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Horizon Technology Funding Co LLC – ‘N-2/A’ on 4/13/06

On:  Thursday, 4/13/06, at 9:21pm ET   ·   As of:  4/14/06   ·   Accession #:  1047469-6-5127   ·   File #:  333-130555

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TABLE OF CONTENTS
Horizon Technology Finance, LLC Index to Combined Financial Statements

As filed with the Securities and Exchange Commission on April 14, 2006

Registration No. 333-130555

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

FORM N-2
(Check appropriate box or boxes)

HORIZON TECHNOLOGY FUNDING COMPANY LLC
(Exact Name of Registrant as Specified in Charter)

Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.

        If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.    o

        It is proposed that this filing will become effective (check appropriate box):

        If appropriate, check the following box:

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

(1)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

(2)

$16,050 of which was previously paid.

        The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

             Shares

Horizon Technology Finance Corporation

Common Stock

        We are offering            shares of our common stock, and the selling stockholders are offering            shares of common stock. We will not receive any proceeds from the sale of shares by selling stockholders. It is anticipated that the initial public offering price will be between $                  and $                  per share.

        We are a venture debt finance company that offers senior and subordinated working capital loans, senior revolving loans, bridge loans and equipment loans to emerging companies in the information technology and life science industries. We primarily finance privately held, development-stage companies backed by established venture capital firms. Prior to the completion of this offering, we will be an internally managed, closed-end, non-diversified management investment company that has filed an N-54A election to be treated as a business development company under the Investment Company Act of 1940. Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants. We intend to borrow funds, which we refer to as leverage, to make investments.

        The selling stockholders hold a majority of our stock, but no selling stockholder is a member of our management team.

        This is our initial public offering, and no public market currently exists for our shares. Shares of closed-end management investment companies frequently trade at a discount to their net asset value. If our shares trade at a discount to our net asset value, it may increase the risk of loss for purchasers in this initial public offering. Purchasers in this initial offering will experience immediate dilution. See "Dilution" for more information.

        We have reserved the symbol "HRZN" for the quotation of our common stock on The Nasdaq National Market.

        This prospectus contains important information you should know before investing in our common stock. Please read it before you invest and keep it for future reference. Upon completion of this offering, we will file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. This information will be available free of charge by contacting us at 76 Batterson Park Road, Farmington, Connecticut 06032, by telephone at (860) 676-8654 or on our website at www.horizontechfinance.com. The Securities and Exchange Commission also maintains a website at www.sec.gov that contains such information.

        Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 16.

(1)

We and the selling stockholders have granted the underwriters the right to purchase up to an additional            and            shares of common stock, respectively, at the offering price less the sales load, to cover any over-allotments. The underwriters can exercise this right at any time within forty-five days from the date of the final prospectus. If the over-allotment option is exercised in full, the total offering price will be $                  , the total sales load will be $                  and the offering proceeds to us would be $                  , before deducting expenses payable by us.

(2)

We estimate that we will incur $            in expenses in connection with this offering, $      of which are attributable to the selling stockholders. We will pay all offering expenses incident to the sale of shares of our common stock in this offering by the selling stockholders.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the shares of common stock to investors on                        , 2006.

                        , 2006

        Horizon Technology Finance Corporation, our logo and other trademarks of Horizon Technology Finance Corporation mentioned in this prospectus are the property of Horizon Technology Finance Corporation. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.

        This prospectus contains third-party estimates and data regarding valuations of venture capital-backed companies. Dow Jones/Venture One, Thomson Venture Economics, National Venture Capital Association, Ernst & Young Biotechnology Report 2005 and PricewaterhouseCoopers were the primary sources for third-party industry data and forecasts. Although we have not independently verified any such data, we believe that the industry information contained in such releases and data tables and included in this prospectus is reliable.

        Certain industry estimates presented in this prospectus have been compiled by us from internally generated information and data, which, while believed by us to be reliable, have not been verified by any independent sources. These estimates are based on a number of assumptions, including increasing investment in venture capital and private equity-backed companies. Actual results may differ from projections and estimates, and this market may not grow at the rates projected, or at all. The failure of this market to grow at projected rates could have a material adverse effect on our business and the market price of our common stock.

        Except as otherwise noted, all information in this prospectus assumes no exercise of the underwriters' over-allotment option.

2

        You should rely only on the information contained in this prospectus. Neither we, the selling stockholders nor the underwriters has authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell, or a solicitation of an offer to buy, any shares of common stock by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information in this prospectus is accurate only as of its date, and under no circumstances should the delivery of this prospectus or the sale of any common stock imply that the information in this prospectus is accurate as of any later date or that the affairs of Horizon Technology Finance Corporation have not changed since the date hereof. We will update the information in this prospectus to reflect material changes occurring prior to the completion of this offering.

TABLE OF CONTENTS

3

SUMMARY

        This summary highlights some of the information in this prospectus and does not contain all of the information that is important to you in making an investment decision. You should read carefully the more detailed information set forth under "Risk Factors" and the other information included in this prospectus. The following summary is qualified in its entirety by reference to the more detailed information and financial statements appearing elsewhere in this prospectus. In this prospectus, unless the context otherwise requires, the "company," "Horizon," "we," "us" and "our" refer to Horizon Technology Funding Company LLC, Horizon Technology Finance, LLC, Horizon Technology Funding Company II LLC, Horizon Technology Funding Company III LLC and Horizon Technology Funding Company IIIB LLC immediately prior to the consummation of the Restructuring, as described below in "—The Restructuring," and to Horizon Technology Finance Corporation and its wholly owned subsidiaries on and after the consummation of the Restructuring.

