10-K 1 vll910k123120.htm VLL9INC 10K 12.31.20 Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 814-01253
VENTURE LENDING & LEASING IX, INC.
(Exact name of registrant as specified in its charter)

Maryland82-2040715
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

104 La Mesa Drive, Suite 102, Portola Valley, CA 94028
(Address of principal executive offices)
(Zip Code)

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

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

Securities Registered Pursuant to Section 12(g) of the Act: Common stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]Accelerated filer [ ]Non-accelerated filer [x]Smaller reporting company [ ]Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [ ] No [X]
As the registrant’s shares are not publicly-traded, the aggregate market value of the voting stock held by non-affiliates of the registrant cannot be determined.
The number of shares outstanding of each of the issuer’s classes of common stock, as of March 15, 2021, was 100,000.



Document Incorporated by Reference
                                                                    
Document Description10-K Part
Specifically Identified Portions of the Registrants Proxy Statement for the Annual Meeting of Shareholders to be held
May 19, 2021III


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PART I.
ITEM 1.    BUSINESS
Introduction.
Venture Lending & Leasing IX, Inc. (the “Fund”) was incorporated in Maryland on June 28, 2017 as a non-diversified, closed-end management investment company electing status as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) and is managed by Westech Investment Advisors, LLC (the “Manager” or “Management”). The Fund is a wholly-owned subsidiary of Venture Lending & Leasing IX, LLC, a Delaware limited liability company (the “Company”). The Fund’s investment objective is to achieve superior risk-adjusted investment returns. The Fund will primarily provide debt financing to carefully selected companies that have received equity funding from traditional sources of venture capital equity funding (i.e. a professionally managed venture capital firm), as well as non-traditional sources of venture capital equity funding (e.g. angel investors, strategic investors, family offices, crowdfunding investment platforms, etc.) (collectively, “Venture-Backed Companies”), generally in the form of secured loans. Secondarily, the Fund may provide debt financing to public and later-stage private companies. In most cases, the Fund will receive warrants for equity securities of the companies in connection with these loans. The Fund may make debt investments that are atypical in that, for example, the companies to which the financing is provided may be public companies, may not have venture backing, or may not offer senior securities (“Special Situation Financings”), including bridge financings and subordinated debt. The Fund may also make direct equity investments in Venture-Backed Companies. Prior to commencing its operations on May 2, 2018, the Fund had no operations other than accruing organizational expenses and the sale of 100,000 shares of common stock, $0.001 par value to the Company for $25,000 in June 2017. The Fund had elected to be treated for federal income tax purposes, as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986 (the “Code”).
The Fund’s shares of common stock, $0.001 par value (“Shares”) are held entirely by the Company. As capital is required to finance the acquisition of loans, additional capital is provided by the Company.
Investment Program.
General. The Fund’s primary investment strategy is to provide debt financing, in the form of secured loans, to carefully selected Venture-Backed Companies. In most cases, the Fund will receive warrants to acquire equity securities in connection with its venture loans. The Fund’s investment objective is to achieve superior risk-adjusted investment returns. The Fund may invest up to 20% of the aggregate cost of all investments of the Fund, determined cumulatively over the life of the Fund, in Special Situation Financings. In some instances, the Fund’s Special Situation Financing investments may be in companies that have been bootstrapped (i.e. funded solely by the personal assets of their founders or other individuals), without substantial equity investment from investors or participation of venture capital investors. The Fund does not intend to invest in any company to secure control of its securities primarily for the purpose of making a profit in the sale of the controlled company’s securities, and, for the avoidance of doubt, any such investment would not constitute a Special Situation Financing. The Fund may also invest up to 10% of the aggregate amount of all investments of the Fund (determined cumulatively over the life of the Fund) in direct equity investment opportunities such as convertible debt, secondary common stock purchases or other equity instruments issued by companies of diverse capitalization and creditworthiness, including, without limitation, early-stage private companies, public and later-stage private companies, and companies undergoing restructuring or recapitalization of their existing debt or equity financing (provided, however, that any amounts paid by the Fund to acquire equity securities pursuant to the receipt or exercise of warrants or stock received in connection with the Fund’s venture loans shall not be taken into account in determining whether such 10% threshold has been met). Such direct investments generally will be in equity securities of borrowers in the Fund’s portfolio, although equity securities of other companies could also be purchased. This aggregate investment strategy involves a high degree of risk, including: illiquidity of portfolio investments; risk of default by borrowers, many of whom have no or little operating profit or cash flow as of the commencement of a financing transaction; interest rate risk; litigation risk; the speculative nature of investments in warrants for stock or directly in stock; and the risks involved in investing in privately-held and emerging companies. The Fund will make available significant managerial assistance through its officers to certain companies whose securities are held in the Fund’s portfolio, as described herein under the caption “Regulation.”
The Fund intends to use a buy-and-hold strategy where debt investments are held to maturity. All securities are evaluated on a regular basis to determine whether there should be any change to this strategy. Some debt investments are restructured, which may result in the extension of the original maturity date or other change in the instrument, including but not limited to, conversion of all or part of the instrument to equity. The Fund does not intend to purchase publicly-held securities; however, some publicly-held securities may be acquired through warrant exercises, mergers, acquisitions, and IPOs of the companies in which investments are made. Additionally, in some cases, publicly-traded securities may be issued in conjunction with loans made to public companies. When a company’s securities become publicly-traded, the Fund may hold these securities and sell them or may choose to distribute the securities directly to the Company. If held, publicly-traded securities are monitored on an on-going basis, and a variety of factors regarding the issuing company (e.g., trend in stock price, underlying business fundamentals and potential for growth, information regarding the lock-up, etc.) are used to determine when to sell these securities.
As a BDC, the Fund must invest at least 70% of its total assets in qualifying assets (“Qualifying Assets”) consisting of (a) interests in Eligible Portfolio Companies and (b) certain other assets including cash and cash equivalents. An “Eligible Portfolio Company” is a United States company that is not an investment company as defined or excluded from the definition of an investment company in Section 3 of the 1940 Act, and that either: (i) does not have a class of securities listed on a national securities exchange, or does have a class of
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securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250.0 million; or (ii) is actively controlled by a BDC and has an affiliate of a BDC on the Eligible Portfolio Company’s Board of Directors; or (iii) has total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million; or (iv) meets such other criteria as may be established by the Securities and Exchange Commission (“SEC”). Control under the 1940 Act is presumed to exist where a BDC owns more than 25% of the outstanding voting securities of the Eligible Portfolio Company. Also included in Qualifying Assets are follow-on investments in a company that met the definition of Eligible Portfolio Company at the time of the Fund’s initial investment, but subsequently does not meet such definition because it has a class of securities listed on a national securities exchange, if, at the time of the follow-on investment, the Fund (a) owns at least 50% of (i) the greatest number of equity securities of such company, including securities convertible into or exchangeable for such securities, and (ii) the greatest amount of certain debt securities of such company held by the Fund at any time during the period when such company was an Eligible Portfolio Company, and (b) is one of the twenty largest holders of record of the company’s outstanding voting securities. The Fund may invest up to 30% of its total assets in non-Qualifying Assets, including interests in companies that are not Eligible Portfolio Companies (for example, because the company’s securities are quoted on the NASDAQ Global Market (“NASDAQ”)) and Eligible Portfolio Companies as to which the Fund does not offer to make available significant managerial assistance. As a BDC, the Fund is generally prohibited under the 1940 Act from investing in securities issued by broker/dealers, investment advisers, and underwriters unless certain conditions are met. As of December 31, 2020, the percentage of non-qualifying investments in the Fund was 11.0%.
BDCs cannot acquire any assets other than those Qualifying Assets described in subparagraphs (1) through (8) below unless, at the time of the acquisition, the assets described in subparagraphs (1) through (8) below represent at least 70% of the value of the BDC’s total assets (the “70% basket”). Below is a general summary of Qualifying Assets in which the Fund may invest.
1. Securities issued in transactions not involving a public offering from issuers which are Eligible Portfolio Companies (including affiliated persons or persons that have been affiliated persons within the preceding 13 months) or from any other person, subject to such rules and regulations as the SEC may prescribe;
2. Securities purchased in transactions not involving any public offering from an issuer, or from any person who is an officer or employee of the issuer, if the issuer is a U.S. company that is not an investment company, but the issuer is not an Eligible Portfolio Company because it has issued a class of margin securities that is eligible for margin loans, and at the time of purchase the BDC owns at least 50% of (i) the greatest number of equity securities (on a fully diluted basis) of the issuer and (ii) the greatest amount of such issuer’s debt securities held by the BDC at any point in time during the period when such issuer was an Eligible Portfolio Company, and, (iii) the BDC is one of the 20 largest holders of the issuer’s outstanding voting securities;
3. Securities of any Eligible Portfolio Company that is controlled by the BDC (either alone or as part of a group acting together) and the BDC exercises a controlling influence over the management or policies, and has an affiliated person who is a director of, the Eligible Portfolio Company;
4. Securities issued in transactions not involving a public offering from U.S. non-investment company issuers subject to bankruptcy, reorganization, insolvency or similar proceeding or otherwise unable to meet their obligations without assistance (purchase may be made from affiliated persons or persons that have been affiliated persons within the preceding 13 months or in limited circumstances other persons);
5. Securities of an Eligible Portfolio Company purchased from any person in transactions not involving a public offering when no public market for the securities exists and the BDC owned at least 60% of the outstanding equity (on a fully diluted basis) of the issuer immediately prior to the purchase;
6. Securities received in exchange for or distributed with respect to the foregoing securities (including securities obtained pursuant to the exercise of options, warrants or rights relating to such securities);
7. Cash, cash items, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment; and
8. Office furniture and equipment, interests in real estate, deferred organization and operating expenses, and other non-investment assets necessary and appropriate to the BDC’s operations.
“Making available significant managerial assistance” is defined under the 1940 Act, in relevant part, as (i) an arrangement whereby the BDC, through its officers, directors, employees or general partners, offers to provide and, if accepted, does provide, significant guidance and counsel concerning the management, operations or business objectives of a portfolio company; or (ii) the exercise by a BDC of a controlling influence over the management or polices of the portfolio company by the BDC acting individually or as part of a group acting together which controls the portfolio company. The officers of the Fund offer to provide managerial assistance, including advice on equipment acquisition and financing, cash flow and expense management, general financing opportunities, acquisition opportunities and opportunities to access the public securities markets, to the great majority of companies to whom the Fund provides venture loans. In some instances, directors of the Fund might serve on the Board of Directors or as officers of borrowers.
Venture Loans. Venture loans generally are made pursuant to a negotiated loan agreement, and are evidenced by promissory notes secured by specific equipment or other assets of the borrower financed with the proceeds of such loans, or secured by a broader lien on substantially all of the borrower’s assets where the purpose of the loan is to provide growth or general working capital to the borrower. The loans are typically secured by a first-position lien on such assets. The Fund generally receives periodic payments (usually monthly) and may
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receive a final payment equal to a percentage of the original loan amount, payable at maturity of the loan (whether as stated or accelerated). The interest rate and amortization terms of venture loans and all other transaction terms are individually negotiated between the Fund and each borrower.
The documentation for venture loans include representations, warranties, covenants and events of default intended to protect the Fund and which are customary for commercial transactions of this type and size. Typical material terms include restrictions on additional debt, covenants to maintain the loan collateral and keep it adequately insured and free of liens, prohibitions against sale or other disposition of the assets except under specified conditions, and acceleration provisions making the remaining outstanding amounts under the loan immediately due and payable and giving rise to a right to take possession of the collateral upon certain events of default, including failure to make required payments, insolvency, and failure to comply with covenants. There can be no assurance that the value of the collateral at the time of default will be at least equal to the outstanding amount due under the loan.
Typically, loans are structured as commitments by the Fund to provide financing, in one or more advances over a specified period of availability, determined as part of the underwriting process. The commitments of the Fund to finance future asset acquisitions or growth capital needs is typically subject to the absence of any default under the loan and compliance by the borrower with requirements relating to, among other things, the type of assets to be acquired, and if applicable, the borrower’s achievement of performance-based milestones. Although the Fund’s commitments generally provide that the Fund is not required to continue to fund additional asset purchases or growth capital if there has been a material adverse change in the borrower’s financial condition, a borrower’s financial condition may not be as strong at the time a loan is funded as it was when the related commitments were made.
Warrants. The Fund generally acquires warrants to purchase equity securities of the borrower in connection with financings. It is anticipated that such warrants, generally, will be distributed by the Fund to the Company simultaneously with, or shortly following, their acquisition. The terms of the warrants, including the expiration date, exercise price, and terms of the equity security for which the warrant may be exercised, are negotiated individually with each borrower, and are likely to be affected by the price and terms of securities issued by the company to its venture capitalists and other holders in equity financings close in time to the Fund’s making of the loan commitment. Based upon the Manager’s past experience, it is anticipated that most warrants will be exercisable for a term of five to ten years, and will have an exercise price based upon the price at which the borrower most recently issued equity securities or, if a new equity offering is anticipated, the future price of such equity securities (and sometimes a “blended price”). In certain transactions, it is anticipated that warrants will be issued with an exercise price that is waived in connection with an initial public offering or acquisition. The equity securities for which the warrant will be exercised generally will be convertible preferred stock (of which there may be one or more classes) or common stock. Substantially all the warrants and underlying equity securities will be restricted securities under the Securities Act of 1933 (the “1933 Act”) at the time of issuance; the Fund generally negotiates registration rights with the borrower that may provide “piggyback” and S-3 registration rights, which permit the owner of the warrant under certain circumstances to include some or all of the securities that will be acquired upon exercise of the warrant in a registration statement filed by the borrower. The Fund generally will negotiate “net issuance” provisions in the warrants, which allow the owner of the warrant to exercise the warrant without payment of any cash, and thereby receive a net number of shares determined by the increase in the value of the issuer’s stock (at the time of exercise) above the exercise price stated in the warrant.
Equity Securities. The Fund may make direct investments in equity securities (including convertible notes) having an aggregate cost of up to 10% of the aggregate cost of all investments of the Fund determined cumulatively over the life of the Fund (provided, however, that any amounts paid by the Fund to acquire equity securities pursuant to the receipt or exercise of warrants or stock received in connection with the Fund’s venture loans shall not be taken into account in determining whether such 10% threshold has been met). For example, the Fund may invest equity in a follow-on round of financing to maintain or increase its ownership stake. In some cases, equity investments may be made in companies where the Fund does not have an existing loan. Additionally, the Fund anticipates selectively pursuing opportunistic equity purchases, which may take the form of primary or secondary stock purchases. The Manager expects that the equity securities generally will be convertible preferred stock, though it is possible the Fund would invest directly in common stock of Venture-Backed Companies or convertible notes which convert into common stock of Venture-Backed Companies. The Fund did not make any direct investments in equity securities during the prior year. It is likely that, as in the case of warrants, direct equity investments, if made by the Fund, generally will be distributed to the Company simultaneously with, or shortly following, their acquisition. However, although, the Code and 1940 Act requirements could, in certain circumstances, compel the Fund to hold such securities for a longer period of time prior to their distribution to the Company.
Investment Policies. For purposes of the investment policies (other than the diversification standards below), references to the percentage of the Fund’s total assets “invested” in securities of a company will be deemed to refer, in the case of debt financings, to the total amount of financings that the Fund has committed to provide, and in the case of equity investments, to the cost basis of such equity investments; the Fund will not be required to divest securities in its portfolio or decline to fund an existing commitment because of a subsequent change in the value of securities the Fund has previously acquired or committed to purchase.
Diversification Standards. The Fund is classified as a “non-diversified,” closed-end investment company under the 1940 Act. However, the Fund seeks to continue to qualify as a RIC and therefore, must meet diversification standards under the Code.
To qualify as a RIC and obtain the special pass-through status available to RICs under the Code, the Fund must meet the issuer diversification standards under the Code that generally require that, at the close of each quarter of the Fund’s taxable year, (i) not more than 25% of the value of its total assets is invested in the securities of a single issuer, and (ii) at least 50% of the value of its total assets is represented by cash, cash items, government securities, securities of other RICs and other securities (counting each investment in such other securities only if the value of such securities does not exceed 5% of the value of the Fund’s total assets and the Fund does not own more than
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10% of the outstanding voting securities of the issuer of such securities). For purposes of the diversification requirements under the Code, the percentage of the Fund’s total assets “invested” in securities of a company will be deemed to refer, in the case of financings in which the Fund commits to provide financing prior to funding the commitment, to the amount of the Fund’s total assets represented by the value of the securities issued by the borrower to the Fund at the time each portion of the commitment is funded.
If the Fund meets the initial requirements of a RIC, the Fund shall not lose its status as a RIC because of a discrepancy during a subsequent quarter between the value of its various investments unless the discrepancy exists immediately after the acquisition of any security and is wholly or partly the result of such acquisition. This is called the “fluctuation in value” exception. This exception also applies if distributions of cash cause the RIC to be out of compliance with either the 25% or 5%/50% tests.
Industry Segment Diversification. The Fund generally seeks to invest no more than 30% of its total assets in securities of companies in any single industry. The broad industry categories in which the Fund anticipates that most of its investments will fall (and within each of which there may be several “industries” for purposes of the industry diversification policy) include computers and storage, semiconductor and equipment, internet, medical devices, software, and several other categories.
Investment Guidelines. In selecting investments for the Fund’s portfolio, the Manager will endeavor to meet the investment guidelines established and approved by the Fund’s Board of Directors. The Fund may, however, make investments that do not conform to one or more of these guidelines when deemed appropriate by the Manager. Such investments might be made if the Manager believes that a failure to conform in one area is offset by exceptional strength in another or is compensated for by a higher yield, favorable warrant issuance or other attractive transaction terms or features.  
Stage of Development Guidelines. The Manager seeks to diversify the Fund’s portfolio based on the development stage of the companies in which it invests. Generally, Venture-Backed Companies fall into several lifecycle stages, including the following:  

