Hercules Capital Inc

Previous wording

•our ability to operate as a BDC and a SBIC;

Current wording

•our ability to operate as a BDC and an SBIC;

Previous wording

We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on Structured Debt. We use the term “Structured Debt” to refer to a debt investment that is structured with an equity, warrant, option, or other right to purchase or convert into common or preferred stock. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range. Through generation of current income from our debt investments and capital appreciation from our warrant and equity investments, we aim to maximize our portfolio total return.

Current wording

We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology and life sciences industries. Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on Structured Debt. We use the term “Structured Debt” to refer to a debt investment that is structured with an equity, warrant, option, or other right to purchase or convert into common or preferred stock. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range. Through generation of current income from our debt investments and capital appreciation from our warrant and equity investments, we aim to maximize our portfolio total return.

Previous wording

Since inception through March 31, 2024, we have originated more than $19.0 billion in commitments in over 650 companies. We, our subsidiaries or our affiliates, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. As of March 31, 2024, Hercules and its Adviser Subsidiary actively manage more than $4.5 billion of assets.

Current wording

Since inception through June 30, 2024, we have originated more than $20.0 billion in commitments in over 650 companies. We, our subsidiaries or our affiliates, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. As of June 30, 2024, Hercules and its Adviser Subsidiary actively manage approximately $4.6 billion of assets.

Previous wording

Our portfolio activity for the three months ended March 31, 2024 and March 31, 2023 was comprised of the following:

Current wording

Our portfolio activity for the six months ended June 30, 2024 and June 30, 2023 was comprised of the following:

Previous wording

(4)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $156.0 million and $178.2 million of unfunded commitments as of March 31, 2024, and 2023, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

Current wording

(3)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $125.6 million and $127.9 million of unfunded commitments as of June 30, 2024, and 2023, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

Previous wording

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the three months ended March 31, 2024, we received approximately $174.2 million in aggregate principal repayments. Approximately $13.1 million of the aggregate principal repayments related to scheduled principal payments and approximately $161.1 million were early principal repayments related to 14 portfolio companies.

Current wording

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the six months ended June 30, 2024, we received approximately $489.7 million in aggregate principal repayments. Approximately $22.5 million of the aggregate principal repayments related to scheduled principal payments and approximately $467.2 million were early principal repayments related to 32 portfolio companies.

Previous wording

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the three months ended March 31, 2024 and March 31, 2023 was as follows:

Current wording

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the six months ended June 30, 2024 and June 30, 2023 was as follows:

Previous wording

Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more resilient to U.S. and global economic cycles. However, the capital markets continue to fluctuate through a cycle of extended market volatility caused by changes in the inflationary environment, interest rate volatility, disruptions in the banking sector, various geopolitical events, lingering impacts from the global pandemic, and also uncertainty as to the probability of, length, and depth of a global recession. While our portfolio is not immune to the impact of macroeconomic events, the impact of inflation has historically not had a significant effect on our results of operations in any of the reporting periods presented herein. Macroeconomic developments are outside our control and could require us to adjust our plan of operations, impact our financial condition, and impact our results of operations or cash flows in the future.

Current wording

The capital markets are subject to fluctuations caused by various external factors such as geopolitical events, changes in the inflationary environment, interest rate volatility, uncertainty as to the probability of a global recession, among other factors. Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more resilient to U.S. and global economic cycles. While our portfolio is not immune to the impact of macroeconomic events, we and our portfolio are well positioned to manage the current environment.

Previous wording

We will continue to monitor macroeconomic market developments and their related impact to our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and the broader financial markets. Given the unpredictability and fluidity of the macroeconomic market, neither our management nor our Board is able to predict the full impact of the macroeconomic events on our business, future results of operations, financial position, or cash flows. However, we believe we and our portfolio are well positioned to manage the current environment.

Current wording

Macroeconomic developments are outside our control and could require us to adjust our plan of operations, impact our financial condition, and impact our results of operations or cash flows in the future. We monitor macroeconomic market developments and their related impact to our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and the broader financial markets. Given the unpredictability and fluidity of the macroeconomic market, neither our management nor our Board is able to predict the full impact of the macroeconomic events on our business, future results of operations, financial position, or cash flows.

Previous wording

Additionally, we have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our status as a RIC, the non-cash PIK income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. During the three months ended March 31, 2024 and 2023, we recorded approximately $9.9 million and $5.5 million in PIK income, respectively.

