Greetings, and welcome to the Rand Capital Corporation Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Deborah Pawlowski, Investor Relations. Thank you. You may begin.

Thanks, Diego, and good morning, everyone. We certainly appreciate your interest in Rand Capital and for joining us for our third quarter 2020 financial results conference call. On the line with me today are Pete Grum, our Chief Executive Officer; and Dan Penberthy, our Executive Vice President and Chief Financial Officer. You should have a copy of the release that crossed the wires this morning discussing our results as well as the slides that will accompany our conversation today. If not, you can find them both on our website at randcapital.com. If you are following along on the slide deck, and we’ll turn to Slide 2, I would like to point out some important information. As you are likely aware, we may make some forward-looking statements during this presentation and during the question-and- answer session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Now if you’ll turn to Slide 3, I will hand the discussion over to Pete to begin. Pete?

Good morning, everyone. Thank you for your time today. As you all know, the COVID pandemic remains as part of our daily lives. We continue to work remotely and alternate everyone’s presence in the office for the health and safety of our personnel. But I am pleased to say that even in this environment, we delivered solid financial performance during the third quarter. Net investment income was $280,000 or $0.11 per share. We had announced since September that Rand Capital established a 10b5-1 stock repurchase plan to facilitate the purchase of shares under our $1.5 million share repurchase program. The 10b5-1 trading plan allows us to repurchase shares at times when we might not otherwise be able to because of self-imposed trading blackout periods and other securities laws. Under the plan during this quarter, we repurchased 2,092 shares of Rand stock at an average price of $11.29 per share. We are in a strong position with relatively significant liquidity of $22 million, which is compromised of $19 million in cash and $3 million in available leverage from the SBA. With this liquidity, we intend to build our portfolio and to continue to execute on our strategy. I should have – I would mention that last week, we filed a preliminary proxy with the SEC for a special meeting of shareholders to approve a new investment advisory and management agreements. The agreements are being renewed as a result of the change in ownership of Rand’s investment adviser, Rand Capital Management. The terms are not changing, and the services provided by RCM and investment processes are not changing. You can find the details of the change in ownership in the filing. If I can now turn to Slide 4. You can see that the debt investments now compromise 44% of total investments,…

Thanks, Pete, and good morning, everyone. If you could please turn to Slide 9, you can see that the total investment income in the third quarter of 202 was $737,000, a 68% increase from last year’s third quarter. This was largely due to the change in our portfolio profile to more debt investments that resulted in 93% or a $307,000 increase in portfolio interest income. As intended with our transformation, the externalization of the administration and management of the Rand portfolio reduced our cost by $74,000 in the quarter. As a result, growing investment income, this is coupled with reduced expenses, drove the net increase in net assets from operations of $263,000 or $0.10 per share. The waterfall graph on Slide 10 visually shows the impact of several items affecting the $200,000 increase in NAV from the trailing second quarter. This growth was primarily due to the $300,000 increase in net investment income, partially offset by unrealized depreciation on investments, and the 2,097 shares repurchased during the quarter. On a per share basis, NAV benefited by approximately $0.10 per share from these share repurchases. On Slide 11, we depict the waterfall of the change in NAV year-to-date. The cash portion of the special dividend, which was $4.8 million, was the largest element driving this decline. This was offset by $2.4 million in a net realized gain from a portfolio exit and $1 million in net investment income. Additionally, we have repurchased 3,397 shares of stock during the year-to-date, which did reduce NAV by $40,000 from the repurchases. However, on a per share basis, this contributed positively per share as we are able to purchase the shares at a discount to NAV. If you will turn to Slide 12, let me review the strength of our balance sheet. At the end…

[Operator Instruction] And our first question comes from Brad Davidson.

I missed the first couple of slides. But in case this hasn’t been addressed, the recent funding round for ACV Auctions, I was wondering if you could add any color to that, what you guys know on your end and how that impacts the valuation of ACV on the company’s accounts going forward.

I know and are able to share what is – I think they had a press release about raising $55 million and a new investor. And at this point, that’s all I know, but you can read into what you want. They’ve added some strength in their Board. They’ve added some investment professionals as employees who have had a history of taking companies public. And so that’s about all that I can really share with you.

So do you guys have some idea of how that impacts Rand’s investment in there? I mean do they provide you some sort of information that would detail that information?

We have not received anything formally from them.