Early or seed stage companies represent the initial stages of a start-up company’s development. These companies have raised varying amounts of equity capital to prove a concept and qualify for larger sums of start-up capital. Their activities generally are limited to product development, scientific and market research, recruiting a management team and proving early business traction. These companies generally have investor syndicates that include early stage investors such as high net worth angel investors, venture capitalists, incubators, and crowd funding platforms.
Emerging growth stage companies have a proven early product/market fit and have initiated or are about to initiate full-scale operations and sales but may not be showing a profit.
Mezzanine stage companies are approaching or have attained break-even or profitability and are continuing to expand.
    
    The Manager refers to its investments in seed and start-up companies as “Early Stage” and investments in emerging growth companies and mezzanine companies as “Expansion Stage.” The Manager seeks to diversify its investments across stages. The classification of companies by stages of development involves a subjective judgment by the Manager, and it is possible that other investors or market analysts would classify the same companies differently than the classifications used by the Fund.

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

        Company Guidelines.

The company has a minimum capitalization of at least $1.0 million.
The company has at least six months’ worth of available cash to fund its operations or indications from its equity investors that they will make investments necessary to provide such cash.
The company’s equity investors have indicated a current intention to make additional equity financing available to the company, or the company has a forecasted positive cash flow.
The company’s business plan contemplates sales of at least $25.0 million within five years.
The company has previously closed equity financing or will close equity financing prior to the funding of the loan.

        Transaction Guidelines for Loans.

The term of the loan does not exceed 60 months and does not extend beyond December 31, 2028.
Debt service requirements of the loan are, in the opinion of the Manager, not likely to become an impediment to the company raising additional capital.
The loan is secured by all or substantially all of the borrower’s assets.
        
    Equity Venture Capital Support Guidelines.

The company’s equity investors have (i) in the opinion of the Manager, significant venture capital and/or industry experience, and (ii) follow-on capital to support the company.

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Special Situation Financings. The Manager may invest up to 20% of the Fund’s aggregate investments determined cumulatively over the life of the Fund in Special Situation Financings. Such Special Situation Financings could include investments targeted towards late-stage or public companies seeking additional growth capital to expand product offerings, increase market penetration or fund strategic acquisitions of other companies or technology. In these situations, the Fund would only consider investing in this Special Situation Financings if it determined it to be of equivalent or better quality as compared to a senior secured loan made to the Fund’s more typical portfolio companies. Further, the Fund may also choose to subordinate existing outstanding debt as part of a restructuring or work-out arrangement in order to allow the company to successfully complete a transaction such as an acquisition or round of financing. There can be no assurance that the subordination will work to the benefit of the Fund. The Manager will target companies whose cash flow from operations and cash reserves are expected to service the Fund’s investment on a current basis. Investments may be structured as senior debt, convertible debt, or other debt/equity structures. In addition, Special Situation Financings could include investments in a “troubled” company undergoing a restructuring or recapitalization of its existing debt or equity, and making investments in subordinated debt, providing bridge financing to a company which is in the process of raising additional private equity, planning an initial public offering or is seeking to enter into a business combination through which it would be acquired. In some instances, these companies will have been bootstrapped (i.e. funded solely by the personal assets of their founders or other individuals), without any substantial investment from venture capital or other investors. As of December 31, 2020, the Fund made Special Situation Financings of about 1.2% of total commitments.
International Investments. As a BDC, the Fund may invest in companies which are not Qualifying Assets, as long as at the time of such investment, at least 70% of the value of the Fund’s total assets are invested in Qualifying Assets. An Eligible Portfolio Company must be organized under the laws of, and have its principal place of business in, the United States. Therefore, the Fund could invest up to 30% of its total assets in foreign-based companies. If reasonably practicable, investments in foreign-based companies would be secured by foreign-based assets in addition to being secured by any assets located in the United States.
Leverage. The Fund borrowed money and intends to continue borrowing from and could enter into secured contracts, which instruments may be considered debt securities, with banks, insurance companies and other lenders to obtain additional funds to originate loans (and possibly for Special Situation Financings), if such borrowings are available on terms that are acceptable to the Manager and Board of Directors of the Fund. It is possible, due to potential future tightening of the credit markets, that the Fund may not be able to secure such borrowings on acceptable terms. Any borrowings of the Fund will be subject to the asset coverage requirements under the 1940 Act, including borrowings in excess of 5% of total assets for temporary purposes, and all borrowings for emergency purposes that are not “temporary.” In April 2019, the Fund’s sole shareholder approved the Fund to apply the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act, which permits the Fund to double the maximum amount of leverage that it may incur by reducing the asset coverage requirement applicable to the Fund from 200% to 150%.
Temporary Investments. Pending investment, and until distributions to the stockholders are made, the Fund will invest excess cash in: (i) time deposits, certificates of deposit and similar instruments of highly-rated banks; (ii) securities issued or guaranteed by the U.S. government, its agencies or instrumentalities; (iii) repurchase agreements that are: (a) issued by highly-rated banks or securities dealers; and (b) fully collateralized by U.S. government securities; (iv) short-term high-quality debt instruments of U.S. corporations; and (v) money market funds and other pooled investment funds whose investments are restricted to those described above. The average maturity of such investments, weighted by their par value, will not exceed 90 days.
Other Investment Policies. The Fund will not sell securities short (except to the extent the Fund has a warrant for, or owns, shares equal to the number of shares which is the subject of the proposed short sale), purchase securities on margin (except to the extent the Fund’s permitted borrowings are deemed to constitute margin purchases), purchase or sell commodities or commodity contracts (except interest rate hedging transactions in connection with the Fund’s permitted borrowings), or purchase or sell real estate. The Fund may, however, write puts and calls, and acquire options, as a hedge for equity investments or to increase return through a covered call. The Fund will not underwrite the securities of other companies, except to the extent they may be deemed underwriters upon the disposition of restricted securities acquired in the ordinary course of their business. The Fund may, however, use borrowed funds for its lending activities. See the discussion herein under the caption “Risk Factors - General - Leverage.”
The Fund’s investment objectives, investment policies and investment guidelines (other than its intended status as a BDC) are not fundamental policies and may be changed by the Fund’s Board of Directors at any time.
Regulation. As a BDC, the Fund is required to invest in Eligible Portfolio Companies and (with certain exceptions) make available to them significant managerial assistance. Eligible Portfolio Companies, and the regulations governing assets a BDC can acquire, are described under the heading “Investment Program” above.  
The Fund, as a BDC, may sell its securities at a price that is below its net asset value per share, provided that a majority of the Fund’s disinterested directors, or not interested parties of the Fund under Section 2(a)(19) of the 1940 Act (i.e., independent director), has determined that such sale would be in the best interests of the Fund and its shareholder and upon the approval by the holders of a majority of its outstanding voting securities, including a majority of the voting securities held by non-affiliated persons, of such policy or practice within one year of such sale. A majority of the disinterested directors also must determine in good faith, in consultation with the underwriters of the offering if the offering is underwritten, that the price of the securities being sold is not less than a price which closely approximates market value of the securities, less any distribution discounts or commissions. As defined in the 1940 Act, the term “majority of the outstanding voting securities” of the Fund means the vote of (i) 67% or more of the Fund’s Shares present at a meeting, if the holders of more than 50% of the outstanding Shares are present or represented by proxy, or (ii) more than 50% of the Fund’s outstanding Shares, whichever is less.
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Many of the transactions involving a company and its affiliates (as well as affiliates of those affiliates) which were prohibited without the prior approval of the SEC under the 1940 Act prior to its amendment by the 1980 provisions are permissible for BDCs, including the Fund, upon the prior approval of a majority of the Fund’s disinterested directors and a majority of the directors having no financial interest in the transactions. However, certain transactions involving certain persons related to the Fund, including its directors, officers, and the Manager, may still require the prior approval of the SEC. In general, (i) any person who owns, controls, or holds power to vote, more than 5% of the Fund’s outstanding Shares; (ii) any director, executive officer, or general partner of that person; and (iii) any person who directly or indirectly controls, is controlled by, or is under common control with, that person, must obtain the prior approval of a majority of the Fund’s disinterested directors, and, in some situations, the prior approval of the SEC, before engaging in certain transactions involving the person or any company controlled by the Fund. The 1940 Act generally does not restrict transactions between the Fund and its eligible portfolio companies. While a BDC may change the nature of its business so as to cease being a BDC (and in connection therewith withdraw its election to be treated as a BDC) only if authorized to do so by a majority vote (as defined by the 1940 Act) of its outstanding voting securities, shareholder approval of changes in other fundamental investment policies of a BDC is not required (in contrast to the general 1940 Act requirement, which requires shareholder approval for a change in any fundamental investment policy).
Dividends and Distributions. The Fund intends to distribute to its shareholder all equity securities received from portfolio companies simultaneously, or shortly following, their acquisition and substantially all of its net investment income and net realized capital gains, if any, as determined for income tax purposes less appropriate reserves. Applicable law, including provisions of the 1940 Act, may limit the amount of dividends and other distributions payable by the Fund. Income dividends will generally be paid quarterly to shareholders of record on the last day of each preceding calendar quarter end. Substantially all of the Fund’s net capital gain (the excess of net long-term capital gain over net short-term capital loss) and net short-term capital gain, if any, will be distributed annually, or on a more frequent basis as determined by the Manager.
Until June 30, 2022, the Fund may make loan commitments to reinvest the proceeds of matured, repaid or resold investments, net of required distributions to its shareholder, principal payments on borrowings and expenses or other obligations of the Fund, in new loans. The Manager shall be permitted to extend the investment period by up to two (2) additional calendar quarters in its sole and absolute discretion. Following the end of the commitment period, the Fund will begin to distribute to investors all proceeds received from principal payments and sales of investments, net of reserves and expenses, principal repayments on the Fund’s borrowings, amounts required to fund financing commitments entered into before such date, and any amounts paid on exercise of warrants. Distributions of such amounts are likely to cause annual distributions to exceed the earnings and profits of the Fund available for distribution, in which case such excess will be considered a tax-free return of capital to a shareholder to the extent of the shareholder’s adjusted basis in its shares and then as capital gain. The Fund may borrow money to fund shareholder distributions, to the extent consistent with the 1940 Act and a prudent capital structure.
Competition. Other entities and individuals compete for investments similar to those proposed to be made by the Fund, some of whom may have greater resources than the Fund. Furthermore, the Fund’s need to comply with provisions of the 1940 Act pertaining to BDCs and provisions of the Code pertaining to RICs might restrict the Fund’s flexibility as compared with its competitors.  The need to compete for investment opportunities may make it necessary for the Fund to offer borrowers more attractive transaction terms than otherwise might be the case.
Executive Officers. The following are the executive officers of the Fund. All officers serve at the pleasure of the Fund’s Board of Directors.
Name and Position with FundAgeOccupation During Past Five Years
Ronald W. Swenson, Chairman, and Director76Chairman, Chief Executive Officer, Director, and other positions for Westech Investment Advisors since 1994.
Maurice C. Werdegar, Chief Executive Officer56Chief Executive Officer, Chief Operating Officer, Director and other positions for Westech Investment Advisors since 2001.
David R. Wanek, President47President and other positions for Westech Investment Advisors since 2001.
Jay L. Cohan, Vice President, Assistant Secretary55Vice President, Assistant Secretary and other positions for Westech Investment Advisors since 1999.
Judy N. Bornstein, Vice President, Chief Financial Officer, Chief Compliance Officer, Treasurer, and Secretary56Vice President, Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary for Westech Investment Advisors since 2019. From 2017 to 2019, she served as the Chief Financial Officer of Generate Capital. Prior to joining Generate Capital, she spent 11 years as Managing Director, CFO, and Chief Compliance Officer of American Infrastructure Funds.
Employees. The Fund has no employees; all of its officers are officers and/or employees of the Manager, and all of its required services are performed by officers and employees of the Manager.
Available Information. The Fund’s office is located at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028, and the phone number is (650) 234-4300. The Manager maintains a website at https://westerntech.com/.
The SEC maintains a website, www.sec.gov, that contains reports, proxies and information statements filed by the Fund.
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ITEM 1A.      RISK FACTORS
GENERAL
    
