Hercules Capital, Inc. (HTGC) Q4 2025 Earnings Report, Transcript and Summary

Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hercules Capital Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I will now turn the call over to Michael Hara, Managing Director of Investor Relations. Please go ahead.

Thank you, Angela. Good afternoon, everyone, and welcome to Hercules conference call for the fourth quarter and full year 2025. With us on the call today from Hercules are Scott Bluestein, CEO and Chief Investment Officer; and Seth Meyer, CFO. Hercules financial results were released just after today's market close and can be accessed from Hercules Investor Relations section at investor.htgc.com. An archived webcast replay will be available on the Investor Relations web page following the conference call. During this call, we may make forward-looking statements based on our own assumptions and current expectations. These forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward-looking statements made during this call for a number of reasons, including, but not limited to, the risks identified in our annual report on Form 10-K and other filings that are publicly available on the SEC's website. Any forward-looking statements made during this call are made only as of today's date, and Hercules assumes no obligation to update any such statements in the future. And with that, I'll turn the call over to Scott.

Thank you, Michael, and thank you all for joining the Hercules Capital Q4 and Full Year 2025 Earnings Call. 2025 was another year of record operating performance, record originations, platform expansion and strong and stable credit for Hercules Capital. We were once again able to set several new financial and performance records. And deliver strong platform growth, demonstrating the stability and consistency of the Hercules platform. Hercules crossed the finish line in record fashion by delivering another strong quarter of record commitments, which led to annual records for new debt and equity commitments, gross fundings, net debt portfolio growth and both total and net investment income. Our momentum continued in Q4 with record originations of $1.06 billion, which drove record annual originations of nearly $4 billion and record annual gross fundings of $2.28 billion. Our record fundings led to a new record net debt portfolio growth in 2025. The strong new business activity throughout the year helped to deliver new annual records for both total investment income and net investment income. Our performance in 2025 and our continued confidence in the trajectory of business, put us in position to once again declare a new supplemental distribution program for our shareholders. Despite operating in a declining rate environment, we were able to achieve 120% coverage of our quarterly base distribution of $0.40 per share in the fourth quarter and maintain $0.82 per share of spillover income. In addition to not making any changes to our quarterly base distribution, we are maintaining the same quarterly supplemental distribution as last year. Driven by the growth of both the BDC and our private credit funds business. Hercules Capital is now managing more than $5.7 billion of assets, an increase of more than 20% from where we were at year-end 2024. Let me recap some of the highlights and achievements for 2025. Record new debt and equity commitments of $3.92 billion, an increase of 45.7% year-over-year. Record gross fundings of $2.28 billion, an increase of 25.9% year-over-year. Record total investment income of $532.5 million, an increase of 7.9% year-over-year. Record net investment income of $341.7 million, an increase of 4.9% year-over-year. Record net debt portfolio growth of approximately $748.5 million. Consistent and growing quarterly dividends from our wholly owned RIA, which generated $23.4 million in dividend and other contributions for the company in 2025. 6 consecutive years of delivering supplemental distributions to our shareholders and record platform-level year-end assets under management of more than $5.7 billion, an increase of 20.5% year-over-year. As we enter 2026, we continue to expect higher-than-normal market and macro volatility and we are already seeing this play out with the recent valuation reset that is taking place in certain parts of the tech ecosystem. With our disciplined credit-first approach to underwriting, and our unwavering commitment to always making decisions that we believe are in the best interest of our shareholders and stakeholders. We remain confident in the strength and stability of the Hercules platform and our ability to continue to generate strong operating results irrespective of the market backdrop. With the expansion of our platform capabilities over the last several years, and our expectation for continued market volatility, we expect a very robust new business environment for Hercules in 2026. Our expectation is that we will see more strategic M&A, more capital markets activity, and more support for the innovation economy in 2026. We are already seeing this come to fruition in Q1. As we have done over the last several years, we intend to continue to manage our business and balance sheet defensively, while maintaining the flexibility to take advantage of market opportunities that we expect to arise. This includes continuing to enhance our liquidity position as needed, further tightening our credit screens for new underwritings, staying focused on asset diversification and maintaining our higher-than-normal first lien exposure, which was approximately 90% again in Q4. We believe that we are incredibly well positioned to benefit from a more favorable originations market in 2026, which we expect will be a key differentiator of our business this year. Let me now recap some of the key highlights of our performance for Q4. In Q4, we originated record total gross debt and equity commitments of $1.06 billion and gross fundings of over $522 million. We generated total investment income of $137.4 million and net investment income of $87 million, or $0.48 per share. With record growth in our debt investment portfolio in 2025, and given that nearly 75% of our prime-based loans are now at their floors, we are generating a level of core income that amply covers our base distribution of $0.40. We generated a return on equity in Q4 of 16.4% and our portfolio generated a GAAP effective yield of 12.9%, which was impacted by lower early payoffs and a core yield of 12.5%, which was consistent with Q3. We expect core yield to decline slightly in Q1 with the full impact of the most recent Fed rate cut. Our balance sheet with moderate leverage and low cost of leverage remains very well positioned to support our continued growth objectives and provides us with the ability to continue to focus on high-quality originations versus chasing higher-yielding assets, which we believe have more risk. While delivering record new originations in Q4, we still maintained a conservative and defensive balance sheet. As we guided, GAAP leverage increased to 104.4% in Q4, up from 99.5% in Q3. Our Q4 GAAP leverage remained at the very low end of our typical historical range of 100% to 115% and below the average of our BDC peers. We ended Q4 with over $1 billion of liquidity across the platform, and we further strengthened our liquidity position with our recent $300 million investment-grade bond offering. The current market volatility is creating a very favorable capital deployment environment for Hercules, and we want to ensure that we are positioned to opportunistically take advantage of that for the long-term benefit of our shareholders and stakeholders. The focus of our origination efforts in Q4 was on maintaining a disciplined approach to capital deployment while emphasizing diversification across the asset base. Our Q4 fundings activity was well balanced between life sciences and tech companies. Although our new commitment activity was more heavily weighted towards life sciences companies, which reflects a slightly more defensive posture. This is consistent with our public guidance during our Q3 call, where we noted certain pockets of frothiness in the market that we were avoiding. In Q4, approximately 69% of our commitments and about half of our fundings were to life sciences companies, while approximately 31% of our new commitments were to tech companies. We funded debt capital to 33 different companies in Q4, of which 12 were new borrower relationships. For the year, we added 39 new borrowers to the Hercules portfolio. We also increased our capital commitments to several portfolio companies during the quarter, and supporting our existing portfolio companies will continue to be a key priority for us in 2026. Our available unfunded commitments declined to approximately $385.6 million from $437.5 million in Q3. Again, reflecting a slightly more defensive positioning of the portfolio. The momentum that we saw in Q4 for new originations has further accelerated in Q1. Since the close of Q4 and as of February 9, 2026, our investment team has closed $894.8 million of new commitments, and funded $253.9 million. We have pending