other Options”). In accounting for the 

2016 Convertible Notes, the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the 2016 Convertible Notes were 
approximately 92.8% and 7.2%, respectively. The original issue discount of 7.2% attributable to the conversion feature was recorded in “capital in excess of par value” in the 
Consolidated Statement of Assets and Liabilities. As a result, the Company recorded interest expense comprised of both stated interest expense as well as accretion of the original 
issue discount resulting in an estimated effective interest rate of approximately 8.1%.

As of December 31, 2015, the components of the carrying value of the 2016 Convertible Notes were as follows:

(in thousands)
Principal amount of debt
Unamortized debt issuance cost
Original issue discount, net of accretion

Carrying value of 2016 Convertible Notes

169

December 31, 2015

$

$

17,604
(44)
(82)
17,478

For the years ended December 31, 2016 and 2015, the components of interest expense, fees and cash paid for interest expense for the 2016 Convertible Notes were as follows:

(in thousands)
Interest expense
Accretion of original issue discount
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Year Ended December 31,

2016

2015

352 $
82
44
478 $
440 $

1,007
246
131
1,384
1,057

$

$
$

The estimated effective interest rate of the debt component of the 2016 Convertible Notes, equal to the stated interest of 6.0% plus the accretion of the original issue discount, 

was approximately 8.1% for the years ended December 31, 2016 and December 31, 2015.

Credit Facilities

As of December 31, 2016 and December 31, 2015, the Company has two available secured credit facilities, the Wells Facility and the Union Bank Facility.

Wells Facility 

On June 29, 2015, the Company, through a special purpose wholly-owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into an Amended and 

Restated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent, and the lenders 
party thereto from time to time.

The Wells Facility matures on August 2, 2019, unless terminated sooner in accordance with its terms.

Under the Wells Facility, Wells Fargo Capital Finance, LLC made commitments of $75.0 million. Alostar Bank of Commerce made commitments of $20.0 million, and 

Everbank Commercial Finance Inc. made commitments of $25.0 million. The Wells Facility contains an accordion feature, in which the Company can increase the credit line up to an 
aggregate of $300.0 million, funded by additional lenders and with the agreement of Wells Fargo and subject to other customary conditions. The Company expects to continue 
discussions with various other potential lenders to join the facility; however, there can be no assurances that additional lenders will join the Wells Facility. Borrowings under the Wells 
Facility generally bear interest at a rate per annum equal to LIBOR plus 3.25%, and the Wells Facility has an advance rate of 50% against eligible debt investments. The Wells Facility 
is secured by all of the assets of Hercules Funding II. The Wells Facility requires payment of a non-use fee on a scale of 0.0% to 0.50% depending on the average monthly outstanding 
balance under the facility relative to the maximum amount of commitments at such time. For the years ended December 31, 2016 and 2015, this non-use fee was approximately 
$483,000 and $294,000, respectively. 

The Wells Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules 

Funding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require the Company to 
maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum tangible net worth 
in an amount, when added to outstanding subordinated indebtedness, that is in excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014. As of 
December 31, 2016, the minimum tangible net worth covenant has increased to $675.9 million as a result of the March 2015 follow-on public offering of 7.6 million shares of 
common stock for total gross proceeds of approximately $100.4 million and the 7.3 million shares of common stock issued under the At-The-Market (“ATM”) equity distribution 
agreement (the “Equity Distribution Agreement”) with JMP Securities (“JMP”) for gross proceeds of $95.0 million during the year ended December 31, 2016. The Wells Facility 
provides for customary events of default, including, without limitation, with respect to payment defaults, breach of representations and covenants, certain key person provisions, cross 
acceleration provisions to certain other debt, lien and judgment limitations, and bankruptcy.

On June 20, 2011 the Company paid $1.1 million in structuring fees in connection with the original Wells Facility. In connection with an amendment to the original Wells 

Facility in August 2014, the Company paid an additional $750,000 in structuring fees and in connection with the amendment in December 2015, the Company paid an additional 
$188,000 in structuring fees. These fees are being amortized through the end of the term of the Wells Facility.

170

The Company had aggregate draws of $195.9 million on the available facility during the year ended December 31, 2016 offset by repayments of $240.9 million. There was 

$5.0 million and $50.0 million of borrowings outstanding on this facility at December 31, 2016 and 2015, respectively. 

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the Wells Facility are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Union Bank Facility 

Year Ended December 31,

2016

2015

$

$
$

539
492
1,031
577

$

$
$

578
361
939
402

On May 5, 2016, the Company, through a special purpose wholly owned subsidiary, Hercules Funding III LLC (“Hercules Funding III”), as borrower, entered into the credit 
facility (the “Union Bank Facility”) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union 
Bank Facility replaced the company’s credit facility (the “Prior Union Bank Facility”) entered into on August 14, 2014 (as amended and restated from time to time) with MUFG 
Union Bank, as the arranger and administrative agent, and the lenders party to the Prior Union Bank Facility from time to time.  Any references to amounts related to the Union Bank 
Facility prior to May 5, 2016 were incurred and relate to the Prior Union Bank Facility.

On July 18, 2016, the Company entered into the First Amendment to the Loan and Security Agreement, dated as of May 5, 2016 with MUFG Union Bank, N.A. The 
Amendment amends certain definitions relating to borrowings which accrue interest based on the London Interbank Offered Rate (“LIBOR Loans”) and (ii) the method(s) for 
calculating interest on and the paying of certain fees related to such LIBOR Loans.

Under the Union Bank Facility, MUFG Union Bank made commitments of $75.0 million. The Union Bank Facility contains an accordion feature, in which the Company can 

increase the credit line up to an aggregate of $200.0 million, funded by additional lenders and with the agreement of MUFG Union Bank and subject to other customary conditions. 
There can be no assurances that additional lenders will join the Union Bank Facility to increase available borrowings. Borrowings under the Union Bank Facility generally bear 
interest at either (i) if such borrowing is a base rate loan, a base rate per annum equal to the federal funds rate plus 1.00%, LIBOR plus 1.00% or MUFG Union Bank’s prime rate, in 
each case, plus a margin of 1.25% or (ii) if such borrowing is a LIBOR loan, a rate per annum equal to LIBOR plus 3.25%, and the Union Bank Facility generally has an advance rate 
of 50% against eligible debt investments. The Union Bank Facility is secured by all of the assets of Hercules Funding III.

The Union Bank Facility requires payment of a non-use fee during the revolving credit availability period on a scale of 0.25% to 0.50% depending on the average monthly 
outstanding balance under the facility relative to the maximum amount of commitments at such time. The Company paid a one-time $562,500 structuring fee in connection with the 
Union Bank Facility. Although the Company did not incur any non-use fees under the Union Bank Facility prior to May 5, 2016, for the years ended December 31, 2016 and 2015, the 
Company incurred non-use fees under the existing and previous Union Bank Facility of $356,000 and $380,000, respectively. 

The Union Bank Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to 

Hercules Funding III, including covenants relating to certain changes of control of the Company and Hercules Funding III. Among other things, these covenants also require the 
Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum 
tangible net worth in an amount that is in excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014. As of December 31, 2016, the minimum 
tangible net worth covenant increased to $723.6 million as a result of the March 2015 follow-on public offering of 7.6 million shares of common stock for total net proceeds of 
approximately $100.1 million and the 7.3 million shares of common stock issued under the Equity Distribution Agreement with JMP for net proceeds of $92.8 million during the year 
ended December 31, 2016. The Union Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, 
servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.

The Union Bank Facility matures on May 5, 2020, unless sooner terminated in accordance with its terms.

171

In connection with the Union Bank Facility, the Company and Hercules Funding III also entered into the Sale Agreement, by and among Hercules Funding III, as borrower, 

the Company, as originator and servicer, and MUFG Union Bank, as agent. Under the Sale Agreement, the Company agrees to (i) sell or transfer certain loans to Hercules Funding III 
under the Union Bank Facility and (ii) act as servicer for the loans sold or transferred.

The Company had aggregate draws of $90.0 million on the available facility during the year ended December 31, 2016 offset by repayments of $90.0 million. At December 

31, 2016 there were no borrowings outstanding on the Union Bank Facility.

For the years ended December 31, 2016 and 2015, the components of interest expense and related fees and cash paid for interest expense for the previous and current Union 

Bank Facility are as follows:

(in thousands)
Interest expense
Amortization of debt issuance cost (loan fees)

Total interest expense and fees
Cash paid for interest expense and fees

Citibank Credit Facility 

Year Ended December 31,

2016

2015

$

$
$

189
356
545
38

$

$
$

—
61
61
—

The Company, through Hercules Funding Trust I, an affiliated statutory trust, had a securitized credit facility (the “Citibank Credit Facility”) with Citigroup Global Markets 

Realty Corp. (“Citigroup”), which expired under normal terms. During the first quarter of 2009, the Company paid off all principal and interest owed under the Citibank Credit 
Facility. Citigroup has an equity participation right through a warrant participation agreement on the pool of debt investments and warrants collateralized under the Citibank Credit 
Facility. Pursuant to the warrant participation agreement, the Company granted to Citigroup a 10% participation in all warrants held as collateral. However, no additional warrants 
were included in collateral subsequent to the facility amendment on May 2, 2007. As a result, Citigroup is entitled to 10% of the realized gains on the warrants until the realized gains 
paid to Citigroup pursuant to the agreement equal $3,750,000 (the “Maximum Participation Limit”). The obligations under the warrant participation agreement continue even after the 
Citibank Credit Facility is terminated until the Maximum Participation Limit has been reached. 

