Venture Lending & Leasing VII, Inc. - FORM 10-K

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EX-32.2 - VLL7INC 10-K 12.31.2019 EXHIBIT 32.2 - Venture Lending & Leasing VII, Inc.	vll710k123119ex322.htm
EX-32.1 - VLL7INC 10-K 12.31.2019 EXHIBIT 32.1 - Venture Lending & Leasing VII, Inc.	vll710k123119ex321.htm
EX-31.2 - VLL7INC 10-K 12.31.2019 EXHIBIT 31.2 - Venture Lending & Leasing VII, Inc.	vll710k123119ex312.htm
EX-31.1 - VLL7INC 10-K 12.31.2019 EXHIBIT 31.1 - Venture Lending & Leasing VII, Inc.	vll710k123119ex311.htm
EX-10.3 - VLL7INC 10-K 12.31.2019 EXHIBIT 10.3 - Venture Lending & Leasing VII, Inc.	vll710k123119ex103.htm
EX-4.2 - VLL7INC 10-K 12.31.2019 EXHIBIT 4.2 - Venture Lending & Leasing VII, Inc.	vll710k123119ex42.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



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

For the fiscal year ended December 31, 2019



[ ]	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 814-00969

VENTURE LENDING & LEASING VII, INC.

(Exact name of registrant as specified in its charter)



Maryland	45-5589518
(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)

Registrant’s telephone number, including area code: (650) 234-4300

Securities registered pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Common stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (i) 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 (ii) 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 every Interactive Data File required to be submitted 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 such files). Yes [ ] 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 an 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 if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As the registrant’s shares are not publicly-traded, the aggregate market value of the voting stock held by non-affiliates of the registrant cannot be determined.

The number of shares outstanding of each of the issuer’s classes of common stock, as of March 16, 2020, was 100,000.

Document Incorporated by Reference



Document Description		10-K Part
Specifically Identified Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held	May 13, 2020	III

PART I.


ITEM 1.	BUSINESS

Introduction.

Venture Lending & Leasing VII, Inc. (the “Fund”) was incorporated in Maryland on June 21, 2012 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 (the “1940 Act”) and is managed by Westech Investment Advisors, LLC (the “Manager” or “Management”). The Fund is a wholly-owned subsidiary of Venture Lending & Leasing VII, LLC, a Delaware limited liability company (the “Company”). The Fund’s investment objective is to achieve superior risk-adjusted investment returns. The Fund will primarily provide debt financing to carefully selected companies that have received equity funding from traditional sources of venture capital equity funding (i.e. 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.) (collectively, “Venture-Backed Companies”), generally in the form of secured loans. Secondarily, the Fund may invest in special situations, which are expected to consist principally of convertible and subordinated debt instruments of public and late-stage private companies. In most cases, the Fund will receive warrants for equity securities of the companies in connection with these loans. Prior to commencing its operations on December 18, 2012, the Fund had no operations other than the sale of 100,000 shares of common stock, $0.001 par value to the Company for $25,000 in July 2012. As of December 31, 2019, the Fund meets the requirements, including diversification requirements, to qualify as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986 (the “Code”).

The Fund’s shares of common stock, $0.001 par value (“Shares”) are held entirely by the Company. As capital is required to finance the acquisition of loans, additional capital is provided by the Company.

Investment Program.

General. The Fund’s primary investment strategy is to provide debt financing, in the form of secured loans, to carefully selected Venture-Backed Companies. Secondarily, up to 20% of the aggregate cost of all investments of the Fund (determined cumulatively over the life of the Fund) may be used for special situation investments, which are expected to consist principally of convertible and subordinated debt financing to public and late-stage private companies. In most cases, the Fund will receive warrants to acquire equity securities in connection with its venture loans. The Fund also may directly purchase equity securities of Venture-Backed Companies (including equity securities of companies whose loans are held by the Fund). The Fund may make direct investments in equity securities having an aggregate cost of up to 10% of the aggregate amount of all investments of the Fund determined cumulatively over the life of the Fund. The Fund will make available significant managerial assistance through its officers to certain companies whose securities are held in the Fund’s portfolio, as described herein under the caption “Regulation.”

The Fund intends to use a buy-and-hold strategy where debt investments are held to maturity. All securities are evaluated on a regular basis to determine whether there should be any change to this strategy. Some debt investments are restructured, which may result in the extension of the original maturity date or other change in the instrument, including but not limited to, conversion of all or part of the instrument to equity. The Fund does not intend to purchase publicly-held securities; however, some publicly-held securities may be acquired through warrant exercises, mergers, acquisitions, and IPOs of the companies in which investments are made. Additionally, in some cases, publicly-traded securities may be issued in conjunction with loans made to public companies. When a company’s securities become publicly-traded, the Fund may hold these securities and sell them or may choose to distribute the securities directly to the Company. If held, publicly-traded securities are monitored on an on-going basis, and a variety of factors regarding the issuing company (e.g., trend in stock price, underlying business fundamentals and potential for growth, information regarding the lock-up, etc.) are used to determine when to sell these securities.

As a BDC, the Fund must invest at least 70% of its total assets in qualifying assets (“Qualifying Assets”) consisting of (a) interests in Eligible Portfolio Companies and (b) certain other assets including cash and cash equivalents. An “Eligible Portfolio Company” is a United States company that is not an investment company as defined or excluded from the definition of an investment company in Section 3 of the 1940 Act, and that either: (i) does not have a class of securities listed on a national securities exchange, or does have a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250.0 million; or (ii) is actively controlled by a BDC and has an affiliate of a BDC on the Eligible Portfolio Company’s Board of Directors; or (iii) has total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million; or (iv) meets such other criteria as may be established by the Securities and Exchange Commission (“SEC”). Control under the 1940 Act is presumed to exist where a BDC owns more than 25% of the outstanding voting securities of the Eligible Portfolio Company. Also included in Qualifying Assets are follow-on investments in a company that met the definition of Eligible Portfolio Company at the time of the Fund’s initial investment, but subsequently does not meet such definition because it has a class of securities listed on a national securities exchange, if, at the time of the follow-on investment, the Fund (a) owns at least 50% of (i) the greatest number of equity securities of such company, including securities convertible into or exchangeable for such securities, and (ii) the greatest amount of certain debt securities of such company held by the Fund at any time during the period when such company was an Eligible Portfolio Company, and (b) is one of the twenty largest holders of record of the company’s outstanding voting securities. The Fund may invest up to 30% of its total assets in non-Qualifying Assets, including interests in companies that are not Eligible Portfolio Companies (for example, because the company’s securities are quoted on the NASDAQ Global Market (“NASDAQ”)) and Eligible Portfolio Companies as to which the Fund does not offer to make available significant managerial assistance. As a BDC, the Fund is generally prohibited under the 1940 Act from investing in securities issued by broker/dealers, investment advisers, and underwriters unless certain conditions are met. As of December 31, 2019, the percentage of non-qualifying investments in the Fund was 5.6%.

BDCs cannot acquire any assets other than those Qualifying Assets described in subparagraphs (1) through (8) below unless, at the time of the acquisition, the assets described in subparagraphs (1) through (8) below represent at least 70% of the value of the BDC’s total assets (the “70% basket”). Below is a general summary of Qualifying Assets in which the Fund may invest.

1. Securities issued in transactions not involving a public offering from issuers which are Eligible Portfolio Companies (including affiliated persons or persons that have been affiliated persons within the preceding 13 months) or from any other person, subject to such rules and regulations as the SEC may prescribe;

2. Securities purchased in transactions not involving any public offering from an issuer, or from any person who is an officer or employee of the issuer, if the issuer is a U.S. company that is not an investment company, but the issuer is not an Eligible Portfolio Company because it has issued a class of margin securities that is eligible for margin loans, and at the time of purchase the BDC owns at least 50% of (i) the greatest number of equity securities (on a fully diluted basis) of the issuer and (ii) the greatest amount of such issuer’s debt securities held by the BDC at any point in time during the period when such issuer was an Eligible Portfolio Company, and, (iii) the BDC is one of the 20 largest holders of the issuer’s outstanding voting securities;

3. Securities of any Eligible Portfolio Company that is controlled by the BDC (either alone or as part of a group acting together) and the BDC exercises a controlling influence over the management or policies, and has an affiliated person who is a director of, the Eligible Portfolio Company;

4. Securities issued in transactions not involving a public offering from U.S. non-investment company issuers subject to bankruptcy, reorganization, insolvency or similar proceeding or otherwise unable to meet their obligations without assistance (purchase may be made from affiliated persons or persons that have been affiliated persons within the preceding 13 months or in limited circumstances other persons);

5. Securities of an Eligible Portfolio Company purchased from any person in transactions not involving a public offering when no public market for the securities exists and the BDC owned at least 60% of the outstanding equity (on a fully diluted basis) of the issuer immediately prior to the purchase;

6. Securities received in exchange for or distributed with respect to the foregoing securities (including securities obtained pursuant to the exercise of options, warrants or rights relating to such securities);

7. Cash, cash items, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment; and

8. Office furniture and equipment, interests in real estate, deferred organization and operating expenses, and other non-investment assets necessary and appropriate to the BDC’s operations.

“Making available significant managerial assistance” is defined under the 1940 Act, in relevant part, as (i) an arrangement whereby the BDC, through its officers, directors, employees or general partners, offers to provide and, if accepted, does provide, significant guidance and counsel concerning the management, operations or business objectives of a portfolio company; or (ii) the exercise by a BDC of a controlling influence over the management or polices of the portfolio company by the BDC acting individually or as part of a group acting together which controls the portfolio company. The officers of the Fund offer to provide managerial assistance, including advice on equipment acquisition and financing, cash flow and expense management, general financing opportunities, acquisition opportunities and opportunities to access the public securities markets, to the great majority of companies to whom the Fund provides venture loans. In some instances, directors of the Fund might serve on the Board of Directors or as officers of borrowers.

Venture Loans. Venture loans generally are made pursuant to a negotiated loan agreement, and are evidenced by promissory notes secured by specific equipment or other assets of the borrower financed with the proceeds of such loans, or secured by a broader lien on substantially all of the borrower’s assets where the purpose of the loan is to provide growth or general working capital to the borrower. The loans are typically secured by a first-position lien on such assets. The Fund generally receives periodic payments (usually monthly) and may receive a final payment equal to a percentage of the original loan amount, payable at maturity of the loan (whether as stated or accelerated). The interest rate and amortization terms of venture loans and all other transaction terms are individually negotiated between the Fund and each borrower.

The documentation for venture loans include representations, warranties, covenants and events of default intended to protect the Fund and which are customary for commercial transactions of this type and size. Typical material terms include restrictions on additional debt, covenants to maintain the loan collateral and keep it adequately insured and free of liens, prohibitions against sale or other disposition of the assets except under specified conditions, and acceleration provisions making the remaining outstanding amounts under the loan immediately due and payable and giving rise to a right to take possession of the collateral upon certain events of default, including failure to make required payments, insolvency, and failure to comply with covenants. There can be no assurance that the value of the collateral at the time of default will be at least equal to the outstanding amount due under the loan.

Typically, loans are structured as commitments by the Fund to provide financing, in one or more advances over a specified period of availability, determined as part of the underwriting process. The commitments of the Fund to finance future asset acquisitions or growth capital needs is typically subject to the absence of any default under the loan and compliance by the borrower with requirements relating to, among other things, the type of assets to be acquired, and if applicable, the borrower’s achievement of performance-based milestones. Although the Fund’s commitments generally provide that the Fund is not required to continue to fund additional asset purchases or growth capital if there has been a material adverse change in the borrower’s financial condition, a borrower’s financial condition may not be as strong at the time a loan is funded as it was when the related commitments were made.

In December 2016, the Manager recommended, and the Fund’s board approved, an extension of the investment period of the Fund by two quarters. Effective June 30, 2017, the Fund is no longer permitted to enter new commitments to borrowers; however, the Fund was permitted to fund existing commitments. The last commitment expired on July 31, 2018.

Warrants. The Fund generally acquires warrants to purchase equity securities of the borrower in connection with financings. It is anticipated that such warrants, generally, will be distributed by the Fund to the Company simultaneously with, or shortly following, their acquisition. The terms of the warrants, including the expiration date, exercise price, and terms of the equity security for which the warrant may be exercised, are negotiated individually with each borrower, and are likely to be affected by the price and terms of securities issued by the company to its venture capitalists and other holders in equity financings close in time to the Fund’s making of the loan commitment. Based upon the Manager’s past experience, it is anticipated that most warrants will be exercisable for a term of five to ten years, and will have an exercise price based upon the price at which the borrower most recently issued equity securities or, if a new equity offering is anticipated, the future price of such equity securities (and sometimes a “blended price”). In certain transactions, it is anticipated that warrants will be issued with an exercise price that is waived in connection with an initial public offering or acquisition. The equity securities for which the warrant will be exercised generally will be convertible preferred stock (of which there may be one or more classes) or common stock. Substantially all the warrants and underlying equity securities will be restricted securities under the Securities Act of 1933 (the “1933 Act”) at the time of issuance; the Fund generally negotiates registration rights with the borrower that may provide “piggyback” and S-3 registration rights, which permit the owner of the warrant under certain circumstances to include some or all of the securities that will be acquired upon exercise of the warrant in a registration statement filed by the borrower. The Fund generally will negotiate “net issuance” provisions in the warrants, which allow the owner of the warrant to exercise the warrant without payment of any cash, and thereby receive a net number of shares determined by the increase in the value of the issuer’s stock (at the time of exercise) above the exercise price stated in the warrant.

Equity Securities. The Fund may make direct investments in equity securities (including convertible notes) having an aggregate cost of up to 10% of the aggregate cost of all investments of the Fund determined cumulatively over the life of the Fund (provided, however, that any amounts paid by the Fund to acquire equity securities pursuant to the receipt or exercise of warrants or stock received in connection with the Fund’s venture loans shall not be taken into account in determining whether such 10% threshold has been met). For example, the Fund may invest equity in a follow-on round of financing to maintain or increase its ownership stake. In some cases, equity investments may be made in companies where the Fund does not have an existing loan. Additionally, the Fund anticipates selectively pursuing opportunistic equity purchases, which may take the form of primary or secondary stock purchases. The Manager expects that the equity securities generally will be convertible preferred stock, though it is possible the Fund would invest directly in common stock of Venture-Backed Companies or convertible notes which convert into common stock of Venture-Backed Companies. The Fund did not make any direct investments in equity securities during the prior year. It is likely that, as in the case of warrants, direct equity investments, if made by the Fund, generally will be distributed to the Company simultaneously with, or shortly following their acquisition. However, the Code and 1940 Act requirements could, in certain circumstance, compel the Fund to hold such securities for a longer period of time prior to their distribution to the Company.

Investment Policies. For purposes of the investment policies (other than the diversification standards below), references to the percentage of the Fund’s total assets “invested” in securities of a company will be deemed to refer, in the case of debt financings, to the total amount of financings that the Fund has committed to provide, and in the case of equity investments, to the cost basis of such equity investments; the Fund will not be required to divest securities in its portfolio or decline to fund an existing commitment because of a subsequent change in the value of securities the Fund has previously acquired or committed to purchase.

Diversification Standards. The Fund is classified as a “non-diversified,” closed-end investment company under the 1940 Act. However, the Fund seeks to continue to qualify as a RIC and therefore, must meet diversification standards under the Code.

To qualify as a RIC and obtain the special pass-through status available to RICs under the Code, the Fund must meet the issuer diversification standards under the Code that generally require that, at the close of each quarter of the Fund’s taxable year, (i) not more than 25% of the value of its total assets is invested in the securities of a single issuer, and (ii) at least 50% of the value of its total assets is represented by cash, cash items, government securities, securities of other RICs and other securities (counting each investment in such other securities only if the value of such securities does not exceed 5% of the value of the Fund’s total assets and the Fund does not own more than 10% of the outstanding voting securities of the issuer of such securities). For purposes of the diversification requirements under the Code, the percentage of the Fund’s total assets “invested” in securities of a company will be deemed to refer, in the case of financings in which the Fund commits to provide financing prior to funding the commitment, to the amount of the Fund’s total assets represented by the value of the securities issued by the borrower to the Fund at the time each portion of the commitment is funded.

Industry Segment Diversification. The Fund generally seeks to invest no more than 30% of its total assets in securities of companies in any single industry. The broad industry categories in which the Fund anticipates that most of its investments will fall (and within each of which there may be several “industries” for purposes of the industry diversification policy) include computers and storage, semiconductor and equipment, internet, medical devices, software, and several other categories.

Investment Guidelines. In selecting investments for the Fund’s portfolio, the Manager will endeavor to meet the investment guidelines established and approved by the Fund’s Board of Directors. The Fund may, however, make investments that do not conform to one or more of these guidelines when deemed appropriate by the Manager. Such investments might be made if the Manager believes that a failure to conform in one area is offset by exceptional strength in another or is compensated for by a higher yield, favorable warrant issuance or other attractive transaction terms or features.

Stage of Development Guidelines. The Manager seeks to diversify the Fund’s portfolio based on the development stage of the companies in which it invests. Generally, Venture-Backed Companies fall into several lifecycle stages, including the following:

•

Seed capital companies represent the earliest stage of development. These companies have raised relatively modest equity capital to prove a concept and qualify for start-up capital. Their activities generally are limited to product development, scientific and market research, recruiting a management team and developing a business plan. These companies likely do not have financial support from either venture capitalists or large companies making strategic investments.


•	Start-up stage companies are completing or have recently completed product development and initial marketing but have not sold their products commercially. Generally, such firms have made market studies, assembled key management, developed a business plan and are ready to commence operations.


•	Emerging growth stage companies have initiated or are about to initiate full-scale operations and sales but may not be showing a profit.


•	Mezzanine stage companies are approaching or have attained break even or profitability and are continuing to expand. An acquisition or initial public offering may be imminent.

The Manager refers to its investments in seed and start-up companies as “Early Stage” and investments in emerging growth companies and mezzanine companies as “Expansion Stage.” The Manager seeks to diversify its investments across stages. The classification of companies by stages of development involves a subjective judgment by the Manager, and it is possible that other investors or market analysts would classify the same companies differently than the classifications used by the Fund.

Quality Guidelines. The Manager seeks to invest the majority of the Fund’s aggregate investments (determined cumulatively over the life of the Fund) in investments that meet many of the following guidelines:

Company Guidelines.

•The company has a minimum capitalization of at least $1.0 million.


•	The company has at least six months’ worth of available cash to fund its operations or indications from its equity investors that they will make investments necessary to provide such cash.


•	At least two venture capital equity investors have indicated a current intention to make additional equity financing available to the company, or the company has a forecasted positive cash flow.


•	The company’s business plan contemplates sales of at least $25.0 million within five years.


•	The company has previously closed equity venture capital financing or will close equity venture capital financing prior to the funding of the loan.

Transaction Guidelines for Loans.

•The term of the loan does not exceed 60 months and does not extend beyond December 31, 2022.


•	Debt service requirements of the loan are, in the opinion of the Manager, not likely to become an impediment to the company raising additional capital.


•	At least 75% of the assets to be financed are, in the opinion of the Manager, critical to the company's day-to-day operations or the loan is secured by all or substantially all of the borrower’s assets.

Equity Venture Capital Support Guidelines


•	At least two of the company's venture capital equity investors (including the lead investor) have (i) in the opinion of the Manager, significant venture capital industry experience and (ii) at least $50.0 million under management.

Special Situations. The Manager may invest up to 20% of the Fund’s aggregate investments determined cumulatively over the life of the Fund in special situation investments. Such special situation investments could include investments targeted towards late‑stage or public companies seeking additional growth capital to expand product offerings, increase market penetration or fund strategic acquisitions of other companies or technology. The Manager will target companies whose cash flow from operations and cash reserves are expected to service the Fund’s investment on a current basis. Investments may be structured as senior debt, convertible debt, or other debt/equity structures. In addition, special situations could include investments in a “troubled” company undergoing a restructuring or recapitalization of its existing debt or equity, and making investments in subordinated debt, providing bridge financing to a company which is in the process of raising additional private equity, planning an initial public offering or is seeking to enter into a business combination through which it would be acquired. From inception through December 31, 2019, less than 1% of the Fund’s investments fall into special situation investment category.

International Investments. As a BDC, the Fund may invest in companies which are not Qualifying Assets, as long as at the time of such investment, at least 70% of the value of the Fund’s total assets are invested in Qualifying Assets. An Eligible Portfolio Company must be organized under the laws of, and have its principal place of business in, the United States. Therefore, the Fund could invest up to 30% of its total assets in foreign-based companies. If reasonably practicable, investments in foreign-based companies would be secured by foreign-based assets in addition to being secured by any assets located in the United States.

Leverage. The Fund currently borrows money from and could issue debt securities to banks, insurance companies and other lenders to obtain additional funds (and possibly for special situation investments), if such borrowings are available on terms that are acceptable to the Manager and Board of Directors of the Fund. It is possible, due to potential future tightening of the credit markets, that the Fund may not be able to secure such borrowings on acceptable terms. Any borrowings of the Fund will be subject to the asset coverage requirements under the

1940 Act, including borrowings in excess of 5% of total assets for temporary purposes, and all borrowings for emergency purposes that are not “temporary.”

