What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-03 compared with 2021-03-12 · 246 added, 247 removed, 343 unchanged (59% of the section changed)

Runway Growth Credit Fund Inc.

Runway Growth Credit Fund Inc., a Maryland corporation formed on August 31, 2015 (“we,” “us,” “our,” or the “Company”), is structured as an externally managed, non-diversified closed-end management investment company.

We are a specialty finance company focused on providing senior secured loans to rapidly growing companies in a variety of industries.

Runway Growth Finance Corp.

Runway Growth Finance Corp., a Maryland corporation formed on August 31, 2015 (“we,” “us,” “our,” or the “Company”), is structured as an externally managed, non-diversified closed-end management investment company.

On August 18, 2021, we changed our name to “Runway Growth Finance Corp.” from “Runway Growth Credit Fund Inc.” We are a specialty finance company focused on providing senior secured loans to high growth-potential companies in technology, life sciences, healthcare information and services, business services, select consumer services and products and other high-growth industries.

Our goal is to create significant value for our stockholders, and the entrepreneurs we support, by providing high growth-potential companies with hybrid debt and equity financing that is more flexible than traditional credit and less dilutive than equity.

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While we intend to qualify to be treated as a RIC annually, no assurance can be provided that we will be able to maintain our tax treatment as a RIC.

If we fail to qualify for tax treatment as a RIC for any taxable year, we will be subject to corporate-level U.S.

federal income tax on any net taxable income for such year.

If we fail to qualify for tax treatment as a RIC for any taxable year, we will be subject to U.S.

federal income tax at corporate rates on any net taxable income for such year.

See “— Certain U.S.

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David Spreng, our President, Chief Executive Officer and Chairman of our Board of Directors, for an aggregate purchase price of $25,000.

In December 2016, we completed the initial closing of capital commitments (the “Initial Closing”) in our first private offering of shares of common stock to investors (the “Initial Private Offering”) in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the “Securities Act”), and other applicable securities laws.

The final closing of the Initial Private Offering occurred on December 1, 2017.

In connection with the Initial Private Offering, we issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000.

As of December 31, 2020, we had completed multiple closings under our second private offering (the “Second Private Offering”) and had accepted capital commitments of $174,673,500.

On December 1, 2017, we completed our initial private offering (“Initial Private Offering”), in which we issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000 in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the “Securities Act”), and other applicable securities laws.

As of December 31, 2021, we have completed multiple closings under our second private offering (the “Second Private Offering”) and had accepted aggregate capital commitments of $181,673,500.

As of December 31, 2021, in connection with the Second Private Offering we have issued an aggregate of 9,617,379 shares for a total purchase price of $144,260,683.

In March 2020, we issued 2,103 shares as an additional direct investment of $31,542 by Runway Growth Holdings LLC, an affiliate of RGC.

Concurrent with the IPO (as defined below), all undrawn commitments under the Second Private Offering were cancelled.

On October 25, 2021, we closed our initial public offering (“IPO”), issuing 6,850,000 shares of our common stock at a public offering price of $14.60 per share.

Net of underwriting fees and offering costs, we received net cash proceeds of approximately $93 million.

Our common stock began trading on the Nasdaq Global Select Market under the symbol “RWAY” on October 21, 2021.

As of December 31, 2021, we had issued 22,564 shares as an additional direct investment by Runway Growth Holdings LLC, an affiliate of Runway Growth Capital LLC, our investment adviser (“RGC”), for a total purchase price of $338,453 in a private offering pursuant to an exemption from registration under Regulation D of the Securities Act and Runway Growth Holdings LLC purchased an additional 23,346 shares in the public markets for a total purchase price of $315,251.

As of December 31, 2021, we have issued 6,647,847 shares for a total purchase price of $97,752,352 in connection with our dividend reinvestment plan.

We expect to operate as a “private” BDC while we continue to invest the proceeds of our private offerings and any future private offerings of our securities.

During the fourth quarter of 2020, we made an alternative trading system (the “Trading Platform”) operated by The Nasdaq Private Market, LLC or its affiliates available to stockholders to offer a liquidity option pursuant to which stockholders were able to access the Trading Platform to identify available secondary trading opportunities.

In addition, in the future, if market conditions are favorable and subject to any requisite SEC exemptive relief, we plan to seek out additional liquidity options for our stockholders, which may include the opportunity to elect to participate in a Spin-Off transaction, as further discussed in “— Investor Optionality;

Potential Spin-Offs”.

From the commencement of investment operations on December 16, 2016, through December 31, 2020, we funded 41 portfolio companies and invested $769.5 million in debt and equity investments, excluding U.S.

Treasury Bills.

As of December 31, 2020, our debt investment portfolio consisted of 40 debt investments in 23 portfolio companies with an aggregate fair value of $502.3 million while our equity portfolio consisted of 34 warrant positions, three preferred stock positions and two common stock positions in 29 portfolio companies with an aggregate fair value of $49.1 million.

From the commencement of investment operations on December 16, 2016, through December 31, 2021, we funded 49 portfolio companies and invested $1.2 billion in debt investments.

As of December 31, 2021, our debt investment portfolio consisted of 39 debt investments in 25 portfolio companies with an aggregate fair value of $635.9 million while our equity portfolio consisted of 40 warrant positions, four preferred stock positions and four common stock positions in 36 portfolio companies with an aggregate fair value of $48.6 million.

As of December 31, 2021, 98.0%, or $623.1 million, of our debt investment portfolio at fair value consisted of senior term loans.

As of December 31, 2020, our net assets were $466.2 million, and all of our debt investments were secured by all or a portion of the tangible and intangible assets of the applicable portfolio company.

As of December 31, 2021, our net assets were $606.2 million, and all of our debt investments were secured by all or a portion

of the tangible and intangible assets of the applicable portfolio company.

The debt investments in our portfolio are generally not rated by any rating agency.

If the individual debt investments in our portfolio were rated, they would be rated below “investment grade.” Debt investments that are unrated or rated below investment grade are sometimes

referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

For the year ended December 31, 2020, our debt investment portfolio had a dollar-weighted yield of 15.0% (excluding any yield from warrants).

The warrants we receive from time to time when making loans to portfolio companies are excluded from the calculation of our dollar-weighted annualized yield because such warrants do not generate any yield since we do not receive dividends or other payments with respect to our outstanding warrants.

We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period.

The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

As of December 31, 2020, our debt investments had a dollar-weighted average outstanding term of 45 months and a dollar-weighted average remaining term of 32 months.

If the individual debt investments in our portfolio were rated, they would be rated below “investment grade.” Debt investments that are unrated or rated below investment grade are sometimes referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

For the year ended December 31, 2021, our debt investment portfolio had a dollar-weighted annualized yield of 13.77%.

For the year ended December 31, 2020, our debt investment portfolio had a dollar-weighted annualized yield of 14.91%.

