FIRST QUARTER 2020 INVESTOR PRESENTATION Financing the Growth of - - PowerPoint PPT Presentation

FIRST QUARTER 2020 INVESTOR PRESENTATION

May 4, 2020

Financing the Growth of Tomorrow’s Companies Today

TM

This presentation may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act

• f 1995. You should understand that under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section

21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to forward-looking statements made in periodic reports we file under the Exchange Act. The information disclosed in this presentation is made as of the date hereof and reflects Hercules’ current assessment of its financial performance for the period reported. Actual financial results filed with the Securities and Exchange Commission in the future may differ from those contained herein in the event of additional adjustments recorded prior to the filing of its financial statements. This presentation may contain “forward-looking statements.” These forward-looking statements include comments with respect to our financial objectives, loan portfolio growth, strategies and results of our operations. However, by their nature, these forward-looking statements involve numerous assumptions, uncertainties and risks, both general and specific. The risk exists that these statements may not be fulfilled. We caution readers of this presentation not to place undue reliance on these forward-looking statements as a number of factors could cause future Company results to differ materially from these statements. Forward-looking statements may be influenced in particular by factors such as fluctuations in interest rates and stock indices, the effects of competition in the areas in which we operate, and changes in economic, political and regulatory conditions. We caution that the foregoing list is not exhaustive. When relying on forward-looking statements to make decisions, investors should carefully consider the aforementioned factors as well as other uncertainties and events. Historical results discussed in this presentation are not indicative of future results. This presentation should be read in conjunction with our recent SEC filings.

2

IMPORTANT NOTICE: FORWARD LOOKING STATEMENTS

Structure

Internally Managed Business Development Company (BDC)

IPO Date

June 9, 2005

Investment Options

HTGC (NYSE) – Common Stock Institutional Notes PAR $1000.00

• 4.625% Notes due 2022
• 4.77% Notes due 2024
• 4.28% Notes due 2025

Retail Notes (Baby Bonds) PAR $25.00

• HCXY (NYSE) 6.25% Notes due 2033
• HCXZ (NYSE) 5.25% Notes due 2025

Convertible Notes

• 4.375% Notes due 2022

Securitization Notes

• 4.605% Asset-backed Notes due 2027
• 4.703% Asset-backed Notes due 2028

Annualized Dividend Yield

(1)

16.8% as of March 31, 2020

Distributions Declared

$0.32 per share for Q1 2020

Price to NAV

1.08x - as of April 29, 2020 ~1.3x to ~1.6x historical range

3

HERCULES CAPITAL

(1) Annualized based on the $0.32 distribution declared for Q1 2020 and a closing stock price of $7.64 as of March 31, 2020

FIRST QUARTER 2020 INVESTOR PRESENTATION

Company & Strategic Overview Financial Highlights Portfolio Highlights Venture Capital Market Opportunity Analyst Coverage Key Performance Highlights Supplemental Information

KEY PERFORMANCE HIGHLIGHTS

6

Q1 2020 HIGHLIGHTS

(1) Source: S&P CapIQ as of 3/31/20 (2) Based on NII, excludes realized and unrealized gains/losses (3) Regulatory leverage is defined as GAAP leverage excluding SBA debentures (4) As of April 29, 2020

Robust Earnings

• Net Investment Income (“NII”) of $40.6M, up 39.8% Y-Y
• Total Investment Income of $73.6M, up 25.2% Y-Y
• NII per share of $0.37 and 116% distribution coverage

Strong Shareholder Returns

• 1YR/3Yr/7YR Total Shareholder Returns(1): -29.5%/-24.7%/33.0%
• ROAE(1,2,): 15.6%
• ROAA(1,2,): 7.2%
• Net Interest Margin (“NIM”): 11.1%

High-Yield Portfolio of Earning Assets

• Total Debt Investments (at cost): $2.24B
• Total Investments (at cost): $2.47B
• Effective Yield: 13.6%

Industry-Leading Originations Platform

• $10.2B in total debt commitments since inception
• Cumulative Total Net Realized (Loss) since inception of ($16.6M)
• Total debt & equity commitments: $256.8M
• Debt & equity fundings: $233.6M

Strong Liquidity and Balance Sheet

• $438.2M available liquidity (subject to existing terms and covenants)
• GAAP and regulatory leverage: 116.8% and 106.7%(3)

Strong Capital Raising Position

• Price-to-NAV: 1.08x(4)
• “ATM” Equity Distribution Agreement
• Investment Grade Credit Ratings: DBRS: BBB | KBRA: BBB+

• 29.5%
• 24.7%

3.0% 33.0%

• 37.9%
• 28.3%
• 6.8%
• 2.2%
• 38.0%
• 38.2%
• 24.6%
• 21.1%
• 40%
• 20%

0% 20% 40% 60% 80% 100%

1- Year 3-Year 5-Year 7-Year HTGC Peer Group Wells Fargo BDCS Index

TOTAL SHAREHOLDER RETURN (TSR)vs. BDCs & WELLS FARGO INDEX

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(a) Peer Group: AINV, ARCC, BKCC, OCSL, FSK, GBDC, GSBD, MAIN, NMFC, OXSQ, PNNT, PSEC, SLRC, BBDC, TCPC, TCRD, TSLX (b) TSR is defined as stock appreciation plus distributed dividend distributions Source: S&P Capital IQ as of March 31, 2020

(a)

(b)

