Business Context and Reporting Period
Company: GSV Growth Credit Fund Inc. (Note: Request metadata listed "Runway Growth Finance Corp.", but the filing text identifies the registrant as GSV Growth Credit Fund Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2016
Business Overview: The Company is an externally managed, non-diversified, closed-end management investment company organized as a Business Development Company (BDC) under the Investment Company Act of 1940. It intends to qualify as a Regulated Investment Company (RIC) for tax purposes. The investment objective is to maximize total return primarily through current income on a loan portfolio and secondarily through capital appreciation on warrants and equity positions. As of the reporting date, the Company had not commenced significant investment activities in portfolio securities, holding only a U.S. Treasury Bill.
Key Financial Metrics
| Metric | Year Ended Dec 31, 2016 | Inception to Dec 31, 2015 |
|---|---|---|
| Total Assets | $4,185,660 | $25,000 |
| Total Net Assets | $3,476,672 | $25,000 |
| Net Investment Loss | $(902,980) | $- |
| Net Decrease in Net Assets from Operations | $(903,041) | $- |
| Net Asset Value (NAV) per Share | $10.38 | $15.00 |
| Weighted Average Shares Outstanding | 10,774 | 1,667 |
| Total Return based on NAV | (30.80)% | N/A |
| Cash and Cash Equivalents | $1,039,931 | $25,000 |
| Capital Commitments (as of Dec 31, 2016) | $209,901,500 | N/A |
Liquidity and Debt: The Company had no debt or senior securities outstanding as of December 31, 2016. Liabilities totaled $708,988, primarily consisting of amounts due to affiliates ($648,805) and accrued expenses ($60,183).
Material Changes vs. Prior Period
- Capital Raise: In December 2016, the Company completed the initial closing of its private offering, issuing 333,333 shares for $5,000,000. This contrasts with the 2015 period where only 1,667 shares were issued to the CEO for $25,000.
- Operational Status: The Company transitioned from a development stage entity with no operations in 2015 to an active BDC in 2016, incurring significant organizational and offering expenses ($354,713 and $645,287 respectively) and management fees ($169,684).
- Investment Portfolio: As of December 31, 2016, the portfolio consisted solely of a U.S. Treasury Bill ($2,999,849 fair value). No portfolio company investments had been made.
- Strategic Partnership: In December 2016, the Company entered a strategic relationship with Oaktree Capital Management, L.P., resulting in a $125 million capital commitment from OCM Growth Holdings, LLC.
Guidance, Outlook, and Risks
Outlook and Strategy: The Company intends to invest in high-growth private companies via senior secured and second lien loans, often accompanied by warrants. It plans to deploy capital from its private offering and potentially borrow funds, subject to asset coverage ratios. The Company expects to offer investors a "Spin-Off" option after the third anniversary of the initial closing, allowing them to exchange shares for a public BDC or a liquidating fund.
Management Commentary: Management highlighted that the Company is an "emerging growth company" and anticipates difficulty satisfying RIC asset diversification requirements during the initial capital deployment phase. No dividends were declared or paid in 2016.
Risks and Contingencies:
- RIC Qualification: Failure to qualify as a RIC would subject the Company to corporate-level income tax.
- Limited Operating History: The Company has limited experience as a BDC, and its investment adviser (GSVGC) has limited experience managing a BDC/RIC.
- Valuation Uncertainty: Portfolio investments will be valued at fair value, which is subjective for private securities and may differ materially from realized values.
- Conflicts of Interest: Significant potential conflicts exist regarding the allocation of investment opportunities between the Company and other funds managed by GSVGC, as well as the strategic relationship with Oaktree.
- Liquidity: Investments in private companies are illiquid, and the Company may be unable to sell assets quickly to meet distribution requirements.
Key Facts for Investor Verification
- Capital Deployment: Verify the timeline and terms of the drawdown of the $209.9 million in capital commitments, as the Company held significant cash but no portfolio investments at year-end.
- Expense Structure: Review the Advisory Agreement terms, specifically the base management fee (1.75% annualized on Gross Assets) and the incentive fee structure (20% of income above an 8% annualized hurdle), noting that fees are calculated on capital commitments even before deployment.
- Oaktree Relationship: Confirm the extent of Oaktree's influence, including its $125 million commitment (approx. 60% of outstanding stock at the time) and its right to nominate a board member.
- Spin-Off Mechanics: Understand the conditions and timeline for the potential Spin-Off transaction, which is a key liquidity event for investors.
- Subsequent Events: Note that between January 1, 2017, and March 29, 2017, the Company closed an additional $8.4 million in capital commitments, bringing total commitments to $218.3 million.