Neostellar Capital Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This annual report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including, without limitation, statements as to: ● the effect and consequences of the novel coronavirus (“COVID-19”) public health crisis on matters including global, U.S. and local economies, our business operations and continuity, potential disruption to our portfolio companies, tightened availability to capital and financing, the health and productivity of our employees, the ability of third-party providers to continue uninterrupted service, and the regulatory environment in which we operate; ● our future operating results; ● our business prospects and the prospects of our portfolio companies; ● the impact of investments that we expect to make; ● our contractual arrangements and relationships with third parties; ● the dependence of our future success on the general economy and its impact on the industries in which we invest; ● the ability of our portfolio companies to achieve their objectives; ● our expected financings and investments; ● the adequacy of our cash resources and working capital; and ● the timing of cash flows, if any, from the operations of our portfolio companies. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: ● an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; ● an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio; ● a contraction of available credit and/or an inability to access the equity markets could impair our investment activities; ● increases in inflation or an inflationary economic environment could adversely affect our portfolio companies’ operating results, causing us to suffer losses in our portfolio; ● interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; and ● the risks, uncertainties and other factors we identify in the sections entitled “Risk Factors” in our quarterly reports on Form 10-Q, our annual report on Form 10-K, and in our other filings with the SEC. 56 TABLE OF CONTENTS Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report on Form 10-K should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in our quarterly reports on Form 10-Q and our annual report on Form 10-K, in the “Risk Factors” sections. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report on Form 10-K. The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this annual report on Form 10-K. Overview We are an internally-managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments, and to a lesser extent, income from debt investments. We invest principally in the equity securities of what we believe to be rapidly growing venture-capital-backed emerging companies. We acquire our investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. In addition, we may invest in private credit and in the founders equity, founders warrants, forward purchase agreements, and private investment in public equity (“PIPE”) transactions of special purpose acquisition companies (“SPACs”). We may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria, subject to applicable requirements of the 1940 Act. To the extent we make investments in private equity funds and hedge funds that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or 3(c)(7) of the 1940 Act, we will limit such investments to no more than 15% of our net assets. In regard to the regulatory requirements for BDCs under the 1940 Act, some of these investments may not qualify as investments in “eligible portfolio companies,” and thus may not be considered “qualifying assets.” “Eligible portfolio companies” generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then-current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances. Our investment philosophy is based on a disciplined approach of identifying promising investments in high-growth, venture-backed companies across several key industry themes which may include, among others, social/mobile, cloud computing and big data, internet commerce, financial technology, mobility, and enterprise software. Our investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the portfolio company’s growth potential, the quality of recurring revenues, and path to profitability, as well as an understanding of key market fundamentals. Venture capital funds or other institutional investors have invested in the vast majority of companies that we evaluate. We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a significant equity component. Typically, our preferred stock investments are non-income producing, have different voting rights than our common stock investments and are generally convertible into common stock at our discretion. As our investment strategy is primarily focused on equity positions, our investments generally do not produce current income and therefore we may be dependent on future capital raising to meet our operating needs if no other source of liquidity is available. We seek to create a low-turnover portfolio that includes investments in companies representing a broad range of investment themes. 57 TABLE OF CONTENTS Our History We formed in 2010 as a Maryland corporation and operate as an internally managed, non-diversified closed-end management investment company. Our investment activities are supervised by our Board of Directors and managed by our executive officers and investments professionals, all of which are our employees. Our date of inception was January 6, 2011, which is the date we commenced development stage activities. We commenced operations as a BDC upon completion of our IPO in May 2011 and began our investment operations during the second quarter of 2011. On and effective June 22, 2020, we changed our name to “SuRo Capital Corp.” from “Sutter Rock Capital Corp.” On and effective March 12, 2019, our Board of Directors approved our Internalization, and we began operating as an internally-managed non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. Our Board of Directors approved the Internalization in order to better align the interests of our stockholders with