Hercules Capital Leans Into Volatility With $1.2B Q1 Pipeline

Date of Call: Feb 12, 2026

Financials Results

• Revenue: Not explicitly provided; total investment income in Q4 was $137.4 million.
• EPS: $0.48 per share for Q4 2025.

Guidance:

• Core yield for Q1 expected in the middle of the previous range of 12% to 12.5%.
• Prepayment activity in Q1 expected to be $150 million to $200 million.
• SG&A expenses for Q1 expected to be $26 million to $27 million.
• RIA expense allocation for Q1 expected to be approximately $4.5 million.
• Quarterly dividend from the RIA for Q1 expected to be $2 million to $2.5 million.

Business Commentary:

Record Operating Performance and Growth:

• Hercules Capital reported record originations of $1.06 billion in Q4, contributing to annual records of nearly $4 billion and record annual gross fundings of $2.28 billion.
• The growth was driven by strong platform momentum, record commitments, and stable credit quality.

Supplemental Distribution Program:

• The company declared a new supplemental distribution program, maintaining a quarterly base distribution of $0.40 per share and a supplemental distribution of $0.28 for 2026.
• This decision was based on strong operating results and the expectation of continued market volatility.

Platform Expansion and Asset Management:

• Hercules Capital now manages more than $5.7 billion in assets, reflecting a 20% increase from the previous year.
• The growth was attributed to platform expansion and robust performance in both the BDC and private credit funds business.

Liquidity and Balance Sheet Positioning:

• The company ended Q4 with over $1 billion in liquidity across the platform and strengthened its position with a recent $300 million investment-grade bond offering.
• This strategic positioning aims to capitalize on market opportunities amidst expected volatility.

Software and AI Impact:

• Hercules Capital's software portfolio is largely comprised of businesses leveraging AI for operating efficiencies, with a focus on companies integrating AI into their core offerings.
• The conservative underwriting approach for software credits includes low LTVs and sub-1x ARR attachment points to manage risks associated with AI disruption.

Sentiment Analysis:

Overall Tone: Positive

• Management stated '2025 was another year of record operating performance' and 'We are already seeing this come to fruition in Q1.' They reported record originations and fundings, strong liquidity, and confidence in the platform's ability to 'generate strong operating results irrespective of the market backdrop.'

Q&A:

• Question from Brian Mckenna (Citizens JMP Securities): Given the dislocation we've seen across the public markets, is there an incremental opportunity here on the deployment front to take advantage of some of this volatility? And if so, where would you be looking to lean into?
  Response: Management sees opportunities to play offense and is being aggressive, with Q1 quarter-to-date commitments exceeding $1.2 billion, leveraging robust liquidity and a conservative balance sheet.

• Question from Brian Mckenna (Citizens JMP Securities): How should we think about fundraising and growth for the RIA platform in 2026? Where does fundraising stand for Fund IV? Could you commence fundraising for the next fund? Are there any other opportunities from a new product perspective?
  Response: Management expects to continue raising capital throughout 2026, with Fund IV having a final close in 2026 and discussions underway for the next vehicle; the larger the private funds business becomes, the better for HTGC shareholders.

• Question from Crispin Love (Piper Sandler): Can you drill a little deeper within your software portfolio cohorts? What areas are you most confident in? Any areas where you're more cautious given the AI disruption theme?
  Response: Management feels good about software portfolio companies focused on core mission-critical solutions and embracing AI, while those not adapting may be negatively impacted; their underwriting (low LTVs, sub-1x attachment points, short duration) positions them well.

• Question from Crispin Love (Piper Sandler): What's your view on tech M&A and IPO activity into 2026? Has that been impacted by recent volatility?
  Response: Expect M&A to be robust in 2026 with strategic activity, but the IPO market to remain muted, with the number of IPOs likely flat but dollar volume possibly higher.

• Question from Finian O'Shea (Wells Fargo): Is the expectation to run in place this year as repayments are high, implying past growth may take a breather?
  Response: Management unequivocally denied this, stating they have tremendous conviction in growth, are not using the ATM to dilute unnecessarily, and have strong liquidity and a robust pipeline.

• Question from Finian O'Shea (Wells Fargo): Are venture debt products right for the nontraded wealth channel? If successful, could they be a headwind to terms and spreads?
  Response: Management declined to comment on competitors but stated their focus is on raising capital in the institutional market for private credit funds.

• Question from John Hecht (Jefferies): Are venture capitalists using debt more as a component of funding their businesses, or is Hercules' momentum just tied to total industry growth?
  Response: Both factors contribute: overall ecosystem growth creates more opportunity, and some companies are using more debt due to valuation disconnects or inability to raise equity; management remains disciplined and patient, not chasing yield.