During the year ended December 31, 2016, the Company reduced its realized gain by approximately $146,000 for Citigroup’s participation from the acquisition proceeds 
received on equity exercised from warrants that were included in the collateral pool. The Company also recorded a decrease in participation liability and an increase in unrealized 
appreciation by a net amount of approximately $16,000 primarily due to depreciation of fair value on the pool of warrants collateralized under the warrant participation and the 
acquisition proceeds received on the Company’s Ping Identity Corporation equity investment. The remaining value of Citigroup’s participation right on unrealized gains in the related 
equity investments is approximately $127,000 as of December 31, 2016 and is included in accrued liabilities. There can be no assurances that the unrealized appreciation of the 
warrants will not be higher or lower in future periods due to fluctuations in the value of the warrants, thereby increasing or reducing the effect on the cost of borrowing. Since 
inception of the agreement, the Company has paid Citigroup approximately $2.4 million under the warrant participation agreement thereby reducing realized gains by this amount. 
The Company will continue to pay Citigroup under the warrant participation agreement until the Maximum Participation Limit is reached or the warrants expire. The remaining 
warrants subject to the Citigroup participation agreement are set to expire in January 2017. 

5. Income Taxes 

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

To qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividends of an amount 

generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for distributions paid, to its 
stockholders. The amount to be paid out as a distribution is determined by the Board of Directors 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.

172

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ 

from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary in nature. Permanent differences are 
reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of 
short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. 

During the year ended December 31, 2016 and 2015, the Company reclassified for book purposes amounts arising from permanent book/tax differences primarily related to 

accelerated revenue recognition for income tax purposes, respectively, as follows:

(in thousands)
Undistributed net investment income (distributions in excess of investment income)
Accumulated realized gains
Additional paid-in capital

Year Ended December 31,

2016

2015

$
$
$

1,644
5,034
(7,020)

$
$
$

(994)
8,767
(7,773)

For income tax purposes, distributions paid to shareholders are reported as ordinary income, return of capital, long-term capital gains or a combination thereof. The tax 

character of distributions paid for the year ended December 31, 2016 was ordinary income in the amount of $91.1 million. The tax character of distributions paid for the year ended 
December 31, 2015 was ordinary income in the amount of $70.6 million and long term capital gains in the amount of $15.3 million.

The aggregate gross unrealized appreciation of the Company’s investments over cost for U.S. federal income tax purposes was $24.7 million and $29.3 million as of 
December 31, 2016 and 2015, respectively. The aggregate gross unrealized depreciation of the Company’s investments under cost for U.S. federal income tax purposes was $114.5 
million and $81.4 million as of December 31, 2016 and 2015, respectively. The net unrealized depreciation over cost for U.S. federal income tax purposes was $89.8 million and 
$52.1 million as of December 31, 2016 and 2015, respectively. The aggregate cost of securities for U.S. federal income tax purposes was $1.5 billion and $1.3 billion as of 
December 31, 2016 and 2015, respectively.

At December 31, 2016 and 2015, the components of distributable earnings on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated 

Statements of Assets and Liabilities by temporary book/tax differences primarily arising from the treatment of loan related yield enhancements. 

(in thousands)
Accumulated Capital Gains
Other Temporary Differences
Undistributed Ordinary Income
Unrealized Depreciation
Components of Distributable Earnings

Year Ended December 31,

2016

2015

$

$

14,893
1,306
19,283
(87,275)
(51,793)

$

$

7,962
4,117
236
(47,498)
(35,183)

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 the 
Company’s ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of the Company’s 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 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).

The Company has taxable subsidiaries which are designed to 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 financial reporting purposes and the portfolio 
investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements, and 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 would be taxed at normal corporate tax rates based on its taxable income.

173

For the year ended December 31, 2016, the Company paid approximately $184,000 of income tax and had approximately $652,000 of accrued but unpaid income tax as of 

December 31, 2016. For the year ended December 31, 2015, the Company paid approximately $751,000 of income tax and did not have an accrued but unpaid amount as of the 
balance sheet date.

The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be 
sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax 
expense in the current year. It is the Company’s policy to recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income 
taxes. 

Based on an analysis of the Company’s tax position, there are no uncertain tax positions that met the recognition or measurement criteria. The Company is currently not 

undergoing any tax examinations. The Company does not anticipate any significant increase or decrease in unrecognized tax benefits for the next twelve months. The 2013- 2015 
federal tax years for the Company remain subject to examination by the Internal Revenue Service. The 2012-2015 state tax years for the Company remain subject to examination by 
the state taxing authorities.

6. Shareholders’ Equity

On August 16, 2013, the Company entered into the Equity Distribution Agreement with JMP and on March 7, 2016, the Company renewed the Equity Distribution 
Agreement. The Equity Distribution Agreement provides that the Company may offer and sell up to 8.0 million shares of its common stock from time to time through JMP, as the 
sales agent. On December 21, 2016 the Equity Distribution Agreement was further amended to increase the numbers of shares by 4.0 million to a total of up to 12.0 million shares 
available. 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, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to 
the prevailing market prices or at negotiated prices.

During the year ended December 31, 2016 the Company sold 7.3 million shares of common stock for total accumulated net proceeds of approximately $92.8 million, 

including $2.2 million of offering expenses. The Company did not sell any shares under the program during the year ended December 31, 2015. 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 December 31, 2016 approximately 4.1 million 
shares remain available for issuance and sale under the equity distribution agreement. See “Note 14 – Subsequent Events”.

On February 24, 2015, the Company’s Board of Directors authorized a stock repurchase plan permitting the Company to repurchase up to $50.0 million of its common stock. 
This plan expired on August 24, 2015. On August 27, 2015, the Company’s Board of Directors authorized a replacement stock repurchase plan permitting the Company to repurchase 
up to $50.0 million of its common stock and on February 17, 2016, the Company’s Board of Directors extended the program until August 23, 2016, after which the plan expired. 
During the month of January 2016, the Company repurchased 449,588 shares of its common stock at an average price per share of $10.64 per share and a total cost of approximately 
$4.8 million. The Company did not make any repurchases in subsequent months during 2016.  During the year ended December 31, 2015, the Company repurchased 437,006 shares of 
its common stock at an average price per share of $10.61 per share and a total cost of approximately $4.6 million. 

On March 27, 2015, the Company raised approximately $100.1 million, after deducting offering expenses of $323,000, in a public offering of 7,590,000 shares of its common 

stock.

At the 2015 Annual Meeting of Stockholders on July 7, 2015, the Company’s common stockholders approved a proposal to allow the Company to issue common stock at a 

discount from its then current net asset value (“NAV”) per share, which was effective until the 2016 annual meeting of stockholders on July 7, 2016. Such authorization was not 
sought at the 2016 annual meeting of stockholders. During the year ended December 31, 2016, the Company has not issued common stock at a discount to NAV.

The Company has issued stock options for common stock subject to future issuance, of which 668,171 and 622,171 were outstanding at December 31, 2016 and December 31, 

2015, respectively.

174

7. Equity Incentive Plan 

The Company and its stockholders have authorized and adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for purposes of attracting and retaining the services of its 

executive officers and key employees. Under the 2004 Plan, the Company is authorized to issue 12.0 million shares of common stock.

The Company and its stockholders have authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan” and, together with the 2004 Plan, the “Plans”) for 

purposes of attracting and retaining the services of its Board of Directors. Under the 2006 Plan, the Company is authorized to issue 1.0 million shares of common stock. The Company 
filed an exemptive relief request with the Securities and Exchange Commission (“SEC”) to allow options to be issued under the 2006 Plan which was approved on October 10, 2007. 

On June 21, 2007, the stockholders approved amendments to the 2004 Plan and the 2006 Plan allowing for the grant of restricted stock. The amended Plans limit the 
combined maximum amount of restricted stock that may be issued under both Plans to 10% of the outstanding shares of the Company’s stock on the effective date of the Plans plus 
10% of the number of shares of stock issued or delivered by the Company during the terms of the Plans. The amendments further specify that no one person shall be granted awards of 
restricted stock relating to more than 25% of the shares available for issuance under the 2004 Plan. Further, the amount of voting securities that would result from the exercise of all of 
the Company’s outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 25% of its outstanding 
voting securities, except that if the amount of voting securities that would result from such exercise of all of the Company’s outstanding warrants, options and rights issued to the 
Company’s directors, officers and employees, together with any restricted stock issued pursuant to the Plans, would exceed 15% of the Company’s outstanding voting securities, then 
the total amount of voting securities that would result from the exercise of all outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, 
at the time of issuance shall not exceed 20% of the Company’s outstanding voting securities. 

