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

Attached files

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EX-32.2 - VLL8INC 10-Q 09.30.18 EXHIBIT 32.2 - Venture Lending & Leasing VIII, Inc.	vll810q093018ex322.htm
EX-32.1 - VLL8INC 10-Q 09.30.18 EXHIBIT 32.1 - Venture Lending & Leasing VIII, Inc.	vll810q093018ex321.htm
EX-31.2 - VLL8INC 10-Q 09.30.18 EXHIBIT 31.2 - Venture Lending & Leasing VIII, Inc.	vll810q093018ex312.htm
EX-31.1 - VLL8INC 10-Q 09.30.18 EXHIBIT 31.1 - Venture Lending & Leasing VIII, Inc.	vll810q093018ex311.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 September 30, 2018



[ ]	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) has 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 [X] No [ ]

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



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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 November 9, 2018
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 September 30, 2018 and December 31, 2017

	Condensed Statements of Operations (Unaudited)
	For the three and nine months ended September 30, 2018 and 2017

	Condensed Statements of Changes in Net Assets (Unaudited)
	For the nine months ended September 30, 2018 and 2017

	Condensed Statements of Cash Flows (Unaudited)
	For the nine months ended September 30, 2018 and 2017

	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 Disclosures

Item 5.	Other Information

Item 6.	Exhibits

SIGNATURES

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017



	September 30, 2018			December 31, 2017
ASSETS
Loans, at estimated fair value
(cost of $423,276,939 and $314,981,551)	$	411,207,953		$	310,710,678
Interest rate caps (cost of $0 and $331,329)	—			339,183
Total Investments (Cost of $423,276,939 and $315,312,880)	411,207,953			311,049,861

Cash and cash equivalents	11,402,927			7,879,718
Derivative asset - interest rate swap	1,217,658			—
Dividend and interest receivables	4,845,505			3,718,336
Other assets	1,271,306			2,583,893
Total assets	429,945,349			325,231,808

LIABILITIES
Borrowings under debt facility	203,000,000			156,500,000
Accrued management fees	2,687,158			2,032,699
Accounts payable and other accrued liabilities	1,144,532			1,868,049
Total liabilities	206,831,690			160,400,748

NET ASSETS	$	223,113,659		$	164,831,060

Analysis of Net Assets:

Capital paid in on shares of capital stock	$	297,575,000		$	213,075,000
Net unrealized depreciation on investments	(10,851,327		)	(4,263,019		)
Distribution in excess of net investment income	(63,610,014		)	(43,980,921		)
Net assets (equivalent to $2,231.14 and $1,648.31 per share based on 100,000 shares of capital stock outstanding - See Note 6 and Note 12)	$	223,113,659		$	164,831,060

Commitments & Contingent Liabilities:
Unfunded unexpired commitments (See Note 4)	$	93,725,000		$	96,160,000

See notes to condensed financial statements

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017



	For the Three Months Ended September 30, 2018			For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2018			For the Nine Months Ended September 30, 2017

INVESTMENT INCOME:
Interest on loans	$	23,765,229		$	9,871,413		$	53,428,915		$	23,604,185
Other interest and other income	63,457			137,663			168,312			194,080
Total investment income	23,828,686			10,009,076			53,597,227			23,798,265

EXPENSES:
Management fees	2,687,158			2,251,397			8,118,835			7,546,709
Interest expense	2,712,386			1,323,246			7,310,440			3,145,450
Banking and professional fees	104,762			49,078			241,960			206,424
Other operating expenses	47,076			45,361			116,253			390,192
Total expenses	5,551,382			3,669,082			15,787,488			11,288,775

Net investment income	18,277,304			6,339,994			37,809,739			12,509,490

Net realized loss from loans	(283,511		)	(532,458		)	(1,866,667		)	(3,771,479		)
Net realized loss from derivative instruments	(30,328		)	—			(360,152		)	—
Net change in unrealized gain (loss) from loans	(6,570,644		)	(36,069		)	(7,798,113		)	1,044,313
Net change in unrealized gain (loss) from derivative instruments	243,806			289			1,209,805			(94,671		)
Net realized and change in unrealized loss from loans and derivative instruments	(6,640,677		)	(568,238		)	(8,815,127		)	(2,821,837		)

Net increase in net assets resulting from operations	$	11,636,627		$	5,771,756		$	28,994,612		$	9,687,653
Net increase in net assets resulting from operations per share	$	116.37		$	57.72		$	289.95		$	96.88
Weighted average shares outstanding	100,000			100,000			100,000			100,000

See notes to condensed financial statements

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017



	For the Nine Months Ended September 30, 2018			For the Nine Months Ended September 30, 2017
Net increase in net assets resulting from operations:
Net investment income	$	37,809,739		$	12,509,490
Net realized loss from loans	(1,866,667		)	(3,771,479		)
Net realized loss from derivative instruments	(360,152		)	—
Net change in unrealized gain (loss) from loans	(7,798,113		)	1,044,313
Net change in unrealized gain (loss) from derivative instruments	1,209,805			(94,671		)
Net increase in net assets resulting from operations	28,994,612			9,687,653

Distributions of income to shareholder	(35,582,920		)	(8,738,010		)
Return of capital to shareholder	(19,629,093		)	(5,834,541		)
Contributions from shareholder	84,500,000			115,150,000
Net increase in capital transactions	29,287,987			100,577,449

Total increase in net assets	58,282,599			110,265,102

Net assets
Beginning of period	164,831,060			81,071,642

End of period	$	223,113,659		$	191,336,744

See notes to condensed financial statements

VENTURE LENDING & LEASING VIII, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017



	For the Nine Months Ended September 30, 2018			For the Nine Months Ended September 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations	$	28,994,612		$	9,687,653
Adjustments to reconcile net increase in net assets resulting from operation to net cash used in operating activities:
Net realized loss from loans	1,866,667			3,771,479
Net realized loss from derivative instruments	360,152			—
Net change in unrealized (gain) loss from loans	7,798,113			(1,044,313		)
Net change in unrealized (gain) loss from derivative instruments	(1,209,804		)	94,671
Amortization of deferred costs related to borrowing facility and interest rate cap agreements	487,720			287,863
Net increase in dividend and interest receivables	(1,127,169		)	(1,982,467		)
Net (increase) decrease in other assets	898,209			(871,837		)
Net decrease in accounts payable, other accrued liabilities, and accrued management fees	(69,058		)	(261,523		)
Origination of loans	(223,970,806		)	(209,767,500		)
Principal payments on loans	112,874,282			46,020,386
Acquisition of equity securities	(14,277,544		)	(14,354,646		)
Net cash used in operating activities	(87,374,626		)	(168,420,234		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to shareholder	(40,000,000		)	—
Contributions from shareholder	84,500,000			115,150,000
Borrowings under debt facility	88,000,000			108,350,000
Investment in Interest rate cap	—			(49,400		)
Settlement under interest rate swap agreement	(102,165		)	—
Repayment of debt facility	(41,500,000		)	(48,350,000		)
Payment of bank facility fees and costs	—			(1,148,371		)
Net cash provided by financing activities	90,897,835			173,952,229

Net increase in cash and cash equivalents	3,523,209			5,531,995

CASH AND CASH EQUIVALENTS:
Beginning of period	7,879,718			9,821,733
End of period	$	11,402,927		$	15,353,728

SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE PERIOD:
Interest - Debt facility	$	7,220,732		$	2,807,074
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Distributions of equity securities to shareholder	$	15,212,013		$	14,572,551
Receipt of equity securities as repayment of loans	$	934,469		$	217,905

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 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 investment return and seeks to achieve that objective by providing debt financing to portfolio companies; most of which are private. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments and distributes these warrants to its shareholder upon receipt. The Fund also has guidelines for the percentage of total assets which will be invested in different types of assets. The portfolio investments of the Fund primarily consist of debt financing to early and expansion stage venture capital-backed technology companies.

In the Manager’s opinion, the accompanying condensed interim financial statements (hereafter referred to as “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 Generally Accepted Accounting Principles 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 nine months ended September 30, 2018 are not necessarily indicative of what the results would be for a full year. These financial statements should be read in conjunction with the financial statements and the notes included in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2017.


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 prior year amounts have been reclassified to conform to the current year presentation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and cash equivalents with maturities of 90 days or less. Included in this are money market mutual funds that are valued at their most recently traded price prior to the valuation date. Within cash and cash equivalents, as of September 30, 2018, the Fund held 16,114,881 units in the Blackrock Treasury Trust Institutional Fund at $1 per unit at a yield of 1.86%. Cash and cash equivalents of $11,402,927 represents 5.11% of the net assets of the Fund.

Interest Income

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

Investment 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 those valuation methods.

The Fund’s loans are valued coincident 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 each investment.

As of September 30, 2018 and December 31, 2017, the financial statements include nonmarketable investments of $411.2 million and $310.7 million, respectively (or 95.6% and 95.5% of total assets, respectively), 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 readily available 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. Because there is no readily available market price and no secondary market for substantially all of the debt investments made by the Fund into borrowing portfolio companies, Management determines fair value based on hypothetical markets, and on several factors related to each borrower, 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, and an evaluation of the general interest rate environment. The amount of any valuation adjustment considers estimated amount and timing of cash payments of principal and interest from the borrower and/or 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 together, the effect of deterioration in the quality of the underlying collateral, increase in size of the loan, 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 classify a loan as non-accrual when the portfolio company is delinquent for three consecutive months on its monthly loan payments, or, in the opinion of Management, either ceases or drastically curtails its operations 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 recognized as interest income if and when the proceeds received exceed the book value of the respective loan.

If a borrower of a non-accrual loan resumes making regular payments and Management believes that such borrower has regained the ability to service the loan on a sustainable basis, the loan is reclassified back to accrual or performing status. Interest that would have been accrued during the time a loan was classified as non-accrual will be added back to the remaining payment schedule causing a change in the effective interest rate.

As of September 30, 2018, loans with a cost basis of $15.5 million and a fair value of $7.2 million have been classified as non-accrual. As of December 31, 2017, loans with a cost basis of $4.1 million and fair value of $1.0 million were classified as non-accrual.

Warrants and Equity Securities

Warrants and equity securities that are received in connection with loan transactions will be measured at fair value at the time of acquisition. Warrants are valued based on a modified Black-Scholes option pricing model which considers, among several factors, the underlying stock value, expected term, volatility, and the risk-free interest rate. It is anticipated that such securities will be distributed by the Fund to the Company simultaneously with, or shortly following, their acquisition.

