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Good day and thank you for standing by. Welcome to the Hercules Capital's First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn it over to Michael Hara, Managing Director of Investor Relations for opening comments. Please go ahead.

Thank you, Kathy. Good afternoon, everyone, and welcome to Hercules conference call for the first quarter 2025. With us on the call today from Hercules are Scott Bluestein, CEO and Chief Investment Officer; and Seth Meyer, CFO. Hercules financial results were released just after today's market closed and can be accessed from Hercules Investor Relations section at investor.htgc.com. An archived webcast replay will be available on the Investor Relations webpage for at least 30 days following the conference call. During this call, we may make forward-looking statements based on our own assumptions and current expectations. These forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward-looking statements made during this call for a number of reasons, including but not limited to, the risks identified in our annual report on Form 10-K and other filings that are publicly available on the SEC's website. Any forward-looking statements made during this call are made only as of today's date, and Hercules assumes no obligation to update any such statements in the future. And with that, I'll turn the call over to Scott.

Thank you, Michael, and thank you all for joining the Hercules Capital Q1 2025 earnings call. Coming off a record year of operating performance and continued platform expansion, our momentum accelerated in the first quarter with very strong originations and fundings, which helps drive nearly $270 million of net debt portfolio growth in Q1. During Q1, we took steps to further strengthen our balance sheet and liquidity position with the closing of our bond offering of $287.5 million of 4.75% convertible unsecured notes due 2028. Our low cost of capital relative to our peers and our ample liquidity across the platform continues to put us in an advantageous competitive position, especially in market conditions like we are currently experiencing. Driven by the growth of both the BDC and our private credit funds business, Hercules Capital is now managing over $5 billion of assets, an increase of 11% year-over-year. Our continued ability to scale and leverage our institutional infrastructure, combined with our highly diversified asset base and balance sheet, should continue to serve us well as we continue to navigate the recent market and macro volatility. On our most recent earnings call on February 13, we emphasized that we expected higher than normal market and macro volatility given the change in administration and the ongoing challenges taking place in the global geopolitical environment. We also noted that we anticipated a more favorable new business landscape broadly in the first half of 2025, and that we were positioning the business to be able to take advantage of that. During Q1 and subsequent to quarter end, both have played out largely consistent with our expectations. The equity and credit markets have been exceptionally volatile, which has helped drive a significant increase in demand of capital from Hercules. The evolving messaging from the current administration has created a general sense of unease across the global markets. While we are monitoring developments closely, we continue to believe that we are well-positioned in this operating environment with a diverse asset base, strong balance sheet, conservative leverage position, and exposure to industries that are generally less exposed to the impact of tariffs and related trade policy uncertainty. While we intend to continue to manage our business and balance sheet defensively, we also plan to take advantage of the attractive market opportunities that we are continuing to see in the market. In Q1, we maintained our high first lean exposure, which remained at approximately 91% and continues to be towards the high-end of our BDC peers. Strong net debt portfolio growth in Q1 helped drive GAAP leverage up modestly from just under 90% in Q4 to just under 100% in Q1. Our Q1 GAAP leverage remains at the low end of our historical target range of 100% to 115% and below the average of our BDC peers. We ended Q1 with over $1 billion of liquidity across the platform and no material near-term debt maturities which we believe positions us well to benefit from the more favorable originations market that we are currently seeing. Let me now recap some of the key highlights of our performance for Q1. In Q1, we originated total gross debt and equity commitments of over $1 billion and gross fundings of over $539 million. Both of these figures represent the second highest level being achieved in our history. The strong fundings led to net debt portfolio growth of nearly $270 million, the second highest level of net debt portfolio growth for a given quarter. In Q1, over 55% of our fundings occurred during the final month of the quarter, which limited the NII benefit that we received from those investments in Q1. We anticipate that the near-record net debt investment portfolio growth from the first quarter will help drive our core income and NII per share higher over the coming quarters. We generated total investment income of $119.5 million and net investment income of $77.5 million, or $0.45 per share. We were able to achieve 113% coverage of our quarterly base distribution of $0.40 per share. We generated a return on equity in Q1 of 15.7%, and our portfolio generated a GAAP effective yield of 13% in Q1 and a core yield of 12.6%. Core yields declined slightly from 12.9% in Q4, largely coming from declining base rates and some spread compression on certain new originations. Our balance sheet with moderate leverage and low cost of leverage remains very well-positioned to support our continued growth objectives and provides us with the ability to continue to focus on high-quality originations versus chasing higher yielding assets which we believe have more risk. The focus of our origination efforts in Q1 and quarter-to-date Q2 was on maintaining a disciplined approach to capital deployment with an emphasis on diversification and avoidance of certain sectors that we believe will be more challenged in the current operating environment. Our Q1 originations activity placed a slightly greater emphasis on technology companies versus life sciences companies. In Q1, approximately 53% of our commitments and 76% of our fundings were to technology companies, while approximately 47% of our new commitments were to life sciences companies. We funded debt capital to 15 different companies in Q1, of which 9 were new borrower relationships. We also increased our capital commitments to several portfolio companies during the quarter, which