Our Company

        We are an internally managed venture debt finance company that offers senior and subordinated working capital loans, senior revolving loans, bridge loans and equipment loans to emerging companies in the information technology and life science industries. In conjunction with making our loans, we typically receive warrants to purchase stock and often obtain rights to purchase stock in subsequent equity financings, which we refer to as equity participation rights. We primarily finance privately held, development-stage technology companies backed by established venture capital firms. To a limited extent, we also selectively finance publicly traded companies, typically life science companies. Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants.

        We typically lend to private companies following or in connection with their receipt of a round of venture capital equity financing. Our current investments are primarily senior and subordinated working capital loans, senior revolving loans and bridge loans that are typically secured by all or a portion of the tangible and intangible assets of the portfolio company. As of December 31, 2005, senior secured loans, senior secured revolving loans, subordinated loans, equity investments, and warrants comprised 58.9%, 6.6%, 31.6%, 0.8%, and 2.1%, respectively, of our investment portfolio at fair value. Of our total investment portfolio, we classified 13.7% as senior secured loans, although such loans were subject by their terms to potential future subordination.

        As of December 31, 2005, our loans had an original committed principal amount of between $1.5 million and $18 million, repayment terms of between six and 48 months and bore interest at an annual interest rate of 8.5% to 13.0%. Through December 31, 2005, the dollar-weighted average yield on all of our debt investments was approximately 11.9%. In conjunction with our venture debt investments, we typically receive warrants in an amount between 5% and 20% of the committed loan amount. These warrants generally permit us to purchase stock in the portfolio company of the same type and at the same price per share as paid by investors in the portfolio company's most recent round of equity financing. To a lesser extent, we may also receive equity participation rights in a later round of equity financing of the portfolio company. We target annualized total returns on invested capital of between 15% and 20% over the life of our investments, including interest income on loans and proceeds, if any, derived from our exercise of warrants or sales of other equity interests received in connection with such loans. We can offer no assurance, however, that we will receive all scheduled interest payments or that we will realize any returns on related equity interests.

        We formed the company in May 2003 and commenced investment operations in April 2004. Through December 31, 2005, we had funded 46 portfolio companies and had invested $234.9 million in loans and equity. See "—Investment Summary." As of December 31, 2005, we had outstanding debt investments in 43 companies with an aggregate fair value of $214.5 million, held warrants to purchase

4

stock in 46 of our portfolio companies and had equity participation rights in 25 of our portfolio companies. See "Portfolio Companies." As of March 31, 2006, we have exercised equity participation rights in seven of our portfolio companies for an aggregate purchase price of approximately $2.3 million.

        As of December 31, 2005, we had outstanding loan commitments to 13 companies, representing $65.9 million. In addition to our portfolio companies having discretion whether to draw down such commitments, in some cases, the right of a company to draw down its commitment is subject to the company achieving specific milestones (e.g., an additional capital issuance or the completion of a clinical trial), as well as other funding conditions typical of any other commercial loans (e.g., no event of default). Consequently, these commitments may not result in funded investments.

        We seek to invest, under normal circumstances, at least 80% of the value of our net assets, plus the amount of any borrowings for investment purposes, in emerging companies in the information technology and life science industries.

        Each of our co-founders, Robert D. Pomeroy, Jr., our Chairman and Chief Executive Officer, and Gerald A. Michaud, our President and Chief Operating Officer, has over 15 years of experience in the venture lending industry. Christopher M. Mathieu, our Chief Financial Officer, has over 13 years of experience in the venture lending industry. We have an additional nine professionals who have an average of over seven years of experience in the venture lending industry, including marketing, legal, accounting and portfolio management.

        Prior to the completion of this offering, we will be an internally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act, and we intend to elect to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, for our first taxable year. As a business development company we will be required to meet regulatory tests, including the requirement to invest at least 70% of our total assets in certain qualifying assets. See "Regulation." As a RIC, we generally will not have to pay corporate-level taxes on any income or gains that we distribute to our stockholders, provided we meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. See "Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company." We expect to use leverage to increase our funds available for investments.

Recent Developments

        During the three months ended March 31, 2006, we funded additional investments to 14 companies totaling $54.9 million. As of March 31, 2006, we had executed non-binding term sheets with six prospective portfolio companies, representing $30.0 million. These proposed investments are subject to the completion of our due diligence and approval process, as well as negotiation of definitive documentation with the prospective portfolio companies and, as a result, may not result in completed investments. In addition, as of March 31, 2006, we had issued non-binding term sheets to 30 companies representing $215.2 million in potential loans. There is no guarantee that we will enter into any of these transactions.

5

Our Business Strategy

        Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants. To meet this objective we apply our expertise in venture debt product development and transaction sourcing, our knowledge of the information technology and life science industries, and our disciplined underwriting process to add value to our customers' businesses and thereby obtain returns that we believe exceed those returns that can be obtained in traditional commercial finance products. To implement our business strategy, we employ the following venture lending practices:

•

Direct Origination.  We typically originate our transactions directly from information technology and life science companies. These transactions are sourced from referrals from venture capital firms, information technology and life science management teams, and legal and accounting firms that represent information technology and life science companies. Our management team has worked on numerous transactions with many of these sources over a 15-year venture lending history.