Temporary Investments. Pending investment, and until distributions to the stockholders are made, the Fund will invest excess cash in: (i) time deposits, certificates of deposit and similar instruments of highly-rated banks; (ii) securities issued or guaranteed by the U.S. government, its agencies or instrumentalities; (iii) repurchase agreements that are: (a) issued by highly-rated banks or securities dealers; and (b) fully collateralized by U.S. government securities; (iv) short-term high-quality debt instruments of U.S. corporations; and (v) money market funds and other pooled investment funds whose investments are restricted to those described above. The average maturity of such investments, weighted by their par value, will not exceed 90 days.

Other Investment Policies. The Fund will not sell securities short (except to the extent the Fund has a warrant for, or owns, shares equal to the number of shares which is the subject of the proposed short sale), purchase securities on margin (except to the extent the Fund’s permitted borrowings are deemed to constitute margin purchases), purchase or sell commodities or commodity contracts (except interest rate hedging transactions in connection with the Fund’s permitted borrowings), or purchase or sell real estate. The Fund may, however, write puts and calls, and acquire options, as a hedge for equity investments or to increase return through a covered call. The Fund will not underwrite the securities of other companies, except to the extent they may be deemed underwriters upon the disposition of restricted securities acquired in the ordinary course of their business. The Fund may, however, use borrowed funds for its lending activities. See the discussion herein under the caption “Risk Factors - General - Leverage.”

The Fund’s investment objectives, investment policies and investment guidelines (other than its intended status as a BDC) are not fundamental policies and may be changed by the Fund’s Board of Directors at any time.

Regulation. As a BDC, the Fund is required to invest in Eligible Portfolio Companies and (with certain exceptions) make available to them significant managerial assistance. Eligible Portfolio Companies, and the regulations governing assets a BDC can acquire, are described under the heading “Investment Program” above.

The Fund, as a BDC, may sell its securities at a price that is below its net asset value per share, provided that a majority of the Fund’s disinterested directors, or not interested parties of the Fund under Section 2(a)(19) of the 1940 Act (i.e., independent director), has determined that such sale would be in the best interests of the Fund and its shareholder and upon the approval by the holders of a majority of its outstanding voting securities, including a majority of the voting securities held by non-affiliated persons, of such policy or practice within one year of such sale. A majority of the disinterested directors also must determine in good faith, in consultation with the underwriters of the offering if the offering is underwritten, that the price of the securities being sold is not less than a price which closely approximates market value of the securities, less any distribution discounts or commissions. As defined in the 1940 Act, the term “majority of the outstanding voting securities” of the Fund means the vote of (i) 67% or more of the Fund’s Shares present at a meeting, if the holders of more than 50% of the outstanding Shares are present or represented by proxy, or (ii) more than 50% of the Fund’s outstanding Shares, whichever is less.

Many of the transactions involving a company and its affiliates (as well as affiliates of those affiliates) which were prohibited without the prior approval of the SEC under the 1940 Act prior to its amendment by the 1980 provisions are permissible for BDCs, including the Fund, upon the prior approval of a majority of the Fund’s disinterested directors and a majority of the directors having no financial interest in the transactions. However, certain transactions involving certain persons related to the Fund, including its directors, officers, and the Manager, may still require the prior approval of the SEC. In general, (i) any person who owns, controls, or holds power to vote, more than 5% of the Fund’s outstanding Shares; (ii) any director, executive officer, or general partner of that person; and (iii) any person who directly or indirectly controls, is controlled by, or is under common control with, that person, must obtain the prior approval of a majority of the Fund’s disinterested directors, and, in some situations, the prior approval of the SEC, before engaging in certain transactions involving the person or any company controlled by the Fund. The 1940 Act generally does not restrict transactions between the Fund and its eligible portfolio companies. While a BDC may change the nature of its business so as to cease being a BDC (and in connection therewith withdraw its election to be treated as a BDC) only if authorized to do so by a majority vote (as defined by the 1940 Act) of its outstanding voting securities, shareholder approval of changes in other fundamental investment policies of a BDC is not required (in contrast to the general 1940 Act requirement, which requires shareholder approval for a change in any fundamental investment policy).

Dividends and Distributions. The Fund intends to distribute to its shareholder all equity securities received from portfolio companies simultaneously, or shortly following, their acquisition and substantially all of its net investment income and net realized capital gains, if any, as determined for income tax purposes less appropriate reserves. Applicable law, including provisions of the 1940 Act, may limit the amount of dividends and other distributions payable by the Fund. Income dividends will generally be paid quarterly to shareholders of record on the last day of each preceding calendar quarter end. Substantially all of the Fund’s net capital gain (the excess of net long-term capital gain over net short-term capital loss) and net short-term capital gain, if any, will be distributed annually, or on a more frequent basis as determined by the Manager.

Until June 30, 2017 (the “Investment Rampdown Date;” extended from December 31, 2016 by the Fund’s Board of Directors), the Manager sought to reinvest in new loans and equity investments the proceeds of matured, repaid or resold investments, net of required distributions to the Company, principal payments on borrowings and expenses or other obligations of the Fund. Following the Investment Rampdown Date, the Fund will distribute to the Company, and the Company will distribute to the members, all proceeds received from principal payments and sales of investments, net of reserves and expenses, principal repayments on the Fund’s borrowings, amounts required to fund financing commitments entered into on or before such date and any amounts paid on exercise of warrants or to otherwise protect the value of existing investments (for example, follow on equity investments made pursuant to pay-to-play provisions in a portfolio company’s charter documents, or in a “down round” of equity to avoid dilution).

Competition. Other entities and individuals compete for investments similar to those proposed to be made by the Fund, some of whom may have greater resources than the Fund. Furthermore, the Fund’s need to comply with provisions of the 1940 Act pertaining to BDCs and provisions of the Code pertaining to RICs might restrict the Fund’s flexibility as compared with its competitors. The need to compete for investment opportunities may make it necessary for the Fund to offer borrowers more attractive transaction terms than otherwise might be the case.

Executive Officers. The following are the executive officers of the Fund. All officers serve at the pleasure of the Fund’s Board of Directors.



Name and Position with Fund	Age	Occupation During Past Five Years
Ronald W. Swenson, Chairman, and Director	74	Chairman, Chief Executive Officer, Director, and other positions for Westech Investment Advisors since 1994
Maurice C. Werdegar, Chief Executive Officer	54	Chief Executive Officer, Chief Operating Officer, Director and other positions for Westech Investment Advisors since 2001
David R. Wanek, President	45	President and other positions for Westech Investment Advisors since 2001
Jay L. Cohan, Vice President, Assistant Secretary	54	Vice President, Assistant Secretary and other positions for Westech Investment Advisors since 1999
Judy N. Bornstein, Vice President, Chief Financial Officer, Chief Compliance Officer, Treasurer, and Secretary	55	Vice President, Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary for Westech Investment Advisors since 2019. From 2017 to 2019, she served as the Chief Financial Officer of Generate Capital. Prior to joining Generate Capital, she spent 11 years as Managing Director, CFO, and Chief Compliance Officer of American Infrastructure Funds.

Employees. The Fund has no employees; all of its officers are officers and/or employees of the Manager, and all of its required services are performed by officers and employees of the Manager.

Available Information. The Fund’s office is located at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028, and the phone number is (650) 234-4300. The Manager maintains a website at https://westerntech.com/.

The SEC maintains a website, www.sec.gov, that contains reports, proxies and information statements filed by the Fund.


ITEM 1A.	RISK FACTORS

GENERAL

Reliance on Management. The Fund will be wholly dependent for the selection, structuring, closing and monitoring of its investments on the diligence and skill of the Manager, acting under the supervision of the Fund’s Board of Directors. Although the operating principals of the Manager have a long history of combined experience in investing in venture lending transactions and equity investments, there can be no assurance that the Fund will attain its investment objective. Furthermore, the Manager does not have substantial experience investing in special situations such as convertible and subordinated debt of public and late-stage private companies. The officers of the Manager will have primary responsibility for the selection of the companies in which the Fund will invest, the negotiation of the terms of such investments and the monitoring and servicing of such investments after they are made. Although the officers of the Manager intend to devote such time as is necessary to the affairs of the Fund, they are not required to devote full time to the management of the Fund. Furthermore, there can be no assurance that any officer will remain associated with the Manager or that, if an officer ceased to be associated with the Manager, the Manager would be able to find a qualified person or persons to fill the position.

Illiquid and Long-Term Investment. After June 30, 2017, the Fund ceased making new equity investments as well as investments in venture loans (except pursuant to commitments made before the Investment Rampdown Date) and will distribute to its shareholder all proceeds received from principal payments and sales net of: (i) reserves and expenses; (ii) principal repayments on the Fund’s borrowings; (iii) amounts required to fund financing commitments entered into before the Investment Rampdown Date; and (iv) any amounts paid on exercise of warrants or otherwise paid to protect the value of existing investments (including, for example, pay-to-play provisions and purchases of equity securities in “down rounds” to avoid dilution). The Fund’s Articles of Incorporation provide that, on December 31, 2022, the Fund automatically will be dissolved without any action by its shareholder. From and after such dissolution, the Fund’s activities will be limited to the winding-up of its affairs, the liquidation of its remaining assets and the distribution of the net proceeds thereof to its shareholder. Although the Fund generally would not make any loan with a stated maturity date later than December 31, 2022, it is possible that, due to a default by a borrower or a transaction restructuring due to a borrower’s financial difficulties, such a loan may remain outstanding in whole or in part beyond its original maturity date. Furthermore, the Fund may not be able to sell warrants it receives from borrowers, or the equity securities (including those received upon exercise of warrants or conversion of debt instruments or in connection with restructuring of a troubled loan), to the extent those investments were retained by the Fund and not distributed earlier to its shareholder, for a significant period of time due to legal or contractual restrictions on resale or the absence of a liquid secondary market. As a result, the liquidation process might not be completed for a significant

period after the Fund’s dissolution. In addition, it is possible that, if certain of the Fund’s assets are not liquidated within a reasonable time after the Fund’s dissolution, the Fund may elect to make a distribution in kind of all or part of such assets to its shareholders. In such case, the shareholders would bear any expenses attendant to the liquidation of such assets.

Although shares of the Fund have been registered under the Securities Exchange Act of 1934 (the “Exchange Act”), there will be no trading market for shares in the Fund (which are all owned by the Company), and thus shares of the Fund should be considered illiquid.

Competition. Other entities and individuals compete for investments similar to those made by the Fund, some of whom, with respect to investments in the form of loans, and many of whom, with respect to the equity investments and convertible and subordinated debt, have greater resources than the Fund. Furthermore, competition could increase given the low barriers to entry in the industry. Additionally, the Fund’s need to comply with provisions of the 1940 Act pertaining to BDCs and, if the Fund qualifies as a RIC, provisions of the Code pertaining to RICs, might restrict the Fund’s flexibility as compared with its competitors. The need to compete for investment opportunities may make it necessary for the Fund to offer borrowers or companies in which it makes equity investments more attractive terms than otherwise might be the case. If the Fund encounters increased competition from other entities or individuals or is hindered by the provisions of the BDC’s or RIC’s, the Fund may not fund new investments, which would impact the operations of the Fund.

Convertible Debt. Convertible debt instruments issued by public and late-stage private companies may comprise some of the special situations in which the Fund may invest. Convertible debt generally offers lower interest yields than non-convertible debt of similar quality. The market value of debt tends to decline as interest rates increase and, conversely, to increase as interest rates decline. The market value of convertible debt, however, often reflects the market price of common stock of the issuing company when that stock price is greater than the conversion price of the convertible debt. The conversion price is the predetermined price at which the debt instrument could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible debt tends to be influenced more by the yield of the debt instrument. Thus, it may not decline in price to the same extent as the underlying common stock.

Subordinated Debt. Some of the special situations in which the Fund may invest may consist of subordinated debt instruments, which tend to be predominantly high-yield non-convertible debt securities. Investments in high-yield securities involve substantial risk of loss. Sub-investment grade non-convertible debt securities, or comparable unrated securities, are commonly referred to as “junk debt” and are considered speculative with respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic or business developments. The market values for high-yield securities tend to be very volatile, and these securities are less liquid than investment grade debt securities.

Leverage. The Fund currently borrows money and intends to continue borrowing and could enter into secured contracts, which instruments may be considered debt securities, with banks, insurance companies, and other lenders to obtain additional funds to originate loans (and possibly Special Situation Financings), if such borrowings are available on terms that are acceptable to the Manager and Board of Directors of the Fund. It is possible, due to potential future tightening of the credit markets, that the Fund may not be able to secure such borrowings on acceptable terms. Any borrowings of the Fund will be subject to the asset coverage requirements under the 1940 Act, including borrowings in excess of 5% of total assets for temporary purposes, and all borrowings for emergency purposes that are not “temporary.” Under the 1940 Act, the Fund may not incur borrowings unless, immediately after the borrowing is incurred, such borrowings would have “Asset Coverage” of at least 200%, generally, and of at least 150% if certain conditions are met. “Asset Coverage” means the ratio which the value of the Fund’s total assets, less all liabilities not represented by (i) the borrowings and (ii) any other liabilities constituting “senior securities” under the 1940 Act, bears to the aggregate amount of such borrowings and senior securities. The practical effect of this limitation is to limit the Fund’s borrowings and other senior securities to 50% of its total assets less its liabilities other than the borrowings and other senior securities. The 1940 Act also requires that, if the Fund borrows money, provisions be made to prohibit the declaration of any dividend or other distribution on the shares (other than a dividend payable in shares), or the repurchase by the Fund of shares, if, after payment of such dividend or repurchase of shares, the Asset Coverage of such borrowings would be below 200% (or 150%, as applicable). If the Fund is unable to pay dividends or distributions in the amounts required under the Code, it might not be able to qualify for the pass-through status as a RIC or, if qualified, to continue to so qualify.

The Fund has a secured, syndicated loan facility with a borrowing availability of $23.0 million and the outstanding balance under the facility as of December 31, 2019 was $15.4 million.

The use of leverage increases investment risk. The Fund’s use of leverage is premised upon the expectation that the Fund’s all-in borrowing costs will be lower than the return the Fund achieves on its investments. To the extent the income or capital gains derived from investments purchased with borrowed funds exceeds the cost of borrowing, the Fund’s overall return will be greater than if leverage had not been used. Conversely, if the income or capital gain from the investments purchased with borrowed funds is not sufficient to cover the cost of borrowing, or if the Fund incurs capital losses, the return to the Fund will be less than if leverage had not been used and therefore, the amount available for distribution will be reduced or potentially eliminated. Furthermore, since the calculation of the investment management fee is based, commencing two years after the closing of the offering, on a percentage of the managed assets, such fee will be higher if the Fund utilizes leverage than if no borrowings were incurred.

Lenders have required that the Fund pledge all assets as collateral for borrowings and have required that the Company provide guarantees or other credit enhancements. The Company, however, will not pledge its assets to secure such borrowings as this could result in unrelated business taxable income to its tax-exempt members. If the Fund is unable to service the borrowings, the Fund may risk the loss of such pledged assets.

Lenders required that the Fund agree to loan covenants limiting the Fund’s ability to incur additional debt or otherwise limiting the Fund’s flexibility, and loan agreements may provide for acceleration of the maturity of the indebtedness if certain financial tests are not met. To

minimize risks associated with borrowing money at floating rates and lending money at fixed rates, the Fund may enter into interest rate hedging transactions with respect to all or any portion of the Fund’s borrowings. There can be no assurance that such interest rate hedging transactions will be available in forms acceptable to the Fund. In addition, entering into interest rate hedging transactions increases costs to the Fund. Finally, it is possible that the Fund could incur losses from being “over-hedged,” which would result if the debt that was hedged is repaid faster than expected.

Regulation. The Fund has elected to be treated as a BDC under the Small Business Incentive Act of 1980, which modified the 1940 Act. Although BDCs are not required to register under the 1940 Act and are relieved from compliance with a number of the provisions of the 1940 Act, there are now greater restrictions in some respects on permitted types of investments for BDCs. Moreover, the applicable provisions of the 1940 Act continue to impose numerous restrictions on the activities of the Fund, including restrictions on leverage and on the nature of its investments. While the Fund is not aware of any judicial rulings under, and is aware of only a few administrative interpretations of, the Small Business Incentive Act of 1980, there can be no assurance that such Act will be interpreted or administratively implemented in a manner consistent with the Fund’s objectives or manner of operation.

Litigation. The Fund could be subject to litigation by borrowers, based on theories of breach of contract to lend, “lender liability,” or otherwise in connection with its loan and investment transactions. The defense of such a lawsuit, even if ultimately determined to be without merit, could be costly and time-consuming to the Fund. 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 material legal proceedings involving the Fund.

Tax Status. The Fund must meet a number of requirements, described herein under the caption “Federal Income Taxation,” to qualify for the pass-through status as a RIC and, if qualified, to continue to so qualify. For example, the Fund must meet specified asset diversification standards under the Code which might prove difficult if certain borrowers with larger commitments drew on their committed financing at a rate faster than other borrowers to whom smaller commitments were made, particularly during the early periods of the Fund’s operations. If the Fund experiences difficulty in meeting the diversification requirement for any fiscal quarter of its taxable year, it might accelerate capital calls or, if available, borrowings in order to increase the portion of the Fund’s total assets represented by cash, cash items, and U.S. government securities as of the close of the following fiscal quarter and thus attempt to meet the diversification requirement. The Fund, however, would incur additional interest and other expenses in connection with any such accelerated borrowings, and increased investments by the Fund in cash, cash items, and U.S. government securities (whether the funds to make such investments are derived from called equity capital or from accelerated borrowings) are likely to reduce the Fund’s return. Furthermore, there can be no assurance that the Fund would be able to meet the diversification requirements through such actions. Failure to qualify as a RIC would deny the Fund pass-through status and, in a year in which the Fund has taxable income, would have a significant adverse effect on the return of the Fund. Tax laws are dynamic and tax laws either in the U.S. or in foreign jurisdictions could change causing a different than expected outcome.

The Fund has received an opinion that, assuming the Fund’s election to be a BDC under Sections 6(f) and 54 of the 1940 Act will be valid and will remain in effect and that the Fund otherwise meets the qualification requirements set forth in Section 851(b) and the distribution requirements in Section 852(a) of the Code, if the Fund’s status as a RIC is challenged by the Internal Revenue Service (the “IRS”) in court and properly litigated, a court of competent jurisdiction will respect that status for federal income tax purposes. If the SEC were to disallow the Fund’s election to be treated as a BDC, then the Fund would not be eligible to be treated as a RIC and, therefore, would be subject to federal corporate tax on its income and gains. The opinion referred to above is based on the Code, regulations thereunder, IRS rulings, procedures and pronouncements, court decisions and other applicable law as of the date hereof, and certain representations that the Fund has made to its legal counsel. Legal opinions, however, are not binding on the IRS or the courts, and no ruling has been or will be requested from the IRS. No assurance can be given that the IRS will concur with such opinion.

Allocation of Expenses. If the Fund is not deemed to be engaged in a trade or business, individuals and certain other persons who are members of the Company will be required to include in their gross income an amount of certain Fund expenses relating to the production of gross income that are allocable to the Company. These members, therefore, will be deemed to receive gross income from the Fund in excess of the distributions they actually receive. Such allocated expenses were deductible by an individual member as a miscellaneous itemized deduction, for 2017, subject to the limitation on miscellaneous itemized deductions not exceeding 2.0% of adjusted gross income to the extent the Fund is not engaged in a trade or business. However, for the years 2018 through 2025, no deduction for such expense would be allowed. For the tax years 2026 and beyond, the provision will expire and the expenses would be deductible under the pre-2018 law as currently written.

Calculation of 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 December 18, 2012, 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 December 18, 2014, 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.

Risks Related to Cybersecurity. Increased reliance on technology by the Fund and its service providers and portfolio companies has increased the risks posed to their respective information systems. The Fund and its service providers and portfolio companies are susceptible to operational and information security risks that include, among other things: human error and negligence; theft; the unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized access to relevant systems; compromises to networks or devices that the Fund and its service providers use to service the Fund’s operations; and operational disruption or failures of physical infrastructure or operating systems.

Cyber-attacks against or security breakdowns of the Fund or its service providers or portfolio companies may adversely impact the Fund and its shareholders, potentially resulting in, among other things: financial losses; the inability of Fund shareholders to transact business and the Fund to process transactions; exposure of personal information belonging to the Fund and its shareholders and violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cybersecurity risk management and remediation purposes. In addition, cybersecurity and privacy risks may also impact the Fund’s transactional counterparties, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions, which could cause the Fund to suffer losses.

In general, cybersecurity attacks and breaches include, but are not limited to, efforts by bad actors to gain unauthorized access to systems, networks, devices or other digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber-attacks also may be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make services unavailable to intended users) or using a phishing scheme to impersonate an executive or vendor to cause an unauthorized transfer of funds. There can be no assurance that the Fund or its service providers or portfolio companies will not suffer losses relating to cyber-attacks or other information security breaches in the future.

While information risk management systems and business continuity plans have been developed which are designed to reduce the risks associated with cybersecurity, there are inherent limitations in any cybersecurity risk management systems or business continuity plans, including the possibility that certain risks have not been identified and that cyber-attacks may be highly sophisticated. There can be no assurance that the programs, plans and systems in place will prevent a cyber-attack or otherwise prevent cyber losses.

