What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 168 added, 144 removed, 468 unchanged (40% of the section changed)

12 unchanged sentences

● interest rate volatility that could adversely affect our results, particularly to the extent that we use leverage as part of our investment strategy;

● currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S.

● our future operating results, including our ability to achieve objectives as a result of the COVID-19 pandemic;

21 unchanged sentences

We are an externally managed, non-diversified closed-end investment management company that was formed on August 31, 2015 as a corporation under the laws of the State of Maryland.

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

On August 18, 2021, we changed our name to “Runway Growth Finance Corp.” from “Runway Growth Credit Fund Inc.” 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 annually as a RIC under Subchapter M of the Code.

3 unchanged sentences

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

We will 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 will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of our initial public offering on October 25, 2021 (“IPO”), 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.

1 unchanged sentence

The Administrator, a wholly-owned subsidiary of RGC, provides all the administrative services necessary for us to operate.

We commenced investment activities in portfolio securities during the quarter ended June 30, 2017, and we commenced investment activities in U.S.

Treasury Bills during the quarter ended December 31, 2016.

In October 2015, in connection with our formation, we issued and sold 1,667 shares of our common stock to R.

In October 2015, in connection with the our formation, we issued and sold 1,667 shares of common stock to R.

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

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.

The sale of shares of common stock was approved by the unanimous consent of the sole director at the time.

Between December 2016 and December 2017, we completed 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 (the “Securities Act”), and other applicable securities laws.

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

As of September 30, 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 September 30, 2021, we have issued 9,617,379 shares of common stock for a total purchase price of $144,260,683 in connection with the Second Private Offering and $37,412,817 of capital commitments remain undrawn.

As of September 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 September 30, 2021, we have issued an additional 6,647,847 shares as part of the dividend reinvestment program.

Refer to Note 6 for further detail.

On October 25, 2021, we closed our 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 $92.0 million.

We have granted the underwriters an option to purchase up to an additional 1,027,500 shares of common stock at the public offering price, less the sales load payable by us, on or before November 19, 2021.

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

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.

3 unchanged sentences

Portfolio Composition

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.

At September 30, 2021, we had investments in 38 portfolio companies, representing 19 companies in which we held loan and warrant investments, three companies in which we held loan investments and shares of common, preferred stock, or a combination with warrants, one company in which we held a loan investment only, 10 companies in which we held warrant investments only, five companies in which we held shares of common or preferred stock only, or a combination with warrants, and we held one U.S.

Treasury Bill.

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)

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

Treasury Bill.

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

September 30, 2021 (Unaudited)

December 31, 2020

7 unchanged sentences

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.

For the three and nine months ended September 30, 2021, our debt investment portfolio had a dollar-weighted annualized yield of 15.34% and 14.17%, respectively.

For the three and nine months ended September 30, 2020, our debt investment portfolio had a dollar-weighted annualized yield of 14.81% and 15.25%, 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:

As of September 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 33 months, or approximately 2.7 years.

As of September 30, 2021, substantially all of our debt investments had an original committed principal amount of between $6 million and $50 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%.

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

Fair Value (1)

Three Months Ended

Six Months Ended

Nine 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

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Investment type:

8 unchanged sentences

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 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.

During the nine months ended September 30, 2021, the Company funded $140.1 million in nine new portfolio companies and $97.0 million in ten existing portfolio companies.

The Company also received $196.4 million in loan repayments from 12 portfolio companies.

During the nine months ended September 30, 2020, the Company funded $150.8 million in eight new portfolio companies and $14.9 million in six existing portfolio companies.

The Company also received $76.1 million in loan repayments from eight portfolio companies and $2.9 million in proceeds from the termination of warrants.

