Selected Financial Data. Item 7. Item 8. Financial Statements and Supplemental Data. Item 9. Item 9A. Controls and Procedures. Item 9B. Other Information. Item Directors, Executive Officers, and Corporate Governance. Executive Compensation. Principal Accountant Fees and Services. Exhibits and Financial Statements Schedules.
This report, and other statements that we may make, may contain forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this Annual Report on Form K involve risks and uncertainties, including forward-looking statements as to:.
Unpredictable or unknown factors could also have material adverse effects on us. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by the forward-looking statements will occur, or, if any of them do, what impact they will have on our results of operations and financial condition.
All forward-looking statements included in this Annual Report on Form K are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the risk factors contained in this Annual Report on Form K, whether as a result of new information, future events or otherwise, except as may be required under the federal securities laws.
Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC.
As such, we are required to comply with certain regulatory requirements. The reorganization was completed on April 15, and we commenced operations on April 18, Our investment objective is to seek long-term growth of capital, principally by seeking capital gains on our equity and equity-related investments.
There can be no assurance that we will achieve our investment objective. Under normal circumstances, we invest at least 80 percent of our total assets for investment purposes in technology companies. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics.
While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies as defined above.
We acquire our investments through direct investments in private companies, negotiations with selling shareholders, and in organized secondary marketplaces for private securities. While our primary focus is to invest in illiquid private technology and cleantech companies, we may also invest in micro-cap publicly traded companies. These other investments may include investments in securities of public companies that are actively traded. These other investments may also include investments in high-yield bonds, distressed debt, or securities of public companies that are actively traded; and securities of companies located outside of the United States.
Our investment activities are managed by FCM. Neither our investments nor an investment in us are intended to constitute a balanced investment program. We expect to be risk-seeking rather than risk-averse in our investment approach. There is no assurance that our investment objective will be achieved.
We invest a substantial portion of our assets in securities that we consider to be private venture capital equity investments. These private venture capital equity investments usually do not pay interest or dividends and usually are subject to legal or contractual restrictions on resale that may adversely affect the liquidity and marketability of such securities.
We expect to make speculative venture capital investments with limited marketability and a greater risk of investment loss than less-speculative investments. Subject to continuing to meet the compliance tests applicable to BDCs, there are no limitations on the types of securities or other assets in which we may invest.
Investments may include the following:. Venture capital investments, whether in corporate, partnership, or other form, including development-stage or start-up entities;. Equity, equity-related securities including options and warrants , and debt with equity features from either private or public issuers;. Debt obligations of all types having varying terms with respect to security or credit support, subordination, purchase price, interest payments, and maturity;.
Foreign securities;. Intellectual property or patents or research and development in technology or product development that may lead to patents or other marketable technology; and. Miscellaneous investments. The table below provides a summary of our investments as of December 31, AliphCom, Inc.
Consumer Electronics. Cloudera, Inc. EQX Capital, Inc. Equipment Leasing. Hera Systems, Inc. Hightail, Inc. Cloud Computing. Intevac, Inc. Other Electronics. IntraOp Medical Corp. Medical Devices. Exchange-Traded Fund. Nutanix, Inc. Phunware, Inc. Mobile Computing.
Pivotal Systems Corp. Semiconductor Equipment. Pure Storage, Inc. Computer Storage. QMAT, Inc. Advanced Materials. QuickLogic Corp. Roku, Inc. Rorus, Inc. Water Purification. Silicon Genesis Corp. Intellectual Property. Sunrun, Inc. Renewable Energy. Telepathy Investors, Inc. Turn Inc. Advertising Technology. UCT Coatings, Inc. Vufine, Inc. Wrightspeed, Inc. Fair value for our private company holdings was determined in good faith by our board of directors on December 31, For public companies, the figure represents the market value of our securities on December 31, , less any discount due to resale restriction on the security.
Public company. The following is a summary description of the types of assets in which we may invest, the investment strategies we may use, and the attendant risks associated with our investments and strategies. We define venture capital as the money and resources made available to privately held start-up firms and privately held and publicly traded small businesses with exceptional growth potential. These businesses can range in stage from pre-revenue to generating positive cash flow.