commitments of an additional $587.5 million in signed nonbinding term sheets and we expect this number to continue to grow as we progress in Q1. Our active pipeline remains very robust, both in terms of quantity and most importantly, quality, and our quarter-to-date commitment activity has remained more heavily weighted towards life sciences companies. We are focused on maintaining our high bar for new originations, given some of our recent market observations. The volume of deals that our teams are screening and passing on remains elevated. And yet we are continuing to see deals get done in the market without strong structure, and well outside of what we believe are prudent underwriting metrics for the asset class. As we have always done, we intend to remain disciplined, patient and focused on the long term while being aggressive where we believe it makes sense. We continue to be pleased with the exit activity that we saw in our portfolio during the quarter. In Q4, we had 4 new M&A events in our portfolio, which included 1 life sciences portfolio company and 3 technology portfolio companies announcing acquisitions. That brings us to 15 M&A events plus 1 IPO in our portfolio through year-end. We had 1 additional technology portfolio company announce an M&A event in Q1 quarter-to-date. Based on current market conditions and the volatility, we respect -- with respect to valuations, we expect exit activity to accelerate in 2026. Early loan repayments of $149.7 million came in at the lower end of our range of $150 million to $200 million for Q4. The lower level of early loan prepayments had a small negative impact on Q4 NII, but it helped drive strong net debt portfolio growth and continues to position us well for strong core earnings growth into 2026. For Q1, we expect prepayments to be in the range of $150 million to $200 million, although this could change as we progress in the quarter. Our net asset value per share in Q4 was $12.13, an increase of 0.7% from Q3 2025. We ended Q4 with solid liquidity of $525.5 million in the BDC and over $1 billion of liquidity across the platform. Our liquidity position was further boosted by the $300 million capital raise that we completed post quarter end. With healthy liquidity, a low cost of debt relative to our peers and 4 investment-grade corporate credit ratings, we remain well positioned to compete aggressively on quality transactions, which we believe is prudent in the current environment. Credit quality of the debt investment portfolio remains strong and improved quarter-over-quarter. Our weighted average internal credit rating of 2.20 improved from the 2.27 rating in Q3 and remains well within our normal historical range. Our Grade 1 and 2 credits increased to 66.6% compared to 64.5% in Q3. Grade 3 credits decreased slightly to 31.7% in Q4 versus 32.7% in Q3. Our rated 4 credits decreased to 1.7% from 2.8% in Q3, and we did not have any rated 5 credits for the third consecutive quarter. The 1.7% of loans rated at 4 and 5 as of year-end is the lowest that we have reported since Q3 of 2022. In Q4, the number of companies with loans on nonaccrual decreased by 1 to a single loan on nonaccrual with an investment cost and fair value of approximately $10.7 million and $6.3 million, respectively, or 0.2% and 0.1% as a percentage of our total investment portfolio at cost and fair value, respectively. In Q4, we generated $20.3 million of net realized gains. And as of the most recent reporting that we have, 100% of our debt investments that are on accrual are current with respect to the payment of scheduled principal and interest. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced given the volatility in the market. We believe that our conservative underwriting and ensuring appropriate structural alignment on the deals that we do will continue to serve us well. As of the end of Q4, the weighted average loan-to-value across our debt portfolio was approximately 14%. Our asset base is intentionally diversified with approximately 50% of our assets in our life sciences vertical, and approximately 50% of our assets in our technology vertical. No single subsector makes up more than 25% of our total investment portfolio and our debt investments are spread across 127 different companies. With the continued enhanced focus on PIK across the private credit markets, as well as the recent market uncertainty surrounding software investments broadly, we wanted to provide some additional commentary on both topics for Hercules. For Q4, PIK was approximately 10.4% of total revenue, which decreased from where it was in Q3 and during the first half of 2025. Approximately 86% of our PIK income in Q4 was attributable to PIK that was part of the original underwriting and not a result of any credit or performance-related amendment. Nearly 91% of our PIK income in Q4 came from loans that we rated 1, 2 or 3. With respect to the increased focus on software and AI-related investments, we note the following. Over the coming years, we believe that AI will be a net positive for our business and investment portfolio, which is largely comprised of innovative tech-oriented businesses that embrace technology with an entrepreneurial mindset. Many of our portfolio companies are differentiating themselves from legacy software competitors by integrating general and more importantly, agenetic AI into their core product offerings. Many are also led by technical founders, which we believe provides a distinct advantage as companies look to integrate AI into their software products. AI will continue to become a key component of software offerings and many software companies will benefit from that. The software companies that are most susceptible to AI disruption are the legacy providers that are not providing a core mission-critical business function, utilizing proprietary data from their customers and who are not analyzing the data that they do have with AI to then offer solutions to customers. Hercules factors this into our technology underwritings, and our focus over the last 12 to 18 months has largely been centered on software companies with a hardware moat or with customer bases that are highly regulated. Hercules does not lend into pure-play AI or data center GPU financing structures. This deliberate positioning allows us to avoid the highest volatility, highest risk segments of the market, while still constructing a portfolio of companies that we believe will benefit from the operating efficiencies and productivity gains emerging across the broader AI ecosystem. Many of the software companies in our portfolio serve as the gatekeepers to their customers' structured data and they provide the tools to these customers that serve mission-critical functions. Our software portfolio is largely comprised of businesses who have very specific domain expertise and competencies with very high switching costs for customers. We continue to underwrite the software sector very conservatively with ARR attachment points less than 1x on average, and historical duration of our software loans less than 24 months, which materially derisks the debt portfolio. On the life sciences side of our business, we are continuing to see many of our health care services companies and drug discovery companies benefit from the efficiencies that can be derived from utilizing some of the new AI tech that is now available to them. Lastly, underwriting growth stage and venture-backed software credits is fundamentally different than more traditional and customary middle market software credits. In the latter, deals are generally underwritten with LTVs in the 40% to 60% range, debt-to-invested equity ratios in the 50% to 70% range, and at ARR attachment points between 1x and 2.5x. For us, with our software credits, we are targeting LTVs that are less than 20%, debt to invested equity ratio is less than 30% and ARR attachment points that are sub 1x, which we believe reflects a more conservative approach to underwriting these credits. Venture capital investment activity in Q4 again paralleled what we experienced in our deal flow and originations. Full year 2025 investment activity was the second highest in history at $339.4 billion, second only to the $358.2 billion invested in 2021, according to data gathered by PitchBook-NVCA. While the aggregate data remains strong, it remains highly concentrated with over 65% of the full year VC equity investments going into AI and cybersecurity companies. M&A exit activity for 2025 for U.S. venture capital-backed companies was $140.7 billion. Again, the second highest amount since 2021. The number of IPOs for the year remained flat compared to 2024, but the dollars raised increased by nearly 3x over 2024. Fundraising for VC firms slowed for the third straight year to $66.1 billion in 2025, and this is something that we will watch closely in 2026. Consistent with the aggregate data for the ecosystem, during Q4, capital raising across our portfolio remains strong, with 20 companies raising $2.9 billion in new capital. For 2025, we had 57 companies raise over $7.9 billion in new capital, which is the highest amount since we began tracking the