SCOTT BLUESTEIN, CEO & CIO,

HERCULES CAPITAL

"We built up a deep network that enables us to be committed and dedicated to not just the life sciences, but also the technology verticals."

What were some of the key highlights of 2020?

The momentum around innovation, coupled with years of sound strategy, enabled Hercules to have a banner year. We had record total and net investment income. Hercules also ended the year with the strongest balance sheet we have had. We were able to complete several capital raises throughout the course of 2020, and we ended the year with nearly US$700 million of available liquidity.

On the investment and portfolio side, we also had tremendous momentum throughout 2020, and this accelerated later into the year. For the third consecutive year, Hercules ended up committing over a billion dollars of capital to the venture technology and life sciences industries. Despite a global pandemic, we had 22 IPO or M&A events in 2020, which is a strong validation of our model.

Our portfolio companies raised nearly US$7 billion of equity capital. These results are a testament to the overall strength, not just of the ecosystem, but of the companies that we are so fortunate to partner with.

What makes Hercules’ financing approach unique in the industry?

We are arguably the only player that has been in this market consistently for the last 16 plus years that has achieved scale. We built up a deep network that enables us to be committed and dedicated to not just the life sciences, but also the technology verticals. We also have the unique ability to finance companies from the expansion stage of their lifecycle through to the established stage. Hercules can finance a company with a structured debt solution that ranges from US$10 million all the way up through US$200 million. That gives us a significant competitive advantage in that we can find companies early in their evolution and help them finance themselves through multiple value inflection points.

What are the principal advantages of venture debt?

Regardless of the quality of the company, there are going to be setbacks and successes. What is unique about our team is that we understand this reality and, rather than look at these financings as singular events, which is what an equity raise or a standard capital raise is, we look at them as long term financing partnerships, where we can support companies over a long period of time.

Venture or structured debt from Hercules is significantly less dilutive than a straight equity raise. Our team is not looking to manage or direct operations, we are not looking for board seats or control, we look to establish financing partnerships where we rely on the existing management team to continue to make the right decisions.

Given Hercules’ domain expertise in both technology and life sciences, are you seeing a trend toward convergence of the two areas?

What we have seen over the course of the last 12 plus months, exacerbated by COVID-19, is the convergence of the two sectors. Consequently, we are doing more deals now across our platform where we bring our technology domain expertise and combine it with our life sciences team expertise. We are looking at a lot of healthcare tech companies along with traditional drug discovery and development biotech companies that are utilizing technologies as they look to pipeline expansion. We believe that having teams with expertise, not just in life sciences but also in technology, gives us a significant competitive advantage.

What is the breakdown of Hercules’ asset mix? Are there certain areas the company favors?

Our focus is on building a diversified, non-correlated portfolio. We focus about 50% of our asset base on the technology vertical and about 50% of our focus on the life sciences vertical. We are also significantly diversified within each of those two core verticals, so we have exposure to drug discovery and development, therapeutics, healthcare tech, healthcare services and medical device companies. Our largest sector concentration within life sciences continues to be drug discovery and development, because it creates the best diversified risk profile from a funding perspective. Secondly this tends to be where the largest market opportunities exist. The last consideration is that this is where we think we can make the most difference because it is where our capital can be most useful.

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