Most of our long-term venture capital investments are in thinly capitalized, unproven, small companies focused on commercializing risky technologies. These businesses also tend to lack management depth, have limited or no history of operations, and have not attained profitability. Some of our venture capital investments will never realize their potential, and some will be unprofitable or result in the complete loss of our investment.
Our current focus is on investing in late-stage private companies, particularly those with potential for near-term realizations by way of IPO or acquisition. In connection with our venture capital investments, we may participate in providing a variety of services to our portfolio companies, including the following:. Recruiting management,. Formulating operating strategies,.
Formulating intellectual property strategies,. Assisting in financial planning,. Providing management in the initial start-up stages, and. Establishing corporate goals. We may assist in raising additional capital for these companies from other potential investors and may subordinate our own investment to that of other investors. We typically find it necessary or appropriate to provide additional capital of our own. We may introduce these companies to potential joint venture partners, suppliers, and customers.
In addition, we may assist in establishing relationships with investment bankers and other professionals. We do not currently derive income from these companies for the performance of any of the above services. We may control, be represented on, or have observer rights on the Board of Directors of a portfolio company through one or more of our officers or directors, who may also serve as officers of the portfolio company. We indemnify our officers and directors for serving on the Boards of Directors or as officers of portfolio companies, which exposes us to additional risks.
Particularly during the early stages of an investment, we may, in rare instances, in effect be conducting the operations of the portfolio company. Our goal is to assist each company in establishing its own independent capitalization, management, and Board of Directors. We may invest in equity, equity-related securities, and debt with equity features.
These securities include common stock, preferred stock, debt instruments convertible into common or preferred stock, limited partnership interests, other beneficial ownership interests and warrants, options, or other rights to acquire any of the foregoing. We may make investments in companies with operating histories that are unprofitable or marginally profitable, that have negative net worth, or that are involved in bankruptcy or reorganization proceedings.
These investments would involve businesses that management believes have potential through the infusion of additional capital and management assistance. In addition, we may make investments in connection with the acquisition or divestiture of companies or divisions of companies.
There is a significantly greater risk of loss with these types of securities than is the case with traditional investment securities. Warrants, options, and convertible or exchangeable securities generally give the investor the right to acquire specified equity securities of an issuer at a specified price during a specified period or on a specified date. Warrants and options fluctuate in value in relation to the value of the underlying security and the remaining life of the warrant or option, while convertible or exchangeable securities fluctuate in value both in relation to the intrinsic value of the security without the conversion or exchange feature and in relation to the value of the conversion or exchange feature, which is like a warrant or an option.
When we invest in these securities, we incur the risk that the option feature will expire worthless, thereby either eliminating or diminishing the value of our investment. Most of our current portfolio company investments are in the equity securities of private companies. Investments in equity securities of private companies often involve securities that are restricted as to sale and cannot be sold in the open market without registration under the Securities Act of or pursuant to a specific exemption from these registrations.
Even if one of our portfolio companies completes an IPO, we are typically subject to a lock-up agreement for days, and the stock price may decline substantially before we are free to sell. We may also invest in publicly traded securities of whatever nature, including relatively small, emerging growth companies that management believes have long-term growth potential. Securities purchased in PIPE transactions are typically subject to a lock-up agreement for days, or are issued as unregistered securities that are not freely available for six months.
Even if we have registration rights to make our investments in privately held and publicly traded companies more marketable, a considerable amount of time may elapse between a decision to sell or register the securities for sale and the time when we are able to sell the securities. The prices obtainable upon sale may be adversely affected by market conditions or negative conditions affecting the issuer during the intervening time. We may elect to hold formerly restricted securities after they have become freely marketable, either because they remain relatively illiquid or because we believe that they may appreciate in value, during which holding period they may decline in value and be especially volatile as unseasoned securities.