its management. As an internally managed BDC, we are managed by our employees, rather than the employees of an external investment adviser, thereby allowing for greater transparency to stockholders through robust disclosure regarding our compensation structure. As a result, we no longer pay any fees or expenses under an investment advisory agreement or administration agreement, and instead pay the operating costs associated with employing investment management professionals including, without limitation, compensation expenses related to salaries, discretionary bonuses and restricted stock grants. Except as otherwise disclosed herein, this Form 10-K discusses our business and operations as an internally-managed BDC during the period covered by this Form 10-K. 58 TABLE OF CONTENTS Portfolio and Investment Activity Year Ended December 31, 2022 The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value, as of December 31, 2022, of all of our portfolio investments, excluding U.S. Treasury bills, was $157,188,578. During the year ended December 31, 2022, we funded investments in an aggregate amount of $23,665,080 (not including capitalized transaction costs or investments in short-term U.S. Treasury investments) as shown in the following table: Portfolio Company Investment Transaction Date Gross Payments Shogun Enterprises, Inc. (d/b/a Hearth) Convertible Note 0.5%, Due 4/18/2024 5/2/2022 $ 500,000 EDGE Markets, Inc. Preferred shares, Series Seed 5/18/2022 500,000 Whoop, Inc. Preferred shares, Series C 6/30/2022 10,000,000 Xgroup Holdings Limited (d/b/a Xpoint) Convertible Note 6%, Due 8/17/2023 8/17/2022 1,000,000 Orchard Technologies, Inc. Simple Agreement for Future Equity (SAFE) 9/2/2022 500,000 Forge Global, Inc. (1) Common shares 9/30/2022 915,076 YouBet Technology, Inc. (d/b/a FanPower) Preferred shares, Series Seed-2 11/17/2022 249,999 Locus Robotics Corp. Preferred shares, Series F 11/30/2022 10,000,005 Total $ 23,665,080 (1) On and effective August 5, 2022, SuRo Capital Corp. notified Forge Global, Inc. of its intent to net exercise via cashless settlement its 230,144 common warrants in Forge Global, Inc. into 53,283 shares of Forge Global Inc.’s public common stock, pursuant to the net exercise formula in the warrant agreement. The exercise was effectuated on September 30, 2022. During the year ended December 31, 2022, we capitalized fees of $33,384. During the year ended December 31, 2022, we exited or received proceeds from investments in the amount of $9,063,919, net of transaction costs, and realized a net gain/(loss) on investments of $(5,905,453) (including adjustments to amounts held in escrow receivable) as shown in following table: Portfolio Company Transaction Date Shares Average Net Share Price (1) Net Proceeds Realized Gain/(Loss) (2) NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) (3) Various 48,713 $ 23.50 $ 1,144,774 $ 170,103 Rover Group, Inc. (4) Various 838,381 4.93 4,131,112 1,624,993 Rent the Runway, Inc. (5) Various 260,000 3.56 925,289 (3,025,364 ) Residential Homes for Rent, LLC (d/b/a Second Avenue) (6) Various N/A N/A 1,000,000 — True Global Ventures 4 Plus Pte Ltd (7) 5/31/2022 N/A N/A 874,470 160,965 Palantir Lending Trust SPV I (8) 7/14/2022 N/A N/A 611,930 610,790 Enjoy Technology, Inc. (9) Various 947,297 0.26 246,134 (5,280,642 ) Kahoot! ASA (10) 10/19/2022 61,367 2.12 130,210 (151,861 ) Total $ 9,063,919 $ (5,891,016 ) (1) The average net share price is the net share price realized after deducting all commissions and fees on the sale(s), if applicable. (2) Realized gain/(loss) does not include adjustments to amounts held in escrow receivable. (3) As of December 31, 2022, SuRo Capital Corp. held 229,758 remaining NewLake Capital Partners, Inc. public common shares. (4) As of October 11, 2022, SuRo Capital Corp. had sold all its public common shares of Rover Group, Inc. (5) As of December 31, 2022, SuRo Capital Corp. held 79,191 remaining Rent the Runway, Inc. public common shares. (6) During the year ended December 31, 2022, approximately $1.2 million has been received from Residential Homes for Rent, LLC (d/b/a Second Avenue) related to the 15% term loan due December 23, 2023. Of the proceeds received, approximately $1.0 million repaid a portion of the outstanding principal and the remaining was attributed to interest. (7) On May 31, 2022, SuRo Capital Corp. received an $874,470 cash distribution from True Global Ventures 4 Plus Pte Ltd. (8) On July 14, 2022, a final payment was received for the remaining 512,290 Class A common shares of Palantir Technologies, Inc. that comprised the beneficial equity interest in underlying shares. The realized gain from SuRo Capital Corp.’s investment in Palantir Lending Trust SPV I is generated by the proceeds from the sale of shares collateralizing the repaid promissory note to Palantir Lending Trust SPV I and attributable to the Equity Participation in Underlying Collateral. (9) As of August 12, 2022, SuRo Capital Corp. had sold all its public common shares of Enjoy Technology, Inc. (10) As of December 31, 2022, SuRo Capital Corp. held 38,305 remaining Kahoot! ASA public common shares. During the year ended December 31, 2022, we did not write-off any investments and our OneValley, Inc. (f/k/a NestGSV, Inc.) Series B preferred warrants with a strike price of $2.31 expired on May 29, 2022. 