The 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 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 nine months ended September 30, 2018 and 2017 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 with respect to the warrants received as part of loan consideration, including an evaluation of the Fund’s valuation methodology and the reasonableness of the assumptions used from the perspective of a market participant. The independent valuation company also calculates several of the inputs used, such as volatility and risk-free rate.

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. Those costs are capitalized and then amortized over the term of the facility.

As of September 30, 2018 and December 31, 2017, 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 September 30, 2018 and December 31, 2017, based on borrowing rates available to the Fund, the estimated fair values of the borrowings under the debt facility were $203.0 million and $156.5 million, respectively.

Commitment Fees

Unearned income and commitment fees on loans are recognized 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

The deferred bank fees and costs associated with the debt facility are included in Other Assets in the Condensed Statement of Assets and Liabilities and are being amortized over the estimated life of the facility, which currently matures on September 11, 2020. The amortization of these costs is recorded as interest expense in the Condensed Statements of Operations.

Interest Rate Cap Agreements

The Fund had entered into interest rate cap agreements which were primarily valued on the basis of the future expected interest rates on the remaining notional principal balance. This methodology was comparable to what a prospective acquirer would use in determining the amount they would pay on the measurement date. Valuation pricing models utilized to fair value the caps consider inputs such as forward rates, anticipated interest rate volatility relating to the reference rate, as well as time value and other factors underlying cap instruments. The interest rate cap contracts were recorded in the Condensed Statement of Assets and Liabilities at the estimated fair value. Subsequent changes in fair value were recorded in the Net change in unrealized gain (loss) from derivative instruments in the Condensed Statements of Operations and the quarterly interest received on the interest rate cap contracts, if any, was recorded in Net realized gain (loss) from derivative instruments in the Condensed Statements of Operations. The interest rate cap agreements were canceled in April 2018 and the value was rolled over into an interest rate swap agreement effective March 30, 2018. Since inception through their cancellation, no interest was received on interest rate cap contracts.

Interest Rate Swap Agreement

The Fund has entered into a cancellable interest rate swap agreement to hedge its interest rate on its expected borrowings under its loan facility (see Note 10). Cancellable interest rate swaps are primarily valued on the basis of quotes obtained from brokers and dealers and adjusted for counterparty risk and the optionality to terminate the swap early. The valuation of the swap agreement also considers the future expected interest rates on the notional principal balance remaining which is comparable to what a prospective acquirer would pay on the measurement date. Valuation pricing models consider inputs such as forward rates, anticipated interest rate volatility relating to the reference rate, as well as time value and other factors underlying swap instruments. The contract is recorded at fair value in either Derivative asset - interest rate swap or Derivative liability - interest rate swap in the Condensed Statements of Assets and Liabilities, depending on whether the value of the contract is in favor of the Fund or the counterparty. The changes in fair value are recorded in Net realized and change in unrealized gain (loss) from derivative instruments in the Condensed Statements of Operations and the quarterly interest received or paid on the interest rate swap contract, if any, will be recorded in Net realized gain (loss) from derivative instruments in the Condensed Statements of Operations. The interest rate swap agreement terminates on September 11, 2020 with an option to terminate the swap early on March 31, 2020.

Recent Accounting Pronouncements

In August 2018, the Securities and Exchange Commission (“SEC”) issued Release No. 33-10532 Disclosure Update and Simplification, which amended Regulation S-X and certain other securities laws (the “Amendments”) effective November 5, 2018. The SEC adopted the Amendments with the intention of simplifying reporting through the elimination of redundant, duplicative, overlapping, outdated, or superseded disclosure requirements. The Fund has reviewed and adopted the applicable Amendments, including with respect to Regulation S-X. The Amendments did not have a material impact on the Fund's financial statements or disclosures.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820),” which made changes to the fair value measurement disclosure requirements in ASC 820 “Fair Value Measurements and Disclosures.” The changes included new disclosure requirements, elimination of some requirements and the modification of others. ASU 2018-13 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2019. The Fund does not believe that ASU 2018-13 will have a material impact on its financial statements or disclosures, but will continue to evaluate the ASU requirements.

3. SCHEDULES OF INVESTMENTS

As of September 30, 2018, all loans were valued using significant unobservable inputs and were made to non-affiliates as follows (unaudited):



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date

Biotechnology
Orpheus Therapeutics, Inc.		$	—	$	174,288	*
Phylagen, Inc.		224,606		224,606		03/01/2020
Subtotal:	0.1%	224,606		398,894

Computers & Storage
Canary Connect, Inc.		$	858,123	$	1,381,905	*
HyperGrid, Inc.		648,616		648,616		12/01/2019
Rigetti & Co., Inc.		1,818,527		1,818,527		01/01/2020
Subtotal:	1.5%	$	3,325,266	$	3,849,048

Enterprise Networking
SnapRoute, Inc.		3,241,916		3,241,916		11/01/2021
Subtotal:	1.4%	$	3,241,916	$	3,241,916

Internet
Amino Payments, Inc.		$	1,269,984	$	1,269,984	12/01/2021
Apartment List, Inc.		622,166		622,166		11/01/2019
Bitfinder, Inc.		395,362		395,362		09/01/2020
Bombfell, Inc.		934,652		934,652		04/01/2021
CapLinked, Inc.		65,579		65,579		01/01/2019
Clearsurance, Inc.		1,913,335		1,913,335		09/01/2021
Daily Muse, Inc.		5,737,599		5,737,599		12/01/2021
Darby Smart, Inc.		1,488,546		1,488,546		02/01/2021
DreamCloud Holdings, LLC		3,239,939		3,239,939		01/01/2021
Figure 1, Inc.**		886,685		886,685		06/01/2021
FLYR, Inc.		1,315,266		1,315,266		09/01/2021
Handy Technologies, Inc.		4,385,059		4,385,059		12/01/2020
Homelight, Inc.		371,209		371,209		12/01/2019
Honk Technologies, Inc.		1,460,732		1,460,732		05/01/2020
iZENEtech, Inc.**		9,218,208		9,218,208		06/01/2021



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date
Lenddo International**		1,744,320		1,744,320		01/01/2021
Linden Research Inc.		5,508,156		5,508,156		09/01/2021
MassDrop, Inc.		6,731,455		6,731,455		01/01/2022
Placester, Inc.		1,239,782		1,239,782		10/01/2019
Playstudios, Inc.		1,025,705		1,025,705		03/01/2021
Protecht, Inc.		920,038		920,038		12/01/2021
Radius Intelligence, Inc.		7,087,176		7,087,176		10/01/2021
Relay Network, LLC		1,605,178		1,605,178		09/01/2020
Spot.IM, Ltd.**		587,582		587,582		05/01/2020
SpotOn Computing, Inc.		1,887,467		1,887,467		03/01/2021
Stay alfred, Inc.		6,606,321		6,606,321		12/01/2021
Super Home, Inc.		54,153		54,153		03/01/2019
Tango Card, Inc.		1,288,251		1,288,251		11/01/2020
Thrive Market, Inc.		10,049,271		10,049,271		04/01/2022
Tictail, Inc.		779,665		978,575		05/01/2021
Traackr, Inc.		137,842		137,842		04/01/2019
Subtotal:	36.1%	$	80,556,683	$	80,755,593

Medical Devices
Anutra Medical, Inc.		$	205,081	$	205,081	12/01/2019
Keystone Heart, Inc.**		2,130,636		2,130,636		11/01/2020
Medrobotics Corporation		8,844,856		8,844,856		06/01/2021
NeuMoDx Molecular, Inc.		3,132,543		3,132,543		04/01/2023
RadiAction Ltd.**		918,113		918,113		10/01/2021
Renovia, Inc.		3,317,045		3,317,045		06/01/2021
Subtotal:	8.3%	$	18,548,274	$	18,548,274

Other Healthcare
4G Clinical LLC		$	725,876	$	725,876	07/01/2020
Call9, Inc.		2,698,380		2,698,380		03/01/2021
Caredox, Inc.		110,594		110,594		01/01/2019
Clover Health Investment Corporation		28,221,116		28,221,116		10/01/2022
Discover Echo, Inc.		629,899		629,899		12/01/2020
Driver, Inc.		6,125,931		8,820,342		07/01/2021
Hello Doctor, Ltd.**		37,903		37,903		03/01/2019
Hello Heart, Inc.		927,940		927,940		07/01/2021
Hi.Q, Inc.		1,653,537		1,653,537		05/01/2020
Lean Labs, Inc.		71,806		71,806		04/01/2019
MD Revolution, Inc.		754,997		754,997		03/01/2020
mPharma Data, Inc.**		3,492,660		3,492,660		11/01/2021
Myolex, Inc.		238,967		726,537		*
Naked Biome, Inc.		944,777		944,777		03/01/2021



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date
Project Healthy Living, Inc.		342,005		342,005		09/01/2019
Robin Care, Inc.		942,411		942,411		07/01/2021
Sparta Software Corporation		123,087		123,087		06/01/2020
Therapydia, Inc.		263,724		263,724		08/01/2022
Trio Health Advisory Group, Inc.		183,092		183,092		02/01/2019
Wellist, Inc.		148,280		148,280		12/01/2019
Zillion Group, Inc.		1,171,156		1,608,802		12/01/2020
Subtotal:	22.3%	$	49,808,138	$	53,427,765

Other Technology
8i Corporation		$	2,418,711	$	2,418,711	12/01/2020
Abiquo Group, Inc.**		451,334		451,334		01/01/2021
Aclima, Inc.		1,950,196		1,950,196		07/01/2021
Asset Avenue, Inc.**		31,961		163,160		*
BloomLife, Inc.		190,522		190,522		04/01/2020
Consumer Physics, Inc. **		1,089,717		1,089,717		08/01/2019
Eguana Technologies, Inc. **		1,962,043		1,962,043		08/01/2021
Ensyn Corporation		2,104,635		2,104,635		11/01/2019
Eponym, Inc.		—		1,128,007		*
ESM Group International , Inc.		437,601		437,601		12/01/2021
ETN Media, Inc.		473,187		473,187		07/01/2020
Flo Water, Inc.		1,144,967		1,144,967		05/01/2021
Gap Year Global, Inc.		—		86,359		*
Greats Brand, Inc.		3,095,151		3,095,151		08/01/2021
Heartwork, Inc.		338,431		429,615		09/01/2020
Hint, Inc.		6,978,308		6,978,308		08/01/2021
Hyperloop Technologies, Inc.		3,239,590		3,239,590		06/01/2019
Impossible Aerospace Corporation		606,476		606,476		01/01/2021
June Life, Inc.		1,418,529		1,418,529		03/01/2020
Kobo360 Inc.**		480,275		480,275		09/01/2020
LanzaTech New Zealand Ltd.		6,811,885		6,811,885		03/01/2021
Loftium, Inc.		614,404		614,404		11/01/2020
Make School, Inc.		930,317		930,317		08/01/2021
Neuehouse, LLC		1,323,215		1,323,215		*
Nevada Nanotech Systems, Inc.		893,648		893,648		06/01/2021
North American Robotics Corporation		351,638		351,638		08/01/2020
Northern Quinoa Production Corporation**		7,555,858		7,555,858		11/01/2021
Noteleaf, Inc.		1,195,794		1,195,794		09/01/2020
Opya, Inc.		442,708		442,708		04/01/2021
PDQ Enterprises LLC **		3,045,062		3,045,062		02/01/2021
Percepto Robotics, Ltd. **		829,960		829,960		12/01/2020