If we need funds for investment or working capital purposes, we might need to sell marketable securities at disadvantageous times or prices. We may hold debt securities, including in privately held and thinly traded public companies, for income and as a reserve pending more speculative investments. Debt obligations may include U. These obligations may have varying terms with respect to security or credit support; subordination; purchase price; interest payments; and maturity from private, public, or governmental issuers of any type located anywhere in the world.
We may invest in debt obligations of companies with operating histories that are unprofitable or marginally profitable, that have negative net worth or are involved in bankruptcy or reorganization proceedings, or that are start-up or development-stage entities. In addition, we may participate in the acquisition or divestiture of companies or divisions of companies through issuance or receipt of debt obligations. As of December 31, , the debt obligations held in our portfolio consisted of convertible bridge notes and term notes.
The convertible bridge notes generally do not generate cash payments to us, nor are they held for that purpose. Our convertible bridge notes and the interest accrued thereon are held for the purpose of potential conversion into equity at a future date. The term notes we hold are income generating. Our investments in debt obligations may be of varying quality, including non-rated, unsecured, highly speculative debt investments with limited marketability. Generally, lower-rated securities offer a higher return potential than higher-rated securities, but involve greater volatility of price and greater risk of loss of income and principal, including the possibility of default or bankruptcy of the issuers of these securities.
The occurrence of adverse conditions and uncertainties to issuers of lower-rated securities would likely reduce the value of lower-rated securities held by us, with a commensurate effect on the value of our shares. The markets in which lower-rated securities or comparable non-rated securities are traded generally are more limited than those in which higher-rated securities are traded. The existence of limited markets for these securities may restrict our ability to obtain accurate market quotations for the purposes of valuing lower-rated or non-rated securities and calculating net asset value or to sell securities at their fair value.
The market values of lower-rated and non-rated securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, lower-rated securities and comparable non-rated securities generally present a higher degree of credit risk.
Issuers of lower-rated securities and comparable non-rated securities are often highly leveraged and may not have more traditional methods of financing available to them, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss owing to default by these issuers is significantly greater because lower-rated securities and comparable non-rated securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness.
We may incur additional expenses to the extent that we are required to seek recovery upon a default in the payment of principal or interest on our portfolio holdings. The market value of investments in debt securities that carry no equity participation usually reflects yields generally available on securities of similar quality and type at the time purchased. When interest rates decline, the market value of a debt portfolio already invested at higher yields can be expected to rise if the securities are protected against early call.
Similarly, when interest rates increase, the market value of a debt portfolio already invested at lower yields can be expected to decline. Deterioration in credit quality also generally causes a decline in market value of the security, while an improvement in credit quality generally leads to increased value. We may make investments in securities of issuers whose principal operations are conducted outside the United States, and whose earnings and securities are stated in foreign currency.
In order to maintain our status as a BDC, our investments in non-qualifying assets, including the securities of companies organized outside the U. Compared to otherwise comparable investments in securities of U. The value of these investments to us will vary with the relation of the currency in which they are denominated to the U. Investments in foreign securities also involve risks relating to economic and political developments, including nationalization, expropriation of assets, currency exchange freezes, and local recession.
Securities of many foreign issuers are less liquid and more volatile than those of comparable U. Interest and dividend income and capital gains on our foreign securities may be subject to withholding and other taxes that may not be recoverable by us. We may seek to hedge all or part of the currency risk of our investments in foreign securities through the use of futures, options, and forward currency purchases or sales.
We believe there is a role for organizations that can assist in technology transfer. Scientists and institutions that develop and patent intellectual property perceive the need for and rewards of entrepreneurial commercialization of their inventions. Our form of investment may be:. Funding research and development in the development of a technology,.
Obtaining licensing rights to intellectual property or patents,. Acquiring intellectual property or patents, or. Forming and funding companies or joint ventures to commercialize further intellectual property. Income from our investments in intellectual property or its development may take the form of participation in licensing or royalty income, fee income, or some other form of remuneration. In order to satisfy RIC requirements, these investments will normally be held in an entity taxable as a corporation.
Investment in developmental intellectual property rights involves a high degree of risk that can result in the loss of our entire investment as well as additional risks, including uncertainties as to the valuation of an investment and potential difficulty in liquidating an investment. Further, investments in intellectual property generally require investor patience, as investment return may be realized only after or over a long period.
Our shareholders do not have the right to compel us to redeem our shares. We may, however, purchase outstanding shares of our common stock from time to time, subject to approval of our Board of Directors and in compliance with applicable corporate and securities laws. The Board of Directors may authorize public open-market purchases or privately negotiated transactions from time to time when deemed to be in the best interest of our shareholders.
Public purchases would be conducted only after notification to shareholders through a press release or other means. The Board of Directors may or may not decide to undertake any purchases of our common stock. Our repurchases of our common shares would decrease our total assets and would therefore likely have the effect of increasing our expense ratio. Subject to our investment restrictions, we may borrow money to finance the repurchase of our common stock in the open market pursuant to any tender offer.
If, because of market fluctuations or other reasons, the value of our assets falls below the required Act coverage requirements, we may have to reduce our borrowed debt to the extent necessary to comply with the requirement. To achieve a reduction, it is possible that we may be required to sell portfolio securities at inopportune times when it may be disadvantageous to do so.
Changes with respect to portfolio companies will be made as our management considers necessary in seeking to achieve our investment objective. The rate of portfolio turnover will not be treated as a limiting or relevant factor when circumstances exist that are considered by management to make portfolio changes advisable. Although we expect that many of our investments will be relatively long term in nature, we may make changes in particular portfolio holdings whenever it is considered that an investment no longer has substantial growth potential or has reached its anticipated level of performance, or especially when cash is not otherwise available that another investment appears to have a relatively greater opportunity for capital appreciation.
We may also make general portfolio changes to increase our cash to position us in a defensive posture. We may make portfolio changes without regard to the length of time we have held an investment, or whether a sale results in profit or loss, or whether a purchase results in the reacquisition of an investment that we may have only recently sold. Our investments in privately held companies are illiquid, which limits portfolio turnover.
The portfolio turnover rate may vary greatly during a year as well as from year to year and may also be affected by cash requirements. Many of these entities have greater financial and managerial resources than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Act will impose on us as a business development company.
We believe we compete with these entities primarily on the basis of our willingness to make smaller, non-controlling investments, the experience and contacts of our investment professionals within our targeted industries, our responsive and efficient investment analysis and decision-making processes, and the investment terms that we offer. We do not seek to compete primarily on the deal terms we offer to potential portfolio companies. We use the industry information available to FCM to assess investment risks and determine appropriate pricing for our investments in portfolio companies.
BDCs are a special type of investment company. After a company files its election to be treated as a BDC, it may not withdraw its election without first obtaining the approval of holders of a majority of its outstanding voting securities. Generally, to be eligible to elect BDC status, a company must primarily engage in the business of furnishing capital and making significant managerial assistance available to companies that do not have ready access to capital through conventional financial channels.
We may be examined periodically by the SEC for compliance with the Act. As with other companies regulated by the Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the Act.
Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. The Act provides that we may not make an investment in non-qualifying assets unless at the time at least 70 percent of the value of our total assets measured as of the date of our most recently filed financial statements consists of qualifying assets.
Qualifying assets include: i securities of eligible portfolio companies; ii securities of certain companies that were eligible portfolio companies at the time we initially acquired their securities and in which we retain a substantial interest; iii securities of certain controlled companies; iv securities of certain bankrupt, insolvent, or distressed companies; v securities received in exchange for or distributed in or with respect to any of the foregoing; and vi cash items, U.
The Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in some instances in order for the securities to be considered qualifying assets. We are permitted by the Act, under specified conditions, to issue multiple classes of debt and a single class of preferred stock if our asset coverage, as defined in the Act, is at least percent after the issuance of the debt or the preferred stock i.