In addition, federal, state and foreign governments and agencies have adopted and could in the future adopt regulations covering issues such as user privacy. If the Fund’s and/or its services providers’ or portfolio companies’ privacy or data security measures fail to comply with current or future laws and regulations, they may be subject to additional litigation, regulatory investigations or other liabilities that could result in financial loss, litigation, regulatory investigations and penalties, and other liabilities that could damage their reputation and adversely impact the Fund’s and/or its service providers’ or portfolio companies’ performance and financial condition.

MeToo Movement. The #MeToo, “Time’s Up” and related social movements have focused attention on issues relating to gender equality in the workplace and raised awareness of the obligation to prevent sexual harassment and other forms of sexual misconduct in the workplace. Recently, companies have lost executives and faced major lawsuits and fines due to allegations of sexual harassment, gender discrimination and other misconduct, including negligence or misconduct in handling such allegations. There is no guarantee that the Fund’s portfolio companies will not experience negative fallout stemming from allegations of sexual harassment, gender discrimination and other misconduct resulting from the actions and/or inactions of such companies, their employees, and/or affiliates.

Brexit Risk. The risk of investing in portfolio companies based out of or related to Europe may be heightened due to the 2016 referendum in which the United Kingdom (“UK”) voted to exit the European Union (“EU”), commonly referred to as “Brexit.” On March 29, 2017, the UK formally notified the European Council of its intention to withdraw from the EU and triggered the two-year period set out for withdrawal discussions in the Treaty on European Union. After several extensions of the period for withdrawal negotiations, the UK and EU agreed to terms on a withdrawal agreement, which was approved by the UK Parliament on January 22, 2020. The UK formally left the EU on January 31, 2020 and, pursuant to the terms of the withdrawal agreement, is now in a “transition period” through December 31, 2020 to allow the parties time to negotiate and implement new agreements on trade and other areas of cooperation. While the UK will remain in the EU’s single market and customs union during the transition period, the long-term nature of the relationship between the UK and the EU remains uncertain and the timetable as to when any agreement will be reached is unclear.

Therefore, the ultimate effects of Brexit will depend on the agreements the UK negotiates to retain access to EU markets beyond the transitional period. Brexit has created legal and tax uncertainty, which may last for years to come. While it is not possible to determine the precise impact that the outcome of negotiations regarding the UK-EU relationship may have on the Fund during this period and beyond, the impact on the UK and European economies and the broader global economy could be significant, including increased volatility and illiquidity, and potentially lower economic growth, on markets in the UK, Europe and globally, thereby adversely affecting the value of the Fund’s investments. In addition, if other countries were to exit the EU or abandon the use of the euro as a currency, the value of investments tied to those countries or the euro could decline significantly and unpredictably.

Climate Change, Natural Disaster and Public Health Crises Risk. Climate change and related legislation, regulation and accords, both domestic and international, intended to control the impact of climate change may produce direct or indirect adverse consequences to the Fund’s investments, significantly affecting their value. Extreme weather patterns or natural disasters, such as the Tohoku earthquake and resulting tsunami in Japan in 2011, the Alaska earthquake in 2018, major hurricanes in the United States in 2017 and 2018, or the threat thereof, could also adversely impact Fund portfolio companies’ facilities, operations, and services, as well as certain industries, or group of industries, and regions related to the Fund’s investments. Additionally, public health crises, such as the recent outbreak of coronavirus emanating from China, could result in travel restrictions and shipping and labor disruptions, which may adversely affect Fund portfolio companies’ facilities, operations and services

LIBOR Phase-Out Risk. Many financial instruments, including the Fund’s credit facility and certain of its debt investments, utilize or are permitted to utilize a floating interest rate based on the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-

term Eurodollar deposits between major international banks. Additionally, the Fund has derivative instruments that hedge by converting floating LIBOR based interest rates into fixed rates. On July 27, 2017, the head of the UK’s Financial Conduct Authority announced its intention to phase out the use of LIBOR by the end of 2021. There is thus uncertainty regarding what interest rate benchmark(s) will replace LIBOR in the debt capital markets, and the effect of a transition away from LIBOR on the Fund cannot yet be determined. Management continues to evaluate the Fund’s LIBOR exposure risks, including but not limited to the potential impact on the cost of credit, the Fund’s derivative instruments, the Fund’s holdings, and the extent to which the Fund’s debt investment instruments allow for the utilization of alternative rate(s) in the absence of LIBOR.

INVESTMENT RISKS

International Investments. The Fund could invest up to, but not more than, 30% of its total assets in foreign based companies. Foreign investments are subject to most of the same risks as domestic investments, as well as the political, economic and other uncertainties associated with foreign activities, including the risk of war and political unrest, the impact of laws and policies of foreign governments and the United States affecting foreign investment, and the possibility of being subject to the jurisdiction of foreign courts in connection with legal disputes or the inability to subject foreign persons to the jurisdiction of courts in the United States. Furthermore, there may be practical and local law impediments to cost-effective recovery against collateral located in a foreign country. Moreover, it is possible that taxes may be required to be withheld by the foreign company on dividend and interest payments received by the Fund with respect to such foreign investments. Although capital gains derived by the Fund with respect to such investments in such foreign company may often be exempt from non-U.S. income or withholding taxes, the treatment of capital gains varies among jurisdictions. If the income from such foreign investments is subject to non-U.S. income or withholding taxes, the Fund will attempt to negotiate offsetting gross-up payments from the foreign-based company. No assurances, however, can be given that the Fund would be able to negotiate such offsetting payments.

Foreign Currency and Exchange Rate Risks. Fund assets and income may be denominated in various currencies. Contributions and distributions, however, will be denominated in U.S. dollars. As a result, the return of the Fund on any investment may be adversely affected by fluctuations in currency exchange rates, any future imposed devaluations of local currencies, inflationary pressures, and the success of the investment itself. In addition, the Fund may incur costs related to conversions between various currencies. As of December 31, 2019, all Fund assets and income, as well as contributions and distributions, are denominated in U.S. dollar.

Accounting and Disclosure Standards. Accounting, auditing, financial, and other reporting standards, practices, and disclosure requirements in countries in which the Fund may invest are not necessarily equivalent to those required under United States Generally Accepted Accounting Principles (“U.S. GAAP”). Accordingly, less information may be available to investors.

Credit Risks. Most of the companies with which the Fund will enter into financing transactions will not have achieved profitability, may experience substantial fluctuations in their operating results or, in many cases, will not have significant operating revenues. The ability of any borrower to meet its obligations to the Fund, therefore, will depend to a significant extent on the willingness of such borrower’s venture capital equity investors or outside investors to provide additional equity financing, which in turn will depend on the borrower’s success in meeting its business plan, the market climate for venture capital investments generally, among other factors. The companies to which the Fund will provide financing will frequently be engaged in the development of new products or technologies, and the success of these efforts, or the ability of the companies to successfully manufacture or market products or technologies developed, cannot be assured. These companies frequently face intense competition, including competition from companies with greater resources, and may face risks of product or technological obsolescence, non-acceptance in the market, or rapidly changing regulatory environments, any of which could adversely affect their prospects. The success of such companies often depends on the management talents and efforts of one person or a small group of persons whose death, disability, resignation or other form of departure would adversely affect the company.

Remedies Upon Default. In the event of a default on a portfolio loan, the available remedies to the Fund would include legal action against the borrower and foreclosure or repossession of collateral given by the borrower. However, the Fund could experience significant delays in exercising its rights as a secured lender and might incur substantial costs in taking possession of and liquidating its collateral and in taking other steps to protect its investment. The Fund generally will require that it have a first priority security interest in any equipment of a borrower financed with the proceeds of the Fund’s loans, although that security interest may extend to the borrower’s other assets in which another lender might have a senior or parity security interest. It is anticipated that the Fund will make loans to a borrower that has one or more other secured lenders. In such circumstances, the Fund may share all or a portion of its collateral with the other lender(s) and will enter into intercreditor agreements governing the respective rights of the Fund and such other lender(s), which could limit the Fund’s flexibility in pursuing its remedies as a secured creditor, and reduce the proceeds realized from foreclosing or taking possession of the collateral. In the case of growth capital or working capital loans (where the loan proceeds can be used by the company for general corporate purposes), the Fund will typically receive either a broader lien on substantially all of the borrower’s assets, including its intellectual property, or a lien on substantially all of the borrower’s assets, excluding intellectual property, and a negative pledge on such intellectual property.

As noted above, the Fund may utilize certain of its funds in investments that involve the financing of equipment assets. Equipment assets are often subject to rapid depreciation or obsolescence such that it is likely that the value of the assets underlying a loan to finance such assets will depreciate during the term of the loan transaction below the amount of the borrower’s obligations. In addition, although borrowers will be required under the transaction documents to provide customary insurance for the assets underlying a loan and will be prohibited from disposing of the assets without the Fund’s consent, compliance with these covenants cannot be assured and, in the event of non‑compliance, the assets could become unavailable to the Fund due to destruction, theft, sale or other circumstances. Realization of value from intellectual property collateral can also be time consuming and present special challenges, given the often unique nature and limited market for such assets. The

Fund’s ability to obtain payment beyond the collateral underlying the loan from the borrower might be limited by bankruptcy or similar laws affecting creditors’ rights. In limited instances where the Fund takes security interests in a borrower’s assets located in a foreign country, there may be practical and local law impediments to cost-effective recovery against such collateral. Therefore, there can be no assurance that the Fund would ultimately collect the full amount owed on a defaulted loan.

Emerging Company Risks. The possibility that the companies in which the Fund invests will not be able to commercialize their technology or product concept presents significant risk. Additionally, although some of such companies may already have a commercially successful product or product line at the time of investment, technology products and services often have a more limited market or life span than products in other industries. Thus, the ultimate success of these companies may depend on their ability to continually innovate in increasingly competitive markets. Most of the companies in which the Fund invests will require substantial additional equity financing to satisfy their continuing growth and working capital requirements. Each round of venture financing is typically intended to provide a company with enough capital to reach the next stage of development. The circumstances or market conditions under which such companies will seek additional capital is unpredictable. It is possible that certain companies will not be able to raise additional financing or may be able to do so only at a price or on terms which are unfavorable to the Fund.

Privately-Held Company Risks. The Fund invests primarily in privately-held companies. Generally, very little public information exists about these companies and the Fund is required to rely on the ability of the Manager to obtain adequate information to evaluate the potential returns from investing in these companies. Moreover, these companies typically depend upon the management talents and efforts of a small group of individuals and the loss of one or more of these individuals could have a significant impact on the investment returns from a particular company. Also, these companies frequently have less diverse product lines and smaller market presence than larger companies. They are thus generally more vulnerable to economic downturns and may experience substantial variations in operating results.

Due Diligence Risks. Before making investments, the Manager conducts a limited amount of due diligence that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence and making an assessment regarding an investment, the Manager will be required to rely on resources available to it, including information provided by the target of the investment and, in some circumstances, third party investigations. The due diligence process may at times be subjective with respect to newly organized companies for which only limited information is available. Accordingly, there can be no assurance that the due diligence investigation that the Manager will carry out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Further, there can be no assurance that such an investigation will result in an investment being successful.

Financial Market Risk. The ability of the Fund to provide an acceptable return may be adversely affected by economic factors to which the market place is subject. Additionally, market turmoil could have a deleterious effect on the Company’s investors which could impede the ability to provide capital to the Fund. This could impair the Fund’s ability to honor commitments to lend, pay expenses of the Fund, or repay the Fund’s loans. The volatility in the global financial markets, which reached unprecedented levels during 2008 and 2009, and continued for some period thereafter (albeit to a lesser extent), may recur in the future. This and other types of market turmoil could have a material adverse effect on the Fund’s business and operations. The tightening of the credit markets could impair the Fund’s ability to either acquire or utilize leverage to maximize the return it achieves on investments. The Fund’s predecessors (Venture Lending & Leasing I, Inc., Venture Lending & Leasing II, Inc., Venture Lending & Leasing III, Inc., Venture Lending & Leasing IV, Inc., Venture Lending & Leasing VI, Inc., and to a lesser extent, Venture Lending & Leasing V, Inc.), utilized leverage to increase returns to investors. If the Fund is unable to utilize leverage to the same extent as its predecessors, or unable to utilize leverage at all, there could be a material difference in the Fund’s return as compared to these funds.

It is possible that market conditions could decrease the demand for venture loans, especially where the U.S. and global economic conditions deteriorated and remained weak for an extended period of time. Furthermore, market conditions could also adversely impact either or both the ability of the Fund’s borrowers to meet their obligations to the Fund and the value of the Fund’s direct investments in companies. Most of the companies in which the Fund will invest will not have achieved profitability and will require substantial equity financing to satisfy their continuing growth and working capital requirements. An economic downturn could decrease the demand for such borrower’s products and technology, thereby impairing such borrower’s financial condition and its ability to raise additional equity financing from outside investors. Should these events occur, there could be an increase in borrower defaults under their obligations to the Fund, or a decrease in the value of the Fund’s direct equity investments.

Other U.S. and Global Economic Risks. In addition to the crisis in the financial markets discussed above, the ability of the Fund to provide an acceptable return may be adversely affected by other economic and business factors to which the U.S. market place is subject. These factors, which generally are beyond the control of the Manager, include: general economic conditions, such as inflation and fluctuations in general business conditions; the impact of terrorist attacks within or against the United States or other countries where investments are made; the effects of strikes, labor disputes and domestic and foreign political unrest; and uncertainty in the U.S. economy.

Changes to U.S. Trade Policy May Have a Negative Effect on the Global Economy and/or the Fund’s 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 Relating to China. The Fund may invest in portfolio companies that are based in China, have significant operations in China or are otherwise connected to China. Markets in China can be volatile due to uncertain social, economic, regulatory and political factors, in addition to the effects of public health crises, such as the recent outbreak of coronavirus emanating from China. See the discussion herein under the caption “Climate Change, Natural Disaster and Public Health Crises Risk.” The severity and duration of any adverse economic conditions may be driven by governmental or quasi-governmental policies; in particular the imposition of sanctions by outside governments could severely disrupt the Chinese economy and the value of securities tied to it. For example, Fund portfolio companies may be significantly impacted by the ongoing trade dispute between the United States and China that have resulted in the imposition of tariffs by both countries on certain goods entering their respective markets. Among other things, such disputes could prompt a portfolio company to reduce its operations in China and/or suffer of downward pricing pressure. Additionally, a portfolio company that relies on Chinese investors could experience challenges in securing additional capital investments. In January 2020, the United States and China signed an agreement representing the first phase of a broader trade agreement between the two countries. Among other things, the agreement stipulates that both countries will reduce existing tariffs on certain imports and obligates China to increase its purchases of goods and services in the United States. However, it is unclear whether the countries will honor the terms of the phase one agreement, which could result in the imposition of additional tariffs and other retaliatory actions. Therefore, whether the factors identified above that could impact Fund portfolio companies are mitigated or exacerbated remains uncertain and will depend, in part, on their ability to fully implement the terms of the phase one deal, as well as the final outcome of ongoing negotiations between the United States and China to resolve their trade dispute through a comprehensive agreement.

Speculative Nature of Warrants and Equity Investments. The value of the warrants that the Fund generally will receive and distribute to its shareholder in connection with its financing investments is dependent on the value of the equity securities for which the warrants can be exercised. The value of such warrants, direct equity investments, and equities received upon conversion of debt instruments is dependent primarily on the success of the company’s business strategy and the growth of its earnings, but also depends on general economic and equity market conditions. The prospects for achieving consistent profitability, in the case of many companies in which the Fund invests, are speculative. The warrants, equity securities for which the warrants can be exercised, direct equity investments, and equities received upon conversion of debt instruments generally will be restricted securities that cannot readily be sold for some period of time. If the value of the equity securities underlying a warrant does not increase above the exercise price during the life of the warrant, the Fund may permit the warrant to expire unexercised and the warrant would then have no value.

Illiquidity of Investments. Substantially all of the Fund’s portfolio investments (other than short-term investments) will consist of securities that, at the time of acquisition, are subject to restrictions on sale and for which no ready market will exist. Restricted securities cannot be sold publicly without prior agreement with the issuer to register the securities under the 1933 Act, or by selling such securities under Rule 144 or other provisions of the 1933 Act which permit only limited sales under specified conditions. Venture loans and equity investments are privately negotiated transactions, and there is no established trading market in which such loans and equity investments can be sold. Convertible and subordinated debt investments may also be privately negotiated transactions. In the case of warrants or equity securities, the Fund generally will realize the value of such securities only if the issuer is able to make an initial public offering of its shares, or enters into a business combination with another company which purchases the Fund’s warrants or equity securities or exchanges them for publicly-traded securities of the acquirer. The feasibility of such transactions depends upon the entity’s financial results as well as general economic and equity market conditions. In the past, crises in the financial markets have dramatically reduced the volume of initial public offerings and mergers and acquisitions in the market place. If such a crisis recurs, the Fund’s ability to realize liquidity through its investments would likely be impaired. Furthermore, even if the restricted warrants or equity securities owned become publicly-traded, the Fund’s ability to sell such securities may be limited by the lack (or limited nature) of a trading market for such securities. If the Fund holds material nonpublic information regarding the issuer of the securities, the Fund’s ability to sell such securities may also be limited by insider trading laws. When restricted securities are sold to the public, the Fund, under certain circumstances, may be deemed an “underwriter” or a controlling person with respect thereto for the purposes of the 1933 Act, and be subject to liabilities as such under that Act.

Because of the illiquidity of the Fund’s investments, most of its assets will be carried at fair value as determined by the Manager in accordance with the Fund’s policy, as approved by the Fund’s Board of Directors. This value will not necessarily reflect the amount ultimately realized upon a sale of the assets.

Non-Diversified Status. The Fund is classified as a “non-diversified” investment company under the 1940 Act, but the Fund may, from time to time, act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act. The Fund elected to be treated as a RIC under the Code and operates in a manner to qualify for the tax treatment applicable to RICs, including the diversification requirement. Nevertheless, the Fund’s assets may be subject to a greater risk of loss than if its investments were more widely diversified.

CONFLICTS OF INTEREST

Transactions with Venture Lending & Leasing VIII, Inc. (“Fund VIII”). The Manager also serves as the investment manager for Fund VIII. The Fund’s Board of Directors determined that so long as Fund VIII has capital available to invest in loan transactions with final maturities earlier than December 31, 2025 (the date on which Fund VIII will be dissolved), the Fund would invest in each portfolio company in which Fund VIII invested (“Investments”). Generally, the amount of each Investment was allocated 50% to the Fund and 50% to Fund VIII, or such other allocations as were determined by the respective fund boards, so long as the Fund had capital available to invest. Effective June 30, 2017, the Fund was no longer permitted to enter new commitments to borrowers; however, the Fund was permitted to fund existing commitments, in which Fund VIII may also be invested. The Fund’s last commitment expired on July 31, 2018. The ability of the Fund to co-invest with Fund

VIII, and other clients advised by the Manager, is subject to the conditions (“Conditions”) with which the Funds are currently complying while seeking certain exemptive relief 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 VIII, advised by the Manager (but in which the Manager has no proprietary interest) invest in opportunities available to the Fund, the Manager will allocate such opportunities among the Fund and such other clients in a manner deemed fair and equitable considering all of the circumstances in accordance with the Conditions.

Intercreditor Agreements. In all transactions in which the Fund and other funds managed by the Manager invest or those in which another lender(s) has either invested or may later invest, it is expected that the Fund and other funds managed by the Manager or the other lender(s) will enter into an intercreditor agreement pursuant to which the Fund and other funds managed by the Manager will cooperate, along with any predecessor funds which still have a balance outstanding, in pursuing their remedies following a default by the common borrower. Generally, under such intercreditor agreements, each party would agree that its security interest would be treated in parity with the security interest of the other party, regardless of which security interest would have priority under applicable law. Accordingly, proceeds realized from the sale of any collateral or the exercise of any other creditor’s rights will be allocated between the Fund and other funds managed by the Manager, and any predecessor funds as described above, pro rata in accordance with the amounts of their respective investments. An exception to the foregoing arrangement would occur in situations where, for example, one of the lenders financed specific items of equipment collateral; in that case, usually the lender who financed the specific assets will have a senior lien on that asset, and the other lenders will have a junior priority lien (even though they may ratably share liens of equal priority on other assets of the common borrower). As a result of such intercreditor agreements, the Fund may have less flexibility in pursuing its remedies following a default than it would have had had there been no intercreditor agreement, and the Fund may realize fewer proceeds. In addition, because the Fund and other funds managed by the Manager invest at the same time in the same borrower, such borrower would be required to service two loans rather than one. Any additional administrative costs or burdens resulting therefrom may make the Fund a less attractive lender and may make it more difficult for the Fund to acquire such loans.

Valuation. The Manager is responsible for valuing the Fund’s assets and liabilities, subject to oversight by the Fund’s Board of Directors, and has an inherent conflict in performing this function such that it has an incentive to increase the value of the assets for its performance record and to increase the Management Fee that it receives. The Fund does not intend to engage an independent valuation agent to value its assets and therefore is entirely reliant upon the Manager and its delegates for valuing the assets.