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date
PLAE, Inc.		1,224,566		1,224,566		12/01/2020
Planet Labs, Inc.		24,265,778		24,265,778		08/01/2022
Plenty Unlimited, Inc.		5,402,585		5,402,585		09/01/2021
Plethora, Inc.		3,219,833		3,219,833		09/01/2021
Rosco & Benedetto Co.		156,687		156,687		09/01/2019
Scoot Networks, Inc.		889,271		889,271		03/01/2021
Showroom, Inc.		1,175,948		1,175,948		03/01/2020
SkyKick, Inc.		1,888,959		1,888,959		11/01/2020
Strong Arm Technologies, Inc.		1,054,699		1,054,699		05/01/2021
TAE Technologies, Inc.		11,901,092		11,901,092		04/01/2021
Terramera, Inc.**		2,669,620		2,669,620		04/01/2021
CommunityCo, LLC		64,719		64,719		03/01/2019
Theatro Labs, Inc.		1,409,778		1,409,778		08/01/2022
UniEnergy Technologies LLC		4,579,329		4,579,329		12/01/2020
Virtuix Holdings, Inc.		547,185		547,185		07/01/2020
Wine Plum, Inc.		846,600		846,600		09/01/2019
Subtotal:	51.0%	$	113,702,772	$	115,139,521

Security
Karamba Security Ltd.**		$	1,176,939	$	1,176,939	12/01/2021
Nok Nok Labs, Inc.		1,471,832		1,471,832		06/01/2022
Safetrust Holdings, Inc.		439,628		439,628		06/01/2021
ThinAir Labs, Inc.		—		1,105,396		*
V5 Systems, Inc.		1,369,647		1,369,647		06/01/2021
Subtotal:	2.0%	$	4,458,046	$	5,563,442

Semiconductors & Equipment
ETA Compute, Inc.		$	306,258	$	306,258	08/01/2020
Innophase, Inc.		9,524,005		9,524,005		06/01/2021
Subtotal:	4.4%	$	9,830,263	$	9,830,263

Software
Alpha UX, Inc.		$	376,493	$	376,493	08/01/2020
Apptimize, Inc.		109,315		109,315		03/01/2019
Aptible, Inc.		215,720		215,720		02/01/2021
ArborMetrix, Inc.		3,252,785		3,252,785		06/01/2022
Blockdaemon, Inc.		215,332		215,332		08/01/2021
Bloomboard, Inc.		751,755		2,001,360		*
BlueCart, Inc.		384,039		384,039		01/01/2020
Bricksolve, Inc.		951,951		951,951		06/01/2021
Cloudleaf, Inc.		932,306		932,306		09/01/2021
DealPath, Inc.		1,417,074		1,417,074		05/01/2021



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date
DemystData Limited		1,027,134		1,027,134		07/01/2020
Drift Marketplace, Inc.		385,006		385,006		03/01/2020
Dynamics, Inc.		6,118,747		6,118,747		08/01/2021
Estify, Inc.		822,421		822,421		11/01/2020
Fortress IQ, Inc.		704,228		704,228		11/01/2021
Gearbox Software, LLC		6,479,534		6,479,534		03/01/2021
GoFormz, Inc.		1,048,467		1,048,467		11/01/2020
HealthPrize Technologies, LLC		129,389		129,389		12/01/2019
Highfive Technologies, Inc.		3,806,525		3,806,525		10/01/2021
IntelinAir, Inc.		79,012		79,012		06/01/2019
Interana, Inc.		2,848,050		2,848,050		06/01/2021
Interset Software, Inc.**		3,057,471		3,057,471		04/01/2022
Invoice2Go, Inc.		6,138,735		6,138,735		03/01/2022
JethroData, Inc.**		410,091		856,877		*
Libre Wireless Technologies, Inc.		271,935		271,935		01/01/2020
Loft, Inc.		698,153		698,153		09/01/2021
Meta Company		1,587,815		4,237,451		*
Metarail, Inc.		674,294		674,294		10/01/2021
Metricly, Inc.		445,550		445,550		11/01/2021
Mines.io, Inc.**		1,024,437		1,024,437		12/01/2021
Mintigo, Inc.**		1,199,861		1,199,861		07/01/2021
Oohlala Mobile, Inc.**		465,687		465,687		09/01/2021
Packetzoom, Inc.		1,434,548		1,434,548		04/01/2022
PowerInbox, Inc.**		265,216		265,216		06/01/2020
PrivCo Holdings, Inc.		451,524		451,524		02/01/2021
Resilio, Inc.		193,135		193,135		03/01/2021
Securly, Inc.		868,366		868,366		12/01/2020
Skillshare, Inc.		1,843,895		1,843,895		06/01/2021
Swrve, Inc.		1,367,879		1,367,879		11/01/2020
The/Studio Technologies, Inc.		509,228		509,228		06/01/2020
Unmetric, Inc.		213,831		213,831		02/01/2020
VenueNext, Inc.		3,909,976		3,909,976		10/01/2021
Vuemix, Inc.		209,811		209,811		11/01/2020
Workspot, Inc.		1,967,641		1,967,641		09/01/2021
Xeeva, Inc.		1,797,333		1,797,333		07/01/2020
Zoomdata, Inc.		3,795,348		3,795,348		10/01/2021
Subtotal:	30.0%	$	66,857,043	$	71,203,070

Technology Services
AirHelp, Inc.		$	1,816,852	$	1,816,852	10/01/2020
Akademos, Inc.***		710,691		710,691		08/01/2020



Borrower	Percentage of Net Assets	Estimated Fair Value 9/30/2018		Par Value 9/30/2018		Final Maturity Date
Blazent, Inc.		1,970,543		2,336,782		*
Blue Technologies Limited**		633,724		633,724		04/01/2020
Callisto Media, Inc.		11,030,095		11,030,095		03/01/2022
CloudIQ Ltd.**		2,733,159		2,733,159		04/01/2021
Dolly, Inc.		637,034		637,034		09/01/2020
Freckle Education, Inc.		1,181,615		1,181,615		01/01/2022
FSA Store, Inc.		1,839,410		1,839,410		12/01/2020
Maxi Mobility, Inc.**		18,208,443		18,208,443		01/01/2021
ParkJockey Global, Inc.		324,572		324,572		06/01/2019
PayJoy, Inc.**		1,096,019		1,096,019		08/01/2021
Riffyn, Inc.		1,428,126		1,428,126		06/01/2021
Sixup PBC, Inc.**		201,930		201,930		06/01/2019
SocialChorus, Inc.		2,382,992		2,382,992		01/01/2021
TrueFacet, Inc.		698,880		996,848		06/01/2021
Zeel Networks, Inc.		2,547,256		2,547,256		03/01/2022
Subtotal:	22.2%	$	49,441,341	$	50,105,548

Wireless
InVenture Capital Corporation**		$	480,967	$	480,967	09/01/2019
Juvo Mobile, Inc.**		782,153		782,153		02/01/2020
Nextivity, Inc.		6,438,116		6,438,116		06/01/2021
Parallel Wireless, Inc.		3,512,369		3,512,369		10/01/2020
Subtotal:	5.0%	$	11,213,605	$	11,213,605


Total Loans (Cost of $423,276,939)	184.3%	$	411,207,953	$	423,276,939

Interest Rate Swap (Cost of $0)	0.6%	$	1,217,658	$	—

* As of September 30, 2018, loans with a cost basis of $15.5 million and a fair value $7.2 million were classified as non-accrual. These loans have been accelerated from their original maturity and are due in their entirety. During the period for which these loans have been on non-accrual status, no interest income has been recognized.

** 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 September 30, 2018, 16.3% of the Fund’s assets represented non-qualifying assets. As part of this calculation, the numerator consists of all eligible portfolio companies as defined in Section 2(a)(46) of the 1940 Act; and the denominator consists of total assets less the assets described in Section 55(a)(7) of the 1940 Act.

*** Indicates assets that are not senior loans.

As of December 31, 2017, all loans were valued using significant unobservable inputs and were made to non-affiliates as follows:



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2017		Par Value 12/31/2017		Final Maturity Date

Biotechnology
Orpheus Therapeutics, Inc.		$	130,860	$	130,860	08/01/2020
Phylagen, Inc.		349,718		349,718		03/01/2020
Subtotal:	0.3%	$	480,578	$	480,578

Computers & Storage
Canary Connect, Inc.		$	1,448,099	$	1,448,099	12/01/2020
HyperGrid, Inc.		983,652		983,652		12/01/2019
Rigetti & Co., Inc.		2,825,214		2,825,214		01/01/2020
Subtotal:	3.2%	$	5,256,965	$	5,256,965

Internet
Amino Payments, Inc.		$	718,898	$	718,898	11/01/2019
Apartment List, Inc		969,280		969,280		11/01/2019
Better Doctor, Inc.		1,313,150		1,313,150		12/01/2020
Bitfinder, Inc.		476,274		476,274		09/01/2020
Bombfell, Inc.		950,217		950,217		04/01/2021
CapLinked, Inc.		219,962		219,962		01/01/2019
ConnectedYard, Inc.		423,421		471,785		06/01/2020
Daily Muse, Inc.		2,766,491		2,766,491		12/01/2021
DailyFeats, Inc.		3,434,717		3,434,717		12/01/2020
Darby Smart, Inc.		1,635,389		1,635,389		02/01/2021
DreamCloud Holdings, LLC		890,304		890,304		08/01/2020
Eventbite, Inc.		13,081,547		13,081,547		02/01/2022
Handy Technologies, Inc.		4,745,656		4,745,656		12/01/2020
Homelight, Inc.		654,457		654,457		12/01/2019
Honk Technologies, Inc.		2,124,520		2,124,520		05/01/2020
iZENEtech, Inc.**		4,605,143		4,605,143		01/01/2021
Node, Inc.		402,161		402,161		01/01/2020
Placester, Inc.		1,983,527		1,983,527		10/01/2019
Playstudios, Inc.		1,189,152		1,189,152		03/01/2021
Radius Intelligence, Inc.		6,975,493		6,975,493		10/01/2021
Relay Network, LLC		1,917,812		1,917,812		09/01/2020
ShipBob, Inc.		617,602		617,602		01/01/2020
Spot.IM, Ltd.**		835,033		835,033		05/01/2020
SpotOn Computing, Inc.		1,368,087		1,368,087		10/01/2020
Super Home, Inc.		126,831		126,831		03/01/2019
Tango Card, Inc.		1,448,020		1,448,020		11/01/2020