Under specific conditions, we are also permitted by the Act to issue warrants. Except under certain conditions, we may sell our securities at a price that is below the prevailing net asset value per share only during the month period after i a majority of our directors and our disinterested directors have determined that such sale would be in the best interest of us and our stockholders, and ii the holders of a majority of our outstanding voting securities and the holders of a majority of our voting securities held by persons who are not affiliated persons of ours approve our ability to make such issuances.
A majority of the disinterested directors must determine in good faith that the price of the securities being sold is not less than a price that closely approximates the market value of the securities, less any distribution discount or commission. Certain transactions involving certain closely related persons of the Company, including its directors, officers, and employees, may require the prior approval of the SEC.
However, the Act ordinarily does not restrict transactions between us and our portfolio companies. In general, a RIC is not taxable on its income or gains to the extent it distributes such income or gains to its shareholders.
Any taxable investment company income not distributed will be subject to corporate level tax. Any taxable investment company income distributed generally will be taxable to shareholders as dividend income. Although we may retain income and gains subject to the limitations described above including paying corporate level tax on such amounts , we could be subject to an additional four percent excise tax if we fail to distribute 98 percent of our aggregate annual taxable income.
As noted above, in order to qualify as a RIC, we must meet certain investment asset diversification requirements each quarter. Although we generally intend to qualify as a RIC for each taxable year, under certain circumstances we may choose to take action with respect to one or more taxable years to ensure that we would be taxed under Subchapter C of the Code rather than Subchapter M for such year or years. We will choose to take such action only if we determine that the result of the action will benefit us and our shareholders.
We believe that the growth potential exhibited by private technology companies, including cleantech companies, creates an attractive investment environment for SVVC. Since the dot-com bubble burst in , emerging technology companies have often chosen to stay private longer. The combination of volatile equity markets, increased regulatory requirements such as the Sarbanes-Oxley Act of , and a lack of investment research coverage has made it less attractive for companies to access the public markets through an IPO.
We believe the result is an environment with more opportunities to invest in relatively mature private companies, either directly via primary investments or by purchasing shares in the growing secondary market. At the same time we believe there are a number of powerful trends creating opportunities for innovative companies and investors alike.
The dramatic growth of social networking, cloud computing, and powerful, connected mobile computing devices has enabled new ways of communicating, doing business, and accessing information anytime, anywhere. The Company was established to benefit from convergence of exciting technologies and the growth of private investment opportunities.
We believe that we have the following competitive advantages over other capital providers in technology and cleantech companies:. Landis has more than 20 years of experience in technology sector investing, and he intends to dedicate a substantial portion of his time to managing the Company. The Investment Adviser employs a disciplined approach in selecting investments.
When market conditions make it difficult for us to invest according to our criteria, the Investment Adviser intends to be highly selective in deploying our capital. We believe this approach enables us to build an attractive investment portfolio that meets our return and value criteria over the long term. We believe it is critical to conduct extensive due diligence on investment targets. The Investment Adviser seeks to maximize the potential for capital appreciation.
In making investment decisions the Investment Adviser seeks to pursue and invest in companies that meet several of the following criteria:. Assuming a potential investment meets most or all of our investment criteria, the Investment Adviser intends to be flexible in adopting transaction structures that address the needs of prospective portfolio companies and their owners.
Our investment philosophy is focused on internal rates of return over the life of an investment. Given our investment criteria and due diligence process, we structure our investments so they correlate closely with the success of our portfolio companies. We seek to identify potential investments both through active origination and through dialogue with numerous management teams, members of the financial community, and corporate partners with whom Mr.
Landis has long-standing relationships. Unlike private equity and venture capital funds, we are not subject to standard periodic capital return requirements. Such requirements typically stipulate that funds raised by a private equity or venture capital fund, together with any capital gains on such invested funds, must be returned to investors after a pre-agreed time period.
These provisions often force private equity and venture capital funds to seek returns on their investments through mergers, public equity offerings, or other liquidity events more quickly than they otherwise might, potentially resulting in both a lower overall return to investors and an adverse impact on their portfolio companies.
While we are required to distribute substantially all realized gains, we believe that with our dividend reinvestment plan and our flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles provide us with the opportunity to generate returns on invested capital and at the same time enable us to be a better long-term partner for our portfolio companies.