Effect of Borrowings. During the first two years of the Fund’s investment operations, the Management Fee was calculated with reference to the committed equity capital of the Company, regardless of when or if all of such capital was called. As of December 18, 2014, the Management Fee is computed and paid quarterly, at an annual rate of 2.5% of the total value of the Fund’s assets (including amounts derived from borrowed funds) as of the last day of each fiscal quarter. Therefore, decisions by the Manager to cause the Fund to borrow additional funds may increase the quarterly fees payable to the Manager. The Fund’s overall borrowing limits, however, are set by the Fund’s Board of Directors in light of its fiduciary obligations.

Indemnification and Exculpation. The organizational documents of the Fund provide for indemnification of directors, officers, employees, advisory board members and agents (including the Manager) of the Fund, generally to the full extent permitted by applicable state law and the 1940 Act, including the advance of expenses and reasonable counsel fees. The charter of the Fund also contains a provision eliminating personal liability of a Fund director or officer to the Fund or its stockholder for money damages, subject to specified exceptions. In addition, the Fund has entered into an indemnification with its directors and officers. A successful claim for such indemnification, including payment of any expenses and counsel fees, would reduce the Fund’s assets by the amounts paid. Furthermore, Fund assets are used to obtain insurance policies that generally protect the Fund’s directors and officers from personal liability of actions taken in their roles as the Fund’s directors and officers.

Disinterested Directors and Advisory Board Members. The members of the Fund’s Board of Directors will overlap with the members of the Company’s advisory board, and the members of the Company’s advisory board are the same as, or a subset of, the disinterested directors of the Fund. Although the Manager expects that, given the Company’s 100% ownership of the Fund, the interests of the two entities will not diverge, it is conceivable that a conflict of interest could exist between the Fund and the Company. In addition, as compensation for services, the disinterested directors will receive an annual fee of $30,000 (plus $1,000 per meeting attended in person and an additional $10,000 for the chair of the Audit Committee). Any future changes to the compensation to be paid to the disinterested directors will be determined by the Nominating and Corporate Governance Committee of the Fund’s Board of Directors. Upon the liquidation of the Fund, the disinterested advisory board members will receive an annual fee in an amount determined by the member (it is currently anticipated that such annual amount shall be $15,000). The disinterested directors and advisory board members will also be reimbursed for certain expenses. The payment of such fees may limit the objectivity and independence of the disinterested directors and the advisory board members on behalf of the members.

Personal Trading. The Manager has a code of ethics that contains personal securities trading procedures that apply to its “access persons.” Access persons are required to report if they have an investment in a company in which the Fund is considering making an investment. Pre-approval is required before an access person may buy or sell securities in an initial public offering, private placement, or any security listed on a “restricted list” maintained by the Manager.

Interests in Potential Portfolio Companies. The Manager may recommend that the Fund invest in companies in which a principal or employee has a prior personal investment or for which a principal or employee may serve as a director or advisor. The Manager also may recommend that the Fund invest in companies in which venture capital funds, private equity funds or other institutional investors (“Unaffiliated Funds”) also have made investments, where one or more principals or employees of the Manager may have made an investment in, or served as an advisor to, an investing Unaffiliated Fund. Such a relationship presents potential conflicts of interest by providing the principal or employee with an incentive to influence the Manager’s decision to recommend an investment in the company in question. There is also a potential conflict

of interest in that such principal or employee could use information acquired through association with the Manager to influence or benefit Unaffiliated Funds’ investment decisions. The Manager addresses these potential conflicts through its policies and procedures that are designed to insulate its investment decision-making process and its research from these incentives. For example, the policies require that principals with a prior direct investment in a company be recused from the investment decision-making process with respect to that company.

Principals that serve as advisors to Unaffiliated Funds may make investment recommendations to these Unaffiliated Funds, which may be the same investment that the Fund has made or may make. The Manager’s policies and procedures require such principals to arrange for any such investment opportunity to be first offered to the Fund (or a predecessor fund) and for such investment opportunity to only subsequently be offered to an Unaffiliated Fund once declined by the Fund (or a predecessor fund).


ITEM 1B.	UNRESOLVED STAFF COMMENTS

Not applicable.


ITEM 2.	PROPERTIES

All of the Fund’s office space is provided by the Manager. The executive offices are located at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028.


ITEM 3.	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 material legal proceedings involving the Fund. The Fund is not a party to any material legal proceedings.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

PART II.


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Fund’s common stock is not listed on any securities exchange, and all holders of the Fund’s common stock are subject to agreements significantly restricting the transferability of their shares.

The number of holders of record of the Fund’s common stock at March 16, 2020 was 1.

The Fund has a policy of distributing securities as acquired. The Fund values these securities at fair value at the time of acquisition in accordance with the Fund’s policy on valuation detailed in Note 2 to the financial statements included in this filing. In addition, some expenses of the Company may be paid by the Fund and will be deemed as distributions to the Company. The Fund has established a policy of declaring dividends on a quarterly basis to the extent that taxable income of the Fund less applicable reserves exceeds warrant distributions and deemed distributions. As of December 31, 2019, the Fund had distributed $369.0 million to date to its sole shareholder, of which $295.0 million were in cash.

(Intentionally left blank)

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes certain financial data and should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this Form 10-K. The selected financial data set forth below have been derived from the audited financial statements.



	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018			For the Year Ended December 31, 2017			For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Statements of Operations Data:
Investment income:
Interest on loans	$	22,465,335		$	48,890,748		$	51,914,279		$	60,098,256		$	60,547,623
Other interest and other income	42,711			121,224			188,178			163,000			267,583
Total investment income	22,508,046			49,011,972			52,102,457			60,261,256			60,815,206
Expenses:
Management fees	3,096,163			7,044,935			8,966,110			8,638,289			9,640,495
Interest expense	2,783,681			6,173,801			7,769,389			7,847,826			7,064,969
Banking and professional fees	532,425			564,862			492,092			483,258			433,787
Other operating expenses	194,696			217,974			494,723			155,940			165,753
Total expenses	6,606,965			14,001,572			17,722,314			17,125,313			17,305,004
Net investment income	15,901,081			35,010,400			34,380,143			43,135,943			43,510,202

Net realized loss from loans	(13,189,563		)	(8,239,614		)	(9,074,492		)	(19,144,378		)	(2,503,328		)
Net realized gain (loss) from derivative instruments	185,027			(30,158		)	666,026			52,201			—
Net change in unrealized gain (loss) from loans	4,579,337			1,953,368			(10,190,538		)	(2,385,615		)	(8,924,487		)
Net change in unrealized gain (loss) from derivative instruments	(374,257		)	352,720			219,067			287,009			(392,455		)
Net realized and change in unrealized loss from loans and derivative instruments	(8,799,456		)	(5,963,684		)	(18,379,937		)	(21,190,783		)	(11,820,270		)
Net increase in net assets resulting from operations	$	7,101,625		$	29,046,716		$	16,000,206		$	21,945,160		$	31,689,932

Amounts per common share:
Net increase in net assets resulting from operations per share	$	71.02		$	290.47		$	160.00		$	219.45		$	316.90
Weighted average shares outstanding	100,000			100,000			100,000			100,000			100,000

	As of December 31,
	2019			2018			2017			2016			2015
Statements of Assets and Liabilities Data:
Loans	$	85,964,990		$	210,722,764		$	325,189,783		$	300,384,884		$	380,437,931
Net assets	$	71,268,020		$	127,798,423		$	212,657,017		$	183,522,710		$	210,491,312


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 provides financing and advisory services to a variety of carefully selected Venture-Backed Companies primarily throughout the United States, with a focus on growth oriented companies. The Fund’s portfolio consists of companies in the communications, information services, media, technology (including software and technology-enabled business services), biotechnology, and medical devices industry sectors, among others. The Fund’s capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital. On December 18, 2012, the Company completed its first closing of capital contributions and the Fund made its first investment and became a non-diversified, closed-end investment company that elected to be treated as a BDC under the 1940 Act. 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 elected to be treated for federal income tax purposes as a RIC under the Code with the filing of its federal corporate income tax return for 2013. Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income distributed to its shareholder as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.

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 will be taxed as an ordinary corporation on its taxable income for that year (even if that income is distributed to the Company) and all distributions out of its earnings and profits will be taxable to the members of the Company as ordinary income; thus, such income will be subject to a double layer of tax. There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.

The Fund’s investment objective is to achieve superior risk-adjusted investment returns and it 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 generally distributes these warrants to its shareholder upon receipt, or soon thereafter. The Fund also has guidelines for the percentages of total assets that are invested in different types of assets.

The portfolio investments of the Fund primarily consist of debt financing to Venture-Backed Companies in the technology sector. 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.

Critical Accounting Policies, Practices and Estimates

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 U.S. 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 the Manager 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 estimated timing and amount of future cash flows and probability of future payments, based on the assessment of 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, as a result, 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 Years Ended December 31, 2019 and 2018

The Fund commenced investment operation on December 18, 2012. For the most recent discussion on the results of operations for the year ended December 31, 2017, refer to the management discussion and analysis on the annual report, Form 10-K, filed on March 14, 2019.

Total investment income for the years ended December 31, 2019 and 2018 was $22.5 million and $49.0 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. Total investment income decreased through the years primarily due to the decrease in average outstanding balance of performing loans calculated on a monthly basis of $124.4 million and $274.5 million for the years ended December 31, 2019 and 2018, respectively. The weighted-average interest rate on performing loans was 17.76% and 17.61% for the same periods, respectively. Also for the same periods, the weighted-average interest rate on all loans was 16.00% and 17.06% 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 year.

Expenses for the years ended December 31, 2019 and 2018, were $6.6 million and $14.0 million, respectively.

Management fees for the Fund were $3.1 million and $7.0 million for the years ended December 31, 2019 and 2018 , respectively. Management fees were calculated as 2.5% of the Fund’s total assets and decreased in 2019 due to a decrease in the Fund’s total assets.

Interest expense for the years ended December 31, 2019 and 2018 was $2.8 million and $6.2 million, 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 loan facility. Interest expense decreased in 2019 primarily due to the reduction in average debt outstanding from $117.4 million in 2018 to $47.5 million in 2019.

Banking and professional fees were $0.5 million and $0.6 million for the years ended December 31, 2019 and 2018 , respectively. The banking and professional fees were comprised of legal, audit, banking and other professional fees. The banking and professional fees decreased slightly for 2019 due to decreased in legal fees, which were commensurate with the decrease in the Fund's investment activities.

Other operating expenses were $0.2 million and $0.2 million for the years ended December 31, 2019 and 2018 , respectively. These expenses included director fees, custody fees, tax fees and other expenses related to the operations of the Fund. The other operating expenses decreased slightly for 2019 was primarily due to a decrease in expenses related to collection costs on certain non-accrual loans.

Net investment income for the years ended December 31, 2019 and 2018, was $15.9 million and $35.0 million, respectively.

Net realized loss from loans was $13.2 million $8.2 million for the years ended December 31, 2019 and 2018, respectively. The primary reason for the increase in 2019 was due to several loan write offs during the year .

Net realized gain (loss) from derivative instruments was $0.2 million and less than $(0.1) million for the years ended December 31, 2019 and 2018, respectively. The gain in 2019 was due to the rising interest rate environment in the first half of the year, which led to the receipt of interest payments from the derivative instrument, but was offset by interest paid on the derivative instrument in the final quarter of the year as interest rates started to decline.

Net change in unrealized gain (loss) from loans was $4.6 million and $2.0 million for the years ended December 31, 2019 and 2018, respectively. The net change in unrealized gain consisted of fair value adjustments to loans and the reversal of fair value adjustments previously taken against loans written off.

Net change in unrealized gain (loss) from derivative instruments was $(0.4) million and $0.4 million for the years ended December 31, 2019 and 2018, respectively. The net change in unrealized gain and loss from derivative instruments consisted of fair market value adjustments to the derivative interest rate cap or swap. The decrease in 2019 was primarily due to the change in expectations of LIBOR interest rates during the year.

Net increase in net assets resulting from operations for the years ended December 31, 2019 and 2018 was $7.1 million and $29.0 million , respectively. On a per share basis, the net increase in net assets resulting from operations was $71.02 and $290.47 for the years ended December 31, 2019 and 2018,respectively.

Liquidity and Capital Resources -- December 31, 2019 and 2018

For the most recent discussion on the liquidity and capital resources for the year ended December 31, 2017, refer to the management discussion and analysis on the annual report, Form 10-K, filed on March 14, 2019.

The Fund is owned entirely by the Company. As of both December 31, 2019 and 2018, the Company had subscriptions for capital in the amount of $375.0 million, of which all had been called and received as of both periods. Total capital contributed to the Fund was $323.2 million and $322.6 million as of December 31, 2019 and 2018, respectively. Effective June 30, 2017, the Fund was no longer permitted to enter new commitments to borrowers; however, the Fund was permitted to fund existing commitments. The Fund’s last commitment expired on July 31, 2018.

The change in cash held by the funds for the years ended December 31, 2019 and 2018 was as follows:



	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018
Net cash provided by (used in) operating activities	$	128,079,312		$	141,918,822
Net cash provided by (used in) financing activities	(130,564,973		)	(144,010,158		)
Net decrease in cash and cash equivalents	$	(2,485,661	)	$	(2,091,336	)

As of December 31, 2019 and 2018, 0.50% and 2.22%, respectively, of the Fund’s net assets consisted of cash and cash equivalents.

On July 18, 2013, the Fund established a secured, syndicated revolving loan facility in an initial amount of up to $125.0 million led by Wells Fargo, N.A. and MUFG Union Bank, N.A. In November 2014, the borrowing availability thereunder was increased to $255.0 million. All of the assets of the Fund collateralize borrowings by the Fund. The Fund pays interest on its borrowings and a fee on the unused portion of the facility. The facility was renewed and amended on October 30, 2017. The amended facility has a term of three years and terminates on October 30, 2020, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments. The borrowing availability thereunder was reduced to $200.0 million. Since then, the borrowing availability was reduced to $ $23.0 million as of December 31, 2019. Beginning March 29, 2019, the lenders’ commitments automatically and permanently reduce each fiscal quarter by an amount equal to 12.5% of the aggregate amount of such commitments. As of December 31, 2019, $15.4 million was outstanding under the facility. The Fund anticipates continued reduction of the facility as the borrowing base continues to decline.

For the years ended December 31, 2019 and 2018, the Fund invested its assets in venture loans. Amounts disbursed under the Fund’s loan commitments were $0 and $51.0 million for the years ended December 31, 2019 and 2018, respectively. Net loan amounts outstanding after amortization and valuation adjustments were decreased by $124.7 million for the year ended December 31, 2019.



As of	Cumulative Amount Disbursed	Principal Reductions and Fair Market Adjustments	Balance Outstanding – Fair Value	Unexpired Unfunded Commitments
December 31, 2019	$960.2 million	$874.2 million	$86.0 million	$0
December 31, 2018	$960.2 million	$749.5 million	$210.7 million	$0

Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid.

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

As of December 31, 2019, the Fund had cash reserves of $0.4 million and approximately $53.0 million in scheduled loan receivable payments over the next year, which together with the Fund’s borrowing capacity are sufficient to meet the operational expenses of the Fund over the next year as well as to reduce the debt facility balance which will continue to decrease as loans are paid off.


ITEM 7A.	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 risks. Because the Fund considers the management of risk essential to conducting its business and to maintaining profitability, the Fund’s risk management procedures are designed to identify and analyze the Fund’s risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.

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

The Fund’s investments are subject to market risk based on several factors, including, but not limited to, the borrower’s credit history, available cash, support of the borrower’s underlying investors, available liquidity, “burn rate,” revenue income, security interest, secondary markets for collateral, the size of the loan, 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. At December 31, 2019, the outstanding debt balance was $15.4 million at a weighted-average floating interest rate of 1.77%, for which the Fund had an interest rate swap in place at 1.90% on $25.9 million of the notional principal amount, leaving the Fund with full exposure to interest rate increases on the over-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 December 31, 2019. 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 could also affect interest rate expense, realized gain from investments and interest on the Fund’s short-term investments.

Based on the Fund’s Statements of Assets and Liabilities as of December 31, 2019, 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 derivatives.



Effect of Interest Rate Change By	Other Interest and Other Income (Loss)	Gain (Loss) from Derivative Instruments	Interest Income (Expense)	Total Income (Loss)
(0.50)%	$(1,771)	$(129,637)	$77,000	$(54,408)
1%	$3,541	$259,274	$(154,000)	$108,815
2%	$7,082	$518,549	$(308,000)	$217,631
3%	$10,623	$777,823	$(462,000)	$326,446
4%	$14,164	$1,037,098	$(616,000)	$435,262
5%	$17,705	$1,296,372	$(770,000)	$544,077

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 fundings to borrowers, repayments from borrowers or defaults on borrowings. Accordingly, no assurances can be given that actual results would not differ materially from the table above.

Because the Fund currently borrows, 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 to hedge its interest rate exposure.

The Fund is not sensitive to changes in foreign currency exchange rates, commodity prices and other market rates or prices.


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly Results

This information has been derived from unaudited financial statements that, in the opinion of Management, include all normal recurring adjustments necessary for a fair presentation of such information. The operating results for any quarter are not necessarily indicative of results for any future year. The format of the statements has been modified, thus certain numbers have been combined in order to fit the format of the statements. Prior to commencing operations on December 18, 2012, 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 2012. 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 September 20, 2012.

The Fund’s financial statements, together with the Report of Independent Registered Public Accounting Firm, are included elsewhere in this Annual Report on Form 10-K.

December 31, 2019 (Unaudited):



	Quarterly Information for the Three Months Ended
	March 31, 2019			June 30, 2019			September 30, 2019			December 31, 2019
Investment Income:
Interest on loans	$	6,602,685		$	9,359,969		$	3,410,395		$	3,092,286
Other interest and other income	21,276			12,566			4,802			4,068
Total investment income	6,623,961			9,372,535			3,415,197			3,096,354
Expenses:
Management fees	1,086,542			797,420			665,198			547,003
Interest expense	1,034,182			792,875			568,727			387,897
Banking and professional fees	178,616			115,727			58,324			179,758
Other operating expenses	39,955			33,851			63,619			57,272
Total expenses	2,339,295			1,739,873			1,355,868			1,171,930
Net investment income	4,284,666			7,632,662			2,059,329			1,924,424

Net realized gain (loss) from loans	4,125			(431,516		)	(9,784,311		)	(2,977,861		)
Net realized gain from derivative instruments	79,220			60,207			40,506			5,094
Net change in unrealized gain (loss) from loans	(503,299		)	(3,067,943		)	6,645,649			1,504,930
Net change in unrealized (loss) from derivative instruments	(147,050		)	(177,742		)	(14,791		)	(34,674		)
Net realized and change in unrealized loss from loans and derivative instruments	(567,004		)	(3,616,994		)	(3,112,947		)	(1,502,511		)
Net increase (decrease) in net assets resulting from operations	$	3,717,662		$	4,015,668		$	(1,053,618	)	$	421,913

Amounts per common share:
Net increase (decrease) in net assets resulting from operations per share	$	37.18		$	40.16		$	(10.54	)	$	4.22
Weighted average shares outstanding	100,000			100,000			100,000			100,000

December 31, 2018 (Unaudited):



	Quarterly Information for the Three Months Ended
	March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
Investment Income:
Interest on loans	$	11,432,014		$	12,837,659		$	15,401,733		$	9,219,342
Other interest and other income	22,427			48,544			34,627			15,626
Total investment income	11,454,441			12,886,203			15,436,360			9,234,968
Expenses:
Management fees	2,129,707			1,974,912			1,583,504			1,356,812
Interest expense	1,423,331			1,627,174			1,762,200			1,361,096
Banking and professional fees	148,418			70,127			129,600			216,717
Other operating expenses	31,486			29,988			41,195			115,305
Total expenses	3,732,942			3,702,201			3,516,499			3,049,930
Net investment income	7,721,499			9,184,002			11,919,861			6,185,038

Net realized loss from loans	(293,025		)	(1,663,372		)	(1,515,103		)	(4,768,114		)
Net realized gain (loss) from derivative instruments	(102,113		)	(20,184		)	32,738			59,401
Net change in unrealized gain (loss) from loans	(2,394,351		)	1,194,310			(2,018,472		)	5,171,881
Net change in unrealized gain (loss) from derivative instruments	412,686			128,182			28,457			(216,605		)
Net realized and change in unrealized gain (loss) from loans and derivative instruments	(2,376,803		)	(361,064		)	(3,472,380		)	246,563
Net increase in net assets resulting from operations	$	5,344,696		$	8,822,938		$	8,447,481		$	6,431,601

Amounts per common share:
Net increase in net assets resulting from operations per share	$	53.45		$	88.23		$	84.47		$	64.32
Weighted average shares outstanding	100,000			100,000			100,000			100,000


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


ITEM 9A.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

At the end of the period covered by this report, the Fund carried out an evaluation under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Fund’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Fund’s disclosure controls and procedures were effective as of the end of the period in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and in providing reasonable assurance that information required to be disclosed by the Fund in such reports is accumulated and communicated to the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control over Financial Reporting

Pursuant to Rules 13a-15d and 15d-15(d) of the Exchange Act, the Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision of and with the participation of the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, the Fund conducted an evaluation of the effectiveness of its internal control over financial reporting based on the Committee of Sponsoring Organizations

of the Treadway Commission 2013 (“COSO 2013”) updated Internal Control - Integrated Framework. Based on its evaluation under the COSO 2013 Internal Control - Integrated Framework, the Fund’s management concluded that its internal control over financial reporting was effective as of December 31, 2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This report of management on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.