We calculate the yield on dollar-weighted debt investments for any period measured as (1) total related investment income during the period divided by (2) the daily average of the fair value of debt investments outstanding during the period.

As of December 31, 2021, our debt investments had a dollar-weighted average outstanding term of 48 months at origination and a dollar-weighted average remaining term of 37 months, or approximately 3.1 years.

As of December 31, 2021, substantially all of our debt investments had an original committed principal amount of between $6 million and $75 million, repayment terms of between 34 months and 60 months and pay cash interest at annual interest rates of between 5.50% and 12.00%.

Our current dollar weighted average maturity for the portfolio is approximately 2.7 years.

The following table shows our dollar-weighted annualized yield by investment type for the years ended December 31, 2021 and December 31, 2020:

Fair Value (1)

Year Ended December 31,

Investment type:

Debt investments

Equity interest

All investments

We calculate the dollar-weighted annualized yield on average investment type for any period as (a) total related investment income during the period divided by (b) the daily average of the fair value of the investment type outstanding during the period.

The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

We calculate the dollar-weighted annualized yield on average investment type for any period as (a) total related investment income during the period divided by (b) the daily average of the investment type outstanding during the period, at amortized cost.

The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”).

We could remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of an initial public offering (“IPO”), if any, or until the earliest of (i) the last day of the first fiscal year in which we have total annual gross revenue of $1,070,000,000 or more, (ii) December 31 of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the “Exchange Act”), (which would occur if the market value of our common stock held by non-affiliates exceeds $700.0 million, measured as of the last business day of our most recently completed second fiscal quarter, and we have been publicly reporting for at least 12 months), or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

We could remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the closing of our IPO, which occurred on October 25, 2021, or until the earliest of (i) the last day of the first fiscal year in which we have total annual gross revenue of $1,070,000,000 or more, (ii) December 31 of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the “Exchange Act”), (which would occur if the market value of our common stock held by non-affiliates exceeds $700.0 million, measured as of the last business day of our most recently completed second fiscal quarter, and we have been publicly reporting for at least 12 months), or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

For so long as we remain an emerging growth company under the JOBS Act, we will be subject to reduced public company reporting requirements.

We are externally managed by Runway Growth Capital LLC (“RGC”), an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Advisers Act”).

We are externally managed by RGC, an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Advisers Act”).

Runway Administrator Services LLC (the “Administrator”), a wholly-owned subsidiary of RGC, provides all administrative services necessary for us to operate.

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We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to:

● our pro-rata portion of fees and expenses related to an initial public offering in connection with a spin-off transaction;

● fees and expenses related to public and private offerings, sales and repurchases of the Company’s securities;

● calculating our net asset value (including the cost and expenses of any independent valuation firm);

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● all other expenses incurred by us, our Administrator or RGC in connection with administering our business, including payments under the Administration Agreement based on our allocable portion of our Administrator’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and their respective staffs;

● organization and offering (the amount of organizational and offering expenses in connection with the Initial Private Offering in excess of $1,000,000 were previously paid by RGC);

● our pro-rata portion of fees and expenses related to any future spin-off transaction.

Investment Committee

RGC’s investment committee (the “Investment Committee”) consists of R.

David Spreng, who is its chairman and our President, Chief Executive Officer and Chairman of our Board of Directors, Thomas B.

Raterman, our Chief Financial Officer, Treasurer and Secretary, Greg Greifeld, Managing Director and Head of Credit at RGC, and Brian Laibow, OCM Growth Holdings, LLC’s appointee.

David Spreng, who is its chairman and Chief Investment Officer, as well as our President, Chief Executive Officer and Chairman of our Board of Directors, Thomas B.

Raterman, RGC’s Chief Financial Officer, and our Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary, Greg Greifeld, Managing Director, Deputy Chief Investment Officer and Head of Credit at RGC, and Brian Laibow, OCM Growth Holdings, LLC’s appointee.

The Investment Committee meets regularly to consider our investments, review our strategic initiatives and supervise the actions taken by RGC on our behalf.

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Board Approval of the Advisory Agreement

Our Board of Directors, including a majority of the directors who were not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us or RGC, approved the Advisory Agreement at an in-person meeting on August 3, 2017 and recommended that our stockholders approve the Advisory Agreement.

The Advisory Agreement became effective on September 12, 2017, upon approval by our stockholders at a special meeting of stockholders, and was most recently renewed by our Board of Directors at a virtual meeting on August 5, 2020.

In reliance upon certain exemptive relief granted by the SEC in connection with the global COVID-19 pandemic, our Board of Directors undertook to ratify the Advisory Agreement at its next in-person meeting.

Our Board of Directors, including a majority of the directors who were not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us or RGC, approved the Advisory Agreement at a virtual meeting on April 7, 2021 and recommended that our stockholders approve the Advisory Agreement.

In reliance upon certain exemptive relief granted by the SEC in connection with the global COVID-19 pandemic, the Board of Directors undertook to ratify the Advisory Agreement at its next in-person meeting which was held in July 2021.

The Advisory Agreement became effective on May 27, 2021 upon approval by the stockholders at a special meeting of stockholders of the Company.

The Advisory Agreement amended the prior advisory agreement to include certain revisions to the management and incentive fee calculation mechanisms and clarify language relating to liquidity events.

In its consideration of the approval of the Advisory Agreement, our Board of Directors focused on information it had received relating to, among other things:

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In considering the factors discussed above, individual directors may have given different weights to different factors.

Based on its review of the above-mentioned factors and discussion of the Advisory Agreement, our Board of Directors approved the Advisory Agreement as being in our and our stockholders’ best interests.

Duration and Termination

Unless terminated earlier as described below, the Advisory Agreement will continue automatically for successive annual periods provided that such continuance is specifically approved at least annually by (i) (A) the affirmative vote of a majority of our Board of Directors or (B) the affirmative vote of a majority of our outstanding voting securities, and (ii) the affirmative vote of a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates.

Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated, without penalty, upon not more than 60 days’ written notice, by (i) the affirmative vote of a majority of our outstanding voting securities, (ii) the affirmative vote of a majority of our Board of Directors, including a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates, or (iii) RGC.

The Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated, without penalty, upon not more than 60 days’ written notice, by (i) the affirmative vote of a majority of our outstanding voting securities, (ii) the affirmative vote of a majority of our Board of Directors, including a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates, or (iii) RGC.

See “Risk Factors — Risks Related to our Business and Structure — RGC and our Administrator have the right to resign upon not more than 60 days’ notice, and we may not be able to find a suitable replacement for either within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations” in Part I, Item 1A of this Form 10-K.

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Pursuant to the Administration Agreement, we pay our Administrator an amount equal to our allocable portion (subject to the review of our Board of Directors) of our Administrator’s overhead resulting from its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and their respective staffs associated with performing compliance functions.

