What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-03 compared with 2021-03-12 · 163 added, 99 removed, 450 unchanged (37% of the section changed)

4 unchanged sentences

These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions.

Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements.

Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,”

“projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements.

These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

5 unchanged sentences

● interest rate volatility 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.

● the impact of interest and inflation rates on our business prospects and the prospects of our portfolio companies;

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

23 unchanged sentences

In addition, we have elected to be treated, currently qualify, and intend to continue to qualify, 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.

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

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

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

As a BDC and a RIC, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source-of-income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our investment company taxable income and net tax-exempt interest.

We are an “emerging growth company,” as defined in the JOBS Act.

We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of an 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 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 the closing of our IPO, which occurred on October 25, 2021, or until the earliest of (i) the last day of the first fiscal year in which we have total annual gross revenue of $1,070,000,000 or more, (ii) December 31 of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the 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.

5 unchanged sentences

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.

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

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

On December 1, 2017, we completed our Initial Private Offering, in which we issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000 in reliance on exemptions from the registration requirements of the Securities Act, and other applicable securities laws.

As of December 31, 2021, we had completed multiple closings under our Second Private Offering and had accepted aggregate capital commitments of $181,673,500.

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

Concurrent with the IPO, all undrawn commitments under the Second Private Offering were cancelled.

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

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

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

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

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

4 unchanged sentences

Portfolio Composition

At December 31, 2020, we had investments in 31 portfolio companies, representing 22 companies where we held loan and warrant investments, eight companies where we held warrant interests only, and we held one U.S.

At December 31, 2021, we had investments in 39 portfolio companies, representing 20 companies where we held loan and warrant investments, 12 companies where we held warrant interests only, and we held one U.S.

Treasury Bill.

3 unchanged sentences

Portfolio Investments

Corporate Bonds

Senior Secured Term Loans

Second Lien Term Loans

Preferred Stock

2 unchanged sentences

Total Investments

At December 31, 2019, we had investments in 25 portfolio companies, representing 21 companies where we held loan and warrant investments, four companies where we held warrant interests only, and held two U.S.

Treasury Bills.

Treasury Bill.

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

2 unchanged sentences

Portfolio Investments

Corporate Bonds

Senior Secured Term Loans

3 unchanged sentences

Total Investments

For the years ended December 31, 2021, December 31, 2020, and December 31, 2019, our debt investment portfolio had a dollar-weighted annualized yield of 13.77%, 14.91%, and 20.47%, 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.

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

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

The following table shows our dollar-weighted annualized yield by investment type for the years ended December 31, 2021, December 31, 2020, and December 31, 2019:

Fair Value (1)

Year Ended December 31,

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 sales 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.

For the year ended December 31, 2020, the Company funded $249.5 million in eleven new portfolio companies and $46.0 million in seven existing portfolio companies.

The Company also received $103.7 in loan repayments from ten portfolio companies and $2.9 million in proceeds from the termination of warrants.

For the year ended December 31, 2021, the Company funded $267.7 million in 12 new portfolio companies and $116.7 million in 10 existing portfolio companies.

The Company also received $293.3 million in loan repayments from 17 portfolio companies.

Portfolio Reconciliation

11 unchanged sentences

(297,825,111)

(107,610,861)

Scheduled Principal Payments of Investments

8 unchanged sentences

(1) Includes PIK interest.

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

Treasury Bills sold short for the year ended December 31, 2020.

Asset Quality

29 unchanged sentences

As of December 31, 2020

The global COVID-19 pandemic, to date, has had limited impact on the investment ratings of our debt investments, taken as a whole.

However, the ongoing impact of the COVID-19 pandemic is uncertain and we can make no assurances that the pandemic will not have a negative impact on our investment portfolio in the future.

During 2020 and 2021, the global COVID-19 pandemic, has had limited impact on the investment ratings of our debt investments, taken as a whole.

However, the ongoing impact of the COVID-19 pandemic, along with increasing levels of inflation impacting the U.S.

economy, U.S.