$0.33 $1.23 $2.43 $3.75 $5.01 $5.81 $6.69 $7.64 $8.75 $9.99 $11.23 $12.47 $13.71 $14.95 $16.22 $16.86 $0.04 $0.02 $0.06 $0.08 $0.00 $0.10 $0.20 $0.30 $0.40 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q2 2020

Cumulative Distributions Paid (per Share)

Base Distribution Supplemental Distribution

$17.02 per share or ~$997.0 million in Historical Cumulative Distributions Since June 2005 IPO

11.7% 12.6% 12.0% 13.6% 15.4% 15.6% 11.3% 10.4% 9.6% 10.2% 8.5% 11.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

2015 2016 2017 2018 2019 Q1 2020

HTGC Peer Group

6.1% 7.2% 6.3% 6.8% 7.3% 7.2% 6.1% 5.8% 5.7% 5.7% 4.3% 5.3% 0% 1% 2% 3% 4% 5% 6% 7% 8%

2015 2016 2017 2018 2019 Q1 2020

HTGC Peer Group

DELIVERING STRONG SHAREHOLDER RETURNS

Return on Average Assets % (ROAA)

8

Return on Average Equity % (ROAE)

(a) Peer Group: AINV, ARCC, BKCC, OCSL, FSK, GBDC, GSBD, MAIN, NMFC, OXSQ, PNNT, PSEC, SLRC, BBDC, TCPC, TCRD, TSLX (a) (a) Source: S&P Capital IQ as of 3/31/20 for HTGC and Peer Group. Return on Average Assets excluding cash. NII divided by average of beginning of period total assets excluding cash and end of period total assets excluding cash. Source: S&P Capital IQ as of 3/31/20 for HTGC and Peer Group. Return on Average Equity based on NII. NII divided by average of beginning of period equity and end of period equity. (1) Q1 09 distribution was paid in 10% cash and 90% stock; (2) Includes special $0.04 distribution paid in December 2009 (2) Note: The Yield Calculation may include a potential tax return of capital. Any portion of a distribution that is ultimately deemed to be a tax return of capital should not be considered. The determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of its distributions for a full year. The tax attributes of its distributions for the years ended December 31, 2008 through March 31, 2020 were paid 100% from earnings and profits; however, there can be no certainty to shareholders that this determination is representative of the tax attributes of the Company’s 2020 full year distributions to stockholders.

(1, 2)

Supplemental Distributions Paid (per Share)

12.6% 12.0% 13.6% 15.4% 15.6%

84.7% 95.5% 102.6% 115.0% 116.8% 84.7% 72.9% 87.0% 101.8% 106.7% 60.6% 62.0% 83.4% 96.2% 103.6%

0% 20% 40% 60% 80% 100% 120% 140% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

2016 2017 2018 2019 Q1 2020

ROAE GAAP Leverage Regulatory Leverage Net Regulatory Leverage

AVAILABLE LEVERAGE FOR POTENTIAL EARNINGS GROWTH

9

Leverage to Return on Average Equity % (ROAE)

(1) Source: S&P Capital IQ as of 3/31/20. Return on Average Equity based on NII. NII divided by average of beginning of period equity and end of period equity. (2) Excludes SBA (3) Excludes SBA and cash (1) (2) (3)

$10.18 $9.94 $9.90 $9.96 $9.90 $10.55 $9.92 1.46 1.23 1.43 1.32 1.11 1.33 0.76 0.92 0.92 0.96 0.86 0.86 0.96 0.61

0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

2014 2015 2016 2017 2018 2019 Q1 2020

$8 $10 $12 $14 $16

Hercules NAV Hercules Price to NAV Peer Group Price to NAV

(a) Peer Group: AINV, ARCC, BKCC, OCSL, FSK, GBDC, GSBD, MAIN, NMFC, OXSQ, PNNT, PSEC, SLRC, BBDC, TCPC, TCRD, TSLX Price to NAV Source: S&P CapIQ as of 3/31/20 for HTGC and Peer Group. Stock price based on closing price on last trading day of each calendar year or relative quarter.

(a)

HERCULES CONSISTENTLY MAINTAINS A PREMIUM TO NAV

10

Price to NAV Multiple (x)

CREATES A STRONG CAPITAL RAISING POSITION TO SUPPORT GROWTH

Net Asset Value (NAV)

Impact due to COVID-19 Pandemic

$747.4 $1,123.6 $1,221.7 $1,299.2 $1,324.0 $1,464.2 $1,654.7 $1,945.2 $2,462.0 $2,396.8

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $2,600 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

$39.6 $48.1 $73.1 $71.8 $73.5 $100.3 $96.4 $108.7 $143.3 $40.6

$0 $20 $40 $60 $80 $100 $120 $140 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

HERCULES KEY PERFORMANCE HIGHLIGHTS

Net Investment Income “NII”

($ in millions)

11

$79.9 $97.5 $139.7 $143.7 $157.1 $175.1 $190.9 $207.8 $267.9 $73.6

$0 $50 $100 $150 $200 $250 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Total Investment Income

($ in millions)

Total Assets

($ in millions)

$587.4 $914.3 $906.3 $1,035.3 $1,252.3 $1,511.5 $1,619.8 $1,980.5 $2,402.0 $2,466.3

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $2,600 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Total Investments at Cost

($ in millions)

Cumulative Total Aggregate Net Realized Gains/(Losses), Since Inception

$0.5 ($1.1) $1.7 $4.3 ($26.5) ($52.9) ($50.1) ($47.0) ($32.1) ($12.0) ($6.9) ($2.3) ($29.0) ($40.1) ($23.6) ($16.6)

