NEWS

 Hercules Capital, Inc. (HTGC) (“Hercules Capital” or the “Company”) today announced that Hercules Adviser LLC (“Hercules Adviser”), a wholly-owned subsidiary of Hercules Capital, announced it has established a new institutional private credit lending program. The new private credit lending program was established to support the venture and growth stage companies that are being impacted by the recent market events across the venture and growth stage lending ecosystem.

Hercules Capital and its wholly owned subsidiary, Hercules Adviser, currently manage over $3.6 billion of assets under management. Prior to the creation of this new private credit lending program, Hercules Adviser manages two existing private funds with committed capital and leverage in excess of $1.0 billion.

“We are very pleased to announce that Hercules Adviser has successfully established this new institutional private credit lending program,” stated Scott Bluestein, chief executive officer and chief investment officer of Hercules Capital. “As the largest and leading non-bank venture and growth stage lender, we are well-positioned to leverage our scale and our deep and long-standing relationships in the venture capital ecosystem, to provide the capital from this new private credit lending program to help companies navigate the challenges from the recent market events. Over the course of the last 18 years, we have successfully committed over $16 billion of capital to venture and institutionally backed growth companies. We are committed to working closely with the many strong and financially sound companies in our ecosystem that now more than ever, need a financing partner with a strong and liquid balance sheet who can be supportive over time. Venture and growth stage technology and life sciences companies have been responsible for countless innovations that have changed the world for the better and we look forward to continuing to work with these companies over the years to come.”

Bluestein added, “We are thankful for the additional commitment from Davidson Kempner Capital Management, the anchor for this new private credit lending program and a strong partner across the Hercules Capital Private Credit Fund business.”

Hercules Capital – Press Release – March 27, 2023

ANALYSIS

Question Marks

We’ve re-published in full the content of HTGC’s press release about its new “institutional private credit lending program” if just to explain why we’re confused.

As you can see, there is very little to hang one’s hat on – neither a commitment amount; nor a time scale or any explanation of the operation of the new entity. Also missing is anything about the economics of the “program” and what that might mean for HTGC’s shareholders.

All we know is that Davidson Kempner Capital Management is more than ten times the size of HTGC and has a track record of getting its fingers into many pies.

Any organization willing to invest – just a month ago – $1.1bn in non-performing loans in the United Arab Emirates must be a willing risk taker.

(The BDC Reporter in an earlier life was a lender for a major American bank out of Dubai.

This new partner is also a holder of Silicon Valley Ban’s parent company bonds, a still ongoing saga.

We’ll be doing more digging but that’s what we found in a first pass.

VIEWS

Excited

Don’t get us wrong.

The prospect of HTGC joining up with a deep-pocketed asset manager to provide finance to the venture sector is a reassuring development, even if we’re unsure of the details involved.

We never did buy into the fears of some that the failure of SVB might cause the whole venture world to be sufficiently starved of capital to cause a disastrous collapse of the fastest-growing segment of the U.S. economy.

Nonetheless, this is an early sign that the markets have sniffed out an opportunity and are taking action.

Everything All At Once

Add that to the 100% support for all SVB deposits provided by the FDIC and the purchase of the bulk of the bank’s assets by Citizens Bank over the weekend and you’ve got a fast-brightening picture.

Doing The Right Thing

Furthermore, it’s appropriate that an institution like HTGC which has done so much to finance the growth of the venture sector should be front and center.

Invisible

We’ve noticed in the hundreds of articles written about SVB in recent weeks the absence of many mentions of the venture-BDCs, which have somewhere between $5bn-$10bn invested in the sector.

This reflects both the fast-moving nature of the crisis and journalists’ continuing lack of familiarity with the BDC sector – even though HTGC has been around for 18 years and has – literally – funded thousands of companies of all sorts.

Stand To Benefit

We’re also encouraged that HTGC is “internally managed”.

That means any income that the BDC might derive from this link-up with Davidson Kempner will inure to the benefit of its shareholders.

That would not be the case if the BDC was externally managed.

Good For All

However, all the venture BDCs – and their shareholders – should benefit indirectly from a new source of capital being funneled into the venture economy at this critical juncture.

Quiet Optimism

It’s too early to predict that there will be no material credit consequence from the failure of SVB and the more general slowdown in venture investing of the past year, but projects like this one give us confidence.

In fact, we expect HTGC’s market share – and that of its BDC peers both private and public – to increase in the quarters ahead where the venture sector is concerned.

Not Going Anywhere

We might even see financial journalists begin to play catch up.

Till then, the BDC Reporter is here for anyone interested.