On December 29, 2016, the Company’s Board of Directors approved a further amendment and restatement of the 2004 Plan. The amended plan provides, in addition to the 

preexisting types of awards available for grant thereunder and among other things, (1) for the grant of restricted stock units; (2) for the deferral of the receipt of the shares of the 
Company’s common stock underlying vested restricted stock units; (3) that grantees may receive up to 10% of the value of the tentative restricted stock unit grants proposed for any 
grantee in the form of an option to acquire shares of the Company’s common stock; (4) that awards of restricted stock units may include performance vesting conditions; (5) that 
awards may require that all or a portion of the shares of the Company’s common stock delivered in respect of any vested restricted stock unit award be subject to a specified post-
delivery holding period; and (6) that restricted stock unit awards may accrue dividend equivalents in respect of the Company’s common stock underlying any restricted stock unit 
award payable in the form of cash or additional shares of the Company’s common stock to the extent, and in respect of, any vested restricted stock units. As of December 31, 2016, the 
Company has not issued any restricted stock units based on the December 2016 amended terms.

A summary of the restricted stock activity under the Company’s 2006 and 2004 Plans for each of the three periods ended December 31 2016, 2015, and 2014 is as follows: 

Outstanding at December 31, 2013

Granted
Cancelled

Outstanding at December 31, 2014

Granted
Cancelled

Outstanding at December 31, 2015

Granted
Cancelled

Outstanding at December 31, 2016

2006 Plan

2004 Plan

36,668
8,333
—
45,001
19,999
—
65,000
61,666
(3,333)
123,333

2,395,778
981,550
(152,277)
3,225,051
656,341
(312,564)
3,568,828
493,881
(33,610)
4,029,099

175

In 2016, 2015, and 2014, the Company granted approximately 555,547, 676,340 and 989,883 shares, respectively, of restricted stock pursuant to the Plans. All restricted stock 

grants under the 2004 Plan made prior to March 4, 2013 will continue to vest on a monthly basis following their one year anniversary over the succeeding 36 months. During 2012, 
the Compensation Committee adopted a policy that provided for awards with different vesting schedules for short and long-term awards. Under the 2004 Plan, restricted stock 
awarded subsequent to March 3, 2013 will vest subject to continued employment based on two vesting schedules: short-term awards vest one-half on the one year anniversary of the 
date of the grant and quarterly over the succeeding 12 months, and long-term awards vest one-fourth on the one year anniversary of the date of grant and quarterly over the succeeding 
36 months. No restricted stock was granted pursuant to the 2004 Plan prior to 2009.  See “Note 14 —Subsequent Events.”

The Company determined that the fair value of restricted stock granted under the 2006 and 2004 Plans during the years ended December 31, 2016, 2015, and 2014 was 

approximately $6.7 million, $9.2 million and $13.7 million, respectively based on the grant date close price and vesting period of each grant. During the years ended December 31, 
2016, 2015, and 2014 the Company expensed approximately $7.0 million, $9.2 million and $9.2 million of compensation expense related to restricted stock, respectively. As of 
December 31, 2016, there was approximately $7.7 million of total unrecognized compensation costs related to restricted stock. These costs are expected to be recognized over a 
weighted average period of 1.66 years. 

The following table summarizes the activities for the Company’s unvested restricted stock for the years ended December 31, 2016, 2015, and 2014:

Unvested at December 31, 2013

Granted
Vested
Forfeited

Unvested at December 31, 2014

Granted
Vested
Forfeited

Unvested at December 31, 2015

Granted
Vested
Forfeited

Unvested at December 31, 2016

Unvested Restricted Stock Awards

Restricted
Stock Awards

Weighted Average
Grant Date Fair Value

1,035,897
989,883
(570,723)
(152,277)
1,302,780
676,340
(816,484)
(312,564)
850,072
555,547
(569,118)
(36,943)
799,558

$
$
$
$
$
$
$
$
$
$
$
$
$

11.94
13.82
12.00
12.82
13.23
13.67
13.26
13.16
13.59
12.02
13.58
12.70
12.54

The SEC, through an exemptive order granted on June 22, 2010, approved amendments to the Plans which allow participants to elect to have the Company withhold shares of 

the Company’s common stock to pay for the exercise price and applicable taxes with respect to an option exercise (“net issuance exercise”). The exemptive order also permits the 
holders of restricted stock to elect to have the Company withhold shares of the Company’s stock to pay the applicable taxes due on restricted stock at the time of vesting. Each 
individual can make a cash payment at the time of option exercise or to pay taxes on restricted stock. 

176

The following table summarizes the common stock options activities under the Company’s 2006 and 2004 Plans for each of the three periods ended December 31 2016, 2015, 

and 2014: 

Shares Outstanding at December 31, 2013

Granted
Exercised
Forfeited
Expired

Shares Outstanding at December 31, 2014

Granted
Exercised
Forfeited
Expired

Shares Outstanding at December 31, 2015

Granted
Exercised
Forfeited
Expired

Shares Outstanding at December 31, 2016
Shares Expected to Vest at December 31, 2016

Common Stock Options
833,923
426,000
(353,547)
(208,344)
(2,360)
695,672
163,500
(36,331)
(190,006)
(10,664)
622,171
230,000
(36,500)
(82,895)
(64,605)
668,171
281,421

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Weighted Average 
Exercise Price

12.53
15.54
10.76
14.80
13.78
14.58
12.68
10.81
14.83
13.21
14.25
12.16
11.05
13.41
15.05
13.73
13.73

The following table summarizes stock options outstanding and exercisable at December 31, 2016: 

(Dollars in thousands,
except exercise price)

Range of exercise prices
$9.25 - $14.02
$14.60 - $16.34
$9.25 - $16.34

Options outstanding

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic
Value

Weighted
Average
Exercise
Price

6.27 $
4.64
5.45 $

703,067 $
— $
703,067 $

12.00
15.45
13.73

Number
of shares

103,201
283,549
386,750

Number of
shares

332,587
335,584
668,171

Options exercisable

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic
Value

4.89 $
4.51
4.61 $

275,444 $
— $
275,444 $

Weighte
Average
Exercis
Price
11.
15.
14.

Options generally vest 33% one year after the date of grant and ratably over the succeeding 24 months. All options may be exercised for a period ending seven years after the 

date of grant. At December 31, 2016, options for approximately 386,750 shares were exercisable at a weighted average exercise price of approximately $14.38 per share with 
weighted average of remaining contractual term of 4.61 years. 

The Company determined that the fair value of options granted under the 2006 and 2004 Plans during the years ended December 31, 2016, 2015, and 2014 was approximately 
$837,000, $57,000 and $211,000, respectively. During the years ended December 31, 2016, 2015, and 2014, approximately $169,000, $265,000 and $395,000 of share-based cost due 
to stock option grants was expensed, respectively. As of December 31, 2016, there was $117,000 of total unrecognized compensation costs related to stock options. These costs are 
expected to be recognized over a weighted average period of 2.04 years. 

The Company follows ASC Topic 718 (“Compensation – Stock Compensation”) to account for stock options granted. Under ASC Topic 718, compensation expense 
associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair 
value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate and expected option 
life.  The fair value of options granted is based upon a Black Scholes option pricing model using the assumptions in the following table for each of the three periods ended 
December 31, 2016, 2015, and 2014 is as follows: 

Expected Volatility
Expected Dividends
Expected term (in years)
Risk-free rate

2016

Year Ended December 31,
2015

2014

23.73%
10%
4.5

18.94%
10%
4.5

19.90%
10%
4.5

0.87% - 1.98% 

1.08% - 1.70% 

1.21% - 1.66%

177

8. Earnings Per Share 

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

(in thousands, except per share data)
Numerator

Net increase in net assets resulting from operations
Less: Distributions declared-common and restricted shares
Undistributed earnings
Undistributed earnings-common shares
Add: Distributions declared-common shares

Numerator for basic and diluted change in net assets per common share

Denominator
Basic weighted average common shares outstanding
Common shares issuable
Weighted average common shares outstanding assuming dilution

Change in net assets per common share
Basic
Diluted

2016

Year Ended December 31,
2015

2014

68,703
(92,333)
(23,630)
(23,630)
91,065
67,435

$

$

73,753
22
73,775

42,916
(87,438)
(44,522)
(44,522)
85,959
41,437

$

$

69,479
184
69,663

0.91
0.91

$
$

0.60
0.59

$
$

71,188
(78,562)
(7,374)
(7,374)
76,953
69,579

61,862
1,363
63,225

1.12
1.10

$

$

$
$

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 are also included in the denominator for the purpose of calculating diluted earnings per share. For the year ended December 31, 2015, the 

dilutive effect of the 2016 Convertible Notes under the treasury stock method was also included in this calculation because the Company’s share price was greater than the conversion 
price in effect ($11.03 as of December 31, 2015) for the 2016 Convertible Notes for such period. The 2016 Convertible Notes were fully settled on or before their contractual maturity 
date of April 15, 2016, as such there is no potential additional dilutive effect for the year ended December 31, 2016.