•

Creative Products with Attractive Risk-Adjusted Pricing.  We use creative debt product solutions to meet customer and market demand based on expertise and knowledge gained by our management team in providing venture debt products to over 375 venture capital-backed technology companies over a 15-year period. We have developed pricing tools, structuring techniques and valuation metrics designed to maximize returns on each investment. We also obtain warrants in conjunction with our loans and endeavor to obtain commitment fees, pre-payment and non-utilization fees and equity participation rights to enhance our loan and investment portfolio returns.



•

"Enterprise-value" Lending.  We take an "enterprise-value" approach to our loan structuring and underwriting process. We typically secure a senior or subordinated lien position against the enterprise value of a company and seek to obtain pricing enhancements in the form of warrants that we anticipate will build long-term asset appreciation and other "success-based" fees. We believe these methods reduce the downside risk of venture lending. When we do not get a lien on the portfolio company's intellectual property, we typically obtain a covenant that such company will not grant a lien on such intellectual property to anyone else. We believe that our in-depth understanding of how private venture capital-backed technology companies grow, their financing needs, the various business cycles they experience, the value of their intellectual property and their product development and commercialization efforts allows us to carefully analyze the companies to which we lend. We believe the experience that our management team possesses gives us enhanced capabilities in making these qualitative "enterprise-value" evaluations, which we believe provides for a high quality venture loan portfolio and value-added returns.



•

Disciplined Underwriting Process.  We use a disciplined underwriting process that includes redundant validation of information, extensive knowledge of our industries, outside expert consultation, comparable industry valuation metrics, sophisticated financial analysis related to development-stage companies and other quantitative and qualitative measures.



•

Customized Loan Documentation Process.  We have employed an internally managed documentation process that assures that each loan transaction is documented using our specifically tailored "enterprise-value" venture loan documents. We use experienced in-house senior legal counsel to oversee the documentation and negotiation of each of our transactions.



•

Active Portfolio Management.  Because we expect most of our loan portfolio customers to be privately held, venture capital-backed, development-stage technology companies, we apply a "hands on" approach to our portfolio management processes and procedures. We require our

6

private portfolio companies to provide monthly financial information, and we typically participate in quarterly discussions with management and investors of our loan portfolio companies. We also generally conduct annual visits to our portfolio companies' offices. Internally, we require monthly management reporting to our senior management team on each portfolio company, and we internally rate our portfolio companies based on the changing dynamics of each company, and engage our senior management in any loan transaction that may be potentially impaired.

•

Portfolio Composition.  We view the monitoring of the composition of our portfolio as an important part of our overall growth and portfolio management strategy. We regularly monitor our loan portfolio to avoid undue focus in any sub-industry, stage of development or geographic area. By constantly monitoring our loan portfolio for these factors we attempt to reduce the risk of down market cycles associated with any particular industry, development stage or geographic area.

Our Market Opportunity

Venture Lending

        We believe that venture lenders have the potential to achieve enhanced returns in exchange for the increased level of risk associated with lending to development-stage companies. Potential benefits to venture lenders include the following:

•

interest rates that typically exceed rates available in traditional commercial financing transactions;



•

the support of venture capital equity investors;



•

relatively rapid amortization of loans;



•

senior ranking to equity and collateralization of loans to minimize loss of capital; and



•

potential equity appreciation through warrant interests.

        We believe that venture lending also provides an attractive financing source for borrowers, their management teams and their venture capital investors, as it:

•

allows borrowers to match cash sources with uses;



•

is typically less dilutive to the equityholders than additional venture equity financing; and



•

extends the time period during which a borrower can operate before seeking additional equity financing or pursuing a sale transaction or other liquidity event.

        We believe that current market dynamics favor venture lending. First, the level of venture capital investment has stabilized since the rise and fall of technology stocks in 1999-2002. Although the current level of venture capital investing is lower than in the peak year of 2000, the level of venture capital investing has been relatively stable since 2003. According to Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005, venture capital investment in 2003, 2004 and 2005 was approximately $19.2 billion, $21.5 billion and $22.2 billion, respectively. Current venture capital investing compares favorably to the similar normalized venture capital investing periods of 1997 (approximately $13.0 billion) and 1998 (approximately $17.7 billion). Since 2003, valuations of venture capital-backed development-stage technology companies have been steadily increasing. According to Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005, the median valuation for venture capital-backed companies increased from approximately $10 million in 2003, to approximately $13 million in 2004 and to approximately $15.0 million in 2005. We believe that valuations will continue to increase as venture capital-backed technology companies continue to develop

7

their products and bring them to market. As a result, we believe investors, including venture debt lenders who hold equity stakes in these companies, stand to gain economic benefits through valuation appreciation over the coming years. In the case of venture lenders, the increase in valuations would also provide for additional downside risk protection if loan-to-value ratios continue to improve during the term of their loans to venture capital-backed technology companies. We believe that the combination of the increase in venture capital equity financing transactions, improvement in the relative quality of companies being supported by venture capital investments, lower valuations of development-stage companies as compared with 1999-2002 levels and greater awareness of and demand for venture debt financing make the venture debt market attractive for new investment.

Emerging Information Technology and Life Science Industries

        We focus our investments primarily in two key segments of the emerging technology market: information technology and life science. The information technology industry has numerous sub-industries that we specifically target, including communications, networking, wireless communications, data storage, software, semiconductor, internet and media and consumer-related technologies. We also target certain sub-industries of the life science industry, including the biotechnology, drug delivery, bioinformatics, diagnostics and medical devices segments.

