FOURTH QUARTER 2018 INVESTOR PRESENTATION Financing the Growth of - - PowerPoint PPT Presentation

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FOURTH QUARTER 2018 INVESTOR PRESENTATION Financing the Growth of - - PowerPoint PPT Presentation

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February 21, 2019 FOURTH QUARTER 2018 INVESTOR PRESENTATION Financing the Growth of Tomorrows Companies Today TM IMPORTANT NOTICE: FORWARD LOOKING STATEMENTS This presentation may contain forward-looking statements within the meaning

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FOURTH QUARTER 2018 INVESTOR PRESENTATION

February 21, 2019

Financing the Growth of Tomorrow’s Companies Today

TM

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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

  • f

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

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SLIDE 3

3

HERCULES CAPITAL

(1) Annualized based on the $0.31 distributions declared for Q1 2019 and a closing stock price of $11.05 as of December 31, 2018

Structure

Internally Managed publicly traded 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

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)

11.2% as of December 31, 2018

Distributions Declared

$0.31 per share for Q4 2018 $1.26 per share for FY 2018

Price to NAV

1.34x - as of February 5, 2019 ~1.3x to ~1.6x historical range

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FOURTH QUARTER 2018 INVESTOR PRESENTATION

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

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SLIDE 5

KEY PERFORMANCE HIGHLIGHTS

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SLIDE 6

6

Q4 2018 HIGHLIGHTS

(1) Source: S&P CapIQ as of 12/31/18 for dividend and ROAE/ROAA and 2/5/19 for stock price (2) Based on NII, excludes realized and unrealized gains/losses (3) Net regulatory leverage is defined as regulatory leverage less cash balance at period end (4) As of February 5, 2019

Robust Earnings

  • Net Investment Income (“NII”) of $30.6M, up 24.8% Y-Y
  • Total Investment Income of $56.9M, up 13.3% Y-Y
  • NII per share of $0.32, DNOI per share of $0.35
  • 54 consecutive quarters of distributions since June 2005 IPO

Strong Shareholder Returns

  • 1YR/3Yr/7YR Total Shareholder Returns(1): 10.2%/39.0%/127.5%
  • ROAE(1,2): 13.6%
  • ROAA(1,2): 6.8%
  • Net Interest Margin (“NIM”): 11.0%

High-Yield Portfolio of Earning Assets

  • Total Debt Investments (at cost): $1.75B
  • Total Investments (at cost): $1.98B
  • Effective Yield: 13.5%

Industry-Leading Originations Platform

  • $8.5B in total debt commitments since inception
  • Cumulative Total Net Realized (Loss) since inception of ($40.1M)
  • Total debt & equity commitments Q4’18: $249.4M
  • Gross debt & equity fundings Q4’18: $254.6M

Strong Liquidity and Balance Sheet

  • $156.2M available liquidity
  • $213.5M additional leverage capacity
  • Regulatory leverage and net regulatory leverage: 87.0% and 83.4%(3)

Strong Capital Raising Position

  • Price-to-NAV: 1.34x(4)
  • “ATM” Equity Distribution Agreement
  • Investment Grade Credit Ratings: DBRS: BBB | KBRA: BBB+
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SLIDE 7

10.2% 39.0% 18.4% 127.5% 10.1% 36.5% 9.2% 52.5% 6.5% 32.6% 2.9% 60.9% 0% 20% 40% 60% 80% 100% 120% 140% 160%

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

STRONG TOTAL SHAREHOLDER RETURN % (TSR)vs. BDCs & INDEXES

7

(a) Peer Group: AINV, ARCC, BKCC, OCSL, FSK, GBDC, GSBD, KCAP, MAIN, MCC, 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 December 31, 2018 for dividend and February 5, 2019 for stock price

(a)

(b)

Stock Price as of February 5, 2019

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SLIDE 8

$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 $15.26 $0.04 $0.02 $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 Q1 2019

Cumulative Distributions Declared (per Share)

Base Distribution Supplemental Distribution

$15.28 per share or ~$817 million in Historical Cumulative Distributions Since June 2005 IPO 2019 YTD Distributions Paid: $0.31

12.9% 10.1% 11.7% 12.6% 12.0% 13.6% 11.0% 10.8% 11.0% 9.6% 9.6% 9.7%

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

2013 2014 2015 2016 2017 Q4 2018

HTGC Peer Group 6.4% 5.2% 6.1% 7.2% 6.3% 6.8% 6.9% 6.5% 6.0% 5.7% 5.4% 5.4%

0% 1% 2% 3% 4% 5% 6% 7% 8% 2013 2014 2015 2016 2017 Q4 2018

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, KCAP, MAIN, MCC, NMFC, OXSQ, PNNT, PSEC, SLRC, BBDC, TCPC, TCRD, TSLX (a) (a) Source: S&P Capital IQ as of 12/31/18 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 12/31/18 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 December 31, 2018 were paid 100% from earnings and profits; however, there can be no certainty to shareholders that this determination is representative of what the tax attributes of its 2018 distributions to shareholders will actually be.