59 TABLE OF CONTENTS Year Ended December 31, 2021 During the year ended December 31, 2021, we funded investments in an aggregate amount of $81,668,146 (not including capitalized transaction costs) as shown in the following table: Portfolio Company Investment Transaction Date Gross Payments NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) Common shares 2/12/2021 $ 499,986 Churchill Sponsor VI LLC (1) Common share units & Warrant units 2/25/2021 200,000 Churchill Sponsor VII LLC (2) Common share units & Warrant units 2/25/2021 300,000 Shogun Enterprises, Inc. (3) Preferred shares, Series B-1 & Series B-2 2/26/2021 6,999,992 Commercial Streaming Solutions Inc. (d/b/a BettorView) Simple Agreement for Future Equity (“SAFE”) 3/26/2021 1,000,000 Churchill Capital Corp. II (4) Common shares, Class A 6/8/2021 10,000,000 Trax Ltd. Common shares & Investec Preferred shares 6/9/2021 10,000,000 Blink Health, Inc. Preferred shares, Series C 6/28/2021 4,999,987 Colombier Sponsor LLC (5) Class B Units & Class W Units Various 2,711,842 AltC Sponsor LLC (6) Share units 7/21/2021 250,000 PayJoy, Inc. Preferred shares 7/23/2021 2,500,002 Orchard Technologies, Inc. Preferred shares, Series D 8/9/2021 9,999,996 Varo Money, Inc. Common shares 8/11/2021 10,000,371 YouBet Technology, Inc. (d/b/a PickUp) Preferred shares, Series Seed-2 8/26/2021 499,999 True Global Ventures 4 Plus Pte Ltd (7) Limited Partner Fund Investment 8/27/2021 706,000 Architect Capital PayJoy SPV, LLC (8) Membership Interest in Lending SPV Various 10,000,000 Rebric, Inc. (d/b/a Compliable) Preferred shares, Series Seed-4 10/12/2021 1,000,000 Course Hero, Inc. Preferred shares, Series C 11/5/2021 9,999,971 Total $ 81,668,146 (1) Churchill Sponsor VI LLC is the sponsor of Churchill Capital Corp VI, a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our investment in Churchill Sponsor VI LLC constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Mark Klein, our Chairman, CEO and President, has a non-controlling interest in the entity that controls Churchill Sponsor VI LLC, and is a non-controlling board member of Churchill Capital Corp VI. (2) Churchill Sponsor VII LLC is the sponsor of Churchill Capital Corp VII, a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our investment in Churchill Sponsor VII LLC constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Mark Klein, our Chairman, CEO and President, has a non-controlling interest in the entity that controls Churchill Sponsor VII LLC, and is a non-controlling board member of Churchill Capital Corp VII. (3) The Company’s initial investment in Shogun Enterprises, Inc. on February 26, 2021 constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Keri Findley, a former senior managing director of the Company until her departure on March 9, 2022, is a non-controlling member of the board of directors of Shogun Enterprises, Inc., and holds a minority equity interest in such portfolio company. (4) On June 11, 2021, Churchill Capital Corp. II, a special purpose acquisition company, executed a private investment in public equity transaction in order to acquire shares of Software Luxembourg Holding S.A. alongside the merger of Software Luxembourg Holding S.A. and Churchill Capital Corp. II. Following the merger, Software Luxembourg Holding S.A. changed its name to Skillsoft Corp. This investment constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Mark Klein, our Chairman, CEO and President, has a non-controlling interest in the entity that controls Churchill Sponsor II LLC, the sponsor of Churchill Capital Corp II, and is a non-controlling board member of Churchill Capital Corp II. (5) Colombier Sponsor LLC is the sponsor of Colombier Acquisition Corp., a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Keri Findley, a former senior managing director of the Company until her departure on March 9, 2022, and Claire Councill, a former investment professional of the Company until her departure on April 15, 2022, are non-controlling members of the board of directors of Colombier Acquisition Corp., a special purpose acquisition company, which is sponsored by Colombier Sponsor LLC, one of the Company’s portfolio companies. (6) AltC Sponsor LLC is the sponsor of AltC Acquisition Corp., a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company’s investment in AltC Sponsor LLC constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Mark D. Klein, the Company’s Chairman, Chief Executive Officer and President, has a non-controlling interest in one of the entities that controls AltC Sponsor LLC, and Allison Green, the Company’s Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary, is a non-controlling member of the board of directors of AltC Acquisition Corp. (7) As of December 31, 2021, $0.7 million of a $2.0 million capital commitment to True Global Ventures 4 Plus Fund LP had been called and funded. (8) As of December 31, 2021, the total $10.0 million capital commitment representing SuRo Capital Corp.’s Membership Interest in Architect Capital PayJoy SPV, LLC had been called and funded. 60 TABLE OF CONTENTS During the year ended December 31, 2021, we capitalized fees of $47,893. During the year ended December 31, 2021, we exited or received proceeds from investments in an amount of $259,698,537, net of transaction costs, and realized a net gain on investments of $218,735,504 (including adjustments to amounts held in escrow receivable) as shown in following table: Portfolio Company Transaction Date Shares Average Net Share Price (1) Net Proceeds Realized Gain (2) Palantir Technologies, Inc. (3) Various 4,618,952 $ 26.72 $ 123,419,184 $ 110,544,068 Palantir Lending Trust SPV I (4) Various N/A N/A 2,172,637 2,172,637 Residential Homes for Rent, LLC (d/b/a Second Avenue) (5) Various N/A N/A 1,386,457 — SP Holdings Group, Inc. 4/28/2021 2,542,587 0.19 490,246 490,246 CUX, Inc. (d/b/a CorpU) (6) 8/24/2021 N/A N/A 6,009,092 1,968,218 Clever, Inc. (7) 9/3/2021 1,799,047 1.67 3,011,486 1,010,886 Skillsoft Corp. Various 18,157 12.63 229,269 47,699 Coursera, Inc. (8) Various 3,128,361 36.86 115,325,000 97,965,464 Tynker (f/k/a Neuron Fuel, Inc.) (9) 12/6/2021 534,162 5.44 2,907,951 2,598,640 NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) Various 167,755 28.30 4,747,215 1,390,636 Total $ 259,698,537 $ 218,188,494 (1) The average net share price is the net share price realized after deducting all commissions and fees on the sale(s), if applicable. (2) Realized gain does not include adjustments to amounts held in escrow receivable. (3) As of March 4, 2021, all remaining shares of Palantir Technologies, Inc. held by us had been sold. (4) The Palantir Lending Trust SPV I promissory note was initially collateralized with 2,260,000 Class A common shares of Palantir Technologies, Inc. to which SuRo Capital Corp. retains a beneficial equity upside interest. As of December 31, 2021, 512,290 Class A common shares remain in Palantir Lending Trust SPV I, none of which are subject to lock-up restrictions. The realized gain from SuRo Capital Corp.’s investment in Palantir Lending Trust SPV I is generated by the proceeds from the sale of a portion of the shares collateralizing the promissory note to Palantir Lending Trust SPV I and attributable to the Equity Participation in Underlying Collateral. (5) During the year ended December 31, 2021, approximately $1.4 million has been received from Residential Homes for Rent, LLC (d/b/a Second Avenue) related to the 15% term loan due December 23, 2023. Of the proceeds received, approximately $1.0 million repaid a portion of the outstanding principal and approximately $0.4 million was attributed to interest. (6) As of December 31, 2021, net proceeds includes approximately $0.3 million in additional proceeds currently held in escrow. (7) On September 3, 2021, Clever, Inc. completed its sale to Kahoot! ASA. In connection with this transaction, SuRo Capital Corp. received 86,800 common shares in Kahoot! ASA in addition to cash proceeds and amounts currently held in escrow. SuRo Capital Corp. is also eligible to receive cash and Kahoot! ASA common shares subject to certain earn-out provisions and contingencies. As of December 31, 2021, SuRo Capital Corp.’s common shares in Kahoot! ASA were subject to certain lock-up restrictions. (8) As of November 4, 2021, all remaining shares of Coursera, Inc. held by us had been sold. (9) As of December 31, 2021, net proceeds includes approximately $0.4 million in additional proceeds currently held in escrow. During the year ended December 31, 2021, we realized a net investment loss of $0.1 million due to the expiration of our OneValley, Inc. (f/k/a NestGSV, Inc.) Series A-4 preferred warrants with a strike price of $1.33 on July 18, 2021, and our OneValley, Inc. (f/k/a NestGSV, Inc.) Series B preferred warrants with a strike price of $2.31 on November 29, 2021. During the year ended December 31, 2021, we did not write-off any investments and our OneValley, Inc. (f/k/a NestGSV, Inc.) Series A-3 preferred warrants with a strike price of $1.33 expired on April 4, 2021, and our OneValley, Inc. (f/k/a NestGSV, Inc.) Series A-4 preferred warrants with a strike price of $1.33 expired on October 6, 2021. Year Ended December 31, 2020 During the year ended December 31, 2020, we funded investments in an aggregate amount of $31,242,228 (not including capitalized transaction costs) as shown in the following table: Portfolio Company Investment Transaction Date Gross Payments Neutron Holdings, Inc. (d/b/a Lime) Junior Preferred Convertible Note 4% Due 5/11/2027 5/11/2020 $ 506,339 Rent the Runway, Inc. Preferred Shares, Series G 6/17/2020 5,000,001 Palantir Lending Trust SPV I Collateralized Loan 15% Due 6/19/2022 6/19/2020 6,870,000 Coursera, Inc. Preferred Shares, Series F 7/15/2020 2,838,354 Blink Health, Inc. Preferred Shares, Series A 10/27/2020 4,999,995 Blink Health, Inc. Preferred Shares, Series C 10/27/2020 4,999,987 Enjoy Technology, Inc. Convertible Note 14% Due 1/30/2024 11/30/2020 521,112 GreenAcreage Real Estate Corp. Common Shares 12/17/2020 503,220 GreenAcreage Real Estate Corp. Common Shares 12/29/2020 503,220 Residential Homes for Rent, LLC (d/b/a Second Avenue) Term Loan 15% Due 12/23/2023 12/23/2020 3,000,000 Residential Homes for Rent, LLC (d/b/a Second Avenue) Preferred Shares, Series A 12/23/2020 1,500,000 Total $ 31,242,228 During the year ended December 31, 2020, we capitalized fees of $190,799. During the year ended December 31, 2020, we exited investments in an amount of $31,245,944, net of transaction costs, and realized a net gain on investments of $16,441,223 (including U.S. Treasury investments and adjustments to amounts held in escrow receivable) as shown in following table: Portfolio Company Net Proceeds Realized Gain/(Loss) (1) Parchment, Inc. (2) $ 10,876,621 $ 6,785,364 4C Insights (f/k/a The Echo Systems Corp.) (3) 807,952 (628,452 ) Palantir Technologies, Inc. (4) 11,671,878 8,357,068 Palantir Lending Trust SPV I (5) 7,889,493 988,892 (6) Total $ 31,245,944 $ 15,502,872 (1) Realized gain/(loss) does not include amounts held in escrow receivable or any realized gain/(loss) incurred on the maturity of our U.S. Treasury investments. (2) On January 31, 2020, Parchment, Inc. closed a merger with Credentials Solutions. As a result of the transaction, we received $10,876,621 in net proceeds. As of December 31, 2020, we received all escrow proceeds of $90,275. (3) On July 29, 2020, SuRo Capital Corp. exited its investment in 4C Insights (f/k/a The Echo Systems Corp.). In connection with this exit, SuRo Capital Corp. received 112,374 Class A common shares in Kinetiq Holdings, LLC in addition to cash proceeds and amounts currently held in escrow. As of December 31, 2020, we have received $12,900 in escrow proceeds, and expect to receive $43,223 in additional escrow proceeds in 2021. (4) As of December 31, 2020, we held 4,618,952 remaining Class A common shares of Palantir Technologies, Inc., all of which were subject to lock-up restrictions. 