What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 195 added, 114 removed, 417 unchanged (43% of the section changed)

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We have elected to be regulated as a BDC under the 1940 Act.

In addition, we have elected to be treated, have qualified, and intend to continue to qualify as a RIC under Subchapter M of the Code.

In addition, we have elected to be treated, have qualified, and intend to continue to qualify annually as a RIC under Subchapter M of the Code.

If we fail to qualify as a RIC for any taxable year, we will be subject to corporate-level 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 in the Initial Private Offering, in connection with which we called capital and issued 333,333 shares of our common stock to investors for an aggregate purchase price of $5,000,000.

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

As of March 31, 2021, in connection with the Initial Private Offering, we had total capital commitments of $275,000,000 and had issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000.

As of March 31, 2021, we had completed multiple closings under the Company’s second private offering (the “Second Private Offering”) and had accepted capital commitments of $174,673,500.

As of March 31, 2021, in connection with the Second Private Offering, we have issued an aggregate of 8,352,251 shares for a total purchase price of $125,283,766.

As of March 31, 2021, $49,389,734 of capital commitments remain undrawn.

As of March 31, 2021, we issued 22,564 shares as an additional direct investment of $338,453 by Runway Growth Holdings LLC, an affiliate of RGC.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted an order (the “Order”) that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if the Board 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 our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

Between December 2016 and December 2017, we completed the Initial Private Offering, in connection with which we called capital and issued 333,333 shares of our common stock to investors for an aggregate purchase price of $5,000,000.

As of June 30, 2021, in connection with the Initial Private Offering, we had issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000.

As of June 30, 2021, we have completed multiple closings under the Company’s second private offering (the “Second Private Offering”) and had accepted capital commitments of $181,473,500.

As of June 30, 2021, in connection with the Second Private Offering, we have issued an aggregate of 8,352,251 shares for a total purchase price of $125,283,766 and $56,189,734 of capital commitments remain undrawn.

As of June 30, 2021, we issued 22,564 shares as an additional direct investment by Runway Growth Holdings LLC, an affiliate of RGC, for a total purchase price of $338,453.

As of June 30, 2021, we issued an additional 6,072,815 shares as part of the dividend reinvestment program.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted an order (the “Order”) that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if the Board 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 our investment objective or criteria, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

We believe that the ability to co-invest with similar investment structures and accounts sponsored or managed by RGC or its affiliates will provide additional investment opportunities and the ability to achieve greater diversification.

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 strategies and policies.

Portfolio Composition and Investment Activity

Portfolio Composition

At March 31, 2021, we had investments in 33 portfolio companies, representing 19 companies in which we held loan and warrant investments, three companies in which we held loan investments and common or preferred stocks, seven companies in which we held warrant investments only, one company in which we held bonds, three companies in which we held shares of common or preferred stocks, and we held one U.S.

Treasury Bill.

At December 31, 2020, we had investments in 31 portfolio companies, representing 22 companies in which we held loan and warrant investments, eight companies in which we held warrant interests only, one company

in which we held bonds, and we held one U.S.

At June 30, 2021, we had investments in 35 portfolio companies, representing 21 companies in which we held loan and warrant investments, four companies in which we held loan investments and common or preferred stocks, 9 companies in which we held warrant investments only, three companies in which we held shares of common or preferred stocks only, and we held two U.S.

Treasury Bills.

At December 31, 2020, we had investments in 31 portfolio companies, representing 22 companies in which we held loan and warrant

investments, eight companies in which we held warrant interests only, one company in which we held bonds, and we held one U.S.

Treasury Bill.

The following table shows the fair value of our investments, by asset class, as of March 31, 2021 and December 31, 2020:

March 31, 2021 (Unaudited)

The following table shows the fair value of our investments, by asset class, as of June 30, 2021 and December 31, 2020:

June 30, 2021 (Unaudited)

December 31, 2020

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Total Investments

For the three and six months ended June 30, 2021, our debt investment portfolio had a dollar-weighted annualized yield of 15.25% and 14.11%, respectively.

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.

For the three and six months ended June 30, 2020, our debt investment portfolio had an effective annualized yield of 14.52% and 16.12%, respectively.

The effective annualized yield on our debt investments is derived by dividing total related investment income for the period by the daily average earning investment portfolio assets outstanding at fair value and excludes noninterest earning assets such as warrants and equity investments.