speaks to our unique ability to scale alongside our borrowers as they grow their businesses and achieve performance milestones. Our available unfunded commitments were approximately $455.7 million, up slightly from $448.5 million in Q4. The momentum that we saw in originations in Q1 has continued in Q2. Since the close of Q1 and as of April 28, 2025, our deal teams have closed $141 million of new commitments and funded $147.8 million. We have pending commitments of an additional $682.5 million in signed non-binding term sheets, and we expect this number to continue to grow as we progress further in Q2. Many quality venture-backed companies that have scale and strong credit profiles are increasingly focused on the balance sheet strength and staying power of their lenders, which has helped drive more new business towards Hercules. We are also beginning to see certain banks move to more of a risk-off posture, which we believe will help drive near-term originations momentum. Given the volatile market backdrop throughout much of Q1, we are pleased with the exit activity that we saw in our portfolio during the quarter. In Q1, we had three M&A events in our portfolio, which included one life sciences portfolio company and two technology portfolio companies announcing acquisitions. In addition, we had one technology company confidentially file for their IPO in the quarter. Based on current market conditions, we expect exit activity to remain muted near-term as many companies are pausing discussions while they wait for more policy clarity. Early loan repayments decreased significantly in Q1 to approximately 132 million. Approximately 42% of our Q1 prepayments were attributable to existing investments refinanced and upsized by Hercules as a result of strong performance. And therefore, true early loan repayments were only $75.9 million which was well below our guidance of $100 million to $200 million for the quarter. While the lower level of early loan prepayments reduced our Q1 NII per share, it resulted in strong net debt portfolio growth in the quarter which positions us well for strong earnings growth in the coming quarters. For Q2 2025, we expect prepayments to be in the range of $200 million to $250 million, although this could change as we progress in the quarter. Credit quality of the debt investment portfolio remained stable quarter-over-quarter. Our weighted average internal credit rating of 2.31 increased slightly from the 2.26 rating in Q4 and remains well within our normal historical range. Our Grade 1 and 2 credits decreased to 61.1% compared to 65.9% in Q4. Grade 3 credits increased to 33.9% in Q1 versus 29% in Q4. Our Rated 4 credits decreased to 4.1% from 4.6% in Q1, and Rated 5 credits increased slightly to 0.9%. In Q1, the number of loans and companies on nonaccrual increased by 1. We had two debt investments on nonaccrual with an investment cost and fair value of approximately 72.2 million and 19.6 million, respectively, or 1.8% and 0.5% as a percentage of our total investment portfolio at cost and fair value respectively. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced. Given the uncertainty of the current tariff and trade related environment, we have been proactively working to assess any material impact across our credit portfolio. Over 85% of our borrowers are domestic, and a higher percentage of the business conducted by our borrowers is domestic in nature. Additionally, nearly 75% of our borrowers are in the software, services, or drug development industries. We believe that this largely insulates the substantial majority of our portfolio from the material negative impacts of the current tariff and trade environment. Further, our investment and credit teams have engaged with most of our borrowers to further assess any potential impacts, and we have identified only a very small number of borrowers that may be directly negatively impacted. At this point, and based on those conversations and what we know as of today, we do not believe that any of our portfolio companies will be negatively impacted to a material degree. We do believe that the indirect impact of the current environment has the potential to lead to a general slowdown across the broader ecosystem. And this is something that we are watching closely. Subsequent to quarter end, we have noted that the overall fundraising environment for certain companies has slowed and become more challenging. We expect this to particularly impact earlier stage companies and companies that are more directly exposed to the current tariff policy through end markets or the product supply side. During Q1, Hercules had net realized losses of $1.6 million, primarily due to the losses on warrant and equity investments and losses from foreign exchange movements. Our net asset value per share in Q1 was $11.55, a slight decrease of 0.9% from Q4, 2024. We ended Q1 with strong liquidity of $615.6 million in the BDC and over $1 billion of liquidity across the platform. We also received an investment grade credit rating upgrade from Morningstar DBRS from BBB to BBB high. And subsequent to the end of Q1, Fitch upgraded our secured debt rating from BBB- to BBB. With healthy liquidity, a low cost of debt relative to our peers, and four investment-grade corporate credit ratings, we remain well-positioned to compete aggressively on quality transactions, which we believe is prudent in the current environment. Venture capital investment activity was off to a strong start to 2025, with $91.5 billion invested, according to data gathered by Pitchbook/NVCA. M&A exit activity for U.S. venture capital-backed companies was $22.7 billion. IPO activity remained muted with fewer companies going public, but raising more dollars. Consistent with the aggregate data for the ecosystem during Q1, capital raising across our portfolio increased from Q4 with 25 companies raising approximately $2.5 billion in new capital, up from $961 million raised in the prior quarter. Given our strong sustained operating performance, we exited Q1 with undistributed earnings spillover of nearly $160 million or $0.92 per share per ending shares outstanding. For Q1, we are maintaining our quarterly base distribution of $0.40 and our supplemental distribution of $0.07 per share for a total of $0.47 of shareholder distributions. This is our fifth consecutive year of being able to provide our shareholders with a supplemental distribution on top of our regular quarterly base distribution. In closing, our scale, institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q1, Hercules delivered its eighth consecutive quarter of over $100 million of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Our success is attributable to the tremendous dedication, efforts and capabilities of our 100 plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth.