• $60
• $50
• $40
• $30
• $20
• $10

$0 $10 $20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 $ in millions

$0.2 $0.5 $0.9 $1.4 $1.5 $2.1 $2.7 $3.4 $4.0 $4.9 $5.7 $6.5 $7.3 $8.5 $9.9

$10.2

$0.2 $0.4 $0.7 $1.1 $1.2 $1.5 $1.9 $2.4 $2.9 $3.5 $4.2 $4.9 $5.6 $6.5 $7.6

$7.8

$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Cumulative Commitments Cumulative Fundings $ in billions

Cumulative Debt Commitment and Fundings, Since Inception

PORTFOLIO GROWTH WITH UNDERWRITING DISCIPLINE

12

HTGC IPO

Effective Annualized Loss Rate of 1.0bps or 0.01%

COMPANY & STRATEGIC OVERVIEW

WARRANT HOLDINGS IN

110 companies

EQUITY HOLDINGS IN

50 companies

TOTAL WARRANT AND EQUITY GAAP COST

$223.4 million

TOTAL WARRANT AND EQUITY FAIR VALUE

$107.0 million

AVAILABLE LIQUIDITY TO INVEST(2)

$438.2 million

GAAP LEVERAGE

116.8% / 106.7% ex. SBA

INVESTMENT GRADE RATINGS

DBRS: BBB KBRA: BBB+

SECURITIZATION INVESTMENT GRADE RATINGS

KBRA: A(sf)

DEBT INVESTMENT COST BASIS

$2.24 billion

DEBT INVESTMENT FAIR VALUE

$2.20 billion

EFFECTIVE YIELD

13.6%

DEBT INVESTMENTS IN

98 companies

SHORT TERM MATURITIES

36-42 months

INVESTMENT SIZE

$5 to $200 million

FOUNDED DECEMBER 2003

IPO: June 2005 “HTGC”

ENTERPRISE VALUE

$2.42 billion(1)

MARKET CAPITALIZATION

$1.18 billion(1)

NET ASSET VALUE PER SHARE

$9.92 as of 3/31/20

HISTORICAL PRICE/NAV

~1.3x to ~1.6x range

CURRENT PRICE/NAV

1.08x(1)

HERCULES AT-A-GLANCE

WARRANT & EQUITY PORTFOLIO

110

COMPANIES

LIQUIDITY & BALANCE SHEET

$438.2

MILLION

DEBT INVESTMENT PORTFOLIO

$2.24

BILLION

14

MARKET CAPITALIZATION

$1.18

BILLION

(1) As of April 29, 2020 and source for Enterprise Value and Market Capitalization is S&P Capital IQ (2) Subject to existing terms and covenants

LARGEST BDC FOCUSED ON PROVIDING FINANCING TO HIGH-GROWTH VENTURE CAPITAL-BACKED COMPANIES

What We Don’t Do and What We Are Not

• No direct oil and gas exposure
• No CLO exposure
• No CMBS or RMBS exposure
• No metals or minerals exposure

What We Do

• We focus primarily on pre-IPO and M&A, innovative high-growth venture capital backed companies at their

expansion (venture growth) and established stages in a broadly diversified variety of technology, life sciences and sustainable and renewable technology industries

• Highly asset sensitive debt investment portfolio – 97.8% floating rate loans and with interest rate floors(1)
• We are generally the only lender and 83.0% are "true" first lien senior secured(1)
• The majority of our debt investments include warrants for potential additional total return
• Substantially all of our debt investments have short term amortizing maturities (36-42 months)
• Focused on strong and sustainable shareholder returns
• Disciplined, proven investment philosophy with over 15 years of strong credit performance history

WHY IS HERCULES DIFFERENT THAN OTHER BDCs

(1) As of March 31, 2020 15

WE INVEST IN INNOVATIVE VENTURE GROWTH-STAGE COMPANIES

Hercules’ At-the-Market “ATM” Equity Distribution Agreement

• Equity Distribution Agreement: Up to a total of 12 million shares of common stock

The Benefits and Competitive Advantages

• “Just-in-Time” access provides control on the timing, pricing and amount of capital raised, with full

control over leverage ratios

• Ideal for raising growth capital when needed, proceeds expeditiously invested in new investments
• Exceptionally low and cost-effective access to capital markets
• Equity issuances can be highly accretive to NAV when HTGC trades at a premium to NAV

The Results

• Equity ATM Program YTD 2020: sold ~ 2.4 million shares for total net proceeds of ~ $35.1 million
• Equity ATM Program FY 2019: sold ~ 4.6 million shares for total net proceeds of ~ $62.7 million

STRATEGIC ACCESS TO EQUITY AND DEBT CAPITAL MARKETS

16

HERCULES’ SUCCESSFUL ATM DISTRIBUTION PROGRAM

WE ARE AT CENTER STAGE OF THE INNOVATION ECONOMY

17

Technology Life Sciences Sustainable and Renewable Technology Special Situations

We Invest at the Expansion “Venture Growth” and Established Stage

HERCULES HAS DOMAIN EXPERTISE IN FIVE SPECIALIZED LENDING GROUPS “WE ARE NOT GENERALISTS”

$10.2 billion in total debt commitments to over 500 companies since inception Offices in key venture capital markets: CA | MA | NY | DC | IL | CT Over 1000 different VC & PE firms, financial investors Over 170 portfolio companies completed/announced an IPO or M&A event since inception

