HTGC Q3 2021 Update

The following information was previously provided to subscribers of Premium BDC Reports along with:

  • HTGC target prices/buying points
  • HTGC risk profile, potential credit issues, and overall rankings. Please see BDC Risk Profiles for additional details.
  • HTGC dividend coverage projections (base, best, worst-case scenarios). Please see BDC Dividend Coverage Levels for additional details.


This update discusses Hercules Capital (HTGC) which is an internally managed BDC with mostly first-lien debt positions and equity investments primarily in venture capital (“VC”) backed technology companies at the venture growth stage historically providing realized gains and supporting supplemental dividends.


HTGC September 30, 2021, Quick Update

HTGC reported between its best and base case projections for Q3 2021 covering its regular dividend by 104%. There were plenty of variances during the quarter including a higher amount of unscheduled/early prepayments ($319 million) and lower debt expense due to recording the early redemption of its Baby Bond “HCXZ” as a realized loss (below the NII calculation). Please see the previous report for discussion.

“The acceleration of the unamortized debt issuance costs on repayment of the 2025 notes is shown separately as a realized loss in the current quarter.”

HTGC remains a ‘Level 1’ dividend coverage BDC and as mentioned earlier this week increased its regular quarterly dividend from $0.32 to $0.33 per share as well as the expected supplemental of $0.07 per share.

“With our debt investment portfolio at $2.3 billion, at cost, combined with the size of our pipeline and record earnings spillover of nearly $182 million, or $1.57 per share, the Board has made the decision to increase our quarterly base distribution to $0.33 per share and has also declared a supplemental distribution of $0.07 per share for the third quarter.


On the recent call (October 28, 2021) management was asked about additional supplemental dividends in 2022 and responded with “we expect to announce a new supplemental distribution program early next year” and “obviously with the potential for it to be a higher number given the strength of our current spillover”:

Q. “You mentioned on the prepared remarks that you’ll kind of reevaluate that supplemental policy for fiscal 2022. I guess I’m curious with the spillover of about $182 million call it. Where do you think that goes and what would the cadence look like?

A. “It’s a difficult question to answer, because that’s obviously a Board decision and that decision will not get made until early next year. I think we had a very consistent theme with respect to our distributions. With respect to the base quarterly distribution, we generally set that at a level that we feel comfortable can be covered by ordinary net investment income and that gave us comfort in terms of moving from $0.32 to $0.33 for the quarter. And going forward when we sort of look at the supplemental distribution program, we expect to announce a new supplemental distribution program early next year for fiscal year 2022. In terms of the cadence, we would expect it to be similar to 2021 in terms of it being on a quarterly basis. But in terms of what that ultimate number will be, that will be something that we will finalize and discussions with our Board after we finalize the tax dividend numbers at the end of this year. I think we continue as a company to believe that doing that is best accomplished by doing what we did in 2021 making sure that our base quarterly distribution is a number that we feel confident is covered by net investment income and then setting a supplemental distribution program payable on a quarterly basis based on where we end the year. But the policy that we put in place in 2021 in terms of paying out a set amount on a quarterly basis is likely to be what we do in 2022 obviously with the potential for it to be a higher number given the strength of our current spillover.”

During Q3 2021, its net asset value (“NAV”) per share declined by $0.17 or 1.5% partially due to paying $0.07 per share of supplemental dividends as well as unrealized losses during the quarter including some of its equity/warrant positions that will be discussed in the updated HTGC Deep Dive Projections report.

“During the quarter, our NAV decreased to $0.17 – decreased by $0.17 per share to $11.54 per share. This represents a NAV per share a decrease of 1.5% quarter-over-quarter. The main driver for the decrease was the $35.6 million of change in unrealized depreciation offset by $21.1 million of realized gains resulting in a $14.5 million decrease to NAV. The $14.5 million decrease was primarily related to the mark-to-market movement on our publicly traded equity positions.”

There was an additional $21.1 million or $0.18 per share of realized gains during the quarter to support additional supplemental dividends:

“The net realized gain in Q3 of $21.1 million comprised of $25 million of gains from the disposal of equity and warrant positions, offset by $2.2 million of realized loss pertaining to one legacy debt and warrant position that was impaired and had been on non-accrual in previous quarters. In addition, we had the $1.7 million of realized loss relating to debt extinguishments.”

Non-accrual remain low at around 0.3% of the portfolio fair value and 1.0% at cost:



In September 2021, HTGC issued $325 million of 2.625% notes due 2026 used to redeem the aggregate outstanding principal and accrued interest of the 2027 and 2028 Asset-Backed Notes.

