Gladstone Investment (GAIN) risk factors, FY2025 10-K

Risks Related to the Economy

1. 01Market conditions could negatively impact our business, results of operations, financial condition, and cash flows
2. 02Volatility in the capital markets could make it more difficult to raise capital and may adversely affect the valuations of our investments
3. 03Tariffs may adversely affect us or our portfolio companies
4. 04We may experience fluctuations in our quarterly and annual results based on the impact of inflation in the U.S

Risks Related to Interest Rates

1. 05Market interest rates may have an effect on the value of our securities
2. 06Changes in interest rates may negatively impact our investments and have an adverse effect on our business, financial condition, results of operations, and cash flows
3. 07A change in interest rates may adversely affect our profitability and any hedging strategy may expose us to additional risks

Risks Related to Our Investments

1. 08We operate in a highly competitive market for investment opportunities
2. 09Our investments in Lower Middle Market portfolio companies are extremely risky and could cause you to lose all or a part of your investment
3. 10Because the majority of the loans we make and equity securities we invest in are not publicly traded, there is uncertainty regarding the value of our privately-held securities
4. 11The valuation process for certain of our portfolio holdings creates a conflict of interest
5. 12The lack of liquidity of our privately-held investments may adversely affect our business
6. 13Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected
7. 14We typically invest in transactions involving acquisitions, buyouts and recapitalizations of companies, which subjects us to the risks associated with change in control transactions
8. 15Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and/or we could be subject to lender liability claims
9. 16Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns
10. 17Volatility of oil and natural gas prices could impair certain of our portfolio companies’ operations and ability to satisfy obligations to their respective lenders and investors, including us, which could negatively impact our financial condition
11. 18Our investments are typically long-term and will require several years to realize liquidation events
12. 19The disposition of our investments may result in contingent liabilities
13. 20Portfolio company litigation or other litigation or claims against us or our personnel could result in additional costs and the diversion of management time and resources
14. 21Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce any gains available for distribution

Risks Related to Our External Financing

1. 22March 31, 2025, we were in compliance with all covenants under our Credit Facility; however, our continued compliance depends on many factors, some of which are beyond our control
2. 23Any inability to renew, extend or replace our Credit Facility on terms favorable to us, or at all, could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders
3. 24Because we expect to distribute substantially all of our Investment Company Taxable Income, at least 90%, on an annual basis, our business plan is dependent upon external financing, which is constrained by the limitations of the 1940 Act
4. 25We financed certain of our investments with borrowed money and capital from the issuance of senior securities, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
5. 26(25.96)% (15.87)% (5.79)% 4.29% 14.37%

Risks Related to Our Regulation and Structure

1. 27We will be subject to corporate-level tax if we are unable to satisfy the Code requirements for RIC qualification
2. 28As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets, exclusive of Operating Assets, are qualifying assets, as defined in Section 55(a) of the 1940 Act
3. 29Provisions of the Delaware General Corporation Law and of our certificate of incorporation and bylaws could restrict a change in control and have an adverse impact on the price of our common stock
4. 30provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders
5. 31We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs

Risks Related to Our External Management

1. 32We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone and David Dullum, and on the continued operations of the Adviser, for our future success
2. 33Our success depends on the Adviser’s ability to attract and retain qualified personnel in a competitive environment
3. 34The Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
4. 35The Adviser’s liability is limited under the Advisory Agreement, and we are required to indemnify our investment adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account
5. 36Our incentive fee may induce the Adviser to make certain investments, including speculative investments
6. 37We may be obligated to pay the Adviser incentive compensation even if we incur a net decrease in net assets
7. 38We may be required to pay the Adviser incentive compensation on income accrued, but not yet received in cash
8. 39The Adviser’s failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Advisory Agreement would likely adversely affect our ability for future growth
9. 40There are significant potential conflicts of interest, including with the Adviser, which could impact our investment returns
10. 41The Adviser is not obligated to provide credits of the base management fee or incentive fees, which could negatively impact our earnings and our ability to maintain our current level of distributions to our stockholders
11. 42Our business model is dependent upon developing and sustaining strong referral relationships with investment bankers, business brokers and other intermediaries and any change in our referral relationships may impact our business plan
12. 43Our base management fee may induce the Adviser to incur leverage

Risks Related to an Investment in Our Securities

1. 44There is a risk that you may not receive distributions or that distributions may not grow over time
2. 45Investing in our securities may involve an above average degree of risk
3. 46Distributions to our common stockholders have included and may in the future include a return of capital
4. 47Common stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share
5. 48The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we may incur in the future and will rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities (total liabilities, less debt)
6. 49The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
7. 50The indenture under which the Notes were issued contains limited protection for holders of the Notes
8. 51In addition, the indenture and the Notes do not require us to make an offer to purchase the Notes in connection with a change of control or any other event
9. 52An active trading market for the Notes may not exist, which could limit your ability to sell the Notes or affect the market price of the Notes
10. 53If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes
11. 54We may choose to redeem the Notes when prevailing interest rates are relatively low
12. 55A downgrade, suspension or withdrawal of any credit rating assigned by a rating agency to us or the Notes could cause the liquidity or market value of the Notes to decline significantly
13. 56We are subject to risks associated with artificial intelligence and machine learning technology
14. 57We are subject to risks related to corporate social responsibility
15. 58We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends
16. 59Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business
17. 60We may experience fluctuations in our quarterly and annual operating results