Portfolio Reconciliation

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

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

Six Months Ended

June 30, 2021

June 30, 2020

Treasury Bills, for the nine months ended September 30, 2021 and 2020:

Nine Months Ended

September 30, 2021

September 30, 2020

Beginning Investment Portfolio

4 unchanged sentences

Sales or Repayments of Investments

(197,534,296)

Scheduled Principal Payments of Investments

2 unchanged sentences

(124,999,118)

(194,985,264)

Realized (Loss) on Investments

2 unchanged sentences

(1) Includes PIK interest.

(2) Excludes $25,999,624 in U.S.

Treasury Bills sold short for the nine months ended September 30, 2020.

Asset Quality

26 unchanged sentences

May experience partial and/or full loss.

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

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

As of September 30, 2021

As of December 31, 2020

3 unchanged sentences

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 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.

As of December 31, 2020, we had six loans to Mojix, Inc.

As of September 30, 2021, the Company had six loans to Mojix, Inc.

and one loan to Pivot3 Holdings, Inc., representing an aggregate principal funded of $30,383,707 at a fair value of $23,147,803, on non-accrual status, which represents 4.59% of the Company’s net assets.

As of December 31, 2020, we had nine loans to Mojix, Inc.

representing an aggregate principal funded of $11,000,000 at a fair market value of $8,961,080, on non-accrual status, which represents 1.92% of our net assets .

4 unchanged sentences

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

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

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

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Investment income

10 unchanged sentences

Directors’ fees

Consulting fees

Insurance expense

General and administrative expenses

Other expenses

4 unchanged sentences

Net increase in net assets resulting from operations

(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.

(1) The basic per share figures noted above are based on weighted averages of 33,160,481 and 27,271,559 shares outstanding for the three months ended September 30, 2021 and 2020, respectively.

Investment Income

9 unchanged sentences

In some cases, some of our investments may provide for deferred interest payments or PIK interest.

The principal amount of the debt securities and any accrued but unpaid interest generally will become due at the maturity date.

The principal amount of the debt securities and any accrued but unpaid interest generally will

become due at the maturity date.

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

4 unchanged sentences

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.

Investment income for the three months ended September 30, 2021 and 2020 was $18,610,066 and $14,215,723, respectively, and includes non-recurring income of $3,403,585 and $295,523, respectively.

The increase in investment income for the three months ended September 30, 2021 compared to the three months ended September 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

20 unchanged sentences

● 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 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.

Operating expenses for the three months ended September 30, 2021 and 2020 were $7,868,943 and $4,693,143, respectively.

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

Operating expenses per share for the three months ended September 30, 2021 and 2020 were $0.24 per share and $0.17 per share, respectively.

Incentive Fees

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 for the three months ended September 30, 2021 and 2020 were $2,686,475 and $1,650,930, respectively, incurred primarily due to net investment income.

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

$2,171,245 of the incentive fees for the three months ended September 30, 2021 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2021.

$515,230 of the incentive fees for the three months ended September 30, 2021 were deferred and accrued, and included in Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2021.

$1,126,379 of the incentive fees for the three months ended September 30, 2020 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2020.

$524,551 of the incentive fees for the three months ended September 30, 2020 were deferred and accrued, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 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 June 30, 2021 and June 30, 2020 were $0.09 and $0.03 per share, respectively.

Incentive fees per share for the three months ended September 30, 2021 and September 30, 2020 were $0.08 and $0.06 per share, respectively.

Net Investment Income

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 investment income for the three months ended September 30, 2021 and 2020 was $10,741,123 and $9,522,580, respectively.

Net investment income increased for the three months ended September 30, 2021 from the three months ended September 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 September 30, 2021 and 2020 was $0.32 per share and $0.35 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.

The net realized gain on investments of $718,311 for the three months ended September 30, 2021 was primarily due to the gain on a portion of our investment in the common stock of Porch Group, Inc.

and Ouster, Inc.

and warrants of Brilliant Earth LLC.

The net realized gain on investments of $1,142,706 for the three months ended September 30, 2020 was primarily due to the gain on our investment in the common stock of Hercules Capital Inc.