8

Investment Summary

        The following table summarizes our original funded investments in each of our portfolio companies as of December 31, 2005. The general terms of our loans and other investments are described in "Business—General."

9

The Restructuring

        Since we commenced investment operations in 2004, we have operated our business as a limited liability company through Horizon Technology Finance, LLC, or Finance LLC, and its wholly owned subsidiary Horizon Technology Funding Company LLC, or Funding LLC, as well as two limited liability companies in which Finance LLC maintains a 0.5% capital interest, Horizon Technology Funding Company II LLC, or Funding II, and Horizon Technology Funding Company III LLC, or Funding III. Commencing in June 2005, we also began operating part of our business through Horizon Technology Funding Company IIIB LLC, or Funding IIIB, which is also a limited liability company in which Finance LLC maintains a 0.5% capital interest. In this prospectus, we refer to Funding II, Funding III and Funding IIIB as the Funding Subsidiaries.

        Each of the three Funding Subsidiaries is financed by a different investor as follows:

•

Drawbridge Special Opportunities Fund L.P., or Drawbridge, maintains a 99.5% capital interest in Funding II.



•

Certain funds and other accounts managed by D.B. Zwirn & Co., L.P., collectively with such funds and managed accounts, D.B. Zwirn, together maintain an aggregate 99.5% capital interest in Funding III.



•

LeMoyne Avenue Investors, LLC, or LeMoyne, a wholly owned subsidiary of D.B. Zwirn Special Opportunities Fund, Ltd., an affiliate of D.B. Zwirn, maintains a 99.5% capital interest in Funding IIIB.



•

Each of Drawbridge and D.B. Zwirn committed to contribute up to $150.0 million of capital to Funding II and Funding III, respectively, approximately $117.0 million and approximately $118.1 million of which had been funded by Drawbridge and D.B. Zwirn, respectively, as of December 31, 2005. We expect that they will make additional contributions prior to the Restructuring.

        Finance LLC has been responsible for sourcing our loans. As we closed each loan, Funding LLC initially funded the loan and simultaneously participated 100% of its interest in that loan to Funding II and Funding III based on their respective election to participate in such loan. Funding III participated a portion of its interest in certain of the loans to Funding IIIB at a later date.

        The Restructuring will consist of the following transactions:

•

Prior to the completion of this offering, each of the Funding Subsidiaries will liquidate and distribute all of its assets and liabilities to its members (i.e., Drawbridge, D.B. Zwirn, LeMoyne and Finance LLC).



•

Immediately thereafter, each of the members will contribute all of the assets and liabilities received in those liquidations to Funding LLC, and Finance LLC will contribute its operating assets to Funding LLC, all in exchange for 100% of the ownership interests in Funding LLC. Of that 100%, it is expected that approximately 3.4% will be held by Finance LLC, approximately 48.0% will be held by Drawbridge, approximately 38.9% will be held by D.B. Zwirn and approximately 9.7% will be held by LeMoyne.



•

Subsequently, but prior to the completion of this offering, Funding LLC, simultaneously with its election to be treated as a business development company, will convert into a Delaware corporation and will be renamed Horizon Technology Finance Corporation, or Finance Corporation. In connection with that conversion, Drawbridge, D.B. Zwirn, LeMoyne and Finance LLC's membership interests in Funding LLC will be converted into            ,            ,             and            shares, respectively, of common stock of Finance Corporation, representing

10

the same percentage interests in Finance Corporation as they held in Funding LLC immediately before the conversion.

•

Thereafter and prior to the completion of this offering, Finance LLC, which at that point will have no assets other than shares of Finance Corporation, will merge into Finance Corporation and, in connection therewith, Messrs. Pomeroy and Michaud will each receive in respect of their interests in Finance LLC            shares of Finance Corporation's common stock and certain other employees of Finance LLC will receive in respect of their interests in Finance LLC an aggregate of            shares.



•

In addition, prior to the completion of this offering, Finance Corporation will make two grants to each of Messrs. Pomeroy and Michaud and other employees of Finance Corporation of options to purchase an aggregate of            shares and            shares of Finance Corporation's common stock at exercise prices of $        and $        per share, respectively.

        The above transactions are referred to in this prospectus as the Restructuring.

        Drawbridge, D.B. Zwirn, LeMoyne, Messrs. Pomeroy and Michaud and the other employees of Finance LLC that will receive shares of Finance Corporation are referred to in this prospectus as the Holders. Despite their ownership interest in us, we are not managed or sponsored by Drawbridge (or its affiliate, Fortress Investment Group), D.B. Zwirn or LeMoyne.

General Information

        Our principal executive offices are located at 76 Batterson Park Road, Farmington, Connecticut 06032, and our telephone number is (860) 676-8654. We also have offices in Pleasant Hill, California. We maintain a website on the Internet at www.horizontechfinance.com. Information contained in our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus.

11

The Offering

(1)

Excludes             shares of common stock issuable upon the exercise of options to be granted concurrently with the completion of this offering.

12

13

FEES AND EXPENSES

        The following table is intended to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by "you," "us" or "Horizon" or that "we" will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Horizon Technology Finance Corporation.

(1)

The sales load with respect to our common stock sold in this offering, which is a one-time fee paid to the underwriters, is the only sales load paid in connection with this offering.