Federal Reserve Bank monetary policy actions, and global political events and their impact on the U.S.

capital markets and economy is uncertain and we can make no assurances that the pandemic and other current events will not have a negative impact on our investment portfolio in the future.

Loans and Debt Securities on Non-Accrual Status

1 unchanged sentence

As of December 31, 2021, we had six 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.

As of December 31, 2019, we had two loans to Aginity, Inc.

and one loan to Pivot3 Holdings, Inc., representing an aggregate principal funded of $30,278,707 at a fair market value of $28,259,976, on non-accrual status, which represents 4.66% of our net assets.

As of December 31, 2020, we had six 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.

As of December 31, 2019, the Company had two loans to Aginity, Inc.

representing an aggregate principal funded of $9,000,000 at a fair market value of $4,311,589, on non-accrual status, which represented 1.15% of the Company’s net assets.

Results of Operations

17 unchanged sentences

Administration fees

Credit facility fees

Debt financing fees

Directors’ fees

Consulting fees

Insurance expense

General and administrative expenses

Other expenses

1 unchanged sentence

Net investment income

Realized gain (loss) on investments

Realized (loss) on investments

Net change in unrealized appreciation (depreciation) on investments

17 unchanged sentences

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 years ended December 31, 2020, 2019, and 2018 was $57,626,303, $55,139,136, and $20,756,054, respectively, due primarily to interest income earned on our portfolio investments.

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, reimbursable income, and any other fee income for services rendered, if any, are recorded as other income when earned.

Investment income for the years ended December 31, 2021, 2020, and 2019 was $71,358,455, $57,626,303, and $55,139,136, respectively, and includes non-recurring income of $9,515,798, $4,489,029, and $12,239,458, respectively, due primarily to interest income earned on our portfolio investments.

The increase in interest income for the year ended December 31, 2021 from the year ended December 31, 2020, and for the year ended December 31, 2020 from the year ended December 31, 2019 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 may continue through 2021.

Operating Expenses

1 unchanged sentence

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;

● our pro-rata portion of fees and expenses related to an initial public offering in connection with a Spin-Off transaction (as defined below);

● fees and expenses related to public and private offerings, sales and repurchases of our securities;

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

15 unchanged sentences

Operating expenses for the years ended December 31, 2021, 2020 and 2019 were $26,866,767, $19,556,586, and $18,685,305, respectively.

Operating expenses increased for the year ended December 31, 2020 from the year ended December 31, 2019 primarily due to increased management fees paid to RGC, professional fees, credit facility fees, and other expenses.

Operating expenses increased for the year ended December 31, 2019 from the year ended December 31, 2018 primarily due to increased management fees and incentive fees paid to RGC, overhead allocation expense, consulting fees, directors’ fees, interest expense, administration fees, and other expenses.

Incentive fees for the years ended December 31, 2019 and December 31, 2018 increased primarily due to the increase in investment income, as discussed in more detail below.

Operating expenses increased for the year ended December 31, 2021 from the year ended December 31, 2020 primarily due to increased management and incentive fees paid to RGC, interest expense, and debt financing fees.

For the years ended December 31, 2019 and December 31, 2018, operating expenses increased primarily due to the increase in incentive fees paid to RGC.

The increases in management fees were driven by our deployment of capital and increasing invested balance.

The increase in interest expense was a result of an increase in borrowings under our Credit Facilities to fund investments.

The increase in interest expense was a result of an increase in borrowings under our Credit Agreement to fund investments.

The increase in overhead allocation expense was driven by allocation of RGC personnel, time, and resources utilized on fund activity.

17 unchanged sentences

Net Realized Gain (Loss) on Investment

The net realized gain on investments of $4,172,366 for the year ended December 31, 2021 was primarily due to the gains on the sale of common stock in Porch Group, Inc.

and Ouster, Inc., partially offset due to the realized loss on our preferred stock in CareCloud, Inc.

The net realized loss on investments of $5,347,409 for the year ended December 31, 2020 was primarily due to the loss on our senior secured loan to Aginity, Inc.