Informally?

There’s nothing that I can share with you at this point. We will certainly take a look at it again when we hit the end of the year. But no, I actually don’t have any numbers other than the amounts that went in.

Brad, let me – Brad , if I may have a stab. I just also want to point out and put in context that our position, while very nice in our portfolio, is 12.1% of our portfolio, we hold much less than 1% of ACV.

Well, that’s pretty sizable.

Well, I just want to – we have it in context though.

I mean even prior to the – I believe it was the CFO they brought on. I’ve heard rumblings. And I’m not entirely sure when, but I think it’s – at this point, it’s almost inevitable unless the IPO market is greater. But are they required to provide anything to you guys as far as a valuation?

I don’t believe so. We have a good relationship with the company. It’s a fabulous company. It’s going to be great for Buffalo, and they’re doing very, very well. I would encourage you to take a look at the Buffalo business first.

Yes, I’m all aware of.

s:

Oh, that I wasn’t aware.

He also previously reported that the prior rounds were done at a $1.5 billion valuation. Of course, we don’t have insight into that, but these are what’s being reported by our major business paper in Buffalo.

Yes, yes, normal Buffalo guided to. So yes, I was aware of the $1.5 billion. I wasn’t aware that they had placed a $1.25 billion, and – so that certainly adds a little color to that.

Our next question comes from Carlo D’Angelo.

I’m just curious to know, what is like – I was talking to a friend of mine who also has some shares in Rand, and he was telling me that we could expect a dividend payout of $7.50 for every share that we had, something great like that. Is that true?

If your friend figured that out, it didn’t come from us. We are required when we filed for RIC status, which is our intention, and that’s the tax filing to distribute at a minimum 90% of our net investment income. To date, that doesn’t equal anywhere close to $7 a share.

Okay. All right. And then I have another follow-up question. Would we be able to reinvest those into Rand?

We do not, at this point, have a dividend reinvestment plan. That’s a formal plan. Of course, you can take anything you want and purchase in the open market.

Okay alright.

Thank you.

[Operator Instructions] Our next question comes from Sam Rebotsky with SER Asset Management.

Yes. Based on this third quarter, what would the dividend be available?

We have not done that computation, but we have started it. And as far as what it’s going to be, and it’s a fairly complex and new for us, but there’s – as Dan said, there’s two parts. There’s a capital gains part and there’s a net investment income. In a simplistic way, if we earned $0.11 every quarter, that would be $0.44, and we would have to distribute at a minimum 90% of that. So I don’t know what that is. 30, somewhere along that.

Okay. Now as far as future investments, the success we’ve made with ACV and various other investments, do we have a dollar amount that we expect to allocate to these type of investments relative to income investments?

We don’t have a formal thing. We are transitioning our portfolio to more income investments. We are not really looking and which is kind of the early-stage equity-only investment at this point, although we do have some and we’ll always have some, but it’s – we don’t have a formal strategy on that. You will find that, in general, when we’re looking at debentures, and there will be, in most cases, a portion also allocated to the equity piece.

And as far as the East West investing in some of the same investments we’re investing, have we created a dollar amount to allocate what they come into and what we come into to future investments?

No, we have not, Sam.

Okay. So they will only come into what we come into or jointly, I guess?

I’m not – I think you’re talking about East Asset Management?

Yes.

Okay. I’m not privy to what they invest in, but it’s a large, robust organization, and they own sports teams, and they own hotels, and they own oil and gas. And I’m sure they do other investments that we are not aware of nor do we participate.

Is there a plan for us – I think before you went to this income approach, you spoke of getting larger and having more investments into Rand. Is there any plans right now to increase the size of investments, although your stock is selling at a discount from the net asset value? How is that working? Because this was one of the approaches that you wanted to take to increase the size of investments.

Yes. That is in place, and we are looking. And I think in the next week or so, you’ll hear us announce some larger – at least one larger investment that we’ve made and are continuing to pursue larger investments.

Hopefully, this comes into the stock valuation and people give you more credibility because your stock is now trading at a significant discount from your net asset value. So good luck.

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There are no further questions at this time. I’ll turn it back to management for closing remarks.

Thank you for joining us this morning and for your interest in Rand. We look forward to updating all of you on our fourth quarter and full year results in March. Have a great day and stay healthy.

Thank you. This concludes today’s conference. Have a good day.