61 TABLE OF CONTENTS (5) The Palantir Lending Trust SPV I promissory note was initially collateralized with 2,260,000 Class A common shares of Palantir Technologies, Inc. The collateralized loan to Palantir Lending Trust SPV I matures on June 19, 2022 and includes a 15% interest rate. Through the collateralized loan, SuRo Capital Corp. participated in additional upside in a future Palantir Technologies, Inc. liquidity event by receiving a percentage of the share price appreciation as captured in the Equity Participation in Underlying Collateral security. As of December 31, 2020, the balance of the loan and all guaranteed interest has been fully repaid, and SuRo Capital Corp. retains the right to upside on 1,312,290 shares as captured in the Equity Participation in Underlying Collateral security. The net proceeds figure does not include accrued guaranteed interest received of $782,125. (6) The realized gain from SuRo Capital Corp.’s investment in Palantir Lending Trust SPV I is generated by the proceeds from the sale of a portion of the shares collateralizing the promissory note to Palantir Lending Trust SPV I and attributable to the Equity Participation in Underlying Collateral. During the year ended December 31, 2020, we did not write-off any investments and our CUX, Inc. (d/b/a CorpU) Series D preferred warrants with a strike price of $4.59, expired on February 14, 2020. Results of Operations Comparison of the years ended December 31, 2022, 2021, and 2020 Operating results for the years ended December 31, 2022, 2021, and 2020 are as follows: Year Ended December 31, 2022 2021 2020 Total Investment Income $ 3,456,193 $ 1,470,842 $ 1,824,127 Interest income 2,914,954 897,772 1,006,510 Dividend income 541,239 573,070 817,617 Total Operating Expenses $ 18,164,201 $ 11,401,661 $ 16,338,543 Compensation expense 7,566,452 6,162,716 8,801,841 Directors’ fees 675,716 752,442 445,000 Professional fees 3,395,260 2,665,689 2,962,781 Interest expense 4,845,549 693,526 2,247,817 Income tax expense 82,238 9,347 43,574 Other expenses 1,598,986 1,117,941 1,837,530 Net Investment Loss $ (14,708,008 ) $ (9,930,819 ) $ (14,514,416 ) Net realized gain/(loss) on investments (5,905,453 ) 218,735,504 16,441,223 Net change in unrealized appreciation/(depreciation) of investments (111,563,592 ) (61,732,964 ) 73,410,631 Net Increase/(Decrease) in Net Assets Resulting from Operations $ (132,177,053 ) $ 147,071,721 $ 75,337,438 Investment Income For the year ended December 31, 2022 as compared to the year ended December 31, 2021 Investment income increased to $3,456,193 for the year ended December 31, 2022 from $1,470,842 for the year ended December 31, 2021. The net increase between periods was due to increases in interest income from U.S. Treasury Bills, Xgroup Holdings Limited (d/b/a Xpoint), Architect Capital PayJoy SPV, LLC, and Shogun Enterprises, Inc. (d/b/a Hearth) plus an increase in dividend income from NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) and interest on idle cash. The increase was offset by a decrease in interest income from Residential Homes for Rent, LLC (d/b/a Second Avenue) and Neutron Holdings, Inc. (d/b/a/ Lime), plus a cessation in dividend income from Treehouse Real Estate Investment Trust, Inc. during the year ended December 31, 2022, relative to the year ended December 31, 2021. For the year ended December 31, 2021 as compared to the year ended December 31, 2020 Investment income decreased to $1,470,842 for the year ended December 31, 2021 from $1,824,127 for the year ended December 31, 2020. The net decrease between periods was due to a decrease in dividend income from SPBRX, Inc. (f/k/a GSV Sustainability Partners, Inc.), and a decrease in accrued interest income from Palantir Lending Trust SPV I. The decrease was offset by an increase in dividend income from Aventine Property Group, Inc., Treehouse Real Estate Investment Trust, Inc., and NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.), and interest income from the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan, Enjoy Technology, Inc. convertible promissory note, and Architect Capital PayJoy SPV, LLC membership interest in lending SPV during the year ended December 31, 2021, relative to the year ended December 31, 2020. Operating Expenses For the year ended December 31, 2022 as compared to the year ended December 31, 2021 Total operating expenses increased to $18,164,201 for the year ended December 31, 2022 from $11,401,661 for the year ended December 31, 2021. The increase in operating expense was primarily due to an increase in interest expense, compensation expense, and professional fees during the year ended December 31, 2022, relative to the year ended December 31, 2021. 62 TABLE OF CONTENTS For the year ended December 31, 2021 as compared to the year ended December 31, 2020 Total operating expenses decreased to $11,401,661 for the year ended December 31, 2021 from $16,338,543 for the year ended December 31, 2020. The decrease in operating expense was primarily due to the decrease in the recognition of all unvested and unrecognized compensation cost related to the stock-based compensation plan upon cancellation of all outstanding options on April 28, 2020, as well as a decrease in interest expense, professional fees, income tax expense, and other expenses during the year ended December 31, 2021, relative to the year ended December 31, 2020. Net Investment Loss For the year ended December 31, 2022 as compared to the year ended December 31, 2021 For the year ended December 31, 2022, we recognized a net investment loss of $14,708,008, compared to a net investment loss of $9,930,819 for the year ended December 31, 2021. The change between periods resulted from the increase in operating expenses offset by an increase in total investment income between periods during the year ended December 31, 2022, relative to the year ended December 31, 2021. For the year ended December 31, 2021 as compared to the year ended December 31, 2020 For the year ended December 31, 2021, we recognized net investment loss of $9,930,819, compared to net investment loss of $14,514,416 for the year ended December 31, 2020. The change between periods resulted from the decrease in operating expenses between periods during the year ended December 31, 2021, relative to the year ended December 31, 2020. Net Realized Gain/(Loss) on Investments For the year ended December 31, 2022 as compared to the year ended December 31, 2021 For the year ended December 31, 2022, we recognized a net realized loss on our investments of $5,905,453, compared to a net realized gain of $218,735,504 for the year ended December 31, 2021. The components of our net realized gains on portfolio investments for the year ended December 31, 2022 and 2021, excluding U.S. Treasury investments and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.” For the year ended December 31, 2021 as compared to the year ended December 31, 2020 For the year ended December 31, 2021, we recognized a net realized gain on our investments of $218,735,504, compared to a net realized gain of $16,441,223 for the year ended December 31, 2020. The components of our net realized gains on portfolio investments for the year ended December 31, 2021 and 2020, excluding U.S. Treasury investments, are reflected in the tables above, under “—Portfolio and Investment Activity.” 