    Reliance on Management. The Fund will be wholly dependent for the selection, structuring, closing and monitoring of its investments on the diligence and skill of the Manager, acting under the supervision of the Fund’s Board of Directors. Although the operating principals of the Manager have a long history of combined experience in investing in venture lending transactions and equity investments, there can be no assurance that the Fund will attain its investment objective. Furthermore, the Manager does not have substantial experience investing in Special Situation Financings such as convertible and subordinated debt of public and late-stage private companies. The officers of the Manager will have primary responsibility for the selection of the companies in which the Fund will invest, the negotiation of the terms of such investments and the monitoring and servicing of such investments after they are made. Although the officers of the Manager intend to devote such time as is necessary to the affairs of the Fund, they are not required to devote full time to the management of the Fund. Furthermore, there can be no assurance that any officer will remain associated with the Manager or that, if an officer ceased to be associated with the Manager, the Manager would be able to find a qualified person or persons to fill the position.
Illiquid and Long-Term Investment. On last day of the calendar quarter of the fifth anniversary of the first investment by the Fund (or, if earlier, the Company), the Fund will cease to make any new equity investments as well as investments in venture loans (except pursuant to commitments made before the fourth anniversary, or if applicable, the extended commitment date (up to 2 calendar quarters)), and will distribute to its shareholder all proceeds received from principal payments and sales net of: (i) reserves and expenses; (ii) principal repayments on the Fund’s borrowings; (iii) amounts required to fund financing commitments entered into before such fourth anniversary, or if applicable, the extended commitment date; and (iv) any amounts paid on exercise of warrants or otherwise paid to protect the value of existing investments (including, for example, pay-to-play provisions and purchases of equity securities in “down rounds” to avoid dilution). The Fund’s Amended and Restated Articles of Incorporation provide that, on December 31, 2028, the Fund automatically will be dissolved without any action by its shareholder. From and after such dissolution, the Fund’s activities will be limited to the winding-up of its affairs, the liquidation of its remaining assets and the distribution of the net proceeds thereof to its shareholder. Although the Fund generally would not make any loan with a stated maturity date later than December 31, 2028, it is possible that, due to a default by a borrower or a transaction restructuring due to a borrower’s financial difficulties, such a loan may remain outstanding in whole or in part beyond its original maturity date. Furthermore, the Fund may not be able to sell warrants it receives from borrowers, or the equity securities (including those received upon exercise of warrants or conversion of debt instruments or in connection with restructuring of a troubled loan), to the extent those investments were retained by the Fund and not distributed earlier to its shareholder, for a significant period of time due to legal or contractual restrictions on resale or the absence of a liquid secondary market. As a result, the liquidation process might not be completed for a significant period after the Fund’s dissolution. In addition, it is possible that, if certain of the Fund’s assets are not liquidated within a reasonable time after the Fund’s dissolution, the Fund may elect to make a distribution in kind of all or part of such assets to its shareholders. In such case, the shareholders would bear any expenses attendant to the liquidation of such assets.
Although shares of the Fund have been registered under the Securities Exchange Act of 1934 (the “Exchange Act”), there will be no trading market for shares in the Fund (which are all owned by the Company), and thus shares of the Fund should be considered illiquid.
Competition. Other entities and individuals compete for investments similar to those made by the Fund, some of whom, with respect to investments in the form of loans, and many of whom, with respect to the equity investments and convertible and subordinated debt, have greater resources than the Fund. Furthermore, competition could increase given the low barriers to entry in the industry. Additionally, the Fund’s need to comply with provisions of the 1940 Act pertaining to BDCs and provisions of the Code pertaining to RICs, might restrict the Fund’s flexibility as compared with its competitors. The need to compete for investment opportunities may make it necessary for the Fund to offer borrowers or companies in which it makes equity investments more attractive terms than otherwise might be the case. If the Fund encounters increased competition from other entities or individuals or is hindered by the provisions of the BDC’s or RIC’s, the Fund may not fund new investments, which would impact the operations of the Fund.
Convertible Debt. Convertible debt instruments issued by public and late-stage private companies may comprise some of the Special Situation Financings in which the Fund may invest. Convertible debt generally offers lower interest yields than non-convertible debt of similar quality. The market value of debt tends to decline as interest rates increase and, conversely, to increase as interest rates decline. The market value of convertible debt, however, often reflects the market price of common stock of the issuing company when that stock price is greater than the conversion price of the convertible debt. The conversion price is the predetermined price at which the debt instrument could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible debt tends to be influenced more by the yield of the debt instrument. Thus, it may not decline in price to the same extent as the underlying common stock.
Subordinated Debt. Some of the Special Situation Financings in which the Fund may invest may consist of subordinated debt instruments, which tend to be predominantly high-yield non-convertible debt securities. Investments in high-yield securities involve substantial risk of loss. Sub-investment grade non-convertible debt securities, or comparable unrated securities, are commonly referred to as “junk debt” and are considered speculative with respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic or business developments. The market values for high-yield securities tend to be very volatile, and these securities are less liquid than investment grade debt securities.
Leverage. The Fund currently borrows money and intends to continue borrowing and could enter into secured contracts, which instruments may be considered debt securities, with banks, insurance companies, and other lenders to obtain additional funds to originate
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loans (and possibly Special Situation Financings), if such borrowings are available on terms that are acceptable to the Manager and Board of Directors of the Fund. It is possible, due to potential future tightening of the credit markets, that the Fund may not be able to secure such borrowings on acceptable terms. Any borrowings of the Fund will be subject to the asset coverage requirements under the 1940 Act, including borrowings in excess of 5% of total assets for temporary purposes, and all borrowings for emergency purposes that are not “temporary.” Under the 1940 Act, the Fund may not incur borrowings unless, immediately after the borrowing is incurred, such borrowings would have “Asset Coverage” of at least 200%, generally, and of at least 150% if certain conditions are met. “Asset Coverage” means the ratio which the value of the Fund’s total assets, less all liabilities not represented by (i) the borrowings and (ii) any other liabilities constituting “senior securities” under the 1940 Act, bears to the aggregate amount of such borrowings and senior securities. The practical effect of this limitation is to limit the Fund’s borrowings and other senior securities to 50% of its total assets less its liabilities other than the borrowings and other senior securities. The 1940 Act also requires that, if the Fund borrows money, provisions be made to prohibit the declaration of any dividend or other distribution on the shares (other than a dividend payable in shares), or the repurchase by the Fund of shares, if, after payment of such dividend or repurchase of shares, the Asset Coverage of such borrowings would be below 200% (or 150%, as applicable). In April 2019, the Fund’s sole shareholder approved the Fund to apply the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act, which permits the Fund to double the maximum amount of leverage that it may incur by reducing the asset coverage requirement applicable to the Fund from 200% to 150%. If the Fund is unable to pay dividends or distributions in the amounts required under the Code, it might not be able to qualify for the pass-through status as a RIC or, if qualified, to continue to so qualify.
The Fund has a secured, syndicated loan facility with a borrowing availability of $200.0 million and the outstanding balance under the facility as of December 31, 2020 was $140.0 million.
The use of leverage increases investment risk. The Fund’s use of leverage is premised upon the expectation that the Fund’s all-in borrowing costs will be lower than the return the Fund achieves on its investments. To the extent the income or capital gains derived from investments purchased with borrowed funds exceeds the cost of borrowing, the Fund’s overall return will be greater than if leverage had not been used. Conversely, if the income or capital gain from the investments purchased with borrowed funds is not sufficient to cover the cost of borrowing, or if the Fund incurs capital losses, the return to the Fund will be less than if leverage had not been used, and therefore the amount available for distribution will be reduced or potentially eliminated.
Lenders have required that the Fund pledge all assets as collateral for borrowings and have required that the Company provide guarantees or other credit enhancements. The Company, however, will not pledge its assets to secure such borrowings as this could result in unrelated business taxable income to its tax-exempt members. If the Fund is unable to service the borrowings, the Fund may risk the loss of such pledged assets.
    Lenders required that the Fund agree to loan covenants limiting the Fund’s ability to incur additional debt or otherwise limiting the Fund’s flexibility, and loan agreements may provide for acceleration of the maturity of the indebtedness if certain financial tests are not met. To minimize risks associated with borrowing money at floating rates and lending money at fixed rates, the Fund may enter into interest rate hedging transactions with respect to all or any portion of the Fund’s borrowings. There can be no assurance that such interest rate hedging transactions will be available in forms acceptable to the Fund. In addition, entering into interest rate hedging transactions increases costs to the Fund. Finally, it is possible that the Fund could incur losses from being “over-hedged,” which would result if the debt that was hedged is repaid faster than expected.
Regulation. The Fund has elected to be treated as a BDC under the Small Business Incentive Act of 1980, which modified the 1940 Act. Although BDCs are not required to register under the 1940 Act and are relieved from compliance with a number of the provisions of the 1940 Act, there are now greater restrictions in some respects on permitted types of investments for BDCs. Moreover, the applicable provisions of the 1940 Act continue to impose numerous restrictions on the activities of the Fund, including restrictions on leverage and on the nature of its investments. While the Fund is not aware of any judicial rulings under, and is aware of only a few administrative interpretations of, the Small Business Incentive Act of 1980, there can be no assurance that such Act will be interpreted or administratively implemented in a manner consistent with the Fund’s objectives or manner of operation.
Litigation.  The Fund could be subject to litigation by borrowers, based on theories of breach of contract to lend, “lender liability,” or otherwise in connection with its loan and investment transactions. The defense of such a lawsuit, even if ultimately determined to be without merit, could be costly and time-consuming to the Fund. The Fund may become party to certain lawsuits from time to time in the normal course of business. While the outcome of any legal proceedings cannot now be predicted with certainty, the Fund does not expect any such proceedings will have a material effect upon the Fund’s financial condition or results of operation. Management is not aware of any material pending legal proceedings involving the Fund.
Tax Status. The Fund must meet a number of requirements, described herein under the caption “Federal Income Taxation,” to qualify for the pass-through status as a RIC and, if qualified, to continue to so qualify. For example, the Fund must meet specified asset diversification standards under the Code which might prove difficult if certain borrowers with larger commitments drew on their committed financing at a rate faster than other borrowers to whom smaller commitments were made, particularly during the early periods of the Fund’s operations. If the Fund experiences difficulty in meeting the diversification requirement for any fiscal quarter of its taxable year, it might accelerate capital calls or, if available, borrowings in order to increase the portion of the Fund’s total assets represented by cash, cash items, and U.S. government securities as of the close of the following fiscal quarter and thus attempt to meet the diversification requirement. The Fund, however, would incur additional interest and other expenses in connection with any such accelerated borrowings, and increased investments by the Fund in cash, cash items, and U.S. government securities (whether the funds to make such investments are derived from called equity capital or from accelerated borrowings) are likely to reduce the Fund’s return. Furthermore, there can be no assurance that the
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Fund would be able to meet the diversification requirements through such actions. Failure to qualify as a RIC would deny the Fund pass-through status and, in a year in which the Fund has taxable income, would have a significant adverse effect on the return of the Fund. Tax laws are dynamic and tax laws either in the U.S. or in foreign jurisdictions could change causing a different than expected outcome.
The Fund has received an opinion that, assuming the Fund’s election to be a BDC under Sections 6(f) and 54 of the 1940 Act will be valid and will remain in effect and that the Fund otherwise meets the qualification requirements set forth in Section 851(b) and the distribution requirements in Section 852(a) of the Code, if the Fund’s status as a RIC is challenged by the Internal Revenue Service (the “IRS”) in court and properly litigated, a court of competent jurisdiction will respect that status for federal income tax purposes. If the SEC were to disallow the Fund’s election to be treated as a BDC, then the Fund would not be eligible to be treated as a RIC and, therefore, would be subject to federal corporate tax on its income and gains. The opinion referred to above is based on the Code, regulations thereunder, IRS rulings, procedures and pronouncements, court decisions and other applicable law as of the date hereof, and certain representations that the Fund has made to its legal counsel. Legal opinions, however, are not binding on the IRS or the courts, and no ruling has been or will be requested from the IRS. No assurance can be given that the IRS will concur with such opinion.
    Allocation of Expenses. If the Fund is not deemed to be engaged in a trade or business, individuals and certain other persons who are members of the Company will be required to include in their gross income an amount of certain Fund expenses relating to the production of gross income that are allocable to the Company. These members, therefore, will be deemed to receive gross income from the Fund in excess of the distributions they actually receive. Such allocated expenses were deductible by an individual member as a miscellaneous itemized deduction, for 2017, subject to the limitation on miscellaneous itemized deductions not exceeding 2.0% of adjusted gross income to the extent the Fund is not engaged in a trade or business. However, for the years 2018 through 2025, no deduction for such expense would be allowed. For the tax years 2026 and beyond, the provision will expire and the expenses would be deductible under the pre-2018 law as currently written.
    Calculation of Management Fee. As compensation for its services to the Fund, the Manager will receive an investment management fee from the Fund (the “Management Fee”), commencing when capital is first called from the members of the Company. The aggregate annual amount of Management Fee for each annual period (which will be comprised of four whole fiscal quarters and which, in the case of the first year, will commence on the first day of the first fiscal quarter commencing on or following the first capital commitment) will be calculated as a percentage of committed capital, as follows:
Management Fee
Year 11.575%
Year 21.600%
Year 31.575%
Year 41.500%
Year 51.250%
Year 60.900%
Year 70.600%
Year 80.350%
Year 90.150%
    There will be no Management Fee payable after the ninth-year anniversary of the first capital contribution date.
    The calculation of the Management Fee could result in fees being disproportionately large relative to the value of the Fund’s portfolio if the total assets of the Fund are low compared to the committed capital. This could occur, for example, if the Fund does not originate as many loans as anticipated, or if the loans in the Fund’s portfolio are repaid at a rapid rate during such period.
    Risks Related to Cybersecurity. Increased reliance on technology by the Fund and its service providers and portfolio companies has increased the risks posed to their respective information systems. The Fund and its service providers and portfolio companies are susceptible to operational and information security risks that include, among other things: human error and negligence; theft; the unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized access to relevant systems; compromises to networks or devices that the Fund and its service providers use to service the Fund’s operations; and operational disruption or failures of physical infrastructure or operating systems.
    Cyber-attacks against or security breakdowns of the Fund or its service providers or portfolio companies may adversely impact the Fund and its shareholders, potentially resulting in, among other things: financial losses; the inability of Fund shareholders to transact business and the Fund to process transactions; exposure of personal information belonging to the Fund and its shareholders and violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cybersecurity risk management and remediation purposes. In addition, cybersecurity and privacy risks may also impact the Fund’s transactional counterparties, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions, which could cause the Fund to suffer losses.

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

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

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

    Brexit Risk. The risk of investing in portfolio companies based out of or related to Europe may be heightened due to the 2016 referendum in which the United Kingdom (“UK”) voted to exit the European Union (“EU”), commonly referred to as “Brexit.” On March 29, 2017, the UK formally notified the European Council of its intention to withdraw from the EU and triggered the two-year period set out for withdrawal discussions in the Treaty on European Union. After several extensions of the period for withdrawal negotiations, the UK and EU agreed to terms on a withdrawal agreement, which was approved by the UK Parliament on January 22, 2020.

The UK formally left the EU on January 31, 2020 and, pursuant to the terms of the withdrawal agreement, remained in a “transition period” through December 31, 2020 to allow the parties time to negotiate and implement new agreements on trade and other areas of cooperation.

On December 24, 2020, the UK and the EU reached an agreement (the “Agreement”) on a new trade and cooperation arrangement governing certain aspects of the future relationship between the parties. The Agreement is subject to formal approval by the EU Parliament and the Council of the EU, but was provisionally applied on January 1, 2021, following the end of the transition period. While the Agreement provides clarity with respect to future trade in certain goods between the U.K. and the EU, it does not cover all aspects of the parties’ future relationship. For example, the Agreement does not cover matters relating to the equivalence of financial services regulation or the adequacy of U.K. data protection rules. The application and interpretation of the Agreement, therefore, may take several years to be clarified and resolved.

Accordingly, there remains significant uncertainty regarding the ultimate effects of Brexit and the long-term nature of the political and economic relationship between the UK and the EU. Brexit has created legal and tax uncertainty, which may last for years to come, and could lead to potentially divergent national laws and regulations. While it is not possible to determine the precise impact that Brexit, including the implementation of the Agreement or any future agreement between UK and the EU, may have on the Fund at this time and beyond, the impact on the UK and European economies and the broader global economy could be significant, including increased volatility and illiquidity, and potentially lower economic growth, on markets in the UK, Europe and globally, thereby adversely affecting the value of the Fund’s investments. In addition, if other countries were to exit the EU or abandon the use of the euro as a currency, the value of investments tied to those countries or the euro could decline significantly and unpredictably.

    Climate Change, Natural Disaster and Public Health Crises Risk. Climate change and related legislation, regulation, and accords, both domestic and international, intended to control the impact of climate change may produce direct or indirect adverse consequences to the Fund’s investments, significantly affecting their value. Extreme weather patterns or natural disasters, such as the Tohoku earthquake and resulting tsunami in Japan in 2011, the Alaska earthquake in 2018, major hurricanes in the United States in 2017 and 2018, or the threat thereof, could also adversely impact Fund portfolio companies’ facilities, operations, and services, as well as certain industries, or group of industries, and regions related to the Fund’s investments. Additionally, public health crises, such as the COVID-19 pandemic, could result in travel restrictions and shipping and labor disruptions, which may adversely affect Fund portfolio companies’ facilities, operations, and services.