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2017		Par Value 12/31/2017		Final Maturity Date
Thrive Market, Inc.		4,881,645		4,881,645		09/01/2019
Tictail, Inc.		1,086,519		1,086,519		05/01/2021
TouchofModern, Inc.		4,317,741		4,317,741		05/01/2020
Traackr, Inc.		364,673		364,673		04/01/2019
Viyet, Inc.		343,706		343,706		06/01/2020
Subtotal:	40.6%	$	66,867,428	$	66,915,792

Medical Devices
Anutra Medical, Inc.		$	297,089	$	297,089	12/01/2019
JustRight Surgical LLC		1,311,845		1,311,845		07/01/2019
Keystone Heart, Inc.**		2,709,462		2,709,462		11/01/2020
Renovia, Inc.		1,911,275		1,911,275		11/01/2020
Subtotal:	3.8%	$	6,229,671	$	6,229,671

Other Healthcare
4G Clinical LLC		$	942,135	$	942,135	07/01/2020
Call9, Inc.		844,331		844,331		01/01/2021
Caredox, Inc.		340,488		340,488		01/01/2019
Clover Health Investment Corporation		27,898,780		27,898,780		10/01/2022
Driver, Inc.		9,020,007		9,020,007		07/01/2021
Hello Doctor, Ltd.**		87,237		87,237		03/01/2019
Hi.Q, Inc.		1,933,191		1,933,191		05/01/2020
Lean Labs, Inc.		148,618		148,618		04/01/2019
MD Revolution, Inc.		1,069,491		1,069,491		03/01/2020
mPharma Data, Inc.**		717,609		717,609		03/01/2021
Project Healthy Living, Inc.		558,618		558,618		09/01/2019
Myolex, Inc.		459,926		668,025		03/01/2019
Spatra Software Corporation		164,769		164,769		06/01/2020
Trio Health Advisory Group, Inc.		482,660		482,660		02/01/2019
Wellist PBC, Inc.		259,737		259,737		12/01/2019
Zillion Group, Inc.		1,892,181		1,892,181		12/01/2020
Subtotal:	28.4%	$	46,819,778	$	47,027,877

Other Technology
8i Corporation		$	2,840,404	$	2,840,404	12/01/2020
Abiquo Group, Inc.**		472,056		472,056		01/01/2021
Asset Avenue, Inc.**		30,000		159,244		*
Astro, Inc.		84,108		280,359		*
BloomLife, Inc.		264,513		264,513		04/01/2020
Candy Club Holdings, Inc.		80,581		80,581		09/01/2018
CommunityCo, LLC		149,167		149,167		03/01/2019
Consumer Physics, Inc.**		1,429,161		1,429,161		03/01/2019
Eguana Technologies, Inc.**		1,298,326		1,298,326		12/01/2020
Ensyn Corporation		3,555,156		3,555,156		11/01/2019



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2017		Par Value 12/31/2017		Final Maturity Date
Eponym, Inc.		100,000		1,357,124		*
ETN Media, Inc.		634,866		634,866		07/01/2020
Flo Water, Inc.		1,302,095		1,302,095		05/01/2021
Gap Year Global, Inc.		113,439		113,439		10/01/2018
Greats Brand, Inc.		1,740,407		1,740,407		05/01/2021
Heartwork, Inc.		479,714		479,714		09/01/2020
Hint, Inc.		4,728,235		4,728,235		07/01/2021
Hyperloop Technologies, Inc.		6,110,809		6,110,809		06/01/2019
Impossible Aerospace Corporation		468,571		468,571		08/01/2020
June Life, Inc.		2,020,813		2,020,813		03/01/2020
LanzaTech New Zealand Ltd.		8,048,027		8,048,027		03/01/2021
Neuehouse, LLC		3,340,451		3,340,451		06/01/2019
North American Robotics Corporation		456,584		456,584		08/01/2020
Noteleaf, Inc.		1,443,199		1,443,199		09/01/2020
Optimus Outcome, Inc.		456,063		456,063		04/01/2021
PDQ Enterprises LLC**		3,382,474		3,382,474		02/01/2021
PLAE, Inc.		1,436,153		1,436,153		12/01/2020
Planet Labs, Inc.		11,746,129		11,746,129		11/01/2021
Plenty Unlimited, Inc.		5,558,137		5,558,137		09/01/2021
Plethora, Inc		1,347,776		1,347,776		03/01/2019
Rosco & Benedetto Co.		258,808		258,808		09/01/2019
Seriforge, Inc.		78,000		78,000		09/01/2018
Showroom, Inc.		2,326,964		2,326,964		12/01/2021
SkyKick, Inc.		2,386,323		2,386,323		11/01/2020
TAE Technologies, Inc.		11,701,080		11,701,080		04/01/2021
Terramera, Inc.**		1,794,237		1,794,237		04/01/2021
Virtuix Holdings, Inc.		711,821		711,821		07/01/2020
Vision Cortex, Ltd.**		984,562		984,562		12/01/2020
Wine Plum, Inc.		1,410,920		1,410,920		09/01/2019
Subtotal:	52.6%	$	86,770,129	$	88,352,748

Security
Identiv, Inc.**		$	2,205,887	$	2,205,887	08/01/2020
Kryptnostic, Inc.		5,000		302,293		*
Nok Nok Labs, Inc.		634,666		634,666		12/01/2020
ThinAir Labs, Inc.		1,066,594		1,066,594		02/01/2020
Subtotal:	2.4%	$	3,912,147	$	4,209,440

Semiconductors & Equipment
ETA Compute, Inc.		$	425,658	$	425,658	08/01/2020
Subtotal:	0.2%	$	425,658	$	425,658



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2017		Par Value 12/31/2017		Final Maturity Date
Software
Addepar, Inc.		$	1,333,487	$	1,333,487	06/01/2018
Alpha UX, Inc.		467,386		467,386		08/01/2020
Apptimize, Inc.		420,545		420,545		03/01/2019
Aptible, Inc.		238,534		238,534		02/01/2021
Bloomboard, Inc.		751,755		2,001,360		*
BlueCart, Inc.		567,820		567,820		01/01/2020
DealPath, Inc.		1,552,176		1,552,176		05/01/2021
DemystData Limited		1,377,575		1,377,575		07/01/2020
Drift Marketplace, Inc.		550,359		550,359		03/01/2020
Estify, Inc.		940,557		940,557		11/01/2020
Gearbox Software, LLC		2,712,251		2,712,251		09/01/2020
GoFormz, Inc.		1,165,642		1,165,642		11/01/2020
HealthPrize Technologies, LLC		195,364		195,364		12/01/2019
Highfive Technologies, Inc.		3,760,217		3,760,217		10/01/2021
IntelinAir, Inc.		147,247		147,247		06/01/2019
Interset Software, Inc.**		1,612,450		1,612,450		10/01/2020
Invoice2Go, Inc.		4,298,135		4,298,135		04/01/2021
JethroData, Inc.**		822,579		822,579		10/01/2019
Libre Wireless Technologies, Inc.		399,350		399,350		01/01/2020
Meta Company		4,769,026		4,769,026		06/01/2021
Mine.io**		462,139		462,139		07/01/2020
Mintigo, Inc.**		1,496,408		1,496,408		07/01/2021
PowerInbox, Inc.**		361,516		361,516		06/01/2020
Securly, Inc.		212,567		212,567		12/01/2020
Swrve, Inc.		1,724,483		1,724,483		05/01/2020
The/Studio Technologies, Inc.		683,418		683,418		06/01/2020
Unmetric, Inc.		307,320		307,320		02/01/2020
VenueNext, Inc.		1,344,322		1,344,322		05/01/2020
Vuemix, Inc.		233,440		233,440		11/01/2020
Wayfare Interactive, Inc.		671,876		671,876		06/01/2021
Workspot, Inc.		1,031,394		1,031,394		06/01/2020
Xeeva, Inc.		2,314,394		2,314,394		07/01/2020
Zodiac, Inc.		484,472		484,472		07/01/2019
Subtotal:	23.9%	$	39,410,204	$	40,659,809

Technology Services
AirHelp, Inc.		$	2,367,739	$	2,367,739	10/01/2020
Akademos, Inc.***		848,678		848,678		08/01/2020
Blazent, Inc.		2,791,267		2,791,267		08/01/2020
Blue Technologies Limited**		1,436,936		1,436,936		04/01/2020
Callisto Media, Inc.		5,345,036		5,345,036		03/01/2021
CloudIQ Ltd.**		841,896		841,896		12/01/2020
Dolly, Inc.		834,672		834,672		06/01/2020



Borrowers	Percentage of Net Assets	Estimated Fair Value 12/31/2017		Par Value 12/31/2017		Final Maturity Date
FSA Store, Inc.		2,333,578		2,333,578		12/01/2020
Iris.tv, Inc.		836,324		836,324		02/01/2021
Maxi Mobility, Inc.		19,139,034		19,139,034		01/01/2021
ParkJockey Global, Inc.		614,843		614,843		06/01/2019
Particle Industries, Inc.		744,122		744,122		11/01/2019
PayJoy, Inc.**		307,612		307,612		08/01/2019
Sixup PBC, Inc.**		380,913		380,913		06/01/2019
TrueFacet, Inc.		1,186,665		1,186,665		06/01/2021
Zeel Networks, Inc.		1,881,303		1,881,303		08/01/2020
Subtotal:	25.4%	$	41,890,618	$	41,890,618

Wireless
Bluesmart, Inc.		$	470,425	$	1,355,318	09/01/2019
InVenture Capital Corporation **		918,468		918,468		09/01/2019
Juvo Mobile, Inc. **		1,192,983		1,192,983		02/01/2020
Nextivity, Inc.		5,441,554		5,441,554		06/01/2021
Parallel Wireless, Inc.		4,624,072		4,624,072		10/01/2020
Subtotal:	7.7%	$	12,647,502	$	13,532,395


Total Loans (Cost of $314,981,551)	188.5%	$	310,710,678	$	314,981,551

Interest Rate Caps (Cost of $331,329)	0.2%	$	339,183	$	331,329

Total Investments (Cost $315,312,880)	188.7%	$	311,049,861	$	315,312,880

* As of December 31, 2017, loans with a cost basis of $4.1 million and fair value of $1.0 million were classified as non-accrual. These loans have been accelerated from their original maturity and are due in their entirety. During the period for which these loans have been on non-accrual status, no interest income has been recognized.