63 TABLE OF CONTENTS Net Change in Unrealized Appreciation/(Depreciation) of Investments For the year ended December 31, 2022 , we had a net change in unrealized appreciation/(depreciation) of $(111,563,592). For the year ended December 31, 2021, we had a net change in unrealized appreciation/(depreciation) of $(61,732,964). For the year ended December 31, 2020, we had a net change in unrealized appreciation/(depreciation) of $73,410,631. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the year ended December 31, 2022, 2021, and 2020. Portfolio Company Net Change in Unrealized Appreciation/(Depreciation) For the Year Ended December 31, 2022 True Global Ventures 4 Plus Pte Ltd (1) $ 3,106,863 Rent the Runway (1) 1,773,329 StormWind, LLC (1,879,887 ) NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) (1) (3,331,136 ) Blink Health, Inc. (3,365,627 ) Whoop, Inc. (3,927,419 ) Neutron Holdings, Inc. (d/b/a/ Lime) (3,991,353 ) Shogun Enterprises, Inc. (d/b/a Hearth) (4,225,397 ) Aspiration Partners, Inc. (4,514,232 ) Rover Group, Inc. (1) (5,259,385 ) Varo Money, Inc. (7,254,893 ) Trax Ltd. (7,442,485 ) Skillsoft Corp. (7,707,467 ) Nextdoor Holdings, Inc. (8,726,545 ) Forge Global, Inc. (17,594,073 ) Learneo, Inc. (f/k/a Course Hero, Inc.) (37,290,369 ) Other (2) 66,484 Total $ (111,563,592 ) (1) The change in unrealized appreciation/(depreciation) reflected for these investments resulted in full or in part from the full or partial exit of the investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation), as applicable. (2) “Other” represents investments, including U.S. Treasury bills, for which individual changes in unrealized appreciation/(depreciation) was less than $1.0 million for the year ended December 31, 2022. 64 TABLE OF CONTENTS Portfolio Company Net Change in Unrealized Appreciation/(Depreciation) For the Year Ended December 31, 2021 Portfolio Company Net Change in Unrealized Appreciation/(Depreciation) For the Year Ended December 31, 2020 Course Hero, Inc. $ 42,752,699 Palantir Technologies, Inc. (1) $ 66,368,123 Forge Global, Inc. 10,976,202 Coursera, Inc. 16,772,218 Aspiration Partners, Inc. 7,597,596 Course Hero, Inc. 9,405,053 Rover Group, Inc. 6,290,626 Forge Global, Inc. (1) 7,513,356 StormWind, LLC 3,872,381 Palantir Lending Trust SPV I (1) 2,550,762 CUX, Inc. (d/b/a CorpU) (1) 3,654,203 Nextdoor Holdings, Inc. 1,968,755 NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) (1) 1,905,116 4C Insights (f/k/a The Echo Systems Corp.) (1) 1,414,905 Varo Money, Inc. (1,463,873 ) Aspiration Partners, Inc. (1,334,698 ) Palantir Lending Trust SPV I (1,620,240 ) StormWind, LLC (1,342,526 ) Enjoy Technology, Inc. (2,514,243 ) NestGSV, Inc. (d/b/a GSV Labs, Inc.) (2,326,760 ) Rent the Runway, Inc. (2,581,146 ) Treehouse Real Estate Investment Trust, Inc. (4,063,112 ) Ozy Media, Inc. (10,098,381 ) SharesPost, Inc. (1) (4,693,514 ) Coursera, Inc. (1) (35,822,601 ) Ozy Media, Inc. (5,585,800 ) Palantir Technologies, Inc. (1) (81,760,272 ) Neutron Holdings, Inc. (d/b/a/ Lime) (6,515,508 ) Other (2) (2,921,031 ) Parchment, Inc. (1) (6,895,603 ) Other (2) 174,980 Total $ (61,732,964 ) Total $ 73,410,631 (1) The change in unrealized appreciation/(depreciation) reflected for these investments resulted from the full or partial exit of the investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation), as applicable. (2) “Other” represents investments (including U.S. Treasury bills) for which individual change in unrealized appreciation/(depreciation) was less than $1.0 million for the year ended December 31, 2021 and 2020. Recent Developments Portfolio Activity Please refer to “Note 12—Subsequent Events” to our consolidated financial statements as of December 31, 2022 for details regarding activity in our investment portfolio from January 1, 2023 through March 15, 2023. We are frequently in negotiations with various private companies with respect to investments in such companies. Investments in private companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or us. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated. 65 TABLE OF CONTENTS Notice of Terminating Custody Agreements On March 10, 2023, the Company and U.S. Bank Trust Company, National Association (the ““Securities Custodian”) ”) and U.S. Bank National Association (the “Document Custodian” and, together with the Custodian, the “U.S. Bank Entities”) agreed to terminate, effective as of May 9, 2023 or such later date as the parties mutually agree, the Custody Agreement, dated as of October 28, 2022, between the Company and the Custodian (the “Securities Custody Agreement”), and the Document Custody Agreement, dated as of October 28, 2022, between the Company and the Document Custodian (the “Document Custody Agreement” and, together with the Securities Custody Agreement, the “Custody Agreements”). We have commenced a transition process with the U.S. Bank Entities, and we are currently in discussions with a number of reputable qualified custodians that we expect will be able to fulfill the Company’s needs in providing the custodial services currently provided by the U.S. Bank Entities without disruption. The termination of the Custody Agreements followed a determination by the parties that the arrangements set forth by the Custody Agreements were no longer mutually beneficial. We do not believe that such termination will have a material adverse impact on our operations or financial condition. See “Item 9B. Other Information” of this Form 10-K for additional