Coronavirus ("COVID-19"). In response to the COVID-19 pandemic, several countries and individual U.S. states instituted quarantines, shelter-in-place orders, travel restrictions, bans on public gathering, and closures of a wide range of businesses beginning March 2020. These measures have had an adverse impact on the global economy and contributed to significant volatility in the financial markets. Although some restrictions have been lifted starting mid-to-late April 2020, many countries and states started to experience a spike in COVID-19 cases resulting in re-implementation of shelter-in-place and quarantine orders. Vaccines have been approved for deployment by various government health agencies, and the first wave of vaccinations have started in late 2020. Until the vaccine is widely distributed and majority of the population is inoculated, countries and individual U.S. states may continue with aforementioned restrictions which will further postpone re-opening plans and delay economic recovery both locally and globally.

The full extent of the impact of the COVID-19 pandemic on the Fund’s portfolio companies’ business operations and results of operations is unknown at this time and will depend on many factors outside of the Fund’s control, including, without limitations, the timing, extent, trajectory and duration of the pandemic. Management is continuing to work with the Fund’s portfolio companies that may be directly or indirectly affected by the outbreak to evaluate the continued impact on the borrowers’ ability to make timely payments and creditworthiness.

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

International Investments. The Fund could invest up to, but not more than, 30% of its total assets in foreign based companies. Foreign investments are subject to most of the same risks as domestic investments, as well as the political, economic and other uncertainties associated with foreign activities, including the risk of war and political unrest, the impact of laws and policies of foreign governments and the United States affecting foreign investment, and the possibility of being subject to the jurisdiction of foreign courts in connection with legal disputes or the inability to subject foreign persons to the jurisdiction of courts in the United States. Furthermore, there may be practical and local law impediments to cost-effective recovery against collateral located in a foreign country. Moreover, it is possible that taxes may be required to be withheld by the foreign company on dividend and interest payments received by the Fund with respect to such foreign investments. Although capital gains derived by the Fund with respect to such investments in such foreign company may often be exempt from non-U.S. income or withholding taxes, the treatment of capital gains varies among jurisdictions. If the income from such foreign investments is subject to non-U.S. income or withholding taxes, the Fund will attempt to negotiate offsetting gross-up payments from the foreign-based company. No assurances, however, can be given that the Fund would be able to negotiate such offsetting payments.
Foreign Currency and Exchange Rate Risks. Fund assets and income may be denominated in various currencies. Contributions and distributions, however, will be denominated in U.S. dollars. As a result, the return of the Fund on any investment may be adversely affected by fluctuations in currency exchange rates, any future imposed devaluations of local currencies, inflationary pressures, and the success of the investment itself. In addition, the Fund may incur costs related to conversions between various currencies. As of December 31, 2020, all Fund assets and income, as well as contributions and distributions, are denominated in U.S. dollars.
Accounting and Disclosure Standards. Accounting, auditing, financial, and other reporting standards, practices, and disclosure requirements in countries in which the Fund may invest are not necessarily equivalent to those required under United States Generally Accepted Accounting Principles (“U.S. GAAP”). Accordingly, less information may be available to investors.
Credit Risks. Most of the companies with which the Fund will enter into financing transactions will not have achieved profitability, may experience substantial fluctuations in their operating results or, in many cases, will not have significant operating revenues. The ability of any borrower to meet its obligations to the Fund, therefore, will depend to a significant extent on the willingness of such borrower’s venture capital equity investors or outside investors to provide additional equity financing, which in turn will depend on the borrower’s success in meeting its business plan, the market climate for venture capital investments generally, among other factors. The companies to which the Fund will provide financing will frequently be engaged in the development of new products or technologies, and the success of these efforts, or the ability of the companies to successfully manufacture or market products or technologies developed, cannot be assured. These companies frequently face intense competition, including competition from companies with greater resources, and may face risks of product or technological obsolescence, non-acceptance in the market, or rapidly changing regulatory environments, any of which could adversely affect their prospects. The success of such companies often depends on the management talents and efforts of one person or a small group of persons whose death, disability, resignation or other form of departure would adversely affect the company.
Remedies Upon Default. In the event of a default on a portfolio loan, the available remedies to the Fund would include legal action against the borrower and foreclosure or repossession of collateral given by the borrower. However, the Fund could experience significant delays in exercising its rights as a secured lender and might incur substantial costs in taking possession of and liquidating its collateral and in taking other steps to protect its investment. The Fund generally will require that it have a first priority security interest in any equipment of a borrower financed with the proceeds of the Fund’s loans, although that security interest may extend to the borrower’s other assets in which another lender might have a senior or parity security interest. It is anticipated that the Fund will make loans to a borrower that has one or more other secured lenders. In such circumstances, the Fund may share all or a portion of its collateral with the other lender(s) and will enter into intercreditor agreements governing the respective rights of the Fund and such other lender(s), which could limit the Fund’s flexibility in pursuing its remedies as a secured creditor, and reduce the proceeds realized from foreclosing or taking possession of the collateral. In the case of growth capital or working capital loans (where the loan proceeds can be used by the company for general corporate purposes), the Fund will typically receive either a broader lien on substantially all of the borrower’s assets, including its intellectual property, or a lien on substantially all of the borrower’s assets, excluding intellectual property, and a negative pledge on such intellectual property.
    As noted above, the Fund may utilize certain of its funds in investments that involve the financing of equipment assets. Equipment assets are often subject to rapid depreciation or obsolescence such that it is likely that the value of the assets underlying a loan to finance such assets will depreciate during the term of the loan transaction below the amount of the borrower’s obligations. In addition, although borrowers will be required under the transaction documents to provide customary insurance for the assets underlying a loan and will be prohibited from disposing of the assets without the Fund’s consent, compliance with these covenants cannot be assured and, in the event of non‑compliance, the assets could become unavailable to the Fund due to destruction, theft, sale or other circumstances. Realization of value from intellectual property collateral can also be time consuming and present special challenges, given the often-unique nature and limited market for such assets. The Fund’s ability to obtain payment beyond the collateral underlying the loan from the borrower might be limited by bankruptcy or
13


similar laws affecting creditors’ rights. In limited instances where the Fund takes security interests in a borrower’s assets located in a foreign country, there may be practical and local law impediments to cost-effective recovery against such collateral. Therefore, there can be no assurance that the Fund would ultimately collect the full amount owed on a defaulted loan.
Emerging Company Risks. The possibility that the companies in which the Fund invests will not be able to commercialize their technology or product concept presents significant risk. Additionally, although some of such companies may already have a commercially successful product or product line at the time of investment, technology products and services often have a more limited market or life span than products in other industries. Thus, the ultimate success of these companies may depend on their ability to continually innovate in increasingly competitive markets. Most of the companies in which the Fund invests will require substantial additional equity financing to satisfy their continuing growth and working capital requirements. Each round of venture financing is typically intended to provide a company with enough capital to reach the next stage of development. The circumstances or market conditions under which such companies will seek additional capital is unpredictable. It is possible that certain companies will not be able to raise additional financing or may be able to do so only at a price or on terms which are unfavorable to the Fund.
Privately-Held Company Risks. The Fund invests primarily in privately-held companies. Generally, very little public information exists about these companies and the Fund is required to rely on the ability of the Manager to obtain adequate information to evaluate the potential returns from investing in these companies. Moreover, these companies typically depend upon the management talents and efforts of a small group of individuals and the loss of one or more of these individuals could have a significant impact on the investment returns from a particular company. Also, these companies frequently have less diverse product lines and smaller market presence than larger companies. They are thus generally more vulnerable to economic downturns and may experience substantial variations in operating results.
Due Diligence Risks. Before making investments, the Manager conducts a limited amount of due diligence that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence and making an assessment regarding an investment, the Manager will be required to rely on resources available to it, including information provided by the target of the investment and, in some circumstances, third party investigations. The due diligence process may at times be subjective with respect to newly organized companies for which only limited information is available. Accordingly, there can be no assurance that the due diligence investigation that the Manager will carry out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Further, there can be no assurance that such an investigation will result in an investment being successful.
Financial Market Risk. The ability of the Fund to provide an acceptable return may be adversely affected by economic factors to which the market place is subject. Additionally, market turmoil could have a deleterious effect on the Company’s investors which could impede the ability to provide capital to the Fund. This could impair the Fund’s ability to honor commitments to lend, pay expenses of the Fund, or repay the Fund’s loans. The volatility in the global financial markets, which reached unprecedented levels during 2008 and 2009, and continued for some period thereafter (albeit to a lesser extent), may recur in the future. This and other types of market turmoil could have a material adverse effect on the Fund’s business and operations. The tightening of the credit markets could impair the Fund’s ability to either acquire or utilize leverage to maximize the return it achieves on investments. The Fund’s predecessors (Venture Lending & Leasing I, Inc., Venture Lending & Leasing II, Inc., Venture Lending & Leasing III, Inc., Venture Lending & Leasing IV, Inc., Venture Lending & Leasing VI, Inc., Venture Lending & Leasing VII, Inc., Venture Lending & Leasing VIII, Inc., and to a lesser extent, Venture Lending & Leasing V, Inc.), utilized leverage to increase returns to investors. If the Fund is unable to utilize leverage to the same extent as its predecessors, or unable to utilize leverage at all, there could be a material difference in the Fund’s return as compared to these funds.
    It is possible that market conditions could decrease the demand for venture loans, especially where the U.S. and global economic conditions deteriorated and remained weak for an extended period of time. Furthermore, market conditions could also adversely impact either or both the ability of the Fund’s borrowers to meet their obligations to the Fund and the value of the Fund’s direct investments in companies. Most of the companies in which the Fund will invest will not have achieved profitability and will require substantial equity financing to satisfy their continuing growth and working capital requirements. An economic downturn could decrease the demand for such borrower’s products and technology, thereby impairing such borrower’s financial condition and its ability to raise additional equity financing from outside investors. Should these events occur, there could be an increase in borrower defaults under their obligations to the Fund, or a decrease in the value of the Fund’s direct equity investments.
Other U.S. and Global Economic Risks. In addition to the crisis in the financial markets discussed above, the ability of the Fund to provide an acceptable return may be adversely affected by other economic and business factors to which the U.S. market place is subject. These factors, which generally are beyond the control of the Manager, include: general economic conditions, such as inflation and fluctuations in general business conditions; the impact of terrorist attacks within or against the United States or other countries where investments are made; the effects of strikes, labor disputes and domestic and foreign political unrest; and uncertainty in the U.S. economy.
    Changes to U.S. Trade Policy May Have a Negative Effect on the Global Economy and/or the Fund’s Portfolio Companies and, in Turn, Harm the Fund. Significant changes to U.S. trade policy, including changes to current legislation and trade agreements and the imposition of tariffs have been discussed by the current U.S. presidential administration and certain members of Congress. Recently, the administration has imposed tariffs on a range of goods imported into the U.S., and a few countries have retaliated with tariffs against the United States. These retaliatory actions could trigger extended “trade wars” between the U.S. and its trading partners, resulting in additional barriers to the international market, inclusive of customers, vendors, and potential investors. Under these circumstances, the cost of goods for some portfolio companies could increase, resulting in lower consumer demand for their goods and reduced cash flows. While it is unknown whether and to what extent new legislation will be enacted into law, the enactment or amendment of trade legislation and/or renegotiation of
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trade agreements may impose additional compliance costs on portfolio companies, restrict their ability to participate in international markets and otherwise disrupt their current operations.
    Special Risk Considerations Relating to China. The Fund may invest in portfolio companies that are based in China, have significant operations in China or are otherwise connected to China. Markets in China can be volatile due to uncertain social, economic, regulatory and political factors, in addition to the effects of public health crises, such as the recent outbreak of coronavirus emanating from China. See the discussion herein under the caption “Climate Change, Natural Disaster and Public Health Crises Risk.” The severity and duration of any adverse economic conditions may be driven by governmental or quasi-governmental policies; in particular the imposition of sanctions by outside governments could severely disrupt the Chinese economy and the value of securities tied to it. For example, Fund portfolio companies may be significantly impacted by the ongoing trade dispute between the United States and China that have resulted in the imposition of tariffs by both countries on certain goods entering their respective markets. Among other things, such disputes could prompt a portfolio company to reduce its operations in China and/or suffer of downward pricing pressure. Additionally, a portfolio company that relies on Chinese investors could experience challenges in securing additional capital investments. In January 2020, the United States and China signed an agreement representing the first phase of a broader trade agreement between the two countries. Among other things, the agreement stipulates that both countries will reduce existing tariffs on certain imports and obligates China to increase its purchases of goods and services in the United States. However, it is unclear whether the countries will honor the terms of the phase one agreement, which could result in the imposition of additional tariffs and other retaliatory actions. Therefore, whether the factors identified above that could impact Fund portfolio companies are mitigated or exacerbated remains uncertain and will depend, in part, on their ability to fully implement the terms of the phase one deal, as well as the final outcome of ongoing negotiations between the United States and China to resolve their trade dispute through a comprehensive agreement.
Speculative Nature of Warrants and Equity Investments. The value of the warrants that the Fund generally will receive and distribute to its shareholder in connection with its financing investments is dependent on the value of the equity securities for which the warrants can be exercised. The value of such warrants, direct equity investments, and equities received upon conversion of debt instruments is dependent primarily on the success of the company’s business strategy and the growth of its earnings, but also depends on general economic and equity market conditions. The prospects for achieving consistent profitability, in the case of many companies in which the Fund invests, are speculative. The warrants, equity securities for which the warrants can be exercised, direct equity investments, and equities received upon conversion of debt instruments generally will be restricted securities that cannot readily be sold for some period of time. If the value of the equity securities underlying a warrant does not increase above the exercise price during the life of the warrant, the Fund may permit the warrant to expire unexercised and the warrant would then have no value.
Illiquidity of Investments. Substantially all of the Fund’s portfolio investments (other than short-term investments) will consist of securities that, at the time of acquisition, are subject to restrictions on sale and for which no ready market will exist. Restricted securities cannot be sold publicly without prior agreement with the issuer to register the securities under the 1933 Act, or by selling such securities under Rule 144 or other provisions of the 1933 Act which permit only limited sales under specified conditions. Venture loans and equity investments are privately negotiated transactions, and there is no established trading market in which such loans and equity investments can be sold. Special Situation Financings may also be privately negotiated transactions. In the case of warrants or equity securities, the Fund generally will realize the value of such securities only if the issuer is able to make an initial public offering of its shares or enters into a business combination with another company which purchases the Fund’s warrants or equity securities or exchanges them for publicly-traded securities of the acquirer. The feasibility of such transactions depends upon the entity’s financial results as well as general economic and equity market conditions. In the past, crises in the financial markets have dramatically reduced the volume of initial public offerings and mergers and acquisitions in the market place. If such a crisis recurs, the Fund’s ability to realize liquidity through its investments would likely be impaired. Furthermore, even if the restricted warrants or equity securities owned become publicly-traded, the Fund’s ability to sell such securities may be limited by the lack (or limited nature) of a trading market for such securities. If the Fund holds material nonpublic information regarding the issuer of the securities, the Fund’s ability to sell such securities may also be limited by insider trading laws. When restricted securities are sold to the public, the Fund, under certain circumstances, may be deemed an “underwriter” or a controlling person with respect thereto for the purposes of the 1933 Act, and be subject to liabilities as such under that Act.
Because of the illiquidity of the Fund’s investments, most of its assets will be carried at fair value as determined by the Manager in accordance with the Fund’s policy, as approved by the Fund’s Board of Directors. This value will not necessarily reflect the amount ultimately realized upon a sale of the assets.
Non-Diversified Status. The Fund is classified as a “non-diversified” investment company under the 1940 Act, but the Fund may, from time to time, act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act. The Fund elected to be treated as a RIC under the Code and operates in a manner to qualify for the tax treatment applicable to RICs, including the diversification requirement. Nevertheless, the Fund’s assets may be subject to a greater risk of loss than if its investments were more widely diversified.
CONFLICTS OF INTEREST