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

As of June 30, 2021, our debt investments had a dollar-weighted average outstanding term of 46 months at origination and a dollar-weighted average remaining term of 32 months, or approximately 2.7 years.

As of June 30, 2021, substantially all of our debt investments had an original committed principal amount of between $6 million and $65 million, repayment terms of between 34 months and 60 months and pay cash interest at annual interest rates of between 8.55% and 12.00%.

The following table shows our dollar-weighted annualized yield by investment type for the three and six months ended June 30, 2021 and June 30, 2020:

Fair Value (1)

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Investment type:

Debt investments

Equity interest

All investments

(1) 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.

(2) 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 saled load paid by investors.

Investment Activity

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments as well as repayments and sales of existing investments.

During the three months ended March 31, 2021, the Company funded $34.7 million in two new portfolio companies and $19.3 million in five existing portfolio companies.

The Company also received $16.6 million in loan repayments from four portfolio companies.

During the three months ended March 31, 2020, the Company funded $69.7 million in five new portfolio companies and $13.5 million in four existing portfolio companies.

During the six months ended June 30, 2021, the Company funded $81.5 million in six new portfolio companies and $52.2 million in eight existing portfolio companies.

The Company also received $94.7 million in loan repayments from nine portfolio companies.

During the six months ended June 30, 2020, the Company funded $110.6 million in seven new portfolio companies and $13.9 million in five existing portfolio companies.

The Company also received $56.6 million in loan repayments from four portfolio companies and $2.7 million in proceeds from the termination of warrants.

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The following is a reconciliation of our investment portfolio, including U.S.

Treasury Bills, for the three months ended March 31, 2021 and 2020:

Three Months Ended

March 31, 2021

March 31, 2020

Treasury Bills, for the six months ended June 30, 2021 and 2020:

Six Months Ended

June 30, 2021

June 30, 2020

Beginning Investment Portfolio

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Treasury Bills

(149,986,014)

Realized (Loss) on Investments

Net Change in Unrealized (Depreciation) on Investments

Net Change in Unrealized Appreciation (Depreciation) on Investments

Ending Investment Portfolio

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May experience partial and/or full loss.

The following table shows the investment ratings of our debt investments at fair value as of March 31, 2021 and December 31, 2020:

As of March 31, 2021

The following table shows the investment ratings of our debt investments at fair value as of June 30, 2021 and December 31, 2020:

As of June 30, 2021

As of December 31, 2020

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Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible.

As of March 31, 2021, we had seven loans to Mojix, Inc.

As of June 30, 2021, we had six loans to Mojix, Inc.

representing an aggregate principal funded of $11,000,000 at a fair market value of $10,913,998, on non-accrual status, which represents 2.28% of our net assets.

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An important measure of our financial performance is net increase/(decrease) in net assets resulting from operations, which includes net investment income/(loss), net realized gain/(loss) and net unrealized appreciation/(depreciation).

Net investment income/(loss) is the difference between our income from interest, dividends, fees and other investment income and our operating

expenses, including interest on borrowed funds.

Net investment income/(loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses, including interest on borrowed funds.

Net realized gain/(loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost.

Net unrealized appreciation/(depreciation) on investments is the net change in the fair value of our investment portfolio.

Comparison of the Three Months Ended March 31, 2021 and 2020

Comparison of the Three Months Ended June 30, 2021 and 2020

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Investment income

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Net investment income

Realized (loss) on investments

Net change in unrealized (depreciation) on investments

Realized gain (loss) on investments

Net change in unrealized appreciation (depreciation) on investments

Net increase in net assets resulting from operations

(1) The basic per share figures noted above are based on weighted averages of 31,505,254 and 25,887,286 shares outstanding for the three months ended March 31, 2021 and 2020, respectively.

(1) The basic per share figures noted above are based on weighted averages of 32,396,396 and 26,645,717 shares outstanding for the three months ended June 30, 2021 and 2020, respectively.

Investment Income

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Sponsored Growth Lending and Non-Sponsored Growth Lending.

Our Sponsored Growth Lending also typically includes the receipt of warrants and/or other equity from venture-backed companies.

Our Sponsored Growth Lending strategy also typically includes the receipt of warrants and/or other equity from venture-backed companies.

We expect our investments in loans will generally range from between $5.0 million to $50.0 million, and the upper end of this range may increase as we raise additional capital.