(2)

The percentage reflects estimated offering expenses of the company of approximately $                  , including the portion of such expenses attributable to the selling stockholders.

(3)

The expenses associated with the administration of our dividend reinvestment plan are included in "Operating expenses." The participants in our dividend reinvestment plan will pay a pro rata share of brokerage commissions incurred with respect to open market purchases, if any, made by the administrator under the plan. For more details about the plan, see "Dividend Reinvestment Plan."

(4)

The total annual expenses are the sum of salaries and benefits, professional fees and general and administrative expenses. We may borrow money to leverage our net assets and increase our total assets. The SEC requires that the "Total annual expenses" percentage be calculated as a percentage of net assets, rather than total assets, which includes assets that have been funded with borrowed money. Because we did not have any borrowings outstanding at            , if the "Total annual expenses" percentage were calculated instead as a percentage of total assets, our "Total annual expenses" would continue to be    % of total assets.

(5)

We do not have an investment adviser and are internally managed by our executive officers under the supervision of our board of directors. As a result, we do not pay investment advisory fees, but instead we pay all of our operating costs, which include costs associated with employing investment management professionals.

Example

        The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. These amounts are based upon our payment of annual operating expenses at the levels set forth in the table above and assume no additional leverage and that you would pay a sales load of    % (the underwriting discounts and commissions to be paid by us with respect to common stock sold by us in this offering).

        This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or lesser than those shown. Moreover, while the example assumes, as required by the applicable rules of the SEC, a 5% annual return, our performance will vary and may result in a return greater or lesser than 5%. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in our dividend reinvestment plan may receive shares valued at the market price in effect at that time. This price may be at, above or below net asset value. See "Dividend Reinvestment Plan" for additional information regarding our dividend reinvestment plan.

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SELECTED COMBINED FINANCIAL AND OTHER DATA

        The selected combined financial and other data set forth below reflects the combined operations of Finance LLC, Funding LLC and the Funding Subsidiaries prior to the Restructuring. See "Reorganization; Election to be Regulated as a Business Development Company and a Regulated Investment Company." The Selected Combined Financial and Other Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the combined financial statements and related notes included elsewhere in this prospectus. The selected combined balance sheet data as of December 31, 2005 and 2004 and the selected combined statement of operations data for fiscal 2005, 2004 and the period from May 2, 2003 (date of inception) to December 31, 2003 presented below have been derived from our audited financial statements included elsewhere herein, which have been audited by Grant Thornton LLP, an independent registered public accounting firm. The historical data are not necessarily indicative of results to be expected for any future period.

(1)

Total investments, net of unearned income on investments.

(2)

Computed using total operating income for each of 2005 and 2004 divided by the average fair value of total investments for those periods. Income for 2004 was annualized as investing activities commenced in April 2004.

(3)

Computed using net operating income (loss) before gains and losses for 2005 and 2004 divided by the average members' capital. Income for 2004 was annualized as investing activities commenced in April 2004.

(4)

Computed using net income (loss) for 2005 and 2004 divided by the average members' capital. Income for 2004 was annualized as investing activities commenced in April 2004.

15

RISK FACTORS

        Investing in our common stock involves a high degree of risk. Before you invest in shares of our common stock, you should be aware of various risks, including those described below. You should carefully consider these risks, together with all of the other information included in this prospectus, before you decide whether to make an investment in our common stock. The risks set forth below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to our Business and Structure

We have no operating history as a business development company or a RIC, which may affect our ability to manage our business and impair your ability to assess our prospects.

        We commenced investment operations in April 2004. We are subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that we will not achieve our investment objective and that the value of your investment in us could decline substantially. We have no operating history as a business development company or a RIC. As a result, we have no operating results under these regulatory frameworks that can demonstrate to you either their effect on our business or our ability to manage our business within these frameworks. The 1940 Act imposes numerous constraints on the operations of business development companies. For example, business development companies are required to invest at least 70% of their total assets in specified types of securities, primarily securities of "eligible portfolio companies" (as defined in the 1940 Act), cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. See "Regulation." Our management team's lack of experience in managing a portfolio of assets under such constraints may hinder our ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective. Furthermore, any failure to comply with the requirements imposed on business development companies by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. If we do not remain a business development company, we might be regulated as a closed-end management investment company under the 1940 Act, which would further decrease our operating flexibility and may prevent us from operating our business as described in this prospectus.

For our future success, we are dependent upon key management personnel and if we are not able to hire and retain additional qualified personnel or if we lose any member of our senior management team, our ability to implement our business strategy could be significantly harmed.

        We depend on the members of our senior management, particularly Mr. Pomeroy, our Chairman and Chief Executive Officer, and Mr. Michaud, our President and Chief Operating Officer, as well as other key personnel for the identification, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience and relationships that we rely on to implement our business plan. If we lose the services of either Mr. Pomeroy or Mr. Michaud or any other senior members of management, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. We believe our future success will depend, in part, on our ability to identify, attract and retain sufficient numbers of highly skilled employees. If we do not succeed in identifying, attracting and retaining these personnel, we may not be able to operate our business as we expect. Absent exemptive or other relief from the SEC, certain provisions of the 1940 Act will prevent us from both granting options to employees and adopting a profit sharing plan, which may make it more difficult for us to attract and retain highly skilled employees.

