67 WALL STREET, New York - June 24, 2014 - The Wall Street Transcript has just published its Business Development Companies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: BDC Risk/Reward Profile - Business Development Companies Historical Overview - Internally and Externally Managed BDCs - BDC Dividend Growth - BDC Returns - Strong BDC Fundamentals - BDC and Bank Differences - Competitive Outlook for BDCs
Companies include: Horizon Technology Finance Corporation (HRZN) and many more.
In the following excerpt from the Business Development Companies Report, the President of Horizon Technology Finance Corporation (HRZN) discusses company strategy and the outlook for this vital industry:
TWST: What is venture lending, and how did Horizon first become involved in this business?
Mr. Michaud: Venture lending is making loans to venture-capital-backed technology and life science companies. For example, everyone knows Google. Back in the late 1990s, prior to the formation of Horizon, we made a venture loan to Google when no one knew their name to support their early development and growth. Then the company grew up, raised more equity and became the very large company it is today. We finance companies like that while in their early stages. Equity investors come in and put in a substantial amount of equity capital. Then, we provide a little debt capital on a comparative basis.
So if a company raises $50 million in equity for instance, we might give them a $5 million to $10 million venture loan to either further develop the product or take that product to market. If it is a life science company, it is probably going through an FDA clinical trial, which can take years to complete, and we'll help to support that process so the company can meet their next clinical milestone. By providing important growth capital, we enable our portfolio companies to extend their runway along the development curve in a much more cost-effective manner as opposed to additional equity capital, which is substantially more dilutive.
The difference between venture debt and middle-market lending is that when you think about middle-market lenders, they may provide up to 75% of the capital and equity investors provide the remaining 25%. In our market, it's often just the opposite. The equity investors provide 80% to 90% of the financing for the company and venture debt is between 5% and 20% of the overall capital structure. The venture debt is a much lower relative amount, and so there is much greater downside protection of our investment because of the significant amount of equity in the company. This is another fundamental aspect of venture lending.
Our team of investment professionals started doing this back in the early 1990s, and through a number of investment vehicles, we built up a number of large venture debt portfolios. We have over 20 years of experience working with leading venture capital firms and their portfolio companies. Our investors today get the value of all of that experience in each new loan that we make.
TWST: You touched a little bit on what some of these companies use the money for, but can you expand on that a little bit?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Venture Capital