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In addition, we may generate revenue in the form of commitment and other fees in connection with transactions.

Original issue discounts and market discounts or premiums will be capitalized, and we will accrete or amortize such

amounts as interest income.

Original issue discounts and market discounts or premiums will be capitalized, and we will accrete or amortize such amounts as interest income.

We record prepayment premiums on loans and debt securities as interest income.

Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.

Investment income for the three months ended March 31, 2021 and 2020 was $16,422,773 and $14,820,857 respectivly, due primarily to interest income earned on our portfolio investments.

The increase in interest income for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was driven by our deployment of capital, increased invested balance, prepayments, and end of term payments, partially offset by falling market interest rates.

The United States Federal Reserve Bank has indicated it will maintain an accommodative monetary policy that is expected to maintain short-term interest rates at historically low levels for an extended period of time.

Consequently, yields on our portfolio, as well as other investment strategies, have declined relative to prior periods.

We expect this trend to continue through 2021.

Included in investment income are non-recurring fees primarily comprised of early prepayment fees and unamortized original issue discounts recorded as interest income.

Other non-recurring income consisting of amendment fees, legal fees, reimburseable income, and any other fee income for services rendered, if any, are recorded as other income when earned.

Investment income for the three months ended June 30, 2021 and 2020 was $18,745,602 and $11,801,054, respectively, and includes non-recurring income of $2,966,937 and $160,293, respectively.

The increase in investment income for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to interest income and driven by our deployment of capital, increased invested balance, prepayments, and end-of-term payments, partially offset by falling market interest rates.

Operating Expenses

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We bear all other out-of-pocket costs and expenses of our operations and transactions, including those relating to:

● 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;

● fees and expenses related to public and private offerings;

● sales and repurchases of our securities;

● our pro-rata portion of fees and expenses related an initial public offering of the Public Fund in connection with a Spin-Off transaction;

● 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.

Operating expenses for the three months ended March 31, 2021 and 2020 were $4,941,040 and $5,177,270, respectively.

Operating expenses decreased for the three months ended March 31, 2021 from the three months ended March 31, 2020 primarily due to a decrease in incentive fees, partially offset by an increase in management fees.

Operating expenses per share for the three months ended March 31, 2021 and 2020 were $0.16 per share and $0.20 per share, respectively.

Operating expenses for the three months ended June 30, 2021 and 2020 were $7,405,125 and $3,927,213, respectively.

Operating expenses increased for the three months ended June 30, 2021 from the three months ended June 30, 2020 primarily due to an increase in incentive fees, management fees, and interest expense due to an increase in leverage utilization.

Operating expenses per share for the three months ended June 30, 2021 and 2020 were $0.23 per share and $0.15 per share, respectively.

Incentive Fees

Incentive fees for the three months ended March 31, 2021 and 2020 were $975,704 and $2,315,118, respectively, incurred primarily due to net investment income.

Incentive fees decreased for the three months ended March 31, 2021 from the three months ended March 31, 2020 primarily due to an increase in the daily average leverage utilized and lower yielding assets increasing the hurdle base.

$739,231 of the incentive fees for the three months ended March 31, 2021 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of March 31, 2021.

$236,473 of the incentive fees for the three months ended March 31, 2021 were deferred and accrued, and included in Accrued incentive fees on the Statement of Assets and Liabilities as of March 31, 2021.

$1,846,533 of the incentive fees for the three months ended March 31, 2020 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of March 31, 2020.

$468,585 of the incentive fees for the three months ended March 31, 2020 were deferred and accrued, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of March 31, 2020.

Incentive fees for the three months ended June 30, 2021 and 2020 were $2,836,303 and $905,858, respectively, incurred primarily due to net investment income.

Incentive fees increased for the three months ended June 30, 2021 from the three months ended June 30, 2020 primarily due to an increase in net investment income arising from prepayments.

$2,229,639 of the incentive fees for the three months ended June 30, 2021 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2021.

$606,664 of the incentive fees for the three months ended June 30, 2021 were deferred and accrued, and included in Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2021.

$686,221 of the incentive fees for the three months ended June 30, 2020 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2020.

$219,637 of the incentive fees for the three months ended June 30, 2020 were deferred and accrued, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2020.

Incentive fees related to PIK or deferred interest are accrued and payment is deferred until such interest is collected in cash.