(1, 2)

Supplemental Distributions Declared (per Share)

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SLIDE 9

DISTRIBUTION COVERAGE

9

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 $0.50 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Net Investment Income per Share Distributable NOI per Share Distribution per Share

(1) Per share calculation based on weighted shares of common stock outstanding of 96.4 million, subject to final tax filings in 2018 (2) Includes the one-time costs associated with the retirement of select Notes (3) Includes the one-time benefit of the litigation settlement of $8.0 million

(3) (2) (2) (2) (2)

UNDISTRIBUTED EARNINGS SPILLOVER OF $30.7 MILLION OR $0.32 EARNINGS PER SHARE(1)

Quarterly Distribution of $0.31 per Share

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SLIDE 10

12.9% 10.1% 11.7% 12.6% 12.0% 13.6%

85.8% 95.1% 83.7% 84.7% 95.5% 102.6% 51.2% 66.2% 70.4% 84.7% 72.9% 87.0% 44.5% 60.6% 43.9% 60.6% 62.0% 83.4%

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

2013 2014 2015 2016 2017 Q4 2018

ROAE GAAP Leverage Regulatory Leverage Net Regulatory Leverage

AVAILABLE LEVERAGE FOR POTENTIAL EARNINGS GROWTH

10

Leverage to Return on Average Equity % (ROAE)

(1) Source: S&P Capital IQ as of 12/31/2018. 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)

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$9.75 $10.51 $10.18 $9.94 $9.90 $9.96 $9.90 1.14 1.56 1.46 1.23 1.43 1.32 1.11 1.07 1.07 0.92 0.92 0.96 0.86 0.82

0.5 0.7 0.9 1.1 1.3 1.5 1.7

2012 2013 2014 2015 2016 2017 Q4 2018

$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, KCAP, MAIN, MCC, NMFC, OXSQ, PNNT, PSEC, SLRC, BBDC, TCPC, TCRD, TSLX Source: S&P CapIQ as of 12/31/18 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

11

Price to NAV Multiple (x)

CREATES A STRONG CAPITAL RAISING POSITION TO SUPPORT GROWTH

Net Asset Value (NAV)

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SLIDE 12

$747.4 $1,123.6 $1,221.7 $1,299.2 $1,324.0 $1,464.2 $1,654.7 $1,945.2

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000

2011 2012 2013 2014 2015 2016 2017 2018

$39.6 $48.1 $73.1 $71.8 $73.5 $100.3 $96.4 $108.7 $0 $20 $40 $60 $80 $100

2011 2012 2013 2014 2015 2016 2017 2018

HERCULES KEY PERFORMANCE HIGHLIGHTS

Net Investment Income “NII”

($ in millions)

12

$79.9 $97.5 $139.7 $143.7 $157.1 $175.1 $190.9 $207.8 $0 $50 $100 $150 $200

2011 2012 2013 2014 2015 2016 2017 2018

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

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000

2011 2012 2013 2014 2015 2016 2017 2018

Total Investments at Cost

($ in millions)

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Cumulative Total Aggregate Net Realized Gains/(Losses), Since Inception 12/03

$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)

  • $60
  • $50
  • $40
  • $30
  • $20
  • $10

$0 $10 $20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 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 $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 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Cumulative Commitments Cumulative Fundings $ in billions

Cumulative Debt Commitment and Fundings, Since Inception 12/03

PORTFOLIO GROWTH WITH UNDERWRITING DISCIPLINE

13

HTGC IPO

Effective Annualized Loss Rate of 3bps or 0.03%

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Illustration: A growing debt investment portfolio provides potential for future increased dividend payout(1)

PORTFOLIO GROWTH LEADS TO DIVIDEND GROWTH THROUGH NII

(1) Assumes Debt Investment portfolio of $1.7 billion, at cost, constant effective yield, NII margin of 52.0% and constant weighted average shares of 96.4 million, as of December 31,

  • 2018. Projections are subject to change due to impact from active participation in the Company’s equity ATM program and any future equity offerings.

$1,700 $1,800 $1,900 $2,000 $2,100 $1.18 $1.25 $1.32 $1.39 $1.46 $1.24 $1.31 $1.38 $1.46 $1.53

$1.00 $1.10 $1.20 $1.30 $1.40 $1.50 $1.60 $1.70 $1.80 $1.90 $2.00 $0 $500 $1,000 $1,500 $2,000 + $0 Million + $100 Million + $200 Million + $300 Million + $400 Million NII per share Debt Investment Balance at Cost ($ in millions)

Debt Investment Portfolio Balance at Cost NII P/S @ Core Yield of 12.9% NII P/S @ Effective Yield of 13.5%

14

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$3,871

$7,968 $12,084 $16,213 $32,734 $48,926

+0.04 +0.08 +0.13 +0.17 +0.34 +0.51

0.00 0.10 0.20 0.30 0.40 0.50 0.60 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

25 50 75 100 200 300

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

Net Income EPS

We anticipate each 25 bps, or 0.25%, increase in the Prime Rate to contribute ~$3.9 million to Net Interest Income, or $0.04 per share annually