The net realized gain on investments of $609,031 for the year ended December 31, 2019 was primarily due to the gain on the sale of preferred stock warrant in Drawbridge, Inc.

and redemption of warrant for membership interest

in Mobius Imagine, LLC, partially offset by a loss our warrants for preferred stock on RedSeal, Inc.

The net realized gain on investments of $59,792 for the year ended December 31, 2018 was primarily due to the gain on our warrants for preferred stock of Placecast, Inc.

and redemption of warrant for membership interest in Mobius Imagine, LLC, partially offset by a loss our warrants for preferred stock on RedSeal, Inc.

Net Change in Unrealized Appreciation (Depreciation) on Investments

Net change in unrealized depreciation on investments of $3,045,344 for the year ended December 31, 2021 was primarily due to decreases in the fair value of senior secured loans to Pivot3 Holdings, Inc.

and Aginity Inc., and our warrants for common stock in CareCloud, Inc.

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

and our units of Brilliant Earth LLC.

Net change in unrealized appreciation on investments of $14,257,592 for the year ended December 31, 2020 was primarily due to increases in the fair value of our senior secured loans to Aria Systems, Inc.

6 unchanged sentences

and zSpace, Inc.

The net change in unrealized depreciation on investments of $8,693 for the year ended December 31, 2018 was primarily due to increases in the fair value of our senior secured loans to AllClear ID, Inc.

and eSilicon Corporation, our preferred stock in Aria Systems, Inc.

and our warrants for preferred stock of Aria Systems, Inc., eSilicon Corporation, Mojix Inc.

and ShareThis, Inc.

This increase was partially offset by decreases in the fair value of our senior secured loans to Aginity, Inc., Aria Systems, Inc., CareCloud Corporation, and Mojix Inc., and our warrants for common or preferred stock of AllClear ID, Inc., Aspen Group Inc., Mojix Inc.

and SendtoNews Video, 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 December 31, 2020, 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 December 31, 2020 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.

Net Increase in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of $45,618,710 for the year ended December 31, 2021, as compared to a net increase in net assets resulting from operations of $46,979,900 and $27,646,400 for the years ended December 31, 2020 and December 31, 2019, respectively.

The net decrease in net assets resulting from operations for the year ended December 31, 2021 from the year ended December 31, 2020 is attributable to an increase in operating expenses, particularly increases in interest expense and debt financing fees due to an increase in borrowings used, as well as net change in unrealized position on investments recorded at a loss compared to a gain in the prior year.

The decrease is partially offset by an increase in interest and dividend income.

The net increase in net assets resulting from operations for the year ended December 31, 2020 from the year ended December 31, 2019 is attributable to increases in the fair value of our senior secured loans to Aria Systems, Inc.

2 unchanged sentences

and Mobius Imagine, LLC.

The net increase in net assets resulting from operations for the year ended December 31, 2018 from the year ended December 31, 2017 is attributable to increased interest income earned on our portfolio investments and the gain on our warrants for preferred stock of Placecast, Inc.

Financial Condition, Liquidity and Capital Resources

2 unchanged sentences

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.

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.

As of December 31, 2021 and December 31, 2020, our asset coverage ratio was 582% and 376%, respectively.

During the year ended December 31, 2021, cash and cash equivalents decreased to $4,696,693, from $14,886,246 as of December 31, 2020.

This decrease was primarily the result of the purchase of investments in portfolio companies for $272,532,493 and

Treasury Bills for $276,000,012 and was partially offset by sales of investments in portfolio companies, the maturity of U.S.

Treasury Bills the issuance of common stock, and borrowings under our Credit Facilities.

During the year ended December 31, 2019, cash and cash equivalents increased to $45,799,672, from $2,527,474 as of December 31, 2018.

This increase was primarily the result of the purchase of investments in portfolio companies for $241,669,802 and U.S.

Treasury Bills for $315,836,640 and was partially offset by sales of investments in portfolio companies, the maturity of U.S.

This decrease was primarily the result of the purchase of investments in portfolio companies and U.S.

Treasury Bills as well as repayments under our Credit Facilities and was partially offset by repayments of investments in portfolio companies, the maturity of U.S.