data across our portfolio. Given our strong sustained operating performance, we exited Q4 with undistributed earnings spillover of $149.9 million, or $0.82 per ending shares outstanding. For Q4 we are maintaining our quarterly base distribution of $0.40, and we declared a new supplemental distribution of $0.28 for 2026, which will be distributed equally over 4 quarters or $0.07 per share per quarter for a total of $0.47 of shareholder distributions each quarter. Our Q4 net investment income covered our base distribution by 120% and our full distribution, including our $0.07 supplemental distribution by 102%. Based on our recent and anticipated near-term operating performance, we continue to be very comfortable with our quarterly base distribution and our ability to continue to provide our shareholders with supplemental distributions this year. This is our 22nd consecutive quarter of being able to provide our shareholders with a supplemental distribution in addition to our regular quarterly base distribution. Similar to what we did at year-end 2024, we want to provide a brief update on our growing private fund business, which continues to provide meaningful benefits to Hercules Capital. As a reminder, Hercules Advisor LLC is a wholly owned subsidiary of Hercules Capital, our internally managed BDC. And as a result, 100% of the earnings and value of that business, benefit our public shareholders and stakeholders. We are very excited about the momentum in this business and the value that we are delivering for our institutional partners, and we view it as a strong tailwind for Hercules and our shareholders moving forward. Since inception in 2021, HTGC has received approximately $65 million in cumulative benefits from its wholly owned private credit funds business. Hercules Advisor LLC, now manages nearly $2 billion in committed equity and debt capital. And these private funds continue to provide a differentiated avenue for institutional investors to access the scale and proven performance of Hercules. During 2025, between new capital commitments and the extension of existing capital commitments, we raised over $1 billion across our private fund business. In closing, our scale, institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q4, Hercules delivered its 11th consecutive quarter of over $100 million of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Despite the declining rate environment that we are now operating in, we were able to achieve 120% coverage of our quarterly base distribution in Q4. Our continued success is attributable to the tremendous dedication, efforts and capabilities of our 115-plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth. tightening our credit screens for new underwritings, staying focused on asset diversification and maintaining our higher-than-normal first lien exposure, which was approximately 90% again in Q4. We believe that we are incredibly well positioned to benefit from a more favorable originations market in 2026, which we expect will be a key differentiator of our business this year. Let me now recap some of the key highlights of our performance for Q4. In Q4, we originated record total gross debt and equity commitments of $1.06 billion and gross fundings of over $522 million. We generated total investment income of $137.4 million and net investment income of $87 million, or $0.48 per share. With record growth in our debt investment portfolio in 2025, and given that nearly 75% of our prime-based loans are now at their floors, we are generating a level of core income that amply covers our base distribution of $0.40. We generated a return on equity in Q4 of 16.4% and our portfolio generated a GAAP effective yield of 12.9%, which was impacted by lower early payoffs and a core yield of 12.5%, which was consistent with Q3. We expect core yield to decline slightly in Q1 with the full impact of the most recent Fed rate cut. Our balance sheet with moderate leverage and low cost of leverage remains very well positioned to support our continued growth objectives and provides us with the ability to continue to focus on high-quality originations versus chasing higher-yielding assets, which we believe have more risk. While delivering record new originations in Q4, we still maintained a conservative and defensive balance sheet. As we guided, GAAP leverage increased to 104.4% in Q4, up from 99.5% in Q3. Our Q4 GAAP leverage remained at the very low end of our typical historical range of 100% to 115% and below the average of our BDC peers. We ended Q4 with over $1 billion of liquidity across the platform, and we further strengthened our liquidity position with our recent $300 million investment-grade bond offering. The current market volatility is creating a very favorable capital deployment environment for Hercules, and we want to ensure that we are positioned to opportunistically take advantage of that for the long-term benefit of our shareholders and stakeholders. The focus of our origination efforts in Q4 was on maintaining a disciplined approach to capital deployment while emphasizing diversification across the asset base. Our Q4 fundings activity was well balanced between life sciences and tech companies. Although our new commitment activity was more heavily weighted towards life sciences companies, which reflects a slightly more defensive posture. This is consistent with our public guidance during our Q3 call, where we noted certain pockets of frothiness in the market that we were avoiding. In Q4, approximately 69% of our commitments and about half of our fundings were to life sciences companies, while approximately 31% of our new commitments were to tech companies. We funded debt capital to 33 different companies in Q4, of which 12 were new borrower relationships. For the year, we added 39 new borrowers to the Hercules portfolio. We also increased our capital commitments to several portfolio companies during the quarter, and supporting our existing portfolio companies will continue to be a key priority for us in 2026. Our available unfunded commitments declined to approximately $385.6 million from $437.5 million in Q3. Again, reflecting a slightly more defensive positioning of the portfolio. The momentum that we saw in Q4 for new originations has further accelerated in Q1. Since the close of Q4 and as of February 9, 2026, our investment team has closed $894.8 million of new commitments, and funded $253.9 million. We have pending commitments of an additional $587.5 million in signed nonbinding term sheets and we expect this number to continue to grow as we progress in Q1. Our active pipeline remains very robust, both in terms of quantity and most importantly, quality, and our quarter-to-date commitment activity has remained more heavily weighted towards life sciences companies. We are focused on maintaining our high bar for new originations, given some of our recent market observations. The volume of deals that our teams are screening and passing on remains elevated. And yet we are continuing to see deals get done in the market without strong structure, and well outside of what we believe are prudent underwriting metrics for the asset class. As we have always done, we intend to remain disciplined, patient and focused on the long term while being aggressive where we believe it makes sense. We continue to be pleased with the exit activity that we saw in our portfolio during the quarter. In Q4, we had 4 new M&A events in our portfolio, which included 1 life sciences portfolio company and 3 technology portfolio companies announcing acquisitions. That brings us to 15 M&A events plus 1 IPO in our portfolio through year-end. We had 1 additional technology portfolio company announce an M&A event in Q1 quarter-to-date. Based on current market conditions and the volatility, we respect -- with respect to valuations, we expect exit activity to accelerate in 2026. Early loan repayments of $149.7 million came in at the lower end of our range of $150 million to $200 million for Q4. The lower level of early loan prepayments had a small negative impact on Q4 NII, but it helped drive strong net debt portfolio growth and continues to position us well for strong core earnings growth into 2026. For Q1, we expect prepayments to be in the range of $150 million to $200 million, although this could change as we progress in the quarter. Our net asset value per share in Q4 was $12.13, an increase of 0.7% from Q3 2025. We ended Q4 with solid liquidity of $525.5 million in the BDC and over $1 billion of liquidity across the platform. Our liquidity position was further boosted by the $300 million capital raise that we completed post quarter end. With healthy liquidity, a low cost of debt relative to our peers and 4 investment-grade corporate credit ratings, we remain well positioned to compete aggressively on quality transactions, which we believe is prudent in the current environment. Credit quality of the debt investment portfolio remains strong and improved quarter-over-quarter. Our weighted average internal credit rating of 2.20 improved from the 2.27 rating in Q3 and remains well within our normal historical range. Our Grade 1 and 2 credits increased to 66.6% compared to 64.5% in Q3. Grade 3 credits decreased slightly to 31.7% in Q4 versus 32.7% in Q3. Our rated 4 credits decreased to 1.7% from 2.8% in Q3, and we did not have any rated 5 credits for the third consecutive quarter. The 1.7% of loans rated at 4 and 5 as of year-end is the lowest that we have reported since Q3 of 2022. In Q4, the number of companies with loans on nonaccrual decreased by 1 to a single loan on nonaccrual with an investment cost and fair value of approximately $10.7 million and $6.3 million, respectively, or 0.2% and 0.1% as a percentage of our total investment portfolio at cost and fair value, respectively. In Q4, we generated $20.3 million of net realized gains. And as of the most recent reporting that we have, 100% of our debt investments that are on accrual are current with respect to the payment of scheduled principal and interest. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced given the volatility in the market. We believe that our conservative underwriting and ensuring appropriate structural alignment on the deals that we do will continue to serve us well. As of the end of Q4, the weighted average loan-to-value across our debt portfolio was approximately 14%. Our asset base is intentionally diversified with approximately 50% of our assets in our life sciences vertical, and approximately 50% of our assets in our technology vertical. No single subsector makes up more than 25% of our total investment portfolio and our debt investments are spread across 127 different companies. With the continued enhanced focus on PIK across the private credit markets, as well as the recent market uncertainty surrounding software investments broadly, we wanted to provide some additional commentary on both topics for Hercules. For Q4, PIK was approximately 10.4% of total revenue, which decreased from where it was in Q3 and during the first half of 2025. Approximately 86% of our PIK income in Q4 was attributable to PIK that was part of the original underwriting and not a result of any credit or performance-related amendment. Nearly 91% of our PIK income in Q4 came from loans that we rated 1, 2 or 3. With respect to the increased focus on software and AI-related investments, we note the following. Over the coming years, we believe that AI will be a net positive for our business and investment portfolio, which is largely comprised of innovative tech-oriented businesses that embrace technology with an entrepreneurial mindset. Many of our portfolio companies are differentiating themselves from legacy software competitors by integrating general and more importantly, agenetic AI into their core product offerings. Many are also led by technical founders, which we believe provides a distinct advantage as companies look to integrate AI into their software products. AI will continue to become a key component of software offerings and many software companies will benefit from that. The software companies that are most susceptible to AI disruption are the legacy providers that are not providing a core mission-critical business function, utilizing proprietary data from their customers and who are not analyzing the data that they do have with AI to then offer solutions to customers. Hercules factors this into our technology underwritings, and our focus over the last 12 to 18 months has largely been centered on software companies with a hardware moat or with customer bases that are highly regulated. Hercules does not lend into pure-play AI or data center GPU financing structures. This deliberate positioning allows us to avoid the highest volatility, highest risk segments of the market, while still constructing a portfolio of companies that we believe will benefit from the operating efficiencies and productivity gains emerging across the broader AI ecosystem. Many of the software companies in our portfolio serve as the gatekeepers to their customers' structured data and they provide the tools to these customers that serve mission-critical functions. Our software portfolio is largely comprised of businesses who have very specific domain expertise and competencies with very high switching costs for customers. We continue to underwrite the software sector very conservatively with ARR attachment points less than 1x on average, and historical duration of our software loans less than 24 months, which materially derisks the debt portfolio. On the life sciences side of our business, we are continuing to see many of our health care services companies and drug discovery companies benefit from the efficiencies that can be derived from utilizing some of the new AI tech that is now available to them. Lastly, underwriting growth stage and venture-backed software credits is fundamentally different than more traditional and customary middle market software credits. In the latter, deals are generally underwritten with LTVs in the 40% to 60% range, debt-to-invested equity ratios in the 50% to 70% range, and at ARR attachment points between 1x and 2.5x. For us, with our software credits, we are targeting LTVs that are less than 20%, debt to invested equity ratio is less than 30% and ARR attachment points that are sub 1x, which we believe reflects a more conservative approach to underwriting these credits. Venture capital investment activity in Q4 again paralleled what we experienced in our deal flow and originations. Full year 2025 investment activity was the second highest in history at $339.4 billion, second only to the $358.2 billion invested in 2021, according to data gathered by PitchBook-NVCA. While the aggregate data remains strong, it remains highly concentrated with over 65% of the full year VC equity investments going into AI and cybersecurity companies. M&A exit activity for 2025 for U.S. venture capital-backed companies was $140.7 billion. Again, the second highest amount since 2021. The number of IPOs for the year remained flat compared to 2024, but the dollars raised increased by nearly 3x over 2024. Fundraising for VC firms slowed for the third straight year to $66.1 billion in 2025, and this is something that we will watch closely in 2026. Consistent with the aggregate data for the ecosystem, during Q4, capital raising across our portfolio remains strong, with 20 companies raising $2.9 billion in new capital. For 2025, we had 57 companies raise over $7.9 billion in new capital, which is the highest amount since we began tracking the data across our portfolio. Given our strong sustained operating performance, we exited Q4 with undistributed earnings spillover of $149.9 million, or $0.82 per ending shares outstanding. For Q4 we are maintaining our quarterly base distribution of $0.40, and we declared a new supplemental distribution of $0.28 for 2026, which will be distributed equally over 4 quarters or $0.07 per share per quarter for a total of $0.47 of shareholder distributions each quarter. Our Q4 net investment income covered our base distribution by 120% and our full distribution, including our $0.07 supplemental distribution by 102%. Based on our recent and anticipated near-term operating performance, we continue to be very comfortable with our quarterly base distribution and our ability to continue to provide our shareholders with supplemental distributions this year. This is our 22nd consecutive quarter of being able to provide our shareholders with a supplemental distribution in addition to our regular quarterly base distribution. Similar to what we did at year-end 2024, we want to provide a brief update on our growing private fund business, which continues to provide meaningful benefits to Hercules Capital. As a reminder, Hercules Advisor LLC is a wholly owned subsidiary of Hercules Capital, our internally managed BDC. And as a result, 100% of the earnings and value of that business, benefit our public shareholders and stakeholders. We are very excited about the momentum in this business and the value that we are delivering for our institutional partners, and we view it as a strong tailwind for Hercules and our shareholders moving forward. Since inception in 2021, HTGC has received approximately $65 million in cumulative benefits from its wholly owned private credit funds business. Hercules Advisor LLC, now manages nearly $2 billion in committed equity and debt capital. And these private funds continue to provide a differentiated avenue for institutional investors to access the scale and proven performance of Hercules. During 2025, between new capital commitments and the extension of existing capital commitments, we raised over $1 billion across our private fund business. In closing, our scale, institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q4, Hercules delivered its 11th consecutive quarter of over $100 million of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Despite the declining rate environment that we are now operating in, we were able to achieve 120% coverage of our quarterly base distribution in Q4. Our continued success is attributable to the tremendous dedication, efforts and capabilities of our 115-plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth.