RISING INTEREST RATES & HIGH ASSET SENSITIVITY BENEFITS HERCULES

(1) EPS calculated on basic weighted shares outstanding of 96.4 million and a static debt investment portfolio as of December 31, 2018. Estimates are also subject to change due to impact from potential participation in the Company’s equity ATM program and future equity offerings. 15

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COMPANY & STRATEGIC OVERVIEW

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HERCULES AT-A-GLANCE

WARRANT & EQUITY PORTFOLIO

WARRANT HOLDINGS IN

129 companies

EQUITY HOLDINGS IN

55 companies

TOTAL WARRANT AND EQUITY GAAP COST

$227.6 million

TOTAL WARRANT AND EQUITY FAIR VALUE

$146.9 million

129

COMPANIES

LIQUIDITY & BALANCE SHEET

AVAILABLE LIQUIDITY TO INVEST(2)

$156.2 million

REGULATORY LEVERAGE

87.0% / 83.4% net of cash

ADDITIONAL DEBT CAPACITY

$213.5 million

INVESTMENT GRADE RATINGS

DBRS: BBB KBRA: BBB+

SECURITIZATION INVESTMENT GRADE RATINGS

KBRA: A(sf)

$156.2

MILLION

DEBT INVESTMENT PORTFOLIO

DEBT INVESTMENT COST BASIS

$1.75 billion

DEBT INVESTMENT FAIR VALUE

$1.73 billion

EFFECTIVE YIELD

13.5%

DEBT INVESTMENTS IN

91 companies

SHORT TERM MATURITIES

36-42 months

INVESTMENT SIZE

$5 to $100 million

$1.75

BILLION

17

MARKET CAPITALIZATION

FOUNDED DECEMBER 2003

IPO: June 2005 “HTGC”

ENTERPRISE VALUE

$2.01 billion(1)

MARKET CAPITALIZATION

$1.28 billion(1)

NET ASSET VALUE PER SHARE

$9.90 as of 12/31/18

HISTORICAL PRICE/NAV

~1.3x to ~1.6x range

CURRENT PRICE/NAV

1.34x(1)

$1.28

BILLION

(1) As of February 5, 2019 (2) Subject to existing terms and covenants

LARGEST BUSINESS DEVELOPMENT COMPANY (BDC) FOCUSED ON PROVIDING FINANCING TO HIGH-GROWTH VENTURE CAPITAL-BACKED COMPANIES

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What We Don’t Do and What We Are Not

  • No 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 – 97.3% floating rate loans and with interest rate floors(1)
  • We are generally the only lender and 85.3% are "true" first lien senior secured(1)
  • Substantially all 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 15 years of strong credit performance history

WHY IS HERCULES DIFFERENT THAN OTHER BDCs

(1) As of December 31, 2018 18

WE INVEST IN INNOVATIVE VENTURE GROWTH-STAGE COMPANIES

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SLIDE 19

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 are highly accretive to NAV; HTGC trades at a premium to NAV

The Results

  • Equity ATM Program FY 2018: sold 5.1 million shares for total net proceeds of ~ $63.3 million
  • Equity ATM Program FY 2017: sold 4.9 million shares for total net proceeds of ~ $66.9 million
  • Equity ATM Program FY 2016: sold 7.3 million shares for total net proceeds of ~ $92.8 million

STRATEGIC ACCESS TO EQUITY AND DEBT CAPITAL MARKETS

19

HERCULES’ SUCCESSFUL ATM DISTRIBUTION PROGRAM

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WE ARE AT CENTER STAGE OF THE INNOVATION ECONOMY

20

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”

$8.5 billion in total debt commitments to over 450 companies since inception Offices in key venture capital markets: CA | MA | NY | DC | IL | CT Over 1000 different VC & PE firms, financial investors Over 150 portfolio companies completed/announced an IPO or M&A event since inception

SaaS Financing

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FINANCIAL HIGHLIGHTS

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INCOME STATEMENT: Q4 2018 VS. Q4 2017 SUMMARY RESULTS

22

2018 2017 Year/Year ($ in 000's, except per share amounts) (unaudited) (unaudited) Change Interest Income $ 52,687 $ 46,394 14% Fee Income 4,202 3,804 10% Total Investment Income 56,889 50,198 13% Interest and Loan Fees 11,941 13,039

  • 8%

General and Administrative 4,084 3,744 9% Employee Compensation 10,274 8,897 15% Total Operating Expenses 26,299 25,680 2% Other Income Pre-Tax Net Investment Income-NII 30,590 24,518 25% Net Realized Gain / (Loss) (606) 219 Net Unrealized Gain / (Loss) (47,122) (6,371) 640% Net Increase in Net Assets from Operations (17,138) 18,366

  • 193%

NII - Net Investment Income per Share (Basic) $ 0.32 $ 0.29 10% DNOI - Distributable Net Operating Income per Share $ 0.35 $ 0.31 13% Weighted Average Shares Outstanding - Basic 96,357 83,843 15% Three Months Ended December 31,

(1) ($9.1) million unrealized depreciation due to collateral-based impairments, ($33.9) million was related to private and public mark-to-market adjustments, ($6.6) million was related to mark-to-market yield adjustments, and $2.5 million was related to the reversal of unrealized depreciation from actual realizations