Current wording

Additionally, we have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our status as a RIC, the non-cash PIK income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. During the three months ended June 30, 2024 and 2023, we recorded approximately $15.3 million and $5.8 million in PIK income, respectively. During the six months ended June 30, 2024 and 2023, we recorded approximately $25.2 million and $11.3 million in PIK income, respectively.

Previous wording

•“Core Yield” on total debt investments – The core yield is a Non-GAAP financial measure. The core yield is derived by dividing “Core investment income” from debt investments by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year. “Core investment income” adjusts GAAP basis “Total investment income” from debt investments(1) to exclude fee and other income accelerations attributed to early payoffs, deal restructuring, loan modifications, and other one-time income events, but includes income from expired commitments.

Current wording

•“Core Yield” on total debt investments – The core yield is a Non-GAAP financial measure. The core yield is derived by dividing “Core investment income” from debt investments by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year. “Core investment income”

Previous wording

Another financial measure that we monitor is the total return for our investors, which was approximately 13.6% and 0.8% during the three months ended March 31, 2024 and 2023, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that may be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

Current wording

Another financial measure that we monitor is the total return for our investors, which was approximately 28.8% and 19.6% during the six months ended June 30, 2024 and 2023, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that may be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

Previous wording

(1)See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio. As of March 31, 2024, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, “Consumer & Business Services”, or "Healthcare Services, Other".

Current wording

(1)See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio. As of June 30, 2024, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, "Healthcare Services, Other", or “Consumer & Business Services”.

Previous wording

For the three months ended March 31, 2024 and the year ended December 31, 2023, our ten largest portfolio companies represented approximately 29.9% and 29.7% of the total fair value of our investments in portfolio companies, respectively. As of March 31, 2024 and December 31, 2023, we had six and five investments that represented 5% or more of our net assets, respectively. As of March 31, 2024 and December 31, 2023, we had four and five equity investments representing approximately 48.4% and 56.5%, respectively, of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. No single portfolio investment represented more than 10% of the fair value of our total investments as of March 31, 2024 and December 31, 2023.

Current wording

For the six months ended June 30, 2024 and the year ended December 31, 2023, our ten largest portfolio companies represented approximately 30.0% and 29.7% of the total fair value of our investments in portfolio companies, respectively. As of June 30, 2024 and December 31, 2023, we had five and five investments that represented 5% or more of our net assets, respectively. As of June 30, 2024 and December 31, 2023, the Company had four and five equity investments, respectively, that represented 5% or more of the total fair value of the Company’s equity investments. These equity investments represented approximately 51.9% and 56.5% of the total fair value of the Company’s equity investments as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

As of March 31, 2024 and December 31, 2023, approximately 97.3% and 95.9% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, SOFR, Eurodollar, or BSBY-based interest rate floor, respectively. Changes in interest rates, including Prime, SOFR, Eurodollar, or BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Current wording

As of June 30, 2024 and December 31, 2023, approximately 97.4% and 95.9% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, SOFR, Eurodollar, or BSBY-based interest rate floor, respectively. Changes in interest rates, including Prime, SOFR, Eurodollar, or BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Previous wording

Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of March 31, 2024, we held warrants in 104 portfolio companies, with a fair value of approximately $32.7 million. The fair value of our warrant portfolio decreased by approximately $1.2 million, as compared to a fair value of $33.9 million as of December 31, 2023, primarily related to the decrease in fair value of the portfolio companies.

Current wording

Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of June 30, 2024, we held warrants in 101 portfolio companies, with a fair value of approximately $28.9 million. The fair value of our warrant portfolio decreased by approximately $5.0 million, as compared to a fair value of $33.9 million as of December 31, 2023, primarily related to the decrease in fair value of the portfolio companies.

Previous wording

Our existing warrant holdings would require us to invest approximately $65.5 million to exercise such warrants as of March 31, 2024. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Current wording

Our existing warrant holdings would require us to invest approximately $64.2 million to exercise such warrants as of June 30, 2024. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Previous wording

As of March 31, 2024, our debt investments had a weighted average investment grading of 2.16 on a cost basis, as compared to 2.24 as of December 31, 2023. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact of current macroeconomic environment.

Current wording

As of June 30, 2024, our debt investments had a weighted average investment grading of 2.18 on a cost basis, as compared to 2.24 as of December 31, 2023. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact of current macroeconomic environment.

Previous wording

Our condensed consolidated operating results for the three months ended March 31, 2024 and 2023, were as follows:

Current wording

Our condensed consolidated operating results for the six months ended June 30, 2024 and 2023, were as follows:

Previous wording

Total investment income for the three months ended March 31, 2024 was approximately $121.6 million as compared to approximately $105.1 million for the three months ended March 31, 2023. Investment income is primarily composed of interest income earned on our debt investments and fee income from commitments, facilities, and other loan related fees.