SaaS Financing

FINANCIAL HIGHLIGHTS

INCOME STATEMENT: Q1 2020 VS. Q1 2019 SUMMARY RESULTS

19

2020 2019 Year/Year ($ in 000's, except per share amounts) (unaudited) (unaudited) Change Interest Income $ 66,204 $ 55,473 19% Fee Income 7,415 3,322 123% Total Investment Income 73,619 58,795 25% Interest and Loan Fees 16,326 15,564 5% General and Administrative 6,059 4,153 46% Employee Compensation 10,564 10,045 5% Total Operating Expenses 33,039 29,762 11% Other Income Pre-Tax Net Investment Income-NII 40,580 29,033 40% Total Net Realized and Unrealized Gain/Loss (69,303) 32,552 Net Increase(Decrease) in Net Assets from Operations (28,723) 61,585

• 147%

NII - Net Investment Income per Share (Basic) $ 0.37 $ 0.30 23% DNOI - Distributable Net Operating Income per Share $ 0.39 $ 0.34 15% Weighted Average Shares Outstanding - Basic 108,955 96,218 13% Three Months Ended March 31,

CURRENT & HISTORICAL INCOME STATEMENTS

20

Three Months Twelve Months Ended March 31, Ended December 31, ($ in 000's, except per share amounts) 2020 2019 Interest Income $ 66,204 $ 247,513 Fee Income 7,415 20,361 Total Investment Income 73,619 267,874 Interest and Loan Fees 16,326 61,674 General and Administrative 6,059 19,183 Employee Compensation 10,564 41,519 Total Operating Expenses 33,039 124,602 Other Income

• Pre-Tax Net Investment Income - NII

40,580 143,272 Net Realized and Unrealized Gain / (Loss) (69,303) 30,326 Net Increase(Decrease) in Net Assets from Operations $ (28,723) $ 173,598 NII - Net Investment Income per Share (Basic) $ 0.37 $ 1.41 DNOI - Distributable Net Operating Income per Share $ 0.39 $ 1.53 Weighted Average Shares Outstanding - Basic 108,955 101,132

CURRENT & HISTORICAL BALANCE SHEET

21

March 31, December 31, ($ in 000's, except per share amounts) 2020 2019 ASSETS Total Investments $ 2,302,480 $ 2,314,526 Cash and cash equivalents 34,282 64,393 Restricted cash 22,060 50,603 Interest receivable 19,137 20,207 Other assets 18,792 12,239 Total Assets $ 2,396,751 $ 2,461,968 LIABILITIES Accounts Payable and Accrued Liabilites 33,594 41,844 Credit Facilities 71,125 103,919 2022 Convertible Notes 227,004 226,614 2027 Asset-Backed Notes 197,377 197,312 2028 Asset-Backed Notes 247,444 247,395 2033 Notes 38,528 38,501 February 2025 Notes 49,442

• Long-term SBA Debentures

109,725 148,165 2025 Notes 73,066 72,970 July 2024 Notes 103,721 103,685 2022 Notes 148,645 148,514 Total Liabilites $ 1,299,671 $ 1,328,919 Net Assets $ 1,097,080 $ 1,133,049 Shares Outstanding 110,601 107,364 Net Assets per Share $ 9.92 $ 10.55

13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 13.0% 14.3% 13.4% 13.0% 13.6% 12.2% 12.1% 12.6% 12.5% 11.9% 12.7% 12.7% 12.9% 12.7% 12.7% 12.4% 12.3% 11.8% 8.9% 9.3% 9.6% 9.8% 9.5% 10.1% 10.4% 10.4% 10.3% 10.3% 10.2% 10.1% 9.5% 6% 8% 10% 12% 14% 16% 18% Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1 -19 Q2-19 Q3-19 Q4-19 Q1-20

Effective Yield

GAAP Effective Yield Core Yield Loan Coupon Rate

EFFECTIVE YIELD VS. CORE YIELD – LEADS TO STRONG EARNINGS

(1) Effective Yield is inclusive of all fees, including all realized unamortized fees and all realized transaction fees including but not limited to amendment fees and prepayment fees, and is calculated based on the weighted average principal balance of loans outstanding on a daily basis (2) Core Yield excludes Early Repayments and One-Time Fees, and includes income and fees from expired commitments (2)

22

MEDIAN CORE YIELD FROM Q1 2017 TO Q1 2020: 12.5%

(1)

$1,311.9 $1,287.6 $1,300.1 $1,416.0 $1,336.3 $1,546.0 $1,603.3 $1,733.5 $1,897.1 $2,061.6 $2,079.9 $2,148.6 $2,195.6

13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 13.0% 14.3% 13.4% 13.0% 13.6%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% $0 $500 $1,000 $1,500 $2,000 $2,500 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20

Effective Yield (%) Total Debt Investments, at value (millions)

Total Debt Investments at Fair Value Effective Yield

(1)

HIGH-YIELD PORTFOLIO OF EARNING ASSETS

23

MEDIAN EFFECTIVE YIELD FROM Q1 2017 TO Q1 2020 OF 13.5%

(1) Effective Yield is inclusive of all fees, including all realized unamortized fees and all realized transaction fees including but not limited to amendment fees and prepayment fees, and is calculated based on the weighted average principal balance of loans outstanding on a daily basis

13.5%

$33,920 $37,850 $35,366 $37,159 $38,140 $36,322 $41,650 $44,946 $43,321 $54,103 $54,243 $54,623 $57,293

10.1% 11.1% 10.3% 10.4% 10.5% 9.5% 10.8% 11.0% 10.3% 11.8% 11.6% 11.0% 11.1%

0% 2% 4% 6% 8% 10% 12% 14%

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000

Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20

Net Interest Margin (%) Net Interest Margin (in thousands)