Incentive fees per share for the three months ended March 31, 2021 and March 31, 2020 were $0.03 and $0.09 per share, respectively.

Incentive fees per share for the three months ended June 30, 2021 and June 30, 2020 were $0.09 and $0.03 per share, respectively.

Net Investment Income

Net investment income for the three months ended March 31, 2021 and 2020 was $11,481,733 and $9,643,587, respectively.

Net investment income increased for the three months ended March 31, 2021 from the three months ended March 1, 2020 primarily due to an increase in interest income resulting from an increase in the size of the investment portfolio.

Net investment income per share for the three months ended March 31, 2021 and 2020 was $0.36 per share and $0.37 per share, respectively.

Net investment income for the three months ended June 30, 2021 and 2020 was $11,340,477 and $7,873,841, respectively.

Net investment income increased for the three months ended June 30, 2021 from the three months ended June 30, 2020, primarily due to an increase in interest income resulting from an increase in the size of the investment portfolio and an increase in prepayments.

Net investment income per share for the three months ended June 30, 2021 and 2020 was $0.35 per share and $0.29 per share, respectively.

Net Realized Gain (Loss) on Investments

The net realized loss on investments of $4,595,853 for the three months ended June 30, 2021 was primarily due to the loss on a portion of our investment in the preferred stock of CareCloud, Inc.

The net realized gain on investments of $203,854 for the three months ended June 30, 2020 was primarily due to the gain on our common stock of TriplePoint Venture Growth BDC Corp.

Net Change in Unrealized Appreciation (Depreciation) on Investments

Net change in unrealized depreciation on investments of $33,281 for the three months ended June 30, 2021 was primarily due to decreases in the fair value of our senior secured loans to Pivot3 Holdings, Inc.

and our investment in the preferred stock of Pivot3 Holdings, Inc.

This was partially offset by an increase in the fair value of our investment in the common stock of Ouster, Inc.

The net change in unrealized appreciation on investments of $5,496,594 for the three months ended June 30, 2020 was primarily due to increases in the fair value of our senior secured loan to Scale Computing, Inc., our preferred stock and warrants in MTBC, Inc., and our common stock in Hercules Capital, Inc.

Net Increase in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of $6,711,343 for the three months ended June 30, 2021, as compared to a net increase in net assets resulting from operations of $13,574,289 for the three months ended June 30, 2020.

The net decrease in net assets resulting from operations for the three months ended June 30, 2021 from the three months ended June 30, 2020 was primarily due a decrease in unrealized appreciation in our portfolio for the three months ended June 30, 2021.

Comparison of the Six Months Ended June 30, 2021 and 2020

Six Months Ended

June 30, 2021

June 30, 2020

Investment income

Interest and dividend income

Total investment income

Operating expenses

Management fees

Incentive fees

Interest expense

Professional fees

Overhead allocation expense

Administration fees

Credit facility fees

Directors’ fees

Consulting fees

Insurance expense

General and administrative expenses

Other expenses

Total operating expenses

Net investment income

Realized (loss) on investments

Net change in unrealized appreciation (depreciation) on investments

Net increase in net assets resulting from operations

(2) The basic per share figures noted above are based on weighted averages of 31,953,287 and 26,266,501 shares outstanding for the six months ended June 30, 2021 and 2020, respectively.

Investment Income

Investment income for the six months ended June 30, 2021 and 2020 was $35,168,376 and $26,621,911, respectively, and includes non-recurring income of $3,569,046 and $2,848,465, respectively.

The increase in investment income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to interest income and driven by our deployment of capital, increased invested balance, prepayments, and end-of-term payments, partially offset by falling market interest rates.

Operating Expenses

Operating expenses for the six months ended June 30, 2021 and 2020 were $12,346,165 and $9,104,483, respectively.

Operating expenses increased for the three months ended June 30, 2021 from the six months ended June 30, 2020 primarily due to an

increase in incentive fees, management fees, and interest expense due to an increase in leverage utilization.

Operating expenses per share for the six months ended June 30, 2021 and 2020 were $0.39 per share and $0.34 per share, respectively.

Incentive Fees

Incentive fees for the six months ended June 30, 2021 and 2020 were $3,812,007 and $3,220,976, respectively, incurred primarily due to net investment income.

Incentive fees increased for the three months ended June 30, 2021 from the six months ended June 30, 2020 primarily due to an increase in net investment income arising from prepayments.