Pursuant to the terms of the Administration Agreement, the amounts payable to the Administrator from us in any fiscal year will not exceed the greater of (i) 0.75% of the aggregate capital commitments as of the end of the most recently completed fiscal year and (ii) $1.0 million.

Oaktree Strategic Relationship

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The firm has over 1,000 employees and offices in 19 cities worldwide.

In connection with the strategic relationship, OCM Growth Holdings, LLC, a Delaware limited liability company (“OCM”) managed by Oaktree, made an initial $125 million capital commitment to us, which was subsequently increased to $139 million (the “Initial OCM Commitment”) in our Initial Private Offering.

On June 14, 2019, in connection with our Second Private Offering, the Company accepted an additional capital commitment from OCM in the amount of $112.5 million (the “Subsequent OCM Commitment and, together with the Initial OCM Commitment, the “OCM Commitment”), for a total of capital commitment of $251.5 million.

In connection with the strategic relationship, OCM Growth Holdings, LLC, a Delaware limited liability company (“OCM”) managed by Oaktree, purchased an aggregate of 14,571,334 shares of our common stock for an aggregate purchase price of $219.3 million in our Initial Private Offering and our Second Private Offering (the “OCM Commitment”).

As of December 31, 2021, OCM owns 19,979,688 shares of our common stock or 48% of our total issued and outstanding shares.

OCM has granted a proxy to us pursuant to which the shares held by OCM will be voted in the same proportion as our other stockholders vote their shares.

In connection with the OCM Commitment, we entered into a stockholder agreement, dated December 15, 2016, with OCM pursuant to which OCM has a right to nominate a member of our Board of Directors for election.

Brian Laibow was appointed to our Board of Directors, effective January 25, 2017, as OCM’s representative.

OCM also holds an interest in RGC and has the right to appoint a member of RGC’s board of managers and a member of the Investment Committee.

OCM’s appointee to RGC’s board of managers and Investment Committee is Brian Laibow.

In connection with the OCM Commitment, we entered into a stockholder agreement, dated December 15, 2016, with OCM, pursuant to which OCM has a right to nominate a member of our Board of Directors for election for so long as OCM holds shares of our common stock in an amount equal to, in the aggregate, at least one-third (33%) of OCM’s initial $125 million capital commitment.

Brian Laibow, Co-Head of North America & Managing Director Opportunities Funds, serves on our Board of Directors as OCM’s director nominee and is considered an interested director.

OCM also holds a minority interest in RGC and has the right to appoint a member of RGC’s board of managers and a member of the Investment Committee.

Brian Laibow is OCM’s appointee to RGC’s board of managers and Investment Committee.

In connection with the Subsequent OCM Commitment, OCM also purchased additional equity in RGC.

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In addition, we expect to utilize Oaktree’s relationships to gain better access to leverage facilities with better terms and provisions than we would otherwise be able to obtain.

Investor Liquidity Options

At any time after December 2019, we intend to seek out liquidity options for our stockholders, which may include (a) the option to elect to either (i) retain their ownership of shares of our common stock, or (ii) exchange their shares of our common stock for shares of common stock in a newly formed entity (the “Public Fund”) that will elect to be regulated as a BDC under the 1940 Act and treated as a RIC under Subchapter M of the Code;

(b) listing our common stock on a national securities exchange;

or (d) offering to repurchase a portion of our shares of common stock outstanding from stockholders.

In order to effectuate the spin-off of the Public Fund, we expect that we would need to, among other things, transfer to the Public Fund, in exchange for newly issued shares of the Public Fund, a pro rata portion of our assets and liabilities attributable to the investors that have elected to invest in the Public Fund (such transfer of assets and liabilities and the mechanics relating thereto are referred to herein as the “Spin-Off transaction”).

We may exclude any stockholder from participating in the Spin-Off transaction if, in our reasonable discretion, there is a substantial likelihood that such stockholder’s exchange of shares of our common stock at such time would cause us or the Public Fund to (i) be in violation of, or noncompliance with, any law or regulation to which such entity is or would be subject or (ii) be deemed to hold “plan assets” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Code because the investments of “benefit plan investors” (within the meaning of Section 3(42) of ERISA and certain Department of Labor (“DOL”) regulations (such investors referred to herein as “Benefit Plan Investors”)) are deemed to be significant.

Because RGC would be managing both us and the Public Fund in connection with any Spin-Off transaction, and the 1940 Act prohibits entities under common control from engaging in certain transactions, we will be required to obtain exemptive and/or no-action relief from the SEC to permit us to transfer assets to a Public Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction.

We and RGC have applied for exemptive relief from the SEC to permit us to transfer assets to a Public Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction, and we have received comments from the SEC.

There can be no assurance that we will be able to obtain such exemptive and/or no-action relief from the SEC.

If we are unable to do so, then we will continue our operations in the manner otherwise set forth in this annual report on Form 10-K and our public filings with the SEC.

From time to time, we may also offer to repurchase a portion of our shares of common stock outstanding from stockholders.

If we elect to offer to repurchase a portion of our shares of common stock outstanding, we expect that only a limited number of shares will be eligible for repurchase from stockholders.

In addition, any such repurchases will be subject to applicable restrictions and requirements under the federal securities laws and the 1940 Act, will be at a price equal to our most recently determined net asset value per share, which may be at a discount to the price at which a stockholder purchased shares of common stock, and will be subject to any applicable lock-up period.

We also have made and may in the future make the Trading Platform operated by The Nasdaq Private Market, LLC or its affiliates available to stockholders.

Stockholders will be able to access the Trading Platform to identify available secondary trading opportunities.

Secondary trading on the Trading Platform will be subject to applicable law and will be restricted solely to accredited investors and subject to any applicable lock-up period.

Stockholders who access the Trading Platform will be subject to certain transaction fees that will not be reimbursed by us or by RGC.

Investment Strategy and Approach

Our investment objective is to maximize our total return to our stockholders primarily through current income on our loan portfolio, and secondarily through capital appreciation on our warrants and other equity positions.

Through our Sponsored Growth Lending and Non-Sponsored Growth Lending strategies, we invest in senior secured term loans and other senior debt obligations and may on occasion invest in second lien loans.

We also expect to acquire equity securities in connection with our investments in secured loans.

We expect to build a balanced portfolio with diversification among sponsored and non-sponsored transactions, diversification among sponsors within the sponsored segment, diversification among industry, geography, and stage of development, all contributing to a favorable risk adjusted return for the portfolio viewed as a whole.

In addition yields will fluctuate during vary stages of the credit cycle, interest rate environments, and with changing competitive pressures.

For instance, typically when interest rates are low and a credit cycle extended,

new entrants will enter traditionally higher yielding markets creating additional competition and temporarily compressing yields.

We believe the credit markets, and in particular the market for our lending strategies, are presently experiencing such pressures.

We typically invest in what we believe to be high growth-potential, private companies.

We primarily originate our own investments in the debt and, to a lesser extent, equity of our portfolio companies and utilize a disciplined approach to providing growth capital to these companies.