Thank you, Scott, and good afternoon and evening, ladies and gentlemen. 2025 was another very strong year for Hercules Capital with record operating performance and an acceleration of the growth of the Hercules platform. Our strong business momentum and performance results throughout the year continued into the fourth quarter. We delivered strong growth across both the BDC and our wholly owned private credit fund business, which continues to provide us with significant capital flexibility and the capacity to take advantage of market opportunities as they arise. We continue to maintain strong available liquidity of approximately $526 million as of quarter end in the BDC and more than $1 billion across the platform including the adviser funds managed by our wholly owned subsidiary, Hercules Capital -- Hercules Advisor LLC. As mentioned by Scott, after quarter end, we strengthened our liquidity position by issuing $300 million of institutional 5.35% unsecured notes. Finally, based on the performance of the quarter, Hercules Adviser delivered a quarterly dividend of $2.1 million, which when combined with the expense reimbursement of approximately $4.4 million resulted in approximately $6.5 million in NII contribution to the BDC for the quarter. For 2025, Hercules Adviser delivered $23 million in NII contribution to the BDC, an increase of approximately 33% year-over-year. With those points in mind, I'll review the income statement performance and highlights, NAV unrealized and realized activity, leverage and liquidity, and finally, the financial outlook. Turning first to the income statement performance and highlights. Total investment income in Q4 was $137.4 million, supported by our year-to-date debt portfolio growth. Core investment income, a non-GAAP measure, increased as well to a record $133.3 million. Core investment income excludes the benefit of income recognized because of early loan prepayments. Net investment income was $87 million or $0.48 per share in Q4, and this number was partially impacted by prepayments being lower than anticipated in the fourth quarter. Our effective and core yields were 12.9% and 12.5%, respectively, compared to 13.5% and 12.5% in the prior quarter. The effective yield was down on lower prepayments, as previously noted. However, I would highlight that this is the third quarter in a row, our core yield has remained at 12.5%. 12.5% despite the base rate decreases throughout the latter half of 2025. As of quarter end, approximately 75% of our prime-based loans were at their contractual floor, and thus the impact of any future rate reductions will continue to be muted. Fourth quarter operating expenses were $54.9 million compared to $53.6 million in the prior quarter. Net of costs recharged to the RIA, our net operating expenses were $50.5 million. Interest expense and fees increased to $28.2 million due to the growth of the business and corresponding increase of leverage. SG&A remained stable at $26.7 million, just above my guidance on the growth of the business. Net of cost recharge to the RIA, SG&A expenses decreased slightly to $22.2 million. Our weighted average cost of debt remained stable at 5.1%. Our ROAE or NII over average equity decreased to 16.4% for the fourth quarter and our ROAA or NII over average total assets decreased to 8.2%. In the NAV unrealized and realized activity during the quarter, our NAV per share increased by $0.08 per share to $12.13 per share. The main driver was the net realized gains and accretion due to the use of the ATM during the quarter. During 2025, our NAV per share increased by 4%, and this is the highest year-end NAV we've delivered since 2007. During Q4, Hercules had net realized gains of $20.3 million comprised of gross realized gains of $28.8 million, primarily due to the gain on equity investments offset by $8.5 million of losses. The losses were due to $5.3 million of losses on equity investments, $3.1 million from the write-off of one legacy debt investment and $0.1 million from a realized loss on debt extinguishment. Our $16.4 million of net realized depreciation was primarily attributable to $18.3 million of net unrealized depreciation due to reversals of previous quarter appreciation upon a realization event, and $8.9 million of net unrealized depreciation attributable to debt investments. This was partially offset by $8.1 million of net unrealized appreciation attributable to valuation movements in publicly held equity in warrants, $2.4 million of net unrealized appreciation attributable to valuation movements in privately held equity warrants and investment funds, and $0.3 million of net unrealized depreciation attributable to net foreign exchange and escrow movements. Next, on leverage and liquidity. Consistent with our previous guidance, our GAAP and regulatory leverage increased to 104.4% and 88.6%, respectively, compared to the prior quarter due to the growth in the balance sheet, mostly being financed by leverage. Netting out leverage with cash on the balance sheet, our GAAP and regulatory leverage was 101.8% and 86%, respectively. We ended the quarter with $526 million of available liquidity. As a reminder, this excludes the capital raised by the funds managed by our wholly owned RIA subsidiary. Inclusive of these amounts, Hercules platform had more than $1 billion of available liquidity as of year-end. The strong liquidity positions us well to support our existing portfolio companies and source new opportunities. As mentioned, subsequent to quarter close, Hercules Capital raised $300 million of institutional 5.35% unsecured notes due in 2029. Finally, on the outlook points. For the first quarter, we expect our core yield to be in the middle of our previous disclosed range of 12% to 12.5%. As a reminder, 98% of our debt portfolio is floating with the floor. And as of today, approximately 75% of our prime-based portfolio is at the contractual floor. Although very difficult to predict, as Scott mentioned, we expect $150 million to $200 million in prepayment activity in the first quarter. We expect our first quarter interest expense to increase compared to the prior quarter based on the debt portfolio growth. For the first quarter, we expect SG&A expenses of $26 million to $27 million and an RIA expense allocation of approximately $4.5 million. Finally, we expect a quarterly dividend from the RIA of approximately $2 million to $2.5 million per quarter. In closing, as we report out another record year we have started 2026 with the same momentum of growth and strength of our balance sheet. These 2 dimensions, along with our superior credit standards and selection will help Hercules to continue scaling our platform. I will now turn the call over to the operator to begin the Q&A portion of our call. Angela, over to you.gacy debt investment and $0.1 million from a realized loss on debt extinguishment. Our $16.4 million of net realized depreciation was primarily attributable to $18.3 million of net unrealized depreciation due to reversals of previous quarter appreciation upon a realization event, and $8.9 million of net unrealized depreciation attributable to debt investments. This was partially offset by $8.1 million of net unrealized appreciation attributable to valuation movements in publicly held equity in warrants, $2.4 million of net unrealized appreciation attributable to valuation movements in privately held equity warrants and investment funds, and $0.3 million of net unrealized depreciation attributable to net foreign exchange and escrow movements. Next, on leverage and liquidity. Consistent with our previous guidance, our GAAP and regulatory leverage increased to 104.4% and 88.6%, respectively, compared to the prior quarter due to the growth in the balance sheet, mostly being financed by leverage. Netting out leverage with cash on the balance sheet, our GAAP and regulatory leverage was 101.8% and 86%, respectively. We ended the quarter with $526 million of available liquidity. As a reminder, this excludes the capital raised by the funds managed by our wholly owned RIA subsidiary. Inclusive of these amounts, Hercules platform had more than $1 billion of available liquidity as of year-end. The strong liquidity positions us well to support our existing portfolio companies and source new opportunities. As mentioned, subsequent to quarter close, Hercules Capital raised $300 million of institutional 5.35% unsecured notes due in 2029. Finally, on the outlook points. For the first quarter, we expect our core yield to be in the middle of our previous disclosed range of 12% to 12.5%. As a reminder, 98% of our debt portfolio is floating with the floor. And as of today, approximately 75% of our prime-based portfolio is at the contractual floor. Although very difficult to predict, as Scott mentioned, we expect $150 million to $200 million in prepayment activity in the first quarter. We expect our first quarter interest expense to increase compared to the prior quarter based on the debt portfolio growth. For the first quarter, we expect SG&A expenses of $26 million to $27 million and an RIA expense allocation of approximately $4.5 million. Finally, we expect a quarterly dividend from the RIA of approximately $2 million to $2.5 million per quarter. In closing, as we report out another record year we have started 2026 with the same momentum of growth and strength of our balance sheet. These 2 dimensions, along with our superior credit standards and selection will help Hercules to continue scaling our platform. I will now turn the call over to the operator to begin the Q&A portion of our call. Angela, over to you.

