Slide 1: Financing the Growth of Tomorrow's Companies Today
Financing the Growth of Tomorrow’s Companies Today Q2 2022 INVESTOR PRESENTATION July 28, 2022
Slide 2: Important Notice: Forward Looking Statements
Important Notice: Forward Looking Statements This presentation may contain “forward-looking However, by their nature, these forward-looking statements” within the meaning of the Private statements involve numerous assumptions, Securities Litigation Reform Act of 1995. You should uncertainties and ri
Slide 3: Hercules Capital
Hercules Capital Structure Internally Managed Business Development Company (BDC) IPO Date June 9, 2005 - Common Stock Institutional Notes PAR $1000.00/$2000.00 • 2.625% Notes due 2026 • 3.375% Notes due 2027 • 4.28% Notes due 2025 • 4.31% Notes due 2025 Investment Options • 4.50% Notes due 2026 • 4.
Slide 4: Regulation and Structure
Regulation and Structure Hercules is a Publicly Listed, Internally Managed BDC and RIC Business Development Company (BDC) Regulated Investment Company (RIC) • Regulated by the SEC under the Investment • Distribute taxable income as dividend distributions Company Act of 1940 to shareholders • Leverag
Slide 5: Second Quarter 2022 Investor Presentation
Second Quarter 2022 Investor Presentation • Key Performance Highlights • Company & Strategic Overview • Financial Highlights • Portfolio Highlights • Venture Capital Market Opportunity • Analyst Coverage
Slide 6: Key Performance Highlights
Key Performance Highlights
Slide 7: Q2 2022 Highlights
Q2 2022 Highlights • Net Investment Income (NII) of $40.1M Robust Earnings • Total Investment Income of $72.1M • NII per share of $0.32 • 1YR/3YR/5YR Total Shareholder Returns(1): -13.2%/35.5%/50.0% • ROAE(1,2): 12.0% Strong Shareholder Returns • ROAA(1,2) : 5.9% • Net Interest Margin (NIM): 9.4% •
Slide 8: Delivering Strong Sustainable Shareholder Returns
Delivering Strong Sustainable Shareholder Returns Return on Average Assets % (ROAA) Return on Average Equity % (ROAE) 16% 8% 14% 15.4% 7% 13.9% 12% 13.6% 7.3% 6% 12.4% 6.8% 12.0% 12.0% 6.6% 10% 6.3% 6.2% 5% 5.9% 8% 4% 3% 6% 10.9% 4% 5.7% 5.7% 4.3% 3.7% 4.4% 5.2% 2% 9.6% 9.7% 8.5% 7.5% 8.9% 1% 2% 0%
Slide 9: Available Leverage for Potential Earnings Growth
Available Leverage for Potential Earnings Growth Leverage to Return on Average Equity % (ROAE) 30% 115.0% 114.5% 120% 102.6% 101.8% 101.3% 100.6% 95.5% 95.6% 25% 93.0% 87.0% 96.2% 84.1% 90% 92.7% 20% 72.9% 83.4% 77.6% 73.9% 15% 60% 62.0% 10% 30% 5% 12.0% 13.6% 15.4% 13.8% 12.4% 12.0% 0% 0% 2017 2018
Slide 10: Hercules Has Consistently Maintained a Premium to NAV
Hercules Has Consistently Maintained a Premium to NAV Creates a strong capital raising position to support growth 1.7 $16 1.47 1.5 1.32 1.33 1.28 1.29 $14 1.3 Price to NAV Multiple (x) Net Asset Value (NAV) 1.11 1.1 0.96 0.94 $12 0.86 0.86 0.84 0.9 0.86 0.7 $10 0.5 $9.96 $9.90 $10.55 $11.26 $11.22 $
Slide 11: Hercules Key Performance Highlights