The types of loans in which we typically invest are senior secured term loans and other senior debt obligations and, less frequently, second lien secured loans.

These loans generally fall into two strategies:

We invest in senior secured term loans and other senior debt obligations and may on occasion invest in second lien loans.

We have and continue to expect to acquire warrants and other equity securities from portfolio companies in connection with our investments in loans to these companies.

We focus on lending to late and growth stage companies in technology, life sciences, healthcare information and services, business services, select consumer services and products and other high-growth industries.

We are typically the sole lender to our portfolio companies and do not actively syndicate the loans we originate to other lenders nor do we participate in syndications built by other lenders.

We originate our investments through two strategies:

Sponsored Growth Lending and Non-Sponsored Growth Lending.

In addition to our core strategy of providing sponsored growth lending and non-sponsored growth lending, we may also opportunistically participate in the secondary markets for sponsored growth lending and non-sponsored growth lending.

In addition to our core strategy of providing Sponsored Growth Lending and Non-Sponsored Growth Lending, we may also opportunistically participate in the secondary markets for investments that are consistent with our broader strategy

We seek to construct a balanced portfolio with diversification among sponsored and non-sponsored transactions, diversification among sponsors within the Sponsored Growth Lending strategy, diversification among industry, geography, and stage of development, all contributing to a favorable risk adjusted return for the portfolio viewed as a whole.

Borrowers tend to use the proceeds of our financings to invest in sales and marketing, expand capacity of the overall business or refinance existing debt.

During the COVID-19 pandemic, we shifted our origination efforts to focus primarily on lending transactions with private companies with substantial equity backing from recognized venture sponsors.

Sponsored Growth Lending:

An attractive market opportunity exists for a lender that invests in secured loans to high-potential companies that have not yet achieved profitability as there are strong incentives for borrowers and lenders in this market to transact with one another.

An attractive market opportunity exists for a lender that invests in secured loans to late and growth stage companies that have not yet achieved profitability.

Sponsored growth lending provides an attractive source of funds for venture-backed companies, their management teams, and their equity capital investors, as it:

● is typically less dilutive and complements equity financing from venture capital and private equity funds;

● extends the time period during which a company can operate before seeking additional equity capital or pursuing a sale transaction or other liquidity event;

● allows companies to better match cash sources with uses.

Potential benefits to sponsored growth lenders include:

● loan support in the form of cash proceeds from equity capital invested by venture capital and private equity firms with the goal of building enterprise value;

● interest rates that are usually higher than rates portfolio companies could secure if they could borrow from commercial financing institutions, which normally require asset coverage and operating cash flow covenants;

● relatively rapid amortization of loans;

● senior ranking to equity and collateralization of loans to minimize potential loss of capital;

● potential equity appreciation through warrants.

● often extends the time period during which a company can operate before seeking additional equity capital or pursuing a sale transaction or other liquidity event;

● generally allows companies to better match cash sources with uses.

Non-Sponsored Growth Lending:

An attractive market opportunity exists for a lender that invests in secured loans to high-potential companies that are growing rapidly, have reached profitability and need long-term growth capital but do not want the complications that come with selling equity to venture capital or private equity firms.

Non-sponsored growth lending provides an attractive alternative to equity capital as a source of funds for non-sponsored, high-potential, fast-growing companies, as it provides all or some of the following benefits:

An attractive market opportunity exists for a lender that invests in secured loans to late and growth stage companies that have reached profitability and need long-term growth capital but do not want the challenges that come with

selling equity to venture capital or private equity firms.

Non-Sponsored Growth Lending often provides all or some of the following benefits to our borrowers:

● access to growth capital without the requirement to take on institutional-size investments that may exceed the company’s capital requirements;

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● no loss of managerial control or forced redemption.

Capital Market Dynamics Creating More Opportunities for Sponsored Growth Lending

Large and Growing Market for Debt Financing to Venture Capital-Backed Companies

Healthy, stable venture environment:

The number of companies receiving venture capital financing in 2020 was 11,024, according to the National Venture Capital Association (“NVCA”), and roughly 26.2% of these transactions were first-round financings.

The number of financings has averaged over 10,100 for the past ten years, and during this period approximately one-third of these transactions were first time financings.

The annual level of venture investment since 2002 has generally been in the $20- to $40- billion range with a significant increase to $73.4 billion in 2014.

Venture investment has continued to trend upward since 2014.

Venture investment totaled $87.1 billion in 2017, $142.7 billion in 2018, and $138.1 billion in 2019.

The market saw a record high in 2020 with $156.2 billion in venture investment.

Despite the challenges of 2020, there is evidence of a healthy, stable venture environment where venture capital investment is consistently flowing into high-potential, technology-related companies.

Approximately 17,000 companies received venture capital financing in 2021, according to the Pitchbook-NVCA Venture Monitor, a quarterly report published jointly by NVCA and Pitchbook on venture capital activity (“Pitchbook-NVCA”), and approximately 34% of these transactions were first-round financings.

The number of venture capital financings has averaged over 10,000 for the past ten years and, during this period, approximately one-third of these transactions were first time financings.

Since 2006, the annual level of venture deal volume has increased to a record of about $330 billion of total volume in 2021.

The significant increase in investment amounts beginning in 2014 through 2021 is largely the result of growth investments in later-stage companies that are staying private longer.

The sponsored growth lending market is estimated to be one-seventh of venture investment activity in any given year, translating to a market for loan origination of over $18 billion based on an average year of venture funding of approximately $130 billion.

1 We believe that these statistics validate a substantial market opportunity and simultaneously support availability of capital for repayment.

Based on our experience, many sponsored-growth loans are repaid from proceeds of new venture-equity financing.

The venture debt lending market, as defined in the Q4 2021 Pitchbook-NVCA Venture Monitor, is estimated at $29.9 billion or roughly 9.1% of total U.S.

venture capital deal value.

Growing pool of target companies:

The average time from initial venture capital investment to exit, either by an initial public offering (IPO) or merger and acquisition transaction, has lengthened considerably.

According to the NVCA 2015 Yearbook, in 1998 the average number of years from initial venture investment to IPO of a U.S.

venture capital-backed company was approximately three years;

that number has steadily increased and has been approximately six years since 2012.

2 According to the 2020 Pitchbook NVCA Q4 2020 Venture Monitor, the median time to exit is now 5.3 years.

Exits are a small (10 – 15%) proportion of companies financed by venture capital each year.

As a result, the pool of target companies has grown larger.

Venture investment consistently outstripping venture commitments:

According to the NVCA, in 2020, $73.6 billion was raised by 321 funds, compared to $156 billion invested in the same year.

2020 was the fifteenth year in which more money was invested by the industry than raised in new commitments.

This dynamic has created strong interest in raising new venture funds;

however, the fact that companies receiving venture equity investment have taken longer to achieve liquidity than similar companies a decade earlier has led to cautious investing, as traditional investors in limited partnership funds are hesitant to commit to new funds until older commitments are returned.

As a result, venture capital firms continue to supplement portfolio company equity with sponsored growth lending.

Sponsored growth lending is now a valued component in the capital structure of most venture-backed companies.

Limited competition:

The average time from initial venture capital investment to transaction exit of such investment, either by an initial public offering or merger and acquisition transaction, has lengthened considerably.

According to the Pitchbook-NVCA 2016 Yearbook, in 1998 the average number of years from initial venture investment to initial public offering of a U.S.

venture capital-backed company was 3.1 years and the average number of years from initial venture investment to merger and acquisition transaction was 4.5 years.

These numbers have steadily increased and have ranged between 6.0 years and 6.3 years from 2017 through 2020.

According to the Q4 2021 Pitchbook-NVCA Venture Monitor, the current average time from initial venture investment to exit transaction is now 6.1 years.

Exit transactions are a small proportion of companies financed by venture capital each year.

As a result, the pool of target companies has grown larger with increased demand.

Highly Fragmented, Underserved Market with High Barriers to Entry

Many viable venture-backed companies have been unable to obtain sufficient growth financing from traditional lenders, such as commercial banks or asset-based finance companies, because traditional lenders normally underwrite to tangible asset values and/or operating cash flows.

If such firms do provide financing, their loans normally contain financial performance covenants stipulating tangible asset coverages or setting standards of operating performance that do not apply to our target companies.

Because sponsored growth lending and non-sponsored growth lending require specialized underwriting and investment structures that fit the distinct characteristics of venture-backed companies and non-sponsored growth companies, more traditional lending approaches

largely do not apply to these companies.

We also believe that our relationship-based approach to investing, which leverages the expertise of the Investment Committee in developing strong relationships with venture capital investors and venture capital-backed companies, helps us to assess investment risks and determine appropriate pricing for our investments in portfolio companies.

In addition, we expect that the relationships of RGC’s senior investment professionals will enable us to learn about, and compete effectively for, financing opportunities with attractive companies in the industries in which we seek to invest.

We also believe that our relationship-based approach to investing helps us to assess and manage investment risks and determine appropriate pricing for our debt investments in portfolio companies.

Competitive Advantages

We believe we are well positioned to address the market for growth lending in a manner that will result in a competitive advantage over other established sponsored growth lenders.

We believe our competitive strengths and key differentiators include:

Experienced, Proven Management Team Supported by a Deep Bench of Dedicated Investment Professionals.

The investment professionals of RGC have on average over 23 years of experience as venture capitalists and lenders who have developed a disciplined, repeatable approach to investing and managing investments in high potential growth businesses.

We believe that the experience, relationships and disciplined investment and risk management processes of RGC’s investment professionals are a competitive advantage for us.

Our President and Chief Executive Officer, David Spreng, who is also the founder, Chief Executive Officer and Chief Investment Officer of RGC, has a unique combination of experience as a senior executive of a $20 billion asset management firm and over 25 years as a venture capital equity and debt investor.

For the past 20 years, Mr.

Spreng has been a leader in applying risk management processes to investing in equity and debt of small, fast-growing, private companies.

Our Chief Financial Officer and Chief Operating Officers, Treasurer and Secretary, Thomas Raterman, who is also Chief Financial Officer of RGC, has more than 30 years of corporate finance, investment banking, private equity and financial executive management experience with rapidly growing entrepreneurial companies.

Greg Greifeld, Managing Director, Deputy Chief Investment Officer and Head of Credit at RGC, has over 12 years of lending, venture capital, and investment management experience.

Our Managing Director and Head of Origination, Mark Donnelly, also has over 15 years of experience in venture capital and private equity and experience in origination of new investment opportunities.

Finally, Rob Lake, Managing Directors and Head of Life Sciences, has over 28 years of life science and venture capital debt experience and in the past decade has deployed over $1.5 billion of debt to life science and health care companies.

RGC has a broad team of professionals focused on every aspect of the investment lifecycle.

RGC has origination, underwriting and portfolio monitoring teams that manage and oversee the investment process from identification of investment opportunity through negotiations of final term sheet and investment in a portfolio company followed by active portfolio monitoring.

The team members serving investment management and oversight functions have significant operating experience and are not associated with origination functions to avoid any biased views of performance.

This structure helps originators focus on identifying investment opportunities while other team members continue building relationships with our portfolio companies.

Provide Capital to Robust, High-Growth Venture-backed Companies.

We believe we are favorably positioned within the venture lending ecosystem, targeting primarily growth focused technology and life sciences companies.

We believe the technology and life sciences industries are among the most attractive industries within the venture lending space, primarily representing large, addressable markets with strong and consistent growth.

According to the Q4 2021 Pitchbook-NVCA Venture Monitor and Pitchbook-NVCA industry classifications, venture capital deal volume for technology totaled approximately $285.2.0 billion in 2021, representing an 25.3% CAGR from 2010 to 2021.

Venture capital deal volume for life sciences totaled approximately $47.0 billion in 2021, representing a 17.5% CAGR from 2010 to 2021.

We believe companies within these industries can often be characterized as having asset-light business models, attractive recurring revenue streams and strong growth trajectories.

We invest across industries to diversify risk and deliver more stable returns.

The investment professionals at RGC have extensive experience investing in the industries on which we focus, including technology, life sciences, healthcare information and services, business services, select consumer services and products and other high-growth industries.

Our ability to invest across diverse industries is supported by our Sponsored Growth Lending strategy and relationships with leading venture firms, who are generally industry experts in the areas in which they invest.

We are able to leverage our relationships across equity providers, lenders, and advisers to source deals within the venture industry.

We believe we are able to access opportunities to finance companies that are both backed by venture capital sponsors as well as through direct lead generation and other relationships.

While many growth lenders focus solely on sponsored lending, we believe we are differentiated in our approach by offering both sponsored growth lending and non-sponsored growth lending that are secured by the assets of many of the most dynamic, innovative and fastest growing companies in the United States.

Robust Disciplined Investment Process and Credit Analysis.

RGC’s senior investment professionals draw upon their substantial experience, including operating, lending, venture capital and growth investing, to manage the underwriting investment process.

Credit analysis, which is a fundamental part of our investment process, is driven by our credit-first philosophy and utilizes the core

competencies the team has developed.

A strong assessment of underwriting transactions often enables development of structure and pricing terms to win deals and produce strong returns for risks taken versus other lenders that take a more formulaic approach to the business.

We believe the focused and disciplined approach that RGC applies to our lending strategy enables us to deliver strong, consistent returns to our investors.

Our debt portfolio is 98.0% first lien senior secured.

Of our $1.5 billion total commitments since inception, our cumulative gross loss rate, as a percentage of total commitments since inception, has been 0.98% and our net losses, as a percentage of total commitments since inception, has been 0.04%.