[Operator Instructions] We'll take our first question from Brian McKenna with Citizens.

So I appreciate all the detail on the current backdrop for software and AI and that you think AI will actually be a net positive for your business and portfolio over time. With all that said, 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?

Sure. Thanks for the question, Brian. So I hope that we emphasized that in the prepared remarks. We absolutely think that there is an interesting opportunity here for us to play offense and our teams right now across both the tech vertical and the life sciences vertical are looking to do that. Hercules has typically performed its best in periods of volatility, and we've tried to position our balance sheet to be able to do the same this time. Our liquidity position is incredibly robust. Our balance sheet is conservative with low leverage, long liquidity and robust liquidity. And so we do plan to be aggressive with respect to taking advantages of what we see are some pockets of real deployment opportunities. Our Q1 quarter-to-date numbers are as strong as we've ever announced on a Q4 call. If you look at the -- not just the pending, but what's already closed quarter-to-date, we're well north of $1.2 billion, $1.3 billion in commitments for Q1 and a large part of that is us being aggressive in taking advantage of some of the market dislocation that we think is creating some of these unique opportunities that we can be aggressive on.

And then just switching gears a little bit. On the RIA, it's great to hear all the momentum there. And it really feels that business has inflected. But how should we think about fundraising and growth for that platform in 2026? I know you mentioned the $1 billion of fundraising, if you will, in 2025. And then -- just where does fundraising stand for Fund IV? Will that get wrapped up this year? Could you actually commence fundraising in for the next fund? And then are there any other opportunities from a new product perspective?

Sure. So we continue to be very pleased by the growth of our private funds business. We're not going to disclose additional details outside of what we disclosed on the call, but I can tell you that we absolutely expect to continue to raise additional capital throughout 2026. We expect Fund IV to have a final close in 2026 and discussions are already well underway for what will be the next vehicle as part of our private funds business. I think the key thing that I would continue to emphasize, given our unique ownership structure, the larger that business becomes, the more we're able to raise, the more we're able to deploy, the better it is for HTGC shareholders and stakeholders, and that has been and will continue to be our primary focus with that business.

That's helpful. And congrats on all the momentum into '26.

Thanks, Brian.

We'll take our next question from Crispin Love with Piper Sandler.

First, just looking at your investment portfolio composition, about 35% is made up of software companies across application software and system software. Can you drill a little deeper within those cohorts. What areas in your portfolio are you most confident in? And then on the other side, any areas in your portfolio where you're more cautious just given the AI disruption theme out there.

