Investment Strategy and Portfolio Management - The company intends to invest at least 80% of the value of its total assets in technology-related companies within its Target Industries[36] - The company employs a disciplined underwriting process that includes extensive financial analysis and validation from multiple sources to mitigate risks[39] - The company aims to balance its investment portfolio to reduce risks associated with market cycles by regularly reviewing investment criteria[39] - The company has a robust direct origination capability, sourcing transactions from various industry contacts and referrals[39] - The company’s ability to achieve its investment objectives depends on the Advisor's origination capabilities and disciplined underwriting process[160] - The investment strategy focuses on development-stage companies, which are typically rated below "investment grade" and may face significant volatility and competition[177] Financial Performance and Fees - The base management fee is set at an annual rate of 2.00% of the Company's gross assets, decreasing to 1.60% for assets exceeding 9,000,000[84] - Pre-Incentive Fee Net Investment Income is 2.10%, exceeding the hurdle rate of 1.75%[85] - An incentive fee of 0.35% is applicable as Pre-Incentive Fee Net Investment Income exceeds the hurdle rate but does not fully satisfy the "catch-up" provision[85] - 20.0% of cumulative net increase in net assets resulting from operations since July 1, 2014 is $10,000,000[86] Regulatory Compliance and Governance - The company is regulated as a BDC under the 1940 Act, adhering to specific regulatory requirements[100] - The company must ensure that qualifying assets represent at least 70% of total assets at the time of acquisition[106] - The company must distribute dividends at least equal to 90% of ordinary income and realized net short-term capital gains to maintain RIC status[128] - To avoid a 4% nondeductible federal excise tax, the company must distribute dividends equal to 98% of ordinary income and 98.2% of capital gains[128] - If the company qualifies as a RIC and satisfies the Annual Distribution Requirement, it will not be subject to entity-level income taxes on distributed investment company taxable income[129] - The company has adopted written policies and procedures to prevent violations of federal securities laws and designated a chief compliance officer[105] - The company intends to comply with Nasdaq corporate governance regulations and monitor compliance with future listing standards[123] - The company must derive at least 90% of its gross income from qualified sources to maintain its status as a BDC[130] Risks and Challenges - The company is exposed to risks associated with changes in interest rates, which could impact investment returns[138] - The company may face challenges in raising additional capital, which is essential for growth[138] - The lack of liquidity in investments may adversely affect the company's ability to meet obligations[138] - Economic downturns may lead to increased non-performing assets and decreased portfolio value, potentially resulting in financial losses and reduced revenues[174] - The company may not be able to manage future growth effectively, which could adversely affect its business and financial condition[160] - The unpredictable borrowing needs of portfolio companies may exceed expected funding requirements, impacting the company's reputation and lending activity[191] Portfolio Company Characteristics and Risks - The company’s portfolio companies typically require substantial additional financing, which may not be readily available, increasing the risk of loss[170] - Portfolio companies may incur debt that ranks equally with or senior to the company's investments, affecting repayment priority[186] - Portfolio companies in the technology industry are subject to intense competition and rapid technological changes, which may affect their ability to innovate and meet user needs[197] - Life science portfolio companies must navigate extensive government regulations and face risks related to product development, including the need for significant R&D and regulatory approvals[200] - Intellectual property rights are crucial for portfolio companies, and failure to protect these rights could harm business prospects and investment value[213] Advisor and Management Relationships - The company has developed strong relationships with venture capital and private equity investors, enhancing its competitive position in the market[41] - The Advisor maintains a "hands on" approach, contacting portfolio companies at least quarterly for operational and financial updates[61] - The Advisor's allocation policy may limit the company's ability to invest in certain issuers, potentially restricting investment opportunities[155] - The company relies heavily on the Advisor's referral relationships to generate investment opportunities, and failure to maintain these relationships could adversely affect its business[162] Investment Characteristics and Valuation - The company may invest in foreign portfolio companies, which could involve greater risks such as less publicly available information and varying levels of governmental regulation[217] - The company is subject to risks associated with investments having original issue discount (OID) and payment-in-kind (PIK) features, which may reflect increased credit risk and unreliable valuations[221][222] - The value of collateral securing debt investments may decrease, leading to potential losses upon foreclosure[180] - A substantial portion of assets securing investments may be in intellectual property, which could lose value if rights are challenged[181]
Horizon Technology Finance(HRZN) - 2023 Q4 - Annual Report