The calculation of change in net assets resulting from operations per common share—assuming dilution, excludes all anti-dilutive shares. For the years ended December 31, 

2016, 2015, and 2014, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, was 676,133, 
627,483 and 727,733 shares, respectively. 

At December 31, 2016, the Company was authorized to issue 200 million shares of common stock with a par value of $0.001. Each share of common stock entitles the holder 

to one vote. 

178

9. Financial Highlights 

Following is a schedule of financial highlights for the three years ended December 31, 2016. 

Per share data (1):

Net asset value at beginning of period

Net investment income

Net realized gain on investments
Net unrealized depreciation on investments

Total from investment operations
Net increase (decrease) in net assets from capital share transactions (1)
Distributions of net investment income (6)
Stock-based compensation expense included in investment income (2)

Net asset value at end of period

Ratios and supplemental data:

Per share market value at end of period
Total return(3)
Shares outstanding at end of period

Weighted average number of common shares outstanding

Net assets at end of period
Ratio of total expense to average net assets (4)
Ratio of net investment income before investment gains and losses to average net assets (4)
Portfolio turnover rate (5)
Average debt outstanding

Weighted average debt per common share

Year Ended December 31,

2016

2015

2014

9.94
1.36
0.06
(0.49)
0.93
0.18
(1.25)
0.10
9.90

14.11
26.87%

79,555
73,753
787,944

11.25%
13.65%
36.22%

635,365
8.61

$

$

$

$

$
$

10.18
1.06
0.07
(0.51)
0.62
0.26
(1.26)
0.14
9.94

12.19
(9.70%)

72,118
69,479
717,134

11.55%
10.15%
46.34%

615,198
8.85

$

$

$

$

$
$

10.51
1.16
0.32
(0.33)
1.15
(0.37)
(1.27)
0.16
10.18

14.88
(1.75%)

64,715
61,862
658,864

10.97%
10.94%
56.15%

535,127
8.65

$

$

$

$

$
$

(1)

(2)

(3)

(4)
(5)

(6)

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.
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. 
The total return for the years ended December 31, 2016, 2015 and 2014 equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, 
divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that must be paid by investors.
All ratios are calculated based on weighted average net assets for the relevant period.
The portfolio turnover rate for the years ended December 31, 2016, 2015 and 2014 equals the lesser of investment portfolio purchases or sales during the period, divided by the average investment portfolio value during 
the period. 
Includes distributions on unvested shares.

10. Commitments and Contingencies 

The Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans to the Company’s portfolio companies. A 
portion of these unfunded contractual commitments as of December 31, 2016 are dependent upon the portfolio company reaching certain milestones before the debt commitment 
becomes available. Furthermore, the Company’s credit agreements contain customary lending provisions which allow the Company relief from funding obligations for previously 
made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the Company. Since a 
portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s 
disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones.

At December 31, 2016, the Company had approximately $59.7 million of unfunded commitments, including undrawn revolving facilities, which were available at the request 

of the portfolio company and unencumbered by milestones.

179

The Company also had approximately $55.0 million of non-binding term sheets outstanding at December 31, 2016. Non-binding outstanding term sheets are subject to 

completion of the Company’s due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio 
companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close 
and do not necessarily represent future cash requirements. 

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 a market indices and given the existence of milestones, conditions and/or obligations imbedded 
in the borrowing agreements.

As of December 31, 2016, the Company’s unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and 

unencumbered by milestones are as follows:
(in thousands)
Portfolio Company
NewVoiceMedia Limited
Evernote Corporation
Aquantia Corp.
WP Technology, Inc. (Wattpad, Inc.)
Edge Therapeutics, Inc.
Achronix Semiconductor Corporation
Druva, Inc.
RedSeal Inc.
Total

Unfunded Commitments (1)

15,000
14,000
11,500
7,500
5,000
3,318
3,000
365
59,683

$

$

(1)

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.

Certain premises are leased under agreements which expire at various dates through March 2020. Total rent expense amounted to approximately $1.7 million, $1.7 million and

$1.6 million, during the years ended December 31, 2016, 2015, and 2014, respectively. The Company’s contractual obligations as of December 31, 2016 include: 

Contractual Obligations(1)(2)
Borrowings (3)(4)(6)
Operating Lease Obligations (5)
Total

Total

Less than 1 year

1 - 3 years

3 - 5 years

After 5 years

$

$

667,658
3,362
671,020

$

$

110,364
1,699
112,063

$

$

136,021
1,604
137,625

$

$

83,150
59
83,209

$

$

338,123
—
338,123

Payments due by period  (in thousands)

(1)
(2)
(3)

(4)
(5)
(6)

Excludes commitments to extend credit to the Company’s portfolio companies.
The Company also has a warrant participation agreement with Citigroup. See Note 4 to the Company’s consolidated financial statements. 
Includes $190.2 million in principal outstanding under the SBA debentures, $110.4 million of the 2019 Notes, $252.9 million of the 2024 Notes, $109.2 million  of the 2021 Asset-Backed Notes, and $5.0 million in 
outstanding borrowings on the Wells Facility as of December 31, 2016.
Amounts represent future principal repayments and not the carrying value of each liability. See Note 4 to the Company’s consolidated financial statements. 
Long-Term facility leases.
Reflects announced redemption of the remaining 2019 Notes in 2017. See “Note 14 – Subsequent Events.”

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. 

On December 19, 2016, the Company entered into a Confidential Settlement Agreement (the “Settlement Agreement”) with all defendants in connection with a litigation 

matter (“the Action”) filed in November 2014. In connection with the Settlement Agreement, the Action was settled among the parties and the Company received a settlement 
payment in the amount of $8.0 million. The Settlement Agreement also provides a mutual release by the Company and the defendants of any and all claims and cross-claims that were 
asserted in the Action, the circumstances and events underlying the Action and attorney’s fees and costs related thereto. The Settlement Agreement does not constitute an admission of 
liability, fault, or wrongdoing by any party. The settlement payment was classified as a component of net investment income in the Company’s Consolidated Statement of Operations.

180

11. Indemnification 

The Company has entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the Company’s directors the maximum 

indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shall indemnify the director 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.

The Company and its executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by the Company to the 

maximum extent permitted by Maryland law subject to the restrictions in the 1940 Act. 

12. Concentrations of Credit Risk 

The Company’s customers are primarily privately held companies and public companies which are active in the drug discovery and development, software, sustainable and 

renewable technology, media/content/info, drug delivery, medical devices and equipment, internet consumer and business services, consumer and business products, specialty 
pharmaceuticals, healthcare services, communications and networking, surgical devices, semiconductors, electronics and computer hardware, biotechnology tools, information 
services, and diagnostic industry 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 pay off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrant 

or other equity-related interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Revenue recognition in any given year can be highly 
concentrated among several portfolio companies.

For the years ended December 31, 2016 and December 31, 2015, the Company’s ten largest portfolio companies represented approximately 34.0% and 32.1% of the total fair 
value of the Company’s investments in portfolio companies, respectively. At December 31, 2016 and December 31, 2015, the Company had seven and two investments, respectively, 
that represented 5% or more of the Company’s net assets. At December 31, 2016, the Company had seven equity investments representing approximately 54.7% 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. At December 31, 2015, the Company had four 
equity investments which represented approximately 53.2% 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. 

13. Selected Quarterly Data (Unaudited) 

The following tables set forth certain quarterly financial information for each of the last eight quarters ended December 31, 2016. This information was derived from the 

Company’s unaudited consolidated financial statements. Results for any quarter are not necessarily indicative of results for the full year or for any further quarter. 

(in thousands, except per share data)

Total investment income
Net investment income

Net increase in net assets resulting from operations
Change in net assets resulting from operations per common share (basic)

Total investment income
Net investment income
Net increase in net assets resulting from operations

Change in net assets resulting from operations per common share (basic)

March 31, 2016

June 30, 2016

September 30, 2016

December 31, 2016

Quarter Ended

38,939 $
20,097
14,295

0.20 $

43,538 $
23,354
9,475

0.13 $

Quarter Ended

45,102 $
23,776
30,812

0.41 $

47,472
33,117
14,121
0.18

March 31, 2015

June 30, 2015

September 30, 2015

December 31, 2015

32,494 $
12,993
21,919

0.33 $

38,126 $
16,781
2,752

0.03 $

47,132 $
23,590
4,075

0.05 $

39,380
20,137
14,170
0.20

$

$

$

$

181

14. Subsequent Events 

Distribution Declaration 

On February 16, 2017 the Company’s Board of Directors declared a cash distribution of $0.31 per share to be paid on March 13, 2017 to shareholders of record as of March 6, 

2017. This distribution represents the Company’s forty-sixth consecutive distribution since the Company’s initial public offering, bringing the total cumulative distribution to date to 
$12.78 per share.