** 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 December 31, 2017, 9.5% of the Fund’s assets represented non-qualifying assets. As part of this calculation, the numerator consists of all eligible portfolio companies as defined in Section 2(a)(46) of the 1940 Act; and the denominator consists of total assets less the assets described in Section 55(a)(7) of the 1940 Act.

*** Indicates assets that are not senior loans.

4. FAIR VALUE DISCLOSURES

The Fund primarily provides asset-based financing to start-up and emerging growth venture-backed companies which are generally made to borrowers pursuant to commitments whereby the Fund agrees to finance assets and provide working or growth capital up to a specified amount for the term of the commitment, upon the terms and subject to the conditions specified by such commitment. Even though these loans are generally secured by the assets of the borrowers, the Fund in most cases is subject to the credit risk of such companies. As of September 30, 2018, 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% because the percentages are based on net assets as opposed to total loans). All loans are senior to unsecured creditors and other secured creditors, except for the loan to Akademos, Inc., which is subordinated to other secured creditors.

The Fund defines fair value as the price that would be received to sell an asset or paid to transfer 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. Because there is no readily available market price and no secondary market for substantially all of the debt investments made by the Fund to borrowing portfolio companies, Management determines fair value (or estimated exit value) based on a hypothetical market, and several factors related to each borrower.

Loan balances in the tables above 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 nine months ended September 30, 2018, the weighted-average interest rate on performing loans was 22.02% and 18.02%, respectively, which was inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2017, the weighted-average interest rate on performing loans was 15.25% and 15.69%, respectively, which was inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2018, the weighted-average interest rate on the cash portion of the interest income was 17.54% and 14.50%, respectively. For the three and nine months ended September 30, 2017, the weighted-average interest rate on the cash portion of the interest income was 12.35% and 12.58%, respectively.

For the three and nine months ended September 30, 2018, the weighted-average interest rate on all loans was 21.83% and 17.90%, respectively, which was inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2017, the weighted-average interest rate on all loans was 15.12% and 15.58%, respectively, which were inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2018, the weighted-average interest on the cash portion of the interest income was 16.97% and 14.41%, respectively. For the three and nine months ended September 30, 2017, the weighted-average interest rate on the cash portion of the interest income was 12.25% and 12.49%, respectively.

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, which in accordance with GAAP, would be based on 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. 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 September 30, 2018 and 2017 were pledged as collateral for the debt facility, and the Fund’s borrowings are generally collateralized by all assets of the Fund. As of September 30, 2018 and December 31, 2017, the Fund has unexpired commitments to borrowers of $93.7 million and $96.2 million, respectively.

Valuation Hierarchy

Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10 “Fair Value Measurement”, 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 September 30, 2018 and September 30, 2017.

The Fund’s cash equivalents were valued at the traded net asset value of the money market mutual fund, and therefore, these measurements are classified as Level 1. The Fund’s investments in the interest rate cap and swap are based on quotes from the market makers that derive fair values from market data, and therefore, they are classified as Level 2. The Fund's borrowings under debt facility are also classified as Level 2, because the borrowings are based on rates that are observable at commonly quoted intervals, which are Level 2 inputs.

The Fund’s loan transactions are individually negotiated and unique, and because there is no market in which these assets trade, the inputs for these assets, which are valued using estimated exit values, 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 September 30, 2018 and December 31, 2017. 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 09/30/18		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount / Range

Biotechnology	$	224,606	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$0
				Discount Rate	0%

Computers & Storage	$	3,325,266	Hypothetical market analysis	Hypothetical market coupon rate	14%
			Income Approach	Expected amount and timing of cash flow payment	$1,757,526
				Discount Rate	4%

Enterprise Networking	$	3,241,916	Hypothetical market analysis	Hypothetical market coupon rate	15%



Debt Investments	Fair Value at 09/30/18		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount / Range
Internet	$	80,556,683	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$1,126,622
				Discount Rate	4%

Medical Devices	$	18,548,274	Hypothetical market analysis	Hypothetical market coupon rate	17%

Other Healthcare	$	49,808,138	Hypothetical market analysis	Hypothetical market coupon rate	14%
			Income Approach	Expected amount and timing of cash flow payment	$651,232 - $11,339,368
				Discount Rate	3%

Other Technology	$	113,702,772	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$0 - $3,515,256
				Discount Rate	0% - 4%

Security	$	4,458,046	Hypothetical market analysis	Hypothetical market coupon rate	20%
			Income Approach	Expected amount and timing of cash flow payment	$0
				Discount Rate	0%

Semiconductors & Equipment	$	9,830,263	Hypothetical market analysis	Hypothetical market coupon rate	14%

Software	$	66,857,043	Hypothetical market analysis	Hypothetical market coupon rate	13%
			Income Approach	Expected amount and timing of cash flow payment	$555,798 - $2,636,000
				Discount Rate	3% - 4%



Debt Investments	Fair Value at 09/30/18		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount / Range
Technology Services	$	49,441,341	Hypothetical market analysis	Hypothetical market coupon rate	12%
			Income Approach	Expected amount and timing of cash flow payment	$771,653 - $2,742,251
				Discount Rate	3% - 4%

Wireless	$	11,213,605	Hypothetical market analysis	Hypothetical market coupon rate	13%

Total debt investments	$	411,207,953



Debt Investments	Fair Value at 12/31/2017		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount / Range

Biotechnology	$	480,578	Hypothetical market analysis	Hypothetical market coupon rate	16%

Computers & Storage	$	5,256,965	Hypothetical market analysis	Hypothetical market coupon rate	14%

Internet	$	66,867,428	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$0 - $571,755
				Discount Rate	3%

Medical Devices	$	6,229,671	Hypothetical market analysis	Hypothetical market coupon rate	16%

Other Healthcare	$	46,819,778	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$0 - $849,088
				Discount Rate	2%



Debt Investments	Fair Value at 12/31/2017		Valuation Techniques / Methodologies	Unobservable Input	Weighted Average / Amount / Range

Other Technology	$	86,770,129	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$30,000 - $100,000
				Discount Rate	0%

Security	$	3,912,147	Hypothetical market analysis	Hypothetical market coupon rate	19%
			Income Approach	Expected amount and timing of cash flow payment	500,000%
				Discount Rate	0%

Semiconductors & Equipment	$	425,658	Hypothetical market analysis	Hypothetical market coupon rate	13%

Software	$	39,410,204	Hypothetical market analysis	Hypothetical market coupon rate	15%
			Income Approach	Expected amount and timing of cash flow payment	$0 - $1,500,000
				Discount Rate	3%

Technology Services	$	41,890,618	Hypothetical market analysis	Hypothetical market coupon rate	13%

Wireless	$	12,647,502	Hypothetical market analysis	Hypothetical market coupon rate	13%
			Income Approach	Expected amount and timing of cash flow payment	$0 - $1,517,227
				Discount Rate	3%
Total debt investments	$	310,710,678

(Intentionally left blank)

The following tables present the balances of assets and liabilities as of September 30, 2018 and December 31, 2017 measured at fair value on a recurring basis:



As of September 30, 2018	Level 1		Level 2		Level 3		Total
ASSETS:
Loans†	$	—	$	—	$	411,207,953	$	411,207,953
Derivative asset - interest rate swap	—		1,217,658		—		1,217,658
Cash equivalents	16,114,881		—		—		16,114,881
Total	$	16,114,881	$	1,217,658	$	411,207,953	$	428,540,492

LIABILITIES
Borrowings under debt facility	$	—	$	203,000,000	$	—	$	203,000,000
Total	$	—	$	203,000,000	$	—	$	203,000,000



As of December 31, 2017	Level 1		Level 2		Level 3		Total
ASSETS:
Loans†	$	—	$	—	$	310,710,678	$	310,710,678
Interest rate cap	—		339,183		—		339,183
Cash equivalents	7,879,718		—		—		7,879,718
Total	$	7,879,718	$	339,183	$	310,710,678	$	318,929,579

LIABILITIES
Borrowings under debt facility	$	—	$	156,500,000	$	—	$	156,500,000
Total	$	—	$	156,500,000	$	—	$	156,500,000

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

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



	For the Three Months Ended September 30, 2018
	Loans			Stock			Warrants
Beginning balance	$	436,057,197		$	—		$	—
Acquisitions and originations	47,675,000			1,500,000			2,581,369
Principal reductions and amortization discounts	(65,670,089		)	—			—
Distributed to shareholder	—			(1,500,000		)	(2,581,369		)
Net change in unrealized loss from loans	(6,570,644		)	—			—
Net change in realized loss from loans	(283,511		)	—			—
Ending balance	$	411,207,953		$	—		$	—
Net change in unrealized loss on loans relating to loans still held at September 30, 2018	$	(6,854,154	)

(Intentionally left blank)



	For the Nine Months Ended September 30, 2018
	Loans			Stock			Warrants
Beginning balance	$	310,710,678		$	—		$	—
Acquisitions and originations	223,970,806			1,500,000			13,712,013
Principal reductions and amortization discounts	(113,808,751		)	—			—
Distributed to shareholder	—			(1,500,000		)	(13,712,013		)
Net change in unrealized loss from loans	(7,798,113		)	—			—
Net change in realized loss from loans	(1,866,667		)	—			—
Ending balance	$	411,207,953		$	—		$	—
Net change in unrealized loss on loans relating to loans still held at September 30, 2018	$	(9,263,809	)



	For the Three Months Ended September 30, 2017
	Loans			Stock			Warrants			Convertible Note
Beginning balance	$	234,057,143		$	—		$	—		$	—
Acquisitions and originations	69,665,000			38,461			3,387,400			—
Principal reductions and amortization discounts	(16,800,917		)	—			—			—
Distributed to shareholder	—			(38,461		)	(3,387,400		)	—
Net change in unrealized loss from loans	(36,068		)	—			—			—
Net change in realized loss from loans	(532,459		)	—			—			—
Ending balance	$	286,352,699		$	—		$	—		$	—
Net change in unrealized loss on loans relating to loans still held at September 30, 2017	$	(568,608	)



	For the Nine Months Ended September 30, 2017
	Loans			Stock			Warrants			Convertible Note
Beginning balance	$	125,550,657		$	—		$	—		$	—
Acquisitions and originations	209,767,500			38,935			14,516,109			17,507
Principal reductions and amortization discounts	(46,238,291		)	—			—			—
Distributed to shareholder	—			(38,935		)	(14,516,109		)	$	(17,507	)
Net change in unrealized gain from loans	1,044,313			—			—			$	—
Net change in realized loss from loans	(3,771,480		)	—			—			$	—
Ending balance	$	286,352,699		$	—		$	—		$	—
Net change in unrealized loss on loans relating to loans still held at September 30, 2017	$	(1,982,777	)


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 (loss) 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 (loss) per share are the same.


