SURO CAPITAL CORP

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments, and to a lesser extent, income from debt investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. In addition, we may invest in private credit and in the founders equity, founders warrants, forward purchase agreements, and private investment in public equity (“PIPE”) transactions of special purpose acquisition companies (“SPACs”). We may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria, subject to applicable requirements of the 1940 Act. To the extent we make investments in private equity funds and hedge funds that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or 3(c)(7) of the 1940 Act, we will limit such investments to no more than 15% of our net assets.

Current wording

Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments, and to a lesser extent, income from debt investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies, negotiations with selling stockholders, and through investments in SPVs and investment funds that invest directly in the equity or debt of a single private issuer. In addition, we may invest in private credit and in the founders equity, founders warrants, venture capital investment funds, and private investment in public equity (“PIPE”) transactions of special purpose acquisition companies (“SPACs”). We may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria, subject to applicable requirements of the 1940 Act. To the extent we make investments in private equity funds and hedge funds that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or 3(c)(7) of the 1940 Act, we will limit such investments to no more than 15% of our net assets.

Previous wording

Our investment philosophy is based on a disciplined approach of identifying promising investments in high-growth, venture-backed companies across several key industry themes which may include, among others, AI/big data/cloud, marketplaces, education technology, social/mobile/consumer, financial technology, and sustainability/alternative energy. Our investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the portfolio company’s growth potential, the quality of recurring revenues, and path to profitability, as well as an understanding of key market fundamentals. Venture capital funds or other institutional investors have invested in the vast majority of companies that we evaluate.

Current wording

Our investment philosophy is based on a disciplined approach of identifying promising investments in high-growth, venture-backed companies across several key industry themes which may include, among others, Software-as-a-Service, Artificial Intelligence, Consumer Goods & Services, Education Technology, Logistics & Supply Chain, Financial Technology & Services, and SuRo Sports. Our investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the portfolio company’s growth potential, the quality of recurring revenues, and path to profitability, as well as an understanding of key market fundamentals. Venture capital funds or other institutional investors have invested in the vast majority of companies we evaluate.

Previous wording

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value as of June 30, 2024 of all of our portfolio investments was $182,904,880.

Current wording

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value as of September 30, 2024 of all of our portfolio investments was $199,302,778.

Previous wording

During the six months ended June 30, 2024, we funded investments in an aggregate amount of $34,999,944 (not including capitalized transaction costs) as shown in the following table:

Current wording

During the nine months ended September 30, 2024, we funded investments in an aggregate amount of $57,500,344 (not including capitalized transaction costs) as shown in the following table:

Previous wording

During the six months ended June 30, 2024, we capitalized fees of $73,100.

Current wording

During the nine months ended September 30, 2024, we capitalized fees of $286,411.

Previous wording

During the six months ended June 30, 2024, we exited or received proceeds from investments (not including short-term U.S. Treasury bills) in the amount of $10,551,335, net of transaction costs, and realized a net loss on investments of $453,686 (including adjustments to amounts held in escrow receivable) as shown in following table:

Current wording

During the nine months ended September 30, 2024, we exited or received proceeds from investments (not including short-term U.S. Treasury bills) in the amount of $14,941,469, net of transaction costs, and realized a net loss on investments of $14,167,198 (including adjustments to amounts held in escrow receivable) as shown in following table:

Previous wording

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value, as of June 30, 2023, of all of our portfolio investments, excluding short-term U.S. Treasury bills, was $160,283,146.

Current wording

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value, as of September 30, 2023, of all of our portfolio investments, excluding short-term U.S. Treasury bills, was $193,492,718.

Previous wording

During the six months ended June 30, 2023, we funded investments in an aggregate amount of $13,829,990 (not including capitalized transaction costs or investments in short-term U.S. Treasury bills) as shown in the following table:

Current wording

During the nine months ended September 30, 2023, we funded investments in an aggregate amount of $21,133,257 (not including capitalized transaction costs or investments in short-term U.S. Treasury bills) as shown in the following table:

Previous wording

During the six months ended June 30, 2023, we capitalized fees of $14,723.

Current wording

During the nine months ended September 30, 2023, we capitalized fees of $33,676.

Previous wording

During the six months ended June 30, 2023, we exited or received proceeds from investments (not including short-term U.S. Treasury bills) in the amount of $7,587,861, net of transaction costs, and realized a net loss on investments of $13,080,856 (including adjustments to amounts held in escrow receivable) as shown in following table:

Current wording

During the nine months ended September 30, 2023, we exited or received proceeds from investments in the amount of $9,658,163, net of transaction costs, and realized a net loss on investments of $14,542,137 (including adjustments to amounts held in escrow receivable) as shown in following table:

Previous wording

Operating results for the three and six months ended June 30, 2024 and 2023 are as follows:

Current wording

Operating results for the three and nine months ended September 30, 2024 and 2023 are as follows:

Previous wording

Investment income decreased to $1,027,353 for the three months ended June 30, 2024 from $1,372,218 for the three months ended June 30, 2023. The net decrease between periods was due to a decrease in interest income from short-term U.S. Treasury bills and the repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, and a decrease in dividend income from NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decrease was offset by an increase in interest income on cash during the three months ended June 30, 2024, relative to the three months ended ended June 30, 2023.