$2,968,870 of the incentive fees for the six months ended June 30, 2021 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2021.

$843,137 of the incentive fees for the six months ended June 30, 2021 were deferred and accrued, and included in Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2021.

$2,532,754 of the incentive fees for the six months ended June 30, 2020 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2020.

$688,222 of the incentive fees for the six months ended June 30, 2020 were deferred and accrued, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of June 30, 2020.

Incentive fees related to PIK or deferred interest are accrued and payment is deferred until such interest is collected in cash.

Incentive fees per share for the six months ended June 30, 2021 and June 30, 2020 were $0.12 and $0.12 per share, respectively.

Net Investment Income

Net investment income for the six months ended June 30, 2021 and 2020 was $22,822,211 and $17,517,428, respectively.

Net investment income increased for the six months ended June 30, 2021 from the six months ended June 30, 2020, primarily due to an increase in interest income resulting from an increase in the size of the investment portfolio and an increase in prepayments.

Net investment income per share for the six months ended June 30, 2021 and 2020 was $0.71 per share and $0.67 per share, respectively.

Net Realized (Loss) on Investments

The net realized loss on investments of $199,223 for the three months ended March 31, 2021 was primarily due to the loss on our investment in the warrants for preferred stock of Pivot3 Holdings, Inc.

The net realized loss on investments of $6,717,262 for the three months ended March 31, 2020 was primarily due to the loss on our senior secured loan to Aginity, Inc.

Net Change in Unrealized (Depreciation) on Investments

Net change in unrealized depreciation on investments of $1,911,181 for the three months ended March 31, 2021 was primarily due to decreases in the fair value of our investments in the warrants of Aspen Group, Inc.

and CareCloud, Inc.

This was partially offset by increases in the fair value of our senior secured loans to Mojix, Inc.

and our investment in the preferred stock of CareCloud, Inc.

The net change in unrealized depreciation on investments of $1,179,081 for the three months ended March 31, 2020 was primarily due to decreases in the fair value of our senior secured loans to Circadence Corporation, our preferred stock in MTBC, Inc., and our warrants in RealWear, Inc.

The COVID-19 pandemic and its resultant impact on economic activity and capital market volatility has impacted and may continue to have an impact on the fair market values of our investments.

As of March 31, 2021 numerous variables used in the valuation process reflected the impact of the COVID-19 pandemic, such as market comparables, market volatility, discount rates and credit spreads;

however, the dynamic nature of the COVID-19 pandemic and ability of portfolio companies to assess its impact on future

performance may not be fully incorporated into our assumptions.

As a result, the fair market values of our portfolio investments may be negatively impacted after March 31, 2021 by circumstances and events that are not yet known, including the complete or continuing impact of the COVID-19 pandemic and the resulting measures taken in response thereto.

Our valuation process carefully considers the impact of the COVID-19 pandemic-related uncertainties in the various inputs utilized in the determination of the fair market value of investments.

The net realized loss on investments of $4,795,077 for the six months ended June 30, 2021 was primarily due to the loss on a portion of our investment in the preferred stock of CareCloud, Inc.

The net realized loss on investments of $6,513,408 for the six months ended June 30, 2020 was primarily due to the loss on our senior secured loan to Aginity, Inc.

Net Change in Unrealized Appreciation (Depreciation) on Investments

Net change in unrealized depreciation on investments of $1,944,463 for the six months ended June 30, 2021 was primarily due to decreases in the fair value of our our senior secured loans to Pivot3 Holdings, Inc.

and our investment in the preferred stock of Pivot3 Holdings, Inc.

This was partially offset by an increase in the fair value of our investment in the common stock of Ouster, Inc.

The net change in unrealized appreciation on investments of $4,317,513 for the six months ended June 30, 2020 was primarily due to increases in the fair value of our preferred stock and warrants in MTBC, Inc., and our common stock in Hercules Capital, Inc.

Net Increase in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of $9,371,328 for the three months ended March 31, 2021, as compared to a net increase in net assets resulting from operations of $1,747,244 for the three months ended March 31, 2020.

The net increase in net assets resulting from operations for the three months ended March 31, 2021 from the three months ended March 31, 2020 was primarily due to interest income earned from portfolio investments and a decrease in realized losses in our portfolio for the three months ended March 31, 2021.