6.	CAPITAL STOCK

As of September 30, 2018 and December 31, 2017, the Fund had 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 both September 30, 2018 and December 31, 2017 was $423.6 million. Total contributed capital to the Company through September 30, 2018 and December 31, 2017 was $347.4 million and $249.9 million, of which $297.6 million and $213.1 million was contributed to the Fund, respectively.

The chart below shows the distributions of the Fund for the nine months ended September 30, 2018 and 2017.



	For the Nine Months Ended September 30, 2018		For the Nine Months Ended September 30, 2017
Cash distributions	$	40,000,000	$	—
Distributions of equity securities	$	15,212,013	$	14,572,551
Total distributions to shareholder	$	55,212,013	$	14,572,551

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 established a secured revolving loan facility in an initial amount up to $150,000,000, (the “Loan Agreement”) led by Wells Fargo, N.A. and MUFG Union Bank, N.A. On September 11, 2017, the Loan Agreement was amended (the “Amended Loan Agreement”), and the borrowing availability thereunder increased the size of the facility to $280,000,000. An additional $75,000,000 is potentially available to the Fund, subject to further negotiation and credit approval, through an accordion provision contained in the Amended Loan Agreement. All of the assets of the Fund collateralize borrowings by the Fund. Loans under the facility may be, at the option of the Fund, a Reference Rate Loan, a LIBOR Rate Loan, or a LIBOR Market Index 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%) (“Reference Rate”). 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 the 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”). A LIBOR Market Index Rate Loan is defined as a Loan bearing interest, for any day, a variable rate of interest equal to the one-month LIBOR Market Index Rate based on a minimum deposit of at least $5.0 million for a period equal to one month which appears on the Reuters Screen LIBOR01 Page (or any applicable successor page) at approximately 11:00 a.m. (London time) on such date of determination, or if not a business day, then the immediate preceding business day (rounded upward, if necessary to the nearest 1/100th of 1%). As of September 30, 2018, the Fund’s outstanding borrowings were entirely based on the LIBOR Rate. The facility terminates on September 11, 2020, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments.

Borrowings under the facility are collateralized by receivables under loans to portfolio companies advanced by the Fund with assignment of such receivables to the financial institution, plus all other assets of the Fund. Under the Amended 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%, (ii) the Reference Rate plus 1.75%, or (iii) the LIBOR Market Index Rate plus 2.75%. The Fund also pays an annual commitment fee under the Amended Loan Agreement. When the Fund is using 50% or more of

the maximum amount available under the Amended 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 credit line fee quarterly. The Fund will pay interest on its borrowings upon each maturity date. As of September 30, 2018 and December 31, 2017, $203.0 million and $156.5 million was outstanding under the facility, respectively.

As of September 30, 2018, the LIBOR Rate is as follows:



1 Month LIBOR	2.2606%
3 Month LIBOR	2.3984%

Bank fees and other costs of $2.2 million incurred in connection with the acquisition of the facility have been capitalized and are amortized to interest expense on a straight-line basis over the expected life of the facility. As of September 30, 2018, the unamortized fees and costs of $1.1 million are being amortized over the expected life of the facility, which is scheduled to terminate on September 11, 2020.

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 and (iv) unfunded commitment ratio. 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 September 30, 2018, Management believes that the Fund was in compliance with these covenants.

The following is the summary of the outstanding facility draws as of September 30, 2018:



Roll-over/Draw Date	Amount		Maturity Date*	All-In Interest Rate**
September 6, 2018	$	203,000,000	10/9/2018	4.88%

TOTAL OUTSTANDING	$	203,000,000

* On October 9, 2018, Management rolled the entire $203.0 million to a 90-day LIBOR rate loan with a maturity date of January 7, 2019 and an all-in interest rate of 5.16%.

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

8. MANAGEMENT FEE

As compensation for its services to the Fund, for the two-year period that commenced with the first capital closing, which took place on August 8, 2015, the Manager received a management fee (“Management Fee”) computed and paid at the end of each quarter at an annual rate of 2.5% of the Company's committed equity capital (regardless of when or if the capital was called) as of the last day of each fiscal quarter. Following this two-year period, starting on August 12, 2017, Management Fees are calculated and paid at the end of each quarter at an annual rate of 2.5% of the Fund's total assets (including amounts derived from borrowed funds) as of the last day of each quarter. Management Fees of $2.7 million and $2.3 million were recognized as expenses for the three months ended September 30, 2018 and 2017, respectively. Management fees of $8.1 million and $7.5 million were recognized as expenses for the nine months ended September 30, 2018 and 2017, respectively.

9. INTEREST RATE CAP AGREEMENT

In September 2016, the Fund had entered into an interest rate cap transaction with MUFG Union Bank, N.A. to cap floating interest rates at 2.00%. The purpose of the interest rate cap agreement was to protect the Fund against rising interest

rates, as the Fund originates loans with fixed interest rates. On April 12, 2018, Management elected to convert all of the Fund's existing rate cap agreements with notional amounts totaling $87.0 million into a cancellable interest rate swap agreement with a notional amount of $102.0 million with an effective date of March 30, 2018.

As of September 30, 2018, the Fund had zero interest rate cap contracts and as of September 30, 2017 the Fund had four interest rate cap contracts with the notional principal amount of $87.0 million. The Fund paid initial costs for the cap agreements of $384,900, which were amortized on a straight-line basis over the life of the instruments.

The average notional amount outstanding was $0 and $87.0 million for the three months ended September 30, 2018 and 2017, respectively. The average notional amount outstanding was $29.0 million and $61.0 million for the nine months ended September 30, 2018 and 2017, respectively.

As of September 30, 2018 and December 31, 2017, the fair value of the Fund’s derivative financial instruments were as follows:

Asset and Liability Derivatives

September 30, 2018

December 31, 2017

Derivatives:

Location on Condensed Statement of Assets and Liabilities

Fair Value

Location on Condensed Statements of Assets and Liabilities

Fair Value

Interest rate cap agreement

Interest rate caps

—

Interest rate caps

339,183

For the three and nine months ended September 30, 2018 and 2017, the derivative financial instruments had the following effect on the Condensed Statements of Operations:



	Asset Derivatives
		For the Three Months Ended
Derivatives:	Location on Condensed Statement of Operations	September 30, 2018		September 30, 2017
Interest rate cap agreement	Net change in unrealized gain (loss) from derivative instruments	$	—	$	289



	Asset Derivatives
		For the Nine Months Ended
Derivatives:	Location on Condensed Statement of Operations	September 30, 2018			September 30, 2017
Interest rate cap agreement	Net change in unrealized gain (loss) from derivative instruments	$	(7,854	)	$	(94,671	)
	Net realized gain (loss) from derivative instruments	$	571,704		$	—

10. CANCELLABLE INTEREST RATE SWAP AGREEMENT

On April 12, 2018, the Fund entered into a cancellable interest rate swap transaction with MUFG Union Bank, N.A. with a preliminary notional amount of $102.0 million to convert floating liabilities to fixed rates. The purpose of the interest rate swap agreement is to protect the Fund against rising interest rates. The Fund continues to adjust the notional principal amount as the outstanding balance under the debt facility changes. As of September 30, 2018, the principal notional amount was $102.0 million. The Fund pays a fixed rate of 2.20% and receives from the counterparty a floating rate based upon a

30-day LIBOR. Payments are made monthly and will terminate on September 11, 2020. The agreement includes an option for the Fund to terminate the swap early on March 31, 2020. Payments to or from the counterparty are recorded to Net realized gain (loss) from investments. As of September 30, 2018, the 30-day LIBOR rate was 2.2606%.

Upon the conversion the interest rate caps into the interest rate swap, the initial costs associated with the cap agreements were transferred to the swap. However, the total cost of $829,690 was immediately recognized as a realized loss since the purchase value of the interest rate caps was used to reduce the fixed rate percentage of the interest rate swap agreement.

As of September 30, 2018 and December 31, 2017 the fair value of our derivative financial instrument was as follows:

Asset and Liability Derivatives

September 30, 2018

December 31, 2017

Derivatives:

Location on Condensed Statement of Assets and Liabilities

Fair Value

Location on Condensed Statement of Assets and Liabilities

Fair Value

Interest rate swap agreement

Derivative asset - interest rate swap

1,217,658

Derivative asset - interest rate swap

—

For the three and nine months ended September 30, 2018 and 2017, the derivative financial instruments had the following effect on the Condensed Statements of Operations:



		For the Three Months Ended
Derivatives:	Location on Condensed Statements of Operations	September 30, 2018			September 30, 2017
Interest rate swap agreement	Net change in unrealized gain (loss) from derivative instruments	$	243,806		$	—
Interest rate swap agreement	Net realized gain (loss) from derivative instruments	$	(30,328	)	$	—



		For the Nine Months Ended
Derivatives:	Location on Condensed Statements of Operations	September 30, 2018			September 30, 2017
Interest rate swap agreement	Net change in unrealized gain (loss) from derivative instruments	$	1,217,658		$	—
Interest rate swap agreement	Net realized gain (loss) from derivative instruments	$	(931,856	)	$	—

11. TAX STATUS

The Fund has elected to be treated as a Regulated Investment Company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”) and operates in a manner 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 September 30, 2018, the Fund has met the BDC and RIC requirements.

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.

As of September 30, 2018



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)			Fair Value
Loans	$	423,276,939	$	—	$	(12,068,986	)	$	(12,068,986	)	$	411,207,953
Total	$	423,276,939	$	—	$	(12,068,986	)	$	(12,068,986	)	$	411,207,953

Derivative, asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)			Fair Value
Derivative asset - interest rate swap	$	—	$	1,217,658	$	—		$	1,217,658		$	1,217,658
Total	$	—	$	1,217,658	$	—		$	1,217,658		$	1,217,658

As of December 31, 2017



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)			Fair Value
Loans	$	314,981,551	$	—	$	(4,270,873	)	$	(4,270,873	)	$	310,710,678
Interest rate caps	$	331,329	$	—	$	7,854		$	7,854		$	339,183
Total	$	315,312,880	$	—	$	(4,263,019	)	$	(4,263,019	)	$	311,049,861

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.

For the nine months ended September 30, 2018, the Fund had no undistributed earnings. The Fund has the discretion to 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.