Thank you, Scott, and good afternoon, ladies and gentlemen. Hercules started 2025 by continuing the strong business originations we experienced in Q4 2024. The nearly $270 million of net debt investment portfolio growth in Q1 was supported by our $287.5 million convertible debt issuance in March with a very low coupon rate of 4.75%, helping to keep our weighted average cost of debt just below 5%. In addition, we raised approximately $40 million of new capital under our ATM during the quarter helping us to maintain a conservative leverage position just below one to one on both a GAAP and regulatory basis. We continue to maintain strong available liquidity of more than $615 million as of quarter end and more than $1 billion across the platform, including the advisor funds managed by our wholly owned subsidiary Hercules Adviser LLC. Based on the performance of the quarter, Hercules Adviser delivered a first quarter dividend of $1.9 million which when combined with the expense reimbursement of approximately $3.3 million resulted in approximately $5.2 million in cash delivered to the BDC in Q1, a 15.6% increase compared to Q1 2024. With that in mind, let’s review the income statement performance and highlights, NAV unrealized and realized activity, leverage and liquidity, and finally the financial outlook. First with the income statement performance and highlights. Total investment income in Q1 was $119.5 million supported by our growth throughout the prior year in the debt portfolio. Core investment income, a non-GAAP measure increased to $115.5 million. Core investment income excludes the benefit of income recognized as a result of loan prepayments. Noncore investment income decreased to $4 million driven by a decrease in the early loan repayments during the first quarter. Net investment income decreased to $77.5 million or $0.45 per share in Q1. Our effective and core yields decreased modestly in the first quarter to 13% and 12.6%, respectively compared to 13.7% and 12.9% in the prior quarter. The decline in the core yield during the quarter was largely driven by the Fed rate reduction of approximately 50 basis points in the last 2 months of 2024. As of quarter end, more than half of our prime based loans are at the contractual floor after the recent rate cuts and thus the impact of any future rate reductions will be muted. First quarter gross operating expenses were $45.3 million compared to $43.5 million in the prior quarter. Net of cost recharged to the RIA, our net operating expenses were $42.1 million. Interest expense and fees remained stable at $22.1 million due to lower utilization of the credit facilities as a result of the ATM activity and due to the issuance of the $287.5 million convertible note in early March. SG&A increased to $23.2 million just below my guidance. Net of costs recharged to the RIA, the SG&A expenses were $20 million. Our weighted average cost of debt decreased slightly to 4.9% for the quarter. Our ROAE or NII over average equity decreased to $15.7 million for the first quarter and our ROAA or NII over average total assets decreased to 8%. Switching to the NAV unrealized and realized activity, during the quarter our NAV per share decreased by $0.11 to $11.55 per share. This represents an NAV decline of 0.9% quarter-over-quarter or less than 1%. The main driver was unrealized depreciation on investments. Our $25.6 million of net unrealized depreciation was primarily attributable to net unrealized depreciation on debt investments due to impairments and a rise in yield spreads. Focusing on leverage and liquidity, our GAAP and regulatory leverage increased to 99.9% and 85.2%, respectively compared to the prior quarter due to growth in the balance sheet largely financed by the convertible debt issuance. Netting out leverage with the cash on the balance sheet, our net GAAP and regulatory leverage was 97.4% and 82.6%, respectively. We ended the quarter with $616 million of available liquidity. As a reminder, this excludes capital raised by the funds managed by our wholly owned RIA subsidiary. Inclusive of these amounts, the Hercules platform had more than $1 billion of available liquidity. The strong liquidity positions us very well to support our existing portfolio companies and source new opportunities. As mentioned in March, Hercules Capital issued $287.5 million of convertible unsecured notes due in 2028 with a stated interest rate of 4.75%. The March interest issuance resulted in a higher dilutive share count outstanding as required by GAAP and thus a lower dilutive change in net assets per share. Despite this required disclosure, Hercules Capital intends to settle the principal in cash in 2028. We believe the basic weighted average shares is more relevant measurement of our business performance, and this is the way that we will continue to evaluate our business. As a final point, we continue to opportunistically access the ATM market during the quarter and raise approximately $40 million in the first quarter resulting in $0.08 of accretion to the NAV per share. Subsequent to quarter end to support our continued strong new business momentum, we raised an additional $41 million. Finally, for the outlook points, for the second quarter, we expect a core yield of 12% to 12.5%, excluding any future benchmark interest changes. As a reminder, 8% of our debt portfolio is floating with a floor and presently more than 50% of our prime based portfolio is at the contractual floor. Although very difficult to predict as communicated by Scott, we expect $200 million to $250 million in prepayment activity in the second quarter. We expect our second quarter interest expense to increase commensurately with the growth of the balance sheet in the prior quarter. For the second quarter, we expect gross SG&A expenses of $25 million to $26 million and an RIA expense allocation of approximately $2.9 million. Finally, we expect the quarterly dividend from the RIA of approximately $1.9 million to $2.1 million per quarter. In closing, the business is positioned well for 2025 after delivering a strong first quarter commitments and fundings. We are excited to see how the rest of 2025 develops. I will now turn the call over to the operator to begin the Q&A portion of the call. Kathy, over to you.