We had a net increase in net assets resulting from operations of $16,082,671 for the six months ended June 30, 2021, as compared to a net increase in net assets resulting from operations of $15,321,533 for the six months ended June 30, 2020.

The net increase in net assets resulting from operations for the six months ended June 30, 2021 from the six months ended June 30, 2020 was primarily due to an increase in interest income resulting from an increase in the size of the investment portfolio and an increase in prepayments.

Financial Condition, Liquidity and Capital Resources

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We expect that we may also generate cash from any financing arrangements we may enter into in the future and any future offerings of our equity or debt securities.

We may fund a portion of our investments through borrowings from banks and issuances of senior securities, which may be secured or unsecured, through registered offerings or private placements.

We may fund a portion of our investments through borrowings from banks and issuances of senior securities, which may be secured or unsecured, through

registered offerings or private placements.

Our primary use of funds is to make investments in eligible portfolio companies, pay our operating expenses and make distributions to holders of our common stock.

During the three months ended March 31, 2021, cash and cash equivalents decreased to $1,780,788 from $14,886,246 as of December 31, 2020.

During the six months ended June 30, 2021, cash and cash equivalents decreased to $892,584 from $14,886,246 as of December 31, 2020.

This decrease was primarily the result of the purchase of investments in portfolio companies for $133,681,004 and 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.

Additionally, as of June 31, 2021, we have issued 22,564 shares of our common stock to Runway Growth Holdings LLC, an affiliate of RGC.

The remaining shares were issued in connection with the Initial Private Offering, the Second Private Offering, or pursuant to our dividend reinvestment plan, as follows:

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March 24, 2021

May 13, 2021 (1)

Shares were issued as part of the dividend reinvestment plan.

Contractual Obligations

At March 31, 2021, the Company had $58,085,569 in unfunded loan commitments to provide debt financing to eight portfolio companies.

The Company’s management believes that its available cash balances, availability under the Credit Agreement (as defined below) and/or ability to drawdown capital from investors provides sufficient funds to cover its unfunded commitments as of March 31, 2021.

At June 30, 2021, the Company had $122,560,569 in unfunded loan commitments to provide debt financing to eleven portfolio companies.

Payments Due By Period

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Treasury Bill on margin.

The reverse repurchase agreement purchased was subsequently repaid in April 2021.

The reverse repurchase agreement purchased was subsequently repaid in July 2021.

(2) See “Note 10 – Credit Facilities” to our financial statements in Part I, Item 1 of this Form 10-Q for more information.

Credit Agreement

On May 31, 2019, we entered into a Credit Agreement (the “Credit Agreement”) by and among us, as borrower, KeyBank National Association, as administrative agent, syndication agent, and a lender, CIBC Bank USA (“CIBC”), as documentation agent and a lender, and U.S.

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During the fourth quarter of 2020, we amended the Credit Agreement and others to increase its size to $215 million, increase the accordion feature to $300 million, add additional lenders, modify certain pricing elements and other provisions.

During the second quarter of 2021, we amended the Credit Agreement to:

(i) allow the Company to incur permitted indebtedness without the prior written consent of Keybank National Association, as administrative agent, subject to the limitations described in the Credit Agreement;

(ii) increase the accordion amount under the Credit Agreement from a $300 million maximum aggregate commitment amount to a $350 million maximum aggregate commitment amount;

and (iii) amend certain other terms of the

Credit Agreement.

See "Note 10 -Credit Facilities"

to our financial statements in Part I of this Form 10 Q for more information on the Credit Agreement and Credit Facilities.

During the three months ended March 31, 2021, we drew down $43,000,000 on the Credit Agreement and repaid $25,000,000, of which $117,000,000 remains outstanding at March 31, 2021.

At March 31, 2021, interest was accruing at a rate of 3.50%.

During the six months ended June 30, 2021, we drew down $93,000,000 on the Credit Agreement and repaid $75,000,000, of which $117,000,000 remains outstanding at June 30, 2021.

At June 30, 2021, interest was accruing at a rate of 3.50%.

During the year ended December 31, 2020, we drew down $200,500,000 on the Credit Agreement and repaid $162,500,000 of which $99,000,000 remained outstanding at December 31, 2020.

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See “Note 10 – Credit Facilities” to our financial statements in Part I, Item 1 of this Form 10-Q for more information on the Credit Agreement and Credit Facilities.