The Fund’s tax years are open to examination by federal tax authorities and California tax authorities for the years 2015 and forward. As of September 30, 2018, the Fund had no uncertain tax positions and no capital loss carry forwards.

12. FINANCIAL HIGHLIGHTS

GAAP requires disclosure of financial highlights of the Fund for the three and nine months ended September 30, 2018 and 2017. 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 income (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 periods presented. Net investment income (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 September 30, 2018			For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2018			For the Nine Months Ended September 30, 2017

Total return **	4.69		%	3.63		%	13.40		%	7.42		%

Per share amounts:
Net asset value, beginning of period	$	2,380.58		$	1,247.41		$	1,648.31		$	810.72
Net investment income	182.77			63.40			378.10			125.09
Net realized and change in unrealized loss from loans and derivative instruments	(66.40		)	(5.68		)	(88.15		)	(28.21		)
Net increase in net assets from operations	116.37			57.72			289.95			96.88
Distributions of income to shareholder	(244.52		)	(58.08		)	(355.83		)	(87.38		)
Return of capital to shareholder	(196.29		)	23.82			(196.29		)	(58.35		)
Contributions from shareholder	175.00			642.50			845.00			1,151.50

Net asset value, end of period	$	2,231.14		$	1,913.37		$	2,231.14		$	1,913.37

Net assets, end of period	$	223,113,659		$	191,336,744		$	223,113,659		$	191,336,744

Ratios to average net assets:

Expenses*	8.82		%	8.84		%	9.27		%	11.90		%
Net investment income*	29.05		%	15.27		%	22.21		%	13.19		%
Portfolio Turn-over rate	0%			0%			0%			0%
Average debt outstanding	$	204,750,000		$	114,675,000		$	187,750,000		$	91,170,000
* Annualized
**Total return amounts presented above are not annualized.

13. SUBSEQUENT EVENTS

The Fund evaluated additional subsequent events through the date the financial statements were issued, November 9, 2018, and determined that no additional subsequent events had occurred that would require accrual or disclosure in the financial statements.

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 several 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 resulting from 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, competition and macro-economic changes including inflation, interest rate expectations, among other factors. 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 that have received equity funding from traditional sources of venture capital equity funding (e.g., a professionally managed venture capital firm) as well as non-traditional sources of venture capital equity funding (e.g., angel investors, strategic investors, family offices, crowdfunding investment platforms, etc.) (“Venture-Backed Companies”) primarily throughout the United States with a focus on growth-oriented companies. The Fund’s portfolio is well 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/or for working capital. 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 -1940 Act. The Fund elected to be treated for federal income tax purposes as a RIC under the Code with the filing of its 2016 federal corporate tax return. 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. While the Fund intends to operate as a non-diversified investment company within the meaning of Section 5(b)(2) of the 1940 Act, from time to time, the Fund may act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act.

The Fund will seek to meet the ongoing requirements, including the diversification requirements, to qualify 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 would 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 and the Fund seeks to achieve its investment objective by primarily providing debt financing to portfolio companies. Since inception, the Fund’s investing activities have focused primarily on private debt securities. In connection with its portfolio investments, the Fund generally receives warrants to acquire equity securities in connection with its portfolio investments. It is anticipated that such warrants will be distributed by the Fund to the Company simultaneously with, or shortly following, their acquisition. The Fund also maintains limits 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-Backed Companies. The borrower’s ability to repay its loans may be adversely impacted by several factors and, as a result, the loan may not be fully 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 manager for Fund VII. The Fund’s Board of Directors 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”). Generally, the amount of each Investment was allocated 50% to the Fund and 50% to Fund VII, or such other allocations as were determined by the respective fund boards. Effective June 30, 2017, Fund VII was no longer permitted to enter new commitments to borrowers; however, Fund VII is permitted to fund existing commitments, in which the Fund may also be invested. Fund VII’s last commitment expired on July 31, 2018. The ability of the Fund to co-invest with Fund VII is subject to the conditions (“Conditions”) set forth in certain exemptive relief currently being sought by the Fund and certain related parties from the SEC from the provisions of Sections 17(d) and 57 of the 1940 Act and Rule 17d-1 thereunder.

To the extent that clients, other than Fund VII and Fund IX, advised by the Manager invest in opportunities available to the Fund, the Manager will also 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 the Conditions.

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

The Manager also serves as manager for Fund IX. The Fund's Board of Directors determined that so long as Fund IX has capital available to invest in loan transactions with final maturities earlier than December 31, 2028 (the date on which Fund IX will be dissolved), the Fund may invest in each portfolio company in which Fund IX invests (“Investments”). Generally, the amount of each investment will be allocated 50% to the Fund and 50% to Fund IX, or such other allocations as may be determined by the respective fund boards. The ability of the Fund to co-invest with Fund IX is subject to the Conditions described above. After September 30, 2019, the Fund will no longer be permitted to enter into new commitments to borrowers; however, the Fund will be permitted to fund existing commitments, in which Fund IX may also be invested. The Manager is permitted to extend the Fund's investment period by up to two (2) additional calendar quarters in its sole and absolute discretion.

Critical Accounting Policies

Critical Accounting Policies and Practices are those accounting policies and practices that are both the most important to the portrayal of the Fund’s net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are accounting estimates where the nature of the estimates is material due to

the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on net assets or operating performance is material.

In evaluating the most critical accounting policies and estimates, the Manager has identified the estimation of fair value of the Fund’s loan investments as the most critical of the accounting policies and accounting estimates applied to the Fund’s reporting of net assets or operating performance. In accordance with GAAP, the Fund defines fair value as the price that would be received to sell an asset or paid to transfer 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. There is no readily available market price or secondary market for the loans made by the Fund to borrowers, hence Management determines fair value based on a hypothetical market and the estimates are subject to high levels of judgment and uncertainty. The Fund’s loan investments are considered Level 3 fair value measurements in the fair value hierarchy due to the lack of observability over many of the important inputs used in determining fair value.

Critical judgments and inputs in determining the fair value of a loan include the timing and amount of future cash flows, probability of future payments, payment history, available cash and “burn rate,” revenues, net income or loss, operating results, financial strength of borrower, prospects for the borrower’s raising future equity rounds, likelihood of sale or acquisition of the borrower, length of expected holding period of the loan, collateral position, the timing and amount of liquidation of collateral for loans that are experiencing significant credit deterioration and collection becomes collateral dependent as well as an evaluation of the general interest rate environment. Management has evaluated these factors and has concluded that the effect of a deterioration in the quality of the underlying collateral, increase in the size of the loan, increase in the estimated time to recovery, and increase in the hypothetical market coupon rate would have the effect of decreasing the fair value of loan investments. The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and the loan. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, the par value of the loan often approximates fair value.

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 Nine Months Ended September 30, 2018 and 2017

Total investment income for the three months ended September 30, 2018 and 2017 was $23.8 million and $10.0 million, respectively, 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 other income from commitment fees and warrants. The increase in investment income was primarily due to early payoffs of loans in the portfolio and the increase in interest from the monthly loan payments from the growing loan portfolio. The loan portfolio went from an average gross outstanding of $259.0 million for the three months ended September 30, 2017 to $431.8 million for the three months ended September 30, 2018. The increase in the average interest rate on gross outstanding performing loans from 15.25% to 22.02% for the same periods also contributed to the increase. 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. The weighted-average interest rate on all loans was 21.83% and 15.12% for the three months ended September 30, 2018 and 2017, respectively, and the rates are inclusive of both cash and non-cash interest income.

Total investment income for the nine months ended September 30, 2018 and 2017 was $53.6 million and $23.8 million, respectively, 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 other income from commitment fees and warrants. The increase in investment income was primarily due to the early payoffs of loans in the portfolio and the increase in interest from the monthly loan payments from the growing loan portfolio. The average gross outstanding performing loans increased from $200.6 million for the nine months ended September 30, 2017 to $395.4 million for the nine months ended September 30, 2018. The increase in the average interest rate on gross outstanding performing loans from 15.69% to 18.02% for the same periods also contributed to the increase in investment income. The weighted-

average interest rate on all loans for the nine months ended September 30, 2018 and 2017 was 17.90% and 15.58%, respectively, and the rates were inclusive of both cash and non-cash interest income.

Management fees were $2.7 million and $2.3 million for the three months ended September 30, 2018 and 2017, respectively. Management fees were $8.1 million and $7.5 million for the nine months ended September 30, 2018 and 2017, respectively. Until August 11, 2017, management fees were calculated as 2.5% of the committed capital of the Company. Starting on August 12, 2017, management fees were calculated as 2.5% of the Fund’s total assets. The increase is due to total assets as of September 30, 2018 being greater than total committed capital.

Interest expense was $2.7 million and $1.3 million for the three months ended September 30, 2018 and 2017, respectively. Interest expense was comprised of amounts related to interest on debt amounts drawn down, unused credit line fees and amounts amortized from deferred fees incurred in conjunction with the debt facility. Interest expense increased primarily due to an increase in average outstanding debt from $114.7 million in 2017 to $204.8 million in 2018.

Interest expense was $7.3 million and $3.1 million for the nine months ended September 30, 2018 and 2017, respectively. Interest expense was comprised of amounts related to interest on debt amounts drawn down, unused credit line fees and amounts amortized from deferred fees incurred in conjunction with the debt facility. Interest expense increased primarily due to an increase in average outstanding debt from $91.2 million in 2017 to $187.8 million in 2018.

The banking and professional fees were $0.1 million and less than $0.1 million for the three months ended September 30, 2018 and 2017, respectively. The banking and professional fees were $0.2 million and $0.2 million for the nine months ended September 30, 2018 and 2017, respectively. The banking and professional fees were comprised of legal, audit, banking and other professional fees.

Total other operating expenses were less than $0.1 million for the three months ended September 30, 2018 and 2017. Total other operating expenses were $0.1 million and $0.4 million for the nine months ended September 30, 2018 and 2017, respectively. These expenses included director fees, custody fees, tax fees and other expenses related to the operation of the Fund. Total other operating expenses decreased due to a decrease in collection costs in 2018.

Net investment income for the three months ended September 30, 2018 and 2017, was $18.3 million and $6.3 million, respectively. Net investment income for the nine months ended September 30, 2018 and 2017, was $37.8 million and $12.5 million, respectively.

Net realized loss from loans was $0.3 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively. The primary reasons for the decline in net realized loss from investments for the three months ended September 30, 2018 were fewer loan write-offs.

Net realized loss from loans was $1.9 million and $3.8 million for the nine months ended September 30, 2018 and 2017, respectively. The reason for the decline in the net realized loss from investments was lower total loan write-offs in the nine months ended September 30, 2018.