(1)

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CURRENT & HISTORICAL INCOME STATEMENTS

23

Twelve Months Twelve Months Ended December 31, Ended December 31, ($ in 000's, except per share amounts) 2018 2017 2016 2015 Interest Income $ 190,636 $ 172,196 $ 158,727 $ 140,266 Fee Income 17,117 18,684 16,324 16,866 Total Investment Income 207,753 190,880 175,051 157,132 Interest and Loan Fees 46,695 46,585 37,058 36,889 General and Administrative 15,488 16,105 16,106 16,658 Employee Compensation 36,841 31,746 29,543 30,083 Total Operating Expenses 99,024 94,436 82,707 83,630 Other Income

  • 8,000

(1) Pre-Tax Net Investment Income - NII 108,729 96,444 100,344 73,501 Net Realized and Unrealized Gain / (Loss) (32,233) (17,446) (31,641) (30,585) Net Increase in Net Assets from Operations $ 76,496 $ 78,998 $ 68,703 $ 42,916 NII - Net Investment Income per Share (Basic) $ 1.19 $ 1.16 $ 1.34 $ 1.04 DNOI - Distributable Net Operating Income per Share $ 1.32 $ 1.26 $ 1.45 $ 1.19 Weighted Average Shares Outstanding - Basic 90,929 82,519 73,753 69,479

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SLIDE 24

CURRENT & HISTORICAL BALANCE SHEET

24

($ in 000's, except per share amounts) 2018 2017 2016 2015 ASSETS

Debt Investments $ 1,733,492 $ 1,415,984 $ 1,328,803 $ 1,110,209 Equity Investments $ 120,212 $ 89,361 $ 67,654 $ 67,442 Warrant Investments $ 26,669 $ 36,869 $ 27,485 $ 22,987 Cash and cash equivalents 34,212 91,309 13,044 95,196 Restricted cash 11,645 3,686 8,322 9,191 Interest receivable 16,959 12,262 11,614 9,239 Other assets 2,002 5,244 7,282 9,720

Total Assets

$ 1,945,191 $ 1,654,715 $ 1,464,204 $ 1,323,984

LIABILITIES

Accounts Payable and Accrued Liabilites 25,961 26,896 21,463 17,241 Credit Facilities 52,956

  • 5,016

50,000 2022 Convertible Notes 225,051 223,488

  • 17,478

2027 Asset-Backed Notes 197,265 2021 Asset-Backed Notes

  • 48,650

107,972 126,995 2033 Notes 38,427

  • 2024 Notes

81,852 179,001 245,490 100,128 Long-term SBA Debentures 147,655 188,141 187,501 186,829 2025 Notes 72,590

  • 2019 Notes
  • 108,818

108,179 2022 Notes 147,990 147,572

  • Total Liabilites

$ 989,747 $ 813,748 $ 676,260 $ 606,850

Net Assets

$ 955,444 $ 840,967 $ 787,944 $ 717,134 Shares Outstanding 96,501 84,424 79,555 72,118

Net Assets per Share

$ 9.90 $ 9.96 $ 9.90 $ 9.94

December 31, December 31,

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SLIDE 25

12.9% 13.8% 16.4% 14.2% 13.2% 14.4% 14.6% 14.4% 13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 12.8% 13.2% 12.6% 13.3% 12.9% 13.4% 13.2% 12.9% 12.2% 12.1% 12.6% 12.5% 11.9% 12.7% 12.7% 12.9% 10.2% 9.8% 9.4% 9.2% 9.1% 9.2% 9.2% 9.2% 8.9% 9.3% 9.6% 9.8% 9.5% 10.1% 10.4% 10.4% 6% 8% 10% 12% 14% 16% 18% 20% Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

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)

25

MEDIAN CORE YIELD FROM Q1 2015 TO Q4 2018: 12.7%

(1)

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SLIDE 26

$1,058.0 $1,137.6 $1,077.6 $1,110.2 $1,205.7 $1,211.8 $1,224.1 $1,328.8 $1,311.9 $1,287.6 $1,300.1 $1,416.0 $1,336.3 $1,546.0 $1,603.3 $1,733.5 12.9% 13.8% 16.4% 14.2% 13.2% 14.4% 14.6%14.4% 13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

  • $100

$100 $300 $500 $700 $900 $1,100 $1,300 $1,500 $1,700 $1,900 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

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

Total Debt Investments at Fair Value Effective Yield

(1)

HIGH-YIELD PORTFOLIO OF EARNING ASSETS

26

MEDIAN EFFECTIVE YIELD FROM Q1 2015 TO Q4 2018 OF 14.2%

(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

  • n the weighted average principal balance of loans outstanding on a daily basis
slide-27
SLIDE 27

STRONG, CONSISTENT NET INTEREST MARGIN - NIM

(1) Net Interest Margin = Net Interest Income/Average Yielding Assets excluding Equity Investments 27

$29,900 $30,933 $34,688 $34,953 $37,418 $33,920 $37,850 $35,366 $37,159 $38,140 $36,322 $41,650 $44,946