    Transactions with Venture Lending & Leasing VIII, Inc. (“Fund VIII”). The Manager also serves as the investment manager for Fund VIII. The Fund’s Board of Directors determined that so long as Fund VIII has capital available to invest in loan transactions with final maturities earlier than December 31, 2025 (the date on which Fund VIII will be dissolved), the Fund may invest in each portfolio company in which Fund VIII invests (“Investments”). Generally, the amount of each Investment will be allocated 50% to the Fund and 50% to Fund VIII, or such other allocations as may be determined by the respective fund boards, so long as the Fund has capital available to invest. The ability of the Fund to co-invest with Fund VIII, and other clients advised by the Manager, is subject to the conditions (“Conditions”) with which the
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Funds are currently complying while seeking certain exemptive relief from the SEC from the provisions of Sections 17(d) and 57 of the 1940 Act and Rule 17d-1 thereunder. After June 30, 2022, the Fund will no longer be permitted to enter into new commitments to borrowers; however, the Fund will be permitted to fund existing commitments, in which Fund VIII may also be invested. In August 2019, the Manager exercised, and the Board of Directors ratified, its discretion to extend Fund VIII's investment period for two additional quarters after September 30, 2020, thereby allowing Fund VIII to make new commitments through March 31, 2020 and to fund commitments through March 31, 2021, the end of Fund VIII's investment period. To the extent that clients, other than Fund VIII, advised by the Manager (but in which the Manager has no proprietary interest) invest in opportunities available to the Fund, the Manager will allocate such opportunities among the Fund and such other clients in a manner deemed fair and equitable considering all of the circumstances in accordance with the Conditions.
    Intercreditor Agreements. In all transactions in which the Fund and other funds managed by the Manager invest or those in which another lender(s) has either invested or may later invest (or in the event a successor fund is raised, in which the Fund and the successor fund invest), it is expected that the Fund and, other funds managed by the Manager (or the successor fund as the case may be), and/or the other lender(s) will enter into an intercreditor agreement pursuant to which the Fund and, other funds managed by the Manager (or the successor fund), and/or the other lender(s), along with any predecessor funds which still have a balance outstanding, will cooperate in pursuing their remedies following a default by the common borrower. Generally, under such intercreditor agreements, each party would agree that its security interest would be treated in parity with the security interest of the other party, regardless of which security interest would have priority under applicable law. Accordingly, proceeds realized from the sale of any collateral or the exercise of any other creditor’s rights will be allocated between the Fund and, other funds managed by the Manager, and any predecessor funds as described above, pro rata in accordance with the amounts of their respective investments. An exception to the foregoing arrangement would occur in situations where, for example, one of the lenders financed specific items of equipment collateral; in that case, usually the lender who financed the specific assets will have a senior lien on that asset, and the other lenders will have a junior priority lien (even though they may ratably share liens of equal priority on other assets of the common borrower). As a result of such intercreditor agreements, the Fund may have less flexibility in pursuing its remedies following a default than it would have had had there been no intercreditor agreement, and the Fund may realize fewer proceeds. In addition, because the Fund and Fund VIII (or the successor fund) invest at the same time in the same borrower, such borrower would be required to service two loans rather than one. Any additional administrative costs or burdens resulting therefrom may make the Fund a less attractive lender and may make it more difficult for the Fund to acquire such loans.

    Valuation. The Manager is responsible for valuing the Fund’s assets and liabilities, subject to oversight by the Fund’s Board of Directors, and has an inherent conflict in performing this function such that it has an incentive to increase the value of the assets for its performance record. The Fund does not intend to engage an independent valuation agent to value its assets and therefore is entirely reliant upon the Manager and its delegates for valuing the assets.
    Indemnification and Exculpation. The organizational documents of the Fund provide for indemnification of directors, officers, employees, advisory board members and agents (including the Manager) of the Fund, generally to the full extent permitted by applicable state law and the 1940 Act, including the advance of expenses and reasonable counsel fees. The charter of the Fund also contains a provision eliminating personal liability of a Fund director or officer to the Fund or its stockholder for money damages, subject to specified exceptions. In addition, the Fund has entered into an indemnification with its directors and officers. A successful claim for such indemnification, including payment of any expenses and counsel fees, would reduce the Fund’s assets by the amounts paid. Furthermore, Fund assets are used to obtain insurance policies that generally protect the Fund’s directors and officers from personal liability of actions taken in their roles as the Fund’s directors and officers.
    Disinterested Directors and Advisory Board Members. The members of the Fund’s Board of Directors will overlap with the members of the Company’s advisory board, and the members of the Company’s advisory board are the same as, or a subset of, the disinterested directors of the Fund. Although the Manager expects that, given the Company’s 100% ownership of the Fund, the interests of the two entities will not diverge, it is conceivable that a conflict of interest could exist between the Fund and the Company. In addition, as compensation for services, the disinterested directors will receive an annual fee of $30,000 (plus $1,000 per meeting attended in person and an additional $5,000 for the chair of the Audit Committee). Any future changes to the compensation to be paid to the disinterested directors will be determined by the Nominating and Corporate Governance Committee of the Fund’s Board of Directors. Upon the liquidation of the Fund, the disinterested advisory board members will receive an annual fee in an amount determined by the Member (it is currently anticipated that such annual amount shall be $15,000). The disinterested directors and advisory board members will also be reimbursed for certain expenses. The payment of such fees may limit the objectivity and independence of the disinterested directors and the advisory board members on behalf of the members.
Personal Trading. The Manager has a code of ethics that contains personal securities trading procedures that apply to its “access persons.” Access persons are required to report if they have an investment in a company in which the Fund is considering making an investment. Pre-approval is required before an access person may buy or sell securities in an initial public offering, private placement, or any security listed on a “restricted list” maintained by the Manager.
Interests in Potential Portfolio Companies. The Manager may recommend that the Fund invest in companies in which a principal or employee has a prior personal investment or for which a principal or employee may serve as a director or advisor. The Manager also may recommend that the Fund invest in companies in which venture capital funds, private equity funds or other institutional investors (“Unaffiliated Funds”) also have made investments, where one or more principals or employees of the Manager may have made an investment in, or served as an advisor to, an investing Unaffiliated Fund. Such a relationship presents potential conflicts of interest by providing the principal or employee with an incentive to influence the Manager’s decision to recommend an investment in the company in
16


question. There is also a potential conflict of interest in that such principal or employee could use information acquired through association with the Manager to influence or benefit Unaffiliated Funds’ investment decisions. The Manager addresses these potential conflicts through its policies and procedures that are designed to insulate its investment decision-making process and its research from these incentives. For example, the policies require that principals with a prior direct investment in a company be recused from the investment decision-making process with respect to that company.
    Principals that serve as advisors to Unaffiliated Funds may make investment recommendations to these Unaffiliated Funds, which may be the same investment that the Fund has made or may make. The Manager’s policies and procedures require such principals to arrange for any such investment opportunity to be first offered to the Fund (or a predecessor fund) and for such investment opportunity to only subsequently be offered to an Unaffiliated Fund once declined by the Fund (or a predecessor fund).
ITEM 1B.      UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.    PROPERTIES
All of the Fund’s office space is provided by the Manager. The executive offices are located at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028.
ITEM 3.    LEGAL PROCEEDINGS
The Fund may become party to certain lawsuits from time to time in the normal course of business. While the outcome of any legal proceedings cannot now be predicted with certainty, the Fund does not expect any such proceedings will have a material effect upon the Fund's financial condition or results of operation. Management is not aware of any pending legal proceedings involving the Fund. The Fund is not a party to any material legal proceedings.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
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PART II.
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Fund’s common stock is not listed on any securities exchange, and all holders of the Fund’s common stock are subject to agreements significantly restricting the transferability of their shares.
The number of holders of record of the Fund’s common stock at March 15, 2021 was 1.
The Fund has a policy of distributing securities as acquired. The Fund values these securities at fair value at the time of acquisition in accordance with the Fund’s policy on valuation detailed in Note 2 to the financial statements included in this filing. In addition, some expenses of the Company may be paid by the Fund and will be deemed as distributions to the Company. The Fund has established a policy of declaring dividends on a quarterly basis to the extent that taxable income of the Fund, less applicable reserves, exceeds warrant distributions and deemed distributions. As of December 31, 2020, the Fund had distributed $87.2 million to date to its sole shareholder, of which $51.7 million were in cash.

(Intentionally left blank)
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ITEM 6.        SELECTED FINANCIAL DATA
The following table summarizes certain financial data and should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this Form 10-K. The selected financial data set forth below have been derived from the audited financial statements.
 For the Year Ended December 31, 2020 For the Year Ended December 31, 2019 For the Year Ended December 31, 2018For the Period Ended December 31, 2017*
Statements of Operations Data:
Investment income:
Interest on loans$45,711,386 $23,613,264 $4,292,189 $— 
Other interest and other income514,174 195,483 152,248 — 
Total investment income46,225,560 23,808,747 4,444,437 — 
Expenses:
Management fees7,302,500 7,302,500 4,833,308 — 
Organizational costs— — 27,654 184,165 
Interest expense4,233,746 3,995,300 72,360 — 
Banking and professional fees600,593 460,935 360,208 — 
Other operating expenses175,284 178,282 115,034 — 
Total expenses12,312,123 11,937,017 5,408,564 184,165 
Net investment income (loss)33,913,437 11,871,730 (964,127)(184,165)
Net realized loss from loans(27,819)(2,393,159)— — 
Net realized loss from derivative instruments(960,747)(73,774)— — 
Net change in unrealized loss from loans(11,584,945)(903,934)— — 
Net change in unrealized loss from derivative instruments(428,640)(825,574)— — 
Net realized and change in unrealized loss from loans and derivative instruments$(13,002,151)$(4,196,441)$— $— 
Net increase (decrease) in net assets resulting from operations$20,911,286 $7,675,289 $(964,127)$(184,165)
 
Amounts per common share:
Net increase (decrease) in net assets resulting from operations per share$209.11 $76.75 $(9.64)$(1.84)
Weighted average shares outstanding100,000 100,000 100,000 100,000 
As of December 31,
 2020201920182017*
Statements of Assets and Liabilities Data:
Loans$310,522,149 $203,311,245 $79,045,107 $— 
Net assets$183,326,835 $113,832,373 $74,088,727 $(159,165)
*From June 28, 2017 through December 31, 2017, during this period, the Fund had not yet commenced investment operations.

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

    The Fund is 100% owned by the Company. The Fund’s shares of common stock, at $0.001 par value, were sold to its sole shareholder, the Company, under a stock purchase agreement. The Fund has issued 100,000 of the Fund’s 10,000,000 authorized shares. The Company may make additional capital contributions to the Fund.
The Fund provides financing and advisory services to a variety of carefully selected Venture-Backed Companies primarily throughout the United States, with a focus on growth-oriented companies. The Fund’s portfolio consists of companies in the communications, information services, media, technology (including software and technology-enabled business services), biotechnology, and medical devices industry sectors, among others. The Fund’s capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital. On May 1, 2018, the Company called and received its first capital from investors. On May 2, 2018, the Fund made its first investment and became a non-diversified, closed-end investment company under the 1940 Act. While the Fund intends to operate as a non-diversified investment company within the meaning of Section 5(b)(2) of the 1940 Act, from time to time, the Fund may act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act.
The Fund elected to be treated as a RIC under the Code for federal income tax purposes. Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income distributed to its shareholder as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.

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

    The Fund’s investment objective is to achieve superior risk-adjusted investment returns and it seeks to achieve that objective by providing debt financing to portfolio companies, most of which are private. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments and generally distributes these warrants to its shareholder upon receipt, or soon thereafter. The Fund also has guidelines for the percentages of total assets that are invested in different types of assets.

    The portfolio investments of the Fund primarily consist of debt financing to Venture-Backed Companies in the technology sector. The borrower’s ability to repay its loans may be adversely impacted by several factors, and as a result, the loan may not be fully repaid. Furthermore, the Fund’s security interest in any collateral over the borrower’s assets may be insufficient to make up any shortfall in payments.
Critical Accounting Policies, Practices and Estimates
Critical Accounting Policies and Practices are those accounting policies and practices that are both the most important to the portrayal of the Fund’s net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are accounting estimates where the nature of the estimates is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on net assets or operating performance is material.

In evaluating the most critical accounting policies and estimates, the Manager has identified the estimation of fair value of the Fund’s loan investments as the most critical of the accounting policies and accounting estimates applied to the Fund’s reporting of net assets or operating performance. In accordance with U.S. GAAP, the Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale. There is no readily available market price or secondary market for the loans made by the Fund to borrowers, hence the Manager determines fair value based on a hypothetical market and the estimates are subject to high levels of judgment and uncertainty. The Fund’s loan investments are considered Level 3 fair value measurements in the fair value hierarchy due to the lack of observability over many of the important inputs used in determining fair value.

Critical judgments and inputs in determining the fair value of a loan include the estimated timing and amount of future cash flows and probability of future payments, based on the assessment of payment history, available cash and “burn rate,” revenues, net income or loss, operating results, financial strength of borrower, prospects for the borrower’s raising future equity rounds, likelihood of sale or acquisition of the borrower, length of expected holding period of the loan, collateral position, the timing and amount of liquidation of collateral for loans that are experiencing significant credit deterioration and, as a result, collection becomes collateral-dependent, as well as an evaluation of the general interest rate environment. Management has evaluated these factors and has concluded that the effect of a deterioration in the quality of the underlying collateral, increase in the size of the loan, increase in the estimated time to recovery, and increase in the hypothetical market coupon rate would have the effect of decreasing the fair value of loan investments. The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and the loan. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, the par value of the loan often approximates fair value.

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The actual value of the loans may differ from Management’s estimates, which would affect net change in net assets resulting from operations as well as assets.

SEC Disclosure Updates

In April 2020, the SEC issued Final Rule No. 33-10771, “Securities Offering Reform for Closed-End Investment Companies.” This final rule would modify the registration, communications, and offering processes for business development companies (“BDCs”). One of the amendments included in the final rule removed the exclusion of BDCs from the Inline XBRL financial tagging requirement. This final rule is effective August 1, 2020. Each amendment within the final rule has specific compliance dates; the amendment to remove the exclusion of BDCs from the Inline XBRL financial tagging requirement has a compliance date for the interim period starting August 22, 2022. The Fund intends to adopt the aforementioned amendment in the final rule for the fiscal quarter end September 30, 2022. The Fund does not believe that the amendments will have a material impact on its financial statements and disclosures.
In November 2020, the SEC issued Final Rule No. 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information.” The final rule’s amendments aim to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the final rule eliminates the requirement for Selected Financial Data, streamlines the requirement to disclose Supplementary Financial Information, and amends Management’s Discussion & Analysis of Financial Conditions and Results of Operations. These amendments are intended to eliminate duplicative disclosures and modernize and enhance MD&A disclosures for the benefit of investors, while simplifying compliance efforts for participants. The final rule is effective February 10, 2021. The Fund intends to adopt these amendments for the first fiscal year ending December 31, 2021.

COVID-19’s Impact on Results of Operations and Liquidity & Capital Resources

The COVID-19 pandemic did not have a direct material effect on the Fund’s business and results of operations through the year ended December 31, 2020. The slowdown of the global and local economies has had an impact on a number of the Fund’s portfolio companies’ businesses and operations, causing an increase in debt investments that moved from performing to non-performing status for fiscal year ended December 31, 2020 compared to the prior year. In addition, the continued market volatility factored into the Fund’s loan valuation adjustments. Valuation of the Fund’s debt investments contributed to increased unrealized losses from loans for the fiscal year ended December 31, 2020 compared to the same period in 2019.

Given the uncertainty of the COVID-19 situation, the full extent of the long-term economic impact on the Fund’s business operations, result of operations, and access to liquidity and capital resources is unpredictable at this time and will depend on many factors outside of the Fund’s control, including, without limitations, the timing, extent, trajectory and duration of the pandemic.