At the point of origination, our portfolio companies have raised on average $90 million of equity proceeds relative to our average loan size of $25 million.

To achieve this, we do not follow an “index” strategy or a narrowly focused approach, and we do not lend only to those companies that are backed by a specific set of sponsors.

We believe that careful selection among many opportunities, within both sponsored and non-sponsored lending opportunities, will yield the optimal portfolio results.

We maintain rigorous underwriting, monitoring and risk management processes across our portfolio, which is underpinned by our two main lending principles, first the ability to price risk and second the ability to measure and track enterprise value.

Our investment process differs from many of our competitors in that we have a dedicated credit team, separate from the origination team, that manages the underwriting process.

Unlike many of our competitors, we underwrite the company and the loan separately and spend significant time analyzing the enterprise value of the company and potential upside from the equity component of the transaction.

Proprietary Risk Analytics and Return Optimization.

Over the past 20 years, RGC’s senior investment professionals have iterated upon and built out an extensive due diligence process, which has resulted in the proprietary risk analysis used today.

Spreng has overseen the development of a risk management model that helps to identify, analyze and mitigate risk within individual portfolio companies in the venture capital space.

The model utilized by us today examines a consistent set of 30 quantitative and qualitative variables in four main risk areas (market, technology, management and financing) to generate a composite risk ranking for each portfolio company.

Flexible, Opportunity-Specific Pricing and Structure.

RGC’s comprehensive analysis assesses all factors and does not rely on any one criterion above or more than others.

For example, we do not seek to provide financing to every early-stage company backed by top-tier venture firms, but only to those companies that, in our opinion, possess the most favorable risk and return characteristics for our investments.

We seek to understand the attractiveness of each opportunity on its own merits.

The quality of the venture investors involved is important, but it is only one component of our decision-making process.

Within our Non-Sponsored Growth Lending strategy, we expect that most companies will have positive EBITDA but have been unable to access sufficient capital to fund current growth opportunities.

We believe that gaining a comprehensive picture of an opportunity based on RGC’s defined assessment factors allows us to be more flexible, to identify price and structure inefficiencies in the debt market, better support our portfolio companies, and to maximize loan and warrant returns, while minimizing losses.

In our Sponsored and Non-Sponsored Growth Lending strategies, we target our loan to be less than 25% of enterprise value at inception.

Strong Reputation and Deep Relationships.

RGC’s senior investment professionals enjoy reputations as innovative thought leaders, ingrained in the fabric of the venture community.

RGC’s senior investment professionals have been active in venture capital investing, private lending, growth equity investing, corporate finance, and investment banking for more than two decades and are viewed as trustworthy partners to both management and venture investors as well as entrepreneurs.

Our investment professionals’ experience has often encouraged private companies to work with a lender that can manage challenges and deviations from plans that often arise in developing companies.

RGC’s senior investment professionals also have established a network of relationships over two decades with various venture capital firms, venture banks, institutional investors, entrepreneurs and other venture capital market participants, which has allowed RGC to develop a variety of channels for investment originations and referrals.

These investment professionals maintain ongoing dialogue with a number of venture capital firms across the country, leverage a suite of technologies to identify potential borrowers and often seek to be the first contact for new investment opportunities.

In addition, our strategic relationship with Oaktree provides us with access to additional resources and relationships that are incremental to our already broad network of venture backed companies and venture capital sponsors.

Our primary competitors for investments include public and private funds, other BDCs, commercial and investment banks, venture-oriented commercial banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds.

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For additional information concerning the competitive risks we face, see “Risk Factors — Risks Related to Our Business and Structure — We operate in a highly competitive market for investment opportunities and we may not be able to compete effectively.” in Part I, Item 1A of this Form 10-K.

1 Timo Fischer & Gaétan de Rassenfosse, Venture Debt Financing:

Determinants of the Lending Decision , at 8 (Oct.

12, 2012), available at http://ssrn.com/abstract=1909602.

2 Nat’l Venture Capital Association, 2015 National Venture Capital Association Yearbook.

Dividend Reinvestment Plan

We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below.

As a result of adopting such a plan, if our Board of Directors authorizes, and we declare, a cash dividend or distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash dividends or distributions automatically reinvested in additional shares of our common stock, rather than receiving cash.

No action will be required on the part of a registered stockholder to have his or her cash dividends and distributions reinvested in shares of our common stock.

A registered stockholder could instead elect to receive a dividend or distribution in cash by notifying RGC in writing, so that such notice is received by RGC no later than ten days prior to the record date for distributions to the stockholders.

RGC will set up an account for shares of our common stock acquired through the plan for each stockholder who does not elect to receive dividends and distributions in cash and hold such shares in non-certificated form.

Those stockholders whose shares are held by a broker or other financial intermediary could receive dividends and distributions in cash by notifying their broker or other financial intermediary of their election.

Stockholders who receive dividends and distributions in the form of stock are generally subject to the same U.S.

federal, state and local tax consequences as are stockholders who elect to receive their dividends and distributions in cash.

However, since a participating stockholder’s cash dividends and distributions will be reinvested in our common stock, such stockholder will not receive cash with which to pay applicable taxes on reinvested dividends and distributions.

A stockholder’s basis for determining gain or loss upon the sale of stock received in a dividend or distribution from us will generally be equal to the cash that would have been received if the stockholder had received the dividend or distribution in cash, unless we were to issue new shares that are trading at or above net asset value, in which case, the stockholder’s basis in the new shares will generally be equal to their fair market value.

Any stock received in a dividend or distribution will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S.

stockholder’s account.

We do not currently have any employees.

David Spreng, our President, Chief Executive Officer and Chairman of our Board of Directors, is also the founder, President, Chief Executive Officer and Chief Investment Officer of RGC.

Raterman is our Chief Financial Officer, Treasurer, and Secretary, and serves as the Chief Financial Officer of RGC.

Raterman is our Chief Operating Officer, Chief Financial Officer, Treasurer, and Secretary, and serves as the Chief Financial Officer and Chief Operating Officer of RGC.

Our Chief Financial Officer performs his functions for us under the terms of our Administration Agreement.

We have also retained Carl M.

Rizzo of Alaric Compliance Services LLC to serve as our Chief Compliance Officer pursuant to an agreement with Alaric Compliance Services LLC.

Rizzo also serves as the Chief Compliance Officer for RGC.

We have also retained Joseph McDermott of Alaric Compliance Services LLC to serve as our Chief Compliance Officer pursuant to an agreement with Alaric Compliance Services LLC.

McDermott also serves as the Chief Compliance Officer for RGC.

Our day-to-day investment and administrative operations are managed by RGC and our Administrator.