10.2% 10.1% 11.0% 11.1% 11.8% 10.1% 11.1% 10.3% 10.4% 10.5% 9.5% 10.8% 11.0% $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Net Interest Margin (in thousands) Net Interest Margin %

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

MEDIAN NET INTEREST MARGIN FROM Q4 2015 TO Q4 2018 OF 10.5%

slide-28
SLIDE 28

EFFECTIVE YIELDS

Early Payoffs Lead to Higher Effective Yields and Earnings

IMPACT OF EARLY PAYOFFS ON EFFECTIVE YIELDS

UNSCHEDULED EARLY PAYOFFS ($ in millions)

1 28

12.9% 13.8% 16.4% 14.2% 13.2% 14.4% 14.6% 14.4% 13.4% 14.9% 14.1% 14.2% 14.3% 13.5% 13.5% 13.5% 12.8% 13.2% 12.6% 13.3% 12.9% 13.4% 13.2% 12.9% 12.2% 12.1% 12.6% 12.5% 11.9% 12.7% 12.7% 12.9% 10.2% 9.8% 9.4% 9.2% 9.1% 9.2% 9.2% 9.2% 8.9% 9.3% 9.6% 9.8% 9.5% 10.1% 10.4% 10.4% 5% 10% 15% 20% Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

GAAP Effective Yield Core Yield Loan Coupon Rate

$46.5 $47.3 $189.2 $105.5 $55.0 $117.6 $84.2 $67.2 $100.3 $166.4 $114.7 $124.2 $243.5 $114.3 $64.9 $63.9

4.3% 4.0% 17.1% 9.2% 4.4% 9.4% 6.6% 4.9% 9.4% 12.7% 8.7% 8.7% 17.8% 7.4% 4.0% 3.6%

0% 5% 10% 15% 20% $0 $50 $100 $150 $200 $250 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

Early Payoffs Early Payoffs as % of Ending Total Debt Investment Balance at Cost

(2)

$388.5 $324.0 $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

slide-29
SLIDE 29

$134.1 $159.1 $109.6 $75.4 $64.6 $71.2 $73.9 $59.7 $75.9 $57.6 $46.3 $73.6 $51.9 $129.7 $171.9 $139.0

9.7% 11.4% 8.2% 5.6% 4.8% 5.1% 5.2% 4.1% 4.8% 3.6% 2.9% 4.4% 3.2% 7.2%

9.4%

7.1% $0 $30 $60 $90 $120 $150 $180 $210 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 0% 2% 4% 6% 8% 10% 12% 14% 16%

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

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

EFFECTIVE MANAGEMENT OF 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)

29

slide-30
SLIDE 30

NON-INTEREST AND FEE EXPENSE TO AVERAGE TOTAL ASSETS

RSU = Restricted Stock Units PSU = Performance Stock Units

30

$7,559 $8,265 $9,732 $9,736 $10,874 $9,410 $10,667 $9,562 $11,023 $9,769 $10,692 $10,389 $12,414

2.3% 2.4% 2.8% 2.8% 3.1% 2.6% 2.9% 2.5% 2.8% 2.4% 2.5% 2.4% 2.8% $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 0% 1% 2% 3% 4% 5% 6% 7% 8% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

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

OPEX (excluding interest, fees, employee RSU, PSU, & option expense) OPEX as a % of Average Total Assets

MEDIAN ADJ. OPEX TO AVERAGE TOTAL ASSETS FROM Q4 2015 TO Q4 2018 OF 2.6%

slide-31
SLIDE 31

NON-INTEREST EXPENSE / TOTAL INVESTMENT INCOME

31

$9,764 $10,836 $11,334 $11,178 $12,301 $11,242 $12,576 $11,393 $12,641 $12,077 $13,549 $12,348 $14,356

24.8% 27.8% 26.0% 24.8% 25.9% 24.2% 26.0% 24.8% 25.2% 24.8% 27.3% 23.5% 25.2% $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 0% 5% 10% 15% 20% 25% 30% 35% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

OPEX (in thousands) OPEX as a % of Total Investment Income

OPEX (excluding interest & fees) OPEX as a % of Total Investment Income

MEDIAN ADJ. OPEX TO TII FROM Q4 2015 TO Q4 2018 OF 25.2%

slide-32
SLIDE 32

Steady credit quality rating – no oil & gas or CLO exposure

(1) Debt only; based on fair value

$1,058.0 $1,137.6 $1,077.6 $1,110.2 $1,205.7 $1,211.8 $1,224.1 $1,328.8 $1,311.9 $1,224.1 $1,300.1 $1,416.0 $1,336.3 $1,546.0 $1,603.3 $1,733.5 2.26 2.25 2.33 2.16 2.17 2.11 2.32 2.41 2.43 2.27 2.24 2.17 2.43 2.21 2.23 2.18 1.0 2.0 3.0 4.0 5.0 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18

Credit Rating Debt Portfolio Value ($ in millions)

Debt Portfolio Value Weighted Investment Credit Rating

(1)