On June 22, 2018, as amended on September 24, 2018, we entered into a demand loan agreement (the “Uncommitted Facility”) and a revolving loan agreement (the “Committed Facility” and, together with the Uncommitted Facility, the “Credit Facilities”) with CIBC.

The maximum principal amount of available borrowings under each of the Uncommitted Facility and the Committed Facility was $30 million (for a combined maximum principal amount under the Credit Facilities of $60 million), subject in each case to availability under the borrowing base, which is based on unused capital commitments.

On May 31, 2019, in conjunction with securing and entering into the new Credit Agreement, we terminated the Credit Facilities.

Off-Balance Sheet Arrangements

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As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

During the three months ended March 31, 2021, we declared dividends in the amount of $11,623,199, of which $2,439,978 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment plan.

During the six months ended June 30, 2021, we declared dividends in the amount of $23,482,930, of which $4,889,338 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment plan.

During the year ended December 31, 2020, we declared and paid dividends in the amount of $39,709,233, of which $7,265,784 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment program.

The timing and amount of our distributions, if any, will be determined by our Board of Directors and will be declared out of assets legally available for distribution.

The following table shows the dividends per share declared since our formation through March 31, 2021.

The following table shows the dividends per share declared since our formation through June 30, 2021.

Date Declared

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March 19, 2021

April 29, 2021

April 30, 2021

Critical Accounting Policies

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Valuation of Investments

We measure the value of our portfolio investments at fair value in accordance with ASC Topic 820, issued by the FASB.

We measure the value of our portfolio investments at fair value in accordance with ASC Topic 820, Fair Value Measurements (“ASC Topic 820”) issued by the FASB.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The COVID-19 pandemic and its resultant impact on economic activity and capital market volatility has impacted and may continue to have impact on the fair market values of our portfolio investments.

As a result, the fair market values of our portfolio investments may be negatively impacted after March 31, 2021 by circumstances and events that are not yet known,

including the complete or continuing impact of the COVID-19 pandemic and the resulting measures taken in response thereto.

Our valuation process carefully considers the impact of the COVID-19 pandemic related uncertainties in the various inputs utilized in the determination of the fair market value of our portfolio investments.

The Audit Committee assists our Board of Directors in valuing investments that are not publicly traded or for which current market values are not readily available.

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● Our Board of Directors reviews the recommended preliminary valuations and determines the fair value of each investment in our portfolio, in good faith, based on the input of RGC, the applicable independent valuation firm and the Audit Committee.

Our investments are primarily loans made to small, fast-growing companies focused in technology, life sciences, health care information and services, business services and other high-growth industries, including select consumer products and services.

Our investments are primarily loans made to high growth-potential companies focused in technology, life sciences, healthcare information and services, business services, select consumer services and products and other high-growth industries.

These investments are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indices for these types of debt instruments and, thus, RGC’s senior investment team must estimate the fair value of these investment securities based on models utilizing unobservable inputs.

Rule 2a-5 under the 1940 Act was recently adopted by the SEC and establishes requirements for determining fair value in good faith for purposes of the 1940 Act.

The Company is evaluating the impact of adopting Rule 2a-5 on the financial statements and intends to comply with the new rule’s requirements on or before the compliance date in September 2022.

Investment Valuation Techniques

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This valuation process includes, among other things, evaluating the underlying investment performance, the portfolio company’s current financial condition and ability to raise additional capital, as well as macro-economic events that may impact valuations.

These events include, but are not limited to, current market yields and interest rate spreads of similar securities as of the measurement date.

These events include, but are not limited to, current market yields and interest rate spreads of similar securities as of the

measurement date.

Significant increases or decreases in these unobservable inputs could result in a significantly higher or lower fair value measurement;

however, a significantly higher or lower fair value measurement of any of the Company’s portfolio investments may occur regardless of whether there is a significant increase or decrease in these unobservable inputs;

however, a significantly higher or lower fair value measurement of any of the Company’s portfolio investments may occur regardless of whether there is a signficiant increase or decrease in these unobservable inputs.

Under certain circumstances, we may use an alternative technique to value the debt investments to be acquired by us that better reflects the fair value of the investment, such as the price paid or realized in a recently completed transaction or a binding offer received in an arms-length transaction, the use of multiple probability-weighted cash flow models when the expected future cash flows contain elements of variability or estimates of proceeds that would be received in a liquidation scenario.