Restricted Stock Unit Grants

In January 2017, the Company granted 600,461 restricted stock units pursuant to the Plans.

4.375% Convertible Notes due 2022 

On January 25, 2017, the Company issued $230.0 million in aggregate principal amount of 4.375% Convertible Notes due 2022 (the “2022 Convertible Notes”), which 
amount includes the additional $30.0 million aggregate principal amount of 2022 Convertible Notes issued pursuant to the initial purchaser’s exercise in full of its overallotment 
option. The 2022 Convertible Notes were issued pursuant to an Indenture, dated January 25, 2017 (the “2022 Convertible Notes Indenture”), between the Company and U.S. Bank, 
National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Convertible Notes generated net proceeds of approximately $224.3 million. Aggregate estimated offering 
expenses in connection with the transaction, including the initial purchaser’s discount of approximately $5.2 million, were approximately $5.7 million.

The Company intends to use the net proceeds from this offering (i) to repurchase or otherwise redeem all of its 2019 Notes, (ii) to fund investments in debt and equity 
securities in accordance with its investment objective and (iii) for working capital and other general corporate purposes. The 2022 Convertible Notes will mature on February 1, 2022, 
unless previously converted or repurchased in accordance with their terms. The 2022 Convertible Notes bear interest at a rate of 4.375% per year payable semiannually in arrears on 
February 1 and August 1 of each year, commencing on August 1, 2017.

The 2022 Convertible Notes will be unsecured obligations of the Company and will rank senior in right of payment to the Company’s future indebtedness that is expressly 
subordinated in right of payment to the 2022 Convertible Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; effectively 
junior in right of payment to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets 
securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or 
similar facilities.

Prior to the close of business on the business day immediately preceding August 1, 2021, holders may convert their 2022 Convertible Notes only under certain circumstances 

set forth in the 2022 Convertible Notes Indenture. On or after August 1, 2021 until the close of business on the scheduled trading day immediately preceding the Maturity Date, 
holders may convert their 2022 Convertible Notes at any time. Upon conversion, the Company will pay or deliver, as the case may be, at its election, cash, shares of its common stock 
or a combination of cash and shares of its common stock. The conversion rate is initially 60.9366 shares of common stock per $1,000 principal amount of 2022 Convertible Notes 
(equivalent to an initial conversion price of approximately $16.41 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be 
adjusted for any accrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, the Company will increase the conversion rate for a holder who 
elects to convert its 2022 Convertible Notes in connection with such a corporate event in certain circumstances.

The Company may not redeem the 2022 Convertible Notes at its option prior to maturity. No sinking fund is provided for the 2022 Convertible Notes. In addition, if certain 
corporate events occur in respect of the Company, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes 
at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required 
repurchase date.

The 2022 Convertible Notes Indenture contains certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61

(a)(1) of the 1940 Act and to provide financial information to the holders of the 2022 Convertible Notes and the 2022 Trustee if the Company ceases to be subject to the reporting 
requirements of the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the 2022 Convertible Notes Indenture. The Company 
offered and sold the 2022 Convertible Notes to the initial purchaser in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, for resale by the 
initial purchaser to qualified institutional buyers (as defined in the Securities Act) pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The 
Company relied on these exemptions from registration based in part on representations made by the initial purchaser in connection with the sale of the 2022 Convertible Notes.

182

2019 Notes – Redemption

On January 25, 2017, the Company’s Board of Directors approved a redemption of the remaining $110.4 million of outstanding aggregate principal amount of the 2019 Notes, 

and notice for such redemption has been provided. The Company has publicly announced its intention to redeem the remaining 2019 Notes on February 24, 2017.

ATM Debt Program Issuances

Subsequent to December 31, 2016 and as of February 17, 2017, the Company sold 225,457 notes of the 2024 Notes through the 2024 Notes Agent for approximately $5.6 

million in aggregate principal amount under the ATM debt distribution agreement with FBR Capital Markets & Co. As of February 17, 2017, approximately $136.4 million in 
aggregate principal amount remains available for issuance and sale under the debt distribution agreement. 

ATM Equity Program Issuances

Subsequent to December 31, 2016 and as of February 17, 2017, the Company sold 3.3 million shares of common stock for total accumulated net proceeds of approximately 

$47.1 million, including $356,000 of offering expenses, under the Equity Distribution Agreement with JMP. As of February 17, 2017 approximately 751,000 shares remain available 
for issuance and sale under the equity distribution agreement.

Portfolio Company Developments 

As of February 17, 2017, the Company held warrants or equity positions in six companies that have filed registration statements on Form S-1 with the SEC in contemplation 

of potential initial public offerings. All six companies filed confidentially under the Jumpstart Our Business Startups Act of 2012. There can be no assurance that these companies will 
complete their initial public offerings in a timely manner or at all. In addition, subsequent to December 31, 2016, the Company’s portfolio companies announced the following events: 

1.

In February 2017, the Company’s portfolio company Jaguar Animal Health, Inc. entered into a binding agreement to merge with Napo Pharmaceuticals, a company that 
focuses on the development and commercialization of proprietary pharmaceuticals for the global marketplace in collaboration with local partners.

183

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable. 

Item 9A.

Controls and Procedures 

1. Disclosure Controls and Procedures 

The Company’s chief executive and chief financial officers, under the supervision and with the participation of the Company’s management, conducted an evaluation of the 
Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. As of the end of the period covered by this Annual Report, the 
Company’s chief executive and chief financial officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be 
disclosed by the Company in reports that the Company files or submits 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 the Company in the reports that the Company files or submits under the Exchange Act is accumulated and 
communicated to the Company’s management, including the Company’s chief executive and chief financial officers, as appropriate to allow timely decisions regarding required 
disclosure. 

2. Internal Control Over Financial Reporting

a. Management’s Annual Report on Internal Control over Financial Reporting 

The Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control 

over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and 
principal financial and accounting officer, approved and monitored by the Company’s Board of Directors, and implemented by management and other personnel, to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. 

The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that, in reasonable 

detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit 
preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the 
Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s 
assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to 

future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate. 

Management of the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on 

criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO 
Framework”). Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2016. 

Report of the Independent Registered Public Accounting Firm 

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent 

registered public accounting firm who also audited the Company’s consolidated financial statements, as stated in their report, which is included in this Annual Report on Form 10K. 

Changes in Internal Control over Financial Reporting in 2016 

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

Item 9B.

Other Information 

None.

184

Item 10.

Directors, Executive Officers and Corporate Governance 

PART III

Information in response to this Item is incorporated herein by reference to the information provided in the Company’s definitive Proxy Statement for the Company’s 2017 

Annual Meeting of Shareholders (the “2017 Proxy Statement”) to be filed with the SEC pursuant to Regulation 14A under the Exchange Act under the headings “Proposal I: Election 
Of Directors,” “Information About Executive Officers Who Are Not Directors” and “Certain Relationships And Transactions.” 

The Company has adopted a code of business conduct and ethics that applies to directors, officers and employees. The code of business conduct and ethics is available on the 

Company’s website at http//www.htgc.com. The Company will report any amendments to or waivers of a required provision of the code of business conduct and ethics on the 
Company’s website or in a Form 8-K. 

Item 11.

Executive Compensation 

The information with respect to compensation of executives and directors is contained under the caption “Executive Compensation” in the Company’s 2017 Proxy Statement 

and is incorporated in this Annual Report by reference in response to this item. 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 

The information with respect to security ownership of certain beneficial owners and management is contained under the captions “Security Ownership of Certain Beneficial 
Owners and Management” and “Executive Compensation” in the Company’s 2017 Proxy Statement and is incorporated in this Annual Report by reference in response to this item. 

Item 13.

Certain Relationships and Related Transactions and Director Independence 

The information with respect to certain relationships and related transactions is contained under the caption “Certain Relationships and Transactions” and the caption 

“Proposal I: Election of Directors” in the Company’s 2017 Proxy Statement and is incorporated in this Annual Report by reference in response to this item. 

Item 14.

Principal Accountant Fees and Services 

The information with respect to principal accountant fees and services is contained under the captions “Principal Accountant Fees and Services” and “Proposal II: Ratification 

of Selection of Independent Registered Public Accountants” in the Company’s 2017 Proxy Statement and is incorporated in this Annual Report by reference to this item.

185

Item 15.

Exhibits and Financial Statement Schedules 

1.