Changes in Internal Controls

There have not been any changes in the Fund’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the Fund’s fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.


ITEM 9B.	OTHER INFORMATION

Custodial Agreement

On December 11, 2019, the Fund entered into a Custodial Agreement (the “Agreement”) with Wells Fargo Bank, National Association (the “Custodian”). Pursuant to the Agreement, the Custodian shall maintain custody of certain loan agreements and other related items, as well as certificated securities, and shall hold, release, and transfer thereof on the Fund's behalf. The Custodian may, at any time, resign by giving a written notice of its resignation to the Fund at least ninety (90) days prior to the date of resignation. The Fund may remove the Custodian at any time by giving the Custodian at least sixty (60) days’ prior written notice.

The foregoing description of the material terms of the Agreement is qualified in its entirety by reference to the full text of the Agreement, which is filed herewith as Exhibit 10.3 and is incorporated herein by reference.

PART III.


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The list of executive officers and biographical information appears in Part I, Item 1 of this Form 10-K.

The information required by this item concerning the directors of the Fund, the structure of its Board of Directors and Section 16(a) compliance will be contained in the Fund’s Proxy Statement filed in connection with the Annual Meeting of Shareholders to be held on May 13, 2020 (“Proxy Statement”) under the captions “Proposal 1 -- To Elect Five Directors of the Fund” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

The Fund has adopted a Code of Ethics that is applicable to all of its officers. A free copy of the Code of Ethics may be requested by contacting the Chief Financial Officer of the Fund at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028.


ITEM 11.	EXECUTIVE COMPENSATION

The information required by this item will be contained in the Fund’s Proxy Statement under the caption “Proposal 1 -- To Elect Five Directors of the Fund” and is incorporated herein by reference.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be contained in the Fund’s Proxy Statement under the caption “Annex A -- Beneficial Ownership of Fund Shares” and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be contained in the Fund’s Proxy Statement under the captions: “Other Information -- Managers” and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be contained in the Fund’s Proxy Statement under the captions: “Other Information - Independent Registered Public Accounting Firm.”

PART IV.


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1. Index to Financial Statements and Financial Statement Schedules

Report of Independent Registered Public Accounting Firm

Statements of Assets and Liabilities as of December 31, 2019 and 2018

Statements of Operations for the years ended December 31, 2019, 2018 and 2017

Statements of Changes in Net Assets for the years ended December 31, 2019, 2018 and 2017

Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Schedules of Investments as of December 31, 2019 and 2018

Schedules of Open Swap Contracts as of December 31, 2019 and 2018

Notes to Financial Statements

No schedules are required because the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and the notes thereto.

2. Exhibits



Exhibit	Exhibit Title

3(i)	Articles of Incorporation of the Fund as filed with the Maryland Secretary of State on June 21, 2012, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on September 19, 2012.

3(ii)	Bylaws of the Fund, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on September 19, 2012.

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 September 19, 2012.

4.2	Description of the Registrant’s securities registered pursuant to Section 12(G) of the Securities and Exchange Act of 1934

10.1	Form of Custody Agreement between the Fund and Union Bank, N.A. filed with the Fund's Registration Statement on Form 10 filed with the Securities and Exchange Commission on September 19, 2012.

10.2	Form of Management Agreement between the Fund, and the Manager, incorporated by reference to the Fund's Registration Statement on Form 10 filed with the Securities and Exchange Commission on September 19, 2012.

10.3	Custody Agreement between the Fund and Wells Fargo Bank, National Association effective December 11, 2019.

31.1	Chief 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 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 certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Section 1350 Certification).

32.2	Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Section 1350 Certification).

ITEM 16. FORM 10-K SUMMARY

None.

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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 VII, INC.

(Registrant)



By:	/S/Maurice C. Werdegar		By:	/S/Judy N. Bornstein
	Maurice C. Werdegar			Judy N. Bornstein
	Chief Executive Officer			Chief Financial Officer
	(Principal Executive Officer)			(Principal Financial Officer)
	Date:	March 16, 2020		Date:	March 16, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



	NAME	TITLE	DATE

By:	/S/ Ronald W. Swenson	Chairman & Director	March 16, 2020
	Ronald W. Swenson

By:	/S/ Maurice C. Werdegar	CEO & Director	March 16, 2020
	Maurice C. Werdegar

By:	/S/ John Glynn	Director	March 16, 2020
	John Glynn

By:	/S/ Robert Hutter	Director	March 16, 2020
	Robert Hutter

By:	/S/ Scott Taylor	Director	March 16, 2020
	Scott Taylor

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholder and the Board of Directors of Venture Lending & Leasing VII, Inc.

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statement of assets and liabilities of Venture Lending & Leasing VII, Inc. (the "Fund"), including the schedules of investments, as of December 31, 2019 and 2018, and the related statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2019, the financial highlights (presented in Note 11) for each of the five years in the period ended December 31, 2019, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2019 and 2018, and the results of its operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2019, and the financial highlights for each of the five years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of loans owned as of December 31, 2019, by correspondence with the borrowers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

March 16, 2020

San Francisco, California

We have served as the auditor of one or more Venture Lending & Leasing investment companies since 2001.

VENTURE LENDING & LEASING VII, INC.

Statements of Assets and Liabilities

As of December 31, 2019 and 2018



	December 31, 2019			December 31, 2018
ASSETS:
Loans, at estimated fair value
(cost of $104,598,706 and $233,935,818)	$	85,964,990		$	210,722,764
Derivative asset - interest rate swap	—			352,121
Cash and cash equivalents	354,105			2,839,766
Dividend and interest receivables	843,808			2,352,345
Other assets	357,581			822,885
Total assets	87,520,484			217,089,881

LIABILITIES:
Borrowings under debt facility	15,400,000			87,500,000
Accrued management fees	547,003			1,356,812
Derivative liability - interest rate swap	22,136			—
Accounts payable and other accrued liabilities	283,325			434,646
Total liabilities	16,252,464			89,291,458

NET ASSETS:	$	71,268,020		$	127,798,423

Analysis of Net Assets:

Capital paid in on shares of capital stock	$	323,245,000		$	322,645,000
Total distributable losses	(251,976,980		)	(194,846,577		)
Net assets (equivalent to $712.68 and $1,277.98 per share based on 100,000 shares of capital stock outstanding - See Note 5 and Note 10)	$	71,268,020		$	127,798,423

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Statements of Operations

For the Years Ended December 31, 2019, 2018 and 2017



	For the Year Ended			For the Year Ended			For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
INVESTMENT INCOME:
Interest on loans	$	22,465,335		$	48,890,748		$	51,914,279
Other interest and other income	42,711			121,224			188,178
Total investment income	22,508,046			49,011,972			52,102,457

EXPENSES:
Management fees	3,096,163			7,044,935			8,966,110
Interest expense	2,783,681			6,173,801			7,769,389
Banking and professional fees	532,425			564,862			492,092
Other operating expenses	194,696			217,974			494,723
Total expenses	6,606,965			14,001,572			17,722,314
Net investment income	15,901,081			35,010,400			34,380,143

Net realized loss from loans	(13,189,563		)	(8,239,614		)	(9,074,492		)
Net realized gain (loss) from derivative instruments	185,027			(30,158		)	666,026
Net change in unrealized gain (loss) from loans	4,579,337			1,953,368			(10,190,538		)
Net change in unrealized gain (loss) from derivative instruments	(374,257		)	352,720			219,067
Net realized and change in unrealized loss from loans and derivative instruments	(8,799,456		)	(5,963,684		)	(18,379,937		)
Net increase in net assets resulting from operations	$	7,101,625		$	29,046,716		$	16,000,206

Amounts per common share:
Net increase in net assets resulting from operations per share	$	71.02		$	290.47		$	160.00
Weighted average shares outstanding	100,000			100,000			100,000

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Statements of Changes in Net Assets

For the Years Ended December 31, 2019, 2018 and 2017



	Common Stock
	Shares	Par Value		Additional Paid-in Capital		Total Distributable Earnings (Loss)			Net Assets
Balance at December 31, 2016	100,000	$	100	$	276,524,900	$	(93,002,290	)	$	183,522,710
Net increase in net assets resulting from operations	—	—		—		16,000,206			16,000,206
Distributions to shareholder	—	—		—		(31,365,899		)	(31,365,899		)
Contributions from shareholder	—	—		44,500,000		—			44,500,000
Balance at December 31, 2017	100,000	$	100	$	321,024,900	$	(108,367,983	)	$	212,657,017
Net increase in net assets resulting from operations	—	—		—		29,046,716			29,046,716
Distributions to shareholder	—	—		—		(115,525,310		)	(115,525,310		)
Contributions from shareholder	—	—		1,620,000		—			1,620,000
Balance at December 31, 2018	100,000	$	100	$	322,644,900	$	(194,846,577	)	$	127,798,423
Net increase in net assets resulting from operations	—	—		—		7,101,625			7,101,625
Distributions to shareholder	—	—		—		(64,232,028		)	(64,232,028		)
Contributions from shareholder	—	—		600,000		—			600,000
Balance at December 31, 2019	100,000	$	100	$	323,244,900	$	(251,976,980	)	$	71,268,020

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Statements of Cash Flows

For the Years Ended December 31, 2019, 2018 and 2017



	For the Year Ended			For the Year Ended			For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations	$	7,101,625		$	29,046,716		$	16,000,206
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized loss from loans	13,189,563			8,239,614			9,074,492
Net realized (gain) loss from derivative instruments	(185,027		)	30,158			(666,026		)
Net change in unrealized (gain) loss from loans	(4,579,337		)	(1,953,368		)	10,190,538
Net change in unrealized (gain) loss from derivative instruments	374,257			(352,720		)	(219,067		)
Amortization of deferred costs related to borrowing facility and interest rate cap agreement	374,371			374,371			1,510,477
Net (increase) decrease in dividend and interest receivables	1,508,537			1,503,107			(251,308		)
Net (increase) decrease in other assets	90,934			1,096,994			(648,374		)
Net decrease in accounts payable, other accrued liabilities and accrued management fees	(961,131		)	(821,513		)	(1,446,295		)
Origination of loans	—			(51,000,000		)	(195,202,500		)
Principal payments on loans	111,165,520			157,145,402			149,838,737
Acquisition of equity securities	—			(1,389,939		)	(12,072,066		)
Net cash provided by (used in) operating activities	128,079,312			141,918,822			(23,891,186		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to shareholder	(59,250,000		)	(112,100,000		)	(18,000,000		)
Contributions from shareholder	600,000			1,620,000			44,500,000
Borrowings under debt facility	20,500,000			29,400,000			64,500,000
Repayments of borrowings under debt facility	(92,600,000		)	(62,900,000		)	(70,500,000		)
Payments received from interest rate cap	—			—			683,483
Payments made for interest rate swap	(2,827		)	(122,829		)	(17,457		)
Payments received from interest rate swap	187,854			92,671			—
Payments of bank facility fees and costs	—			—			(1,123,113		)
Net cash provided by (used in) financing activities	(130,564,973		)	(144,010,158		)	20,042,913
Net decrease in cash and cash equivalents	(2,485,661		)	(2,091,336		)	(3,848,273		)
CASH AND CASH EQUIVALENTS:
Beginning of year	2,839,766			4,931,102			8,779,375
End of year	$	354,105		$	2,839,766		$	4,931,102
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR:
Interest - Debt facility	$	2,581,426		$	5,859,611		$	6,284,563
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Distributions of equity securities and convertible loan to shareholder	$	4,982,028		$	3,425,310		$	13,365,899
Receipt of equity securities and convertible loan as repayment of loans	$	4,982,028		$	2,035,371		$	1,293,833

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Schedule of Investments

As of December 31, 2019



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
Computers & Storage
	Canary Connect, Inc.		Senior Secured	12.8%		$	577,487	$	509,119	$	509,119	12/1/2020
	Rigetti & Co., Inc.		Senior Secured	9.0%	2.8%	194,537		194,122		194,122		1/1/2020
Computers & Storage Total		1.0%				$	772,024	$	703,241	$	703,241

Internet
	Amino Payments, Inc.		Senior Secured	10.8%		$	448,596	$	422,199	$	422,199	9/1/2021
	Bombfell, Inc.		Senior Secured	11.0%		656,522		647,811		647,811		10/1/2021
	Cowboy Analytics, LLC		Senior Secured	5.5%		259,030		142,347		71,877		*
	CustomMade, Inc.		Senior Secured	0.0%		1,651,771		706,026		706,026		*
	Digital Caddies, Inc. **		Senior Secured	18.0%		989,068		987,584		—		*
	Giddy Apps, Inc.		Senior Secured	11.5%		1,240,498		965,454		—		*
	Leading ED, Inc.		Senior Secured	10.0%		175,000		76		—		*
	Relay Network, LLC		Senior Secured	8.0%	4.4%	355,349		353,403		353,403		9/1/2020
	Relay Network, LLC		Senior Secured	8.0%	4.4%	355,319		350,310		350,310		9/1/2020
	Relay Network, LLC Subtotal					710,668		703,713		703,713
	Spot.IM, Ltd. ** ^		Senior Secured	11.8%		46,419		45,732		45,732		5/1/2020
	Spot.IM, Ltd. ** ^		Senior Secured	12.5%		46,752		46,415		46,415		5/1/2020
	Spot.IM, Ltd. ** ^ Subtotal					93,171		92,147		92,147
	Tango Card, Inc.		Senior Secured	12.0%		595,825		591,279		591,279		11/1/2020
	Wristcam Inc. ** ^		Senior Secured	11.0%		3,775,908		3,069,657		890,055		*
	YouDocs Beauty, Inc.		Senior Secured	11.0%		1,350,000		1,192,024		1,192,024		*
Internet Total		7.5%				$	11,946,057	$	9,520,317	$	5,317,131

Medical Devices
	AxioMed, Inc.		Unsecured	0.0%		$	14,238	$	14,238	$	—	*
	Renovia, Inc.		Senior Secured	11.0%		220,276		217,530		217,530		6/1/2020
	Renovia, Inc.		Senior Secured	11.0%		394,841		392,580		392,580		11/1/2020
	Renovia, Inc. Subtotal					615,117		610,110		610,110
Medical Devices Total		0.9%				$	629,355	$	624,348	$	610,110

Other Healthcare
	4G Clinical LLC		Senior Secured	11.0%		$	255,880	$	252,650	$	252,650	7/1/2020
	Clover Health Investments Corporation		Senior Secured	11.3%		9,417,408		9,417,408		9,417,408		10/1/2022



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Clover Health Investments Corporation		Senior Secured	11.0%		14,722,192		14,722,191		14,722,191		3/1/2022
	Clover Health Investments Corporation Subtotal					24,139,600		24,139,599		24,139,599
	MD Revolution, Inc.		Senior Secured	12.5%		139,624		138,801		138,801		3/1/2020
	mPharma Data, Inc. ** ^		Senior Secured	10.0%		135,340		133,045		133,045		11/1/2020
	mPharma Data, Inc. ** ^		Senior Secured	10.0%		181,549		180,264		180,264		3/1/2021
	mPharma Data, Inc. ** ^ Subtotal					316,889		313,309		313,309
	Myolex, Inc.		Senior Secured	18.0%		762,531		726,537		238,967		*
	Physician Software Systems, LLC		Senior Secured	18.0%		164,677		148,042		—		*
	Sparta Software Corporation		Senior Secured	10.0%	2.5%	42,282		41,691		41,691		6/1/2020
Other Healthcare Total		35.1%				$	25,821,483	$	25,760,629	$	25,125,017

Other Technology
	BloomLife, Inc.		Senior Secured	12.0%		44,885		44,433		44,433		4/1/2020
	Consumer Physics, Inc. ** ^		Senior Secured	11.0%		822,854		787,630		729,155		1/1/2022
	Flo Water, Inc.		Senior Secured	11.5%		64,052		62,946		62,946		5/1/2020
	Gap Year Global, Inc.		Senior Secured	18.0%		90,768		86,359		—		*
	Heartwork, Inc.		Senior Secured	18.0%		379,462		371,981		73,493		*
	Hint, Inc.		Senior Secured	11.0%		1,321,439		1,277,919		1,277,919		3/1/2021
	Hint, Inc.		Senior Secured	11.0%		1,644,377		1,644,377		1,644,377		7/1/2021
	Hint, Inc. Subtotal					2,965,816		2,922,296		2,922,296
	June Life, Inc.		Senior Secured	11.8%		129,682		128,895		128,895		3/1/2020
	June Life, Inc.		Senior Secured	11.8%		129,691		129,319		129,319		3/1/2020
	June Life, Inc. Subtotal					259,373		258,214		258,214
	LanzaTech New Zealand Ltd.		Senior Secured	13.0%		355,735		351,225		351,225		3/1/2020
	LanzaTech New Zealand Ltd.		Senior Secured	13.3%		1,336,381		1,328,045		1,328,045		3/1/2021
	LanzaTech New Zealand Ltd.		Senior Secured	13.0%		1,033,301		1,027,199		1,027,199		9/1/2020
	LanzaTech New Zealand Ltd. Subtotal					2,725,417		2,706,469		2,706,469
	MobyFox, Inc.		Senior Secured	4.0%		500,000		193,300		47,500		*
	Neuehouse, LLC		Senior Secured	12.0%		1,750,000		1,297,265		1,297,265		*
	Noteleaf, Inc.		Senior Secured	11.0%		489,249		485,228		485,228		9/1/2020
	PDQ Enterprises LLC **		Senior Secured	11.0%		1,597,950		1,583,889		1,583,889		2/1/2021
	PLAE, Inc.		Senior Secured	9.0%	3.2%	621,378		613,950		365,025		12/1/2020
	Plenty Unlimited, Inc.		Senior Secured	9.0%	9.4%	720,381		715,351		715,351		3/1/2021
	Plenty Unlimited, Inc.		Senior Secured	9.0%	11.7%	669,055		657,374		657,374		1/1/2021
	Plenty Unlimited, Inc.		Senior Secured	9.0%	11.7%	2,129,724		2,074,806		2,074,806		9/1/2021



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Plenty Unlimited, Inc. Subtotal					3,519,160		3,447,531		3,447,531
	SkyKick, Inc.		Senior Secured	10.5%		179,654		178,576		178,576		10/1/2020
	SkyKick, Inc.		Senior Secured	10.5%		329,036		325,320		325,320		6/1/2020
	SkyKick, Inc.		Senior Secured	10.5%		196,798		195,476		195,476		11/1/2020
	SkyKick, Inc. Subtotal					705,488		699,372		699,372
	TAE Technologies, Inc.		Senior Secured	12.5%		1,411,739		1,397,787		1,397,787		4/1/2021
	TAE Technologies, Inc.		Senior Secured	12.5%		5,320,565		5,205,606		5,205,606		3/1/2021
	TAE Technologies, Inc. Subtotal					6,732,304		6,603,393		6,603,393
	VentureBeat, Inc.		Senior Secured	12.0%		825,775		607,172		212,669		*
	Virtuix Holdings, Inc.		Senior Secured	11.0%		191,811		189,767		189,767		7/1/2020
Other Technology Total		30.5%				$	24,285,742	$	22,961,195	$	21,728,645

Security
	Nok Nok Labs, Inc.		Senior Secured	12.5%		$	278,668	$	262,884	$	262,884	12/1/2020
Security Total		0.4%				$	278,668	$	262,884	$	262,884

Semiconductors & Equipment
	ETA Compute, Inc.		Senior Secured	10.5%		$	72,471	$	72,179	$	72,179	8/1/2020
Semiconductors & Equipment Total		0.1%				$	72,471	$	72,179	$	72,179

Software
	Aptible, Inc.		Senior Secured	11.8%		$	114,677	$	113,164	$	113,164	2/1/2021
	Bloomboard, Inc.		Senior Secured	11.5%		2,507,253		1,726,360		1,609,258		*
	BlueCart, Inc.		Senior Secured	12.8%		8,832		8,821		8,821		1/1/2020
	BlueCart, Inc.		Senior Secured	12.5%		17,613		17,561		17,561		1/1/2020
	BlueCart, Inc. Subtotal					26,445		26,382		26,382
	DealPath, Inc.		Senior Secured	11.0%		931,379		917,163		917,163		5/1/2021
	DemystData Limited		Senior Secured	11.8%		185,689		182,802		182,802		5/1/2020
	DemystData Limited		Senior Secured	11.8%		128,725		128,084		128,084		7/1/2020
	DemystData Limited Subtotal					314,414		310,886		310,886
	Drift Marketplace, Inc.		Senior Secured	11.0%		27,932		27,877		27,877		3/1/2020
	Drift Marketplace, Inc.		Senior Secured	11.0%		21,052		21,008		21,008		3/1/2020
	Drift Marketplace, Inc.		Senior Secured	11.0%		20,949		20,782		20,782		3/1/2020
	Drift Marketplace, Inc. Subtotal					69,933		69,667		69,667
	Estify, Inc.		Senior Secured	18.0%		842,819		818,731		261,969		*
	FieldAware US, Inc.		Senior Secured	11.0%		7,616,117		7,177,946		4,483,233		*