Our portfolio consists primarily of equity securities of private companies and cash and we expect that our portfolio will continue to consist primarily of, equity positions in private companies and cash. These investments include holdings in several private technology and cleantech companies. Moreover, we may acquire investments in the secondary market and, in analyzing such investments, we will employ the same analytical process as we use for our primary investments.
We generally seek to invest in companies from the broad variety of industries in which the Investment Adviser has expertise. The following is a representative list of the industries in which we may elect to invest. Computer Hardware. Computer Peripherals. Computer Software. Electronic Components. Energy Efficiency. Fuel Cells. Social Networking. Solar Photovoltaics.
Solid-state Lighting. Wearable Technology. Wind-Generated Electricity. We may invest in other industries if we are presented with attractive opportunities. We may on a limited basis purchase or sell options on indexes or securities. We may engage in these transactions to manage risks or otherwise protect the value of the portfolio, and to use these strategies to a limited extent on an opportunistic basis. We have identified several criteria that we believe are important in identifying and investing in prospective portfolio companies.
These criteria provide general guidelines for our investment decisions; however, we caution you that no single portfolio company or prospective portfolio company will meet all of these criteria. Generally, we use our experience and access to market information generated to identify investment candidates and to structure investments quickly and effectively.
Outstanding Technology. Our investment philosophy places a premium on identifying companies that have developed disruptive technologies, that is, technologies with the potential to dramatically alter the economics or performance of a particular type of product or service. Barriers to Entry. We believe having defensible barriers to entry, in the form of patents or other intellectual property rights, is critically important in technology industries, in which change happens very rapidly.
We seek out companies that have secured protection of key technologies through patents, trademarks, or other means. Experienced management and established financial sponsor relationship. We generally require that our portfolio companies have an experienced management team. We also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, including having significant equity interests.
In addition, we focus our investments in companies backed by strong financial sponsors that have a history of creating value and with whom members of our investment adviser have an established relationship. Strong and defensible competitive market position in industry. We seek to invest in target companies that have developed leading market positions within their respective markets and are well positioned to capitalize on growth opportunities.
We seek companies that demonstrate significant competitive advantages versus their competitors, which should help to protect their market position and profitability. Viable exit strategy. We seek to invest in companies that we believe will provide a steady stream of cash flow to reinvest in their respective businesses.
In addition, we also seek to invest in companies whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or another capital market transaction.
We believe that an acquisition by a strategic buyer is possible at any time for any of our companies. The Investment Adviser conducts extensive due diligence investigations in their investment activities. In conducting due diligence, the Investment Adviser uses publicly available information as well as information from its relationships with former and current management teams, consultants, competitors, and investment bankers.
Our due diligence typically includes:. Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment. As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies.
This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies, and providing other organizational and financial guidance.
We may receive fees for these services. FCM will provide such managerial assistance on our behalf to portfolio companies that request this assistance. FCM monitors our portfolio companies on an ongoing basis. Specifically, FCM monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company.
FCM has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:. Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements, and accomplishments;.
Comparisons to other portfolio companies in the industry, if any;. Attendance at and participation in board meetings; and. Review of monthly and quarterly financial statements and financial projections for portfolio companies. Valuation Process. The following is a description of the steps we take each quarter to determine the value of our portfolio. Investments for which market quotations are readily available are recorded in our financial statements at such market quotations.
We expect that all of our portfolio investments will be recorded at fair value as determined under the valuation process discussed above. As a result, there will be uncertainty with respect to the value of our portfolio investments. Subject to the overall supervision of our board of directors, the Investment Adviser manages the day-to-day operations of, provides investment management services to, and serves as portfolio manager for us.
FCM currently serves as investment manager to Firsthand Funds, a family of open-end mutual funds. Pursuant to the Investment Management Agreement, we pay FCM a fee for investment management services consisting of two components—a base management fee and an incentive fee. The base management fee will be calculated at an annual rate of 2.