Financial Statements

PART IV

The following financial statements of Hercules Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.; the “Company” or the 

“Registrant”) are filed herewith:

AUDITED FINANCIAL STATEMENTS
Consolidated Statements of Assets and Liabilities as of December 31, 2016 and December 31, 2015
Consolidated Statements of Operations for the three years ended December 31, 2016
Consolidated Statements of Changes in Net Assets for the three years ended December 31, 2016
Consolidated Statements of Cash Flows for the three years ended December 31, 2016
Consolidated Schedule of Investments as of December 31, 2016
Consolidated Schedule of Investments as of December 31, 2015
Notes to Consolidated Financial Statements

The following financial statement schedule is filed herewith:

Consolidated Schedule of Investments In and Advances to Affiliates as of December 31, 2016

Exhibits required to be filed by Item 601 of Regulation S-K.

2.

3.

111
113
114
115
116
131
146

187

Item 16.

Form 10-K Summary

Not applicable.

186

HERCULES CAPITAL, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES
As of and for the year ended December 31, 2016
(in thousands)

Schedule 12-14

Portfolio Company
Control Investments

Majority Owned Control Investments

Achilles Technology Management Co II, Inc.(5)

Total Majority Owned Control Investments

Other Control Investments

SkyCross, Inc.(5)

Total Other Control Investments

Total Control Investments

Affiliate Investments
Optiscan BioMedical, Corp.

Stion Corporation

Total Affiliate Investments

Total Control and Affiliate Investments

Investment(1)

Senior Debt
Common Stock

Senior Debt
Preferred Warrants

Senior Debt
Preferred Stock
Preferred Warrants
Senior Debt

Amount of
Interest
Credited to
Income(2)

As of
December 31,
2015
Fair Value

Gross
Additions (3)

Gross
Reductions (4)

Net Change in
Unrealized
Appreciation/
(Depreciation)

As of
December 31,
2016
Fair Value

78
—
78 $

— $
—
— $
78 $

12 $
—
—
148
160 $
238 $

—
—
— $

— $
—
— $
— $

— $

6,661
312
1,013
7,986 $
7,986 $

1,304
4,000
5,304 $

16,900 $
394
17,294 $
22,598 $

431 $

1,135
—
—
1,566 $
24,164 $

—
—
— $

(13,479) $
(394)
(13,873) $
(13,873) $

(431) $
—
—
(1,866)
(2,297) $
(16,170) $

—
(604)
(604) $

(3,421) $
—
(3,421) $
(4,025) $

— $

(3,267)
(142)
1,187
(2,222) $
(6,247) $

$

$

$
$

$

$
$

1,304
3,396
4,700

—
—
—
4,700

—
4,529
170
333
5,032
9,732

(1)
(2)
(3)

(4)

(5)

Stock and warrants are generally non-income producing and restricted. The principal amount for debt is shown in the Consolidated Schedule of Investments as of  December 31, 2016.
Represents the total amount of interest or dividends credited to income for the year an investment was an affiliate or control investment. 
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. 
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.
In June 2016, the Company’s investments in SkyCross, Inc. became classified as a control investment as a result of obtaining more than 50% representation on a portfolio company’s board. In June 2016 the Company 
also acquired 100% ownership of the equity of Achilles Technology Management Co II, Inc. and classified it as a control investment in accordance with the requirements of the 1940 Act. In June 2016, Achilles 
Technology Management Co II, Inc. acquired the assets of a global antenna company that produces radio frequency system solutions as part of an article 9 consensual foreclosure and public auction for total consideration 
in the amount of $4.0 million. In September and November 2016 the Company made a $1.0 million and $250,000 debt investment, respectively, in Achilles Technology Management II to provide working capital under 
the terms of a loan servicing agreement. The Company’s investments in Achilles Technology Management Co II, Inc. are carried on the consolidated statement of assets and liabilities at fair value.

187

3. Exhibits 

Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other 

factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable 
agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at 
any other time. 

Exhibit 
Number

Description

3(a)

3(b)

3(c)

3(d)

3(e)

3(f)

4(a)

4(b)

4(c)

4(d)

4(e)

4(f)

4(g)

4(h)

4(i)

4(j)

4(k)

4(l)

4(m)

4(n)

4(o)

4(p)

4(q)

4(r)

4(s)

4(t)

4(u)

4(v)

4(w)

Articles of Amendment and Restatement.(3)

Articles of Amendment, dated March 6, 2007.(7)

Articles of Amendment, dated April 5, 2011.(22)

Articles of Amendment, dated April 6, 2015.(43)

Articles of Amendment, dated February 25, 2016.(49)

Amended and Restated Bylaws.(49)

Specimen certificate of the Company’s common stock, par value $.001 per share. (60)

Form of Dividend Reinvestment Plan.(1)

Indenture between Hercules Funding Trust I and U.S. Bank National Association, dated as of August 1, 2005.(2)

Indenture between Hercules Technology Growth Capital, Inc. and U.S. Bank National Association, dated as of April 15, 2011.(23)

Form of Note under the Indenture, dated as of April 15, 2011.(23)

Indenture between the Registrant and U.S. Bank National Association, dated as of March 6, 2012.(26)

First Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of April 17, 2012.(26)

Second Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of September 24, 2012.(29) 

Third Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of July 14, 2014.(39)

Form of 7.00% Senior Note due 2019, dated as of April 17, 2012 (Existing April 2019 Note) (included as part of Exhibit 4(g)).(26)

Form of 7.00% Senior Note due 2019, dated as of July 6, 2012 (Additional April 2019 Note).(27)

Form of 7.00% Senior Note due 2019, dated as of July 12, 2012 (Over-Allotment April 2019 Note).(28)

Form of 7.00% Senior Note due 2019, dated as of September 24, 2012 (September 2019 Note) (included as part of Exhibit 4(h)).(29)

Form of 7.00% Senior Note due 2019, dated as of October 2, 2012 (Over-Allotment September 2019 Note).(30)

Form of 7.00% Senior Note due 2019, dated as of October 17, 2012 (Over-Allotment II September 2019 Note).(31)

Form of 6.25% Note due 2024, dated as of July 14, 2014 (July 2024 Note) (included as part of Exhibit 4(i)).(39)

Form of 6.25% Note due 2024, dated as of August 11, 2014 (Over-Allotment July 2024 Note).(40)

Form of 6.25% Note due 2024, dated May 2, 2016 (Additional July 2024 Note).(52)

Form of 6.25% Note due 2024, June 27, 2016 (Additional July 2024 Note).(53)

Form of 6.25% Note due 2024, July 5, 2016 (Additional July 2024 Note).(54)

Form of 6.25% Note due 2024, October 11, 2016 (Additional July 2024 Note).(56)

Indenture, dated January 25, 2017, between Hercules Capital, Inc. and U.S. Bank, National Association, as Trustee.(57)

Form of 4.375% Convertible Note Due 2022 (included as part of Exhibit 4(v)).(57)

188

Exhibit 
Number
10(a)

10(b)

10(c)

10(d)

10(e)

10(f)

10(g)

10(h)

10(i)

10(j)

10(k)

10(l)

10(m)

10(n)

10(o)

10(p)

10(q)

10(r)

10(s)

10(t)

10(u)

10(v)

10(w)

10(x)

Description
Credit Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding, L.L.C., dated as of April 12, 2005.(3)

Pledge and Security Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding, L.L.C., dated as of April 12, 2005.(3)

First Amendment to Credit and Pledge Security Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding L.L.C., dated as of August 1, 
2005.(2)

Second Amendment to Credit and Pledge and Security Agreement by and among Hercules Technology Growth Capital, Inc. and Alcmene Funding, L.L.C., as 
lender and administrative agent for the lenders, dated as of March 6, 2006.(12)

Loan Sale Agreement between Hercules Funding LLC and Hercules Technology Growth Capital, Inc., dated as of August 1, 2005.(2)

Sale and Servicing Agreement among Hercules Funding Trust I, Hercules Funding LLC, Hercules Technology Growth Capital, Inc., U.S. Bank National 
Association and Lyon Financial Services, Inc., dated as of August 1, 2005.(2)

Note Purchase Agreement among Hercules Funding Trust I, Hercules Funding I LLC, Hercules Technology Growth Capital, Inc. and Citigroup Global Markets 
Realty Corp., dated as of August 1, 2005.(2)

Hercules Capital, Inc. Amended and Restated 2004 Equity Incentive Plan.(10)

Hercules Technology Growth Capital, Inc. 2006 Non-Employee Director Plan (2007 Amendment and Restatement).(11)

Form of Custody Agreement between the Company and Union Bank of California.(3)

Form of Restricted Stock Unit Award Agreement.(10)

Subscription Agreement by and among the Company and the subscribers named therein, dated as of March 2, 2006.(17)

Form of Incentive Stock Option Award under the 2004 Equity Incentive Plan.(3)

Form of Nonstatutory Stock Option Award under the 2004 Equity Incentive Plan.(3)

Form of Registrar Transfer Agency and Service Agreement between the Company and American Stock Transfer & Trust Company.(3)

Warrant Agreement, dated as of June 22, 2004, between the Company and American Stock Transfer & Trust Company, as warrant agent.(9)