Net Interest Margin (in thousands) Net Interest Margin %(1)

STRONG, CONSISTENT NET INTEREST MARGIN - NIM

24

MEDIAN NIM FROM Q1 2017 TO Q1 2020 OF 10.8%

(1) Net Interest Margin = Net Interest Income/Average Yielding Assets excluding Equity Investments

10.8%

EFFECTIVE YIELDS

Early Payoffs Lead to Higher Effective Yields and Earnings

IMPACT OF EARLY PAYOFFS ON EFFECTIVE YIELDS

UNSCHEDULED EARLY PAYOFFS ($ in millions)

1 25

13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 13.0% 14.3% 13.4% 13.0% 13.6% 12.2% 12.1% 12.6% 12.5% 11.9% 12.7% 12.7% 12.9% 12.7% 12.7% 12.4% 12.3% 11.8% 8.9% 9.3% 9.6% 9.8% 9.5% 10.1% 10.4% 10.4% 10.3% 10.3% 10.2% 10.1% 9.5% 5% 10% 15% 20% Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 GAAP Effective Yield Core Yield Loan Coupon Rate

$100.3 $166.4 $114.7 $124.2 $243.5 $114.3 $64.9 $63.9 $47.5 $178.3 $140.1 $160.8 $150.5 7.2% 12.7% 8.7% 8.7% 17.8% 7.4% 4.0% 3.6% 9.4% 8.6% 6.7% 7.4% 6.7%

0% 5% 10% 15% 20%

$0 $50 $100 $150 $200 $250 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Early Payoffs Early Payoffs as % of Ending Total Debt Investment Balance at Cost

(2)

$505.6

(1)

(1) Effective Yield is inclusive of all fees, including all realized unamortized fees and all realized transaction fees including but not limited to amendment fees and prepayment fees, and is calculated based on the weighted average principal balance of loans outstanding on a daily basis (2) Core Yield excludes Early Repayments and One-Time Fees, and includes income and fees from expired commitments

$486.6 $526.7 $150.5

$9,410 $10,667 $9,562 $11,023 $9,769 $10,692 $10,389 $12,414 $12,025 $16,248 $12,465 $13,430 $15,078

2.6% 2.9% 2.5% 2.8% 2.4% 2.5% 2.4% 2.8% 2.6% 3.2% 2.4% 2.4% 2.7%

0% 1% 2% 3% 4%

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000

Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20

OPEX as a % of Total Assets (%) OPEX (in thousands)

OPEX (exc. Interest, fees, RSU, PSU and option expense) OPEX as a % of Average Total Assets

NON-INTEREST AND FEE EXPENSE TO AVERAGE TOTAL ASSETS

26

MEDIAN ADJ. OPEX TO AVERAGE TOTAL ASSETS FROM Q1 2017 TO Q1 2020 OF 2.6%

2.6%

$75.9 $57.6 $46.3 $73.6 $51.9 $129.7 $171.9 $139.0 $154.2 $177.2 $167.5 $133.7 $134.7

4.8% 3.6% 2.9% 4.4% 3.2% 7.2% 9.4% 7.1% 7.2% 7.7% 7.2% 5.4% 5.6%

$0 $30 $60 $90 $120 $150 $180 $210 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 0% 2% 4% 6% 8% 10% 12% 14% 16%

Available Unfunded Commitments (in millions) Available Unfunded Commitments as % Total Assets

Available Unfunded Commitments (in millions) Unfunded Commitments as % of Total Assets

UNFUNDED COMMITMENTS AS A PERCENTAGE OF TOTAL ASSETS

(1) Amount represents available unfunded commitments, including undrawn revolving facilities, which are available at the request by the portfolio company.

(1)

27

Credit Grading at Fair Value, Q1 2020 - Q1 2019 ($ in millions) Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Grade 1 - High 390.4 $ 17.7% 387.3 $ 18.0% 237.9 $ 11.4% 256.2 $ 12.4% 299.2 $ 15.8% Grade 2 818.1 $ 37.3% 1,180.5 $ 55.0% 1,331.2 $ 64.0% 1,317.7 $ 63.9% 1,056.4 $ 55.7% Grade 3 917.2 $ 41.8% 509.9 $ 23.7% 479.0 $ 23.1% 413.0 $ 20.1% 469.7 $ 24.7% Grade 4 54.3 $ 2.5% 69.0 $ 3.2% 29.7 $ 1.4% 67.8 $ 3.3% 66.5 $ 3.5% Grade 5 - Low 15.5 $ 0.7% 1.8 $ 0.1% 2.1 $ 0.1% 6.9 $ 0.3% 5.3 $ 0.3% Weighted Avg. 2.34 2.15 2.17 2.18 2.19

Disciplined credit underwriting standards deliver consistent long-term results

(1) Debt only; based on fair value

$1,311.9 $1,287.6 $1,300.1 $1,416.0 $1,336.3 $1,546.0 $1,603.3 $1,733.5 $1,897.1 $1,224.1 $2,079.9 $2,148.6 $2,195.6 2.43 2.27 2.24 2.17 2.43 2.21 2.23 2.18 2.19 2.18 2.17 2.15 2.34 1.0 2.0 3.0 4.0 5.0

$0 $500 $1,000 $1,500 $2,000 $2,500 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1 20

Credit Rating Debt Portfolio Value

($ in millions) Debt Portfolio Value Weighted Investment Credit Rating

(1)