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 change in unrealized depreciation on investments of $1,228,382 for the three months ended September 30, 2021 was primarily due to decreases in the fair value of our common stock in Ouster, Inc.

and warrants in CareCloud, Inc.

and Circadence Corporation and partially offset by an increase in the fair value of our senior secured loans in Mojix, Inc.

The net change in unrealized

appreciation on investments of $243,742 for the three months ended September 30, 2020 was primarily due to increases in the fair value of our senior secured loan to Brilliant Earth LLC and our investments in the warrants of MTBC, Inc.

and Aspen Group, Inc.

This was partially offset by decreases in the fair value of our senior secured loan to Pivot3, Inc.

and our investment in the preferred stock of MTBC, 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

We had a net increase in net assets resulting from operations of $10,231,052 for the three months ended September 30, 2021, as compared to a net increase in net assets resulting from operations of $10,909,028 for the three months ended September 30, 2020.

The net decrease in net assets resulting from operations for the three months ended September 30, 2021 from the three months ended September 30, 2020 was primarily due to a decrease in unrealized appreciation in our portfolio and an increase in operating expenses for the three months ended September 30, 2021.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Investment income

10 unchanged sentences

Directors’ fees

Consulting fees

Insurance expense

General and administrative expenses

Other expenses

4 unchanged sentences

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.

(2) The basic per share figures noted above are based on weighted averages of 32,360,107 and 26,603,966 shares outstanding for the nine months ended September 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.

Investment income for the nine months ended September 30, 2021 and 2020 was $53,778,440 and $40,837,634, respectively, and includes non-recurring income of $6,972,631 and $3,143,988, respectively.

The increase in investment income for the nine months ended September 30, 2021 compared to the nine months ended September 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.

Operating expenses for the nine months ended September 30, 2021 and 2020 were $20,215,110 and $13,797,626, respectively.

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

Operating expenses per share for the nine months ended September 30, 2021 and 2020 were $0.62 per share and $0.52 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 for the nine months ended September 30, 2021 and 2020 were $6,498,482 and $4,871,906, respectively, incurred primarily due to net investment income.

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

$5,140,115 of the incentive fees for the nine months ended September 30, 2021 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2021.

$1,358,367 of the incentive fees for the nine months ended September 30, 2021 were deferred and accrued, and included in Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2021.

$3,659,134 of the incentive fees for the nine months ended September 30, 2020 were earned, payable in cash, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 30, 2020.

$1,212,772 of the incentive fees for the nine months ended September 30, 2020 were deferred and accrued, and included under Accrued incentive fees on the Statement of Assets and Liabilities as of September 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.

Incentive fees per share for the nine months ended September 30, 2021 and September 30, 2020 were $0.20 and $0.18 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 investment income for the nine months ended September 30, 2021 and 2020 was $33,563,330 and $27,040,008, respectively.

Net investment income increased for the nine months ended September 30, 2021 from the nine months ended September 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 nine months ended September 30, 2021 and 2020 was $1.04 per share and $1.02 per share, respectively.

Net Realized (Loss) on 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.

The net realized loss on investments of $4,076,766 for the nine months ended September 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 $5,370,702 for the nine months ended September 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.

Net change in unrealized depreciation on investments of $3,172,841 for the nine months ended September 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 $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.

and Brilliant Earth LLC.

The net change in unrealized appreciation on investments of $4,561,255 for the nine months ended September 30, 2020 was primarily due to increases in the fair value of our investments in the warrants of MTBC, Inc.

This was partially offset by decreases in the fair value of our senior secured loan to Pivot3, Inc.

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

Net Increase in Net Assets Resulting from Operations

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.

We had a net increase in net assets resulting from operations of $26,313,723 for the nine months ended September 30, 2021, as compared to a net increase in net assets resulting from operations of $26,230,561 for the nine months ended September 30, 2020.