Current wording

Total investment income for the three and six months ended June 30, 2024 was approximately $125.0 million and $246.6 million, respectively as compared to approximately $116.2 million and $221.3 million, respectively for the three and six months ended June 30, 2023. Investment income is primarily composed of interest income earned on our debt investments, fee income from commitments, facilities, and other loan related fees and dividend income distributions.

Previous wording

The following table summarizes the components of interest and dividend income for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes the components of interest and dividend income for the three and six months ended June 30, 2024 and 2023:

Previous wording

Interest and dividend income for the three months ended March 31, 2024 totaled approximately $115.8 million as compared to approximately $99.9 million for the three months ended March 31, 2023. The increase in interest and dividend income for the three months ended March 31, 2024 as compared to the period ended March 31, 2023 is primarily attributable to an increase in the weighted average principal.

Current wording

Interest and dividend income for the three and six months ended June 30, 2024 totaled approximately $117.5 million and $233.3 million as compared to approximately $109.0 million and $208.9 million for the three and six months ended June 30, 2023. The increase in interest and dividend income for the three and six months ended June 30, 2024 as compared to the period ended June 30, 2023 is primarily attributable to an increase in the weighted average principal, dividend income distributions, and partially offset by lower core yield.

Previous wording

The following table summarizes recurring and non-recurring interest income for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes recurring and non-recurring interest income for the three and six months ended June 30, 2024 and 2023:

Previous wording

A portion of interest income is earned in the form of PIK interest. The following table shows the PIK-related activity for the three months ended March 31, 2024 and 2023, at cost:

Current wording

A portion of interest income is earned in the form of PIK interest. The following table shows the PIK-related activity for the six months ended June 30, 2024 and 2023, at cost:

Previous wording

The increase in PIK interest income during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest. Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for March 31, 2024 and March 31, 2023 was approximately 1% of total debt investments, respectively.

Current wording

The increase in PIK interest income during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest. Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for June 30, 2024 and June 30, 2023 was approximately 2% and 1% of total debt investments, respectively.

Previous wording

Fee income from commitment, facility and loan related fees for the three months ended March 31, 2024 totaled approximately $5.8 million as compared to approximately $5.2 million for the three months ended March 31, 2023. The increase in fee income for the three months ended March 31, 2024 is primarily due to an increase in the weighted average principal.

Current wording

Fee income from commitment, facility and loan related fees for the three and six months ended June 30, 2024 totaled approximately $7.5 million and $13.3 million, respectively as compared to approximately $7.3 million and $12.4 million, respectively for the three and six months ended June 30, 2023. The increase in fee income for the three and six months ended June 30, 2024 is primarily due to an increase in the weighted average principal and an increase in expired commitments.

Previous wording

Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three months ended March 31, 2024 and 2023:

Current wording

Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three and six months ended June 30, 2024 and 2023:

Previous wording

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three months ended March 31, 2024 or 2023.

Current wording

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three and six months ended June 30, 2024 or 2023.

Previous wording

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, taxes, and employee compensation and benefits. During the three months ended March 31, 2024 and 2023, our net operating expenses totaled approximately $42.4 million and $39.6 million, respectively.

Current wording

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, taxes, and employee compensation and benefits. During the three and six months ended June 30, 2024 and 2023, our net operating expenses totaled approximately $42.6 million and $40.5 million, respectively for the three-month periods, and approximately $85.0 million and $80.1 million, respectively for the six-month periods.

Previous wording

Interest and fees on our debt totaled approximately $20.0 million and $19.0 million for the three months ended March 31, 2024 and 2023, respectively. Interest and fee expense during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, increased due to higher weighted average borrowing costs and debt outstanding.

Current wording

Interest and fees on our debt totaled approximately $21.5 million and $19.6 million for the three months ended June 30, 2024 and 2023, respectively, and approximately $41.5 million and $38.6 million for the six months ended June 30, 2024 and 2023, respectively. Our higher weighted average borrowings outstanding and cost of debt during both the three and six month periods ended June 30, 2024, resulted in an increase of interest and fee expenses as compared to the three and six months ended June 30, 2023.

Previous wording

We had a weighted average cost of debt of approximately 4.9% and 4.7% for the three months ended March 31, 2024 and 2023, respectively. The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt. The increase in the weighted average cost of debt during 2024 as compared to 2023, was attributable to increased usage of our Credit Facilities which are floating rate instruments and thus, have a higher cost of debt.