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Valuation techniques are also utilized to allocate the enterprise fair value of a portfolio company to the specific class of common or preferred stock exercisable in the warrant.

Such techniques take into account the rights and

preferences of the portfolio company’s securities, expected exit scenarios, and volatility associated with such outcomes to allocate the fair value to the specific class of stock held in the portfolio.

Such techniques take into account the rights and preferences of the portfolio company’s securities, expected exit scenarios, and volatility associated with such outcomes to allocate the fair value to the specific class of stock held in the portfolio.

Such techniques include Option Pricing Models, or “OPM,” including back-solve techniques, Probability Weighted Expected Return Models, or “PWERM,” and other techniques as determined to be appropriate.

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In some cases, the fair value of such investments is best expressed as a range of values derived utilizing different methodologies from which a fair value may then be determined.

The Company’s assets measured at fair value on a recurring basis subject to the requirements of ASC Topic 820 at March 31, 2021 and December 31, 2020 were as follows:

As of March 31, 2021 (Unaudited)

The Company’s assets measured at fair value on a recurring basis subject to the requirements of ASC Topic 820 at June 30, 2021 and December 31, 2020 were as follows:

As of June 30, 2021 (Unaudited)

Portfolio Investments

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The amortized cost basis of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees.

We report changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments on the statement of operations.

We report changes in fair value of

investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments on the statement of operations.

Dividends are recorded on the applicable ex-dividend date.

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Recent Developments

We evaluated events subsequent to March 31, 2021 through May 6, 2021.

On April 5, 2021, TriplePoint Venture Growth BDC Corp.

redeemed its outstanding corporate bonds from the Company for cash proceeds of $334,900.

On April 7, 2021, the Board approved the second amended and restated investment advisory agreement between RGC and the Company (the “Second A&R Advisory Agreement”).

If the Second A&R Advisory Agreement is approved by the Company’s shareholders at the annual meeting to be held on May 27, 2021, it would become effective on that date.

Further, if approved by the Company’s shareholders, the Second A&R Advisory Agreement would make certain changes to the management and incentive fee calculation mechanisms and clarify language relating to liquidity events.

On April 19, 2021, the Company funded an investment of $800,000 to Pivot3 Holdings, Inc.

On April 23, 2021, the Company funded an investment of $1,000,000 to Aria Systems, Inc.

On April 23, 2021, Longtail Ad Solutions, Inc.

(dba JW Player) prepaid its outstanding principal balance of $30,000,000.

In addition, the Company received cash proceeds of $1,862,708 in conjunction with ETP, prepayment fees, and interest for total proceeds of $31,862,708.

On April 26, 2021, Massdrop, Inc.

We evaluated events subsequent to June 30, 2021 through August 5, 2021.

Effective July 1, 2021, we placed three loans to Pivot3 Holdings, Inc.

on non-accrual status, representing an aggregate principal funded of $26,201,092 at a fair market value of $13,797,915 and comprises 2.89% of the investment portfolio as of June 30, 2021.

On July 20, 2021, we also received cash proceeds of $5,000,000 from the sale of a portion of assets held by Pivot3 Holdings, Inc.

On July 1, 2021, Aria Systems, Inc.

prepaid its outstanding principal balance of $28,500,000.

In addition, the Company received cash proceeds of $1,242,684 in conjunction with ETP, prepayment fees, and interest for total proceeds of $21,717,135.

On April 29, 2021, the Company declared a dividend of $0.37 per share payable on May 13, 2021 to shareholders of record as of April 30, 2021.

The Company set March 31, 2021 as the valuation date for shares issued in connection with the dividend pursuant to the Company’s dividend reinvestment plan.

In addition, we received cash proceeds of $1,658,136 in conjunction with ETP, prepayment fees, and interest for total proceeds of $30,158,136.

On July 19, 2021, we declared a dividend of $0.34 per share payable on August 12, 2021 to shareholders of record as of July 20, 2021.

We set June 30, 2021 as the valuation date for shares issued in connection with the dividend pursuant to our dividend reinvestment plan.

On August 4, 2021, we entered into an amendment (the “August Amendment”) to the Credit Agreement to clarify the fee payment schedule and to amend certain other terms of the Credit Agreement.

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-Q

Item 2. Management’s Discussion and Analysis