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Our business model depends to a significant extent upon strong referral relationships with venture capital and private equity fund sponsors, and our inability to develop or maintain these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

        For us to achieve our business objectives, members of our management team will need to maintain their relationships with venture capital and private equity firms, and we will rely to a significant extent upon these relationships to provide us with our deal flow. If we fail to maintain our existing relationships or develop new relationships with other firms or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, persons with whom members of our management team have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments.

We operate in a highly competitive market for investment opportunities, and we may not be able to compete effectively.

        A large number of entities compete with us to make the types of investments that we plan to make in prospective portfolio companies. We compete with other business development companies and a large number of venture capital and private equity firms, as well as other investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and finance companies. Many of our competitors are substantially larger and have considerably greater financial, marketing and other resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. This may enable some of our competitors to make commercial loans with interest rates that are comparable to or lower than the rates we typically offer. We may lose prospective portfolio companies if we do not match our competitors' pricing, terms and structure. If we do match our competitors' pricing, terms or structure, we may experience decreased net interest income and increased risk of credit losses. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. Furthermore, many of our potential competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company or that the Code imposes on us as a RIC. If we are not able to compete effectively, our business, financial condition and results of operations will be adversely affected. As a result of this competition, there can be no assurance that we will be able to identify and take advantage of attractive investment opportunities that we identify or that we will be able to fully invest our available capital.

Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to additional risks.

        Our business will require a substantial amount of capital in addition to the proceeds of this offering. We may acquire additional capital from the issuance of senior securities, including borrowings or other indebtedness, the issuance of additional shares of our common stock or from securitization transactions. However, we may not be able to raise additional capital in the future on favorable terms or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. Our ability to pay dividends or issue additional senior securities would be restricted if our asset coverage ratio were not at least 200%. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous. As a result of issuing senior securities, we would also be exposed to typical risks

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associated with leverage, including an increased risk of loss. If we issue preferred stock, it would rank "senior" to common stock in our capital structure and preferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than those of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise not be in your best interest.

        As a business development company, we are generally not able to issue our common stock at a price below net asset value without first obtaining required approvals from our stockholders and our independent directors. This requirement does not apply to stock issued upon the exercise of options, warrants or rights that we may issue from time to time. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and you may experience dilution. In addition to issuing securities to raise capital, we anticipate that in the future we may seek to securitize our loans to generate cash for funding new investments. To securitize loans, we may create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. This could include the sale of interests in the subsidiary on a non-recourse basis to purchasers who we would expect to be willing to accept the lower interest rate to invest in investment grade loan pools, and we would retain a portion of the equity in the securitized pool of loans. An inability to successfully securitize our loan portfolio could limit our ability to grow our business, fully execute our business strategy and adversely affect our earnings, if any. Moreover, the successful securitization of our loan portfolio might expose us to greater losses as the residual loans in which we do not sell interests will tend to be those that are riskier and more apt to generate losses.

Because we will distribute substantially all of our income and any realized net short-term capital gains over realized net long-term capital losses to our stockholders, we will need additional capital to finance our growth, if any. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.

        To satisfy the requirements applicable to a RIC, to avoid payment of excise taxes and to minimize or avoid payment of income taxes, we intend to distribute to our stockholders substantially all of our ordinary income and realized net short-term capital gains over realized net long-term capital losses except that we may retain certain net long-term capital gains, pay applicable income taxes with respect thereto, and elect to treat such retained capital gains as deemed distributions to our stockholders. As a business development company, we generally are required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. Because we will continue to need capital to grow our loan and investment portfolio, this limitation may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as discussed above, as a business development company, we are limited in our ability to issue equity securities priced below net asset value. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our net asset value could decline.

We may borrow money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.

        The use of leverage will magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in us. We expect to borrow from and issue senior debt securities to banks and other lenders. Lenders of these senior securities will have fixed dollar claims on our assets that will be superior to the claims of our common stockholders. If the value of our assets

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increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would have without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock dividend payments. Leverage is generally considered a speculative investment technique. We currently have no outstanding indebtedness; however, we intend to borrow in the future. See "Obligations and Indebtedness."

        As a business development company, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. If this ratio declines below 200%, we may not be able to incur additional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to pay dividends to our common stockholders.

Because most of our investments typically are not in publicly traded securities, there is uncertainty regarding the value of our investments, which could adversely affect the determination of our net asset value.

        We expect our investments to continue to consist primarily of loans issued by privately held companies. As a result, the fair value is not readily determinable. In addition, we are not permitted to maintain a general reserve for anticipated loan losses. Instead, we are required by the 1940 Act to specifically value each investment and record an unrealized gain or loss for any asset that we believe has increased or decreased in value. We value these securities at "fair value" as determined in good faith pursuant to procedures approved by our board of directors. The valuation committee utilizes its best judgment in arriving at the fair value of these investments. However, the board of directors retains ultimate authority as to the appropriate valuation of each investment. We may retain the services of third-party valuation firms to assist the board of directors in arriving at the fair value of our investments. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities. See "Determination of Net Asset Value."

We may obtain a debt financing facility. If we enter into this debt financing facility, the agreements governing the facility will likely contain various covenants that, among other things, limit our discretion in operating our business and provide for certain financial covenants.