Hercules Key Performance Highlights Total Investment Income Net Investment Income “NII” ($ in millions) ($ in millions) $300 $160 $140 $250 $120 $200 $100 $150 $80 $60 $100 $40 $100.3 $108.7 $143.3 $157.1 $150.0 $139.7 $143.7 $157.1 $175.1 $190.9 $207.8 $267.9 $287.3 $281.0 $137.3 $48.1 $73.1 $71.8
Slide 12: Portfolio Growth with Underwriting Discipline
Portfolio Growth with Underwriting Discipline Cumulative Net Debt Commitment and Fundings, $16 $15 Since Inception $13.4 $14.6 $14 $13 $12 $11.1 $11 $9.9 $10.2 $ in billions $9.6 $10 $8.3 $9 $8.5 $7.6 $8 $7.3 $6.5 $7 HTGC $6.5 $5.6 $6 IPO $4.9 $5.7 $4.9 $5 $4.0 $4.2 $3.4 $3.5 $4 $2.7 $2.9 $3 $2.1 $1
Slide 13: Company & Strategic Overview
Company & Strategic Overview
Slide 14: Hercules At-a-Glance
Hercules At-a-Glance Largest BDC Focused on Providing Financing to High-Growth Venture Capital-Backed Companies $1.83 $2.58 103 $779.7 BILLION BILLION COMPANIES MILLION MARKET DEBT INVESTMENT WARRANT LIQUIDITY & BALANCE CAPITALIZATION PORTFOLIO PORTFOLIO SHEET FOUNDED DECEMBER 2003 DEBT INVESTMENTS
Slide 15: Why Hercules is Different from Other BDCs
Why Hercules is Different from Other BDCs We invest in innovative venture growth-stage companies What We Don’t Do What We Do • No direct oil and gas exposure • We focus primarily on pre-IPO and M&A, innovative high-growth venture capital backed companies at their • No CLO exposure expansion (venture
Slide 16: We are at Center Stage of the Innovation Economy
We are at Center Stage of the Innovation Economy Hercules has domain expertise in five specialized lending groups “We are not generalists” Technology Life SaaS Sustainable Special Sciences Financing and Renewable Situations Technology • We Invest at the Expansion “Venture Growth” • Offices in key ve
Slide 17: Financial Highlights
Financial Highlights
Slide 18: Income Statement: Q2 2022 vs. Q2 2021 Summary Results
Income Statement: Q2 2022 vs. Q2 2021 Summary Results Three Months Ended June 30, 2022 2021 Year/Year ($ in 000's, except per share amounts) (unaudited) (unaudited) Change Interest Income $ 68,731 $ 61,306 12% Fee Income 3,384 8,253 -59% Total Investment Income 72,115 69,559 4% Interest and Loan Fee
Slide 19: Current and Historical Income Statements
Current and Historical Income Statements Six Months ended June Twelve Months ended 30, December 31, ($ in 000's, except per share amounts) 2022 2021 Interest Income $ 130,983 $ 253,360 Fee Income 6,289 27,616 Total Investment Income 137,272 280,976 Interest and Loan Fees 27,679 63,104 General and Ad
Slide 20: Current and Historical Balance Sheet
Current and Historical Balance Sheet June 30, December 31, ($ in 000's, except per share amounts) 2022 2021 ASSETS Total Investments $ 2,718,891 $ 2,434,522 Cash and cash equivalents 115,309 133,115 Restricted cash 3,371 3,150 Interest receivable 22,112 17,365 Right of use asset 6,349 6,761 Other as
Slide 21: Effective Yield vs. Core Yield – Leads to Strong Earnings