High Quality Low Quality

CREDIT DISCIPLINE AND CONSISTENT PORTFOLIO PERFORMANCE

32 Credit Grading at Fair Value, Q4 2018 - Q4 2017 ($ in millions) Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Grade 1 - High 311.6 $ 18.0% 150.2 $ 9.4% 247.5 $ 16.0% 141.8 $ 10.6% 345.2 $ 24.4% Grade 2 885.1 $ 51.1% 987.5 $ 61.6% 791.9 $ 51.2% 599.8 $ 44.9% 583.0 $ 41.2% Grade 3 474.9 $ 27.3% 420.2 $ 26.2% 463.7 $ 30.0% 548.0 $ 41.0% 443.8 $ 31.3% Grade 4 60.3 $ 3.5% 44.5 $ 2.7% 42.0 $ 2.7% 33.6 $ 2.5% 41.7 $ 2.9% Grade 5 - Low 1.6 $ 0.1% 0.9 $ 0.1% 0.9 $ 0.1% 13.2 $ 1.0% 2.3 $ 0.2% Weighted Avg. 2.18 2.23 2.21 2.43 2.17

slide-33
SLIDE 33

Wells Fargo 6.8% Union Bank 9.1% Convertible Notes 20.9% 2024 Notes 7.6% 2033 Notes 3.6% SBA License 2 - HTII 13.5% Asset Backed Notes 18.1% 2025 Notes 6.8% 2022 Notes 13.6%

$75.0 $100.0 $230.0 $83.5 $149.0 $200.0

($ in millions)

$150.0 $40.0

(1)

DIVERSIFIED SOURCES OF FUNDING: Q4 2018

33

Entity Capitalization

Capital Sources as of 12/31/18 $ in Millions % of Total Equity $955.4 49.4% SBA Debentures $149.0 7.7% Asset-Backed Notes $200.0 10.3% Convertible Notes $230.0 11.9% 2024 Notes (Baby Bonds) $83.5 4.3% 2022 Notes (Institutional) $150.0 7.7% 2025 Notes (Baby Bonds) $75.0 3.9% 2033 Notes (Baby Bonds) $40.0 2.1% Credit Facilities $53.0 2.7% Total Capital $1,935.9 100.0%

Debt Capital Stack Total Corporate Capitalization

SBA Debentures 7.7% Equity 49.4% Asset-Backed Notes 10.3% Credit Facilities 2.7% Convertible Notes 11.9% 2024 Notes (Baby Bonds) 4.3% 2025 Notes (Baby Bonds) 3.9% 2033 Notes (Baby Bonds) 2.1% 2022 Notes (Institutional) 7.7%

$75.0

(1) July 2024 Notes were fully redeemed in Q1 2019

(1) (1)

(1) July 2024 Notes were fully redeemed in Q1 2019 (1) July 2024 Notes were fully redeemed in Q1 2019

slide-34
SLIDE 34

Well Managed Debt Maturity Schedule

(1) Interest rate range for the SBA debentures does not include annual fees (2) July 2024 Notes were fully redeemed in Q1 2019

DIVERSIFIED SOURCES OF FUNDING (AS OF 12/31/18)

34 ($ in millions)

(2)

Wells Fargo Credit Facility Union Bank Credit Facility Notes SBA Debentures – Total debt of $149.0M Securitization January 2022

  • Conv. Notes

October 2022

  • Inst. Notes

July 2024 Notes April 2025 Notes October 2033 Notes License 2 HTIII DATE ENTERED

  • Aug. 2008
  • Feb. 2010
  • Jan. 2017
  • Oct. 2017

July 2014 April 2018 October 2018 May 2010

  • Nov. 2018

FACILITY SIZE

($ in millions)

$75.0 $100.0 $230.0 $150.0 $83.5(2) $75.0 $40.0 $149.0 $200.0

INTEREST RATE LIBOR + 300bps LIBOR + 325bps 4.375% unsecured 4.625% unsecured 6.25% unsecured 5.25% unsecured 6.25% unsecured Range(1) from 2.2% to 4.1% 4.605% MATURITY January 2022 May 2020 February 2022 October 2022 July 2024 April 2025 October 2033 Mature ten years after borrowing November 2027 ADDITIONAL INFO (Expandable up to $125.0) (Expandable up to $200.0)

DBRS: BBB KBRA: BBB+ DBRS: BBB KBRA: BBB+ NYSE: HTGX DBRS: BBB KBRA: BBB+ NYSE: HCXZ DBRS: BBB KBRA: BBB+ NYSE: HCXY DBRS: BBB KBRA: BBB+ Set in March & Sept (range from 2.2% to 5.5%)

Rated A(sf) by Kroll OUTSTANDING

($ in millions)

$13.1 $39.8 $230.0 $150.0 $83.5 $75.0 $40.0 $149.0 $200.0

$200.0 $230.0 $10.0 $53.8 $60.5 $24.8 $40.0 $150.0 $83.5 $75.0 $0 $100 $200 $300 $400 2020 2021 2022 2023 2024 2025 2027 2033

Securitization Convertible Notes SBA Bonds October 2033 Notes October 2022 Notes July 2024 Notes April 2025 Notes (1) July 2024 Notes were fully redeemed in Q1 2019