Current wording

Investment income decreased to $888,717 for the three months ended September 30, 2024 from $1,465,746 for the three months ended September 30, 2023. The net decrease between periods was primarily due to the cessation of interest income from short-term U.S. Treasury bills, and from Architect Capital PayJoy SPV, LLC following the redemption of our investment in June 2024. Additional decreases in interest income were from Xgroup Holdings Limited (d/b/a Xpoint), Shogun Enterprises, Inc. (d/b/a Hearth), and the repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, as well as a decrease in dividend income from NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decreases were offset by an increase in interest income received on cash, and an increase in PIK dividend income from CW Opportunity 2 LP during the three months ended September 30, 2024, relative to the three months ended ended September 30, 2023.

Previous wording

Investment income decreased to $2,555,444 for the six months ended June 30, 2024 from $2,671,300 for the six months ended June 30, 2023. The net decrease between periods was due to a decrease in interest income from short-term U.S. Treasury bills and the repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, and a decrease in dividend income from NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decrease was offset by an increase in interest income received on cash and from Architect Capital PayJoy SPV, LLC during the six months ended June 30, 2024, relative to the six months ended June 30, 2023.

Current wording

Investment income decreased to $3,444,161 for the nine months ended September 30, 2024 from $4,137,046 for the nine months ended September 30, 2023. The net decrease between periods was primarily due to a decrease in interest income from short-term U.S. Treasury bills, Xgroup Holdings Limited (d/b/a Xpoint), and Shogun Enterprises, Inc. (d/b/a Hearth), a repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, and a decrease in dividend income from Aventine Property Group and NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decrease was offset by an increase in interest income received on cash and an increase in PIK dividend income from CW Opportunity 2 LP during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.

Previous wording

Total operating expenses decreased to $4,682,978 for the three months ended June 30, 2024 from $5,177,558 for the three months ended June 30, 2023. The decrease in operating expense was primarily due to decreases in income tax expense related to blocker corporations, professional fees, and other expenses, offset by increases primarily in compensation expense and stock-based compensation expense during the three months ended June 30, 2024, relative to the three months ended June 30, 2023.

Current wording

Total operating expenses decreased to $4,096,590 for the three months ended September 30, 2024 from $4,134,172 for the three months ended September 30, 2023. The decrease in operating expense was primarily due to decreases in compensation expense and interest expense, offset by an increase in professional fees and directors’ fees during the three months ended September 30, 2024, relative to the three months ended September 30, 2023.

Previous wording

Total operating expenses decreased to $9,433,971 for the six months ended June 30, 2024 from $10,698,405 for the six months ended June 30, 2023. The decrease in operating expense was primarily due to decreases in income tax expense related to blocker corporations, professional fees, and other expenses, offset by increases primarily in compensation expense and stock-based compensation expense during the six months ended June 30, 2024, relative to the six months ended June 30, 2023.

Current wording

Total operating expenses decreased to $13,530,561 for the nine months ended September 30, 2024 from $14,832,577 for the nine months ended September 30, 2023. The decrease in operating expense was primarily due to decreases in income tax expense related to blocker corporations, professional fees, other expenses, and interest expense, offset by a slight increase in directors’ fees during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.

Previous wording

For the three months ended June 30, 2024, we recognized a net investment loss of $3,655,625, compared to a net investment loss of $3,805,340 for the three months ended June 30, 2023. The change between periods resulted from a decrease in total investment income and operating expenses during the three months ended June 30, 2024, relative to the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, we recognized a net investment loss of $3,207,873, compared to a net investment loss of $2,668,426 for the three months ended September 30, 2023. The change between periods resulted from a decrease in total investment income and operating expenses during the three months ended September 30, 2024, relative to the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, we recognized a net investment loss of $6,878,527, compared to a net investment loss of $8,027,105 for the six months ended June 30, 2023. The change between periods resulted from a decrease in operating expenses during the six months ended June 30, 2024, relative to the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, we recognized a net investment loss of $10,086,400, compared to a net investment loss of $10,695,531 for the nine months ended September 30, 2023. The change between periods resulted from a decrease in investment income and operating expenses during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.