Yes, thank you. [Operator Instructions] Your first question comes from the line of Brian McKenna with Citizens. Your line is now open.

Thanks. Good evening, everyone. Congrats on another robust quarter of commitments and fundings across the business. And it’s great to hear that activity remains pretty elevated post quarter end. I'm curious, what’s driving this continuation of strong activity despite the broader macro environment? I'm assuming things may have slowed earlier on in the month and then maybe recovered as April progressed. But any just additional color here would be helpful.

Sure. Thanks, Brian. I think what we've shown over the course of the last 20 years is that we tend to broadly outperform in periods of market and macro volatility. If you look at our business, particularly over the last five or so years, our primary source of competition has been and continues to be with respect to equity capital, either coming from private venture capital firms, private equity firms, or the public equity markets, particularly on the life sciences side. When the markets are more volatile, when macro is more volatile, equity becomes more expensive, equity becomes more dilutive, equity becomes scarce. And that provides an opportunity for Hercules to selectively pick and target quality companies that are looking for financing solutions. That’s the primary driver of the increase in activity. The other increase, as I mentioned, we have seen some banks move to more of a risk off model, particularly over the last 30 to 60 days. That has created a little bit of a void in the market. And we are seeing an increasing number of later stage quality companies that traditionally would veer more towards the bank side of the market approach Hercules looking for capital solutions.

Okay, great. That's helpful. And then, maybe just touching on that a little bit. Thinking about yields and spreads on new deals, given that some of the banks pulling back, I mean, what do those look like today relative to even the first quarter and then even kind of looking at the core yield that came in towards the upper end of the range. So I mean, what's the expectation for the all in core yield as well moving forward?

Yes, so a couple of things, Brian. Core yield for the quarter was 12.6%. That was down slightly from 12.9% in Q4. Close to a 100% of that decline was attributable to the two Q4 '25 basis point fed cuts. Our guidance for Q2, as Seth mentioned, is 12% to 12.5% core. Based on everything that we are seeing to date, we are very confident that we will end up in that target range. We haven't seen a lot of change in terms of new business onboarding yields. Over the last maybe 2 to 4 weeks, we've seen potentially a 25 to 50 basis point increase in yields, but that really hasn't worked its way into our numbers yet.

Got it. Okay, that's helpful. I will leave it there. Appreciate the time guys.

Thanks, Brian.

Thank you. Your next question comes from the line of Crispin Love with Piper Sandler. Your line is now open.

Thank you. Good afternoon. First on credit, just two loans on nonaccrual in your book. But are you noticing any changes in behavior from your borrowers either by actions or conversations you’re having with borrowers amid the recent volatility? And what's your confidence in credit remaining stable if it is tougher for portfolio companies to raise equity capital in this environment?

Yes, so look overall I think we remain confident. I mentioned in my prepared remarks that we still have a generally speaking positive outlook with respect to credit across our portfolio. The markets have certainly become more volatile. The operating environment has become more challenging. And so we are watching really the indirect impact associated with those things on our portfolio. What we've noticed, particularly over the last 30 to 60 days, is that companies are sort of freezing decision making given the uncertainty. So decision making with respect to potential growth investments, decision making with respect to exploring strategic options, decision making with respect to capital raise, those discussions, those decisions have slowed down. And I think a lot of companies are just looking for clarity and looking for certainty from a policy perspective. We think that will change hopefully relatively quickly, but that's something that we are watching pretty closely. Quarter-over-quarter, when you look at our credit performance in Q4 relative to Q1, really not much changed. Weighted average credit rating went from 2.26 to 2.31, which is really immaterial. We had some slight movement within our Rated 3, Rated 4, Rated 5 buckets, but again, nothing material. And then as you pointed out, as of the end of Q1, only two loans on nonaccrual that make up 0.5% of our investment book at fair value.

Great. Thank you. Appreciate all the color there, Scott. And last quarter you talked about seeing VCs have a noticeable shift and how they were approaching new investments, focusing more on valuation with prior rounds for many companies that elevated valuations. Can you give us an update here? Are you continuing to see this broadly and among your portfolio companies? And just what it could mean for debt and equity availability in coming months and quarters, especially with the recent volatility?

Sure. So the answer to the direct question is yes. We are continuing to see a more deliberate focused atmosphere across the venture capital community. Much more selectivity, much more sensitivity with respect to valuation. Having said that, I would point out that we saw very strong capital raising across our portfolio in Q1. I mentioned this on the call, but I’ll reiterate it. In Q1 alone, we had 25 companies raise $2.5 billion of new capital. So despite that emphasis on quality, on valuation, we are continuing to see strong volume in our portfolio with respect to capital raising.

Great. Thank you. Appreciate you taking my question.

Thank you. Your next question comes from the line of Doug Harter with UBS. Your line is now open.

Great. Thanks. As you think about kind of being able to take advantage of the opportunities in the market, how are you balancing increasing leverage, raising additional capital and or kind of using the third-party funds to kind of manage that growth?

Sure. It's something that we evaluate on a continuous basis. We have always run this business, and we will always run this business focused on driving the best possible total shareholder return. Our leverage despite $270 million of net debt portfolio growth in Q1 remains at the very low end of our historical norm. Leverage at the end of Q4 was 0.9. GAAP leverage at the end of Q1 was just under 100%. So still at the very low end of our target range. We remain very well capitalized from a liquidity perspective across the platform, over $600 million of liquidity in the BDC, over a $1 billion of liquidity in the private funds. I would also point out that for us and for our shareholders, because of the unique structure of our model where the public BDC owns our registered investment adviser, which manages 100% of our private credit fund business, 100% of the benefit that we generate from our private credit fund business accretes to the benefit of our public shareholders. So irrespective of whether we are putting deals into our public BDC or our private credit fund business, that benefit is accreted up to our public shareholders. With respect to equity capital versus leverage capital, we continue to look opportunistically at a variety of different features. We did the $287.5 million convert in Q1, which was very attractively priced. And we will continue to look in the market for opportunities that we think can be accretive long-term for our shareholders.

Just one follow-up. How do you think about what is the right spot to be in leverage within your range? Is the low end of the range kind of the right spot for this type of volatile environment or could you move up more towards kind of say the midpoint of the range?

Yes, I think we've proved over the last few years that we are willing to go to a low point to make sure that we are able to be more opportunistic and utilize extra cash on the balance sheet and availability to make sure that we can take advantage of market changes and positions ever since March of 2023. We've really kept it low, kept our powder dry. And so for us, in a market like this, we are looking at maintaining it at the lower end. But as we see the right opportunity, we could drive that up if we see reasons to make deeper investments and slower our leverage increase up.

Thank you.

Thank you.

Thanks, Doug.

Next question comes from the line of Finian O'Shea with WFS. Your line is now open.

Hey, everyone. Thanks. Good afternoon. Scott, early in the remarks, I think you had a comment on leaning more into tech. Can you expand on that? And then sort of a part B, is the smart sheet in …

Operator? Kathy, do we lose Fin?

Hello?

This is Kathy.

Hello?

The next question comes from the line of Casey Alexander with Compass Point Research & Trading.

Hi. Good afternoon. Can you hear me?

Yes. Stand by, please.

Okay.

Hello?

Can you hear me?

Yes. This is Hercules Capital. Can you put us into our earnings call? Oh, I’m sorry, Casey. Okay. We are back.

Sorry for the technical difficulties. Casey Alexander's line is open. Waiting for your -- waiting for you.

Hi. I'm sure we are all disappointed that we didn't get to hear the rest of Finn's question. So I will ask a couple of quick ones and then get out of the way so that he can get back in the queue. On the $56 million in loans that were refinanced, Scott, is it -- would it be normal for you to pass on any prepayment or fees on those deals in order to facilitate the refinancing?

Yes. So great question. When we refinance one of our own borrowers where that company is performing and we are upsizing and expanding that facility, we will generally waive the prepayment penalties that would otherwise be due. We do not waive back end fees or end of term fees. But if there's a portfolio company that is outperforming expectations and we are working with them to upsize and expand the facility, we will generally waive prepayment penalties associated with that refinancing.

And so that would also partially explain some of the lower fee income for the quarter?

Exactly correct. Combination of what you just said and just the lower overall number with about $75 million of actual outside prepayments versus the guidance that we had given which was significantly higher.

Right. And as you look forward and you have kind of some line of sight to $200 million to $250 million in repayments in Q2. Is there some percentage of that that you would also expect to be refinancings where we might see lower fee income?

Not at this time, Casey. Based on what we know as of today and the latest information that we have, that number that we provided, I would say we have a high degree of confidence in, and that's all external.

Okay, great. All right. Thanks very much.

Thanks, Casey.

Thank you. Your next question comes from the line of Paul Johnson with KBW. Your line is now open.

Yes, thank you. In terms of just some of the gravitation towards later stage deals and larger deals that you are seeing, what are you seeing in terms of equity cushion in those deals? Are sponsors and VCs putting money in at the same time that they are going to you as a borrower or lender?

We have not seen much change in terms of how venture capital firms are approaching companies that we are interested in speaking to. We've always said this and will continue to say this. Our debt capital is not designed to replace equity capital. It's designed to supplement equity capital. So one of the things that our investment teams, whether it's on the technology side or on the life sciences side, spend a fair amount of time focused on is ensuring that the companies that we are lending to have the ability to continue to raise equity capital. It's not always the case that when we underwrite a new loan, that company is raising equity at the same time. But we do have certain metrics and certain things that we are looking for in terms of RML, minimum liquidity thresholds, recentness or newness of equity capital into the business, and that really drives our decision making.

Got it. Appreciate that. And then along the lines of just kind of more later stage companies, which you've consciously done that with your portfolio and shifted more into that later stage. I mean, with all the trouble, I guess, in the VC market today, I mean, that create an opportunity to go down company size into earlier stage companies? Or it’s just too early to say that?

I think it's too early to say that. We have been of the view for the last several years that that's the more difficult challenging part of the market. And I think our approach over the last several years to largely stay away from earlier stage companies has proven to be the right decision. We do think medium to long-term, there is going to be an opportunity for us to step back into that part of the market. We just want to have a little bit more conviction and a little bit more stability before we make that decision.

Got it. Thank you very much. That's all for me.

Thanks, Paul.

Thank you. [Operator Instructions] Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Your line is now open.

Hey, guys. Follow-up on Paul's question about the VC market. Ever since Silicon Valley Bank went down, the whole market has sort of been in the doldrums. And I know this is a public forum, but what do you think is, I mean, it's lost its mojo. Can diagnose what you think what the ills are, what the cure might be briefly?