The Fund is continuing to maintain close communications with its debt portfolio companies to proactively assess and manage potential risks. Management has increased oversight analysis of credits across the Fund's debt investment portfolio in an attempt to manage the potential credit risk and improve loan performance. As part of its risk management strategy, Management is tracking mitigating factors and their effectiveness in improving credit performance. For example, Management is taking into consideration the borrowers’ participation to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). PPP was created as a part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which aids small businesses to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead expenses.

Management is also monitoring the Fund’s continued access to capital resources through periodic and timely communication with the bank syndicate and the Company’s members. As of December 31, 2020, there are no indications that the bank syndicate will fail to renew the Fund’s debt facility or that any of the Company’s members will be unable to meet their capital obligations to the Company.

In addition, the Fund is taking proactive steps to ensure and maintain an appropriate liquidity position based on the current circumstances. The Fund believes its existing cash balance and access to capital from its debt facility and the Company’s members will be sufficient to satisfy its working capital needs, debt repayments, and other liquidity requirements associated with its existing operations.

Results of Operations – For the Years Ended December 31, 2020 and 2019
    For the most recent discussion on the results of operations for the period ending December 31, 2018, refer to the management discussion and analysis on the prior period annual report, Form 10-K, filed on March 16, 2020.
    Total investment income for the years ended December 31, 2020, and 2019 was $46.2 million and $23.8 million, respectively, which primarily consisted of interest on venture loans outstanding. The remaining income consisted of interest and dividends on the temporary investment of cash. Increase in interest income on venture loans outstanding is a reflection of the increased volume of loans originated, average outstanding balance of the loans, and weighted-average interest rate on the loans. The average outstanding balance of performing loans calculated on a monthly basis was $244.6 million and $135.5 million for the years ended December 31, 2020 and 2019, respectively. For the years ended December 31, 2020 and 2019, the average outstanding balance of all loans calculated on a monthly basis was $252.9 million and $135.9 million, respectively. The weighted-average interest rate on performing loans was 18.62% and 17.42% for the years ended December 31, 2020 and 2019, respectively. For the years ended December 31, 2020 and 2019, the weighted-average interest rate on all loans was 18.07% and 17.37%, respectively. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants, and new loans funded during the year.
21


    Expenses for the years ended December 31, 2020 and 2019 was $12.3 million and $11.9 million, respectively.
    Management fees for both the years ended December 31, 2020 and 2019 were $7.3 million. For the period from January 1, 2019 through June 30, 2019, management fees were calculated at 1.575% of the Company's committed capital. For the period from July 1, 2019 through December 31, 2019, management fees were calculated at 1.600% of the Company's committed capital. Management fees were calculated at 1.600% of the Company's committed capital from January 1, 2020 through June 30, 2020. For the period from July 1, 2020 through December 31, 2020, management fees were calculated at 1.575% of the Company's committed capital.
    Interest expense for the years ended December 31, 2020 and 2019 was $4.2 million and $4.0 million, respectively. Interest expense was comprised of amounts related to interest on debt amounts drawn down, unused credit line fees and amounts amortized from deferred fees incurred in conjunction with the debt facility. The increase in interest expense is primarily due to higher interest expense related to debt amounts drawn down. The average debt outstanding for the years ended December 31, 2020 and 2019 was $109.3 million and $61.2 million, respectively. The increase in interest expense resulting from an increase in average debt outstanding was slightly offset by a lower average interest rate compared to prior year. For the years ended December 31, 2020 and 2019, the average interest rate on debt outstanding was 3.87% and 6.53%, respectively. The Fund borrowed from the debt facility to fund growth in its loan investments.
    Banking and professional fees for the years ended December 31, 2020 and 2019 were $0.6 million and $0.5 million, respectively. Banking and professional fees were comprised of legal, audit, banking and other professional fees. The increase was primarily due to higher legal fees.
    Other operating expenses for both the years ended December 31, 2020 and 2019 were $0.2 million. These expenses included director fees, custody fees, tax fees and other expenses related to the operations of the Fund.

    Net investment income for the years ended December 31, 2020 and 2019 was $33.9 million and $11.9 million, respectively.

    Net realized loss from loans for the years ended December 31, 2020 and 2019 was less than $0.1 million and $2.4 million, respectively. This is due to losses incurred on written-off loans, which is slightly offset by partial recovery received.

    Net realized loss from derivative instruments for the years ended December 31, 2020 and 2019 was $1.0 million and $0.1 million, respectively. This is due to interest paid by the Fund on the interest rate swap and floor agreements when the fixed rate interest of the swap and floor was higher than the floating rate.

    Net change in unrealized loss from loans for the years ended December 31, 2020 and 2019 was $11.6 million and $0.9 million, respectively. The net change in unrealized loss from loans consisted of fair value adjustments to loans and the reversal of fair value adjustments previously taken against loans written off.

    Net change in unrealized loss from derivative instruments for the years ended December 31, 2020 and 2019 was $0.4 million and $0.8 million, respectively. The net change in unrealized gain or loss from derivative instruments consisted of fair market value adjustments to the derivative instruments and is a reflection of the market’s outlook on the economy and the future of interest rate changes. The decrease in unrealized loss from derivative instruments was primarily due to the low interest rate environment as well as the realized portion paid for the year ended December 31, 2020 compared to the same period in 2019.
    Net increase in net assets resulting from operations for the years ended December 31, 2020 and 2019 was $20.9 million and $7.7 million, respectively. On a per share basis, the net increase in net assets resulting from operations for the same periods was $209.11 and $76.75, respectively.
Liquidity and Capital Resources -- December 31, 2020 and 2019
For the most recent discussion on the liquidity and capital resources for the period ending December 31, 2018, refer to the management discussion and analysis on the annual report, Form 10-K, filed on March 16, 2020.
The Fund is owned entirely by the Company. The Company is expected, but not required, to make further contributions to the capital of the Fund to the extent of the Company’s members’ capital commitment to the Company and excess cash balances of the Company. Total capital contributed to the Fund was $243.1 million and $148.1 million as of December 31, 2020 and 2019, respectively. As of both December 31, 2020 and 2019, the Company had subscriptions for capital in the amount of $460.0 million, of which $264.5 million and $174.8 million had been called and received, as of December 31, 2020 and 2019, respectively. As of December 31, 2020, $195.5 million of capital remains uncalled and the uncalled capital expires on the Fund’s fifth anniversary of its first investment unless extended. Management is permitted to extend the Fund’s investment period by up to two (2) additional calendar quarters in its sole and absolute discretion. The Company has made $39.7 million in recallable distributions to its investors, as permitted under its operating agreement between the Company’s managing member and members of the Company.
The change in cash held by the Fund for the years ended December 31, 2020 and 2019 was as follows:
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For the Year Ended December 31, 2020 For the Year Ended December 31, 2019
Net cash used in operating activities$(101,496,769)$(128,689,142)
Net cash provided by financing activities103,239,253 138,611,086 
Net increase in cash and cash equivalents$1,742,484 $9,921,944 
As of December 31, 2020 and 2019, 6.8% and 9.4%, respectively, of the Fund’s net assets consisted of cash and cash equivalents.
    On December 20, 2018, the Fund entered into a syndicated loan agreement led by MUFG Union Bank, N.A., Wells Fargo Securities, LLC and ING Capital LLC, with participation from Zions Bancorporation, N.A., doing business as California Bank & Trust, Bank Leumi USA, Umpqua Bank, HSBC Bank USA, N.A., and First Bank, that established a secured revolving loan facility in an initial amount of up to $200.0 million with the option to request that borrowing availability be increased up to $400.0 million, subject to further negotiation and credit approval. Borrowings by the Fund are collateralized by all the assets of the Fund. Loans under the facility may be, at the option of the Fund, a Reference Rate Loan, a LIBOR Loan, or a LIBOR Market Index Rate Loan. The Fund pays interest on its borrowings and a fee on the unused portion of the facility. The facility terminates on December 20, 2021, but can be accelerated in the event of default, such as failure by the Fund to make timely interest or principal payments. As of December 31, 2020, $140.0 million was outstanding under the facility.

     For the year ended December 31, 2020 and since the start of its investment operations in May 2018, the Fund invested its assets in venture loans. Amounts disbursed under the Fund’s loan commitments were $215.6 million and $160.7 million for the years ended December 31, 2020 and 2019, respectively. Net loan amounts outstanding after amortization and valuation adjustments increased by $107.2 million and $124.3 million for the years ended December 31, 2020 and 2019, respectively. Unexpired unfunded commitments totaled $83.2 million and $78.0 million as of December 31, 2020 and 2019, respectively.
As ofCumulative Amount DisbursedPrincipal Reductions and Fair Market AdjustmentsBalance Outstanding - Fair ValueUnexpired Unfunded Commitments
December 31, 2020$463.4 million$152.9 million$310.5 million$83.2 million
December 31, 2019$247.8 million$44.5 million$203.3 million$78.0 million
The following tables show the unexpired unfunded commitments by portfolio company as of December 31, 2020 and 2019.
23


BorrowerIndustryUnexpired Unfunded Commitment as of December 31, 2020Expiration Date
303 Holdings, Inc.Technology Services$3,000,000 12/31/2021
8E14 NetworksOther Technology600,000 07/31/2021
Aclima, Inc.Other Technology2,000,000 03/31/2021
Afero, Inc.Software1,500,000 05/31/2021
Antitoxin Technologies Inc.Other Technology1,000,000 06/30/2021
BackboneAI Inc.Software1,000,000 04/30/2021
Bizly, Inc.Software1,650,000 03/31/2021
Canary Connect, Inc.Computers & Storage2,000,000 01/31/2021
Content Adjacent, Inc.Other Technology500,000 07/31/2021
Coterie Applications, Inc.Other Technology500,000 03/31/2021
CytoVale, Inc.Medical Devices1,000,000 01/31/2021
Exo Imaging, Inc.Medical Devices2,000,000 09/30/2021
Fetch Robotics, Inc.Computers & Storage2,500,000 06/30/2021
GoForward, Inc.Other Healthcare3,125,000 07/31/2021
Hello Heart Inc.Other Healthcare2,000,000 09/30/2021
Honeybee Health, Inc.Other Healthcare3,000,000 07/31/2021
iLearningEngines Inc.Technology Services2,000,000 07/31/2021
Invoice2Go, Inc.Software13,000,000 03/31/2021
Lukla, Inc.Internet500,000 01/31/2021
Mavenform, Inc.Other Technology1,500,000 04/30/2021
Natomas Labs, Inc.Other Technology2,000,000 04/15/2021
OnepointOne, Inc.Other Technology2,000,000 03/31/2021
Oula Health, Inc.Other Healthcare750,000 11/30/2021
Peerwell, Inc.Other Healthcare500,000 07/30/2021
Pixlee, Inc.Software2,500,000 06/30/2021
Privoro Holdings, Inc.Other Technology1,000,000 01/31/2021
Reciprocity, Inc.Software1,950,000 01/31/2021
Residently USA, LLCInternet375,000 03/31/2021
Riffyn, Inc.Technology Services2,000,000 01/31/2021
Sonatus, Inc.Software1,000,000 03/31/2021
Swiftly Systems, Inc.Software5,000,000 08/30/2021
Tia, Inc.Other Healthcare7,000,000 10/31/2021
TIER Mobility GmbHOther Technology8,000,000 02/15/2021
Vessel Health, Inc.Other Healthcare3,750,000 03/31/2021
World Wrapps II, Inc.Other Technology1,000,000 12/31/2021
Total$83,200,000 
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BorrowerIndustryUnexpired Unfunded Commitment as of December 31, 2019Expiration Date
Ablacon, Inc.Medical Devices$2,500,000 01/31/2020
Ainsly, Inc.Internet1,500,000 01/31/2020
Airvine Scientific, Inc.Wireless125,000 03/31/2020
Apollo Flight Research Inc.Other Technology250,000 01/31/2020
ArborMetrix, Inc.Software750,000 04/30/2020
Beanfields, PBCOther Technology625,000 06/30/2020
BW Industries, Inc.Other Technology2,000,000 07/31/2020
Callisto Media, Inc.Technology Services10,000,000 12/31/2020
Canary Technologies Corp.Software250,000 09/30/2020
Cesium, Inc.Internet375,000 03/31/2020
Cloudleaf, Inc.Software1,500,000 10/15/2020
DOSH Holdings, Inc.Other Technology3,750,000 01/15/2020
eXo Imaging, Inc.Medical Devices6,000,000 11/30/2020
GoForward, Inc.Other Healthcare6,250,000 07/01/2020
Hello Heart Inc.Other Healthcare1,750,000 08/31/2020
HumanAPI, Inc.Other Healthcare500,000 01/31/2020
Kids on 45th, Inc.Internet500,000 01/31/2020
Klar Holdings LimitedTechnology Services250,000 03/31/2020
Liftit, Inc.Technology Services500,000 01/30/2020
Lucideus, Inc.Software500,000 07/15/2020
Lukla, Inc.Internet750,000 01/31/2021
Marley Spoon, Inc.Internet3,750,000 07/31/2020
Medable, Inc.Software2,000,000 07/31/2020
Merchbar, Inc.Internet250,000 01/30/2020
Noteleaf, Inc.Other Technology1,000,000 01/31/2020
OneLocal, Inc.Internet1,000,000 07/31/2020
Owl Cameras, Inc.Software3,000,000 01/01/2020
Parallel Wireless, Inc.Wireless6,500,000 03/31/2020
Percepto Inc.Other Technology1,000,000 05/31/2020
Pitzi, Ltd.Other Technology2,500,000 11/30/2020
Quartzy, Inc.Biotechnology2,250,000 10/15/2020
Solugen, Inc.Technology Services1,250,000 01/31/2020
Stay Alfred, Inc.Internet7,500,000 06/30/2020
Stitch Labs, Inc.Software750,000 01/31/2020
The Safe and Fair Food Company LLCOther Technology1,250,000 01/31/2020
Trendalytics Innovation Labs, Inc.Software450,000 01/31/2020
Visual Supply CompanyInternet2,500,000 03/31/2020
Voodoo Manufacturing, Inc.Other Technology375,000 02/28/2020
Total$77,950,000 
    
Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid. It is the Management’s experience that not all unexpired unfunded commitments will be used by borrowers. Many credit agreements contain provisions that are milestone dependent and not all borrowers will achieve these milestones. Additionally, the Fund’s credit agreements contain provisions that give relief from funding obligations in the event the borrower has a materially adverse change in its financial condition. Therefore, the unexpired unfunded commitments do not necessarily reflect future cash requirements or future investments for the Fund.

    The Fund seeks to maintain the requirements to qualify for the special pass-through status available to RICs under the Code, and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it distributes to its shareholder. To qualify as a RIC, the Fund must distribute to its shareholder for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) (the “Distribution Requirement”). To the extent that the terms of the Fund’s venture loans provide for the receipt by the Fund of additional interest at the end of the loan term or provide for the receipt by the Fund of a purchase price for the asset at the end of the loan term (“residual income”), the Fund would be required to accrue such residual income over the life of the loan, and to include such accrued undistributed income in its gross income for each taxable year even if it receives no portion of such residual income in that year. Thus, in order to meet the Distribution Requirement and avoid payment of income taxes or an excise tax on undistributed income, the Fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of
25


income it actually receives. Those distributions will be made from the Fund’s cash assets, from amounts received through amortization of loans or from borrowed funds.

    As of December 31, 2020, the Fund had cash balance of $12.5 million and approximately $126.4 million in scheduled loan receivable payments over the next year. Additionally, the Fund has access to uncalled capital of $195.5 million and recallable capital of $39.7 million as a liquidity source, and a borrowing base that grows as it funds additional commitments. These amounts are sufficient to meet the current commitment backlog and operational expenses of the Fund over the next year. The Fund regularly evaluates potential future liquidity resources and demands before making additional future commitments.