Treasury Bills, the issuance of common stock, proceeds from our 2026 Senior Notes (as defined below) and borrowings under our Credit Facilities.

During the year ended December 31, 2020, cash and cash equivalents decreased to $14,886,246, from $45,799,672 as of December 31, 2019.

This decrease was primarily the result of the purchase of investments in portfolio companies and U.S.

Treasury Bills as well as repayments under our Credit Facilities and was partially offset by sales of investments in portfolio companies, the maturity of U.S.

Treasury Bills, the issuance of common stock, and borrowings under our Credit Facilities.

3 unchanged sentences

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

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

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

Issuance Date

24 unchanged sentences

November 12, 2020 (1)

Shares were issued as part of the dividend reinvestment program.

March 19, 2021 (1)

March 24, 2021

May 13, 2021 (1)

August 12, 2021 (1)

September 29, 2021

October 25, 2021

Shares were issued as part of the dividend reinvestment plan.

Contractual Obligations

At December 31, 2020, the Company had $49,085,569 in unfunded loan commitments to provide debt financing to five portfolio companies.

The Company’s management believes that its available cash balances, availability under the Credit Agreement and/or ability to drawdown capital from investors provides sufficient funds to cover its unfunded commitments as of December 31, 2020.

At December 31, 2021, the Company had $186,984,615 in unfunded loan commitments to provide debt financing to 13 portfolio companies.

The Company’s management believes that its available cash balances, availability under the Credit Agreement provides sufficient funds to cover its unfunded commitments as of December 31, 2021.

Payments Due By Period

1 unchanged sentence

Credit facilities (2)

2026 Senior Notes (2)

Reverse repurchase agreement relates to the purchase of the U.S.

1 unchanged sentence

The reverse repurchase agreement purchased was subsequently repaid in January 2022.

See “Note 10 — Credit Facilities.” to our financial statements in Part II of this Form 10-K for more information.

See “Note 10 — Borrowings” to our financial statements in Part II of this Form 10-K for more information.

On December 10, 2021, the Company entered into a Master Note Purchase Agreement (the “Note Purchase Agreement”) governing the issuance of $70,000,000 in aggregate principal amount of 4.25% Series 2021A Senior Notes due 2026 (the “2026 Senior Notes”) to institutional accredited investors (as defined in Regulation D under the Securities Act) in a private placement.

The 2026 Senior Notes were issued in two closings.

The initial issuance of $20 million Notes closed on December 10, 2021 and the second and final issuance of $50 million closed on February 10, 2022.

See “—Recent Developments.”

The 2026 Senior Notes bear an interest rate of 4.25% per year and are due on December 10, 2026, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms.

Interest on the 2026 Senior Notes will be due semiannually.

The interest rate is subject to a 1.00% increase in the event that, subject to certain exceptions, the 2026 Senior Notes cease to have an investment grade rating or receive an investment grade rating below the Investment Grade (as defined in the Note Purchase Agreement).

The 2026 Senior Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

Aggregate offering costs in connection with the 2026 Senior Notes issuance, including the placement agent fees, were approximately $380,606 which were capitalized and deferred.

As of December 31, 2021, unamortized deferred financing costs related to the 2026 Senior Notes were $376,029.

See “Note 10 — Borrowings” to our financial statements in Part II, Item 8 of this Form 10 K for more information on the 2026 Senior Notes.

On May 31, 2019, we entered into the Credit Agreement with KeyBank National Association, as administrative agent, syndication agent, and a lender, CIBC Bank USA, as documentation agent and a lender, and U.S.

6 unchanged sentences

During the amortization period, the applicable margin rate will be 3.00%.

If certain eurodollar disruption events occur, then borrowings under the Credit Agreement will bear interest on a per annum basis equal to (i) a base rate instead of LIBOR that is set at the higher of (x) the federal funds rate plus 0.50% and (y) the prime rate, plus (ii) the applicable margin rate discussed above.

funds rate plus 0.50% and (y) the prime rate, plus (ii) the applicable margin rate discussed above.