Effective Yield vs. Core Yield – Leads to Strong Earnings Median Core Yield of 11.6% (Q1 2019 – Q2 2022) 16% 14.3% 13.6% 14% 13.4% 13.3% 13.2% 13.0% 13.0% 13.0% 12.6% 12.7% 12.7% 12.2% Effective Yield 12% 12.7% 12.7% 11.5% 11.5% 12.4% 12.3% 11.8% 11.8% 11.5% 11.6% 11.5% 11.3% 11.4% 11.3% 11.2% 11.1%
Slide 22: High-Yield Portfolio of Earning Assets
High-Yield Portfolio of Earning Assets Median Effective Yield of 13.0% (Q1 2019 to Q2 2022) $3,000 16% 14.3% 13.6% 13.4% 13.3% 13.2% 14% 13.0% 13.0% 13.0% $2,500 12.6% 12.7% 12.7% 12.2% 13.0% Total Debt Investments, at value (millions) 11.5% 11.5% 12% $2,000 10% Effective Yield (%) $1,500 8% 6% $1,0
Slide 23: Strong, Consistent Net Interest Margin
Strong, Consistent Net Interest Margin - NIM Median NIM of 9.9% (Q1 2019 to Q2 2022) 11.8% $80,000 11.6% 12% 11.0% 11.1% 10.3% 10.3% $70,000 10.0% 9.7% 9.5% 9.4% 10% 9.9% 9.3% 9.2% 9.4% Net Interest Margin (in thousands) 8.9% $60,000 8% Net Interest Margin (%) $50,000 $40,000 6% $30,000 4% $20,000 2
Slide 24: Impact of Early Payoffs on Effective Yields
Impact of Early Payoffs on Effective Yields Early Payoffs Lead to Higher Effective Yields and Earnings Effective Yields 15% 13.0% 14.3% 13.6% 13.3% 13.2% 13.0% 13.4% 13.0% 12.6% 12.7% 12.7% 12.2% 11.5% 11.5% 12.7% 12.7% 12.4% 12.3% 11.8% 11.5% 11.3% 11.8% 11.6% 11.5% 11.4% 10% 11.2% 11.1% 11.3% 10.3
Slide 25: Non-Interest and Fee Expense to Average Total Assets
Non-Interest and Fee Expense to Average Total Assets Median adjusted OPEX to average total assets of 2.4% (Q1 2019 to Q2 2022) $18,000 4% $16,000 3.2% $14,000 3% 2.7% $12,000 2.4% 2.4% 2.4% 2.4% OPEX (in thousands) 2.6% 2.3% 2.2% 2.3% 2.2% 2.2% 2.2% 2.4% $10,000 2.0% OPEX as a % of Total Assets (%)
Slide 26: Unfunded Commitments as a Percentage of Total Assets
Unfunded Commitments as a Percentage of Total Assets $500 17.0% 18% $470 Available Unfunded Commitments as % Total Assets Available Unfunded Commitments (in millions) $440 16% $410 13.8% $380 14% 12.7% $350 11.1% 11.0% 12% $320 $290 10.0% 9.7% 10% $260 $230 7.7% 7.2% 7.2% 8% 6.7% 6.9% $200 $170 5.4%
Slide 27: Consistent and Disciplined Underwriting Standards
Consistent and Disciplined Underwriting Standards Our disciplined credit underwriting standards have delivered consistent long-term results $3,000 1.0 High Quality 1.93 1.92 Debt Portfolio Value $2,500 2.01 2.19 2.18 2.17 2.15 2.22 2.16 2.10 2.10 2.34 2.30 2.13 ($ in millions) 2.0 Credit Rating $2,0
Slide 28: Diversified Sources of Funding: Q2 2022
Diversified Sources of Funding: Q2 2022 Capital Sources as of 6/30/22 $ in Millions % of Total Equity $1,327.7 46.6% SBA License 3 – HC IV $175.0 6.1% January 2027 Notes (Institutional) $350.0 12.3% July 2024 Notes (Institutional) $105.0 3.7% Entity September 2026 Notes (Institutional) October 2033
Slide 29: Diversified Sources of Funding: Q2 2022
Diversified Sources of Funding: Q2 2022 Notes SBA Debenture SMBC MUFG Bank January 2027 Sept. 2026 October 2033 July 2024 February 2025 June 2025 March 2026 June 2025 License 3 Credit Facility Credit Facility Inst. Notes Inst. Notes Retail Notes Inst. Notes Inst. Notes Inst. Notes Inst. Notes Inst.
