Investor Presentation First Quarter NASDAQ: HRZN

Transcription

1 Investor Presentation First Quarter 2017 NASDAQ: HRZN

2 Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements which are based on current expectations and assumptions about future events. Forward-looking statements describe future financial or business performance, strategies, or expectations, and are generally identified by words or phrases such as trend, opportunity, pipeline, believe, comfortable, expect, anticipate, current, intention, estimate, position, assume, plan, potential, project, outlook, continue, remain, maintain, sustain, seek, achieve, and similar expressions, or future of conditional verbs such as will, would, could, should, may, or similar expressions. You are cautioned that such statements are subject to a multitude of risks and uncertainties. Actual results could differ materially from those expressed or implied in the forward-looking statements, and future results could differ materially from historical performance. These forward-looking statements are subject to risks that include, but are not limited to, the following: Future operating results, including the performance of our existing loans and warrants; Introduction, withdrawal, success and timing of business initiatives and strategies; Changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets; Relative and absolute investment performance and operations of our Advisor; Impact of increased competition; Impact of investments we intend to make and future acquisitions and divestitures; Unfavorable resolution of legal proceedings; Business prospects and the prospects of our portfolio companies; Projected performance of other funds managed by our Advisor; Impact, extent, and timing of technological changes and the adequacy of intellectual property protection; Regulatory structure and tax status; Adequacy of our cash resources and working capital; Timing of cash flows, if any, from the operations of our portfolio companies; Impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy; Ability of our portfolio companies to achieve their objective; Impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our Advisor; Contractual arrangements and relationships with third parties; Ability to access capital and any future financings by us; Ability of our Advisor to attract and retain highly trained professionals; Impact of changes to tax legislation and, generally, our tax position; and Other risks and uncertainties described in our SEC filings, available on the SEC s website at You should consider these factors in evaluating the forward-looking statements included herein, and not place undue reliance on such statements. The forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such statements. 2

3 Snapshot Common Stock 2019 Notes NASDAQ: HRZN NYSE: HTF (Maturity 2019) Net Asset Value $12.11 per share at March 31, 2017 Distributions Declared $0.30 per share for Q

4 Horizon Overview Company Leading provider of secured loans to venture capital-backed and private equitybacked growth-stage companies Lender of choice among venture capital and private equity firms Targeted Industry Focus: technology, life science, healthcare information & services and cleantech Seeks to generate attractive risk-adjusted returns through: current income from directly originated secured loans; and capital appreciation from the corresponding warrants Externally managed Business Development Company ( BDC ) and Regulated Investment Company ( RIC ) tax status Established management team with 10 to 20+ years each of direct lending experience Headquarters in Farmington, CT, regional offices in Pleasanton, CA, Boston, MA and Reston, VA 4

5 Experienced Management Robert D. Pomeroy, Jr., CEO & Chairman Co-founder, with 35+ years lending experience including 20+ years in venture lending President of GATX Ventures, Inc., Co-founder, Executive VP & General Manager of Transamerica Technology Finance, Senior VP of Financing for Science International, Inc. Gerald A. Michaud, President & Director Co-founder, with 35+ years commercial lending experience including 20+ years in venture lending Senior VP of GATX Ventures, Inc, Co-founder and Senior VP of Transamerica Technology Finance, VP of Financing for Science International, Inc., Founder and President of Venture Leasing and Capital John C. Bombara, SVP, General Counsel, Secretary & Chief Compliance Officer Founding member, with 25+ years of legal experience including 15 years in venture lending Counsel at GATX Ventures, Inc., Partner at Pepe & Hazard, LLP Daniel S. Devorsetz, CFA, SVP, Chief Investment Officer 18+ years of credit and portfolio management experience including 15 years in venture lending VP of GE Life Sciences, Credit Manager at GATX Ventures, Inc., VP at Citigroup, Advest and Ironwood Capital Daniel R. Trolio, SVP & Chief Financial Officer 20+ years of finance and accounting experience including 10 years in venture lending VP, Corporate Controller of Horizon Technology Finance Management LLC, Senior Manager with a regional public accounting firm, KPMG and Arthur Andersen Financing for Science Legacy Funds HRZN 5

6 Compelling Market Opportunity for Venture Lending Technology Market Life Science Market EARLY STAGE MID STAGE LATER STAGE VENTURE GROWTH STAGE PUBLIC EARLY STAGE MID STAGE LATER STAGE VENTURE GROWTH STAGE PUBLIC Horizon s lending market 6

7 BDC Lending Spectrum Horizon s Lending Strategy BDCs Private Equity/ Mezzanine Funds Senior Term Loan Secured by 1 st lien or secured by 1 st lien behind the bank revolver Repaid after bank revolver, if any Technology banks provide bank revolver Unitranche Loans Secured by 1 st lien behind the bank revolver Repaid after Senior Revolver Blended combination of senior/ subordinated into one loan with blended interest rate Second Lien Secured by 2 nd lien behind the bank s senior debt portion Subordinated Debt Secured/ unsecured debt If secured, it is paid after all Senior debt is repaid (including 2 nd liens) Preferred/Common Stock Equity Total loss if company fails, lower value than preferred stock High risk/higher return 7

8 YIELD Horizon s Sweet Spot 14% 13% Private venture debt funds 12% $1-5MM 11%-14% $5-25MM 11%-14% 11% 10% 9% 8% 7% Tech banks Finance companies $10-20MM 8%-10% BDCs $15-50MM 9%-11% 6% $1-10MM 5%-8% 5% $1MM $5MM $10MM $15MM $20MM $25MM $30MM+ TRANSACTION SIZE 8

9 Selected Portfolio Companies 9

10 Proven Investment Criteria Management Investor Support Equity History Leadership must have in-market experience at development stage companies Supported by one or more experienced VC and private equity investors, or is a public company with access to the public equity markets Total raised, valuation history, inside or outside led rounds, investor reserves, next round timing Operating Plan Technology Value Market Opportunity Plan must demonstrate adequate resources to reach additional funding or positive cash flow Must have demonstrated intrinsic value through unique technology, service or customer base Addressing large market opportunity with competitive advantages and protected IP or significant market traction Liquidity & Cash Resources Timelines & Milestones Exit Strategy / Warrants Amount of liquidity, monthly burn, cash runway, access to additional equity at acceptable levels Milestones for follow-on financing must be achievable Timing of potential exit through M&A or IPO, valuation comparables, expected gain on warrants to achieve desired return 10

11 Proven Investment Process Direct Origination Underwriting and Due Diligence Loan Closing and Funding Portfolio Management and Exit Detailed prescreen Review business plan Model cash needs Review with senior management Create term sheet Negotiate terms Query investors Receive award and good-faith deposit Gather additional information Visit prospect Diligence with investors, customers, clinicians Independent verification Assess management Prepare model, stress projections Create investment memorandum Present to Investment Committee Approval Document loan with experienced in-house counsel Verification of capitalization table and corporate compliance Compliance with all terms of approval Funding authorized by CEO or President, CFO, Chief Compliance Officer and Chief Investment Officer Warrants received Hands-on approach to portfolio management Monthly reporting by portfolio companies including performance to plan Quarterly reviews with management and investors Monthly credit ratings and weekly watch list monitoring Senior management involvement in problem accounts Realize gains upon exit through M&A or IPO 11

12 Lending Model Mitigates Risk and Creates Value Benefits to Borrower and Lender Secured by the enterprise value of the portfolio company and supported by investment from institutional investors Relatively quick repayment with 6 to 18 months of current pay interest plus fees, followed by 24 to 36 months of amortization Venture loans are less dilutive than equity The loan proceeds fund development costs or revenue ramp to increase enterprise value and avoid development delays Lengthens time until next equity capital raise Amortization of Venture Loan (by month after funding) Portfolio de-risks itself through rapid amortization Venture Loan Middle Market Loan Relative Scale of Loan-to-Value ($mm) Downside Scenario ($mm) $ % $16.5 $ % 75% Equity Reduced $20.0 $16.5 $3.5 $40.0 $46.0 Equity Lost Debt Impaired $6.0 9% Debt Protected $6.0 Venture Loan Middle Market Loan Venture Loan Middle Market Loan Debt Equity 12

13 Portfolio Breakdown as of March 31, 2017 By Industry By Sector By Stage By Geographic Location Early, 7% 44% Later, 53% Expansion, 40% 18% 6% 17% 15% 13

14 Financial Highlights In Thousands (except per share data) Statement of Operations Year ended December 31, 2015 Year ended December 31, 2016 March 31, 2016 March 31, 2017 Total investment income $31,110 $32,984 $9,297 $6,962 Total net expenses 17,114 15,885 4,900 3,595 Net investment income 13,996 17,099 4,397 3,367 Realized loss on investments (1,650) (7,776) (1,986) (10,845) Net unrealized (depreciation) appreciation on investments (490) (14,236) (1,014) 11,131 Net increase (decrease) in net assets resulting from operations $11,856 ($4,913) $1,397 $3,653 Statement of Assets and Liabilities December 31, 2015 December 31, 2016 March 31, 2016 March 31, 2017 Total investments at fair value $250,267 $194,003 $245,035 $180,114 Cash and cash equivalents 22,141 37,135 18,206 43,644 Total assets 280, , , ,957 Borrowings 114,954 95, ,151 85,644 Total liabilities 121, , ,615 90,518 Total net assets $159,751 $139,192 $157,220 $139,439 Net asset value per share $13.85 $12.09 $13.62 $

15 Diversified Leverage Strategy ($ in Millions) Credit Facility Interest Rate Terms Current Commitment Balance Outstanding at 3/31/2017 Unused Commitment 2019 Notes (1) 7.375% Fixed $33.0 $ Key Bank Revolver L+3.25% $95.0 $53.0 $42.0 Total $128.0 $86.0 $42.0 (1) Notes traded on NYSE with the symbol HTF. 15

16 Research Coverage Casey Alexander (646) Ryan Lynch (314) Michael Diana (212) Chris Testa (212) Chris Kotowski (212) Robert Dodd (901) Jonathan Bock (443) Merrill Ross (703)

17 Good Things are on the Horizon! Strong Market Dynamics in Venture Lending Superior Yields with Upside Warrant Gains Undervalued Compared to Peers Shareholder Friendly Catalysts for Accretive Growth Stable Portfolio Quality 17