    On April 24, 2019, the Fund's sole shareholder, the Company, approved a reduced asset coverage ratio of 150% for the Fund as permitted in Section 61(a)(2) of the 1940 Act. Accordingly, the Fund is permitted to borrow in any amount so long as its asset coverage ratio, as defined in the 1940 Act, is at least 150% after giving effect to such borrowings. As of December 31, 2020, the Fund's asset coverage ratio was 231%.
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Fund’s business activities contain various elements of risk, of which Management considers interest rate and credit risk to be the principal types of risks. Because the Fund considers the management of risk essential to conducting its business and to maintaining profitability, the Fund’s risk management procedures are designed to identify and analyze the Fund’s risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.  

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

    The Fund’s investments are subject to market risk based on several factors, including, but not limited to, the borrower’s credit history, available cash, support of the borrower’s underlying investors, available liquidity, “burn rate,” revenue income, security interest, secondary markets for collateral, the size of the loan, term of the loan and the ability to exit via initial public offering or merger and acquisition.

    The Fund’s exposure to interest rate sensitivity is regularly monitored and analyzed by measuring the characteristics of assets and liabilities. The Fund utilizes various methods to assess interest rate risk in terms of the potential effect on interest income net of interest expense, the value of net assets and the value at risk in an effort to ensure that the Fund is insulated from any significant adverse effects from changes in interest rates. At December 31, 2020, the outstanding debt balance was $140.0 million at a weighted-average floating interest rate of 0.14%, for which the Fund had derivative instruments in place with a weighted-average fixed interest rate of 2.28% on $57.0 million of the notional principal amount with an interest rate swap and floor, and a ceiling of 1.150% on $20.0 million with an interest rate collar, leaving the Fund with exposure to interest rate changes on the un-hedged portion of the loan.

Because all of the Fund’s loans impose a fixed interest rate upon funding, changes in short-term interest rates will not directly affect interest income associated with the loan portfolio as of December 31, 2020. However, those changes could have the potential to change the Fund’s ability to originate loan commitments, acquire and renew bank facilities, and engage in other investment activities. Further, changes in short-term interest rates could also affect interest rate expense, realized gain from investments and interest on the Fund’s short-term investments.

    Based on the Fund’s Statements of Assets and Liabilities as of December 31, 2020, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in investments, borrowings, cash balances and derivative instruments.
Effect of Interest Rate Change ByIncrease (Decrease) Other Interest and Other IncomeGain (Loss) from Interest Rate Swap and FloorGain (Loss) from Interest Rate CollarIncrease (Decrease) Interest IncomeIncrease (Decrease) in Total Income
(0.50)%$(62,486)$(285,000)$(100,000)$201,432 $(246,054)
1%$124,972 $570,000 $(1,224)$(1,400,000)$(706,252)
2%$249,945 $1,140,000 $198,776 $(2,800,000)$(1,211,279)
3%$374,917 $1,710,000 $398,776 $(4,200,000)$(1,716,307)
4%$499,890 $2,280,000 $598,776 $(5,600,000)$(2,221,334)
5%$624,862 $2,850,000 $798,776 $(7,000,000)$(2,726,362)
    Additionally, a change in the interest rate may affect the value of the derivative instruments and affect net change in unrealized gain or loss from derivative instruments. The amount of any such effect will be contingent upon market expectations for future interest rate changes. Any increases in expected future rates will increase the value of the derivative instruments while any rate decreases will decrease the value.

    Although Management believes that the foregoing analysis is indicative of the Fund’s sensitivity to interest rate changes, it does not take into consideration potential changes in the credit market, credit quality, size and composition of the assets in the portfolio. It also does not
26


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

    Because the Fund currently borrows, its net investment income is highly dependent upon the difference between the rate at which it borrows and the rate at which it invests the amounts borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on the Fund’s investment activities and net investment income. The Fund’s exposure to movement in short-term interest rates stems from the Fund borrowing at a floating interest rate but then making loans with a fixed rate at the time the loans are extended. The Fund, therefore, attempts to limit its interest rate risk by acquiring derivative instruments to hedge its interest rate exposure.

    The Fund is not sensitive to changes in foreign currency exchange rates, commodity prices and other market rates or prices.
27


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Results
This information has been derived from unaudited financial statements that, in the opinion of Management, include all normal recurring adjustments necessary for a fair presentation of such information. The operating results for any quarter are not necessarily indicative of results for any future year. The format of the statements has been modified, thus certain numbers have been combined in order to fit the format of the statements.
The Fund’s financial statements, together with the Report of Independent Registered Public Accounting Firm, are included elsewhere in this Annual Report on Form 10-K.
December 31, 2020 (Unaudited):
Quarterly Information for the Three Months Ended
 March 31, 2020June 30, 2020September 30, 2020December 31, 2020
Investment Income: 
Interest on loans$10,346,918 $9,308,799 $13,742,951 $12,312,718 
Other interest and other income500,696 11,308 1,599 571 
Total investment income10,847,614 9,320,107 13,744,550 12,313,289 
Expenses:
Management fees1,840,000 1,840,000 1,811,250 1,811,250 
Interest expense1,229,785 921,686 1,122,167 960,108 
Banking and professional fees65,016 191,921 156,344 187,312 
Other operating expenses32,259 26,329 55,873 60,823 
Total expenses3,167,060 2,979,936 3,145,634 3,019,493 
Net investment income7,680,554 6,340,171 10,598,916 9,293,796 
Net realized loss from loans— — — (27,819)
Net realized loss from derivative instruments(86,059)(254,229)(308,540)(311,919)
Net change in unrealized gain (loss) from loans(6,431,712)246,869 (2,988,820)(2,411,282)
Net change in unrealized gain (loss) from derivative instruments(1,130,595)(16,721)354,578 364,098 
Net realized and change in unrealized loss from loans and derivative instruments(7,648,366)(24,081)(2,942,782)(2,386,922)
Net increase in net assets resulting from operations$32,188 $6,316,090 $7,656,134 $6,906,874 
Amounts per common share:
Net increase in net assets resulting from operations per share$0.32 $63.16 $76.56 $69.07 
Weighted average shares outstanding100,000 100,000 100,000 100,000 


(Intentionally left blank.)
28


December 31, 2019 (Unaudited):
Quarterly Information for the Three Months Ended
 March 31, 2019June 30, 2019September 30, 2019December 31, 2019
Investment Income: 
Interest on loans$3,964,607 $5,405,804 $6,089,248 $8,153,605 
Other interest and other income51,238 93,128 32,770 18,347 
Total investment income4,015,845 5,498,932 6,122,018 8,171,952 
Expenses:
Management fees1,811,250 1,811,250 1,840,000 1,840,000 
Interest expense716,565 895,339 1,156,808 1,226,588 
Banking and professional fees175,591 116,612 26,855 141,877 
Other operating expenses33,966 30,210 59,975 54,131 
Total expenses2,737,372 2,853,411 3,083,638 3,262,596 
Net investment income1,278,473 2,645,521 3,038,380 4,909,356 
Net realized loss from loans— — — (2,393,159)
Net realized loss from derivative instruments(919)(3,995)(4,681)(64,179)
Net change in unrealized gain (loss) from loans(12,314)12,314 (1,362,469)458,535 
Net change in unrealized gain (loss) from derivative instruments(303,362)(597,571)(113,664)189,023 
Net realized and change in unrealized loss from loans and derivative instruments(316,595)(589,252)(1,480,814)(1,809,780)
Net increase in net assets resulting from operations$961,878 $2,056,269 $1,557,566 $3,099,576 
Amounts per common share:
Net increase in net assets resulting from operations per share$9.62 $20.56 $15.58 $31.00 
Weighted average shares outstanding100,000 100,000 100,000 100,000 

(Intentionally left blank.)

29


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    Not applicable.
ITEM 9A.         CONTROLS AND PROCEDURES
Disclosure Controls and Procedures

    At the end of the period covered by this report, the Fund carried out an evaluation under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Fund’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Fund’s disclosure controls and procedures were effective as of the end of the period in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and in providing reasonable assurance that information required to be disclosed by the Fund in such reports is accumulated and communicated to the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control over Financial Reporting
    Pursuant to Rules 13a-15d and 15d-15(d) of the Exchange Act, the Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision of and with the participation of the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, the Fund conducted an evaluation of the effectiveness of its internal control over financial reporting based on the Committee of Sponsoring Organizations of the Treadway Commission 2013 (“COSO 2013”) updated Internal Control - Integrated Framework. Based on its evaluation under the COSO 2013 Internal Control - Integrated Framework, the Fund’s management concluded that its internal control over financial reporting was effective as of December 31, 2020.
    Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
    This report of management on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
Changes in Internal Controls
    There have not been any changes in the Fund’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the Fund’s fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
ITEM 9B.     OTHER INFORMATION
Not applicable.


30


PART III.
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The list of executive officers and biographical information appears in Part I, Item 1 of this Form 10-K.
The information required by this item concerning the directors of the Fund, the structure of its Board of Directors and Section 16(a) compliance will be contained in the Fund’s Proxy Statement filed in connection with the Annual Meeting of Shareholders to be held on May 19, 2021 (“Proxy Statement”) under the captions “Proposal 1 -- To Elect Five Directors of the Fund” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
The Fund has adopted a Code of Ethics that is applicable to all of its officers. A free copy of the Code of Ethics may be requested by contacting the Chief Financial Officer of the Fund at 104 La Mesa Drive, Suite 102, Portola Valley, CA 94028.  
ITEM 11.    EXECUTIVE COMPENSATION
The information required by this item will be contained in the Fund’s Proxy Statement under the caption “Proposal 1 -- To Elect Five Directors of the Fund” and is incorporated herein by reference.
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be contained in the Fund’s Proxy Statement under the caption “Annex A -- Beneficial Ownership of Fund Shares” and is incorporated herein by reference.
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    The information required by this item will be contained in the Fund’s Proxy Statement under the captions: “Other Information -- Managers” and is incorporated herein by reference.
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be contained in the Fund’s Proxy Statement under the captions: “Other Information - Independent Registered Public Accounting Firm.”

31


PART IV.
ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1.     Index to Financial Statements and Financial Statement Schedules
Report of Independent Registered Public Accounting Firm    
Statements of Assets and Liabilities as of December 31, 2020 and 2019
Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Statements of Changes in Net Assets for the years ended December 31, 2020, 2019 and 2018
Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Schedules of Investments as of December 31, 2020 and 2019
Schedules of Derivative Instruments as of December 31, 2020 and 2019
Notes to Financial Statements 
No schedules are required because the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and the notes thereto.
2.    Exhibits
Exhibit    
Exhibit Title
3(i)
3(ii)
4.1
4.2
10.1
10.2
10.3
31.1

31.2

32.1

32.2


ITEM 16.    FORM 10-K SUMMARY
    None.
32


Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VENTURE LENDING & LEASING IX, INC.
(Registrant)
By:/S/Maurice C. WerdegarBy:/S/Judy N. Bornstein
Maurice C. WerdegarJudy N. Bornstein
Chief Executive OfficerChief Financial Officer
(Principal Executive Officer)(Principal Financial Officer)
Date:  March 15, 2021Date:March 15, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAMETITLEDATE
By:/S/ Maurice C. WerdegarCEO & DirectorMarch 15, 2021
Maurice C. Werdegar
By:/S/ Ronald W. SwensonChairman & DirectorMarch 15, 2021
Ronald W. Swenson
By:/S/ Robert HutterDirectorMarch 15, 2021
Robert Hutter
By:/S/ Roger V. SmithDirectorMarch 15, 2021
Roger V. Smith
By:/S/ Scott TaylorDirectorMarch 15, 2021
Scott Taylor

33




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statements of assets and liabilities of Venture Lending & Leasing IX, Inc. (the "Fund"), including the schedules of investments, as of December 31, 2020 and 2019, and the related statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2020, the financial highlights (presented in Note 11) for each of the three years in the period ended December 31, 2020 and the period from June 28, 2017 (inception) to December 31, 2017, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020 and 2019, and the results of its operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2020, and the financial highlights for each of the three years in the period ended December 31, 2020 and the period from June 28, 2017 (inception) through December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of loans owned as of December 31, 2020 and 2019, by correspondence with the borrowers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value — Level 3 Investments — Refer to Note 2 and Note 3 to the financial statements

Critical Audit Matter Description

As of December 31, 2020, the Fund has nonmarketable investments in loans of $310.5 million. There is no readily available market price or secondary market for the loans made by the Fund to its borrowers; hence the Fund determines fair value based on a hypothetical market and the estimates are subject to a higher degree of judgment and uncertainty. The Fund’s loan investments are considered Level 3 fair value measurements in the fair value hierarchy due to the lack of observability over certain significant inputs used in determining fair value.

Certain nonmarketable investments in loans held by the Fund have exhibited indicators of potential credit deterioration subsequent to the initial funding date. The valuation of these loans has an elevated risk profile because the estimates of fair value involve a higher degree of management judgment and uncertainty associated with the expectation of timing and amount of future cash flows under various cash flow scenarios. The valuation of these loans required a high degree of auditor judgment and an increased extent of effort, including the possibility to involve our fair value specialists who possess significant valuation expertise, to evaluate the appropriateness of the model and methodology.

We identified the completeness of loans exhibiting indicators of potential credit deterioration and the valuation of loans exhibiting credit deterioration as a critical audit matter.

34


How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the completeness of loans exhibiting indicators of potential credit deterioration and the unobservable inputs used by management to estimate the fair value of the loans with credit deterioration included the following, among others:
a.We tested loan payments throughout the year and subsequent to year end to identify inconsistent payments or missed payments which could indicate a potential credit risk.
b.With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation techniques used by management to estimate fair value.
c.We tested and evaluated the appropriateness of the unobservable inputs by comparing them to external sources, including financial information provided by the borrower, and those used by management in the prior year.