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We currently are, and expect to remain, an “emerging growth company,” as that term is used in the JOBS Act until the earliest of:

● the last day of our fiscal year following the fifth anniversary of IPO, if any;

● the last day of our fiscal year following the fifth anniversary of the closing of our IPO, which occurred on October 25, 2021;

● the last day of the first fiscal year in which our annual gross revenues are equal to or greater than $1,070,000,000;

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● an individual who is a citizen or resident of the United States;

● a corporation created or organized in or under the laws of the United States, any state therein or the District of Columbia;

● a corporation (or another entity taxable as a corporation for U.S.

federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

● an estate, the income of which is subject to U.S.

federal income taxation regardless of its source;

or a trust if a court within the United States can exercise primary jurisdiction over the administration of the trust and one or more U.S.

● a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S.

persons have authority to control all substantial decisions of the trust.

stockholder” means a beneficial owner of shares of our common stock that is for U.S.

federal income tax purposes:

● a nonresident alien individual;

● a foreign corporation;

● a foreign estate or trust.

federal income tax purposes neither a U.S.

stockholder nor partnership.

If a partnership or other entity classified as a partnership, for U.S.

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We have elected to be treated as a RIC under Subchapter M of the Code, currently qualify and intend to continue to qualify for treatment as a RIC.

As a RIC, we generally will not pay corporate-level U.S.

As a RIC, we generally will not be subject to U.S.

federal income taxes on any ordinary income or capital gains that we timely distribute to our stockholders as dividends.

To qualify as a RIC, we must, among other things:

● meet the annual distribution requirements;

● meet the Annual Distribution Requirement (defined below);

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

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● not more than 25% of the value of our total assets is invested in the securities of any issuer (other than U.S.

Government securities and the securities of other RICs), the securities of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses, or the securities of one or more QPTPs, or the “Diversification Tests.”

Government securities and the securities of other RICs), the securities of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses (other than the securities of other RICs), or the securities of one or more QPTPs, or the “Diversification Tests.”

In the case of a RIC that furnishes capital to development corporations, there is an exception relating to the Diversification Tests described above.

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As a RIC, we (but not our stockholders) are generally not subject to U.S.

federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders in any taxable year with respect to which we distribute an amount equal to at least 90% of the sum of our (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions), or the “Annual Distribution Requirement.” We intend to distribute annually all or substantially all of such income.

Generally, if we fail to meet this Annual Distribution Requirement for any taxable year, we will fail to qualify for tax treatment as a RIC for such taxable year.

federal income tax on investment company taxable income and net capital gains that we timely distribute to our stockholders in any taxable year with respect to which we distribute an amount equal to at least the sum of (i) 90% of our investment company taxable income (which includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) 90% of our net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions), or the “Annual Distribution Requirement.” We intend to distribute annually all or substantially all of such income.

Generally, if we fail to meet this Annual Distribution Requirement for any taxable year, we will fail to qualify as a RIC for such taxable year.

To the extent we meet the Annual Distribution Requirement for a taxable year, but retain our net capital gains for investment or any investment company taxable income, we will be subject to U.S.

federal income tax on such retained capital gains and investment company taxable income.

We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income tax, including the 4% U.S.

federal excise tax described below.

We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated U.S.

federal income tax, including any nondeductible 4% U.S.

federal excise tax described below, if applicable.

We are subject to a nondeductible 4% U.S.

federal excise tax on certain of our undistributed income, unless we timely distribute each calendar year (or are deemed to have timely distributed each calendar year) an amount equal to the sum of:

federal excise tax on certain of our undistributed income, unless we timely distribute (or are deemed to have timely distributed) an amount equal to the sum of:

● at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;

● at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year);

● any net ordinary income and capital gain net income that we recognized in previous years but was not distributed during such years and on which we paid no corporate-level U.S.

● at least 98.2% of our capital gain net income for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year);

● any net ordinary income and capital gain net income that we recognized for preceding years, but were not distributed during such years, and on which we paid no U.S.

federal income tax.

While we intend to distribute any income and capital gains in order to avoid imposition of this 4% U.S.

While we intend to distribute any income and capital gains in order to avoid imposition of this nondeductible 4% U.S.

federal excise tax, we may not be successful in avoiding entirely the imposition of this tax.

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See “— Regulation as a Business Development Company — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/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 Annual Distribution Requirement or to avoid the 4% U.S.

If we dispose of assets in order to meet the Annual Distribution

Requirement or to avoid the 4% U.S.

federal excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

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Failure to Qualify as a RIC

While we have elected, and expect to qualify, to be treated as a RIC for 2020 and intend to qualify to be treated as a RIC annually, no assurance can be provided that we will qualify for tax treatment as a RIC for any taxable year.

For example, we may have difficulty satisfying the diversification requirements after the consummation of the initial Spin-Off transaction if we decide to liquidate our portfolio since we will not be making additional investments.

While we generally will not lose our status as a RIC as long as we do not acquire any non-qualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition of non-qualifying securities or other property.

If we have previously qualified as a RIC, but were subsequently unable to qualify for treatment as a RIC, and certain amelioration provisions are not applicable, we would be subject to tax on all of our taxable income (including our net capital gains) at regular corporate rates.

We would not be able to deduct distributions to stockholders, nor would we be required to make distributions.

Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits.

Subject to certain limitations under the Code, corporate stockholders would be eligible to claim a dividend received deduction with respect to such dividend;

non-corporate stockholders would generally be able to treat such dividends as “qualified dividend income,” which is subject to reduced rates of U.S.

federal income tax.

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.

In order to requalify as a RIC, in addition to the other requirements discussed above, we would be required to distribute all of our previously undistributed earnings attributable to the period we failed to qualify as a RIC by the end of the first year that we intend to requalify as a RIC.

If we fail to requalify as a RIC for a period greater than two taxable years, we may be subject to regular corporate tax on any net built-in gains with respect to certain of our assets ( i.e.

, the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years.

While we have elected to be treated as a RIC and intend to qualify to be treated as a RIC annually, no assurance can be provided that we will qualify for tax treatment as a RIC for any taxable year.

If we fail to satisfy the 90% Gross Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for such year if certain relief provisions are applicable (which may, among other things, require us to pay certain U.S.

federal income tax at corporate rates 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, regardless of whether we make any distributions to our stockholders.

Distributions would not be required, and any distributions would be taxable to our stockholders as ordinary dividend income that, subject to certain limitations, may be eligible for the 20% maximum rate to the extent of our current and accumulated earnings and profits provided certain holding period and other requirements were met.

Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction.

Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital that would reduce the stockholder's adjusted tax basis in its common stock (and correspondingly increase such stockholder's gain, or reduce such stockholder's loss, on disposition of such common stock), 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 year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC.

Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the nonqualifying year, we 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 years, unless we made a special election to pay U.S.

federal income tax at corporate rates on such built-in gain at the time of our requalification as a RIC.

The remainder of this discussion assumes that we qualify as a RIC for each taxable year.

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In certain circumstances, we may be required to recognize taxable income prior to the time at which we receive cash.

For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with an end-of-term payment and/or PIK interest payment or, in certain cases, increasing interest rates or issued with warrants), we must include in taxable income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year.