Slide 30: Interest Rates & Asset Sensitivity
Interest Rates & Asset Sensitivity Basis Point Movement in Prime Rate $0.37 $50,000 $0.40 $0.36 $40,000 $0.32 Net Income ($ in thousands) $0.28 Earning per Share $30,000 $0.24 $0.18 $0.20 $0.14 $20,000 $0.16 $0.09 $0.12 $10,000 $0.04 $0.08 $0.04 $0 $0.00 -75 -50 -25 25 50 75 100 200 -$0.04 -$0.04 -$
Slide 31: Portfolio Highlights
Portfolio Highlights
Slide 32: Hercules' Investment Portfolio: Q2 2022
Hercules’ Investment Portfolio: Q2 2022 Floating vs. Fixed Rate Investment Type Breakout 5.1% 5.2% 1.0% 2.0% Sr. Sec. 1st Pos. Debt Investments Sr. Sec. 2nd Pos. Debt Floating Investments 22.1% Unsecured Debt Fixed Investments 69.7% Equity Investments 94.9% Warrant Positions Industry Breakout Percen
Slide 33: Hercules' Warrant & Equity Portfolio: Potential Future Upside
Hercules' Warrant & Equity Portfolio: Potential Future Upside for Shareholder’s Total Return 4 Portfolio Companies completed Current Warrant & Equity Portfolio – Q2 2022 Initial Public Offerings – YTD 2022 • 103 warrant holdings • Gelesis Inc. • GAAP fair value: $27.9 million • Pineapple Energy • GA
Slide 34: Select List of Warrant and Equity Portfolio Holdings
Select List of Warrant and Equity Portfolio Holdings Technology Life Sciences 34
Slide 35: A Broadly Diversified Portfolio Re-Balanced to Market Conditions
A Broadly Diversified Portfolio Re-Balanced According to our Assessment of Ongoing Market Conditions Mitigates Risk ($M) $1,542.2 $1,880.4 $2,314.5 $2,354.1 $2,434.5 $2,718.9 100% 1.3% 2.1% 2.1% 2.7% 3.4% 2.6% Diversified Financial Services 4.7% 2.4% 1.5% 3.2% 4.5% 5.0% 4.3% Electronics & Computer H
Slide 36: Select List of Diversified Portfolio Companies
Select List of Diversified Portfolio Companies Technology Life Sciences SaaS Financing Sustainable & Renewable Technology Special Situations 36
Slide 37: Diversified Investment Approach Mitigates Risk
Diversified Investment Approach Mitigates Risk Four Key Diversification Strategies FINANCIAL INDUSTRY STAGES OF GEOGRAPHIC SPONSORS SECTORS DEVELOPMENT LOCATION More than Technology Expansion or Key VC Investment 1000 Venture SaaS Financing “Venture Growth” Centers Capital Life Sciences & Palo Alto
Slide 38: Primarily Invest at Stages of High Growth
Primarily Invest at Stages of High Growth Expansion Stage Established Follow-on Rounds Private Late Stage/ Type of Company of Growth Capital Select Public Companies (Series B-Liquidity Event) Venture Capital/ Public Markets/ Equity Capital Provider Private Equity Private Equity Expectation for Addit
Slide 39: Venture Capital Market Opportunity
Venture Capital Market Opportunity
Slide 40: Over $1.7 Trillion in VC Investments Since 1997
Over $1.7 Trillion in VC Investments Since 1997 Venture Capital Investment Activity 2008 – Q2 2022 $400 20,000 17,322 18,000 Dollars Invested (billions) $350 16,000 $300 12,578 14,000 $250 # of Deals 12,000 $200 7,841 10,000 $150 8,000 4,649 4,995 3,729 3,906 4,048 4,278 4,379 4,496 4,341 6,000 $100
Slide 41: Exits of Venture Capital–Backed Companies
Exits of Venture Capital–Backed Companies Mergers & Acquisitions $140 1,400 Amount Paid (billions) 1156 $120 1,200 $100 1,000 759 813 # of Deals 742 703 730 708 $80 667 663 632 645 675 800 $60 456 440 461 600 $40 400 $20 200 $26.5 $22.8 $55.6 $56.7 $69.3 $67.8 $133.0 $84.7 $120.5 $89.0 $129.5 $123.4
Slide 42: Hercules' Total Commitments vs. VC Dollars Invested
Hercules’ Total Commitments VS. VC Dollars Invested Venture Capital Investment Activity 2008 – Q2 2022 $350 VC Dollars Invested $3,000 Hercules Debt & Equity Commitments $2,639 $300 Hercules Debt & Equity Commitments $2,500 Note: Represents US VC investments only VC Dollars Invested $250 $1,659 $2,0
Slide 43: Investment Highlights
Investment Highlights Large Market Opportunity and Differentiated Asset Class of Investments Attractive Yields and Upside from Equity and Experienced Warrant Portfolio Management Team Strict Focus on Credit Strong Venture Capital and Underwriting Process Private Equity Relationships Platform in Plac
Slide 44: Analyst Coverage
Analyst Coverage
Slide 45: Broad Industry Analyst Coverage
Broad Industry Analyst Coverage Finian O’Shea John Hecht Devin Ryan Transferred Coverage Initiated Coverage Re-initiated Coverage 7/13/2018 6/30/2015 11/2/2020 Ryan Lynch Crispin Love Casey Alexander Re-initiated Coverage Re-initiated Coverage Initiated Coverage 2/19/2013 7/20/2020 6/23/15 Mitchel P