The net increase in net assets resulting from operations for the nine months ended September 30, 2021 from the nine months ended September 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 six months ended June 30, 2021, cash and cash equivalents decreased to $892,584 from $14,886,246 as of December 31, 2020.

During the nine months ended September 30, 2021, cash and cash equivalents decreased to $936,503 from $14,886,246 as of December 31, 2020.

This decrease was primarily the result of the purchase of investments in portfolio companies for $237,031,073 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:

Additionally, as of September 31, 2021, we have

issued 22,564 shares of our common stock to Runway Growth Holdings LLC, an affiliate of RGC.

The remaining shares issued as of September 30, 2021 were issued in connection with our private offerings, or pursuant to our dividend reinvestment plan, as follows:

Issuance Date

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May 13, 2021 (1)

August 12, 2021 (1)

September 29, 2021

Shares were issued as part of the dividend reinvestment plan.

For more information, see “Recent Developments.”

Contractual Obligations

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

At September 30, 2021, the Company had $165,345,185 in unfunded loan commitments to provide debt financing to twelve 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 September 30, 2021.

Payments Due By Period

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Treasury Bill on margin.

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

The reverse repurchase agreement purchased was subsequently repaid in October 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.

On May 31, 2019, we entered into a Credit Agreement, as subsequently amended (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.

Bank National Association, as paying agent.

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The Credit Agreement has an accordion feature that allows us to increase the aggregate commitments up to $200 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.

Current capital markets dislocation and economic uncertainty associated with the COVID-19 pandemic may impact our ability to access the accordion features of the Credit Agreement.

Borrowings under the Credit Agreement bear interest on a per annum basis equal to a three-month adjusted LIBOR rate (with a LIBOR floor of zero), plus an applicable margin rate that varies from 3.00% to 2.50% per annum depending on utilization and other factors.

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The Credit Agreement is secured by a perfected first priority security interest in substantially all of our assets and portfolio investments.

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, implement a 0.50% LIBOR floor and benchmark replacement rate floor on borrowings under the Credit Agreement and modify certain pricing elements and other provisions.

We also amended the fee letter (the “Fee Letter”) to revise the interest rate margin to be 3.00% for the remaining term of the Credit Agreement regardless of the Credit Agreement average utilization or the number of unaffiliated obligors on loans in the collateral

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

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(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.

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 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 third quarter of 2021, we further amended the Fee Letter (the “Second Amended and Restated Fee Letter”) to amend the first payment date of the minimum earnings fee, which will be payable annually starting on May 31, 2022.

Under the Second Amended and Restated Fee Letter, we the Company will also pay a supplemental fee on the 15th calendar day of each month beginning August 16, 2021 and ending July 15, 2022 in an aggregate amount equal to $66,367, which is paid pro rata to the lenders listed in Schedule A of the Second Amended and Restated Fee Letter.

During the nine months ended September 30, 2021, we drew down $100,000,000 on the Credit Agreement and repaid $119,000,000, of which $80,000,000 remains outstanding at September 30, 2021.

At September 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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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 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.

Prior to our IPO, the number of shares to be issued to a shareholder under the dividend reinvestment plan was determined by dividing the total dollar amount of the distribution payable to such shareholder by the net asset value per share of our common stock, as of the valuation date fixed by the Board of Directors for such dividend.

In connection with our IPO, we entered into our amended and restated dividend reinvestment plan, pursuant to which, if newly issued shares are used to implement the dividend reinvestment plan, the number of shares to be issued to a shareholder will be determined by dividing the total dollar amount of the cash dividend or distribution payable to a shareholder by the market price per share of our common stock at the close of regular trading on the Nasdaq Global Select Market on the payment date of a distribution, or if no sale is reported for such day, the average of the reported bid and ask prices.