information. Liquidity and Capital Resources Our liquidity and capital resources are generated primarily from the sales of our investments and the net proceeds from public offerings of our equity and debt securities, including pursuant to our continuous at-the-market offering of shares of our common stock as discussed below under “At-the-Market Offering”. In addition, on March 28, 2018, we issued $40.0 million aggregate principal amount of 4.75% Convertible Senior Notes due 2023, the outstanding principal amount of which we redeemed in full on March 29, 2021. On December 17, 2021, we issued $75.0 million aggregate principal amount of 6.00% Notes due 2026, all of which remain outstanding. For additional information, see below and “Note 10—Debt Capital Activities” to our consolidated financial statements as of December 31, 2022. Our primary uses of cash are to make investments, pay our operating expenses, and make distributions to our stockholders. For the year ended December 31, 2022, our operating expenses were $18,164,201. For the years ended December 31, 2021 and 2020, our operating expenses were $11,401,661 and $16,338,543, respectively. Cash Reserves and Liquid Securities December 31, 2022 December 31, 2021 December 31, 2020 Cash $ 40,117,598 $ 198,437,078 $ 45,793,724 Cash Equivalents: U.S. Treasury bills (3) 85,056,817 — $ — Securities of publicly traded portfolio companies: Unrestricted securities (1) 13,298,992 16,970,411 — Subject to other sales restrictions (2) 24,493 27,602,814 94,635,398 Securities of publicly traded portfolio companies 13,323,485 44,573,225 94,635,398 Total Cash Reserves and Liquid Securities $ 138,497,900 $ 243,010,303 $ 140,429,122 (1) “Unrestricted securities” represents common stock of our publicly traded companies that are not subject to any restrictions upon sale. We may incur losses if we liquidate these positions to pay operating expenses or fund new investments. (2) Securities of publicly traded portfolio companies “subject to other sales restrictions” represents common stock and options of our publicly traded companies that are subject to certain lock-up restrictions. (3) Consists of short-term U.S. Treasury bills During the year ended December 31, 2022, cash decreased to $40,117,598 from $198,437,078 at the beginning of the year. The decrease in cash was primarily due to the purchase of new investments including U.S. Treasury bills, the payment of our dividends, the Modified Dutch Auction Tender Offer and share repurchases under the Share Repurchase Program, interest on the 6.00% Notes due 2026, and to pay our operating expenses offset by proceeds from the sale of public investments and other investment income received. 66 TABLE OF CONTENTS Currently, we believe we have ample liquidity to support our near-term capital requirements. Consistent with past and current practices, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances. Contractual Obligations A summary of our significant contractual payment obligations as of December 31, 2022 is as follows: Payments Due By Period (in millions) Total Less than 1 year 1–3 years 3–5 years More than 5 years Notes (1) $ 75.0 $ — $ — $ 75.0 $ — Operating lease liability 0.3 0.2 0.1 — — Total $ 75.3 $ 0.2 $ 0.1 $ 75.0 $ — (1) The balance shown for the “Notes” reflects the principal balance payable to investors for the 6.00% Notes due 2026 as of December 31, 2022. Refer to “Note 10—Debt Capital Activities” in our consolidated financial statements as of December 31, 2022 for more information. Share Repurchase Program During the year ended December 31, 2022, the Company repurchased 1,008,676 shares of the Company’s common stock under the Share Repurchase Program. During the year ended December 31, 2021, the Company did not repurchase any shares of common stock under the Share Repurchase Program. As of December 31, 2022, the dollar value of shares that remained available to be purchased by the Company under the Share Repurchase Program was approximately $16.4 million. Under the Share Repurchase Program, we may repurchase our outstanding common stock in the open market provided that we comply with the prohibitions under our insider trading policies and procedures and the applicable provisions of the 1940 Act and the Exchange Act. For more information on the Share Repurchase Program, see “Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Issuer Repurchases of Equity Securities” and “Note 5—Common Stock” to our consolidated financial statements as of December 31, 2022. Modified Dutch Auction Tender Offer On August 8, 2022, the Company commenced a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”) to purchase up to 2,000,000 shares of its common stock from its stockholders, which expired on September 2, 2022. In accordance with the terms of the Modified Dutch Auction Tender Offer, the Company selected the lowest price per share of not less than $6.00 per share and not greater than $7.00 per share. Pursuant to the Modified Dutch Auction Tender Offer, the Company repurchased 2,000,000 shares, representing 6.6% of its then outstanding shares, on or about September 12, 2022 at a price of $6.60 per share. The Company used available cash to fund the purchases of its shares of common stock in the Modified Dutch Auction Tender Offer and to pay for all related fees and expenses. Off-Balance Sheet Arrangements As of December 31, 2022, we had no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. However, we may employ hedging and other risk management techniques in the future. Equity Issuances & Debt Capital Activities At-the-Market Offering On July 29, 2020, the Company entered into an At-the-Market Sales Agreement, dated July 29, 2020 (the “Initial Sales Agreement”), with BTIG, LLC, JMP Securities LLC, and Ladenburg Thalmann & Co., Inc. (collectively, the “Agents”). Under the Initial Sales Agreement, the Company may, but has no obligation to, issue and sell up to $50.0 million in aggregate amount of shares of its common stock (the “Shares”) from time to time through the Agents or to them as principal for their own account (the “ATM Program”). On September 23, 2020, the Company increased the maximum amount of Shares to be sold through the ATM Program to $150.0 million from $50.0 million. In connection with the upsize of the ATM Program to $150.0 million, the Company entered into the Amendment No. 1 to the At-the-Market Sales Agreement, dated September 23, 2020, with the Agents. The Company intends to use the net proceeds from the ATM Program to make investments in portfolio companies in accordance with its investment objective and strategy and for general corporate purposes. 