Neostellar Capital (NSLR) risk factors, FY2024 10-K

Other

1. 01Summary of Principal Risk Factors
2. 02The following is a summary of the principal risks that you should carefully consider before investing in our securities and is followed by a more detailed discussion of the material risks related to us and an investment in our securities

Risks Related to Our Investments

1. 03Our investments in the rapidly growing venture capital-backed emerging companies that we target may be extremely risky, and we could lose all or part of our investments
2. 04Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our investments, which could affect the determination of our NAV
3. 05Our investments in publicly traded companies involve a high degree of risk and can be speculative
4. 06We may not realize gains from our investments and, in certain circumstances, we may experience a complete loss on our investments, including in the event of a bankruptcy or liquidation of any of our portfolio companies
5. 07Many of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit
6. 08Our portfolio is concentrated in a limited number of portfolio companies or market sectors, which subjects us to a risk of significant loss if the business or market position of any of these companies deteriorates or any of their market sectors experience a market downturn
7. 09Our financial results could be negatively affected if a portfolio company in which we have a significant investment fails to perform as expected
8. 10Total $ 123,764,295 $ 143,587,363 91.1 %
9. 11We may be limited in our ability to make follow-on investments, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
10. 12Because we will generally not hold controlling equity interests in our portfolio companies, we will likely not be in a position to exercise control over our portfolio companies or to prevent decisions by substantial stockholders or management of our portfolio companies that could decrease the value of our investments
11. 13In the event that we make an investment in a sponsor of a SPAC and the SPAC does not consummate a business combination, we will lose the entirety of our investment
12. 14The number of founder shares allocated to us in respect of any investment in a sponsor of a SPAC may be reduced or otherwise subjected to forfeiture/dilution in the event that the sponsor of a SPAC raises additional capital
13. 15Investments in foreign companies may involve significant risks in addition to the risks inherent in U.S. investments
14. 16We may expose ourselves to risks if we engage in hedging transactions
15. 17Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
16. 18The market structure applicable to derivatives imposed by the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC may affect our ability to use over-the-counter (“OTC”) derivatives for hedging purposes

Risks Related to Our Business and Structure

1. 19We are subject to certain limitations and restrictions in our operations as a result of the regulations applicable to BDCs, and any failure to comply with such regulations could negatively impact our business or expose us to enforcement actions or the claims of private litigants
2. 20As an internally managed BDC, we are subject to certain restrictions that may adversely affect our business
3. 21Our financial condition and results of operations will depend on our ability to manage our business effectively and achieve our investment objective
4. 22Our business model depends upon the development and maintenance of strong referral relationships with private equity, venture capital funds and investment banking firms
5. 23There are significant potential risks related to investing in securities traded on private secondary marketplaces
6. 24Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that are costly and could adversely affect our business and financial results
7. 25Capital markets may experience periods of disruption and instability, including as recently experienced. Such market conditions 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. 26General interest rate fluctuations may have a negative impact on our investments and our investment returns and, accordingly, may have a material adverse effect on our investment objective and our net investment income
9. 27Economic recessions or downturns could impair our portfolio companies and harm our operating results
10. 28Economic sanction laws in the United States and other jurisdictions may prohibit us from transacting with certain countries, individuals and companies
11. 29Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
12. 30We are subject to risks related to corporate social responsibility
13. 31Our business and operations could be negatively affected if we become subject to any securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price
14. 32We operate in a highly competitive market for direct equity investment opportunities
15. 33Borrowings, such as the 6.00% Notes due 2026 and our 6.50% Convertible Notes due 2029, can magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
16. 34Corresponding return to common stockholder(1) (16.49 )% (9.84 )% (3.20 )% 3.45 % 10.09 %
17. 35Our use of borrowed funds to make investments exposes us to risks typically associated with leverage
18. 36If we default under any future borrowing facility we enter into or are unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, we may suffer material adverse effects on our business, financial condition, results of operations and cash flows
19. 37We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
20. 38Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital, which may expose us to risks, including the typical risks associated with leverage
21. 39We will be subject to U.S. federal income tax imposed at corporate rates if we are profitable and are unable to qualify as a RIC, which could have a material adverse effect on us and our stockholders
22. 40In any year in which we intend to be treated as a RIC, we may be forced to dispose of investments at times when our management team would not otherwise do so or raise additional capital at times when we would not otherwise do so, in each case in order to qualify for the special tax treatment accorded to RICs
23. 41Legislative or regulatory tax changes could adversely affect our business and financial condition
24. 42Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth, and such capital may not be available on favorable terms or at all
25. 43We may continue to choose to pay dividends in our common stock, in which case you may be required to pay tax in excess of the cash you receive
26. 44The SBCAA allows us to incur additional leverage, which could increase the risk of investing in us
27. 45Certain investors are limited in their ability to make significant investments in us
28. 46Ineffective internal controls could impact our business and operating results
29. 47We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings
30. 48Our Board of Directors is authorized to reclassify any unissued shares of stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners
31. 49Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
32. 50Provisions 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
33. 51We 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 make distributions
34. 52We will likely experience fluctuations in our results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods

Risks Related to our Borrowings

1. 53Our borrowings, including the 6.00% Notes due 2026 and the 6.50% Convertible Notes due 2029 are unsecured and therefore effectively subordinated to any future secured indebtedness we could incur
2. 54The 6.00% Notes due 2026 are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 55The indenture under which the 6.00% Notes due 2026 were issued contains limited protection for holders of the 6.00% Notes due 2026
4. 56In addition, the indenture governing the 6.00% Notes due 2026 does not require us to make an offer to purchase the 6.00% Notes due 2026 in connection with a change of control or any other event
5. 57An active trading market for the 6.00% Notes due 2026 may not develop or be maintained, which could limit a holder’s ability to sell the 6.00% Notes due 2026 and/or adversely impact the market price of the 6.00% Notes due 2026
6. 58If we default on our obligations to pay other indebtedness, we may not be able to make payments on the 6.00% Notes due 2026 or 6.50% Convertible Notes due 2029
7. 59We may choose to redeem the 6.00% Notes due 2026 when prevailing interest rates are relatively low
8. 60A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our securities, if any, could cause the liquidity or market value of the 6.00% Notes due 2026 to decline significantly

Risks Related to an Investment in Our Securities

1. 61Investing in our securities may involve an above average degree of risk
2. 62Our common stock price may be volatile and may decrease substantially
3. 63Shares of our common stock have recently traded, and may in the future trade, at discounts from NAV or at premiums that may prove to be unsustainable
4. 64We have broad discretion over the use of proceeds from our offerings, to the extent they are successful, and will use proceeds in part to satisfy operating expenses
5. 65Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations
6. 66Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations
7. 67Terrorist attacks, acts of war 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
8. 68The failure in cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively