Venture Lending & Leasing VIII, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - VLL8INC 10Q 063016 EXHIBIT 32.2 - Venture Lending & Leasing VIII, Inc.	vll810q63016ex322.htm
EX-32.1 - VLL8INC 10Q 063016 EXHIBIT 32.1 - Venture Lending & Leasing VIII, Inc.	vll810q63016ex321.htm
EX-31.2 - VLL8INC 10Q 063016 EXHIBIT 31.2 - Venture Lending & Leasing VIII, Inc.	vll810q63016ex312.htm
EX-31.1 - VLL8INC 10Q 063016 EXHIBIT 31.1 - Venture Lending & Leasing VIII, Inc.	vll810q63016ex311.htm

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission file number 814-01162

Venture Lending & Leasing VIII, Inc.

(Exact Name of Registrant as specified in its charter)



Maryland	47-3919702
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

104 La Mesa Drive, Suite 102	Portola Valley, CA 94028
(Address of principal executive offices)	(Zip Code)

(650) 234-4300

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and "smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer [ ]	Accelerated filer [ ]	Non-accelerated filer [x]	Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:



Class		Outstanding as of August 12, 2016
Common Stock, $.001 par value		100,000

VENTURE LENDING & LEASING VIII, INC.

INDEX



PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Statements of Assets and Liabilities (Unaudited)
	As of June 30, 2016 and December 31, 2015

	Condensed Statements of Operations (Unaudited)
	For the three and six months ended June 30, 2016

	Condensed Statements of Changes in Net Assets (Unaudited)
	For the six months ended June 30, 2016

	Condensed Statements of Cash Flows (Unaudited)
	For the six months ended June 30, 2016

	Notes to Condensed Financial Statements (Unaudited)

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings

Item 1A.	Risk Factors

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.	Defaults Upon Senior Securities

Item 4.	Mine Safety Issues

Item 5.	Other Information

Item 6.	Exhibits

SIGNATURES

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)

AS OF JUNE 30, 2016 AND DECEMBER 31, 2015



	June 30, 2016			December 31, 2015
ASSETS
Loans, at estimated fair value
(Cost of $80,466,310 and $26,231,626)	$	80,466,310		$	26,231,626
Cash and cash equivalents	12,230,383			8,335,707
Other assets	1,992,640			342,488
Total assets	94,689,333			34,909,821

LIABILITIES
Borrowings under debt facility	29,000,000			—
Accrued management fees	2,647,656			2,647,656
Accounts payable and other accrued liabilities	505,456			203,417
Total liabilities	32,153,112			2,851,073

NET ASSETS	$	62,536,221		$	32,058,748

Analysis of Net Assets:

Capital paid in on shares of capital stock	$	73,925,000		$	38,025,000
Accumulated undistributed deficit	(5,308,768		)	(3,788,489		)
Distribution in excess of net investment income	(6,080,011		)	(2,177,763		)
Net assets (equivalent to $625.36 and $320.59 per share based on 100,000 shares of capital stock outstanding - See Note 6)	$	62,536,221		$	32,058,748

Commitments & Contingent Liabilities:
Unfunded unexpired commitments (See Note 4)	$	31,397,727		$	17,700,000

See notes to condensed financial statements.

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016



	For the Three Months Ended June 30, 2016			For the Six Months Ended June 30, 2016

INVESTMENT INCOME:
Interest on loans	$	2,756,262		$	4,215,039
Other interest and other income	94,642			105,498
Total investment income	2,850,904			4,320,537

EXPENSES:
Management fees	2,647,656			5,295,312
Interest expense	358,165			358,165
Banking and professional fees	51,288			137,220
Other operating expenses	25,028			50,119
Total expenses	3,082,137			5,840,816

Net investment loss	(231,233		)	(1,520,279		)

Net decrease in net assets resulting from operations	$	(231,233	)	$	(1,520,279	)
Net decrease in net assets resulting from operations per share	$	(2.31	)	$	(15.20	)
Weighted average shares outstanding	100,000			100,000

See notes to condensed financial statements.

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016



	For the Six Months Ended June 30, 2016
Net decrease in net assets resulting from operations:
Net investment loss	$	(1,520,279	)

Net decrease in net assets resulting from operations	(1,520,279		)

Return of capital to shareholder	(3,902,248		)
Contributions from shareholder	35,900,000
Increase in capital transactions	31,997,752

Total increase in net assets	30,477,473

Net assets
Beginning of period	32,058,748

End of period (undistributed net investment income of $0)	$	62,536,221

See notes to condensed financial statements.

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016



	For the Six Months Ended June 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations	$	(1,520,279	)
Amortization of deferred costs related to borrowing facility	195,596
Net increase in other assets	(733,927		)
Net increase in accounts payable, other accrued liabilities, and accrued management fees	302,039
Origination of loans	(58,077,273		)
Principal payments on loans	3,842,589
Acquisition of equity securities	(3,902,248		)
Net cash used in operating activities	(59,893,503		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from shareholder	35,900,000
Borrowings under debt facility	29,000,000
Payment of bank facility fees and costs	(1,111,821		)
Net cash provided by financing activities	63,788,179

Net increase in cash and cash equivalents	3,894,676

CASH AND CASH EQUIVALENTS:
Beginning of period	8,335,707
End of period	$	12,230,383

SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE PERIOD:
Interest	$	3,062
NON-CASH ACTIVITIES:
Distributions of equity securities to shareholder	$	3,902,248

See notes to condensed financial statements.

VENTURE LENDING & LEASING VIII, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


1.	ORGANIZATION AND OPERATIONS OF THE FUND

Venture Lending & Leasing VIII, Inc. (the “Fund”), was incorporated in Maryland on May 6, 2015 as a non-diversified closed-end management investment company electing status as a business development company (“BDC”) under the Investment Company Act of 1940, as amended ("1940 Act") and is managed by Westech Investment Advisors, LLC, (“Manager” or “Management”). The Fund will be dissolved on December 31, 2025 unless an election is made to dissolve earlier by the Board of Directors of the Fund (the "Board"). One hundred percent of the stock of the Fund is held by Venture Lending & Leasing VIII, LLC (the “Company”). Prior to commencing its operations on August 12, 2015, the Fund had no operations other than the sale to the Company of 100,000 shares of common stock, $0.001 par value for $25,000 in July 2015. This issuance of stock was a requirement in order to apply for a finance lender's license from the California Commissioner of Corporations, which was obtained on August 20, 2015.

The Fund's investment objective is to achieve a superior risk adjusted return. In the Manager's opinion, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations for interim periods. Certain information and note disclosures normally included in audited annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted; however, the Fund believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the six months ended June 30, 2016 are not necessarily indicative of what the results would be for a full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Fund's Annual Report on Form 10-K for the period ended December 31, 2015.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior period financial information to conform to the current period presentation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and money market mutual funds with maturities of 90 days or less. Money market mutual funds held as cash equivalents are valued at their most recently traded net asset value.

Interest Income

Interest income on loans is recognized using the effective interest method including amounts from the amortization of discounts attributable to equity securities received as part of the loan transaction. Additionally, fees received as part of the transaction are added to the loan discount and amortized over the life of the loan.

Valuation Procedures

The Fund accounts for loans at fair value in accordance with the “Valuation Methods” below. All valuations are determined under the direction of the Manager, in accordance with the Valuation Methods.

The Fund's loans are valued in connection with the issuance of its periodic financial statements, the issuance or repurchase of the Fund's shares at a price equivalent to the current net asset value per share, and at such other times as required by law. On a quarterly basis, Management submits to the Board a "Valuation Report" and "Valuation Notes", which details the rationale for the valuation of investments.

As of June 30, 2016 and December 31, 2015, the financial statements include nonmarketable investments of $80.5 million and $26.2 million (or approximately 85% and 75% of total assets), with fair values determined by the Manager in the absence of readily determinable market values. Because of the inherent uncertainty of these valuations, estimated fair values of such investments may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Below is the information used by the Manager in making these estimates.

Loans

The Fund defines fair value as the price that would be received to sell an asset or paid to lower a liability in an orderly transaction between market participants at the measurement date. There is no secondary market for the loans made by the Fund to borrowers, hence Management determines fair value based on hypothetical markets. Venture loans are generally held to maturity and are recorded at estimated fair value. The determination of fair value is based on a number of factors including the amount for which an investment could be exchanged in a current sale, which assumes an orderly disposition over a reasonable period other than in a forced sale. Management also considers the fact that no ready market exists for substantially all of the investments held by the Fund. Management determines whether to adjust the estimated fair value of a loan based on a number of factors including but not limited to the borrower's payment history, available cash and “burn rate,” revenues, net income or loss, the likelihood that the borrower will be able to secure additional financing in the future, as well as an evaluation of the general interest rate environment. The amount of any valuation adjustment considers liquidation analysis and is determined based upon a credit analysis of the borrower and an analysis of the expected recovery from the borrower, including consideration of factors such as the nature and quality of the Fund's security interests in collateral, the estimated value of the Fund's collateral, the size of the loan, and the estimated time that will elapse before the Fund achieves a recovery. Management has evaluated these factors and has concluded that the effect of deterioration in the quality of the underlying collateral, increase in the estimated time to recovery, and increase in the hypothetical market coupon rate would have the effect of lowering the value of the current portfolio of loans.

Non-accrual Loans

The Fund's policy is to place a loan on non-accrual status when the loan stops performing and Management deems that it is unlikely that the loan will return to performing status. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed for the quarter in which the loan was placed on non-accrual status. Any uncollected interest related to quarters prior to when the loan was placed on non-accrual status is added to the principal balance, and the aggregate balance of the principal and interest is evaluated in accordance with the policy for valuation of loans in determining Management's best estimate of fair value. Interest received by the Fund on non-accrual loans will be recorded if and when the proceeds exceed the book value of the loans.

If a borrower of a non-accrual loan resumes making regular payments and Management deems that the borrower has sufficient resources that it is unlikely the loan will return to non-accrual status, the loan is reclassified back to accrual or performing status. Interest that would have been accrued during the non-accrual status will be added back to the remaining payment schedule, and thus changing the effective interest rate.

No loans were classified as non-accrual as of June 30, 2016 and December 31, 2015.

Warrants

Warrants that are received in connection with loan transactions generally will be assigned a fair value at the time of acquisition. These securities are then distributed by the Fund to its shareholder at the assigned value. Warrants are valued based on a modified Black-Scholes option pricing model which takes into account factors underlying stock value, expected term, volatility, and the risk-free interest rate, among other factors.

Underlying asset value is estimated based on information available, including information regarding recent rounds of funding of the portfolio company, or the publicly-quoted stock price at the end of the financial reporting period for warrants for comparable publicly-quoted securities.

Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on an index of publicly traded companies grouped by industry and which are similar in nature to the underlying portfolio companies issuing the warrant (“Industry Index”). The volatility assumption for each Industry Index is based on the average volatility for individual public companies within the portfolio company's industry for a period of time approximating the expected life of the warrants. A hypothetical increase in the volatility of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.

The remaining expected lives of warrants are based on historical experience of the average life of the warrants, as warrants are often exercised in the event of acquisitions, mergers, or initial public offerings and terminated due to events such as bankruptcies, restructuring activities, or additional financings. These events cause the expected term to be less than the remaining contractual term of the warrants. For the six months ended June 30, 2016, the Fund assumed the average duration of a warrant is 3.5 years. The effect of a hypothetical increase in the estimated initial term of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.

The risk-free interest rate is derived from the constant maturity tables issued by the U.S. Treasury Department. The effect of a hypothetical increase in the estimated risk-free rate used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.

The Fund engages an independent valuation company to provide valuation assistance including the evaluations of the Fund's valuation methodology and the reasonableness of the assumptions used from the perspective of a market participant. They calculate several of the inputs used such as volatility and risk-free rate. Upon the receipt of such data from the valuation company, a sample test is performed to ensure the accuracy of their calculations and that the source of data is reliable and consistent with the way in which the calculations were made in prior periods. Such inputs are entered into the database with a second review to ensure the accuracy of the input information. All calculations of warrant values are performed by one employee and reviewed by a second employee. The inputs of the modified Black-Scholes option pricing model are reevaluated every quarter.

Other Assets and Liabilities

Other Assets include costs incurred in conjunction with borrowings under the Fund's debt facility and are stated at initial cost. The costs are amortized over the term of the facility.

As of June 30, 2016 and December 31, 2015, the fair values of Other Assets and Liabilities are estimated at their carrying values because of the short-term nature of these assets or liabilities.

As of June 30, 2016 and December 31, 2015, based on borrowing rates available to the Fund, which are Level 2 inputs, the estimated fair values of the borrowings under the debt facility were $29.0 million and $0, respectively.

Commitment Fees

Unearned income and commitment fees on loans are recognized as additional interest on loans using the effective interest method over the term of the loan. Commitment fees are carried as liabilities when received for commitments upon which no draws have been made. When the first draw is made, the fee is treated as unearned income and is recognized as described above. If a draw is never made, the forfeited commitment fee less any applicable legal costs becomes recognized as other income after the commitment expires.

Deferred Bank Fees

Through June 30, 2016, the deferred bank fees and costs associated with the debt facility have been capitalized and will be allocated over the estimated life of the facility, which currently is through April 5, 2019. The amortization of these costs is recorded as interest expense in the Condensed Statements of Operations (see Note 7).

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2015-03 Interest-Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. Debt issuance costs related to lines of credit and revolving debt facilities are not required to be deducted from the carrying amount of that debt liability. The amended guidance is effective for the Fund’s interim and annual periods beginning on January 1, 2016. The adoption of this guidance did not significantly impact the Fund’s financial position or results of operations.

Tax Status

The Fund intends to be treated as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (the "Code") and operates in a manner so as to qualify for the tax treatment applicable to RICs. Failing to maintain at least 70% of total assets in "qualifying assets" will result in the loss of BDC status, resulting in losing its favorable tax treatment as a RIC. As of June 30, 2016, the Fund has met the BDC and RIC requirements.

In order to qualify for favorable tax treatment as a RIC, the Fund is required to distribute annually to its sole shareholder at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, the Fund must distribute annually at least 98% of its ordinary income and 98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Fund, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If the Fund chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to the sole shareholder. The Fund will accrue excise tax on estimated undistributed taxable income as required. Below is a table summarizing the cost (on GAAP and tax basis) and the appreciation and depreciation of the investments reported on the Schedule of Investments in Note 3 below.

As of June 30, 2016



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation		Net Appreciation (Depreciation)		Fair Value
Loans	$	80,466,310	$	—	$	—	$	—	$	80,466,310

As of December 31, 2015



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation		Net Appreciation (Depreciation)		Fair Value
Loans	$	26,231,626	$	—	$	—	$	—	$	26,231,626

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Fund's annual RIC tax return.

Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are reclassified among the Fund's capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

Through June 30, 2016, the Fund had no undistributed earnings. Additionally, for the six months ended June 30, 2016, distributions were made in excess of distributable earnings by $3.9 million. The Fund may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the shareholder's tax basis in its shares. As of June 30, 2016, the Fund had no uncertain tax positions. As of June 30, 2016, the Fund had no capital loss carry forwards.

The Fund's tax years open to examination by federal tax authorities and California tax authorities are for years 2015 and forward.


3.	SCHEDULES OF INVESTMENTS

As of June 30, 2016, all loans were made to non-affiliates as follows (unaudited):



Borrower	Percentage of Net Assets	Estimated Fair Value 6/30/2016		Par Value 6/30/2016		Final Maturity Date

Biotechnology
Phylagen, Inc.		$	225,904	$	225,904	07/01/2019
Subtotal:	0.4%	$	225,904	$	225,904

Computers & Storage
Electric Objects, Inc.		$	339,487	$	339,487	09/01/2019
Rigetti & Co., Inc.		711,486		711,486		01/01/2019
Subtotal:	1.7%	$	1,050,973	$	1,050,973

Internet
Allbirds, Inc.		$	230,562	$	230,562	12/01/2018
Apartment List, Inc		1,390,241		1,390,241		11/01/2019
Apsalar, Inc.		694,560		694,560		03/01/2019
Blitsy, Inc.		474,873		474,873		02/01/2019
CapLinked, Inc.		468,372		468,372		01/01/2019
HEXAGRAM49, Inc.		715,301		715,301		06/01/2019
PerformLine, Inc.		947,458		947,458		06/01/2019
Placester, Inc.		2,494,814		2,494,814		10/01/2019
Striking, Inc.		465,515		465,515		06/01/2019
Super Home, Inc.		225,130		225,130		03/01/2019
Thrive Market, Inc.		7,080,839		7,080,839		09/01/2019



TouchofModern, Inc.		5,670,308		5,670,308		05/01/2020
Traackr, Inc.		703,304		703,304		04/01/2019
Viyet, Inc.		216,395		216,395		01/01/2019
Subtotal:	34.8%	$	21,777,672	$	21,777,672

Medical Devices
JustRight Surgical LLC		$	1,328,662	$	1,328,662	01/01/2019
Subtotal:	2.1%	$	1,328,662	$	1,328,662

Other Healthcare
Caredox, Inc.		$	709,606	$	709,606	01/01/2019
Cogito Corporation		455,652		455,652		09/01/2019
Hello Doctor, Ltd. *		149,628		149,628		03/01/2019
Hi.Q, Inc.		1,897,511		1,897,511		05/01/2020
Lean Labs, Inc.		232,147		232,147		12/01/2018
Project Healthy Living, Inc.		937,344		937,344		12/01/2018
Skulpt, Inc.		945,599		945,599		03/01/2019
Trio Health Advisory Group, Inc.		925,641		925,641		02/01/2019
Wellist PBC, Inc.		173,996		173,996		03/01/2019
Subtotal:	10.3%	$	6,427,124	$	6,427,124

Other Technology
Asset Avenue, Inc. *		$	835,958	$	835,958	10/01/2018
Automatic Labs, Inc.		2,856,740		2,856,740		12/01/2018
Candy Club Holdings, Inc.		214,453		214,453		09/01/2018
CommunityCo, LLC		256,297		256,297		03/01/2019
Daylight Solutions, Inc.		800,790		800,790		12/01/2018
Ensyn Corporation		2,783,354		2,783,354		06/01/2019
Eponym, Inc.		708,895		708,895		12/01/2018
Flo Water, Inc.		193,201		193,201		08/01/2018
Gap Year Global, Inc.		225,882		225,882		10/01/2018
Greats Brand, Inc.		210,024		210,024		07/01/2019
Hyperloop Technologies, Inc.		7,112,384		7,112,384		06/01/2019
Neuehouse, LLC		4,511,078		4,511,078		06/01/2019
One Financial Holdings Group, Inc.		709,478		709,478		04/01/2019
Owlet Baby Care, Inc.		924,658		924,658		03/01/2019
Plethora, Inc		1,406,283		1,406,283		03/01/2019
Seriforge, Inc.		200,403		200,403		09/01/2018
Skully, Inc.		2,299,158		2,299,158		12/01/2018
Wine Plum, Inc.		930,980		930,980		09/01/2019
Subtotal:	43.5%	$	27,180,016	$	27,180,016

Security
Bottlenose, Inc.		$	1,393,912	$	1,393,912	12/01/2018
Kryptnostic, Inc.		471,242		471,242		06/01/2019
Subtotal:	3.0%	$	1,865,154	$	1,865,154



Semiconductors & Equipment
ETA Compute, Inc.		$	231,795	$	231,795	10/01/2019
Subtotal:	0.4%	$	231,795	$	231,795

Software
Addepar, Inc.		$	4,817,759	$	4,817,759	06/01/2018
Apptimize, Inc.		911,094		911,094		03/01/2019
Bloomboard, Inc.		1,895,112		1,895,112		08/01/2019
Bounce Exchange, Inc.		931,834		931,834		12/01/2019
Interset Software, Inc. *		1,182,772		1,182,772		10/01/2019
Toast, Inc.		476,012		476,012		01/01/2019
Workspot, Inc.		669,807		669,807		02/01/2019
Xeeva		2,365,223		2,365,223		06/01/2019
Zodiac, Inc.		713,497		713,497		07/01/2019
Subtotal:	22.3%	$	13,963,110	$	13,963,110

Technology Services
Ascend Consumer Finance, Inc. *		$	473,742	$	473,742	03/01/2019
Blazent, Inc.		1,171,462		1,171,462		08/01/2019
Iris.tv, Inc.		231,171		231,171		04/01/2019
ParkJockey Global, Inc.		449,079		449,079		06/01/2019
PayJoy, Inc. *		472,012		472,012		08/01/2019
Sixup PBC, Inc. *		578,653		578,653		06/01/2019
Subtotal:	5.4%	$	3,376,119	$	3,376,119

Wireless
Bluesmart, Inc.		$	1,888,474	$	1,888,474	09/01/2019
InVenture Capital Corporation*		697,091		697,091		03/01/2019
Juvo Mobile, Inc. *		454,216		454,216		09/01/2019
Subtotal:	4.8%	$	3,039,781	$	3,039,781

Total Loans (Cost of $80,466,310)	128.7%	$	80,466,310	$	80,466,310

As of June 30, 2016, no loans were classified as non-accrual.

* Indicates assets that the Fund deems “non-qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets

must represent at least 70% of the Fund’s total assets at the time of acquisition of any additional non-qualifying assets. As of June 30, 2016, 5.2% of the Fund’s assets represented non-qualifying assets. As part of this calculation, the denominator consists of all eligible portfolio companies as defined in Section 2(a)(46); the numerator consists of total assets less the assets described in Section 55(a)(7).

As of December 31, 2015, all loans were made to non-affiliates as follows:



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2015		Par Value 12/31/2015		Final Maturity Date

Computers & Storage
Rigetti & Co., Inc.		$	702,377	$	702,377	01/01/2019
Subtotal:	2.2%	$	702,377	$	702,377

Internet
Apartment List, Inc.		$	1,362,110	$	1,362,110	11/01/2019
Blitsy, Inc.		469,038		469,038		02/01/2019
CapLinked, Inc.		218,415		218,415		12/01/2018
PerformLine, Inc.		329,776		329,776		12/01/2018
Thrive Market, Inc.		4,597,636		4,597,636		09/01/2019
Viyet, Inc.		206,942		206,942		01/01/2019
Subtotal:	22.4%	$	7,183,917	$	7,183,917

Other Healthcare
Caredox, Inc.		$	699,772	$	699,772	01/01/2019
Lean Labs, Inc.		227,272		227,272		12/01/2018
Project Healthy Living, Inc.		920,053		920,053		12/01/2018
Wellist PBC, Inc.		168,014		168,014		03/01/2019
Subtotal:	6.3%	$	2,015,111	$	2,015,111

Other Technology
Automatic Labs, Inc.		$	2,809,602	$	2,809,602	12/01/2018
Candy Club Holdings, Inc.		231,448		231,448		09/01/2018
Daylight Solutions, Inc.		753,241		753,241		12/01/2018
Flo Water, Inc.		211,622		211,622		08/01/2018
Gap Year Global, Inc.		236,385		236,385		10/01/2018
Owlet Baby Care, Inc.		906,998		906,998		03/01/2019
Seriforge, Inc.		212,260		212,260		09/01/2018
Skully, Inc.		2,348,512		2,348,512		12/01/2018
Subtotal:	24.0%	$	7,710,068	$	7,710,068

Security
Bottlenose, Inc.		$	1,364,114	$	1,364,114	12/01/2018
Subtotal:	4.3%	$	1,364,114	$	1,364,114

Software
Addepar, Inc.		$	4,762,615	$	4,762,615	06/01/2018
Apptimize, Inc.		458,467		458,467		09/01/2018
Bloomboard, Inc.		910,846		910,846		08/01/2019
Toast, Inc.		466,745		466,745		01/01/2019
Subtotal:	20.6%	$	6,598,673	$	6,598,673




Wireless
Bluesmart, Inc.		$	657,366	$	657,366	09/01/2019
Subtotal:	2.0%	$	657,366	$	657,366

Total Loans (Cost of $26,231,626)	81.8%	$	26,231,626	$	26,231,626

As of December 31, 2015, no loans were classified as non-accrual and as non-qualifying assets.

4. FAIR VALUE DISCLOSURES

Loans generally are made to borrowers pursuant to commitments whereby the Fund agrees to finance assets and provide working capital or growth up to a specified amount for the term of the commitment, upon the terms and subject to the conditions specified by such commitment. As of June 30, 2016, the Fund's investments in loans were primarily to companies based within the United States and were diversified among borrowers in the industry segments shown below. The percentage of net assets that each industry group represents is shown with the industry totals below (the sum of the percentages does not equal 100 percent because the percentages are based on net assets as opposed to total loans). All loans are senior to unsecured creditors.

The Fund provides asset-based financing primarily to start-up and emerging growth venture-capital-backed companies. These loans are generally secured by assets of the borrowers. As a result, the Fund is generally subject to general credit risk associated with such companies.

The Fund defines fair value as the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale.

Loan balances are summarized by borrower. Typically a borrower's balance will be composed of several loans drawn under a commitment made by the Fund with the interest rate on each loan fixed at the time each loan is funded. Each loan drawn under a commitment may have a different maturity date and amount. For the three and six months ended June 30, 2016, the weighted-average interest rate on performing loans was 16.12% and 15.79%, respectively. This rate is inclusive of both cash and non-cash interest income. For the three and six months ended June 30, 2016, the weighted-average interest rate on the cash portion of the interest income was 12.38% and 12.04%. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants and new loans funded during the period.

The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and loan as described in our loan accounting policy. Such changes result in the fair value adjustments made to the individual loans. Where the risk profile is consistent with the original underwriting, which is primarily the case for this loan portfolio, the par value of the loan will approximate fair value.

All loans as of June 30, 2016 were pledged as collateral for the debt facility, and the Fund's borrowings are subsequently collateralized by all assets of the Fund.

As of June 30, 2016 and December 31, 2015, the Fund had unexpired unfunded commitments to borrowers of $31.4 million and $17.7 million, respectively.

Valuation Hierarchy

Under the FASB Accounting Standards Codification (ASC) 820-10 Fair Value Measurements, the Fund categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Fund's

valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:



Level 1		Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2		Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3		Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Transfers of investments between levels of the fair value hierarchy are recorded on the actual date of the event or change in circumstances that caused the transfer. There were no transfers in and out of Level 1, 2, and 3 during the period ended June 30, 2016.

The Fund's cash equivalents were valued at the traded net asset value of the money market mutual fund. As a result, these measurements are classified as Level 1. The Fund uses estimated exit values when determining the value of its investments. Because loan transactions are individually negotiated and unique, and there is no market in which these assets trade, the inputs for these assets, which are discussed in the Valuation Methods listed above, are classified as Level 3.

The following tables provide quantitative information about the Fund's Level 3 fair value measurements of its investments as of June 30, 2016 and December 31, 2015. In addition to the techniques and inputs noted in the tables below, the Fund may also use other valuation techniques and methodologies when determining its fair value measurements.



Investment Type - Level 3
Debt Investments	Fair Value at 6/30/2016		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount or Range

Biotechnology	$	225,904	Hypothetical market analysis	Hypothetical market coupon rate	18%

Computers & Storage	$	1,050,973	Hypothetical market analysis	Hypothetical market coupon rate	15%

Internet	$	21,777,672	Hypothetical market analysis	Hypothetical market coupon rate	15%

Medical Devices	$	1,328,662	Hypothetical market analysis	Hypothetical market coupon rate	21%

Other Healthcare	$	6,427,124	Hypothetical market analysis	Hypothetical market coupon rate	15%

Other Technology	$	27,180,016	Hypothetical market analysis	Hypothetical market coupon rate	17%

Security	$	1,865,154	Hypothetical market analysis	Hypothetical market coupon rate	16%

Semiconductors & Equipment	$	231,795	Hypothetical market analysis	Hypothetical market coupon rate	14%

Software	$	13,963,110	Hypothetical market analysis	Hypothetical market coupon rate	15%

Technology Services	$	3,376,119	Hypothetical market analysis	Hypothetical market coupon rate	16%

Wireless	$	3,039,781	Hypothetical market analysis	Hypothetical market coupon rate	14%

	$	80,466,310



Investment Type - Level 3
Debt Investments	Fair Value at 12/31/2015		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount or Range

Computers & Storage	$	702,377	Hypothetical market analysis	Hypothetical market coupon rate	14%

Internet	$	7,183,917	Hypothetical market analysis	Hypothetical market coupon rate	16%

Other Healthcare	$	2,015,111	Hypothetical market analysis	Hypothetical market coupon rate	16%

Other Technology	$	7,710,068	Hypothetical market analysis	Hypothetical market coupon rate	16%

Security	$	1,364,114	Hypothetical market analysis	Hypothetical market coupon rate	16%

Software	$	6,598,673	Hypothetical market analysis	Hypothetical market coupon rate	14%

Wireless	$	657,366	Hypothetical market analysis	Hypothetical market coupon rate	17%

	$	26,231,626

The following table presents the balances of assets as of June 30, 2016 and December 31, 2015 measured at fair value on a recurring basis:



As of June 30, 2016	Level 1		Level 2		Level 3		Total
ASSETS:
Loans*	$	—	$	—	$	80,466,310	$	80,466,310
Cash equivalents	12,230,383		—		—		12,230,383
Total	$	12,230,383	$	—	$	80,466,310	$	92,696,693

*For a detailed listing of borrowers comprising this amount, please refer to Note 3, Schedules of Investments.



As of December 31, 2015	Level 1		Level 2		Level 3		Total
ASSETS:
Loans*	$	—	$	—	$	26,231,626	$	26,231,626
Cash equivalents	8,335,707		—		—		8,335,707
Total	$	8,335,707	$	—	$	26,231,626	$	34,567,333

*For a detailed listing of borrowers comprising this amount, please refer to Note 3, Schedules of Investments.

The following table provides a summary of changes in Level 3 assets measured at fair value on a recurring basis:



	For the Three Months Ended June 30, 2016
	Loans			Warrants
Beginning balance	$	51,794,815		$	—
Acquisitions and originations	30,612,500			1,811,099
Principal reductions	(1,941,005		)	—
Distributed to shareholder	—			(1,811,099		)
Ending balance	$	80,466,310		$	—
Net change in unrealized loss on investments relating to investments still held at June 30, 2016	$	—



	For the Six Months Ended June 30, 2016
	Loans			Warrants
Beginning balance	$	26,231,626		$	—
Acquisitions and originations	58,077,273			3,902,248
Principal reductions	(3,842,589		)	—
Distributed to shareholder	—			(3,902,248		)
Ending balance	$	80,466,310		$	—
Net change in unrealized loss on investments relating to investments still held at June 30, 2016	$	—


5.	EARNINGS PER SHARE

Basic earnings per share are computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average common shares outstanding. Diluted earnings per share are computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average common shares outstanding, including the dilutive effects of potential common shares (e.g., stock options). The Fund held no instruments that would be potential common shares; thus, reported basic and diluted earnings per share are the same.


6.	CAPITAL STOCK

As of June 30, 2016 and December 31, 2015, there were 10,000,000 shares of $0.001 par value common stock authorized, and 100,000 shares issued and outstanding. Total committed capital of the Company, as of June 30, 2016 and December 31, 2015 was $423.6 million. Total contributed capital to the Company through June 30, 2016 and December 31, 2015 was $84.7 million and $42.4 million, of which $73.9 million and $38.0 million was contributed to the Fund, respectively.

The chart below shows the distributions of the Fund for the six months ended June 30, 2016.



	For the Six Months Ended June 30, 2016

Distributions of equity securities	$	3,902,248
Total distributions to shareholder	$	3,902,248

Final classification of the distributions as either a return of capital or a distribution of income is an annual determination made at the end of each year dependent upon the Fund's current year and cumulative earnings and profits.

7. DEBT FACILITY

On April 5, 2016, the Fund has established a secured, syndicated revolving credit facility (the “Loan Agreement”) led by Wells Fargo, N.A. and MUFG Union Bank, N.A. in an initial amount of up to $150,000,000. An additional $200,000,000 is potentially available to the Fund, subject to further negotiation and credit approval, through an accordion provision contained in the Loan Agreement. Loans under the facility may be, at the option of the Fund, either a Reference Rate Loan or a LIBOR Rate Loan. A Reference Rate Loan is defined as a loan bearing interest at the highest of: (a) the Federal Funds Rate for such day plus one half of one percent (0.50%), (b) the Prime Rate, and (c) LIBOR plus one percent (1%). A LIBOR Rate Loan is defined as a Loan bearing interest at the prevailing LIBOR rate for a period equal to the applicable LIBOR Loan Period which appears on Reuters Screen LIBOR01 Page (or any applicable successor page) at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable LIBOR Loan Period (rounded upward, if necessary, to the nearest 1/100th of 1%) ("LIBOR Rate"). As of June 30, 2016 , all of the Fund’s outstanding borrowings were based on the LIBOR Rate.

The Fund will pay interest on its borrowings, and will also pay a fee on the unused portion of the facility.

The facility terminates on April 5, 2019, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments. As of June 30, 2016 and December 31, 2015, $29.0 million and $0 was outstanding under the facility, respectively.

Borrowings under the facility are collateralized by receivables under loans advanced by the Fund with assignment to the financial institution, plus all of other assets of the Fund. Under the Loan Agreement, interest is charged to the Fund based on its borrowings at, the election of the Fund, an annual rate equal to either (i) LIBOR plus 2.75% or (ii) the Reference Rate plus 1.75%. The Fund also pays an annual commitment fee under the Loan Agreement. When the Fund is using 50% or more of the maximum amount available under the Loan Agreement, the applicable commitment fee is 0.25% of the unused portion of the loan facility; otherwise, the applicable commitment fee is 0.50% of the unused portion. The Fund pays the unused line fee quarterly.

As of June 30, 2016, the LIBOR Rate is as follows:



1 Month LIBOR	0.4651%
3 Month LIBOR	0.6541%

Bank fees and other costs of $1.1 million were incurred in connection with the facility. The bank fees and other costs incurred have been capitalized and are amortized to interest expense on a straight line basis over the expected life of the facility. As of June 30, 2016, the remaining unamortized fees and costs of $0.9 million are being amortized over the expected life of the facility, which is expected to terminate on April 5, 2019.

The facility is revolving and as such does not have a specified repayment schedule, although advances are secured by the assets of the Fund and thus repayments will be required as assets decline. The facility contains various covenants including financial covenants related to: (i) minimum debt service coverage ratio, (ii) interest coverage ratio, (iii) maximum loan loss reserves, (iv) unfunded commitment ratio, (v) Maximum Loan Loss Test and (vi) Covenant Deferral Condition. There are also various restrictive covenants, including limitations on (i) the incurrence of liens, (ii) consolidations, mergers and asset sales, and (iii) capital expenditures. As of June 30, 2016, Management believes that the Fund was in compliance with these covenants.

The following is the summary of the outstanding facility draws as of June 30, 2016:



Loan Date	Amount		Maturity Date *	All-In Interest Rate **
April 12, 2016	$	7,000,000	7/15/2016	3.38%
May 4, 2016	$	5,000,000	7/15/2016	3.39%
May 13, 2016	$	7,000,000	7/15/2016	3.27%
June 30, 2016	$	10,000,000	7/15/2016	3.22%
TOTAL OUTSTANDING	$	29,000,000

* On July 15, 2016, Management rolled the outstanding amount for a 90-day LIBOR loan, maturing on October 17, 2016.

** Inclusive of 2.75% applicable LIBOR margin plus LIBOR rate.

8. FINANCIAL HIGHLIGHTS

GAAP requires disclosure of financial highlights of the Fund for the period presented, the three months ended June 30, 2016. The total rate of return is defined as the return based on the change in value during the period of a theoretical investment made at the beginning of the period. The total rate of return assumes a constant rate of return for the Fund during the period reported and weights each cash flow by the amount of time held in the Fund. This required methodology differs from an internal rate of return.

The ratios of expenses and net investment loss to average net assets, calculated below, are annualized and are computed based upon the aggregate weighted average net assets of the Fund for the period presented. Net investment loss is inclusive of all investment income net of expenses, and excludes realized or unrealized gains and losses.

Beginning and ending net asset values per share are based on the beginning and ending number of shares outstanding. Other per share information is calculated based upon the aggregate weighted average net assets of the Fund for the periods presented.

The following per share data and ratios have been derived from the information provided in the financial statements:



	For the Three Months Ended June 30, 2016			For the Six Months Ended June 30, 2016

Total return **	(0.36		)%	(3.13		)%

Per share amounts:
Net asset value, beginning of period	$	642.79		$	320.59
Net investment loss	(2.31		)	(15.20		)
Net decrease in net assets from operations	(2.31		)	(15.20		)
Return of capital to shareholder	(18.12		)	(39.03		)
Contributions from shareholder	3.00			359.00

Net asset value, end of period	$	625.36		$	625.36

Net assets, end of period	$	62,536,221		$	62,536,221

Ratios to average net assets:

Expenses*	19.11		%	20.79		%
Net investment loss*	(1.43		)%	(5.41		)%
Portfolio Turnover rate	0%			0%
Average debt outstanding***	$	15,037,500		$	15,037,500
* Annualized
** Total return amounts presented above are not annualized.
*** Since inception of facility

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information contained herein, the information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Fund with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Fund's control. All statements, other than statements of historical facts included in this report, regarding the strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Fund are forward-looking statements. When used in this report, the words “will”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Fund does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Fund's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments and competition. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Fund's business.

Overview

The Fund is 100% owned by the Company. The Fund's shares of Common Stock, at $0.001 par value, were sold to its sole shareholder, the Company, under a stock purchase agreement. The Fund has issued 100,000 of the Fund's 10,000,000 authorized shares. The Company may make additional capital contributions to the Fund.

The Fund is a financial services company providing financing and advisory services to a variety of carefully selected venture-backed companies primarily throughout the United States with a focus on growth oriented companies. The Fund's portfolio is expected to become more diversified and consists of companies in the communications, information services, media, and technology, including software and technology-enabled business services, bio-technology, and medical devices industry sectors, among others. The Fund's capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital. On August 12, 2015, the Company called and received its first capital, and the Fund started its investment activities. On August 31, 2015, the Fund completed its first closing of capital contributions. On September 1, 2015, the Fund made its first investments, and became a non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. As soon as the Fund is profitable, the Fund expects to elect to be treated for federal income tax purposes as a RIC under the Code. Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income it distributes to the Company as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.

The Fund, once RIC election is made, will seek to meet the ongoing requirements, including the diversification requirements, to maintain its qualification and treatment as a RIC under the Code. If the Fund fails to meet these requirements, it would be taxed as an ordinary corporation on its taxable income for that year (even if that income is distributed to the Company) and all distributions out of its earnings and profits will be taxable to the Members of the Company as ordinary income; thus, such income will be subject to a double layer of tax. There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.

The Fund's investment objective is to achieve superior risk adjusted investment returns. The Fund seeks to achieve its investment objective by providing debt financing to portfolio companies. Since inception, the Fund's investing activities have focused primarily on private debt securities. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments. The Fund generally distributes these warrants

to its shareholder upon receipt. The Fund also has guidelines for the percentages of total assets which will be invested in different types of assets.

The portfolio investments of the Fund will primarily consist of debt financing to venture capital backed technology companies. The borrower's ability to repay its loans may be adversely impacted by a number of factors, and as a result, the loan may not fully be repaid. Furthermore, the Fund's security interest in any collateral over the borrower's assets may be insufficient to make up any shortfall in payments.

Transactions with Venture Lending & Leasing VII, Inc. (“Fund VII”)

The Manager also serves as investment manager for Fund VII. The Fund's Board determined that so long as Fund VII had capital available to invest in loan transactions with final maturities earlier than December 31, 2022 (the date on which Fund VII will be dissolved), the Fund would invest in each portfolio company in which Fund VII invested (“Investments”). The amount of each Investment was allocated 50% to the Fund and 50% to Fund VII.

To the extent that clients, other than Fund VII, advised by the Manager (but in which the Manager has no proprietary interest) invest in opportunities available to the Fund, the Manager will allocate such opportunities among the Fund and such other clients in a manner deemed fair and equitable considering all of the circumstances in accordance with procedures approved by the Fund's Board (including a majority of the disinterested directors).

Critical Accounting Policies

The Manager has identified the most critical accounting estimates upon which the financial statements depend and determined the critical accounting estimates by considering accounting policies that involve the most complex or subjective decisions or assessments. The two critical accounting policies relate to the valuation of loans and treatment of non-accrual loans.

Loans are held at fair value as determined by Management, in accordance with the valuation methods described in the valuation of loans section of Note 2 to the financial statements (Summary of Significant Accounting Policies). Critical factors in determining the fair value of a loan include payment history, collateral position, financial strength of the borrower, prospects for the borrower's raising future equity rounds, likelihood of sale or acquisition of the borrower, and length of expected holding period of the loan, as well as an evaluation of the general interest rate environment. The actual value of the loans may differ from Management's estimates, which would affect net change in net assets resulting from operations as well as assets.

Results of Operations - For the three and six months ended June 30, 2016

The Fund did not commence operations until August 12, 2015.

Total investment income for the three and six months ended June 30, 2016 was $2.9 million and $4.3 million, which primarily consisted of interest on the venture loans outstanding. The remaining income consisted of interest and dividends on the temporary investment of cash and forfeited commitment fees and warrants. The income was primarily driven by the level of average loans outstanding for the three months ended June 30, 2016 of $68.4 million. The average interest rate on gross outstanding performing loans was 16.12% for the same period. The income was primarily driven by the level of average loans outstanding for the six months ended June 30, 2016 of $53.4 million. The average interest rate on gross outstanding performing loans was 15.79% for the same period. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants, and new loans funded during the year.

Management fees are calculated based on the Company’s committed capital for the first two years of the Fund’s life and thereafter as a percentage of Fund assets. Management fees for the Fund for the three and six months ended June 30, 2016 were $2.6 million and $5.3 million, respectively. Until August 11, 2017, management fees will be calculated as 2.5 percent of the committed capital of the Company. Starting on August 12, 2017, management fees will be calculated as 2.5 percent of the Fund's total assets.

Interest expense was $0.4 million and $0.4 million for the three and six months ended June 30, 2016, respectively. Interest expense was comprised of amounts related to interest on debt amounts drawn down, unused line fees and amounts amortized from deferred fees incurred in conjunction with the debt line.

The banking and professional fees were less than $0.1 million and $0.1 million for the three and six months ended June 30, 2016. The banking and professional fees were comprised of legal, audit, banking and other professional fees.

Other operating expenses were less than $0.1 million for the three and six months ended June 30, 2016.

Net investment loss for the three and six months ended June 30, 2016 was $0.2 million and $1.5 million.

Net decrease in net assets resulting from operations for the three and six months ended June 30, 2016 was $0.2 million and $1.5 million respectively. On a per share basis, the net decrease in net assets resulting from operations was $2.31 and $15.20 for the three and six months ended June 30, 2016, respectively.

Liquidity and Capital Resources – June 30, 2016 and December 31, 2015

Total capital contributed to the Fund was $73.9 million and $38.0 million as of June 30, 2016 and December 31, 2015, respectively. Committed capital to the Company as of June 30, 2016 and December 31, 2015 was $423.6 million, of which $84.7 million and $42.4 million had been called as of June 30, 2016 and December 31, 2015, respectively. The remaining $338.9 million of committed capital outstanding as of June 30, 2016 is due to expire in December 2020 as the five year anniversary will have passed, at which time no further capital can be called.

On April 5, 2016, the Fund has established a secured, syndicated revolving credit facility (the “Loan Agreement”) led by Wells Fargo Bank, N.A. and MUFG Union Bank, N.A. in an initial amount of up to $150,000,000. Borrowings by the Fund are collateralized by all of the assets of the Fund. Loans under the facility may be, at the option of the Fund, either a Reference Rate Loan or a LIBOR Rate Loan. The Fund will pay interest on its borrowings, and will also pay a fee on the unused portion of the facility.

As of June 30, 2016 and December 31, 2015, 12.9% and 23.9%, respectively, of the Fund's assets consisted of cash and cash equivalents. For the six months ended June 30, 2016, the Fund invested its assets in entirely in venture loans and disbursed under the Fund's loan commitments approximately $58.1 million. Net loan amounts outstanding after amortization increased by approximately $54.2 million for the same period. Unexpired, unfunded commitments totaled approximately $31.4 million as of June 30, 2016.



As of	Cumulative Amount Disbursed	Principal Reductions and Fair Market Adjustments	Balance Outstanding - Fair Value	Unexpired Unfunded Commitments
June 30, 2016	$86.7 million	$6.2 million	$80.5 million	$31.4 million
December 31, 2015	$28.6 million	$2.4 million	$26.2 million	$17.7 million

Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid. It is the Fund's experience that not all unfunded commitments will be used by borrowers.

The Fund expects to elect to be treated for federal income tax purposes as a RIC under the Code. The Fund seeks to meet the requirements to qualify for the special pass-through status available to RICs under the Code, and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it

distributes to its shareholder. To qualify as a RIC, the Fund must distribute to its shareholder for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) (“Distribution Requirement”). To the extent that the terms of the Fund's venture loans provide for the receipt by the Fund of additional interest at the end of the loan term or provide for the receipt by the Fund of a purchase price for the asset at the end of the loan term (“residual income”), the Fund would be required to accrue such residual income over the life of the loan, and to include such accrued undistributed income in its gross income for each taxable year even if it receives no portion of such residual income in that year. Thus, in order to meet the Distribution Requirement and avoid payment of income taxes or an excise tax on undistributed income, the Fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of income it actually receives. Those distributions will be made from the Fund's cash assets, from amounts received through amortization of loans or from borrowed funds.

As of June 30, 2016, the Fund has adequate cash reserves and approximately $28.6 million in scheduled receivable payments over the next year. Additionally the Fund has access to uncalled capital of $338.9 million as a liquidity source and the unused portion of the revolving credit facility. These amounts are sufficient to meet the current commitment backlog and operational expenses of the next year. The Fund constantly evaluates potential future liquidity resources and demands before making additional future commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Fund's business activities contain elements of risk. The Fund considers the principal types of market risk to be interest rate risk and credit risk. The Fund considers the management of risk essential to conducting its business and to maintaining profitability. Accordingly, the Fund's risk management procedures are designed to identify and analyze the Fund's risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.

The Fund manages its market risk by maintaining a portfolio that is diverse by industry, size of investment, stage of development, and borrower. The Fund has limited exposure to public market price fluctuations as the Fund primarily invests in private business enterprises and the Fund generally distributes all equity securities upon receipt to the Company.

The Fund's investments are subject to market risk based on several factors, including, but not limited to, the borrower's credit history, available cash, support of the borrower's underlying investors, available liquidity, "burn rate", revenue income, security interest, secondary markets for collateral, the size of the loan, and term of the loan, and the ability to exit via Initial Public Offering or Merger and Acquisition.

The Fund's sensitivity to changes in interest rates is regularly monitored and analyzed by measuring the characteristics of assets and liabilities. The Fund utilizes various methods to assess interest rate risk in terms of the potential effect on interest income net of interest expense, the value of net assets and the value at risk in an effort to ensure that the Fund is insulated from any significant adverse effects from changes in interest rates. At June 30, 2016, the outstanding debt balance was $29.0 million with interest expense based on a weighted average rate of 0.55%, for which the Fund had not entered into any interest expense protection, leaving the Fund's maximum exposure to interest rate sensitivity on that balance. The Fund expects that it will enter into an interest rate cap agreement on the day prior to the date which the aggregate outstanding principal amount of the debt reaches $40.0 million.

Because all of the Fund’s loans have a fixed interest rate upon funding, changes in interest rates will not directly affect interest income with regard to the portfolio of loans as of June 30, 2016, but could potentially change the Fund’s ability to originate loan commitments, acquire and renew bank facilities, and engage in other investment activities. Changes in interest rates also could affect interest rate expense, realized gain from hedging and interest on the Fund’s short-term investments.

Based on the Fund’s Condensed Statement of Assets and Liabilities as of June 30, 2016, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of

hypothetical base rate changes in interest rates, assuming no changes in investments, borrowings, cash balances, and interest rate hedges.



Effect of Interest rate change by	Other Interest and Other Income	Realized gain Hedge	Interest Expense	Total Income
(0.50)%	($61,152)	—	$145,000	$83,848
1%	$122,304	—	($290,000)	($167,696)
2%	$244,608	—	($580,000)	($335,392)
3%	$366,911	—	($870,000)	($503,089)
4%	$489,215	—	($1,160,000)	($670,785)
5%	$611,519	—	($1,450,000)	($838,481)

Additionally, a change in the interest rate may affect the value of the interest rate cap and effect Net Change in Unrealized Gain (Loss) from hedging activities if and when we acquire one. The amount of any such effect will be contingent upon market expectations for future interest rate changes. Any increases in expected future rates will increase the value of the interest rate cap while any rate decreases will decrease the value.

Although we believe that the foregoing analysis is indicative of the Fund’s sensitivity to interest rate changes, it does not take into consideration potential changes in the credit market, credit quality, size and composition of the assets in the portfolio. It also does not assume any new fundings to borrowers, repayments from borrowers or defaults on borrowings. Accordingly, no assurances can be given that actual results would not differ materially from the table above.

Because the Fund currently borrows, and plans to borrow in the future, its net investment income is to a great extent dependent upon the difference between the rate at which it borrows and the rate at which it invests the amounts borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on the Fund’s investment activities and net investment income. The Fund does not currently attempt to limit its interest rate risk by acquiring interest rate caps, but anticipates that future borrowings will cause the Fund to choose to hedge its interest rate exposure.

Item 4. Controls and Procedures:

Evaluation of Disclosure Controls and Procedures:

As of the end of the period covered by this quarterly report on Form 10-Q, the Fund's chief executive officer and chief financial officer conducted an evaluation of the Fund's disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934). Based upon this evaluation, the Fund's chief executive officer and chief financial officer concluded that the Fund's disclosure controls and procedures were effective in timely alerting them of any material information relating to the Fund that is required to be disclosed by the Fund in the reports it files or submits under the Securities Exchange Act of 1934.

Changes in Internal Controls:

There were no changes in the Fund's internal controls or in other factors that could materially affect these controls during the period covered by this quarterly report on Form 10-Q.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Fund may become party to certain lawsuits from time to time in the normal course of business. While the outcome of any legal proceedings cannot at this time be predicted with certainty, the Fund does not expect any

such proceedings will have a material effect upon the Fund's financial condition or results of operation. Management is not aware of any pending legal proceedings involving the Fund.

Item 1A. Risk Factors

See item 1A - 'Risk Factors' in the Fund's 2015 Annual Report on Form 10-K for a detailed description of the risks attendant to the Fund and its business. There were no material changes to these factors during the three months ended June 30, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Prior to the Fund's commencement of operations on August 12, 2015, the Fund sold 100,000 shares to the Fund's sole shareholder, the Company, for $25,000 in July 2015. No other shares of the Fund have been sold; however, the Fund received an additional $73.9 million of paid in capital during the period from August 12, 2015, commencement of operations, through June 30, 2016, which is expected to be used to acquire venture loans and fund operations.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Issues

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit Number	Description
3(i)	Articles of Incorporation of the Fund as filed with the Maryland Secretary of State on May 6, 2015, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on May 29, 2015.
3(ii)	Bylaws of the Fund, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on May 29, 2015.
4.1	Form of Purchase Agreement between the Fund and the Company, incorporated by reference to the Fund's Registration Statement on Form 10 filed with the Securities and Exchange Commission on May 29, 2015.
31.1-32.2	Certifications pursuant to The Sarbanes-Oxley Act of 2002. (Rule 13a -14 and Section 1350 Certifications).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

VENTURE LENDING & LEASING VIII, INC.

(Registrant)



By:	/s/ Maurice C. Werdegar	By:	/s/ Martin D. Eng
Maurice C. Werdegar		Martin D. Eng
President and Chief Executive Officer		Chief Financial Officer
Date:	August 12, 2016	Date:	August 12, 2016

EXHIBIT INDEX



Exhibit Number	Description
31.1-32.2	Certifications pursuant to The Sarbanes-Oxley Act of 2002.

Venture Lending & Leasing VIII, Inc. - FORM 10-Q - August 12, 2016

Attached files

Venture Lending & Leasing VIII, Inc. Reports