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Gearbox Software, LLC		Senior Secured	11.0%		1,322,592		1,317,051		1,317,051		3/1/2021
	Gearbox Software, LLC		Senior Secured	11.0%		790,132		787,238		787,238		11/1/2020
	Gearbox Software, LLC		Senior Secured	11.0%		977,945		952,723		952,723		9/1/2020
	Gearbox Software, LLC Subtotal					3,090,669		3,057,012		3,057,012
	GoFormz, Inc.		Senior Secured	12.0%		716,482		683,705		683,705		11/1/2020
	Invoice2Go, Inc.		Senior Secured	11.8%		779,652		779,652		779,652		4/1/2021
	Invoice2Go, Inc.		Senior Secured	11.8%		221,827		217,619		217,619		6/1/2020
	Invoice2Go, Inc.		Senior Secured	11.8%		909,416		893,275		893,275		4/1/2021
	Invoice2Go, Inc.		Senior Secured	11.8%		909,506		909,506		909,506		4/1/2021
	Invoice2Go, Inc. Subtotal					2,820,401		2,800,052		2,800,052
	JethroData, Inc. ** ^		Senior Secured	18.0%		704,868		681,877		327,328		*
	Metarail, Inc.		Senior Secured	12.0%		672,294		649,249		285,595		6/1/2022
	Migo Money, Inc. ** ^		Senior Secured	12.0%		129,034		126,786		126,786		7/1/2020
	Swrve, Inc.		Senior Secured	11.8%		988,691		942,283		942,283		11/1/2020
	The/Studio Technologies, Inc.		Senior Secured	11.0%		165,210		161,987		161,987		6/1/2020
	Truss Technology Corporation		Senior Secured	2.2%		2,000,000		238,275		—		*
	VenueNext, Inc.		Senior Secured	11.0%		276,785		272,729		272,729		5/1/2020
	Viewpost Holdings, LLC.		Senior Secured	11.5%		11,000,000		10,324,150		3,646,987		*
	Vuemix, Inc.		Senior Secured	11.3%		98,925		97,130		97,130		11/1/2020
	Xeeva, Inc.		Senior Secured	12.0%		636,722		634,250		634,250		7/1/2020
Software Total		29.2%				$	35,723,118	$	31,829,784	$	20,827,566

Technology Services
	AirHelp, Inc.		Senior Secured	10.0%		$	224,210	$	222,872	$	222,872	10/1/2020
	AirHelp, Inc.		Senior Secured	10.0%		158,653		158,004		158,004		7/1/2020
	AirHelp, Inc.		Senior Secured	10.0%		228,495		226,378		226,378		5/1/2020
	AirHelp, Inc. Subtotal					611,358		607,254		607,254
	Akademos, Inc.		Junior Secured	13.5%	1.5%	310,059		296,533		296,533		8/1/2020
	Blazent, Inc.		Senior Secured	12.0%		1,554,190		1,176,871		519,570		*
	Blue Technologies Limited ** ^		Senior Secured	11.0%		73,765		73,282		73,282		4/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		677,238		674,538		674,538		12/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		867,752		863,859		863,859		6/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		514,237		512,656		512,656		9/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		836,205		832,109		832,109		3/1/2021
	Callisto Media, Inc. Subtotal					2,895,432		2,883,162		2,883,162
	Dolly, Inc.		Senior Secured	12.0%		610,970		597,981		597,981		5/1/2021



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Fluxx Labs		Senior Secured	11.8%		225,096		222,897		222,897		6/1/2020
	PayJoy, Inc. **		Senior Secured	10.0%		687,580		665,991		665,991		8/1/2021
	TrueFacet, Inc.		Senior Secured	18.0%		946,610		893,580		4,969		*
	Zeel Networks, Inc.		Senior Secured	11.0%		571,424		556,082		556,082		8/1/2020
Technology Services Total		9.0%				$	8,486,484	$	7,973,633	$	6,427,721

Wireless
	Juvo Mobile, Inc. **		Senior Secured	11.0%		$	37,413	$	37,350	$	37,350	2/1/2020
	Juvo Mobile, Inc. **		Senior Secured	11.0%		18,792		18,773		18,773		1/1/2020
	Juvo Mobile, Inc. ** Subtotal					56,205		56,123		56,123
	Nextivity, Inc.		Senior Secured	12.0%		808,783		808,783		808,783		6/1/2021
	Nextivity, Inc.		Senior Secured	12.0%		2,964,747		2,964,590		2,964,590		6/1/2021
	Nextivity, Inc. Subtotal					3,773,530		3,773,373		3,773,373
	Parallel Wireless, Inc.		Senior Secured	11.8%		543,960		541,246		541,246		10/1/2020
	Parallel Wireless, Inc.		Senior Secured	11.8%		522,646		519,754		519,754		4/1/2020
	Parallel Wireless, Inc. Subtotal					1,066,606		1,061,000		1,061,000
Wireless Total		6.9%				$	4,896,341	$	4,890,496	$	4,890,496

	Grand Total	120.6%				$	112,911,743	$	104,598,706	$	85,964,990

* As of December 31, 2019, loans with a cost basis of $33.5 million and a fair value of $15.6 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”. As of December 31, 2019, 5.6% of the Fund’s total assets represented non-qualifying assets. Under Section 55(a) of the 1940 Act., the Fund is prohibited from acquiring any additional non-qualifying assets unless, at the time of acquisition, certain specified qualifying assets (e.g., securities issued by an "eligible portfolio company," as defined in Section 2(a)(46) represent at least 70%

of the total assets at the time of acquisition of any additional non-qualifying assets. As part of this calculation, the numerator consists of the value of the Fund's investments in all eligible portfolio companies and the denominator consists of total assets less those assets described in Section 55(a)(7) of the 1940 Act.

^ Entity is not domiciled in the United States and does not have its principal place of business in the United States.

(a) The percentage of net assets that each industry group represents is shown with the industry totals (the sum of the percentages does not equal 100% because the percentages are based on net assets as opposed to total loans).

(b) The interest rate is the designated annual interest rate exclusive of any original issue discount, fees or end of term payment.

(c) The end of term payments are contractually due on the maturity date and are in addition to the interest rate shown. End of term payments are the percentage of the final payment divided by the original loan amount and are amortized over the full term of the loan.

As of December 31, 2019, all loans were made to non-affiliates.

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Schedule of Investments

As of December 31, 2018



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date

Biotechnology
	Phylagen, Inc.		Senior Secured	12.0%		$	59,449	$	58,346	$	58,346	7/1/2019
	Phylagen, Inc.		Senior Secured	12.0%		122,508		121,178		121,178		3/1/2020
Biotechnology Total		0.1%				$	181,957	$	179,524	$	179,524

Computers and Storage
	Canary Connect, Inc.		Senior Secured	12.8%		$	1,085,881	$	861,061	$	861,061	12/1/2020
	HyperGrid, Inc.		Senior Secured	11.5%		537,952		528,364		528,364		12/1/2019
	Rigetti & Co., Inc.		Senior Secured	9.0%	2.8%	48,635		48,504		48,504		1/1/2019
	Rigetti & Co., Inc.		Senior Secured	9.0%	2.8%	1,432,659		1,410,884		1,410,884		1/1/2020
	Rigetti & Co., Inc. Subtotal					1,481,294		1,459,388		1,459,388
Computers and Storage Total		2.2%				$	3,105,127	$	2,848,813	$	2,848,813

Internet
	Amino Payments, Inc.		Senior Secured	9.0%	4.1%	$	126,953	$	125,274	$	125,274	3/1/2021
	Amino Payments, Inc.		Senior Secured	9.0%	5.2%	256,492		246,252		246,252		3/1/2021
	Amino Payments, Inc.		Senior Secured	9.0%	4.4%	254,592		251,329		251,329		3/1/2021
	Amino Payments, Inc. Subtotal					638,037		622,855		622,855
	Apartment List, Inc.		Senior Secured	11.0%		506,854		497,685		497,685		11/1/2019
	Bitfinder, Inc.		Senior Secured	10.5%		360,053		351,451		351,451		9/1/2020
	Bombfell, Inc.		Senior Secured	11.0%		421,445		405,621		405,621		1/1/2021
	Bombfell, Inc.		Senior Secured	11.0%		465,802		460,262		460,262		4/1/2021
	Bombfell, Inc. Subtotal					887,247		865,883		865,883
	CapLinked, Inc.		Senior Secured	12.8%		9,565		9,550		9,550		1/1/2019
	Cowboy Analytics, LLC		Senior Secured	5.5%		259,030		165,147		121,412		*
	CustomMade, Inc.		Senior Secured	11.0%		1,374,552		697,026		697,026		*
	Deja Mi, Inc.		Senior Secured	0%		100,000		803,288		11,300		*
	Digital Caddies, Inc.**		Senior Secured	18.0%		989,068		987,584		—		*
	DreamCloud Holdings, LLC		Senior Secured	11.8%		172,846		163,907		163,907		8/1/2020
	DreamCloud Holdings, LLC		Senior Secured	11.8%		471,111		438,773		438,773		6/1/2020
	DreamCloud Holdings, LLC Subtotal					643,957		602,680		602,680



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Giddy Apps, Inc.		Senior Secured	11.5%		1,240,498		999,454		—		*
	Glide, Inc.** ^		Senior Secured	11.0%		4,369,958		4,050,096		691,014		*
	Honk Technologies, Inc.		Senior Secured	11.5%		595,641		589,925		589,925		5/1/2020
	Honk Technologies, Inc.		Senior Secured	11.5%		645,595		633,385		633,385		12/1/2019
	Honk Technologies, Inc. Subtotal					1,241,236		1,223,310		1,223,310
	Leading ED, Inc.		Senior Secured	10.0%		175,000		76		—		*
	Playstudios, Inc.		Senior Secured	10.0%		963,077		936,909		936,909		3/1/2021
	Radius Intelligence, Inc.		Senior Secured	8.0%	9.2%	7,421,159		7,126,941		6,151,429		10/1/2021
	Relay Network, LLC		Senior Secured	8.0%	4.4%	732,924		711,759		711,759		9/1/2020
	Relay Network, LLC		Senior Secured	8.0%	4.4%	733,049		724,776		724,776		9/1/2020
	Relay Network, LLC Subtotal					1,465,973		1,436,535		1,436,535
	Spot.IM, Ltd.** ^		Senior Secured	11.8%		149,016		142,655		142,655		5/1/2020
	Spot.IM, Ltd.** ^		Senior Secured	12.5%		149,520		146,386		146,386		5/1/2020
	Spot.IM, Ltd.** ^		Senior Secured	12.5%		216,500		208,266		208,266		12/1/2019
	Spot.IM, Ltd.** ^ Subtotal					515,036		497,307		497,307
	Super Home, Inc.		Senior Secured	11.3%		27,989		27,681		27,681		3/1/2019
	Tango Card, Inc.		Senior Secured	12.0%		1,175,591		1,158,103		1,158,103		11/1/2020
	Thrive Market, Inc.		Senior Secured	12.0%		757,323		753,587		753,587		9/1/2019
	Thrive Market, Inc.		Senior Secured	12.0%		1,514,559		1,493,078		1,493,078		9/1/2019
	Thrive Market, Inc. Subtotal					2,271,882		2,246,665		2,246,665
	Traackr, Inc.		Senior Secured	11.8%		18,941		18,860		18,860		1/1/2019
	Traackr, Inc.		Senior Secured	11.8%		37,334		37,179		37,179		4/1/2019
	Traackr, Inc. Subtotal					56,275		56,039		56,039
	YouDocs Beauty, Inc.		Senior Secured	11.0%		1,350,000		1,192,024		1,192,024		*
Internet Total		15.2%				$	28,042,037	$	26,554,289	$	19,396,858

Medical Devices
	Anutra Medical, Inc.		Senior Secured	10.0%		$	177,487	$	168,853	$	168,853	12/1/2019
	AxioMed, Inc.		Unsecured	0%		14,238		14,238		—		*
	Renovia, Inc.		Senior Secured	11.0%		626,245		605,734		605,734		6/1/2020
	Renovia, Inc.		Senior Secured	11.0%		782,699		773,934		773,934		11/1/2020
	Renovia, Inc. Subtotal					1,408,944		1,379,668		1,379,668
Medical Devices Total		1.2%				$	1,600,669	$	1,562,759	$	1,548,521

Other Healthcare
	4G Clinical LLC		Senior Secured	11.0%		$	658,240	$	638,103	$	638,103	7/1/2020



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Caredox, Inc.		Senior Secured	11.3%		28,241		28,158		28,158		1/1/2019
	Clover Health Investment Corporation		Senior Secured	11.3%		9,894,125		9,894,125		9,894,125		10/1/2022
	Clover Health Investment Corporation		Senior Secured	11.0%		18,462,733		18,462,733		18,462,733		3/1/2022
	Clover Health Investment Corporation Subtotal					28,356,858		28,356,858		28,356,858
	Hello Doctor, Ltd.** ^		Senior Secured	12.5%		19,830		19,492		19,492		3/1/2019
	Lean Labs, Inc.		Senior Secured	12.0%		43,111		42,446		42,446		4/1/2019
	MD Revolution, Inc.		Senior Secured	12.5%		656,438		641,456		641,456		3/1/2020
	mPharma Data, Inc.** ^		Senior Secured	10.0%		269,554		260,665		260,665		11/1/2020
	mPharma Data, Inc.** ^		Senior Secured	10.0%		311,364		307,587		307,587		3/1/2021
	mPharma Data, Inc.** ^ Subtotal					580,918		568,252		568,252
	Myolex, Inc.		Senior Secured	18.0%		762,531		726,537		238,967		*
	Physician Software Systems, LLC		Senior Secured	18.0%		164,677		148,042		—		*
	Project Healthy Living, Inc.		Senior Secured	11.0%		602,739		589,774		589,774		9/1/2019
	Sparta Software Corporation		Senior Secured	10.0%	2.5%	112,015		108,064		108,064		6/1/2020
	Trio Health Advisory Group, Inc.		Senior Secured	11.5%		75,208		74,744		74,744		2/1/2019
	Wellist, Inc.		Senior Secured	12.3%		22,599		22,260		22,260		3/1/2019
	Wellist, Inc.		Senior Secured	12.3%		86,406		85,410		85,410		12/1/2019
	Wellist, Inc. Subtotal					109,005		107,670		107,670
Other Healthcare Total		24.6%				$	32,169,811	$	32,049,596	$	31,413,984

Other Technology
	AltSchool, PBC		Senior Secured	11.0%		$	3,813,807	$	3,599,923	$	3,599,923	6/1/2020
	AltSchool, PBC		Senior Secured	11.0%		14,859,433		14,750,254		14,750,254		6/1/2021
	AltSchool, PBC Subtotal					18,673,240		18,350,177		18,350,177
	BloomLife, Inc.		Senior Secured	12.0%		169,302		163,710		163,710		4/1/2020
	CommunityCo, LLC		Senior Secured	12.0%		33,846		33,266		33,266		3/1/2019
	Consumer Physics, Inc.** ^		Senior Secured	11.0%		1,089,914		1,062,742		908,852		8/1/2019
	Ensyn Corporation		Senior Secured	12.3%		573,230		565,857		565,857		6/1/2019
	Ensyn Corporation		Senior Secured	12.3%		1,024,930		1,017,211		1,017,211		11/1/2019
	Ensyn Corporation Subtotal					1,598,160		1,583,068		1,583,068
	ETN Media, Inc.		Senior Secured	11.5%		211,603		206,043		173,058		7/1/2020
	ETN Media, Inc.		Senior Secured	11.5%		211,748		209,434		175,905		7/1/2020
	ETN Media, Inc. Subtotal					423,351		415,477		348,963
	Flo Water, Inc.		Senior Secured	11.5%		205,832		195,612		195,612		5/1/2020
	FMTwo Game, Inc.		Senior Secured	4.0%		500,000		193,300		18,900		*
	Gap Year Global, Inc.		Senior Secured	18.0%		90,768		86,359		—		*



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal	Cost	Fair Value	Maturity Date
	Greats Brand, Inc.		Senior Secured	11.0%		63,960	61,945	61,945	7/1/2019
	Greats Brand, Inc.		Senior Secured	11.0%		107,205	106,216	106,216	12/1/2019
	Greats Brand, Inc. Subtotal					171,165	168,161	168,161
	Heartwork, Inc.		Senior Secured	11.0%		465,983	436,474	281,506	9/1/2020
	Hint, Inc.		Senior Secured	11.0%		2,255,803	2,130,280	2,130,280	3/1/2021
	Hint, Inc.		Senior Secured	11.0%		2,474,151	2,474,151	2,474,151	7/1/2021
	Hint, Inc. Subtotal					4,729,954	4,604,431	4,604,431
	ICON Aircraft, Inc.		Senior Secured	10.0%		719,616	714,154	714,154	5/1/2019
	June Life, Inc.		Senior Secured	11.8%		611,965	597,587	597,587	3/1/2020
	June Life, Inc.		Senior Secured	11.8%		612,139	605,287	605,287	3/1/2020
	June Life, Inc. Subtotal					1,224,104	1,202,874	1,202,874
	LanzaTech New Zealand Ltd.		Senior Secured	13.0%		1,669,064	1,588,287	1,588,287	3/1/2020
	LanzaTech New Zealand Ltd.		Senior Secured	13.3%		2,257,809	2,233,790	2,233,790	3/1/2021
	LanzaTech New Zealand Ltd.		Senior Secured	13.0%		2,264,030	2,235,397	2,235,397	9/1/2020
	LanzaTech New Zealand Ltd. Subtotal					6,190,903	6,057,474	6,057,474
	Neuehouse, LLC		Senior Secured	12.0%		1,750,000	1,323,215	1,323,215	*
	Noteleaf, Inc.		Senior Secured	11.0%		1,081,842	1,062,771	1,062,771	9/1/2020
	nWay, Inc.		Senior Secured	11.0%		810,035	603,373	433,309	*
	PDQ Enterprises LLC**		Senior Secured	11.0%		2,814,193	2,770,652	2,770,652	2/1/2021
	PLAE, Inc.		Senior Secured	9.0%	3.2%	1,135,076	1,110,298	1,110,298	12/1/2020
	Planet Labs, Inc.		Senior Secured	11.0%		1,700,417	1,694,856	1,694,856	3/1/2019
	Planet Labs, Inc.		Senior Secured	11.0%		12,362,729	11,937,236	11,937,236	11/1/2021
	Planet Labs, Inc.		Senior Secured	11.0%		12,375,336	12,375,336	12,375,336	8/1/2022
	Planet Labs, Inc. Subtotal					26,438,482	26,007,428	26,007,428
	Plenty Unlimited, Inc.		Senior Secured	9.0%	11.7%	1,120,932	1,087,343	1,087,343	1/1/2021
	Plenty Unlimited, Inc.		Senior Secured	9.0%	9.4%	1,166,482	1,153,018	1,153,018	3/1/2021
	Plenty Unlimited, Inc.		Senior Secured	9.0%	11.7%	3,040,235	2,925,880	2,925,880	9/1/2021
	Plenty Unlimited, Inc. Subtotal					5,327,649	5,166,241	5,166,241
	Plethora, Inc.		Senior Secured	9.0%	4.3%	149,605	149,118	149,118	3/1/2019
	Plethora, Inc.		Senior Secured	9.0%	4.3%	225,218	223,515	223,515	3/1/2019
	Plethora, Inc. Subtotal					374,823	372,633	372,633
	Rosco & Benedetto Co, Inc.		Senior Secured	11.0%		122,323	119,832	119,832	9/1/2019
	SkyKick, Inc.		Senior Secured	10.5%		375,566	370,957	370,957	10/1/2020
	SkyKick, Inc.		Senior Secured	10.5%		391,035	385,892	385,892	11/1/2020
	SkyKick, Inc.		Senior Secured	10.5%		937,688	909,812	909,812	6/1/2020



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	SkyKick, Inc. Subtotal					1,704,289		1,666,661		1,666,661
	TAE Technologies, Inc.		Senior Secured	12.5%		2,327,066		2,288,844		2,288,844		4/1/2021
	TAE Technologies, Inc.		Senior Secured	12.5%		9,019,608		8,689,345		8,689,345		3/1/2021
	TAE Technologies, Inc. Subtotal					11,346,674		10,978,189		10,978,189
	Theatro Labs, Inc.		Senior Secured	11.0%		238,897		237,912		237,912		3/1/2019
	VentureBeat, Inc.		Senior Secured	12.0%		825,775		706,637		287,194		*
	Virtuix Holdings, Inc.		Senior Secured	11.0%		493,447		480,680		480,680		7/1/2020
	Wine Plum, Inc.		Senior Secured	11.0%		163,116		161,937		161,937		9/1/2019
	Wine Plum, Inc.		Senior Secured	11.0%		163,078		162,089		162,089		9/1/2019
	Wine Plum, Inc.		Senior Secured	11.0%		325,940		321,469		321,469		9/1/2019
	Wine Plum, Inc. Subtotal					652,134		645,495		645,495
Other Technology Total		68.3%				$	91,401,777	$	88,519,296	$	87,293,658

Security
	Guardian Analytics, Inc.		Senior Secured	11.5%		$	491,579	$	487,165	$	487,165	2/1/2019
	Nok Nok Labs, Inc.		Senior Secured	12.5%		524,603		470,577		470,577		12/1/2020
	ThinAir Labs, Inc.		Senior Secured	18.0%		1,128,607		1,105,396		—		*
Security Total		0.8%				$	2,144,789	$	2,063,138	$	957,742