        We may enter into a debt financing facility in order to obtain funds which may be made available for investments. We have received preliminary term sheets that generally describe the basic terms and provisions of such a facility from multiple arrangers on behalf of their related financial institutions, including an affiliate of Banc of America Securities LLC, one of the underwriters of this offering. In connection with such a facility, we may establish a wholly owned, bankruptcy-remote special purpose subsidiary, and on an ongoing basis contribute portfolio loans to this subsidiary and grant a security interest in such portfolio loans and related rights in favor of this subsidiary. Completion of any such facility would be subject to, among other things:

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completion by the investors participating in such facility of required due diligence,



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agreement on all terms of such facility,



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negotiation, execution and delivery of definitive documentation in form, scope and substance satisfactory to the investors participating in such facility,

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each participating investor's satisfaction with our financial condition, performance and investment portfolio,



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no material adverse changes in our financial condition, performance and investment portfolio or in any other information disclosed to the participating investors,



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each participating investor's receipt of all internal credit approvals and, to the extent necessary, certain rating agency approvals, and



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confirmation of compliance with all regulatory matters.

        We cannot assure you that we will be able to consummate this transaction or that we will be able to borrow funds under the debt financing facility at any particular time or at all, or to the extent desired.

Our ability to make investments may be limited in certain circumstances.

        As a business development company, we must not acquire any assets other than "qualifying assets" unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We expect that substantially all of our assets will be "qualifying assets," although we may decide to make other investments that are not "qualifying assets" to the extent permitted by the 1940 Act.

        Currently, if we acquire debt or equity securities from an issuer that has outstanding marginable securities at the time we make an investment, these acquired assets cannot be treated as qualifying assets. This result is dictated by the definition of "eligible portfolio company" under the 1940 Act, which in part looks to whether a company has outstanding marginable securities. For a more detailed discussion of the definition of an "eligible portfolio company" and the marginable securities requirement, see the section entitled "Regulation—Qualifying Assets."

        Amendments promulgated in 1998 by the Federal Reserve expanded the definition of a marginable security under the Federal Reserve's margin rules to include any non-equity security. Thus, any debt securities issued by any entity are marginable securities under the Federal Reserve's current margin rules. As a result, the staff of the SEC has raised the question to the business development company industry as to whether a private company that has outstanding debt securities would qualify as an "eligible portfolio company" under the 1940 Act.

        The SEC issued proposed rules in November 2004 to correct the unintended consequence of the Federal Reserve's 1998 margin rule amendments of apparently limiting the investment opportunities of business development companies. In general, the SEC's proposed rules would define an eligible portfolio company as any company that does not have securities listed on a national securities exchange or association. We are currently in the process of reviewing the SEC's proposed rules and assessing their impact, to the extent such proposed rules are subsequently approved by the SEC, on our investment activities.

        Until the SEC or its staff has taken a final public position with respect to the issue discussed above, we will continue to monitor this issue closely, and we may be required to adjust our investment focus to comply with any future administrative position or action taken by the SEC.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

        In accordance with federal income tax law, we are required to include in income certain amounts that we have not yet received in cash. We also may be required to include in income certain other amounts that we will not receive in cash. A portion of the aggregate purchase price for the debt investments and warrants generally will be allocated to the warrants that we receive. This will generally

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result in "original issue discount" on the debt instrument for tax purposes, which we must recognize as ordinary income, increasing the amounts we are required to distribute to qualify for the federal income tax benefits applicable to RICs — specifically, at least 90% of the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long term capital losses (the "Annual Distribution Requirement"). It is possible that the original issue discount may be significant. Because these warrants would not produce distributable cash for us at the same time as we are required to make distributions in respect of the related original issue discount, we would need to obtain cash from other sources to satisfy such distribution requirements. If we are unable to obtain cash from other sources to satisfy such distribution requirements, we may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level income tax on all our income. Other features of the debt instruments that we hold may also cause such instruments to generate original issue discount, resulting in a dividend distribution requirement in excess of current cash interest received. In some instances, certain loans may include any of the following: end of term payments, exit fees, balloon payment fees or prepayment fees. Since in certain cases we may recognize income before or without receiving cash representing such income, to meet the Annual Distribution Requirement, we may have to sell some of our assets, raise additional debt or equity capital or reduce new investment originations. We may also need to take actions that are disadvantageous to our business or may be unable to take certain actions that we believe to be necessary or advantageous to our business. If we are unable to meet the Annual Distribution Requirement, we will not qualify for the federal income tax benefits allowable to a RIC. See "Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company."

We may be subject to a federal income tax at corporate rates if we sell or otherwise dispose of certain assets contributed to us in the Restructuring within the ten-year period beginning on the date of such contribution.

        According to federal income tax laws, if we sell or otherwise dispose of certain assets contributed to us within the ten-year period beginning on the date of contribution, we could possibly be subject to a corporate tax on all or a portion of the built-in gain that existed at the time of contribution and was attributable to corporate transferors. The tax would apply, notwithstanding our intent to elect to be taxed as a RIC. Because the amount of built-in gain subject to corporate tax would be limited to the excess of the fair market value of the applicable portion of such assets over the contributor's tax basis at the time of contribution, we currently do not expect the amount of any such built-in gain to be significant.

If we are unable to satisfy Internal Revenue Code requirements for qualification as a RIC, we will be subject to corporate-level income tax, which would adversely affect our results of operations and financial condition.