Interest is payable quarterly in arrears.

3 unchanged sentences

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

During the fourth quarter of 2020, the Company 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.

See “Note 10 — Credit Facilities” to our financial statements in Part II, Item 8 of this Form 10 K for more information on the Credit Agreement and Credit Facilities.

On June 22, 2018, as amended on September 24, 2018, we entered into the Uncommitted Facility and the Committed Facility 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.

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:

(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 — Borrowings” to our financial statements in Part II, Item 8 of this Form 10 K for more information on the Credit Agreement and Credit Facilities.

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 year ended December 31, 2021, the Company drew down $161,000,000 on the Credit Agreement and repaid $199,000,000 of which $61,000,000 remains outstanding.

1 unchanged sentence

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

During the year ended December 31, 2019, the Company drew down $162,250,000 on the Credit Agreement and Credit Facilities and repaid $160,750,000, of which $61,000,000 remained outstanding at December 31, 2019.

During the year ended December 31, 2020, the Company 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.

At December 31, 2020 interest was accruing at a rate of 3.22% per annum.

See “Note 10 — Credit Facilities” to our financial statements in Part II, Item 8 of this Form 10-K for more information on the Credit Agreement and Credit Facilities.

See “Note 10 — Borrowings” to our financial statements in Part II, Item 8 of this Form 10-K for more information on the Credit Agreement and Credit Facilities.

On June 22, 2018, the Company 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 Bank USA (“CIBC”).

An amendment to the Credit Facilities was entered into on September 24, 2018 between the Company and CIBC.

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

Off-Balance Sheet Arrangements

6 unchanged sentences

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 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.

During the year ended December 31, 2019, we declared and paid dividends in the amount of $40,651,334, of which $8,192,547 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment program.

During the year ended December 31, 2018, we declared and paid dividends in the amount of $7,283,810, of which $1,428,498 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment program.

Prior to our IPO, the number of shares to be issued to a stockholder under the dividend reinvestment plan was determined by dividing the total dollar amount of the distribution payable to such stockholder 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 stockholder will be determined by dividing the total dollar amount of the cash dividend or distribution payable to a stockholder 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 stockholder shall be determined by dividing the dollar amount of the cash dividend payable to such stockholder 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 year ended December 31, 2021, we declared and paid dividends in the amount of $44,942,937, of which $17,948,126 was distributed in cash and the remainder distributed in shares to stockholders pursuant to our dividend reinvestment plan.

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.

29 unchanged sentences

November 12, 2020

March 4, 2021

March 5, 2021

March 19, 2021

April 29, 2021

April 30, 2021

July 19, 2021

July 20, 2021

August 12, 2021

October 28, 2021

November 8, 2021

November 22, 2021

Critical Accounting Policies

1 unchanged sentence

The preparation of the financial statements and related disclosures in conformity with U.S.

GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities

at the date of the financial statements, and revenues and expenses during the period reports.

GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reports.

Actual results could materially differ from those estimates.

2 unchanged sentences

Valuation of Investments

We measure the value of our 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.

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.

25 unchanged sentences

● At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm.

Certain investments, however, may not be evaluated by an independent valuation firm unless the net asset value and other aspects of such investments in the aggregate exceed certain thresholds;

Certain investments, however, may not be evaluated by an independent valuation firm if the net asset value and other aspects of such investments in the aggregate do not exceed certain thresholds;

● The Audit Committee then reviews these preliminary valuations from RGC and the applicable independent valuation firm, if any, and makes a recommendation to our Board of Directors regarding such valuations;

● 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.

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 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.

Investment Valuation Techniques

41 unchanged sentences

These assets are recorded at fair value on a recurring basis.

These valuation methodologies involve a significant degree of judgment.

There is no single standard for determining the fair value of investments that do not have an active public market.

Valuations of privately held investments are inherently uncertain, as they are based on estimates, and their values may fluctuate over time.

The determination of fair value may differ materially from the values that would have been used if an active market for these investments existed.