Semiconductors and Equipment
	ETA Compute, Inc.		Senior Secured	10.3%		$	89,662	$	88,268	$	88,268	10/1/2019
	ETA Compute, Inc.		Senior Secured	10.5%		172,132		170,545		170,545		8/1/2020
Semiconductors and Equipment Total		0.2%				$	261,794	$	258,813	$	258,813

Software
	Apptimize, Inc.		Senior Secured	10.5%		$	55,593	$	55,467	$	55,467	3/1/2019
	Aptible, Inc.		Senior Secured	11.8%		201,258		196,606		196,606		2/1/2021
	Bloomboard, Inc.		Senior Secured	18.0%		2,017,197		2,001,360		751,755		*
	BlueCart, Inc.		Senior Secured	12.8%		107,832		106,891		106,891		1/1/2020
	BlueCart, Inc.		Senior Secured	12.5%		215,283		211,017		211,017		1/1/2020
	BlueCart, Inc. Subtotal					323,115		317,908		317,908
	DealPath, Inc.		Senior Secured	11.0%		1,415,432		1,378,303		1,378,303		5/1/2021
	DemystData Limited		Senior Secured	11.8%		329,961		325,960		325,960		7/1/2020
	DemystData Limited		Senior Secured	11.8%		596,110		569,404		569,404		5/1/2020
	DemystData Limited Subtotal					926,071		895,364		895,364
	Drift Marketplace, Inc.		Senior Secured	11.0%		99,217		96,154		96,154		3/1/2020
	Drift Marketplace, Inc.		Senior Secured	11.0%		99,469		98,666		98,666		3/1/2020



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal	Cost	Fair Value	Maturity Date
	Drift Marketplace, Inc.		Senior Secured	11.0%		132,298	131,274	131,274	3/1/2020
	Drift Marketplace, Inc. Subtotal					330,984	326,094	326,094
	Due, Inc.		Senior Secured	0%		1,350,000	101,519	—	*
	Estify, Inc.		Senior Secured	11.5%		842,819	825,560	825,560	11/1/2020
	FieldAware US, Inc.		Senior Secured	11.0%		7,429,570	7,392,583	7,392,583	8/1/2021
	Gearbox Software, LLC		Senior Secured	11.0%		1,566,288	1,555,056	1,555,056	11/1/2020
	Gearbox Software, LLC		Senior Secured	11.0%		2,162,999	2,044,974	2,044,974	9/1/2020
	Gearbox Software, LLC		Senior Secured	11.0%		2,257,770	2,241,559	2,241,559	3/1/2021
	Gearbox Software, LLC Subtotal					5,987,057	5,841,589	5,841,589
	GoFormz, Inc.		Senior Secured	12.0%		979,727	944,903	944,903	11/1/2020
	HealthPrize Technologies, LLC		Senior Secured	12.0%		107,920	105,559	105,559	12/1/2019
	Highfive Technologies, Inc.		Senior Secured	11.5%		3,956,592	3,823,051	3,823,051	10/1/2021
	IntelinAir, Inc.		Senior Secured	11.5%		27,659	26,308	26,308	6/1/2019
	IntelinAir, Inc.		Senior Secured	11.5%		27,660	27,660	27,660	6/1/2019
	IntelinAir, Inc. Subtotal					55,319	53,968	53,968
	Interset Software, Inc.** ^		Senior Secured	9.0%	4.5%	448,295	443,235	443,235	10/1/2019
	Interset Software, Inc.** ^		Senior Secured	9.0%	4.5%	551,146	538,064	538,064	10/1/2020
	Interset Software, Inc.** ^ Subtotal					999,441	981,299	981,299
	Invoice2Go, Inc.		Senior Secured	11.8%		628,200	597,161	597,161	6/1/2020
	Invoice2Go, Inc.		Senior Secured	11.8%		1,289,405	1,289,405	1,289,405	4/1/2021
	Invoice2Go, Inc.		Senior Secured	11.8%		1,503,796	1,459,544	1,459,544	4/1/2021
	Invoice2Go, Inc.		Senior Secured	11.8%		1,504,063	1,504,063	1,504,063	4/1/2021
	Invoice2Go, Inc. Subtotal					4,925,464	4,850,173	4,850,173
	JethroData, Inc.** ^		Senior Secured	11.0%		879,868	856,877	410,091	*
	Libre Wireless Technologies, Inc.		Senior Secured	12.0%		232,701	225,633	225,633	1/23/2019
	Metarail, Inc.		Senior Secured	12.0%		709,600	662,513	662,513	10/1/2021
	Metric Insights, Inc.		Senior Secured	11.0%		254,237	251,932	251,932	7/1/2019
	Mines.io, Inc.** ^		Senior Secured	12.0%		330,361	316,502	316,502	7/1/2020
	Mintigo, Inc.** ^		Senior Secured	10.0%		298,378	289,605	289,605	4/1/2020
	Mintigo, Inc.** ^		Senior Secured	10.0%		350,038	346,830	346,830	7/1/2020
	Mintigo, Inc.** ^		Senior Secured	10.0%		435,345	430,085	430,085	7/1/2021
	Mintigo, Inc.** ^ Subtotal					1,083,761	1,066,520	1,066,520
	Norse Networks, Inc.		Senior Secured	11.5%		3,500,000	3,445,429	—	*
	PowerInbox, Inc.** ^		Senior Secured	11.0%		234,838	230,952	230,952	6/1/2020
	Swrve, Inc.		Senior Secured	11.8%		1,941,569	1,768,745	1,768,745	11/1/2020



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	The/Studio Technologies, Inc.		Senior Secured	11.0%		469,694		445,810		445,810		6/1/2020
	Truss Technology Corporation		Senior Secured	2.2%		2,000,000		238,275		—		*
	Unmetric, Inc.		Senior Secured	11.5%		186,526		179,841		179,841		2/1/2020
	VenueNext, Inc.		Senior Secured	11.0%		891,554		853,816		853,816		5/1/2020
	Viewpost Holdings, LLC.		Senior Secured	11.5%		11,000,000		10,596,459		3,919,295		*
	Vuemix, Inc.		Senior Secured	11.3%		195,818		188,931		188,931		11/1/2020
	Workspot, Inc.		Senior Secured	12.0%		56,659		56,124		56,124		2/1/2019
	Xeeva, Inc.		Senior Secured	12.0%		1,599,279		1,584,229		1,584,229		7/1/2020
Software Total		32.0%				$	57,470,024	$	53,059,894	$	40,901,116

Technology Services
	AirHelp, Inc.		Senior Secured	10.0%		$	410,079	$	405,975	$	405,975	7/1/2020
	AirHelp, Inc.		Senior Secured	10.0%		469,819		464,081		464,081		10/1/2020
	AirHelp, Inc.		Senior Secured	10.0%		739,708		719,727		719,727		5/1/2020
	AirHelp, Inc. Subtotal					1,619,606		1,589,783		1,589,783
	Akademos, Inc.		Junior Secured	13.5%	1.5%	704,351		638,122		638,122		8/1/2020
	Blazent, Inc.		Senior Secured	12.0%		2,213,823		2,053,644		1,787,994		*
	Blue Technologies Limited** ^		Senior Secured	11.0%		674,934		660,668		660,668		4/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		991,416		980,731		980,731		3/1/2021
	Callisto Media, Inc.		Senior Secured	10.0%		991,359		982,309		982,309		12/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		991,300		983,910		983,910		9/1/2020
	Callisto Media, Inc.		Senior Secured	10.0%		2,478,096		2,448,577		2,448,577		6/1/2020
	Callisto Media, Inc. Subtotal					5,452,171		5,395,527		5,395,527
	Dolly, Inc.		Senior Secured	12.0%		659,639		641,672		345,572		12/1/2020
	Fluxx Labs		Senior Secured	11.8%		1,237,737		1,233,824		1,233,824		12/1/2019
	FSA Store, Inc.		Senior Secured	10.0%		1,733,072		1,662,701		1,662,701		12/1/2020
	PayJoy, Inc.**		Senior Secured	12.0%		37,420		37,045		37,045		4/1/2019
	PayJoy, Inc.**		Senior Secured	12.0%		73,378		73,026		73,026		8/1/2019
	PayJoy, Inc.**		Senior Secured	10.0%		991,020		941,035		941,035		8/1/2021
	PayJoy, Inc.** Subtotal					1,101,818		1,051,106		1,051,106
	Sixup PBC, Inc.**		Senior Secured	12.0%		138,941		137,308		137,308		6/1/2019
	TrueFacet, Inc.		Senior Secured	11.0%		207,942		205,781		124,495		3/1/2021
	TrueFacet, Inc.		Senior Secured	11.3%		228,041		225,453		136,397		6/1/2021
	TrueFacet, Inc.		Senior Secured	10.5%		475,650		465,480		281,611		8/1/2020
	TrueFacet, Inc. Subtotal					911,633		896,714		542,503
	Zeel Networks, Inc.		Senior Secured	11.0%		317,776		314,761		314,761		8/1/2020



Industry	Borrower	Percent of Net Assets (a)	Collateral	Interest Rate (b)	End of Term Payment (c)	Principal		Cost		Fair Value		Maturity Date
	Zeel Networks, Inc.		Senior Secured	11.0%		317,744		315,135		315,135		8/1/2020
	Zeel Networks, Inc.		Senior Secured	11.0%		635,468		620,548		620,548		8/1/2020
	Zeel Networks, Inc. Subtotal					1,270,988		1,250,444		1,250,444
Technology Services Total		12.8%				$	17,718,713	$	17,211,513	$	16,295,552

Wireless
	Juvo Mobile, Inc.**		Senior Secured	11.0%		$	163,085	$	159,967	$	159,967	9/1/2019
	Juvo Mobile, Inc.**		Senior Secured	11.0%		231,371		229,785		229,785		1/1/2020
	Juvo Mobile, Inc.**		Senior Secured	11.0%		248,067		246,012		246,012		2/1/2020
	Juvo Mobile, Inc.** Subtotal					642,523		635,764		635,764
	Nextivity, Inc.		Senior Secured	12.0%		1,272,655		1,272,655		1,272,655		6/1/2021
	Nextivity, Inc.		Senior Secured	12.0%		4,664,416		4,664,024		4,664,024		6/1/2021
	Nextivity, Inc. Subtotal					5,937,071		5,936,679		5,936,679
	Parallel Wireless, Inc.		Senior Secured	11.8%		1,130,176		1,118,659		1,118,659		10/1/2020
	Parallel Wireless, Inc.		Senior Secured	11.8%		1,973,157		1,937,081		1,937,081		4/1/2020
	Parallel Wireless, Inc. Subtotal					3,103,333		3,055,740		3,055,740
Wireless Total		7.5%				$	9,682,927	$	9,628,183	$	9,628,183
Grand Total		164.9%				$	243,779,625	$	233,935,818	$	210,722,764

* As of December 31, 2018, loans with a cost basis of $33.1 million and a fair value of $11.9 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”. As of December 31, 2018, 5.1% of the Fund’s total assets represented non-qualifying assets. Under Section 55 (a) of the 1940 Act, the Fund is prohibited from acquiring any additional non-qualifying assets unless, at the time of acquisition, certain specified qualifying assets (e.g., securities issued by an "eligible portfolio company," as defined in Section 2(a)(46)

represent at least 70% of the total assets at the time of acquisition of any additional non-qualifying assets. As part of this calculation, the numerator consists of the value of the Fund's investments in all eligible portfolio companies and the denominator consists of total assets less those assets described in Section 55(a)(7) of the 1940 Act.

^ Entity is not domiciled in the United States and does not have its principal place of business in the United States.

(b) The interest rate is the designated annual interest rate exclusive of any original issue discount, fees or end of term payment.

As of December 31, 2018, all loans were made to non-affiliates.

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Schedules of Open Swap Contract

As of December 31, 2019 and 2018



			AS OF DECEMBER 31, 2019
Description and terms of payments to be received from another party	Description and terms of payments to be paid to another party	Counterparty	Maturity Date (a)	Notional Amount		Value			Upfront payments/receipts		Unrealized appreciation/(depreciation) (b)
Cancellable Interest Rate Swap Agreement - Floating interest rate greater of USD-LIBOR-BBA	Fixed interest rate 1.900%, to be paid monthly	MUFG Union Bank, N.A.	12/1/2020	$	25,927,448	$	(22,136	)	$	—	$	(22,136	)
Total				$	25,927,448	$	(22,136	)	$	—	$	(22,136	)



			AS OF DECEMBER 31, 2018
Description and terms of payments to be received from another party	Description and terms of payments to be paid to another party	Counterparty	Maturity Date (a)	Notional Amount		Value		Upfront payments/receipts		Unrealized appreciation/(depreciation) (b)
Cancellable Interest Rate Swap Agreement - Floating interest rate greater of USD-LIBOR-BBA	Fixed interest rate 1.900%, to be paid monthly	MUFG Union Bank, N.A.	12/1/2020	$	67,172,468	$	352,121	$	—	$	352,121
Total				$	67,172,468	$	352,121	$	—	$	352,121

(a) The cancellable interest rate swap agreement includes an option for the Fund to terminate the swap early on June 1, 2020.

(b) The unrealized appreciation/depreciation was determined using prices or valuation based on observable inputs other than quoted price in active markets for identical assets and liabilities. See "Note 3. Fair Value Disclosures" for more information.

See notes to financial statements.

VENTURE LENDING & LEASING VII, INC.

Notes to Financial Statements

1. ORGANIZATION AND OPERATIONS OF THE FUND

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“U.S. 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. As an investment company, the Fund follows accounting and reporting guidance as set forth in Topic 946 (“Financial Services – Investment Companies”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”). 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 money market mutual funds with maturities of 90 days or less. Money market mutual funds held as cash equivalents are valued at their most recently traded net asset value. Within cash and cash equivalents, as of December 31, 2019, the Fund held 354,105 units in the Blackrock Treasury Trust Institutional Fund valued at $1 per unit at a yield of 1.6%, which represented 0.5% 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 resulting from the amortization of equity securities included as additional compensation as part of the loan agreements. Additionally, fees received as part of the transaction are added to the loan discount and amortized over the life of the loan.

Realized Gains and Losses from Loans

Realized gains and losses on the sale of loans are computed using the difference between the amortized cost and the sales proceed. Realized losses on loan write-offs are recognized when management determines a loan is uncollectible.

Investment Valuation

The Fund accounts for loans at fair value in accordance with the valuation methods below. All valuations are determined under the direction of the Manager, in accordance with the valuation methods.

As of December 31, 2019 and 2018, the financial statements include nonmarketable investments of $86.0 million and $210.7 million, respectively, (or 98.2% and 97.1% of the total assets, respectively), with the 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 in its 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 the 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, 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 payment, 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 December 31, 2019 and 2018, loans with a cost basis of $33.5 million and $33.1 million and a fair value of $15.6 million and $11.9 million were classified as non-accrual, respectively.

Warrants and Equity Securities

Warrants and equity securities received in connection with loan transactions are measured at a 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 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 of time approximating the expected life of the warrants. A hypothetical increase in the volatility of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.

The remaining expected lives of warrants are based on historical experience of the average life of the warrants, as warrants are often exercised in the event of acquisitions, mergers, or initial public offerings, and terminated due to events such as bankruptcies, restructuring activities, or additional financings. These events cause the expected term to be less than the remaining contractual term of the warrants. As of December 31, 2019 and 2018 the Fund assumed the average duration of warrant is 4.0 years and 3.5 years, respectively. 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. However, the estimated initial term of the warrants is one factor, of many, used in the valuation of warrants, and by itself does not have a significant impact on the result of operations.

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. The costs are amortized over the term of the facility.

The fair values of other assets and accrued liabilities are estimated at their carrying values because of the short-term nature of these assets and liabilities.

The carrying values of the borrowings under the debt facility approximates their fair value based on the borrowing rates available to the Fund.

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 Statements of Assets and Liabilities and are being amortized over the estimated life of the facility, which currently matures on October 30, 2020. The amortization of these costs is recorded as Interest expense in the Statements of Operations.

Interest Rate Cap Agreement

The Fund had entered into an interest rate cap agreement which was primarily valued on the basis of the future expected interest rates on the remaining notional principal balance (see Note 8). 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 Fund is a party to a master netting arrangement with MUFG Union Bank, N.A., however, the Fund has elected not to offset assets and liabilities under these arrangements for financial statement presentation purposes. The contract was recorded at gross fair value in either Derivative asset -interest cap or Derivative Liability - interest rate cap in the Statements of Assets and Liabilities, depending on whether the value of the contract is in favor of the Fund or the counterparty. Subsequent changes in fair value were recorded in the Net change in unrealized gain (loss) from derivative instruments in the Statements of Operations and the monthly or quarterly interest received on the interest rate cap contracts, if any, were recorded in Net realized gain (loss) from derivative instruments in the Statements of Operations. The interest rate cap agreement expired in November 2017.

Cancellable Interest Rate Swap Agreement

The Fund has entered into a cancellable interest rate swap agreement to manage the Fund's exposure to change in interest rates on its expected borrowings under its debt facility, as the Fund originates fixed rate loans (see Note 9). Cancellable interest rate swaps are primarily valued on the basis of quotes obtained from banks, 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 Fund is a party to a master netting arrangement with MUFG Union Bank, N.A., however, the Fund has elected not to offset assets and liabilities under these arrangements for financial statement presentation purposes. The contract is recorded at gross fair value in either Derivative asset - interest rate swap or Derivative liability - interest rate swap in the 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 change in unrealized gain (loss) from derivative instruments in the Statements of Operations and the quarterly interest received or paid on the interest rate swap contract, if any, is recorded in Net realized gain (loss) from derivative instruments in the Statements of Operations. The interest rate swap agreement is contractually scheduled to terminate on December 1, 2020. The Fund has the option to terminate the swap early on June 1, 2020.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU modifies the disclosure requirement on fair value measurements in Topic 820, Fair Value Measurement, by eliminating, modifying, and adding to those requirements. ASU 2018-13 also modifies the disclosure objective paragraphs of Topic 820 to eliminate (1) “at a minimum” from the phrase “an entity shall disclose at a minimum” and (2) other similar “open ended” disclosure requirements to promote appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. The Fund elected to adopt the amendments of ASU 2018-13 during the fiscal year ended December 31, 2019. ASU 2018-13 did not have a material impact on the Fund’s financial statements.

In July 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-07, “Codification Updates to SEC Sections-Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update).” The ASU amends various paragraphs pursuant to the issuance of the Securities Exchange and Commission (“SEC”) Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. One of the disclosure amendments required the Funds to comply to a standardized, enhanced disclosure about derivatives. ASU 2019-07 is effective upon issuance. The Fund elected to adopt the specified amendment within ASU 2019-07 during the quarter ended September 30, 2019 on a prospective basis. ASU 2019-07 did not have a material impact on the Fund’s financial statements.

3. FAIR VALUE DISCLOSURES

The Fund provides asset-based financing primarily to start-up and emerging growth Venture-Backed Companies 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 December 31, 2019 and 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 in the Schedules of Investments. All loans are senior to unsecured creditors and other secured creditors, unless as indicated in the Schedules of Investments.

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 Schedules of Investments are listed 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 has a different maturity date and amount.

For the years ended December 31, 2019 and 2018, the weighted-average interest rate on performing loans was 17.76% and 17.61%, respectively, which was inclusive of both cash and non-cash interest income. For the same periods, the weighted-average interest rate on the cash portion of the interest income was 15.39% and 14.38%, respectively.

For the years ended December 31, 2019 and 2018, the weighted-average interest rate on all loans was 16.00% and 17.06%, respectively, which was inclusive of both cash and non-cash interest income. For the same periods, the weighted-average interest rate on the cash portion of the interest income was 13.90% and 13.96%, 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 year.

The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and loan as discussed in the Fund’s loan accounting policy. Such changes result in the fair value adjustments made to the individual loans, which in accordance with U.S. 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 cost basis of the loan often approximates fair value.

All loans as of December 31, 2019 and 2018 were pledged as collateral for the debt facility, and the Fund’s borrowings are generally collateralized by all assets of the Fund. As of December 31, 2019 and 2018, the Fund had no unexpired unfunded commitments to borrowers.

Valuation Hierarchy

Under the FASB ASC Topic 820 (“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 or 3 during the years ended December 31, 2019 and 2018.

The Fund’s cash equivalents were valued at the traded net asset value of the money market fund. As a result, 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, are classified as Level 2. The Fund’s borrowings under the debt facility are also classified as Level 2, because the carrying values of the borrowings approximate fair value 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 little to 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 the Fund’s investments by industry as of December 31, 2019 and 2018. 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 Values at December 31, 2019		Valuation Techniques / Methodologies	Unobservable Inputs	Weighted-Averages^(a) Amounts and Ranges

Computers and Storage	$	703,241	Hypothetical market analysis	Hypothetical market coupon rate	31% (14%-38%)

Internet	5,317,131		Hypothetical market analysis	Hypothetical market coupon rate	14% (13%-17%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,570,447 ($0 - $2,124,565) 1% (0% - 3%)

Medical Devices	610,110		Hypothetical market analysis	Hypothetical market coupon rate	13%
			Income approach	Expected amount and timing of cash flow payments Discount rate	$0 0%

Other Healthcare	25,125,017		Hypothetical market analysis	Hypothetical market coupon rate	14% (12%-16%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,130,989 ($0 - $1,130,989) 3% (0% - 3%)

Other Technology	21,728,645		Hypothetical market analysis	Hypothetical market coupon rate	14% (12%-19%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,746,842 ($0 - $2,787,929) 3% (0% - 3%)

Security	262,884		Hypothetical market analysis	Hypothetical market coupon rate	24%*

Semiconductors and Equipment	72,179		Hypothetical market analysis	Hypothetical market coupon rate	12%*

Software	20,827,566		Hypothetical market analysis	Hypothetical market coupon rate	15% (13%-23%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$5,224,576 ($0 - $7,616,116) 3% (0% - 3%)

Technology Services	6,427,721		Hypothetical market analysis	Hypothetical market coupon rate	13% (11%-26%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,667,641 ($100,000 - $1,682,635) 2% (2% - 2%)

Wireless	4,890,496		Hypothetical market analysis	Hypothetical market coupon rate	12% (12% - 14%)

Total Debt Investments	$	85,964,990

(a) The weighted average hypothetical market coupon rates were calculated using the relative fair value of the loans.