However, if the market price per share on the payment date of a cash dividend or distribution exceeds the most recently computed net asset value per share, we will issue shares at the greater of (i) the most recently computed net asset value per share and (ii) 95% of the current market price per share (or such lesser discount to the current market price per share that still exceeded the most recently computed net asset value per share).

If shares are purchased in the open market to implement the dividend reinvestment plan, the number of shares to be issued to a shareholder shall be determined by dividing the dollar amount of the cash dividend payable to such shareholder by the weighted average price per share for all shares purchased by the plan administrator in the open market in connection with the dividend.

The number of shares to be issued to a participant in the dividend reinvestment plan are rounded downward to the nearest whole number to avoid the issuance of fractional shares, and any fractional share otherwise issuable to a participant but for this provision is instead be paid to such participant in cash contemporaneously with the issuance of such shares in connection with such cash dividend.

During the nine months ended September 30, 2021, we declared dividends in the amount of $34,597,684, of which $7,602,878 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 June 30, 2021.

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

Date Declared

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April 30, 2021

July 19, 2021

July 20, 2021

August 12, 2021

Critical Accounting Policies

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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.

Rule 2a-5 under the 1940 Act was adopted by the SEC in December 2020 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.

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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;

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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 June 30, 2021 and December 31, 2020 were as follows:

As of June 30, 2021 (Unaudited)

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

As of September 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.

Interest income, if any, adjusted for amortization of market premium and accretion of market discount, is recorded on an accrual basis to the extent that we expect to collect such amounts.

Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with our debt investments, loan origination fees, end of term payments, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective interest method.

OID, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with our debt investments, loan origination fees, end of term payments, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective interest method.

Loan origination fees received in connection with the closing of investments are reported as unearned income, which is included as amortized cost of the investment;

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Recent Developments

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.

We evaluated events subsequent to September 30, 2021 through November 4, 2021.

On October 18, 2021, Credit Sesame, Inc.

prepaid its outstanding principal balance of $41,047,728.

In addition, we received cash proceeds of $2,140,678 in conjunction with ETP, prepayment fees, and interest for total proceeds of $43,188,406.

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.

On October 19, 2021, we entered into an amendment to the Credit Agreement to make certain immaterial clarifications to the terms of the Credit Agreement.

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

Net of underwriting fees, we received total net cash proceeds of $94.0 million, before expenses.

We have granted the underwriters an option to purchase up to an additional 1,027,500 shares of common stock from, at the public offering price, less the sales load payable by us, on or before November 19, 2021.

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

In connection with IPO, the Board approved an amended and restated dividend reinvestment plan (the “New DRIP”) which became effective on October 25, 2021, concurrent with the IPO.

Pursuant to the New DRIP, among other changes, with respect to each cash dividend or distribution, the Board reserves the right to either issue new shares of common stock or purchase shares of common stock in the open market for the accounts of Participants (as defined in the New DRIP).

If newly issued shares are used to implement the New DRIP, the number of shares to be issued to a shareholder will be determined by dividing the total dollar amount of the distribution payable to such Participant by the market price per share of our common stock at the close of regular trading of the Nasdaq Global Select Market on the Payment Date (as defined in the New DRIP), or if no sale is reported for such day, the average of the reported bid and asked prices.

However, if the market price per share on the Payment Date exceeds the most recently computed net asset value per share, we will issue shares at the greater of (i) the most recently computed net asset value per share and (ii) 95% of the current market price per share (or such lesser discount to the current market price per share that still exceeds the most recently computed net asset value per share).

If shares are purchased in the open market to implement the New DRIP, the number of shares to be issued to a Participant shall be determined by dividing the dollar amount of the distribution payable to such Participant by the weighted average price per share for all shares of common stock purchased by the plan administrator in the open market in connection with the dividend or distribution.

On October 26, 2021, we funded an investment of $8,775,000 to Marley Spoon AG.

On October 28, 2021, we declared a dividend of $0.25 per share payable on November 22, 2021 to shareholders of record as of November 8, 2021.

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