Yes. So look, I appreciate the question, Crispin. So system software is very different than application software, which is why we break it out. Think of sort of system software as companies that are providing software to more sort of general IT companies, so cybersecurity, for example, whereas application software would be software companies that are providing solutions for more general users, I would tell you that across the board, we generally feel pretty good about what we're seeing in our software portfolio. Our view, as I discussed in the prepared remarks is that there should be no ambiguity that AI is a disruptive technology. That does not mean that it has to be a destructive technology for all software businesses. Software companies that are focused on providing core mission-critical solutions, software companies that are embracing artificial intelligence, software companies that are utilizing and building AI agentic solutions into their software offerings, we think are actually going to do pretty well. They'll become more value add for some of their customers. There are software companies that aren't doing that, and we think that those companies will be negatively impacted. That will take place over several years. The way we structure our investments, the way we underwrite with low LTVs, low attachment points and shorter duration than you typically see in software private credit, we think will position us relatively well.

And then just on share a little bit on your views on M&A and IPO activity into '26. You did call out an expectation more strategic M&A, just -- what's your view on tech M&A as well as the IPO pipeline for tech companies? And has that been impacted at all just from recent volatility.

Yes. So it's interesting. If you look at the M&A data that we track in sort of each of the last 4 years, so '22, '23, '24 and '25. We've had roughly 1,000 venture-backed M&A exits per year. The dollar volumes are up pretty considerably. So last year, 934 M&A exits, about $84 billion of M&A exits. In '25, roughly the same number, so about 1,029 M&A exits, but that number ballooned to about $141 billion of transaction value. Our current expectation is that M&A will continue to be robust in '26. We think that there will be a lot of strategic activity with acquisitions from larger competitors that are picking up some smaller competitors that are distressed from a valuation perspective. And we think that's a net positive for our business. We generally expect the IPO market to remain muted. The number of IPOs that have been done have declined in each of the last 4 years, although the dollar volume has increased considerably, and that's just a function of the number -- the IPOs that are getting done tend to be the larger, much larger ones, which is moving that dollar value up despite the number of IPOs remaining flat and we don't expect that to change in 2026.

We'll take our next question from John Hecht with Jefferies.

Congrats on just continued momentum. And I guess my question -- my first question is kind of tied to that. Scott, maybe I know the venture capital companies like to use debt for a portion [indiscernible] the dilution. The last time I checked it [indiscernible]. It's still a relatively small component of the overall pie for them in terms of capital raising for their portfolio companies. Is the structure of the industry changed [indiscernible].

Hey, John, I think we're losing you. Okay.

It looks like John did disconnect. We'll move on to our next questioner. We'll go next to Finian O'Shea with Wells Fargo.

So a couple of things tied together. On one, and you've had a lot of records this quarter, perhaps even more than usual. But looking at a few other items, ATM has been light for a while. Adviser dividend sounds like a stable guide. The Hercules dividend holds up, but sort of same base dividend. So you keep a lot of supplemental, which tells us less long-term stability on that part. Sort of tying this all together, is Hercules like is the expectation to sort of run in place this year as repayments are high, perhaps the impressive growth you've achieved in the past few years we'll take a bit of a breather, I'll leave it there.

Yes, sure. Thanks for the question, Fin. And the answer is unequivocally no. I think if you take our prepared comments and you look at just the quarter-to-date data for Q1, we have tremendous conviction in the growth opportunity for the platform this year. And we are positioning the business to be able to take advantage of that. A couple of things specifically that you referenced on the ATM. I think we've been very clear on this. We have no interest in using the ATM for the purpose of diluting our shareholders until and unless we actually need that capital. And so in periods where we don't need to use the ATM, we are not going to use the ATM facility just to raise additional capital. We ended the year with $1 billion of liquidity across the platform, over $525 million of that in the BDC, the rest in the private fund business. We've already funded close to $250 billion -- sorry, $250 million of deals in Q1 and we have well north of $1.4 billion in closed and pending commitments quarter-to-date, which would be the strongest quarter in the history of Hercules Capital, and our pipeline is not showing any signs of slowing down. We also just gave prepayment guidance that was flat from last quarter, so $150 million to $200 million. So our full expectation assuming we can deliver on those numbers is that you will see continued strong growth from Hercules Capital over the course of 2026.

I appreciate that. Just a follow-up on sort of another one on the RIA. And I know you tend to hold your cards close here, but I'll give it a shot. Some of your peers are starting to offer or plan to offer venture debt in the nontraded wealth channel. Do you think that's the right -- do you think the sort of product venture debt is right for that market? And then if sort of different question, if these are successful, do you think that's a sort of significant headwind to terms and spreads and so forth in the market?

Yes. So again, I appreciate the question, respectively, I can't speak to what our competitors are doing. And so I'm not going to take a position whether I think that's good or bad. I can just tell you what our focus has been, we think that the best path for capital raising for this asset class in the private fund side of the business is the institutional market. We have 4 active private credit funds right now that are investing. They are 100% institutional with very large institutional well-capitalized investors and that has, and that will continue to be our focus with respect to raising capital in that channel for this asset class.

And we'll take our next question from John Hecht with Jefferies.

Thanks for letting me back in the queue. Sorry about that. So the question to go back to it was, Scott, I mean, there's been tremendous growth in the venture industry overall. Your momentum, obviously, it's correlated to that. But I'm wondering kind of structurally, are the venture capitalists using debt more as a component of funding their businesses or are you just -- is the momentum of growth just tied to the total industry growth?

So I think it's a function of both, John, I appreciate you jumping back in the queue to ask the question. So there is no question that the overall growth in the ecosystem, the growth in terms of the dollars being invested from the VC partners that we work with, has created more of a market opportunity, more of a TAM for us. So that is sort of what is contributing to the growth in our business. I would also say that there is a component of the first part of what you said, which is that certain companies are utilizing more debt than they typically would have used and that could be for a variety of reasons. Number one, because there's a valuation disconnect and they don't want to raise around at a lower valuation. It could be because they can't raise equity capital, so they're trying to raise as much debt and as much leverage as they can. I would tell you, when we sort of said this in each of our last few calls, with venture or growth stage lending, you have to be disciplined, you have to be patient, you can't chase the market. And I think our teams, while not perfect, I think have done a pretty good job on that. So if you look at our metrics in terms of debt to invested equity, debt to paid-in capital, all of our metrics and all of our ratios are largely flat over the last several years, which at least gives me comfort that we're not chasing some of that aggressiveness in the market as leverage has gone up for many of these companies.