67 TABLE OF CONTENTS During the year ended December 31, 2022, the Company issued and sold 17,807 shares under the ATM Program at a weighted-average price of $13.01 per share, for gross proceeds of $231,677 and net proceeds of $229,896, after deducting commissions to the Agents on Shares sold. As of December 31, 2022, up to approximately $98.8 million in aggregate amount of the Shares remain available for sale under the ATM Program. During the year ended December 31, 2021, we issued and sold 5,900 shares under the ATM Program at a weighted-average price of $13.42 per share, for gross proceeds of $79,198 and net proceeds of $78,608, after deducting commissions to the Agents on shares sold. As of December 31, 2021, up to approximately $99.0 million in aggregate amount of the shares remain available for sale under the ATM Program. Refer to “Note 5—Common Stock” to our consolidated financial statements as of December 31, 2022 for more information regarding the ATM Program. 4.75% Convertible Senior Notes due 2023 On March 28, 2018, we issued $40.0 million aggregate principal amount of 4.75% Convertible Senior Notes due 2023, which bore interest at a fixed rate of 4.75% per year, payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2018. We received approximately $38.2 million in proceeds from the offering, net of underwriting discounts and commissions and other offering expenses. The 4.75% Convertible Senior Notes due 2023 had a maturity date of March 28, 2023, unless previously repurchased or converted in accordance with their terms. We did not have the right to redeem the 4.75% Convertible Senior Notes due 2023 prior to March 27, 2021. On March 29, 2021, the Company redeemed $0.3 million in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023 at a redemption price equal to 100% of their principal amount ($1,000 per convertible note), plus accrued and unpaid interest thereon, which amounted to approximately $0.8 million. As a result of this redemption and prior conversions of the 4.75% Convertible Senior Notes due 2023 into shares of our common stock by the holders thereof, the 4.75% Convertible Senior Notes due 2023 were no longer outstanding as of March 29, 2021. During the year ended December 31, 2021 the Company issued 4,097,808 shares of its common stock and cash for fractional shares upon the conversion of approximately $37.9 million in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023. The Company also redeemed approximately $0.3 million of aggregate principal amount for cash plus accrued and unpaid interest on March 29, 2021. During the year ended December 31, 2020, the Company issued 174,888 shares of its common stock and cash for fractional shares upon the conversion of $1,785,000 in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023. Refer to “Note 10—Debt Capital Activities” to our consolidated financial statements as of December 31, 2022 for more information regarding the 4.75% Convertible Senior Notes due 2023. 6.00% Notes due 2026 On December 17, 2021, we issued $70.0 million aggregate principal amount of 6.00% Notes due 2026, which bear interest at a fixed rate of 6.00% per year, payable quarterly in arrears on March 31, June 30, September 30, and December 30 of each year, commencing on March 30, 2022. On December 21, 2021, we issued an additional $5.0 million aggregate principal amount of 6.00% Notes due 2026. We received approximately $73.0 million in proceeds from the offering, net of underwriting discounts and commissions and other offering expenses. The 6.00% Notes due 2026 have a maturity date of December 30, 2026, unless previously repurchased or redeemed in accordance with their terms. We have the right to redeem the 6.00% Notes due 2026, in whole or in part, at any time or from time to time, on or after December 30, 2024 at a redemption price of 100% of the aggregate principal amount thereof plus accrued and unpaid interest. Refer to “Note 10—Debt Capital Activities” to our consolidated financial statements as of December 31, 2022 for more information regarding the 6.00% Notes due 2026. 68 TABLE OF CONTENTS Distributions The timing and amount of our distributions, if any, will be determined by our Board of Directors and will be declared out of assets legally available for distribution. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this Form 10-K for a list of our past distributions, including dividends and returns of capital, if any, per share that we have declared since our formation through December 31, 2022. Critical Accounting Policies Critical accounting policies and practices are the policies that are both most important to the portrayal of our financial condition and results, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. These include estimates of the fair value of our Level 3 investments and other estimates that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reporting period. It is likely that changes in these estimates will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ materially from such estimates. See “Note 2—Significant Accounting Policies” to our consolidated financial statements as of December 31, 2022 for further detail regarding our critical accounting policies and recently issued or adopted accounting pronouncements. 69 TABLE OF CONTENTS Related-Party Transactions See “Note 3—Related-Party Arrangements” to our consolidated financial statements as of December 31, 2022 for more information.