Subscription Agreement, dated as of February 2, 2004, between the Company and the subscribers named therein.(3)

Lease Agreement, dated as of June 13, 2006, between the Company and 400 Hamilton Associates.(4)

Third Amendment to Sale and Servicing Agreement among Hercules Funding Trust I, Hercules Funding LLC, Hercules Technology Growth Capital, Inc., U.S. Bank 
National Association and Lyon Financial Services, Inc., dated as of July 28, 2006.(5)

Second Omnibus Amendment by and among Hercules Funding Trust I, Hercules Funding I LLC, Hercules Technology Growth Capital, Inc., U.S. Bank National 
Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of December 6, 2006.(6)

Fifth Amendment to Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I, LLC, Hercules Technology Growth Capital, Inc., 
U.S. Bank National Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of March 30, 2007.(13)

Amended and Restated Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I LLC, the Company, U.S. Bank National 
Association, Lyon Financial Services, Inc., Citigroup Global Markets Inc., and Deutsche Bank AG, dated as of May 2, 2007.(14)

Fourth Amendment to the Warrant Participation Agreement by and among Hercules Technology Growth Capital, Inc. and Citigroup Global Markets Realty Corp., 
dated as of May 2, 2007.(15)

Amended and Restated Note Purchase Agreement by and among the Company, Hercules Funding Trust I, Hercules Funding I LLC, and Citigroup Global Markets, 
Inc., dated as of May 2, 2007.(15)

189

Exhibit 
Number
10(y)

10(z)

10(aa)

10(bb)

10(cc)

10(dd)

10(ee)

10(ff)

10(gg)

10(hh)

10(ii)

10(jj)

10(kk)

10(ll)

Description
First Amendment to Amended and Restated Note Purchase Agreement by and among the Company, Hercules Funding Trust I, Hercules Funding I LLC, and 
Citigroup Global Markets, Inc., dated as of May 7, 2008.(16)

Second Amendment to Amended and Restated Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I LLC, the Company, U.S. 
Bank National Association, Lyon Financial Services, Inc., Citigroup Global Markets Inc., and Deutsche Bank AG, dated as of May 7, 2008.(16)

Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Foothill, LLC, dated as of August 25, 2008.(18)

Sale and Servicing Agreement among Hercules Funding II LLC, the Company, Lyon Financial Services, Inc., and Wells Fargo Foothill, LLC, dated as of 
August 25, 2008.(18)

Form of SBA Debenture.(19)

First Amendment to Loan and Security Agreement by and among Hercules Funding II, LLC and Wells Fargo Foothill, LLC, dated as of April 30, 2009.(20)

Loan and Security Agreement by Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated as of February 10, 2010.(21)

Amended and Restated Loan and Security Agreement between the Company and Union Bank, N.A., dated as of November 2, 2011.(25)

Second Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, 
LLC), dated as of June 20, 2011.(24)

First Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated 
as of March 30, 2012.(32)

Third Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, 
LLC), dated as of August 1, 2012.(33)

Second Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank, N.A., 
dated as of September 17, 2012.(34)

Third Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated
as of December 17, 2012.(36)

First Omnibus Amendment by and among Hercules Funding Trust I, Hercules Funding I, LLC, Hercules Technology Growth Capital, Inc., U.S. Bank National 
Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of March 6, 2006.(12)

10(mm)

Intercreditor Agreement among Hercules Technology Growth Capital, Inc., Alcmene Funding, L.L.C. and Citigroup Global Markets Realty Corp., dated as of 
March 6, 2006.(12)

10(nn)

10(oo)

10(pp)

10(qq)

10(rr)

10(ss)

Warrant Participation Agreement between the Company and Citigroup Global Markets Realty Corp., dated as of August 1, 2005.(35)

Indenture by and between Hercules Capital Funding Trust 2012-1 and U.S. Bank National Association, dated as of December 19, 2012.(36)

Amended and Restated Trust Agreement by and between Hercules Capital Funding 2012-1 LLC and Wilmington Trust, National Association, dated as of 
December 19, 2012.(36)

Sale and Servicing Agreement by and Among Hercules Capital Funding 2012-1 LLC, Hercules Capital Funding Trust 2012-1 LLC, Hercules Technology Growth 
Capital, Inc. and U.S. Bank National Association, dated as of December 19, 2012.(36)

Sale and Contribution Agreement by and between Hercules Technology Growth Capital, Inc. and Hercules Capital Funding 2012-1 LLC, dated as of December 19, 
2012.(36)

Note Purchase Agreement among the Hercules Technology Growth Capital, Inc., Hercules Capital Funding 2012-1 LLC, as Trust Depositor, Hercules Capital 
Funding Trust 2012-1, as Issuer, and Guggenheim Securities, LLC, as Initial Purchaser, dated as of December 12, 2012.(36)

190

Exhibit 
Number
10(tt)

10(uu)

10(vv)

10(ww)

10(xx)

10(yy)

10(zz)

10(aaa)

10(bbb)

10(ccc)

10(ddd)

10(eee)

10(fff)

10(ggg)

10(hhh)

10(iii)

10(jjj)

10(kkk)

10(lll)

11.1

14.1

14.2

21.1*

23.1*

Description
Administration Agreement between Hercules Capital Funding Trust 2012-1LLC, Hercules Technology Growth Capital, Inc., Wilmington Trust, National 
Association, and U.S. Bank National Association, dated as of December 19, 2012.(36) 

Third Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated
as of December 19, 2012.(36)

Fourth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank, N.A., 
dated as of December 2, 2013.(37)

Fifth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and MUFG Union Bank, 
N.A., dated as of January 31, 2014.(37)

Sixth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and MUFG Union Bank, 
N.A., dated as of July 8, 2014.(38)

Second Amended and Restated Loan and Security Agreement by and among Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated as of August 
14, 2014.(41)

Fifth Amendment to Loan and Security Agreement by and among Hercules Funding II, LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, 
LLC), dated as of August 8, 2014.(42)

Form of Amended and Restated Indemnification Agreement.(59)

Seventh Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital, LLC (f/k/a Wells Fargo Foothill, LLC), 
dated as of May 6, 2015.(44)

Amended and Restated Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, 
LLC), dated as of June 29, 2015.(45)

Amended and Restated Sale and Servicing Agreement by and among Hercules Funding II LLC, Hercules Technology Growth Capital, Inc., and Wells Fargo Capital 
Finance, LLC (f/k/a Wells Fargo Foothill, LLC), dated as of June 29, 2015.(45)

First Amendment and Waiver to Second Amended and Restated Loan and Security Agreement by and among Hercules Technology Growth Capital, Inc. and MUFG
Union Bank, N.A., dated as of November 3, 2015.(47)

First Amendment to Amended and Restated Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a 
Wells Fargo Foothill, LLC), dated as of December 16, 2015.(48)

Second Amendment to Amended and Restated Loan and Security Agreement by and among Hercules
Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC), dated as
of March 8, 2016. (58)

Third Amendment to Amended and Restated Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a 
Wells Fargo Foothill, LLC), dated as of April 7, 2016.(50)

Loan and Security Agreement by and among Hercules Funding III, LLC, as borrower, MUFG Union Bank, N.A., as the arranger and administrative agent, and the 
lenders party thereto from time to time, dated as of May 5, 2016.(51)

Sale and Servicing Agreement by and among Hercules Funding III LLC, as borrower, Hercules Capital, Inc., as originator and servicer, and MUFG Union Bank, 
N.A., as agent, dated as of May 5, 2016.(51)

First Amendment to Loan and Security Agreement by and among Hercules Funding III LLC, as borrower, MUFG Union Bank, N.A., as the arranger and 
administrative agent, and the lenders party thereto from time to time, dated as of July 14, 2016.(55)

Form of Performance Restricted Stock Unit Award Agreement.(10)

Computation of per share earnings (included in the notes to the audited financial statements included in this report).

Code of Ethics.(8)

Code of Business Conduct and Ethics.(46)

List of Subsidiaries. 

Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 

191

Exhibit 
Number
31.1*

31.2*

32.1*

32.2*

(1)

(2)
(3)

(4)

(5)

(6)

(7)
(8)

(9)

(10)

(11)

(12)

(13)
(14)

(15)

(16)

(17)

(18)
(19)

(20)

(21)

(22)

(23)
(24)

(25)

(26)

(27)

(28)
(29)

(30)

(31)

(32)

(33)
(34)

Description
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 
1350), as amended. 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 
1350), as amended.

Previously filed as part of Pre-Effective Amendment No. 2, as filed on June 8, 2005 (Registration No. 333-122950), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 5, 2005. 
Previously filed as part of Pre-Effective Amendment No. 1, as filed on May 17, 2005 (File No. 333-122950) to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 1, 2006. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 3, 2006. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 6, 2006. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on March 9, 2007. 
Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 13, 2015.

Previously filed as part of the Registration Statement on Form N-2 of the Company (File No. 333-122950), as filed on February 22, 2005. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on January 5, 2017.

