Hercules Capital, Inc. (HTGC) Risk Analysis

Investing in our securities may involve a high degree of risk. The investments we make under our investment objective may be highly speculative and subject to volatility or loss of principal. Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value (NAV), a characteristic distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade at, above, or below NAV, and if it trades below NAV, we may be limited in our ability to issue additional common stock at the market price without shareholder approval.

Our investments in portfolio companies involve higher levels of risk, and we could lose all or part of our investment. Investing in our portfolio companies exposes us indirectly to a number of significant risks. Among other things, these companies: • may have limited financial resources (including the inability to obtain additional equity or debt financing as needed) and may be unable to meet their obligations under their debt instruments that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our investment, as well as a corresponding decrease in the value of the equity components of our investments; • may require substantial additional financing to satisfy their continuing working capital and other cash requirements; • may have shorter operating histories, narrower product lines, smaller market shares and/or significant customer concentrations than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; • are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation, termination or significant under-performance of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; • generally have less predictable operating results which may fluctuate suddenly and dramatically, may from time-to-time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, finance expansion or maintain their competitive position, and may have more limited access to capital and higher funding costs; • may be adversely affected by a lack of IPO or merger and acquisition opportunities; and • may be adversely affected by a lack of publicly available information about their businesses, operations and financial condition. In addition, investing in publicly traded companies can involve a high degree of risk and may be speculative. Our ability to invest in public companies may be limited in certain circumstances, and our investments are concentrated in certain technology-related industries, which subjects us to the risk of significant loss if any one or more such industries experiences a downturn. As of December 31, 2023, approximately 78.5% of the fair value of our portfolio comprised investments in three industries. • Technology Industry (including Software and Consumer & Business Services Industries) Risk. The market prices and values of companies operating in the technology industry – including software and consumer and business services companies – tend to exhibit a greater degree of risk and volatility than other types of investments. These companies may fall in and out of favor with the public and investors rapidly, which may cause sudden selling and dramatically lower market prices. They also may be adversely affected by changes in technology, consumer and business purchasing patterns, short product cycles, falling prices and profits, government regulation, lack of standardization or compatibility with existing technologies, intense competition, aggressive pricing, advances in artificial intelligence and machine learning, dependence on copyright and/or patent protection and/or obsolete products or services. • Drug Discovery & Development Industry Risk. The success of pharmaceutical companies operating in this industry is highly dependent on the development, procurement and marketing of drugs. Their values depend on the development, protection and exploitation of intellectual property rights, and profitability may be significantly affected by patent expirations, litigation or the loss of, or inability to enforce, intellectual property rights. The research and other costs associated with these endeavors are significant and unpredictable. • Biotechnology Industry Risk. The success of biotechnology companies is highly dependent on the development, procurement and/or marketing of drugs, products, or technologies. Their values depend on the development, protection and exploitation of intellectual property rights, and the significant research costs and inherent risks in these efforts may result in an inability to develop a profitable product. • Life Sciences Industry Risk. Life sciences industries are characterized by limited product focus, rapidly changing technology and extensive government regulation. Technological advances can render a current product obsolete, and obtaining necessary regulatory approvals can be lengthy, expensive and uncertain.

Because we have substantial borrowings, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. Borrowings, also known as leverage, magnify the potential for loss on investments in our indebtedness and gain or loss on investments in our equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. Accordingly, any event that adversely affects the value of an investment would be magnified. Such events could result in a substantial loss to us, which would be greater than without leverage. In addition, our investment objectives are dependent on the continued availability of leverage at attractive relative interest rates. We may borrow from banks and other lenders and may issue debt securities or enter into other borrowing arrangements in the future. Lenders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and such lenders could seek recovery against our assets in the event of a default. We generally may grant security interests in our assets, subject to our requirement to maintain a 150% minimum asset coverage ratio and any restrictions imposed by our debt agreements.

Our executive officers and employees, through the Adviser Subsidiary, are expected to manage the Adviser Funds operating in the same or a related line of business as we do, and these funds may be invested in by us and/or our executive officers and employees. Accordingly, they may have obligations to other entities that may not be in our or our stockholders’ best interests. Our relationship with the Adviser Subsidiary may require us to commit resources to meet the Adviser Funds’ or External Parties’ investment objectives, diverting resources from our own investment objective. Our investment strategies are very similar to those of the Adviser Funds and External Parties, and an investment appropriate for one may be appropriate for the others. Because the Adviser Subsidiary may receive performance-based fee compensation from the Adviser Funds or External Parties, there is an incentive to allocate investment opportunities to them instead of us. We and the Adviser Subsidiary have established policies and procedures governing the allocation of investment opportunities, but we may still face conflicts in allocation. Investments in the Adviser Funds managed by our Adviser Subsidiary may create conflicts of interest because our officers and employees may dedicate more time and allocate more favorable opportunities to the Adviser Funds.

The Notes are not secured by any of our assets or those of our subsidiaries and rank equally in right of payment with all other unsubordinated, unsecured indebtedness. As a result, they are effectively subordinated to any secured indebtedness we or our subsidiaries incur now or in the future, to the extent that such indebtedness is secured by assets. In the event of liquidation, dissolution, bankruptcy or similar proceedings, holders of secured debt would have priority in receiving payment over holders of the Notes.

The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries—and any subsidiaries we may acquire or establish as financing vehicles. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would rank structurally senior to the Notes.

There may be no established trading market for the Notes. Even if a trading market develops, it might not be maintained, and the Notes may trade at a discount to their initial offering price depending on prevailing interest rates, market conditions, our credit ratings, our financial condition, and other factors. In such cases, noteholders may be unable to sell their Notes at a favorable price or at all, and may have to bear the risk of holding the Notes indefinitely.

A downgrade, suspension or withdrawal of our credit ratings, or adverse changes in the debt markets, could cause the liquidity or market value of our debt securities to decline significantly. Our credit ratings reflect our ability to pay our debts and any negative changes in these ratings may affect the market value of our outstanding debt and equity securities, as well as our ability to raise capital. There is no assurance that our credit ratings will remain stable or that they will not be lowered, which could further restrict our capital raising capabilities.

The indentures governing the Notes offer only limited protections to their holders. They do not restrict our or our subsidiaries’ ability to engage in various corporate transactions or incur additional indebtedness that might rank senior to the Notes. For example, the indentures do not prevent us from issuing additional debt or equity that could dilute the claims of the Note holders, nor do they restrict us from entering into transactions with affiliates or from selling assets, all of which could adversely affect the value of the Notes.

Our ability to recapitalize, incur additional debt, and take other actions not limited by the terms of the Notes may have important consequences for Note holders. Such actions may make it more difficult for us to satisfy our obligations under the Notes or could negatively affect their trading value.

We may be required to offer prepayments for all outstanding Notes upon a change in control. The indentures governing various Notes require us to offer to prepay the Notes if a change in control occurs—defined as a transaction in which more than 50% of our outstanding voting stock becomes beneficially owned by a person or group. If such an event occurs, noteholders may elect to require prepayment at a price equal to 100% of the principal plus accrued interest. We might not have sufficient funds to prepay these amounts, which could have a material adverse effect on our business, financial condition and results of operations.