Current wording

Our weighted average cost of debt was approximately 5.0% and 4.8% for the three months ended June 30, 2024 and 2023, respectively and 5.0% and 4.8%, for the six months ended June 30, 2024 and 2023, respectively. The weighted average cost of debt includes interest and fees on our debt but excludes the impact of fee accelerations due to the extinguishment of debt, as applicable. The increase in the weighted average cost of debt during 2024 as compared to 2023, was attributable to increased usage of our Credit Facilities which are floating rate instruments and have a higher borrowing rate.

Previous wording

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses increased to $5.1 million from $4.1 million for the three months ended March 31, 2024 and 2023, respectively. The increase in general and administrative expenses for the three months ended March 31, 2024 is primarily attributable to an increase in costs of office and technology expenses, and certain professional fees. Tax expenses primarily relate to excise tax accruals. Tax expenses were $0.7 million and $1.4 million during the three months ended March 31, 2024 and 2023, respectively.

Current wording

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses decreased to $4.4 million from $5.2 million for the three months ended June 30, 2024 and 2023, respectively and increased to $9.5 million from $9.3 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in general and administrative expenses for the three months ended June 30, 2024 is primarily attributable to a decrease in costs of office expenses, recruiting, and other business expenses. The increase in general and administrative expenses for the six months ended June 30, 2024 is primarily attributable to an increase in costs of office and technology expenses, and certain professional fees. Tax expenses were $1.8 million and $2.0 million during the three months ended June 30, 2024 and 2023, respectively and $2.5 million and $3.4 million for the six months ended June 30, 2024 and 2023, respectively. Our tax expenses primarily relate to excise tax accruals.

Previous wording

Employee compensation and benefits totaled approximately $16.3 million, for the three months ended March 31, 2024 as compared to approximately $14.6 million for the three months ended March 31, 2023. The increase between the three months ended March 31, 2024 and 2023 was primarily due to an increase in variable compensation.

Current wording

Employee compensation and benefits totaled approximately $14.4 million and $30.8 million, for the three and six months ended June 30, 2024 as compared to approximately $12.8 million and $27.5 million respectively, for the three and six months ended June 30, 2023. The increase between the three and six months ended June 30, 2024 and 2023 wasprimarily due to an increase in variable compensation.

Previous wording

Employee stock-based compensation totaled approximately $3.1 million, for the three months ended March 31, 2024 as compared to approximately $3.2 million for the three months ended March 31, 2023. The decrease between comparative periods was primarily attributable to a decrease in fair value estimate of certain equity based awards.

Current wording

Employee stock-based compensation totaled approximately $3.3 million and $6.5 million, for the three and six months ended June 30, 2024 as compared to approximately $3.3 million and $6.5 million respectively, for the three and six months ended June 30, 2023. There was no significant change between the comparative periods.

Previous wording

The shared services agreement with the Adviser Subsidiary (the “Sharing Agreement”), provides the Adviser Subsidiary access to our human capital resources, including deal professionals, finance, and administrative functions, as well as other resources including infrastructure assets such as office space and technology. Under the terms of the Sharing Agreement, we allocate the related expenses of shared services to the Adviser Subsidiary. Our total net operating expenses for the three months ended March 31, 2024 and 2023, are net of expenses allocated to the Adviser Subsidiary of $2.9 million and $2.7 million, respectively. The increase in expenses allocated to the Adviser Subsidiary for the three months ended March 31, 2024 compared to 2023 is due to a result of higher average assets under management and higher allocations to the Adviser Funds. As of March 31, 2024 and December 31, 2023, there was $0.1 million and $0.1 million due from the Adviser Subsidiary, respectively.

Current wording

The shared services agreement with the Adviser Subsidiary (the “Sharing Agreement”), provides the Adviser Subsidiary access to our human capital resources, including deal professionals, finance, and administrative functions, as well as other resources including infrastructure assets such as office space and technology. Under the terms of the Sharing Agreement, we allocate the related expenses of shared services to the Adviser Subsidiary. Our total net operating expenses for the three months ended June 30, 2024 and 2023, are net of expenses allocated to the Adviser Subsidiary of $2.8 million and $2.4 million, respectively and $5.7 million and $5.1 million for the six months ended June 30, 2024 and 2023, respectively. The increase in expenses allocated to the Adviser Subsidiary for the three months ended June 30, 2024 compared to 2023 is due to higher average assets under management and higher allocations to the Adviser Funds. The increase in expenses allocated to the Adviser Subsidiary for the six months ended June 30, 2024 compared to 2023 is due to a result of higher average assets under management and higher allocations to the Adviser Funds. As of June 30, 2024 and December 31, 2023, there was less than $0.1 million and approximately $0.1 million due from the Adviser Subsidiary, respectively.