For services rendered under the Investment Management Agreement, the base management fee will be payable quarterly in arrears. The base management fee will be calculated based on the average of 1 the value of our gross assets at the end of the current calendar quarter and 2 the value of our gross assets at the end of the preceding calendar quarter; and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.
Base management fees for any partial month or quarter will be pro-rated. Mathematically, the formula for computing the annual incentive fee can be written as:. Previously paid incentive fees. For the purposes of calculating realized capital gains, the cost basis of each security acquired in the Reorganization shall be equal to the greater of the original purchase price of that security by Firsthand Funds or the fair market value of the security at the time of the Reorganization.
Calculation of Incentive Fee. Year 1 incentive fee. Year 2 incentive fee. Additional information about us, including quarterly reports on Form Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act, are available free of charge on our website at www. Information on our website is not part of this Annual Report on Form K. We do not currently have any direct employees. Landis, our chief executive officer and chief financial officer, is the majority owner and chief investment officer of the Investment Adviser.
The Investment Adviser currently employs a staff of 12, including investment, legal, and administrative professionals. Investing in Firsthand Technology Value Fund involves a number of significant risks relating to our business and investment objective. As a result, there can be no assurance that we will achieve our investment objective.
We were incorporated in April and commenced operations on April 15, We are subject to all of the business risks and uncertainties associated with any business, including the risk that we will not achieve our investment objective and that the value of your investment could decline substantially. If the Investment Adviser is unable to hire and retain qualified personnel, or if it loses any key member of its management team, our ability to achieve our investment objective could be significantly impaired.
We depend on the diligence, skill, and access to the network of business contacts of the management of FCM, including Mr. Landis, the owner, president and chief executive officer of FCM. Landis and any other investment professionals of FCM.
Landis and other management personnel of FCM evaluate, negotiate, structure, close, and monitor our investments. Our future success depends on the continued service of Mr. Landis and other management personnel of FCM. The resignation of FCM, or the departure of Mr. Landis or any other key managers hired by FCM could have a material adverse effect on our ability to achieve our investment objective. The Act imposes numerous constraints on the operations of business development companies.
While Mr. Landis has more than 20 years of experience managing technology stock mutual funds investments and more than 15 years of experience managing private equity investments, Mr. The investment philosophy and techniques used by Mr. Landis and FCM may differ from those of other funds. Accordingly, we can offer no assurance that SVVC will replicate the historical performance of other investment companies with which Mr. Landis has been affiliated, and we caution you that our investment returns could be substantially lower than the returns achieved by such other companies.
The other funds managed by FCM have stated investment objectives which differ from our own. Although Mr. Landis has been a portfolio manager of a number of open-end mutual funds in the Firsthand Funds family, Mr. Similarly, while the research and operational professionals that support Mr. Landis in his management of Firsthand Funds are substantially the same individuals that will be supporting us, there is no assurance that they will be able to provide the same level of services to us as they did or currently do for Firsthand Funds.
In addition, the employees of FCM may also be called upon to provide managerial assistance to our portfolio companies as the principals of our administrator. Such demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.
A number of entities will compete with us to make the types of investments that we plan to make. Many of our potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do.
If you sell a tax-exempt bond fund at a profit, there are capital gains taxes to consider. Bond funds are subject to the same inflation, interest rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.
Tax-free money market funds invest in short-term notes of state and local governments and can provide a high amount of liquidity. Money market funds can be invested in a wide range of securities, so it is important to analyze your options carefully before investing. If you decide to invest in either type of tax-exempt security, consider the different options carefully. To decide whether municipal bonds or money market funds would be an asset to your portfolio, calculate the taxable equivalent yield, which enables you to compare the expected yield of the tax-exempt investment with its taxable equivalent.
Also be aware that tax-exempt income is included in the formula for determining taxes on Social Security benefits. In some instances, it may be necessary to limit your tax-exempt income by shifting to other tax-advantaged investment areas.
Check your options with your tax advisor. Please consider the investment objectives, risks, charges, and expenses carefully before investing.
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