• Question from John Hecht (Jefferies): In terms of deal structures, anything worth calling out regarding fees, warrant coverage, or changes due to recent dislocation?
  Response: No real change; deals generally include an upfront facility fee, cash coupon with floor protection, and equity upside (warrants or RTI) in about 80% of cases, tailored to the company profile.

• Question from Douglas Harter (UBS): How do you balance taking advantage of dislocation opportunities versus being patient in case things worsen?
  Response: Management is being targeted and aggressive on attractive opportunities while maintaining significant dry powder, as evidenced by the recent $300 million bond raise, to position for more opportunities ahead.

• Question from Douglas Harter (UBS): Can you get wider spreads in this environment, or are you picking cleaner companies for the same returns? How to think about the risk-return trade-off?
  Response: Management is focused on credit quality, not chasing yield; they are getting similar economics by deploying into better quality, more stable, mature businesses.

• Question from Ethan Kaye (Lucid Capital Markets): What are the red flags or warning signs you're looking for to indicate AI disruption is materializing in the software portfolio?
  Response: Management relies on aggressive, active monitoring through constant conversations with portfolio companies and their VC partners, along with robust documentation (monthly financials, compliance certificates) to identify early deterioration in KPIs.

• Question from Christopher Nolan (Ladenburg Thalmann): Is the venture debt market more active than the venture equity market, and is that due to portfolio companies focusing more on cash flow generation?
  Response: The venture equity market in 2025 was incredibly robust (second strongest year on record), while VC fundraising has declined; management focuses on debt repayment and company operations, not equity exits.

Contradiction Point 1

Unrealized Gains and Equity Exit Focus

Contradiction on whether equity exit (unrealized gains) is a strategic focus.

What are your thoughts on Ladenburg Thalmann & Co. Inc.'s recent financial performance? - Christopher Nolan (Ladenburg Thalmann & Co. Inc.)

2025Q4: Hercules is not focused on the equity exit (unrealized gains). The primary goal is debt repayment and ensuring portfolio companies operate to plan. - Seth Meyer(CFO)

How does California's proposed tax law on unrealized gains affect discussions with portfolio companies? - Paul Johnson (KBW)

20251031-2025 Q3: A significant portion (~half) of that debt depreciation was related to the one nonaccrual added in Q3 that was quickly resolved post-quarter end. The specific credit... leading to strengthened proceeds. - Scott Bluestein(CEO and CIO)

Contradiction Point 2

Primary Driver of Strong Commitment Activity

Contradiction on the main reason for strong deployment and commitment growth.

What are your thoughts on the company's current financial strategy? - Brian McKenna (Citizens JMP Securities, LLC)

2025Q4: Yes, there are pockets of unique deployment opportunities... Hercules plans to be aggressive... **Q1 quarter-to-date commitment activity is the strongest ever**... - Scott Bluestein(CEO and CIO)

With market dislocation, are there opportunities to deploy capital, and where would you focus? - John Hecht (Jefferies LLC)

20251031-2025 Q3: The primary driver is market share gains. The venture ecosystem has changed, and Hercules has taken significant share through disciplined, managed growth. - Scott Bluestein(CEO and CIO)

Contradiction Point 3

Characterization of Venture Debt Market Environment

Contradiction on whether the venture debt market is currently "frothy" or stable/conservative.

What were the key takeaways from the earnings call? - Douglas Harter (UBS Investment Bank)

2025Q4: Hercules maintains a conservative approach... and is not interested in short-term portfolio growth. - Scott Bluestein(CEO)

Can you achieve wider spreads, or are you financing higher-quality credits with similar returns? - Douglas Harter (UBS Investment Bank)

2025Q3: The frothiness is mainly observed in deal structure and funding amounts, not necessarily yield. Some market participants are being overly aggressive... - Scott Bluestein(CEO)

Contradiction Point 4

Venture Equity Market Activity and VC Fundraising Environment

Contradiction on whether the venture equity market is robust or if VC firm fundraising has declined.

What is Christopher Nolan's role at Ladenburg Thalmann & Co. Inc.? - Christopher Nolan (Ladenburg Thalmann & Co. Inc.)

2025Q4: The 2025 venture equity market was robust, the second strongest year on record with $339.4 billion invested. - Scott Bluestein(CEO)

Is higher venture debt market activity compared to venture equity due to portfolio companies focusing more on cash flow generation? - Christopher Nolan (Ladenburg Thalmann)

2025Q1: The softness is more on the venture capital fundraising side, linked to a declining exit environment (M&A and IPOs). - Scott Bluestein(CEO)