For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt

instruments with an end-of-term payment and/or PIK interest payment or, in certain cases, increasing interest rates or issued with warrants), we must include in taxable income each year a portion of the original issue discount 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 original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement and to avoid the 4% U.S.

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Passive Foreign Investment Companies.

We may invest in the stock of a foreign corporation which is classified as a “passive foreign investment company” (within the meaning of Section 1297 of the Code), or “PFIC.” In general, unless a special tax election has been made, we are required to pay tax at ordinary income rates on any gains and “excess distributions” with respect to PFIC stock as if such items had been realized ratably over the period during which we held the PFIC stock, plus an interest charge.

Certain adverse tax consequences of a PFIC investment may be limited if we are eligible to elect alternative tax treatment with respect to such investment.

We may invest in the stock of a foreign corporation which is classified as a “passive foreign investment company” (within the meaning of Section 1297 of the Code), or “PFIC.” As a result, we may be subject to U.S.

federal income tax on a portion of any "excess distribution"

or gain from the disposition of such shares.

Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains.

This additional tax and interest may apply even if we make a distribution in an amount equal to any "excess distribution"

or gain from the disposition of such shares as a taxable dividend by us to our shareholders.

If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund” under the Code (a “QEF”), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us.

Alternatively, we can elect to mark-to-market at the end of each taxable year our shares in a PFIC;

in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income.

Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S.

federal excise tax.

No assurances can be given that any such election will be available or that, if available, we will make such an election.

Income inclusions from a QEF will be “good income” for purposes of the 90% Gross Income Test provided that they are derived in connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year to which the income is included in our income.

Foreign Currency Transactions.

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A BDC provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privately-owned companies.

Until an IPO, if any, we do not intend to list our common stock on a stock exchange, and it will not be publicly traded.

We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act.

A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of:

(a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company.

(a) 67% or more of such company’s voting securities present at a meeting if more than

50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company.

We do not anticipate any substantial change in the nature of our business.

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Alternatively, we may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the “required majority” of our independent directors as defined in Section 57(o) of the 1940 Act approve such increase, with such approval becoming effective after one year.

Because our common stock is not listed on a national securities exchange, if we receive approval to increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% from an asset coverage ratio of 200%, then we must offer to repurchase all of our common stock held by stockholders as of the date of such approval.

In addition, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage and risks related to leverage.

The Board of Directors approved a proposal that permits us to reduce our asset coverage ratio to 150% on October 28, 2021 and we intend to seek corresponding approval from our stockholders.

Therefore, our asset coverage ratio will be reduced to 150% on October 28, 2022 or effective immediately upon receiving stockholder approval, if earlier.

We will also be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage and risks related to leverage.

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates and, in some cases, prior approval by the SEC.

We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act.

Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate.

The portion of our portfolio invested in securities issued by investment companies ordinarily will subject our stockholders to additional indirect expenses.

We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act and the rules and regulations thereunder.

Prior to January 19, 2021, except for registered money market funds, we generally were prohibited from acquiring more than 3% of the voting stock of any registered investment company, investing more than 5% of the value of our total assets in the securities of one investment company, or investing more than 10% of the value of our total assets in the securities of more than one investment company without obtaining exemptive relief from the SEC.

However, the SEC adopted new rules, which became effective on January 19, 2021, that allow us to acquire the securities of other investment companies in excess of the 3%, 5%, and 10% limitations without obtaining exemptive relief if we comply with certain conditions.

If we invest in securities issued by investment companies, if any, it should be noted that such investments might subject our stockholders to additional expenses as they will be indirectly responsible for the costs and expenses of such companies.

Our investment portfolio is also subject to diversification requirements by virtue of our election to be treated as a RIC for U.S.

tax purposes and our intention to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs.

federal income tax purposes and our intention to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs.

See “Risk Factors — Risks Related to Our Business and Structure” in Part I, Item 1A of this Form 10 K for more information.

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On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted the Order that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by RGC or its affiliates in a manner consistent with the our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC were granted the Order that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by RGC or its affiliates in a manner consistent with the our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

Under the terms of the Order, a majority of our independent directors are required to make certain determinations in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

We are subject to periodic examination by the SEC for compliance with the 1940 Act.

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Qualifying Assets

Under the 1940 Act, a BDC 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 BDC’s gross assets.

The principal categories of qualifying assets relevant to our business are the following:

The principal categories of qualifying assets relevant to our business are any of 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.

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(iii) is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company;

(iv) is a small and solvent company having gross assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.

(iv) is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.

(2) Securities of any eligible portfolio company which we control.

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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.

(4) 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.

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

(5) 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.

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government securities or high-quality debt securities maturing in one year or less from the time of investment.

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, other than office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the BDC, deferred organization and operating expenses, and other non-investment assets necessary and appropriate to its operations as a BDC, 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.

In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.

Control, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company but may exist in other circumstances based on the facts and circumstances.

The regulations defining qualifying assets may change over time.

The Company may adjust its investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative, or judicial actions.

Managerial Assistance to Portfolio Companies

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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 gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes.

However, if more than 25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S.

federal income tax purposes.

Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit.

RGC monitors the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Under the 1940 Act, a BDC is subject to restrictions on the issuance, terms and number of warrants, options or rights to purchase shares of capital stock that it may have outstanding at any time.

Under the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms within ten years, (ii) the exercise or conversion price is not less than the current market value at the date of issuance, (iii) stockholders authorize the proposal to issue such warrants, and the Board of Directors approves such issuance on the basis that the issuance is in our best interests and the stockholders best interests and (iv) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed.

The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities.

particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options, or rights to purchase capital stock cannot exceed 25% of the BDC’s total outstanding shares of capital stock.

Senior Securities;

Coverage Ratio

We are generally 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.

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If we receive such stockholder approval, we would be permitted to increase our leverage capacity on the first day after such approval.

approval becoming effective after one year.

The Board of Directors approved a proposal that permits us to reduce our asset coverage ratio to 150% on October 28, 2021 and we intend to seek corresponding approval from our stockholders.

Therefore, our asset coverage ratio will be reduced to 150% on October 28, 2022 or effective immediately upon receiving stockholder approval, if earlier.

In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

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We and RGC have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures.

Carl Rizzo currently serves as our Chief Compliance Officer.

Joseph McDermott currently serves as our Chief Compliance Officer.

Sarbanes-Oxley Act of 2002

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To protect the non-public personal information of individuals, we restrict access to non-public personal information about our stockholders to employees of RGC and its affiliates with a legitimate business need for the information.

In order to guard our stockholders’ non-public personal information, we maintain physical, electronic and procedural safeguards that are designed to comply with applicable law.

In order to guard our stockholders’ non-public personal information, we maintain physical, electronic and procedural safeguards that are designed to comply

with applicable law.

Non-public personal information that we collect about our stockholders is generally stored on secured servers located in the United States.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business