Previous wording

For the three months ended June 30, 2024, we recognized a net realized loss on our investments of $29,612, compared to a net realized loss of $13,270,199 for the three months ended June 30, 2023. The components of our net realized losses on portfolio investments for the three months ended June 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”

Current wording

For the three months ended September 30, 2024, we recognized a net realized loss on our investments of $13,713,512, compared to a net realized loss of $1,461,281 for the three months ended September 30, 2023. The components of our net realized losses on portfolio investments for the three months ended September 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”

Previous wording

For the six months ended June 30, 2024, we recognized a net realized loss on our investments of $453,686, compared to a net realized loss of $13,080,856 for the six months ended June 30, 2023. The components of our net realized losses on portfolio investments for the six months ended June 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”

Current wording

For the nine months ended September 30, 2024, we recognized a net realized loss on our investments of $14,167,198, compared to a net realized loss of $14,542,137 for the nine months ended September 30, 2023. The components of our net realized losses on portfolio investments for the nine months ended September 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”

Previous wording

For the three months ended June 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $(6,965,946) and $1,455,515, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the three months ended June 30, 2024 and 2023.

Current wording

For the three months ended September 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $11,614,384 and $29,323,067, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the three months ended September 30, 2024 and 2023.

Previous wording

For the six months ended June 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $(25,384,316) and $10,104,446, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the six months ended June 30, 2024 and 2023.

Current wording

For the nine months ended September 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $(13,769,932) and $39,427,513, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the nine months ended September 30, 2024 and 2023.

Previous wording

On August 6, 2024, our Board of Directors approved a discretionary note repurchase program (the “Note Repurchase Program”) which allows us to repurchase up to 46.67%, or $35.0 million in aggregate principal amount, of our 6.00% Notes due 2026 through open market purchases, including block purchases, in such manner as will comply with the provisions of the 1940 Act and the Exchange Act. As of August 7, 2024, we had not repurchased any of the 6.00% Notes due 2026 under the Note Repurchase Program.

Current wording

On August 6, 2024, our Board of Directors approved a discretionary note repurchase program (the “Note Repurchase Program”), which allows us to repurchase up to 46.67%, or $35.0 million in aggregate principal amount, of our 6.00% Notes due 2026 through open market purchases, including block purchases, in such manner as will comply with the provisions of the 1940 Act and the Exchange Act. During the three months ended September 30, 2024, we repurchased and retired $25.3 million of aggregate principal amount of the 6.00% Notes due 2026. As of September 30, 2024, the dollar value of 6.00% Notes due 2026 that remained available to be purchased under the Note Repurchase Program was approximately $9.7 million.

Previous wording

On August 6, 2024, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”), by and between the Company and the purchaser identified therein (the “Purchaser”), pursuant to which we may issue up to a maximum of $75.0 million in aggregate principal amount of 6.50% Convertible Notes due 2029 (the “Convertible Notes”). Pursuant to the Note Purchase Agreement, we agreed to issue and sell, and the Purchaser agreed to purchase, up to $25.0 million in aggregate principal amount of the Convertible Notes (the “Initial Notes”). Thereafter, upon mutual agreement between the Company and the Purchaser, we may issue additional Convertible Notes for sale in subsequent offerings (the “Additional Notes”), or issue additional notes with modified pricing terms (the “New Notes”), in the aggregate for both the Additional Notes and the New Notes, up to a maximum of $50.0 million in one or more private offerings. The Purchaser will acquire, and we will issue, up to $25.0 million of the Initial Notes on or about August 14, 2024 (the “Initial Closing Date”), and thereafter at such time and date as the Purchaser and we mutually agree to purchase and sell any Additional Notes. Interest on the Convertible Notes will be paid quarterly in arrears on March 30, June 30, September 30, and December 30, at a rate of 6.50% per year, beginning September 30, 2024. The Convertible Notes will mature on August 14, 2029 and may be redeemed in whole or in part at any time or from time to time at our option on or after August 6, 2027 upon the fulfillment of certain conditions. The Convertible Notes will be convertible into shares of our common stock at the Purchaser’s sole discretion at an initial conversion rate of 129.0323 shares of our common stock per $1,000 principal amount of the Convertible Notes, subject to adjustment as provided in the Note Purchase Agreement. The net proceeds from the offering will be used to repay outstanding indebtedness, make investments in accordance with our investment objective and investment strategy, and for other general corporate purposes. The Note Purchase Agreement includes customary representations, warranties, and covenants by the Company.

Current wording

The 6.50% Convertible Notes due 2029 will be convertible into shares of our common stock at the Purchaser’s sole discretion at an initial conversion rate of 129.0323 shares of common stock per $1,000 principal amount of the 6.50% Convertible Notes due 2029, subject to adjustment as provided in the Notes Purchase Agreement.