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 December 31, 2021 and 2020 were as follows:

1 unchanged sentence

Portfolio Investments

Corporate Bonds

Senior Secured Term Loans

Second Lien Term Loans

Preferred Stock

4 unchanged sentences

Portfolio Investments

Corporate Bonds

Senior Secured Term Loans

3 unchanged sentences

Total Investments

The Company recognized transfers into and out of the levels indicated above at the end of the reporting period.

There were no transfers into or out of the levels during the years ended December 31, 2020 and 2019.

Investment Transactions and Related Investment Income

15 unchanged sentences

Generally, a RIC is not subject to U.S.

federal income taxes on distributed income and gains if it distributes at least 90% of its net ordinary income and net short-term capital gains in excess of its net long-term capital losses, if any, to its stockholders.

So long as we qualify, and maintain our status, as a RIC, we generally will not pay corporate-level U.S.

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

federal income tax on distributed income and gains if it timely distributes at least 90% of its net ordinary income and net short-term capital gains in excess of its net long-term capital losses, if any, to its stockholders.

So long as we qualify, and maintain our status, as a RIC, we generally will not be subject to U.S.

federal income tax on any ordinary income or capital gains that we distribute at least annually to our stockholders as dividends.

Rather, any tax liability related to income earned by us represents obligations of our investors and will not be reflected in the financial statements of the Company.

3 unchanged sentences

We evaluated events subsequent to December 31, 2021, through March 3, 2022.

On January 26, 2021, the Company funded an investment of $250,000 to The Kairn Corporation.

On January 27, 2021, as part of an overall reorganization of Pivot3, Inc., Pivot3, Inc.

changed its name to Pivot3 Holdings, Inc.

and the Company:

(i) funded a $1,000,000 investment of Series 1 Preferred Stock, and (ii) converted the $1,000,000 Convertible Bridge Loan into Series 1 Preferred Stock.

Further, in conjunction with the reorganization, our Series D warrants were effectively canceled and as such we recorded a $216,610 realized loss.

On February 11, 2021, the Company funded an investment of $500,000 to Mojix, Inc.

On February 23, 2021, the Company funded an investment of $2,000,000 to Massdrop, Inc.

On March 2, 2021, 3DNA Corp.

prepaid its outstanding principal balance of $7,500,000.

In addition, the Company received cash proceeds of $598,438 in conjunction with ETP, prepayment fees, and interest for total proceeds of $8,098,438.

On March 4, 2021, the Company declared a dividend of $0.37 per share payable on March 19, 2021 to shareholders of record as of March 5, 2021.

The Company set December 31, 2020 as the valuation date for shares issued in connection with the dividend pursuant to the Company’s dividend reinvestment plan.

On February 9, 2022, in conjunction with its sale to Johnson & Johnson, CrossRoads Extremity Systems, LLC prepaid its outstanding principal balance of $7,562,722 on the senior secured loan.

In addition, we received cash proceeds of $805,188 in consideration of its warrants, interest, and fees for total proceeds $8,367,910

On February 10, 2022, we issued the remaining $50 million 2026 Senior Notes pursuant to the Note Purchase Agreement.

The initial issuance of $20 million 2026 Senior Notes closed on December 10, 2021.

The 2026 Senior Notes bear an interest rate of 4.25% per year and are due on December 10, 2026, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

Interest on the 2026 Senior Notes will be due semiannually.

For more information, see “Note 10—Borrowings.”

On February 24, 2022, the Board of Directors declared a distribution of $0.27 per share for stockholders of record on March 8, 2022 payable on or before March 22, 2022.

On February 24, 2022, the Board of Directors approved the Repurchase Program under which we may repurchase up to $25 million of our outstanding common stock.

Under the Repurchase Program, purchases may be made at management’s discretion from time to time in open-market transactions, in accordance with all applicable securities laws and regulations.

Unless extended by the Board of Directors, the repurchase program will terminate 12-months from the date it was approved.

On February 28, 2022, we funded an investment of $3,000,000 to Intellisite Holdings, Inc.

(dba Epic IO Technologies, Inc.).

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

What changed 10-K

Item 7. Management’s Discussion and Analysis