Hercules Capital (HTGC) risk factors, FY2024 10-K

Risks Related To Our Business Structure

1. 01We operate in a highly competitive market for investment opportunities
2. 02We are dependent upon senior management personnel for our future success, particularly our CEO, Scott Bluestein
3. 03Our success depends on attracting and retaining qualified personnel in a competitive environment
4. 04Our business model depends to a significant extent upon strong referral relationships for investment opportunities
5. 05Our Board may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
6. 06We are subject to risks related to corporate social responsibility

Risks Related To Our Investments

1. 07The types of portfolio companies in which we invest involve significant risk, and we could lose all or part of our investment
2. 08material information about these companies, we may not make a fully informed investment decision, and may lose all or part of our investment
3. 09The lack of liquidity in our investments may adversely affect our business
4. 10A lack of IPO or merger and acquisition opportunities may cause companies to stay in our portfolio longer, leading to lower returns, unrealized depreciation, or realized losses
5. 11Investing in publicly traded companies can involve a high degree of risk and can be speculative
6. 12Our investments are concentrated in certain technology-related industries, which subjects us to the risk of significant loss if any one or more of such industries experiences a downturn
7. 13assurance that adequate third-party coverage will be available for pharmaceutical companies to obtain satisfactory price levels for their products
8. 14Corium, Inc. 109,178 5.5 %
9. 15We may be exposed to higher risks with respect to our investments that include PIK interest or exit fees
10. 16We may not have the funds or ability to make additional investments in our portfolio companies
11. 17There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
12. 18We generally will not control our portfolio companies, which may result in the portfolio company making decisions which could adversely impact the value of our investments in the portfolio company’s securities
13. 19Defaults by our portfolio companies will harm our operating results
14. 20Under the 1940 Act, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined by our Valuation Committee in accordance with our valuation guidelines adopted pursuant to Rule 2a-5 under the 1940 Act, subject to oversight and approval by our Board
15. 21Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution and could impair our ability to service our borrowings
16. 22Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
17. 23We are subject to risks associated with the interest rate environment and changes in interest rates will affect our cost of capital, net investment income and the value of our investments
18. 24Inflation could adversely affect the business, results of operations and financial condition of our portfolio companies
19. 25We may not realize gains from our equity or warrant investments
20. 26We may expose ourselves to risks when we engage in hedging transactions
21. 27Our investments in foreign securities or investments denominated in foreign currencies may involve significant risks in addition to the risks inherent in U.S. and U.S.-denominated investments
22. 28We will be subject to risks associated with “last out” positions in unitranche loans
23. 29The disposition of our investments may result in contingent liabilities
24. 30As of December 31, 2024, we had approximately $448.5 million of available unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by milestones

Risks Related To Leverage

1. 31Because we have substantial borrowings, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us
2. 32(1)Assumes $3.8 billion in total assets, $1.8 billion in debt outstanding, $2.0 billion in stockholders’ equity, and an average cost of funds of 5.0%, which is the approximate average cost of our Notes and Credit Facilities for the period ended December 31, 2024. Actual interest payments may be different
3. 33Certain of our assets are subject to security interests under our senior securities and if we default on our obligations under our senior securities, we may suffer adverse consequences, including foreclosure on those assets
4. 34We may invest in derivatives or other assets that expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage

Risks Related To Our Investment Management Activities

1. 35Our executive officers and employees, through the Adviser Subsidiary, are expected to manage the Adviser Funds, which includes funds from External Parties, that operate in the same or a related line of business as we do, which may result in significant conflicts of interest
2. 36We, through the Adviser Subsidiary, derive revenues from managing third-party funds pursuant to management agreements that may be terminated, which could negatively impact our operating results

Risk Related To BDCs

1. 37Failure to comply with applicable laws or regulations and changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
2. 38Failure to maintain our status as a BDC would reduce our operating flexibility
3. 39Operating under the constraints imposed on us as a BDC and RIC may hinder the achievement of our investment objectives
4. 40Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital

Risks Related To Our Securities

1. 41Investing in our securities may involve a high degree of risk
2. 42Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV
3. 43The market price of our securities may be volatile and fluctuate significantly
4. 44We may not be able to pay distributions to our stockholders, our distributions may not grow over time, and a portion of distributions paid to our stockholders may be a return of capital, which is a distribution of the stockholders’ invested capital
5. 45Stockholders 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 of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock
6. 46(1)Assumes that Stockholder A does not purchase additional shares in the sale of shares below NAV
7. 47Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
8. 48We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock
9. 49Except for the 2031 Asset-Backed Notes, the Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness
10. 50The Unsecured Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
11. 51There is no active public trading market for the June 2025 Notes, June 2025 3-Year Notes, March 2026 A Notes, March 2026 B Notes, September 2026 Notes, January 2027 Notes, or 2031 Asset-Backed Notes. As a result, a holder may not be able to resell any of such notes
12. 52A downgrade, suspension, or withdrawal of the credit rating assigned by a rating agency to us or our debt securities, if any, or change in the debt markets could cause the liquidity or market value of our debt securities to decline significantly
13. 53The indentures under which the 2033 Notes, September 2026 Notes and January 2027 Notes were issued contain limited protections for the holders of such notes
14. 54Terms relating to redemption may materially adversely affect the return on any debt securities that we may issue
15. 55If we default on our obligations imposed upon us by our indebtedness, we may not be able to make payments on our outstanding Notes and Credit Facilities
16. 56We may not be able to prepay the Notes upon a change in control
17. 57Any inability to renew, extend or replace our Credit Facilities could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders

Risks Related To Our SBIC Subsidiaries

1. 58We, through our wholly owned subsidiaries, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its guarantee of the debt securities, the SBA has fixed dollar claims on the assets of our subsidiaries that are superior to the claims of our securities holders
2. 59Certain of our wholly owned subsidiaries are licensed by the SBA, and therefore subject to SBIC regulations
3. 60Our SBIC subsidiaries may be unable to make distributions to us that will enable us to meet or maintain RIC status, which could result in the imposition of an entity-level tax

Risks Related To Operating As A RIC And U.S. Federal Income Taxes

1. 61We will be subject to U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M Part I of the Code
2. 62We may have difficulty paying the distributions required to maintain RIC status under the Code if we recognize income before or without receiving cash representing such income
3. 63We may in the future choose to pay distributions in our own stock, in which case you may be required to pay tax in excess of the cash you receive
4. 64Stockholders may have current tax liability on dividends they elect to reinvest in our common stock but would not receive cash from such dividends to pay such tax liability
5. 65Legislative or regulatory tax changes could adversely affect our stockholders
6. 66FATCA withholding may apply to payments made to certain foreign entities
7. 67Capital markets may experience periods of disruption and instability in the future. These market conditions, when they occur, may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations
8. 68Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations
9. 69Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
10. 70Deterioration in the economy and financial markets could impair our portfolio companies’ financial positions and operating results and affect the industries in which we invest, which could, in turn, harm our operating results
11. 71We may experience fluctuations in our operating results
12. 72Terrorist attacks, acts of war, public health crises, climate change, or natural disasters may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition
13. 73Technological innovations and industry disruptions, including those related to artificial intelligence and machine learning, may negatively impact us
14. 74We are highly 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
15. 75The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and business continuity planning could impair our ability to conduct business effectively
16. 76We may be the target of litigation