Previous wording

Our liquidity and capital resources are generated primarily from the sales of our investments and the net proceeds from public offerings of our equity and debt securities, including pursuant to our continuous at-the-market offering of shares of our common stock as discussed below under “Equity Issuances and Debt Capital Activities — At-the-Market Offering”. In addition, on December 17, 2021, we issued $75.0 million aggregate principal amount of 6.00% Notes due December 30, 2026 (the “6.00% Notes due 2026”), all of which remain outstanding. For additional information, see below and “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of June 30, 2024.

Current wording

Our liquidity and capital resources are generated primarily from the sales of our investments and the net proceeds from public offerings of our equity and debt securities, including pursuant to our continuous at-the-market offering of shares of our common stock as discussed below under “Equity Issuances and Debt Capital Activities — At-the-Market Offering”. In addition, on December 17, 2021, we issued $75.0 million aggregate principal amount of 6.00% Notes due December 30, 2026 (the “6.00% Notes due 2026”), of which $49.7 million remain outstanding, and on August 14, 2024, we issued $25.0 million aggregate principal amount of 6.50% Convertible Notes due August 14, 2029 (the “Convertible Notes”), all of which remain outstanding. For additional information, see below and “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024.

Previous wording

Our primary uses of cash are to make investments, pay our operating expenses, and make distributions to our stockholders. For the six months ended June 30, 2024 and 2023, our operating expenses including interest payments on our debt obligations were $9,433,971 and $10,698,405, respectively.

Current wording

Our primary uses of cash are to make investments, pay our operating expenses, and make distributions to our stockholders. For the nine months ended September 30, 2024 and 2023, our operating expenses including interest payments on our debt obligations were $13,530,561 and $14,832,577, respectively.

Previous wording

During the six months ended June 30, 2024, cash increased to $54,379,773 from $28,178,352 at the beginning of the year. The increase in cash was primarily due to the sale or exit of investments, including short-term U.S. Treasury bills and other investment income received, offset by the purchase of new investments, repurchase of our common stock pursuant to a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”), payment of our operating expenses, and payment of interest on the 6.00% Notes due 2026. For additional information relating to the Modified Dutch Auction Tender Offer, see “Modified Dutch Auction Tender Offer” below and “Note 5 - Common Stock” to our condensed consolidated financial statements as of June 30, 2024.

Current wording

During the nine months ended September 30, 2024, cash increased to $32,737,114 from $28,178,352 at the beginning of the year. The increase in cash was primarily due to maturity of our investments in short-term U.S. Treasury bills, the sale or exit of investments, and other investment income received, offset by the purchase of new investments, repurchase of our common stock pursuant to a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”), payment of our operating expenses, and payment of interest on the 6.00% Notes due 2026 and 6.50% Convertible Notes due 2029. For additional information relating to the Modified Dutch Auction Tender Offer, see “Modified Dutch Auction Tender Offer” below and “Note 5 - Common Stock” to our Condensed Consolidated Financial Statementsas of September 30, 2024.

Previous wording

During the three and six months ended June 30, 2024, we did not repurchase any shares of our common stock under the discretionary open-market share repurchase program (the “Share Repurchase Program”). During the three and six months ended June 30, 2023, we did not repurchase any shares of our common stock under the Share Repurchase Program. As of June 30, 2024, the dollar value of shares that remained available to be purchased under the Share Repurchase Program was approximately $20.7 million. Currently, the Share Repurchase Program is authorized until the earlier of (i) October 31, 2024 or (ii) the repurchase of $60.0 million in aggregate amount of our common stock.

Current wording

During the three and nine months ended September 30, 2024, we did not repurchase any shares of our common stock under the discretionary open-market share repurchase program (the “Share Repurchase Program”). During the three and nine months ended September 30, 2023, we repurchased 186,493 shares of our common stock under the Share Repurchase Program. As of September 30, 2024, the dollar value of shares that remained available to be purchased under the Share Repurchase Program was approximately $20.7 million. On August 7, 2023, our Board of Directors authorized an extension of, and an increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase Program until the earlier of (i) October 31, 2024 or (ii) the repurchase of $60.0 million in aggregate amount of our common stock.

Previous wording

During the three and six months ended June 30, 2024, we did not issue or sell Shares under the ATM program. As of June 30, 2024, up to approximately $98.8 million in aggregate amount of the Shares remain available for sale under the ATM Program. During the three and six months ended June 30, 2023, we did not issue or sell Shares under the ATM program.

Current wording

During the three and nine months ended September 30, 2024, we did not issue or sell Shares under the ATM program. As of September 30, 2024, up to approximately $98.8 million in aggregate amount of the Shares remain available for sale under the ATM Program. During the three and nine months ended September 30, 2023, we did not issue or sell Shares under the ATM program.