Previous wording

A summary of net realized gains and losses for the three months ended March 31, 2024 and 2023 is as follows:

Current wording

A summary of net realized gains and losses for the three and six months ended June 30, 2024 and 2023 is as follows:

Previous wording

During the three months ended March 31, 2024, we recognized a net realized gain of $8.2 million. The net realized gains (losses) were generated from gross realized gains of $9.2 million primarily from the sale of our equity and warrant positions in Palantir Technologies and DoorDash, Inc., and sale proceeds from the completed acquisition of Delphix Corp. Our gains were partially offset by gross realized losses of $0.9 million from the write-off of equity and warrant investments in Proterra, Inc., The Faction Group LLC, and ADMA Biologics, Inc. which had no value after the respective portfolio companies were acquired.

Current wording

During the three and six months ended June 30, 2024, we recognized a net realized loss of $5.8 million and a net realized gain of $2.4 million, respectively. The net realized gains (losses) were generated from gross realized gains of $5.8 million and $15.0 million respectively, for the three and six month periods, primarily from the sale of our equity and warrant positions in Palantir Technologies, TransMedics Group, Inc., Tarsus Pharmaceuticals, Inc., DoorDash, Inc., and sale proceeds from the completed acquisition of Delphix Corp. Our gains were offset by gross realized losses of $10.7 million and $11.7 million, respectively, for the three and six month periods, from the write-off of equity and warrant investments in Proterra, Inc., The Faction Group LLC, Udacity, Inc., Humanigen, Inc., Eigen Technologies Ltd., and ADMA Biologics, Inc. which had no value after the respective portfolio companies were acquired. Additionally, we realized a loss of $9.1 million from write-off of our debt investments relating to Better Therapeutics, Inc. and Eigen Technologies Ltd., net of recovered collections of $6.0 million.

Previous wording

During the three months ended March 31, 2023, we recognized net realized gains of $7.9 million. The net realized gains were generated from gross realized gains of $9.6 million, primarily from the sale of our equity positions in Sprinklr, Inc. and Zeta Global Corp. Our gains were offset by gross realized losses of $1.7 million primarily from the write-off of equity and warrant investments in Concert Pharmaceuticals, Inc. and Fungible, Inc. which had no value after the respective portfolio companies were acquired.

Current wording

During the three and six months ended June 30, 2023, we recognized net realized gains of $0.2 million and $8.1 million, respectively. The net realized gains were generated from gross realized gains of $10.2 million and $19.8 million, respectively, for the three and six month periods, primarily from the sale of our equity and warrant positions in Palantir Technologies, Provention Bio, Inc., TransMedics Group, Inc., Sprinklr, Inc., and Zeta Global Corp. Our gains were offset by gross realized losses of $10.0 million and $11.7 million, respectively, for the three and six month periods, primarily from the write-off of equity and warrant investments in Concert Pharmaceuticals, Inc. and Fungible, Inc. which had no value after the respective portfolio companies were acquired, the write-off of our equity investment in Gynesonics, Inc. as a result of capital markets transaction, and including a net $5.8 million from write-off of our debt investments in Codiak Biosciences, Inc. and Esme Learning Solutions, Inc., net of recovered collections of $17.1 million.

Previous wording

The net change in unrealized appreciation and depreciation of our investments is derived from the changes in fair value of each investment determined in good faith by our Valuation Committee and approved by the Board. The following table summarizes the change in net unrealized appreciation or depreciation of investments for the three months ended March 31, 2024 and 2023:

Current wording

The net change in unrealized appreciation and depreciation of our investments is derived from the changes in fair value of each investment determined in good faith by our Valuation Committee and approved by the Board. The following table summarizes the change in net unrealized appreciation or depreciation of investments for the three and six months ended June 30, 2024 and 2023:

Previous wording

During the three months ended March 31, 2024 and 2023, we recorded approximately $3.6 million and $21.1 million of net unrealized appreciation, respectively, on our investments.

Current wording

During the three months ended June 30, 2024 and 2023, we recorded approximately $34.7 million of net unrealized depreciation and $18.9 million of net unrealized appreciation, respectively, on our investments. During the six months ended June 30, 2024 and 2023, we recorded approximately $31.1 million of net unrealized depreciation and $40.0 million of net unrealized appreciation on our investments, respectively.