(1)

slide-35
SLIDE 35

PORTFOLIO HIGHLIGHTS

slide-36
SLIDE 36

PORTFOLIO COMPOSITION AND SIZE

36

$1,152.3 $1,241.8 $1,255.9 $1,275.9 $1,384.9 $1,399.2 $1,324.0 $1,314.3 $1,440.0 $1,368.6 $1,554.2 $1,608.0 $1,752.9 $100.0 $102.5 $113.5 $112.3 $126.6 $125.9 $177.1 $174.7 $179.8 $207.7 $203.4 $205.1 $228.6 $1,253.3 $1,344.3 $1,369.4 $1,388.2 $1,511.5 $1,525.1 $1,501.1 $1,489.0 $1,619.8 $1,576.3 $1,757.6 $1,813.1 $1,980.5 $0 $500 $1,000 $1,500 $2,000 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total Warrant and Equity Investments at Cost Total Debt Investments at Cost Total Investments at Cost

Investment Portfolio Size ($ in millions)

slide-37
SLIDE 37

HERCULES’ INVESTMENT PORTFOLIO: Q4 2018

37

0.3% 0.3% 2.2% 28.7% 5.9% 3.2% 1.6% 17.5% 1.2% 6.5% 0.0% 29.2% 0.0% 0.2% 0.8% 0.3% 2.1% 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

97.3% 2.7% Floating Fixed 78.6% 13.6% 6.4% 1.4%

  • Sr. Secured First Lien
  • Sr. Secured Last Out

Equity Investments Warrant Positions

Floating vs. Fixed Rate Investment Type Breakout Industry Breakout Hercules Investments by Geography 42% 6% 4% 37% 5% International: 6%

As of December 31, 2018

slide-38
SLIDE 38

Seven (7) Companies completed IPOs or are in Registration – YTD 2019

  • Stealth Bio Therapeutics Corp. and Avedro, Inc. completed their IPOs in February 2019

Two (2) Announced or Completed Portfolio Company M&A Liquidity Events – Q4 2018

  • Edge Therapeutics and Art.com

Current Warrant and Equity Portfolio – Q4 2018

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

  • 129 warrant holdings
  • GAAP fair value ~$26.7 million
  • GAAP cost ~$35.7 million
  • ~$78.7 million in nominal Exercise Value (as of 12/31/18)
  • 55 equity holdings
  • GAAP fair value ~$120.2 million
  • GAAP cost ~$191.9 million

38

  • Illustrative models of potential warrant gains (as of 12/31/18)
  • Assumption: 50% of warrants will not monetize
  • GAAP cost ~$35.7 million
  • Based on ~96.4 million weighted average shares

$39.3M x 2X multiple: $78.7M - $35.7M cost = $43.0M unrealized gain = $0.45/share $39.3M x 3X multiple: $117.9M - $35.7M cost = $82.2M unrealized gain = $0.85/share $39.3M x 4X multiple: $157.2M - $35.7M cost = $121.5 unrealized gain = $1.26/share

slide-39
SLIDE 39

Life Sciences

SELECT LIST OF WARRANT AND EQUITY PORTFOLIO HOLDINGS

39

Technology

39

Warrant Holdings in 129 Portfolio Companies

slide-40
SLIDE 40

24.1% 26.2% 23.7% 29.7% 23.9% 28.7% 2.2% 5.1% 4.3% 2.7% 2.4% 11.4% 13.5% 7.5% 7.6% 6.1% 6.5% 4.0% 6.0% 2.8% 1.3% 0.4% 5.2% 2.6% 1.6% 6.8% 8.7% 13.7% 7.7% 5.9% 2.2% 13.4% 6.8% 7.4% 6.8% 10.0% 17.5% 2.9% 9.7% 9.9% 1.2% 7.2% 12.3% 12.3% 15.4% 23.4% 29.2% 18.1% 6.7% 13.3% 10.9% 7.7% 5.9% 1.5% 2.0%

6.2%

3.0% 1.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 2014 2015 2016 2017 Q4 2018 % 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

$910.3 $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

40

8.0% 4.0%

$1,542.2

4.7%

$1,880.4

3.2%

2.1%

slide-41
SLIDE 41

SaaS Financing Life Sciences Sustainable & Renewable Technology Special Situations

SELECT LIST OF DIVERSIFIED PORTFOLIO COMPANIES

41

Technology

41

Equity-only Investments

slide-42
SLIDE 42

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

42

slide-43
SLIDE 43

VENTURE CAPITAL MARKET OPPORTUNITY

slide-44
SLIDE 44

Venture Capital Investment Activity 1997 – 2018

OVER $949.3 BILLION VENTURE CAPITAL INVESTMENT

Source: Dow Jones VentureSource Q4 2018 44

$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 $21.6 $23.3 $21.8 $37.1 $39.9 $44.9 $38.1 $54.5 $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

Funds Raised (billions)

Venture Capital Fundraising Activity 1997 – 2018

$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 $60.0 $78.5 $103.6

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 4,419 4,580

  • 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

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

Note: Represents VC investments only Source: Dow Jones VentureSource Q4 2018

slide-45
SLIDE 45

0% 20% 40% 60% 80% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

IPOs M&A

2.0 2.8 3.8 4.6 5.4 6.0 6.5 5.8 5.5 5.2 5.2

5.2

5.0 5.2 4.8 5.1 5.0 5.0 4.5 6.5 5.7 5.6 5.6 6.2 6.8 8.7 7.9 7.4 6.2 7.1 6.6 6.8 6.1 7.2 7.4 5.2

2 4 6 8 10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

IPOs M&A

Venture Debt Complements Equity Financing and Optimizes Capital Structure

WHY VENTURE BACKED COMPANIES USE VENTURE DEBT?