“Our most recent offering of 2.625% Notes exemplifies our active balance sheet management as we continue to lower our average cost of debt capital over the coming year. Our strong origination activity throughout 2021 has given us the opportunity to fund growth in both our public portfolio as well as our private funds. Given these factors and the overall continued strength of the VC ecosystem, we believe Hercules is exceptionally well positioned heading into Q4 and allowing us to remain focused on delivering strong total shareholder returns.”

Since the close of Q3 2021 the company has closed new debt and equity commitments of $125 million and funded $50 million with pending commitments of $377 million:






Portfolio Company IPO and M&A Activity in Q3 2021 and YTD Q4 2021

Equity Portfolio

Hercules held equity positions in 71 portfolio companies with a fair value of $204.4 million and a cost basis of $135.6 million as of September 30, 2021. On a fair value basis, 52.9% or $108.6 million is related to existing public equity positions.

Warrant Portfolio

Hercules held warrant positions in 94 portfolio companies with a fair value of $42.9 million and a cost basis of $25.9 million as of September 30, 2021. On a fair value basis, 33.4% or $14.3 million is related to existing public warrant positions.

Portfolio Company IPO and M&A Activity

As of October 25, 2021 year-to-date, Hercules has had 33 portfolio companies complete or announce an IPO or M&A event, which is comprised of: 13 IPO’s, 13 M&A events and seven (7) portfolio companies that have registered for the IPOs, or have entered into definitive agreements to go public via a merger or special purpose acquisition company, or “SPAC.”

IPO Activity in Q3 2021 and YTD Q4 2021

As of October 25, 2021, Hercules held debt, warrant or equity positions in three (3) portfolio companies that have completed their IPOs and seven (7) companies that have registered for their IPOs or have entered into definitive agreements to go public via a merger or SPAC, including:

  • In August 2021, Hercules’ portfolio company Rocket Lab (NASDAQ: RKLB), a developer of launch and space systems, completed its reverse merger initial public offering with Vector Acquisition Corp. (NASDAQ: VACQ), a SPAC. Hercules initially committed $100.0 million in venture debt financing beginning in June 2021.
  • In September 2021, Nerdy (NYSE: NRDY), the parent company of Hercules’ portfolio company Varsity Tutors, a technology developer of an online tutoring platform, completed its reverse merger initial public offering with TPG Pace Tech Opportunities (NYSE: PACE), a SPAC. Hercules initially committed $50.0 million in venture debt financing beginning in August 2019 and currently holds 100,000 shares of common stock as of September 30, 2021.
  • In September 2021, Hercules’ portfolio company VELO3D (NYSE: VLD), a developer of metal laser sintering printing machines intended to offer 3D printing, completed its reverse merger initial public offering with Jaws Spitfire Acquisition Corp. (NYSE: SPFR), a SPAC. Hercules initially committed $12.5 million in venture debt financing beginning in May 2021.

In Registration or SPAC:

  • In October 2021, Hercules’ portfolio company SeatGeek, a global technology ticketing marketplace and live entertainment technology platform, announced it has entered into a definitive agreement for a reverse merger initial public offering with RedBall Acquisition Corp. (NYSE: RBAC), a SPAC with a focus on sports, media and data analytics. Hercules initially committed $60.0 million in venture debt financing in June 2019 and currently holds warrants for 1,379,761 shares of common stock as of September 30, 2021.
  • In September 2021, Hercules’ portfolio company Intuity Medical, a commercial-stage medical technology and digital health company focused on developing comprehensive solutions to improve the health and quality of life of people with diabetes, announced it has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission for an initial public offering. Intuity intends to list its common stock on the Nasdaq Global Select Market under the stock symbol “POGO.” Hercules initially committed $30.0 million in venture debt financing beginning in December 2017 and currently hold warrants for 3,076,323 of Preferred Series B-1 stock as of September 30, 2021.
  • In July 2021, Hercules’ portfolio company Gelesis Inc., a biotherapeutics company advancing superabsorbent hydrogels to treat excess weight and metabolic disorders, announced it has entered into a definitive agreement for a reverse merger initial public offering with Capstar Special Purpose Acquisition Corp. (NYSE: CPSR), a SPAC. Upon completion of the merger, the combined company will be listed on the New York Stock Exchange under the ticker symbol “GLS.” Hercules initially committed $3.0 million in venture debt financing in August 2008 and currently holds 227,013 shares of common stock, 243,432 shares of Preferred Series A-1 stock and 191,626 shares of Preferred Series A-2 stock as of September 30, 2021.
  • In July 2021, Hercules’ portfolio company Nextdoor, a provider of a social network that connects neighbors, announced it has entered into a definitive agreement for a reverse merger initial public offering with Khosla Ventures Acquisition Co. II (NASDAQ: KVSB), a SPAC. Upon completion of the merger, the combined company will be listed on the New York Stock Exchange under the ticker symbol “KIND.” Hercules currently holds 328,190 shares of common stock as of September 30, 2021.
  • In July 2021, Hercules’ portfolio company Planet Labs, an earth data and analytics company, announced it has entered into a definitive agreement for a reverse merger initial public offering with dMY Technology Group IV Inc. (NYSE: DMYQ), a SPAC. Upon completion of the merger, the combined company will be listed on the New York Stock Exchange under the ticker symbol “PL.” Hercules initially committed $25.0 million in venture debt financing beginning in June 2019 and currently holds warrants for 357,752 shares of common stock as of September 30, 2021.
  • In May 2021, Hercules’ portfolio company Valo Health LLC, a technology company using human-centric data and artificial intelligence powered computation to transform the drug discovery and development process, announced it has entered into a definitive agreement for a reverse merger initial public offering with Khosla Ventures Acquisition Co. (NASDAQ: KVAC), a SPAC. Upon completion of the merger, the combined company will be listed on the Nasdaq Global Select Market under the ticker symbol “VH.” Hercules initially committed $20.0 million in venture debt financing beginning in June 2020 and currently holds 510,308 shares of Preferred Series B stock and warrants for 102,216 shares of common stock as of September 30, 2021.
  • In March 2021, Hercules’ portfolio company Pineapple Energy, LLC, a U.S. operator and consolidator of residential solar, battery storage and grid services solutions, announced that it entered into a definitive merger agreement with Communications Systems, Inc. (NASDAQ: JCS), and IoT intelligent edge products and services company. Upon closing, CSI will commence doing business as Pineapple Energy, and expects shares of the combined company to continue to trade on the Nasdaq Global Select Market under the new ticker symbol “PEGY.” Hercules initially committed $12.3 million in venture debt financing beginning in December 2010 and currently holds 17,647 shares of Class A Units as of September 30, 2021.

M&A Activity in Q3 2021 and YTD Q4 2021

  • In October 2021, Hercules’ portfolio company Tapjoy, Inc., a mobile performance-based advertising platform that drives deep engagement and monetization opportunities for app developers, announced that they have entered into an agreement to be acquired by ironSource (NYSE: IS), a leading business platform for the App Economy, for approximately $400.0 million in cash. Hercules initially committed $20.0 million in venture debt financing beginning in July 2014 and currently holds warrants for 748,670 shares of Preferred Series D stock as of September 30, 2021.
  • In October 2021, Hercules’ portfolio company OneLogin, Inc., a leader in Unified Access Management, announced that they have been acquired by One Identity, an industry leader in Privileged Access Management, Identity Governance Administration, and Active Directory Management and Security. Terms of the acquisition were not disclosed. Hercules initially committed $40.0 million in venture debt financing beginning in February 2016 and currently holds warrants for 381,620 shares of common stock as of September 30, 2021.
  • In October 2021, Hercules’ portfolio company Clarabridge, a global leader in Customer Experience Management (CEM) for the world’s top brands, was acquired by Qualtrics (NASDAQ: XM), the leader and creator of the Experience Management (XM) category, for $1.125 billion in stock. Hercules initially committed $40.0 million in venture debt financing beginning in March 2017.
  • In September 2021, Hercules’ portfolio company Sapphire Digital, Inc., the healthcare industry’s leading platform for provider selection, patient access, price transparency, and digital consumer navigation, announced that they entered into a definitive agreement to be acquired by Zelis, a leading payments company in healthcare. Terms of the acquisition were not disclosed. Hercules initially committed $15.0 million in venture debt financing beginning in May 2017 and currently holds warrants for 2,812,500 shares of common stock as of September 30, 2021.
  • In September 2021, Hercules’ portfolio company Envisage Technologies, the leader in unified training, compliance, and performance software for public safety, was acquired Vector Solutions, the leading provider of industry-focused software solutions for training, workforce management and risk communications. Hercules initially committed $12.0 million in venture debt financing beginning in March 2020.


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This information was previously made available to subscribers of Premium BDC Reports. BDCs trade within a wide range of multiples driving higher and lower yields mostly related to portfolio credit quality and dividend coverage potential (not necessarily historical coverage). This means investors need to do their due diligence before buying including setting target prices using the portfolio detail shown in this article (at a minimum) as well as financial dividend coverage projections over the next three quarters as discussed earlier.