Yes, I think Chris, we would fundamentally disagree that the market has been in the doldrums since the SVB situation of March of '23. We've seen tremendous momentum with respect to our business since March of 2023. Our commitment volumes are up. Our funding volumes are up. Our team's assessment is that the quality of the new business that we've originated since March of 2023 is up considerably. And I think we've demonstrated that in terms of our performance. I would also just point out anecdotally, 2024 was a relatively strong year for VC capital equity investment. $214 billion invested from venture capital investors. That was up from $163 million in 2023. And if you look at the Q1 data in isolation with $92 billion raised, that's arguably the strongest quarter that the industry has seen in quite some time. Where we've seen some signs of softness is more on the fundraising side. So venture capital fundraising activity has slowed considerably over the course of the last several years. Part of that is linked in our assessment to a declining exit environment where M&A is down, IPOs are largely nonexistent. So venture capital firms have not been able to recycle capital to the normal pace that they are used to. But we continue to see a relatively vibrant venture capital ecosystem. It is not without challenges. Right now, the macro and geopolitical environment is creating headwinds, I think, for growth companies broadly. But we continue to look at things optimistically, and we continue to be excited about the operating environment that we are in.

Great, thank you.

Sure.

Thank you. Your next question comes from the line of Fin O'Shea with WFS. Your line is now open.

Hi, everyone. Can you hear me?

Yes, sir.

Okay. I'm going to try to live up to my friend Casey's hype here. I want to ask about the LifeSci portfolio in the global sort of trade tariff developments. Like to what extent does your typical borrower go head to head with a Chinese competitor in clinical research, so forth? And has there been any impact there, good or bad?

Thanks, Fin. And I just want to say, certainly apologies for the disruption there. I think you were about to ask such a great question that the line just went dead on you. But in all seriousness, answering the first question that I think you were in the middle of asking last time, so I don't want that to go unaddressed. Our activity in Q1 was slightly weighted towards technology companies. About 53% of our commitment activity was to technology companies, 47% to life sciences companies. So there was a shift, but it was not material. The largest driver of that honestly was just the volatility that we saw across the public biotech markets in Q1, and that has continued into Q2. The XBI Index, which was the most closely watched index in the public biotech space, very volatile over the course of the last 3 to 4 months and down pretty materially. I think that has caused a fair amount of uncertainty across that part of the market for us. With respect to the second part of your question, really not a direct link or correlation between the companies that we are lending to competing with Chinese or other drug development, drug discovery companies. In our view, the volatility is really being driven by two specific things. Number one, there has been a tremendous amount of turnover at the FDA. That has created a sense of uncertainty with respect to timing, with respect to approvals, with respect to clarity in terms of clinical trials. We've done a full assessment of our current portfolio and we do not see any material risk associated with those things. But that has caused a general slowdown and uneasiness across the broader landscape. We saw several very strong opportunities in Q1 that we took advantage of. We've seen several strong opportunities in Q2 in the life sciences side that we plan to take advantage of. And so we are going to continue to be very active on both the tech side and life sciences side. Then the last part of your question with respect to tariffs and the trade environment. The one sort of piece that we are watching is a majority of drug discovery, drug development companies globally source a lot of their APIs from China. And so to the extent that those things are included in the tariffs, to the extent that those things become a bargaining chip between China not wanting to or not being willing to send them in quantity to the United States, that would potentially cause some concern. When you look at the materiality of that impact though, it’s pretty small given that that does not make up a material portion of any of these companies true costs.

Okay, Can I now that I didn't realize you heard half of the first question? We saw smart sheet this quarter. I know you've done some of the large sponsor buyouts in the past, but just given this is a pretty big bite, pretty interesting timing for those. Can you talk about if this is perhaps more of a pivot to those sort of large market flow unit tranche deals?

Sure. Great observation and great question. Not a pivot at all. We have said publicly and we will reiterate that we have a very diversified asset base. We have a very strong team on the technology growth side. We have a very strong team on the life sciences growth side. And we have a dedicated strong team that focuses on more of the private equity sponsor side. We selectively will participate in these transactions that we think are strategic, where we have an angle, where we have a particular relationship and understanding of a business. And the loan that you referenced was one of those opportunities that the team felt strong about and we were able to take advantage of it.

Very good. Thanks so much.

Thanks, Fin.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Scott Bluestein for closing remarks.

Thank you, Kathy, and thanks to everyone for joining our call today. We look forward to reporting our progress on our Q2 2025 earnings call. Thank you.