* There is only one loan within the industry.



Investment Type - Level 3 ^(b)
Debt Investments	Fair Values at December 31, 2018		Valuation Techniques / Methodologies	Unobservable Inputs	Weighted-Averages^(a) Amounts and Ranges

Biotechnology	$	179,524	Hypothetical market analysis	Hypothetical market coupon rate	15%*

Computers and Storage	2,848,813		Hypothetical market analysis	Hypothetical market coupon rate	21% (14% - 38%)

Internet	19,396,858		Hypothetical market analysis	Hypothetical market coupon rate	14% (13% - 20%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$6,958,846 ($0 - $9,329,138) 3% (0% - 4%)

Medical Devices	1,548,521		Hypothetical market analysis	Hypothetical market coupon rate	14% (14% - 21%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$0 0%

Other Healthcare	31,413,984		Hypothetical market analysis	Hypothetical market coupon rate	14% (12% - 28%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$916,812 ($0 - $916,812) 4% (0% - 4%)

Other Technology	87,293,658		Hypothetical market analysis	Hypothetical market coupon rate	14% (12% - 24%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,519,598 ($0 - $2,787,929) 3% (0% - 4%)

Security	957,742		Hypothetical market analysis	Hypothetical market coupon rate	21% (19% - 24%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$0 0%

Semiconductors and Equipment	258,813		Hypothetical market analysis	Hypothetical market coupon rate	12%

Software	40,901,116		Hypothetical market analysis	Hypothetical market coupon rate	15% (12% - 23%)
			Income approach	Expected amount and timing of cash flow payments Discount rate	$8,291,313 ($0 - $8,994,902) 3% (0% - 4%)

Technology Services	16,295,552		Hypothetical market analysis	Hypothetical market coupon rate	13% (11% - 26%)



Investment Type - Level 3 ^(b)
Debt Investments	Fair Values at December 31, 2018		Valuation Techniques / Methodologies	Unobservable Inputs	Weighted-Averages^(a) Amounts and Ranges
			Income approach	Expected amount and timing of cash flow payments Discount rate	$1,964,123 ($751,771 - $2,459,113) 4%

Wireless	9,628,183		Hypothetical market analysis	Hypothetical market coupon rate	13% (12% - 16%)

Total Debt Investments	$	210,722,764

(a) The weighted average hypothetical market coupon rates were calculated using the relative fair value of the loans.

(b) Certain prior period information has been disclosed to conform to current presentation.

* There is only one loan within the industry.

The following tables present the balances of assets and liabilities as of December 31, 2019 and 2018 measured at fair value on a recurring basis:



As of December 31, 2019
ASSETS:	Level 1		Level 2		Level 3		Total
Loans†	$	—	$	—	$	85,964,990	$	85,964,990
Derivative asset - interest rate swap	—		—		—		—
Cash equivalents	354,105		—		—		354,105
Total assets	$	354,105	$	—	$	85,964,990	$	86,319,095

LIABILITIES:	Level 1		Level 2		Level 3		Total
Borrowings under debt facility	$	—	$	15,400,000	$	—	$	15,400,000
Derivative liability - interest rate swap	—		22,136		—		$	22,136
Total liabilities	$	—	$	15,422,136	$	—	$	15,422,136



As of December 31, 2018
ASSETS:	Level 1		Level 2		Level 3		Total
Loans†	$	—	$	—	$	210,722,764	$	210,722,764
Derivative asset - interest rate swap	—		352,121		—		352,121
Cash equivalents	2,839,766		—		—		2,839,766
Total assets	$	2,839,766	$	352,121	$	210,722,764	$	213,914,651

LIABILITIES:	Level 1		Level 2		Level 3		Total
Borrowings under debt facility	$	—	$	87,500,000	$	—	$	87,500,000
Derivative liability - interest rate swap	—		—		—		$	—
Total liabilities	$	—	$	87,500,000	$	—	$	87,500,000

† For a detailed listing of borrowers comprising this amount, please refer to the 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 Year Ended December 31, 2019
	Loans			Warrants			Stock			Convertible Note
Beginning balance	$	210,722,764		$	—		$	—		$	—
Acquisitions and originations	—			215,989			455,286			4,310,753
Principal reductions and amortization of discounts	(116,147,548		)	—			—			—
Distributions to shareholder	—			(215,989		)	(455,286		)	(4,310,753		)
Net change in unrealized gain (loss) from loans	4,579,337			—			—			—
Net realized loss from loans	(13,189,563		)	—			—			—
Ending balance	$	85,964,990		$	—		$	—		$	—
Net change in unrealized loss from loans relating to loans still held at December 31, 2019	$	(2,077,084	)



	For the Year Ended December 31, 2018
	Loans			Warrants			Stock
Beginning balance	$	325,189,783		$	—		$	—
Acquisitions and originations	51,000,000			2,351,774			1,073,536
Principal reductions and amortization of discounts	(159,180,773		)	—			—
Distributions to shareholder	—			(2,351,774		)	(1,073,536		)
Net change in unrealized gain (loss) from loans	1,953,368			—			—
Net realized loss from loans	(8,239,614		)	—			—
Ending balance	$	210,722,764		$	—		$	—
Net change in unrealized loss from loans relating to loans still held at December 31, 2018	$	(4,049,435	)

4. 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 has no instruments that would be potential common shares; thus, reported basic and diluted earnings (loss) per share are the same.

5. CAPITAL STOCK

As of both December 31, 2019 and 2018, there were 10,000,000 shares of $0.001 par value common stock authorized, and 100,000 shares issued and outstanding. Total committed capital of the Company, as of both December 31, 2019 and 2018, was $375.0 million. Total contributed capital to the Company through December 31, 2019 and 2018 was both $375.0 million, of which $323.2 million and $322.6 million were contributed to the Fund, respectively.

The chart below shows the distributions of the Fund for the years ended December 31, 2019, 2018 and 2017.



	For the Year Ended		For the Year Ended		For the Year Ended
	December 31, 2019		December 31, 2018		December 31, 2017
Cash distributions	$	59,250,000	$	112,100,000	$	18,000,000
Distributions of equity securities and convertible notes	4,982,028		3,425,310		13,365,899
Total distributions to shareholder	$	64,232,028	$	115,525,310	$	31,365,899

6. DEBT FACILITY

On July 18, 2013, the Fund established a secured, syndicated revolving loan facility in an initial amount of up to $125.0 million led by Wells Fargo, N.A. and MUFG Union Bank, N.A. In November 2014, the borrowing availability thereunder was increased to $255.0 million. On October 30, 2017, the Fund entered into an agreement with Wells Fargo, N.A., Wells Fargo Securities, LLC, MUFG Union Bank, N.A. and ING Capital, LLC that (i) reduced the size of the facility to $200.0 million and (ii) amended the interest rate options and commitment fee (the “First Amendment”). 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 Loan or a LIBOR Market Index Rate Loan. The First Amendment facility terminates on October 30, 2020, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments.

At its option, the Fund may reduce the lenders’ commitments established in the First Amendment by $5.0 million or more once each calendar month. Beginning March 29, 2019, the lenders’ commitments automatically and permanently reduce each fiscal quarter by an amount equal to 12.5% of the aggregate amount of such commitments. As of December 31, 2019, the borrowing availability was $23.0 million.

Borrowings under the facility are collateralized by receivables from loans to portfolio companies advanced by the Fund with assignment of such receivables to the financial institution, plus all of the other assets of the Fund. The Fund pays interest on its borrowings and a fee on the unused portion of the facility. Such borrowings, pursuant to the election of the Fund, bear interest at an annual rate of either (i) Reference Rate plus 1.75%, (ii) LIBOR plus 2.75% or (iii) LIBOR Market Index Rate plus 2.75%. 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. As of December 31, 2019 and 2018, $15.4 million and $87.5 million, respectively, were outstanding under the facility.

As of December 31, 2019, the LIBOR rate was as follows:



1-Month LIBOR	1.7625%
3-Month LIBOR	1.9084%

Bank fees and other costs of $1.1 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. The amortization of bank fees and other costs from the prior facility of $2.7 million was completely amortized by November 2017. As of December 31, 2019, the unamortized fees and costs of $0.3 million are being amortized over the expected life of the facility, which is expected to terminate on October 30, 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 December 31, 2019 and 2018, Management believes that the Fund was in compliance with these covenants.

The following is the summary of the outstanding facility draws as of December 31, 2019:



	Amount		Maturity Date	All-In Interest Rate**
LIBOR Market Index Rate Loan	$	15,400,000	October 30, 2020	Variable based on 1-Month LIBOR rate
Total Outstanding	$	15,400,000

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

The following is the summary of the outstanding facility draws as of December 31, 2018:



	Amount		Maturity Date	All-In Interest Rate^††
LIBOR Loan	$	66,000,000	January 10, 2019	5.14%
LIBOR Market Index Rate Loan	21,500,000		October 30, 2020	Variable based on 1-Month LIBOR rate
Total Outstanding	$	87,500,000

^††Inclusive of 2.75% applicable LIBOR margin plus LIBOR rate.

7. MANAGEMENT AND RELATED PARTIES

Management

As compensation for its services to the Fund, for the two-year period that commenced with the first capital closing, which took place on December 18, 2012, 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 December 18, 2014, 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 $3.1 million, $7.0 million and $9.0 million were recognized as expenses for the years ended December 31, 2019, 2018 and 2017, respectively.

Related Parties

Certain officers and directors of the Fund also serve as officers and directors of the Manager. The Articles of Incorporation of the Fund provide for indemnification of directors, officers, employees and agents (including the Manager) of the Fund to the full extent permitted by applicable state law and the 1940 Act, including the advance of expenses and reasonable counsel fees. The Articles of Incorporation of the Fund also contain a provision eliminating personal liability of a Fund director or officer to the Fund or its shareholder for monetary damages for certain breaches of their duty of care. For this reason, the Fund has acquired a directors and officers insurance policy.

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

The Manager also serves as the investment manager for Fund VIII. The Fund’s Board of Directors determined that so long as Fund VIII has capital available to invest in loan transactions with final maturities earlier than December 31, 2025 (the date on which Fund VIII will be dissolved), the Fund would invest in each portfolio company in which Fund VIII invested (“Investments”). Generally, the amount of each Investment was allocated 50% to the Fund and 50% to Fund VIII, or such other allocations as were determined by the respective fund boards, so long as the Fund had capital available to invest. Effective June 30, 2017, the Fund was no longer permitted to enter new commitments to borrowers; however, the Fund was permitted to fund existing commitments, in which Fund VIII may also be invested. The Fund’s last commitment expired on July 31, 2018. The ability of the Fund to co-invest with Fund VIII, and other clients advised by the Manager, is subject to the conditions (“Conditions”) with which the Funds are currently complying while seeking certain exemptive relief 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 VIII, advised by the Manager (but in which the Manager has no proprietary interest) invest in opportunities available to the Fund, the Manager will allocate such opportunities among the Fund and such other clients in a manner deemed fair and equitable considering all of the circumstances in accordance with the Conditions.

Intercreditor Agreements

In all transactions in which the Fund and other funds managed by the Manager invest or those in which another lender(s) has either invested or may later invest, it is expected that the Fund and other funds managed by the Manager or the other lender(s) will enter into an intercreditor agreement pursuant to which the Fund and other funds managed by the Manager will cooperate, along with any predecessor funds which still have a balance outstanding, in pursuing their remedies following a default by the common borrower. Generally, under such intercreditor agreements, each party would agree that its security interest would be treated in parity with the security interest of the other party, regardless of which security interest would have priority under applicable law. Accordingly, proceeds realized from the sale of any collateral or the exercise of any other creditor’s rights will be allocated between the Fund and other funds managed by the Manager, and any predecessor funds as described above, pro rata in accordance with the amounts of their respective investments. An exception to the foregoing arrangement would occur in situations where, for example, one of the lenders financed specific items of equipment collateral; in that case, usually the lender who financed the specific assets will have a senior lien on that asset, and the other lenders will have a junior priority lien (even though they may ratably share liens of equal priority on other assets of the common borrower). As a result of such intercreditor agreements, the Fund may have less flexibility in pursuing its remedies following a default than it would have had had there been no intercreditor agreement, and the Fund may realize fewer proceeds. In addition, because the Fund and other funds managed by the Manager invest at the same time in the same borrower, such borrower would be required to service two loans rather than one. Any additional administrative costs or burdens resulting therefrom may make the Fund a less attractive lender and may make it more difficult for the Fund to acquire such loans.

8. INTEREST RATE CAP AGREEMENT

The Fund had entered into an interest rate cap agreement with MUFG Union Bank, N.A. to cap floating interest rates at 0.7%. 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. The Fund adjusted the notional principal amount through the addition of contracts as the outstanding balance under the debt facility increased. On November 7, 2017, the five interest rate contracts expired and were not renewed. As of December 31, 2019 and 2018, the Fund had no interest rate cap contracts. Because the caps expired in November 2017, there was no average notional amount outstanding for the years ended December 31, 2019 and 2018.

The Fund paid initial costs of $3.2 million for the cap agreement, which were completely amortized by November 2017 on a straight-line basis. The Fund also received from the counterparty payments of interest amounts above the 0.7% cap based on the 3-Month LIBOR rate.

For the years ended December 31, 2019, 2018 and 2017, the interest rate caps had the following effect on the Fund’s Statements of Operations:



Derivative	Location on Statements of Operations	For the Year Ended December 31, 2019		For the Year Ended December 31, 2018		For the Year Ended December 31, 2017
Interest rate cap agreement	Net realized gain (loss) from derivative instruments	$	—	$	—	$	683,483
Interest rate cap agreement	Net change in unrealized gain (loss) from derivative instruments	$	—	$	—	$	219,666

9. INTEREST RATE SWAP AGREEMENT

On November 21, 2017, the Fund entered into a cancellable interest rate swap transaction with MUFG Union Bank, N.A. The Fund has entered into a cancellable interest rate swap agreement to manage the Fund's exposure to change in interest rates on its expected borrowings under its debt facility, as the Fund originates fixed loans. The Fund may adjust the notional principal amount in order to remain in compliance with the hedging requirements the Fund's debt facility. As of December 31, 2019, the notional principal amount was $25.9 million.

As of December 31, 2019 and 2018, the fair value of the Fund’s interest rate swap were as follows:

December 31, 2019

December 31, 2018

Derivative

Location on Statements of Assets and Liabilities

Fair Value

Location on Statements of Assets and Liabilities

Fair Value

Interest rate swap agreement

Derivative liability - interest rate swap

22,136

Derivative asset - interest rate swap

352,121

The Fund pays a fixed rate of 1.90% and received from the counterparty a floating rate based upon a 1-Month LIBOR rate. Payments are made monthly and is expected to terminate on December 1, 2020. The agreement includes an option for the Fund to terminate the swap early on June 1, 2020. Payments to or from the counterparty are recorded to Net realized gain (loss) from derivative instruments. As of December 31, 2019, the 1-Month LIBOR rate was 1.7625% .

For the years ended December 31, 2019, 2018 and 2017, the interest rate swap had the following effect on the Fund’s Statements of Operations:



Derivative	Location on Statements of Operations	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018			For the Year Ended December 31, 2017
Interest rate swap agreement	Net realized gain (loss) from derivative instruments	$	185,027		$	(30,158	)	$	(17,457	)
Interest rate swap agreement	Net change in unrealized gain (loss) from derivative instruments	$	(374,257	)	$	352,720		$	(599	)

10. TAX STATUS

The Fund has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986 (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs. Failing to maintain at least 70% of total assets in “qualifying assets” will result in the loss of BDC status, resulting in losing its favorable tax treatment as a RIC. As of December 31, 2019, the Fund has met the BDC and RIC requirements. The Fund elected to be treated for federal income tax purposes as a RIC under the Code with the filing of its federal corporate income tax return for 2013.

In order to qualify for favorable tax treatment as a RIC, the Fund is required to distribute annually to its 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 its shareholder. The Fund will accrue excise tax on estimated undistributed taxable income as required.

Below are tables summarizing the cost of investments for federal income tax purposes and the appreciation and depreciation of the investments reported on the Schedules of Investments and Statements of Assets and Liabilities.

As of December 31, 2019:



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)
Loans	$	104,598,706	$	—	$	(18,633,716	)	$	(18,633,716	)
Total	$	104,598,706	$	—	$	(18,633,716	)	$	(18,633,716	)

Derivative, liabilities	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)
Derivative liability - interest rate swap	$	—	$	—	$	(22,136	)	$	(22,136	)
Total	$	—	$	—	$	(22,136	)	$	(22,136	)

As of December 31, 2018:



Asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)
Loans	$	233,935,818	$	—	$	(23,213,054	)	$	(23,213,054	)
Total	$	233,935,818	$	—	$	(23,213,054	)	$	(23,213,054	)

Derivative, asset	Cost		Unrealized Appreciation		Unrealized Depreciation			Net Appreciation (Depreciation)
Derivative asset - interest rate swap	$	—	$	352,121	$	—		$	352,121
Total	$	—	$	352,121	$	—		$	352,121

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 U.S. 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. As of December 31, 2019 and 2018, there were no book reclassification of dividends and distributions, and other permanent book and tax differences, 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 U.S. GAAP. For income tax purposes, the distributions paid to the Parent are reported as ordinary income, return of capital, or a combination thereof. As of December 31, 2019, the tax character of distributions paid was ordinary income in the amount of $2.9million and return of capital of $61.3 million. As of December 31, 2018, the tax character of distributions paid was ordinary income in the amount of $26.7 million and return of capital of $88.8 million.

As of December 31, 2019 and 2018, the components of distributable losses on a tax basis were as follows:



	December 31, 2019			December 31, 2018
Accumulated capital gains (losses)	$	(52,596,165	)	$	(39,591,629	)
Other temporary differences	(489,266		)	(503,833		)
Distributions in excess of net investment income	$	(180,235,695	)	$	(131,890,183	)
Net unrealized depreciation	(18,655,854		)	(22,860,932		)
Components of distributable losses	$	(251,976,980	)	$	(194,846,577	)

As of December 31, 2019, the Fund had no undistributed earnings. The Fund may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the shareholder’s tax basis in its shares.

The Fund’s tax returns remain open for examination by the federal government for a period of three years and California tax authorities for a period of four years from when they are filed. As of December 31, 2019, the Fund had no uncertain tax positions and no capital loss carryforwards.

11. FINANCIAL HIGHLIGHTS

U.S. GAAP requires disclosure of financial highlights of the Fund for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

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 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 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 was calculated based upon the aggregate weighted average net assets of the Fund for the periods presented.

The financial highlights presented below are for the years ended December 31, 2019, 2018, 2017, 2016 and 2015:



	For the Year Ended December 31, 2019			For the Year Ended December 31, 2018			For the Year Ended December 31, 2017			For the Year Ended December 31, 2016			For the Year Ended December 31, 2015

Total return	6.07		%	18.46		%	8.37		%	12.50		%	16.75		%

Per share amounts:
Net asset value, beginning of year	$	1,277.98		$	2,126.56		$	1,835.22		$	2,104.91		$	1,634.96
Net investment income	159.01			350.10			343.80			431.36			435.10
Net realized and change in unrealized loss from loans and derivative instruments	(87.99		)	(59.62		)	(183.80		)	(211.91		)	(118.21		)
Net increase in net assets resulting from operations	71.02			290.48			160.00			219.45			316.89
Distributions to shareholder	(642.32		)	(1,155.26		)	(313.66		)	(745.14		)	(481.94		)
Contributions from shareholder	6.00			16.20			445.00			256.00			635.00
Net asset value, end of year	$	712.68		$	1,277.98		$	2,126.56		$	1,835.22		$	2,104.91

Net assets, end of year	$	71,268,020		$	127,798,423		$	212,657,017		$	183,522,710		$	210,491,312

Ratios to average net assets:
Expenses	6.90		%	7.95		%	8.80		%	9.05		%	8.42		%
Net investment income	16.61		%	19.88		%	17.07		%	22.80		%	21.17		%
Portfolio turn-over rate	1.21		%	0.06		%	—		%	0.11		%	0.08		%
Average debt outstanding	$	47,526,154		$	117,384,615		$	146,307,692		$	160,923,077		$	160,615,385

12. SUBSEQUENT EVENTS

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

Venture Lending & Leasing VII, Inc. - FORM 10-K - March 16, 2020

Attached files

Venture Lending & Leasing VII, Inc. Reports