A second question maybe for Seth. Just in terms of deal structures, kind of the minutia there. Anything going on or worth calling out with respect to the call it, the fees that are part of the deals and the structures around that or kind of warrant coverage, and are those factors changing given some of the recent dislocation.

Yes, John, I'm happy to take that one. So no real change. We're generally pretty consistent in terms of how we structure these deals. I would tell you, and we've always said this, it's not a one-size-fits-all model. So I think our teams work very closely with our management team partners and our VC partners to try to put together custom-tailored solutions that work well for the companies. But generally speaking, the deals are going to have an upfront facility fee, they're going to have a cash coupon with floor protection. The vast majority of our venture and growth stage loans will be based off of prime. Vast majority of our loans are going to have some form of end-of-term economics. And then in about 80% of the deals that we do, we will get some form of equity upside, whether it's from warrants or from an RTI, which gives us the right to invest in a subsequent equity round. So depending on the profile, depending on the stage, those metrics, those sort of tools that we have may change. But generally speaking, the deals are going to look pretty similar in terms of those different levers.

Our next question comes from Doug Harter with UBS.

Can you just talk about how you look to balance taking advantage of kind of the opportunity from dislocations today versus kind of continuing to be patient in case things get worse before they get better?

Sure. Thanks, Doug. So it's a balance, right? I think our team right now is being pretty targeted. So we've identified a handful of what we think are very attractive, strong opportunities, and we're going after those opportunities as aggressively as we think is prudent. At the same time, we are making sure that we are maintaining a significant amount of dry powder. I think the $300 million raise that we closed last week, I think, is sort of evidence of that, that we are trying to position ourselves to be aggressive now but not overly aggressive where we utilize all of our available liquidity. We do think that over the course of the next several quarters, more and more opportunities will come to fruition, and we want to make sure that we're positioned to take advantage of that. So we're being aggressive, we're picking our spots, but I would describe it as targeted. And we expect that to continue certainly over the remainder of Q1 and well into Q2 as well.

Appreciate that. And I guess as you think about the ability to be targeted here, can you get wider spreads in these deals in this environment? Or is it you're able to kind of finance and pick kind of cleaner companies or better credits and get the same returns. So just how to think about the risk return trade-off where you're able to kind of pick something up in this environment?

I think it's the latter, Doug. We're focused right now on credit. We're not focused on chasing yield. So I think we're getting relatively speaking, the same overall economics, but we're deploying capital into what we think are better overall more stable scale credits. That's been our focus for the last several years. I think we've tried to emphasize we're not chasing yield, we think that the deals that are getting done outside of sort of the typical yield spot or just a much more challenging difficult stories. And I think we're doing a pretty good job staying away from that. So I would think about it as we are maintaining our underwriting yields, but we're targeting better quality, more mature, more scale, more sophisticated businesses that we think have more staying power.

We'll take our next question from Ethan Kaye with Lucid Capital Markets.

Most of mine have been asked and answered. I just have 1, hopefully quicker 1 on software. So you talked a bit about kind of a more enhanced or sharper portfolio monitoring approach, given AI disruption risk, I guess, what are the red flags or like warning signs that you're looking out for that could maybe indicate whether AI disruption is materializing? It sounds like maybe you haven't seen them yet in the portfolio, but any color you can provide on what specifically you're looking for, I think, would be helpful.

Sure. I think it's just -- it's aggressive, active, consistent discussion, conversation and monitoring. One of the benefits that we have of operating at scale, right? And for us, that scale is $5.7 billion of AUM. It's a debt portfolio north of $5 billion. It's 127 different companies. It's $4 billion of committed capital last year. We have access to a lot of different companies, a lot of executives, a lot of venture capital partners. And so we are constantly having conversations with our portfolio ecosystem, which I think gives us a pretty good insight as to what our customers, what the investors are hearing and seeing on the ground. We also have very robust documentation. We require monthly financials. We require monthly compliance certificates and bring down of reps and warranties. Our investment teams are having conversations with the vast majority of our companies on a biweekly basis where we're touching base, hearing what they are hearing from their customers, and I think that puts us in a position to sort of avoid the red flag scenario where we can work with our companies to identify the yellow flags where if we start to see deterioration in KPIs, if we start to hear from a good portion of our companies in a particular software vertical that there's some pushback we can react pretty aggressively and pretty quickly.

We'll take our next question from Christopher Nolan with Ladenburg Thalmann.

Scott, in your comments, it sounds like the venture debt market is a little bit more active than the venture equity market. Is that more a function of just these portfolio companies are now focusing more on cash flow generation rather than growth?

Yes. Chris, I think the venture equity market, certainly in 2025, was incredibly robust. Second strongest year on record. The only year where more equity dollars were invested was 2021, which is sort of the peak of COVID. In 2025, $339.4 billion invested in about 15,000 different venture capital companies. So from the data that we have that we track, the aggregate data is pretty robust. The one data point that is not as robust is VC fundraising. That has declined in each of the last 4 years, but it's really declined and reverted back to what it was pre-COVID where historically, the venture capital firms would raise somewhere between $30 million and $60 billion per year. There was obviously the large spike '21 through '24. And then last year, that number reverted back down to about $66 billion. So that's the one data point that was down. But in terms of the equity dollars being invested, those numbers are very robust. They've increased in each of the last 3 years. And as I mentioned, 2025 was the second strongest year on record since we've been tracking it.

As a follow-up question, in the news, it's been reported that a new tax law in California could tax unrealized gains. And I think it applies only to billionaires. But how does that apply to the conversations that you're having with your portfolio companies?

It actually doesn't. So we're not interested in the equity exit. I mean we wanted to be successful and such, and we certainly want these founders to be successful. But our main goal is getting our debt repaid, making sure that they're operating to the plan in between granting them the money and getting it back. So we're not focused on that at this time.

I'm showing no further questions. I would now like to turn the call back to Scott Bluestein, for any closing remarks.

Thank you, Angela, and thanks to everyone for joining our call today. We look forward to reporting our progress on our Q1 2026 earnings call. Thanks, and have a great rest of the day.

This does conclude today's Hercules Capital Fourth Quarter and Full Year 2025 Financial Results Conference Call. You may now disconnect your lines, and have a wonderful day.