Previously filed as part of the Securities to be Offered to Employees in Employee Benefit Plans on Form S-8, as filed on October 2, 2007. 

Previously filed as part of the Post-Effective Amendment No. 3, as filed on March 9, 2006 (File No. 333-126604), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 3, 2007. 
Previously filed as part of the Current Report on Form 8-K of the Company, as filed on May 4, 2007. 

Previously filed as part of the Pre-Effective Amendment No. 1, as filed on May 15, 2007 (File No. 333-141828), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of Pre-Effective Amendment No. 2, as filed on June 5, 2008 (File No. 333-150403), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Post-Effective Amendment No. 3, as filed on March 9, 2006 (File No. 333-126604), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 27, 2008. 
Previously filed as part of the Annual Report on Form 10-K of the Company, as filed on March 16, 2009. 

Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 11, 2009. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 17, 2010. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 11, 2011. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 18, 2011. 
Previously filed as part of the Current Report on Form 8-K of the Company, as filed on June 24, 2011. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on November 4, 2011. 

Previously filed as part of Post-Effective Amendment No. 1, as filed on April 17, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of Post-Effective Amendment No. 2, as filed on July 6, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of Post-Effective Amendment No. 3, as filed on July 12, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 
Previously filed as part of Post-Effective Amendment No. 5, as filed on September 24, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of Post-Effective Amendment No. 7, as filed on October 2, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of Post-Effective Amendment No. 8, as filed on October 17, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 8, 2012. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 2, 2012. 
Previously filed as part of Post-Effective Amendment No. 4, as filed on September 19, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company. 

192

(35)

(36)

(37)

(38)
(39)

Previously filed as part of the Pre-Effective Amendment No. 1, as filed on October 17, 2006 (File No. 333-136918), to the Registration Statement on Form N-2 of the Company. 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 20, 2012. 

Previously filed as part of the Annual report on Form 10-K of the Company, as filed on February 27, 2014.

Previously filed as part of Post-Effective Amendment No. 4, as filed on July 11, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.
Previously filed as part of Post-Effective Amendment No. 5, as filed on July 14, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.

(40) 

Previously filed as part of Post-Effective Amendment No. 6, as filed on August 11, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.

(41)

(42)

(43)
(44)

(45)

(46)

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 19, 2014.

Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on November 6, 2014.

Previously filed as part of the Registration Statement on Form N-2 of the Company (File No. 333-203511), as filed on April 20, 2015.
Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 7, 2015.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on June 30, 2015.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 13, 2015.

(47) 

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on November 13, 2015.

(48)

(49)
(50)

(51)

(52)

(53)

(54)
(55)

(56)

(57)

(58)

(59)
(60)

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 18, 2015.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 25, 2016.
Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 11, 2016.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on May 10, 2016.

Previously filed as part of Post-Effective Amendment No. 3, as filed on May 2, 2016 (File No. 333-203511), to the Registration Statement on Form N-2 of the Company.

Previously filed as part of Post-Effective Amendment No. 6, as filed on June 27, 2016 (File No. 333-203511), to the Registration Statement on Form N-2 of the Company.

Previously filed as part of Post-Effective Amendment No. 7, as filed on July 5, 2016 (File No. 333-203511), to the Registration Statement on Form N-2 of the Company.
Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 19, 2016.

Previously filed as part of the Post-Effective Amendment No. 10, as filed on October 14, 2016 (File No. 333-203511), to the Registration Statement on Form N-2 of the Company.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on January 25, 2017.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on March 8, 2016.

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 22, 2016.
Previously filed as part of the Annual report on Form 10-K of the Company, as filed on February 25, 2015.

*

Filed herewith 

193

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the 

undersigned, thereunto duly authorized. 

SIGNATURES 

HERCULES CAPITAL, INC.

Date: February 23, 2017

By:

/S/ MANUEL A. HENRIQUEZ
Manuel A. Henriquez
Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the following capacities 

on February 23, 2017. 

Signature

Title

/S/ MANUEL A. HENRIQUEZ
Manuel A. Henriquez

Chairman of the Board, President and Chief 
Executive Officer (Principal Executive Officer)

/S/ MARK HARRIS
Mark Harris

/S/ ROBERT P. BADAVAS
Robert P. Badavas

/S/ THOMAS J. FALLON
Thomas Fallon

/S/ JOSEPH F. HOFFMAN
Joseph F. Hoffman

/S/ SUSANNE D. LYONS
Susanne D. Lyons

/S/ DOREEN WOO HOO
Doreen Woo Ho

/S/ ALLYN C. WOODWARD, JR
Allyn C. Woodward, Jr.

Chief Financial Officer
(Principal Accounting Officer)

Director

Director

Director

Director

Director

Director

194

Date

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

Exhibit
Number

21.1

23.1

31.1

31.2

32.1

32.2

Descriptions

List of Subsidiaries.

EXHIBIT INDEX

Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 

Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to 
Section 302 of Sarbanes-Oxley Act of 2002, as amended.

Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to 
Section 302 of Sarbanes-Oxley Act of 2002, as amended.

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

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

List of Subsidiaries

Exhibit 21.1

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Section 2: EX-21 (EX-21.1)

Hercules Technology II, L.P. 

Hercules Technology III, L.P. 

Hercules Technology IV, L.P. 

Hercules Technology SBIC Management, LLC 

Hercules Funding II, LLC 

Hercules Funding III, LLC

Hercules Technology Management Co II Inc. 

Hercules Technology Management Co III Inc. 

Hercules Technology Management Co V Inc. 

Hercules Technology I, LLC 

Hercules Technology II, LLC 

Hydra Ventures LLC 

Hercules Capital Funding Trust 2014-1

Hercules Capital Funding 2014-1 LLC 

Achilles Technology Management Co., Inc.

Achilles Technology Management Co I, Inc.

Achilles Technology Management Co II, Inc.(1)

(1)

Subsidiary is not consolidated for financial reporting purposes. The Company’s investments in Achilles Technology Management Co II, Inc. are carried on the consolidated statement of assets and liabilities at fair 
value and are classified as control investments.

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Section 3: EX-23 (EX-23.1)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-144002, 333-146445, 333-189474 and 333-206633) of Hercules 
Capital, Inc. of our report dated February 23, 2017 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, 
which appears in this Form 10-K.

Exhibit 23.1

/s/ PricewaterhouseCoopers LLP 

San Francisco, California
February 23, 2017

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Section 4: EX-31 (EX-31.1)

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

Exhibit 31.1

I, Manuel A. Henriquez, Chairman, and President, Chief Executive Officer and Director of the Company, certify that: 

1. I have reviewed this annual report on Form 10-K of Hercules Capital, Inc. (the “registrant”) for the year ended December 31, 2016; 

AS AMENDED 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light 

of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, 

results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15

(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material 
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this 
report is being prepared; 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted 
accounting principles; 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the 

disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the 
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over 
financial reporting; and 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and 

the audit committee of registrant’s board of directors (or persons performing the equivalent functions): 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely 

affect the registrant’s ability to record, process, summarize and report financial information; and 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial 

reporting. 

Date: February 23, 2017

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Section 5: EX-31 (EX-31.2)

By:

/S/ MANUEL A. HENRIQUEZ
Manuel A. Henriquez
Chairman, President, and Chief Executive Officer

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED 

Exhibit 31.2

I, Mark R. Harris, Chief Financial Officer, certify that: 

1. I have reviewed this annual report on Form 10-K of Hercules Capital, Inc. (the “registrant”) for the year ended December 31, 2016; 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light 

of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, 

results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15

(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material 
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this 
report is being prepared; 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted 
accounting principles; 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the 

disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the 
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over 
financial reporting; and 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and 

the audit committee of registrant’s board of directors (or persons performing the equivalent functions): 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely 

affect the registrant’s ability to record, process, summarize and report financial information; and 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial 

reporting. 

Date: February 23, 2017

By:

/S/ MARK R. HARRIS
Mark R. Harris
Chief Financial Officer

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Section 6: EX-32 (EX-32.1)

CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

Exhibit 32.1

In connection with the accompanying Annual Report of Hercules Capital, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016 (the “Report”) as filed 
with the Securities and Exchange Commission on the date hereof, I, Manuel A. Henriquez, Chairman, and President, Chief Executive Officer and Director of the Company, certify, to 
the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes Oxley Act of 2002, that: 

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

Date: February 23, 2017

By:

/S/ MANUEL A. HENRIQUEZ
Manuel A. Henriquez
Chairman, President, and Chief Executive Officer

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Section 7: EX-32 (EX-32.2)

CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

Exhibit 32.2

In connection with the accompanying Annual Report of Hercules Capital, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016 (the “Report”) as filed 

with the Securities and Exchange Commission on the date hereof, I, Mark R. Harris, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 
U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: 

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

Date: February 23, 2017

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By:

/S/ MARK R. HARRIS
Mark R. Harris
Chief Financial Officer