Net realized loss from derivative instruments was less than $0.1 million and $0 for the three months ended September 30, 2018 and 2017, respectively. The primary reasons for the increase in net realized loss from derivative instruments was there were no interest payments due on the derivative in 2017.

Net realized loss from derivative instruments was $0.4 million and $0 for the nine months ended September 30, 2018 and 2017, respectively. The reason for the increase in the net realized loss from derivative instruments was there were no interest payments due on the derivative in 2017.

Net change in unrealized loss from loans was $6.6 million and less than $1.0 million for the three months ended September 30, 2018 and 2017, respectively. The unrealized loss consisted of fair market value adjustments to loans and the reversal of fair market value adjustments previously taken against loans written off. The increase in net change in unrealized losses was due primarily to higher and more unrealized losses taken on loans in 2018.

Net change in unrealized gain (loss) from loans was $(7.8) million and $1.0 million for the nine months ended September 30, 2018 and 2017, respectively. The unrealized loss consisted of fair market value adjustments to loans and the reversal of fair market value adjustments previously taken against loans written off.

Net change in unrealized gain from derivative instruments was $0.2 million and less than $0.1 million for the three months ended September 30, 2018 and 2017, respectively. The unrealized gain consisted of fair market value adjustments to the derivative interest rate cap or swap. The increase in net change in unrealized gain was due primarily to the steady rise in LIBOR interest rates in 2018 that increased the value of the cap/swap.

Net change in unrealized gain (loss) from derivative - cap/swap was $1.2 million and less than ($0.1) million for the nine months ended September 30, 2018 and 2017, respectively. The unrealized gain (loss) consisted of fair market value adjustments to the derivative interest rate cap or swap. The increase in net change in unrealized gain (loss) was due primarily to the rise in LIBOR interest rates in 2018 that increased the value of the cap/swap.

Net increase in net assets resulting from operations for the three months ended September 30, 2018 and 2017, was $11.6 million and $5.8 million, respectively. On a per share basis, the net increase in net assets resulting from operations was $116.37 and $57.72, respectively.

Net increase in net assets resulting from operations for the nine months ended September 30, 2018 and 2017, was $29.0 million and $9.7 million, respectively. On a per share basis, the net increase in net assets resulting from operations was $289.95 and $96.88, respectively.

Liquidity and Capital Resources – September 30, 2018 and December 31, 2017

The Fund is owned entirely by the Company. The Company is expected, but not required, to make further contributions to the capital of the Fund to the extent of the Company’s members’ capital commitment to the Company and excess cash balances of the Company. As of September 30, 2018, the Company had received subscriptions for capital in the amount of $423.6 million, of which $347.4 million had been called and received. As of September 30, 2018, $76.2 million of capital remain uncalled and expire in August 20, 2020 as the five-year anniversary will have passed, at which time no further capital may be called. However, the Management is permitted to extend the Fund’s investment period by up to two (2) additional calendar quarters in its sole and absolute discretion. The Company has made $56.0 million in recallable distributions to its investors, as permitted under its Operating Agreement.

On April 5, 2016, the Fund established 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. On September 11, 2017, the Loan Agreement was amended (the “Amended Loan Agreement”) and the borrowing availability thereunder was increased to $280,000,000. Borrowings by the Fund are collateralized by all the assets of the Fund. Loans under the facility may be, at the option of the Fund, a Reference Rate Loan, a LIBOR Rate Loan, or a LIBOR Market Index Rate Loan. 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 September 11, 2020, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments. As of September 30, 2018, $203.0 million is outstanding under the facility.

As of September 30, 2018 and December 31, 2017, 2.7% and 2.4%, respectively, of the Fund’s assets consisted of cash and cash equivalents. For the nine months ended September 30, 2018, the Fund invested its assets in venture loans and disbursed approximately $224.0 million for the Fund’s loan commitments. Net loan amounts outstanding

after amortization increased by approximately $100.5 million for the same period. Unexpired, unfunded commitments totaled approximately $93.7 million as of September 30, 2018.



As of	Cumulative Amount Disbursed	Principal Reductions and Fair Market Adjustments	Balance Outstanding - Fair Value	Unexpired Unfunded Commitments
September 30, 2018	$619.1 million	$207.9 million	$411.2 million	$93.7 million
December 31, 2017	$395.1 million	$84.4 million	$310.7 million	$96.2 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 seeks to meet the ongoing 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 the Company. 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, 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 September 30, 2018, the Fund has cash reserves of $11.4 million and approximately $171.7 million in scheduled receivable payments over the next twelve months. Additionally, the Fund has access to uncalled capital of $76.2 million as a liquidity source and the unused portion of the revolving credit facility. Together, these amounts are sufficient to meet the current commitment backlog and operational expenses of the next year. The Fund regularly 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 various elements of risk of which Management considers interest rate and credit risk to be the principal types of market risk of the Fund. Because the Fund considers the management of risk essential to both conducting its business and maintaining profitability, the Fund’s risk management procedures are designed to identify and analyze the 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, “burn rate,” revenue income, security interest, secondary markets for collateral, the size of the loan, term of the loan, and the ability to exit via Initial Public Offering or Merger and Acquisition.

The Fund’s exposure to interest rate sensitivity 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. As of September 30, 2018, the outstanding debt balance was $203.0 million with interest expense based on a weighted average base rate of 2.13%, for which the Fund had an interest rate swap in place at 2.20% on $102.0 million of outstanding debt, leaving the Fund with full exposure to interest rate increases on the un-hedged portion of the loan.

Because all of the Fund’s loans impose a fixed interest rate upon funding, changes in short-term interest rates will not directly affect interest income associated with the loan portfolio as of September 30, 2018. However, those changes could have the potential to change the Fund’s ability to originate loan commitments, acquire and renew bank facilities, and engage in other investment activities. Further, changes in short-term interest rates also could affect interest rate expense, realized gain from investments and interest on the Fund’s short-term investments.

Based on the Fund’s Condensed Statement of Assets and Liabilities as of September 30, 2018, 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 swap.



Effect of Interest rate change by	Other Interest and Other Income/(Loss)			Realized Gain (Loss) on the Swap			Interest Income/(Expense)			Total Income/(Loss)
(0.50)%	$	(57,015	)	$	(510,000	)	$	1,015,000		$	447,985
1%	$	114,029		$	1,020,000		$	(2,030,000	)	$	(895,971	)
2%	$	228,059		$	2,040,000		$	(4,060,000	)	$	(1,791,941	)
3%	$	342,088		$	3,060,000		$	(6,090,000	)	$	(2,687,912	)
4%	$	456,117		$	4,080,000		$	(8,120,000	)	$	(3,583,883	)
5%	$	570,146		$	5,100,000		$	(10,150,000	)	$	(4,479,854	)

Additionally, a change in the interest rate may affect the value of the interest rate swap and effect Net Change in Unrealized Gain (Loss) from derivative instruments. 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 swap while any rate decreases will decrease the value.

Although Management believes 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 funding 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, its net investment income is highly 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’s exposure to movement in short-term interest rates stems from the Fund borrowing at a floating interest rate but then making loans with a fixed rate at the time the loans are extended. The Fund, therefore, attempts to limit its interest rate risk by acquiring interest rate swaps, and anticipates hedging interest rate risk associated with future borrowings.

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, as amended (the “Exchange Act”). 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 Exchange Act.

Changes in Internal Controls:

There were no changes in the Fund’s internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Fund’s internal controls over financial reporting during the period covered by this quarterly report on Form 10-Q.

(Intentionally left blank)

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 now 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

The following discussion point should be read in conjunction with Item 1A - “Risk Factors” in the Fund’s 2017 Annual Report on Form 10-K for a detailed description of the risks attendant to the Fund and its business.

Changes to U.S. trade policy may have a negative effect on the global economy and/or our portfolio companies and, in turn, harm the Fund.

Significant changes to U.S. trade policy, including changes to current legislation and trade agreements and the imposition of tariffs have been discussed by the current U.S. presidential administration and certain members of Congress. Recently, the administration has imposed tariffs on a range of goods imported into the U.S., and a few countries have retaliated with tariffs against the United States. These retaliatory actions could trigger extended “trade wars” between the U.S. and its trading partners, resulting in additional barriers to the international market, inclusive of customers, vendors, and potential investors. Under these circumstances, the cost of goods for some portfolio companies could increase, resulting in lower consumer demand for their goods and reduced cash flows. While it is unknown whether and to what extent new legislation will be enacted into law, the enactment or amendment of trade legislation and/or renegotiation of trade agreements may impose additional compliance costs on portfolio companies, restrict their ability to participate in international markets and otherwise disrupt their current operations.

Special risk considerations have arisen relating to Saudi Arabia.

Investments in portfolio companies that receive funding from sources with direct or indirect ties to Saudi Arabia involve special considerations not typically associated with investments in other assets. These risks include, among others, the possibility that Saudi investment may decrease or become unavailable as a result of restrictions imposed against the Saudi government or funding sources with direct or indirect ties to Saudi Arabia. Recent allegations against the Saudi Arabian government relating to the death of an American-based journalist have exacerbated these risks, as several multinationals have severed ties or indicated their intent to substantially reduce or terminate business relationships with Saudi Arabia and some foreign countries have signaled that their diplomatic relations with Saudi Arabia may be negatively impacted, including through the possible imposition of sanctions, which could also result in retaliatory actions. Given Saudi Arabia’s significant venture investment activities, portfolio companies that receive funding from sources with direct or indirect ties to Saudi Arabia, particularly those tied to the Saudi government, and the venture capital sector as a whole, may experience decreased access to capital, be unable to obtain funding, or experience significant financial setbacks or disruptions. Additionally, companies with contracts with Saudi Arabia or with companies within Saudi Arabia could experience deleterious effects of the political situation.

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 $297.6 million of paid in capital during the period from August 12, 2015, commencement of operations, through September 30, 2018, which is has been and is expected to be used to acquire venture loans and fund operations.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

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	Chief Executive Officer (Principal Executive Officer) certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Rules 13a -14(a) and 15d-14(a) Certification).
31.2	Chief Financial Officer (Principal Financial Officer) certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Rules 13a -14(a) and 15d-14(a) Certification).
32.1	Chief Executive Officer (Principal Executive Officer) certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Section 1350 Certification).
32.2	Chief Financial Officer (Principal Financial Officer) certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Section 1350 Certification).

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 thereunto 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
(Principal Executive Officer)		(Principal Financial Officer)
Date:	November 9, 2018	Date:	November 9, 2018

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 - November 9, 2018

Attached files

Venture Lending & Leasing VIII, Inc. Reports