High Quality Low Quality

CONSISTENT AND DISCIPLINED UNDERWRITING STANDARDS

28

DIVERSIFIED SOURCES OF FUNDING: Q1 2020

29

Entity Capitalization

Capital Sources as of 3/31/20 $ in Millions % of Total

Equity $1,097.1 46.1% SBA Debentures $110.3 4.6% 2027 Asset-Backed Notes $200.0 8.4% 2028 Asset-Backed Notes $250.0 10.5% 2022 Convertible Notes $230.0 9.7% 2022 Notes (Institutional) $150.0 6.3% 2024 Notes (Institutional) $105.0 4.4% 2025 Notes (Baby Bonds) $75.0 3.2% 2033 Notes (Baby Bonds) $40.0 1.7% 2025 Notes (Institutional) $50.0 2.1% Credit Facilities $71.1 3.0%

Total Capital $2,378.5 100.0%

Debt Capital Stack Total Corporate Capitalization

SBA Debentures 4.6% Equity 46.1% 2027 Asset-Backed Notes 8.4% Credit Facilities 3.0% 2022 Convertible Notes 9.7% 2028 Asset-Backed Notes 10.5% 2025 Notes (Baby Bonds) 3.2% 2033 Notes (Baby Bonds) 1.7% 2024 Notes (Institutional) 4.4% 2025 Notes (Institutional) 2.1% 2022 Notes (Institutional) 6.3%

$75.0

2024 Institutional Notes 6.2% Wells Fargo 4.5% Union Bank 23.7% 2022 Convertible Notes 13.6% 2027 Asset Backed Notes 11.9% 2028 Asset Backed Notes 14.8% 2033 Notes 2.4% SBA License 2 - HTIII 6.5% 2025 Notes 4.5% 2025 Institutional Notes 3.0% 2022 Institutional Notes 8.9% $75.0 $400.0 $230.0 $110.3 $200.0

($ in millions)

$150.0 $40.0 $250.0 $105.0 $75.0 $50.0

(1) Interest rate range for the SBA debentures does not include annual fees

DIVERSIFIED SOURCES OF FUNDING (AS OF 3/31/20)

30 Wells Fargo Credit Facility Union Bank Credit Facility Notes SBA Debentures Securitizations January 2022

• Conv. Notes

October 2022

• Inst. Notes

April 2025 Notes October 2033 Notes July 2024

• Inst. Notes

February 2025

• Inst. Notes

License 2 HTIII DATE ENTERED

• Aug. 2008
• Feb. 2020
• Jan. 2017
• Oct. 2017

April 2018 October 2018 July 2019 February 2025 May 2010

• Nov. 2018

January 2019 FACILITY SIZE

($ in millions)

$75.0 $400.0 $230.0 $150.0 $75.0 $40.0 $105.0 $50.0 $110.3 $200.0 $250.0

INTEREST RATE LIBOR + 300bps LIBOR + 250bps 4.375% unsecured 4.625% unsecured 5.25% unsecured 6.25% unsecured 4.77% unsecured 4.28% Unsecured Range(1) from 2.2% to 5.5% 4.605% 4.703% MATURITY January 2022 February 2023 February 2022 October 2022 April 2025 October 2033 July 2024 February 2025 Mature 10 years after borrowing November 2027 February 2028 ADDITIONAL INFO (Expandable up to $125.0) (Expandable up to $600.0) DBRS: BBB KBRA: BBB+ DBRS: BBB KBRA: BBB+ NYSE: HCXZ DBRS: BBB KBRA: BBB+ NYSE: HCXY DBRS: BBB KBRA: BBB+ KBRA: BBB+ KBRA: BBB+

Set in March & Sept. (range: 2.2% to 5.5%)

Rated A(sf) by KBRA Rated A(sf) by KBRA OUTSTANDING

($ in millions)

$0.0 $71.1 $230.0 $150.0 $75.0 $40.0 $105.0 $50.0 $110.3 $200.0 $250.0

Well Managed Debt Maturity Schedule

($ in millions)

(2)

$200.0 $250.0 $230.0 $0.0 $25.3 $60.5 $24.8 $40.0 $150.0 $105.0 $75.0 $50.0 $0 $100 $200 $300 $400 2020 2021 2022 2023 2024 2025 2027 2028 2033

Securitization Convertible Notes SBA Bonds October 2033 Notes October 2022 Notes July 2024 Notes April 2025 Notes February 2025 Notes

• $0.02
• $0.01
• $0.01

$0.01 $0.02 $0.04 $0.05 $0.14

• $0.04

$0.00 $0.04 $0.08 $0.12 $0.16

• $5,000

$0 $5,000 $10,000 $15,000 $20,000

• 75
• 50
• 25

25 50 75 100 200

Earning per Share(1) Net Income ($ in thousands) Basis Point Movement in Prime Rate

Net Income EPS

INTEREST RATES & ASSET SENSITIVITY

(1) EPS calculated on basic weighted shares outstanding of 109.0million and a static debt investment portfolio as of March 31, 2020. Estimates are also subject to change due to impact from potential participation in the Company’s equity ATM program and future equity offerings. 31

PORTFOLIO HIGHLIGHTS

HERCULES’ INVESTMENT PORTFOLIO: Q1 2020

33

0.4% 0.0% 1.9% 30.1% 3.3% 4.6% 2.0% 22.9% 0.9% 2.7% 1.1% 28.0% 0.0% 0.1% 0.1% 0.0% 1.9% Communications & Networking Consumer & Business Products Drug Delivery Drug Discovery & Development Sustainable & Renewable Technologies Healthcare Services, Other Information Services Internet Consumer & Business Services Media/Content/Info Medical Devices & Equipment Semiconductors Software Specialty Pharmaceuticals Diagnostic & Surgical Devices Electronics & Computer Hardware Biotechnology Tools Diversified Financial Services