45

As Time to Exit has Increased... … 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 2018

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

Source: Dow Jones VentureSource Q4 2018

slide-46
SLIDE 46

EXITS OF VENTURE CAPITAL-BACKED COMPANIES

Source: Dow Jones VentureSource Q4 2018 46

Mergers & Acquisitions Initial Public Offerings

$26.5 $22.8 $55.6 $58.6 $74.8 $65.9 $121.2 $93.2 $94.2 $89.4 $146.2

456 440 667 650 606 607 695 648 624 707 784 200 400 600 800 $0 $20 $40 $60 $80 $100 $120 $140 $160

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

# of Deals Amount Paid (billions)

$0.6 $0.9 $3.9 $7.1 $12.1 $9.6 $12.0 $8.0 $2.9 $9.3 $11.4

9 8 53 52 58 87 126 79 38 60 86 20 40 60 80 100 120 140 $0 $2 $4 $6 $8 $10 $12 $14

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

# of IPOs Amount Raised (billions)

$ in billions # of IPOs

Source: Dow Jones VentureSource Q4 2018

slide-47
SLIDE 47

$25.1 $31.2 $34.5 $33.3 $25.2 $28.9 $36.7 $34.8 $36.4 $58.5 $84.7 $60.0 $78.5 $103.6

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

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

VC Dollars Invested Hercules Debt & Equity Commitments

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% 1.4% 1.2%

HERCULES’ TOTAL COMMITMENTS VS. VC DOLLARS INVESTED

VENTURE CAPITAL INVESTMENT ACTIVITY 2005 –2018

Source: Dow Jones VentureSource Q4 2018

  • Hercules’ uncompromising yield and credit underwriting standards drives commitments
  • Market conditions determine commitment activity more than pure VC investment activity
  • Hercules’ 14-year historical average: 1.4%

47 Note: Represents VC investments only

slide-48
SLIDE 48

HERCULES’ PORTFOLIO COMPANY IPOs

Source: Dow Jones VentureSource Q4 2018 48

53 52 58 87 126 79 38 60 2 2 7 5 8 7 1 3 3 1 2 3 4 5 6 7 8 9 20 40 60 80 100 120 140

2010 2011 2012 2013 2014 2015 2016 2017 2018

Hercules’ Portfolio Company IPOs Venture Backed IPOs

VC-backed IPOs Hercules' PoCo IPOs

Participation as % of Total VC-Backed IPOs

4% 4% 12% 6% 6% 9% 3% 5% 4%

PROVIDING INVESTOR ACCESS TO SOME OF AMERICA’S MOST PROMISING COMPANIES

  • M&A represents on average 91% of venture capital investment exits since 2010

68

slide-49
SLIDE 49

INVESTMENT HIGHLIGHTS

49

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

slide-50
SLIDE 50

ANALYST COVERAGE

slide-51
SLIDE 51

BROAD INDUSTRY ANALYST COVERAGE – 12 FIRMS

51

Finian O’Shea (Transferred Coverage 7/13/2018) Ryan Lynch (Re-initiated Coverage 2/19/2013) Robert Dodd (Initiated Coverage 7/26/2012) Aaron James Deer (Initiated Coverage 9/29/2011) 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 (Re-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.
slide-52
SLIDE 52

SUPPLEMENTAL INFORMATION

slide-53
SLIDE 53

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, $149.0 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

53

slide-54
SLIDE 54
  • Rapidly amortizing principal balance

and current cash-pay interest

  • “Security interest” – generally first

security interest in all assets of borrower

  • Simultaneous or recent equity round;

in addition sponsor commitment for continued financial support

  • Generally expect sufficient capital at

time of investment to support

  • perations and debt service for at least

9 -18 months

  • Diversification across industry

sub-sectors, development stages and financial sponsors

54

VENTURE GROWTH INVESTMENT STRUCTURE MITIGATES CAPITAL RISK

Note: Capital at risk reduced by fees, principal payments and interest payments. Assumes 36 month term, 1% origination fee, 11% interest, and a level payment schedule.

Reduction of Invested Capital at Risk

94% 71% 48% 25% 79% 60% 40% 20% 99% 0% 20% 40% 60% 80% 100% 3 6 9 12 15 18 21 24 27 30 33 36 Term of Loan (Months) % of Remaining HTGC's Capital at Risk Level Payment w/ 6-mo I/O Level Payment

Nearly 1/3 of invested capital returned in 12-months

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SLIDE 55

PRIMARILY INVEST AT STAGES OF HIGH GROWTH

55

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