/s/ Deloitte & Touche LLP

March 15, 2021

San Francisco, California

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



35


VENTURE LENDING & LEASING IX, INC.
Statements of Assets and Liabilities
As of December 31, 2020 and 2019
December 31, 2020December 31, 2019
ASSETS:
Loans, at estimated fair value
   (cost of $323,011,028 and $204,215,179)$310,522,149 $203,311,245 
Cash and cash equivalents12,497,243 10,754,759 
Dividend and interest receivables3,856,598 2,701,713 
Other assets685,806 939,716 
Total assets327,561,796 217,707,433 
LIABILITIES:
Borrowings under debt facility140,000,000 100,000,000 
Accrued management fees1,811,250 1,840,000 
Derivative liability1,254,214 825,574 
Accounts payable and other accrued liabilities1,169,497 1,209,486 
Total liabilities144,234,961 103,875,060 
NET ASSETS:$183,326,835 $113,832,373 
Analysis of Net Assets:
Capital paid in on shares of capital stock$243,125,000 $148,125,000 
Total distributable losses(59,798,165)(34,292,627)
Net assets (equivalent to $1,833.27 and $1,138.32 per share based on 100,000 shares of capital stock outstanding - See Note 5 and Note 11)$183,326,835 $113,832,373 
Commitments & Contingent Liabilities:
Unexpired unfunded commitments (See Note 10)$83,200,000 $77,950,000 
























See notes to financial statements.
36


VENTURE LENDING & LEASING IX, INC.
Statements of Operations
For the Years Ended December 31, 2020, 2019 and 2018
For the Year EndedFor the Year EndedFor the Year Ended
December 31, 2020December 31, 2019December 31, 2018
INVESTMENT INCOME:
Interest on loans$45,711,386 $23,613,264 $4,292,189 
Other interest and other income514,174 195,483 152,248 
Total investment income46,225,560 23,808,747 4,444,437 
EXPENSES:
Management fees7,302,500 7,302,500 4,833,308 
Organizational costs— — 27,654 
Interest expense4,233,746 3,995,300 72,360 
Banking and professional fees600,593 460,935 360,208 
Other operating expenses175,284 178,282 115,034 
Total expenses12,312,123 11,937,017 5,408,564 
Net investment income33,913,437 11,871,730 (964,127)
Net realized loss from loans(27,819)(2,393,159)— 
Net realized loss from derivative instruments(960,747)(73,774)— 
Net change in unrealized loss from loans(11,584,945)(903,934)— 
Net change in unrealized loss from derivative instruments(428,640)(825,574)— 
Net realized and change in unrealized loss from loans and derivative instruments(13,002,151)(4,196,441)— 
Net increase (decrease) in net assets resulting from operations$20,911,286 $7,675,289 $(964,127)
Amounts per common share:
Net increase (decrease) in net assets resulting from operations per share$209.11 $76.75 $(9.64)
Weighted average shares outstanding100,000 100,000 100,000 
















See notes to financial statements.
37


VENTURE LENDING & LEASING IX, INC.
Statements of Changes in Net Assets
For the Years Ended December 31, 2020, 2019 and 2018

Common Stock
SharesPar ValueAdditional Paid-in CapitalTotal Distributable Earnings (Loss)Net Assets
Balance at December 31 2017100,000 $100 $24,900 $(184,165)$(159,165)
Net decrease in net assets resulting from operations— — — (964,127)(964,127)
Distributions to shareholder— — — (7,287,981)(7,287,981)
Contributions from shareholder— — 82,500,000 — 82,500,000 
Balance at December 31, 2018100,000 $100 $82,524,900 $(8,436,273)$74,088,727 
Net increase in net assets resulting from operations— — — 7,675,289 7,675,289 
Distributions to shareholder— — — (33,531,643)(33,531,643)
Contributions from shareholder— — 65,600,000 — 65,600,000 
Balance at December 31, 2019100,000 $100 $148,124,900 $(34,292,627)$113,832,373 
Net increase in net assets resulting from operations— — — 20,911,286 20,911,286 
Distributions to shareholder— — — (46,416,824)(46,416,824)
Contributions from shareholder— — 95,000,000 — 95,000,000 
Balance at December 31, 2020100,000 $100 $243,124,900 $(59,798,165)$183,326,835 






















See notes to financial statements.
38


VENTURE LENDING & LEASING IX, INC.
Statements of Cash Flows
For the Years Ended December 31, 2020, 2019 and 2018
For the Year EndedFor the Year EndedFor the Year Ended
December 31, 2020
December 31, 2019 (a)
December 31, 2018 (a)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations$20,911,286 $7,675,289 $(964,127)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Net realized loss from loans27,819 2,393,159 — 
Net realized loss from derivative instruments960,747 73,774 — 
Net change in unrealized loss from loans11,584,945 903,934 — 
Net change in unrealized loss from derivative instruments428,640 825,574 — 
Amortization of deferred costs related to borrowing facility 428,638 427,523 35,268 
Net increase in dividend and interest receivables(1,154,885)(1,716,693)(985,020)
Net increase in other assets(174,729)(35,733)(46,708)
Net (increase) decrease in accounts payable, other accrued liabilities, accrued management fees and due to manager(68,739)958,905 1,906,416 
Origination of loans(215,650,000)(160,675,000)(87,100,000)
Principal payments on loans86,525,652 25,486,854 6,944,889 
Accretion of discount on loans9,307,112 6,048,921 1,110,004 
Acquisition of equity securities(14,623,255)(11,055,649)(7,287,981)
Net cash used in operating activities(101,496,769)(128,689,142)(86,387,259)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to shareholder(30,800,000)(20,900,000)— 
Contributions from shareholder95,000,000 65,600,000 82,500,000 
Borrowings under debt facility137,500,000 119,200,000 6,000,000 
Repayments of borrowings under debt facility(97,500,000)(25,200,000)— 
Payments made for interest rate swap(960,747)(96,231)— 
Payments received from interest rate swap— 22,458 — 
Payments of bank facility fees and costs— (15,141)(1,304,926)
Net cash provided by financing activities103,239,253 138,611,086 87,195,074 
Net increase in cash and cash equivalents1,742,484 9,921,944 807,815 
CASH AND CASH EQUIVALENTS:
Beginning of year10,754,759 832,815 25,000 
End of year$12,497,243 $10,754,759 $832,815 
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR:
Interest - Debt facility$3,648,316 $3,304,431 $— 
NON-CASH OPERATING AND FINANCING ACTIVITIES:
Distributions of equity securities to shareholder$15,616,824 $12,631,643 $7,287,981 
Receipt of equity securities as repayment of loans$993,568 $1,575,994 $— 
(a) Certain prior period information has been disclosed to conform to current presentation.

See notes to financial statements.
39


VENTURE LENDING & LEASING IX, INC.
Schedule of Investments
As of December 31, 2020
IndustryBorrower
Percent of Net Assets (a)
CollateralInterest Rate (b)End of Term Payment (c)PrincipalCostFair ValueMaturity Date
Biotechnology
Antheia, Inc.Senior Secured11.5%$1,219,076 $1,181,003 $1,181,003 12/1/2022
Antheia, Inc.Senior Secured11.5%1,220,291 1,206,345 1,206,345 12/1/2022
Antheia, Inc. Subtotal2,439,367 2,387,348 2,387,348 
Driver Bioengineering, Inc.Senior Secured11.0%866,600 849,310 849,310 6/1/2023
Driver Bioengineering, Inc.Senior Secured11.0%349,662 311,553 311,553 4/1/2023
Driver Bioengineering, Inc. Subtotal1,216,262 1,160,863 1,160,863 
Quartzy, Inc.Senior Secured12.0%1,113,593 1,083,782 1,083,782 7/1/2024
Quartzy, Inc.Senior Secured12.0%722,540 648,418 648,418 8/1/2023
Quartzy, Inc.Senior Secured12.0%1,113,211 1,085,490 1,085,490 5/1/2024
Quartzy, Inc. Subtotal2,949,344 2,817,690 2,817,690 
Biotechnology Total3.5%$6,604,973 $6,365,901 $6,365,901 
Computers & Storage
Canary Connect, Inc.Senior Secured12.8%$2,256,808 $2,199,490 $2,199,490 3/1/2023
Canary Connect, Inc.Senior Secured12.0%7,918,698 7,426,948 7,426,948 3/1/2024
Canary Connect, Inc. Subtotal10,175,506 9,626,438 9,626,438 
Fetch Robotics, Inc.Senior Secured12.0%7,418,932 7,104,656 7,104,656 6/1/2024
Computers & Storage Total9.1%$17,594,438 $16,731,094 $16,731,094 
Enterprise Networking
Diamanti, Inc.Senior Secured12.3%$5,441,469 $4,811,921 $4,811,921 5/1/2024
Diamanti, Inc.Senior Secured12.3%494,824 467,988 467,988 7/1/2024
Diamanti, Inc. Subtotal5,936,293 5,279,909 5,279,909 
Enterprise Networking Total2.9%$5,936,293 $5,279,909 $5,279,909 
Internet
Ainsly, Inc. ** ^Senior Secured12.5%$519,587 $490,896 $490,896 8/1/2022
Ainsly, Inc. ** ^Senior Secured12.5%173,207 173,207 173,207 8/1/2022
Ainsly, Inc. ** ^Senior Secured12.5%247,340 217,309 217,309 9/1/2023
Ainsly, Inc. Subtotal ** ^940,134 881,412 881,412 
Amino Payments, Inc.Senior Secured10.8%471,215 449,064 380,130 *
Cesium, Inc.Senior Secured10.3%105,348 103,881 103,881 1/1/2023
Cesium, Inc.Senior Secured10.3%210,624 200,481 200,481 1/1/2023
Cesium, Inc. Subtotal315,972 304,362 304,362 
iZENEtech, Inc. ** ^Senior Secured12.3%5,000,000 4,674,880 4,674,880 9/1/2024
Lukla, Inc.Senior Secured12.5%247,208 237,422 237,422 6/1/2023
Lukla, Inc.Senior Secured12.5%407,447 363,867 363,867 12/1/2022
Lukla, Inc. Subtotal654,655 601,289 601,289 
Masse, Inc.Senior Secured18.0%304,001 144,008 10,000 *
Merchbar, Inc.Senior Secured11.8%451,293 430,995 430,995 3/1/2023
MyPizza Technologies, Inc.Senior Secured11.5%4,943,040 4,784,039 4,784,039 12/1/2023
MyPizza Technologies, Inc.Senior Secured11.5%2,471,842 2,436,444 2,436,444 2/1/2024
MyPizza Technologies, Inc. Subtotal7,414,882 7,220,483 7,220,483 
Nimble Rx, Inc.Senior Secured12.0%1,091,906 999,055 999,055 2/1/2023
Nimble Rx, Inc.Senior Secured12.0%1,236,949 1,188,381 1,188,381 11/1/2023
Nimble Rx, Inc. Subtotal2,328,855 2,187,436 2,187,436 
OneLocal, Inc. ** ^Senior Secured12.3%301,162 295,353 295,353 3/1/2023
40


IndustryBorrower
Percent of Net Assets (a)
CollateralInterest Rate (b)End of Term Payment (c)PrincipalCostFair ValueMaturity Date
OneLocal, Inc. ** ^Senior Secured12.3%301,078 281,207 281,207 3/1/2023
OneLocal, Inc. ** ^Senior Secured12.3%301,150 296,454 296,454 3/1/2023
OneLocal, Inc. Subtotal ** ^903,390 873,014 873,014 
Osix CorporationSenior Secured12.3%43,214 40,350 40,350 12/1/2021
RenoFi, Inc.Senior Secured12.0%247,427 242,330 242,330 6/1/2023
RenoFi, Inc.Senior Secured12.0%989,893 945,226 945,226 12/1/2023
RenoFi, Inc.Senior Secured12.0%247,292 231,778 231,778 6/1/2023
RenoFi, Inc. Subtotal1,484,612 1,419,334 1,419,334 
Residently USA, LLC ** ^Senior Secured12.0%873,899 789,139 789,139 2/1/2023
Residently USA, LLC ** ^Senior Secured12.0%371,000 371,000 371,000 12/1/2023
Residently USA, LLC Subtotal ** ^1,244,899 1,160,139 1,160,139 
RetailerX, Inc.Senior Secured12.0%989,881 927,856 927,856 5/1/2024
Serface Care, Inc.Senior Secured12.3%961,139 566,912 21,201 *
Shadow, PBCSenior Secured11.5%470,556 441,930 441,930 10/1/2022
Starface World, Inc.Senior Secured12.0%494,938 481,875 481,875 1/1/2024
Starface World, Inc.Senior Secured12.0%989,583 925,385 925,385 11/1/2023
Starface World, Inc. Subtotal1,484,521 1,407,260 1,407,260 
Stay Alfred, Inc.Senior Secured18.0%6,061,856 4,548,360 635,170 *
Verishop, Inc.Senior Secured12.0%2,472,054 2,437,550 2,437,550 12/1/2023
Verishop, Inc.Senior Secured12.0%2,471,119 2,366,934 2,366,934 12/1/2023
Verishop, Inc. Subtotal4,943,173 4,804,484 4,804,484 
Internet Total15.5%$36,468,248 $33,083,568 $28,421,725 
Medical Devices
Ablacon, Inc.Senior Secured11.0%$2,256,537 $2,168,756 $2,168,756 3/1/2023
Ablacon, Inc.Senior Secured11.0%2,257,368 2,224,508 2,224,508 3/1/2023
Ablacon, Inc. Subtotal4,513,905 4,393,264 4,393,264 
Anutra Medical, Inc.Senior Secured12.0%188,448 182,138 182,138 10/1/2022
CytoVale, Inc.Senior Secured12.0%304,420 301,225 301,225 7/1/2022
CytoVale, Inc.Senior Secured12.0%362,240 358,640 358,640 6/1/2022
CytoVale, Inc.Senior Secured12.0%306,253 296,276 296,276 3/1/2022
CytoVale, Inc.Senior Secured12.0%1,978,667 1,856,409 1,856,409 9/1/2024
CytoVale, Inc.Senior Secured12.0%494,475 470,113 470,113 10/1/2023
CytoVale, Inc.Senior Secured12.0%494,687 485,502 485,502 11/1/2023
CytoVale, Inc. Subtotal3,940,742 3,768,165 3,768,165 
eXo Imaging, Inc.Senior Secured11.8%1,978,816 1,837,427 1,837,427 9/1/2023
eXo Imaging, Inc.Senior Secured11.8%1,974,541 1,930,965 1,930,965 9/1/2023
eXo Imaging, Inc. Subtotal3,953,357 3,768,392 3,768,392 
Medrobotics Corporation, Inc.Senior Secured18.0%10,000,000 8,793,564 3,275,463 *
Siren Care, Inc.Senior Secured12.5%1,977,800 1,883,794 1,883,794 10/1/2023
Siren Care, Inc.Senior Secured12.5%989,137 969,133 969,133 10/1/2023
Siren Care, Inc. Subtotal2,966,937 2,852,927 2,852,927 
SVN Med, LLCSenior Secured15.0%1,973,663 1,525,305 1,525,305 12/1/2023
SVN Med, LLCSenior Secured15.0%987,065 756,382 756,382 12/1/2023
SVN Med, LLC Subtotal2,960,728 2,281,687 2,281,687 
Medical Devices Total11.2%$28,524,117 $26,040,137 $20,522,036 
Other Healthcare
Artisan Development Labs, Inc.Senior Secured12.3%$466,116 $408,000 $408,000 4/1/2023
Caredox, Inc.Senior Secured11.8%775,417 762,534 762,534 7/1/2022
GoForward, Inc.Senior Secured11.5%6,181,238 5,735,573 5,735,573 9/1/2023
GoForward, Inc.Senior Secured11.5%3,094,971 3,004,838 3,004,838 6/1/2024
GoForward, Inc. Subtotal9,276,209 8,740,411 8,740,411 
Grin, Inc.Senior Secured12.0%989,140 944,177 944,177 10/1/2023
Grin, Inc.Senior Secured12.0%494,743 484,898 484,898 1/1/2024
41


IndustryBorrower
Percent of Net Assets (a)
CollateralInterest Rate (b)End of Term Payment (c)PrincipalCostFair ValueMaturity Date
Grin, Inc. Subtotal1,483,883 1,429,075 1,429,075 
GoForward, Inc.Senior Secured11.5%6,188,651 5,511,946 5,511,946 9/1/2023
Hello Heart Inc.Senior Secured11.0%1,238,420 1,152,819 1,152,819 4/1/2023
HumanAPI, Inc.Senior Secured11.8%495,054 485,091 485,091 1/1/2023
HumanAPI, Inc.Senior Secured11.8%1,484,721 1,392,560 1,392,560 10/1/2022
HumanAPI, Inc. Subtotal1,979,775 1,877,651 1,877,651 
Hello Heart Inc.Senior Secured11.0%1,974,944 1,930,315 1,930,315 6/1/2025
Hello Heart Inc.Senior Secured11.0%1,164,939 1,115,829 1,115,829 4/1/2023
Hello Heart Inc.Senior Secured11.0%1,974,944 1,796,427 1,796,427 6/1/2024
Hello Heart Inc.Senior Secured11.0%932,214 919,531 919,531 4/1/2023
Hello Heart Inc.Senior Secured11.0%742,816 730,145 730,145 11/1/2023
Hello Heart Inc. Subtotal6,789,857 6,492,247 6,492,247 
HumanAPI, Inc.Senior Secured11.8%421,960 416,785 416,785 1/1/2023
HumanAPI, Inc.Senior Secured11.8%1,129,747 1,086,210 1,086,210 10/1/2022
HumanAPI, Inc. Subtotal1,551,707 1,502,995 1,502,995 
Oula Heath, Inc.Senior Secured12.0%742,000 685,839 685,839 2/1/2024
PeerWell, Inc.Senior Secured12.0%989,722 913,704 913,704 3/1/2024
Sparta Software CorporationSenior Secured11.5%2.2%304,794 297,802 297,802 5/1/2022
Therapydia, Inc.Senior Secured12.0%1.7%97,822 92,394 92,394 3/1/2023
Therapydia, Inc.Senior Secured12.5%