97.8% 2.2% Floating Fixed 95.4% 4.1% 0.5% Debt Investments Equity Investments Warrant Positions

Floating vs. Fixed Rate Investment Type Breakout Industry Breakout Hercules’ Investments by Geography 43% 5% 1% 41% 5% International: 5%

(Portfolio Companies as of December 31, 2019)

4 Portfolio Companies completed IPOs or in Registration – Q1 2020

• 4 confidential JOBS Act filers

4 Portfolio Company M&A Liquidity Events – Q1 2020

• Quid, CareCloud, Elenion Technologies and TAS Energy

Current Warrant and Equity Portfolio – Q1 2020

HERCULES' WARRANT & EQUITY PORTFOLIO: POTENTIAL FUTURE UPSIDE FOR SHAREHOLDER'S TOTAL RETURN

• 110 warrant holdings
• GAAP fair value ~$12.4 million
• GAAP cost ~$33.0 million
• ~$71.7 million in nominal Exercise Value (as of 3/31/20)
• 50 equity holdings
• GAAP fair value ~$94.6 million
• GAAP cost ~$190.3 million

34

• Illustrative models of potential warrant gains (as of 3/31/20)
• Assumption: 50% of warrants will not monetize
• GAAP cost ~$16.5 million
• Based on ~109.0 million weighted average shares

$35.8M x 2X multiple: $71.6M - $16.5M cost = $55.1M unrealized gain = $0.51/share $35.8M x 3X multiple: $107.4M - $16.5M cost = $90.9M unrealized gain = $0.83/share $35.8M x 4X multiple: $143.2M - $16.5M cost = $126.7 unrealized gain = $1.16/share

Life Sciences

SELECT LIST OF WARRANT AND EQUITY PORTFOLIO HOLDINGS

35

Technology

35

26.2% 23.7% 29.7% 23.9% 28.7% 32.2% 30.1% 5.1% 4.3% 2.7% 2.4% 13.5% 7.5% 7.6% 6.1% 6.5% 3.2% 2.7% 2.6% 2.6% 2.6% 2.0% 8.7% 13.7% 7.7% 5.9% 2.2% 2.0% 1.9% 6.8% 7.4% 6.8% 10.0% 17.5% 21.4% 22.9% 8.0% 9.9% 1.2% 0.9% 0.9% 12.3% 12.3% 15.4% 23.4% 29.2% 25.2% 28.0% 6.7% 13.3% 10.9% 7.7% 5.9% 3.3% 3.3% 2.0% 2.1% 1.3% 2.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2014 2015 2016 2017 2018 2019 Q1 2020 % Total Investment Portfolio at Fair Value

Diversified Financial Services Electronics & Computer Hardware Consumer & Business Products Diagnostic & Surgical Device Healthcare Services, Other Sustainable & Renewable Software Semiconductors Media/Content/Info Internet Consumer & Business Services Drug Delivery Information Services Communications & Networking Medical Devices & Equipment Specialty Pharmaceuticals Drug Discovery & Development Biotechnology Tools

$1,020.7 $1,200.6

($M)

$1,423.9

A BROADLY DIVERSIFIED PORTFOLIO RE-BALANCED ACCORDING TO OUR ASSESSMENT OF ONGOING MARKET CONDITIONS MITIGATES RISK

36

9.7% 6.2%

$1,542.2

3.2%

$1,880.4

4.5% 3.4%

$2,314.5

3.4% 6.0%

$2,302.5

2.9% 1.5% 3.0% 4.7% 4.6% 2.2% 2.2% 1.6% 1.6% 1.3%

SaaS Financing Life Sciences Sustainable & Renewable Technology Special Situations

SELECT LIST OF DIVERSIFIED PORTFOLIO COMPANIES

37

Technology

37

DIVERSIFIED INVESTMENT APPROACH MITIGATES RISK

More than 1000 Venture Capital Firms & Investors Technology SaaS Financing Life Sciences Sustainable & Renewable Special Situations Expansion or “Venture Growth” & Established Key VC Investment Centers

Palo Alto Boston New York Washington DC Chicago Hartford

FINANCIAL SPONSORS INDUSTRY SECTORS STAGES OF DEVELOPMENT GEOGRAPHIC LOCATION

Four Key Diversification Strategies

38

VENTURE CAPITAL MARKET OPPORTUNITY

Venture Capital Investment Activity 1997 – 2019

OVER $1.0 TRILLION IN VENTURE CAPITAL INVESTMENTS

Source: Dow Jones VentureSource Q4 2019 40

$26.9 $54.6 $85.5 $42.5 $12.5 $10.4 $18.9 $29.0 $31.9 $39.3 $29.8 $14.9 $17.9 $21.0 $22.4 $21.7 $37.3 $39.6 $46.1 $39.7 $56.5 $58.7 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2016 2014 2015 2016 2017 2018 2019

Funds Raised (billions)

Venture Capital Fundraising Activity 1997 – 2019

$13.1 $17.9

$49.5 $94.1 $36.8 $22.6 $20.3 $23.6 $25.1 $31.2 $34.5 $33.3 $25.2 $28.9 $36.7 $34.8 $36.4 $58.5 $84.7 $60.2 $80.2 $108.5 $103.3

2,211 2,547 4,590 6,350 3,341 2,484 2,294 2,462 2,633 2,892 3,155 3,123 2,799 3,204 3,729 3,906 4,048 4,278 4,379 4,295 4,649 4,995 4,341

• 500

500 1,500 2,500 3,500 4,500 5,500 6,500 $0 $20 $40 $60 $80 $100 $120

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

# of Deals Dollars Invested (billions) $ in billions # of deals

Note: Represents VC investments only Source: Dow Jones VentureSource Q4 2019

0% 20% 40% 60% 80% 100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

IPOs M&A

5.4 6.0 6.5 5.8 5.5 5.2 5.2 5.2 5.0 5.2 4.9 5.2 5.0 5.3 5.4 5.6 6.2 6.8 8.7 7.9 7.4 6.2 7.1 6.6 6.8 6.1 6.6 7.5 5.4 6.3

2 4 6 8 10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

IPOs M&A

Venture Debt Complements Equity Financing and Optimizes Capital Structure

WHY VENTURE BACKED COMPANIES USE VENTURE DEBT?

41

As Time to Exit has Remained Long... … M&A Remains the Exit of Choice

1

Less dilutive than new VC round

2

Lengthens time before next equity round

3

Provides negotiating leverage for higher valuations

4

Leverages returns

• f equity investors

Source: Dow Jones VentureSource Q4 2019

Median Time from Initial Equity Funding Breakdown of Venture Backed Liquidity Events

Source: Dow Jones VentureSource Q4 2019

Commitments as % of VC Dollars Invested

0.9% 0.8% 1.4% 1.2% 0.8% 1.8% 1.7% 1.8% 1.9% 1.6% 1.0% 1.6% 1.1% 1.1% 1.4%

HERCULES’ TOTAL COMMITMENTS VS. VC DOLLARS INVESTED

VENTURE CAPITAL INVESTMENT ACTIVITY 2005 –2019

Source: Dow Jones VentureSource Q4 2019

• Hercules’ uncompromising yield and credit underwriting standards drives commitments
• Market conditions determine commitment activity more than pure VC investment activity
• Hercules’ 15-year historical average: 1.3%

42 Note: Represents VC investments only

$25.1 $31.2 $34.5 $33.3 $25.2 $28.9 $36.7 $34.8 $36.4 $58.5 $84.7 $60.2 $80.2 $108.5 $103.3

$215 $243 $494 $413 $186 $523 $630 $637 $705 $905 $745 $807 $882 $1,213 $1,475 $0 $20 $40 $60 $80 $100 $120 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

VC Dollars Invested (billions) Hercules Debt and Equity Commitments (millions)

VC Dollars Invested Hercules Debt & Equity Commitments

INVESTMENT HIGHLIGHTS

43

Large Market Opportunity Attractive Yields and Upside from Equity and Warrant Portfolio Focused on Strong and Sustainable Shareholder Returns Experienced Management Team Platform in Place to Grow Portfolio Strong Balance Sheet and Diverse Funding Sources Strong Venture Capital and Private Equity Relationships Strict Focus on Credit Underwriting Process

ANALYST COVERAGE

BROAD INDUSTRY ANALYST COVERAGE – 9 FIRMS

45

Finian O’Shea (Transferred Coverage 7/13/2018) Ryan Lynch (Initiated Coverage 2/19/2013) John Hecht (Initiated Coverage 6/30/2015) Casey Alexander (Initiated Coverage 6/23/15) Mitchel Penn (Initiated Coverage 1/14/2015) Chris York (Initiated Coverage 10/24/2012) Tim Hayes (Initiated Coverage 10/2/2017) Henry Coffey (Initiated Coverage 10/24/17) Christopher Nolan (Initiated Coverage 11/20/2017)

Hercules Capital is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding Hercules Capital’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of Hercules Capital or its management. Hercules Capital does not by its reference above or distribution imply its endorsement of

• r concurrence with such information, conclusions or recommendations.

SUPPLEMENTAL INFORMATION

Business Development Company (BDC)

• Regulated by the SEC under the Investment Company Act of 1940
• Leverage limited to approximately 2:1 debt/equity, unless an SEC exemptive order exists to exclude SBA

debt

• Investments are required to be carried at fair value
• Majority of Board of Directors must be independent
• Offer managerial assistance to portfolio companies

Regulated Investment Company (RIC)

• Distribute taxable income as dividend distributions to shareholders
• Mandates asset diversification
• Eliminates corporate taxation
• Allows for the retention of capital gains and/or spillover of taxable income

Small Business Investment Company (SBIC)

• One Small Business Investment Company (“SBIC”) license granted through the U.S. Small Business

Administration (“SBA”)

• Currently, $110.3 million exemption from SEC leverage restrictions for BDCs, excludes all SBIC debt from

BDC 2:1 leverage test

Hercules is an Internally Managed BDC under the 1940 Act and a RIC for Tax Purposes

REGULATION AND STRUCTURE

47

PRIMARILY INVEST AT STAGES OF HIGH GROWTH

48

Expansion Stage Established

Type of Company

Follow-on Rounds

• f Growth Capital

(Series B-Liquidity Event) Private Late Stage/ Select Public Companies

Equity Capital Provider

Venture Capital/ Private Equity Public Markets/ Private Equity

Expectation for Additional Sponsor Support

1–3 Additional Rounds 0–2 Additional Rounds

Targeted Warrant Gain Potential

3–7 x 2–4 x

Potential Time to Liquidity

4–6 years 2–4 years