        If we qualify to be treated as a RIC, we are generally not required to pay corporate-level federal income taxes on income and gains distributed to our stockholders as dividends. We will not qualify for this pass-through tax treatment if we are unable to comply with the source of income, diversification or distribution requirements contained in Subchapter M of the Code or if we fail to maintain our election to be regulated as a business development company under the 1940 Act. For example, the status of certain forms of income we receive could be subject to different interpretations under the Code and might be characterized as non-qualifying income that could hinder our ability to satisfy the source of income requirement. If we were to fail to qualify for the federal income tax benefits allowable to RICs for any reason and become subject to a corporate-level income tax, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution to our stockholders, and the actual amount of our distributions. Such a failure would have a material adverse effect on us, the net asset value of our common stock and the total return, if any, obtainable from your investment in our common stock. For additional information regarding our regulatory requirements, see "Regulation" and "Certain United States Federal Income Tax Considerations." In addition, we could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial

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distributions before requalifying as a RIC. See "Certain United States Federal Income Tax Considerations."

If we are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our financial condition and results of operations and cause the value of your investment to decline.

        Our ability to achieve our investment objective will depend on our ability to sustain growth, which will depend, in turn, on our senior management team's ability to identify, evaluate, finance and invest in suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our marketing capabilities, our management of the investment process, our ability to provide efficient services and our access to financing sources on acceptable terms. In addition to monitoring the performance of our existing investments, members of our management team and our investment professionals may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. To grow, we will need to hire, train, supervise and manage new employees and to implement computer and other systems capable of effectively accommodating our growth. However, we cannot assure you that any such employees will contribute to the success of our business or that we will implement such systems effectively. Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

Our quarterly and annual operating results are subject to fluctuation as a result of the nature of our business, and if we fail to achieve our investment objective, the net asset value of our common stock may decline.

        We could experience fluctuations in our quarterly and annual operating results due to a number of factors, some of which are beyond our control, including the interest rate payable on our loans, the default rate on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, you should not rely on the results for any period as being indicative of performance in future periods.

Changes in interest rates may affect our cost of capital and net investment income.

        Because we may borrow to fund our investments, a portion of our income will be dependent upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. A portion of our investments will have fixed interest rates, while a portion of our borrowings will likely have floating interest rates. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts, subject to applicable legal requirements, including without limitation, all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to rely on the advice of outside parties with respect to the use of such financial instruments or develop such expertise internally. In addition, we may be unable to enter into appropriate hedging transactions when desired and any hedging transactions we enter into may not be effective.

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Changes in laws or regulations governing our business could negatively affect the profitability of our operations.

        Changes in the laws or regulations or the interpretations of the laws and regulations that govern business development companies, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures, portfolio composition and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses to comply with such laws, regulations or decisions or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business, results of operations or financial condition.

Our ability to enter into transactions with our affiliates will be restricted.

        We will be prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain "joint" transactions with an affiliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person's affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. After completion of this offering and the other transactions described in this prospectus, and assuming no exercise of the underwriters' over-allotment option, Drawbridge, D.B. Zwirn and LeMoyne will beneficially own    %,    % and    %, respectively, of the outstanding shares of our common stock. At these ownership levels, we will be prohibited from buying or selling any security from or to Drawbridge, D.B. Zwirn or LeMoyne and from entering into certain joint transactions with Drawbridge, D.B. Zwirn or LeMoyne without the prior approval of the SEC.

Our board of directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may adversely affect our business.

        Our board of directors has the authority to modify or waive our current operating policies and strategies, including our investment objectives and our intent to invest 80% of the value of our assets in emerging companies in the information technology and life science industries, without prior notice (except as required by the 1940 Act) and without stockholder approval; provided, however, the 1940 Act requires that we invest at least 70% of our total assets in certain qualifying assets, and our board of directors cannot modify this requirement. See "Regulation." We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our stock. However, the effects might adversely affect our business, which could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment.

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Risks Related to our Investments

We have not yet identified the portfolio companies in which we will invest all of the net proceeds of this offering.

        Our investments will be selected by our management team, subject to the approval of our investment committee and, in some cases, our board of directors. Our stockholders will not have input into our investment decisions. Both of these factors will increase the uncertainty, and thus the risk, of investing in our shares.

Our proposed investments may not result in completed investments and there is no guarantee that we will successfully be awarded any of the transactions for which we have issued non-binding term sheets.

        As of March 31, 2006, we had executed non-binding term sheets with six prospective portfolio companies, representing $30.0 million. These proposed investments are subject to the completion of our due diligence and approval process, as well as negotiation of definitive documentation with the prospective portfolio companies and, as a result, may not result in completed investments. In addition, as of March 31, 2006, we had issued non-binding term sheets to 30 companies representing $215.2 million in potential loans. There is no guarantee that we will enter into any of these transactions.

Most of our portfolio companies will need additional capital, which may not be readily available.

        Our portfolio companies will typically require substantial additional equity financing to satisfy their continuing working capital and other requirements and in most instances to service the interest and principal payments on our investment. Each round of venture financing is typically intended to provide a company with only enough capital to reach the next stage of development. We cannot predict the circumstances or market conditions under which our portfolio companies will seek additional capital. It is possible that one or more of our portfolio companies will not be able to raise additional financing or may be able to do so only at a price or on terms unfavorable to us, either of which would negatively impact our investment returns. Some of these companies may be unable to obtain sufficient financing from private investors, public capital markets, or from traditional lenders. Accordingly, financing these types of companies may entail a higher risk of loss than financing companies that are able to utilize traditional credit sources.

Our investments are concentrated in emerging companies in the information technology and life science industries, which may have limited operating histories and financial resources.

        Our portfolio consists primarily of emerging companies in the information technology and life science industries, which may have relatively limited operating histories. Compared to larger established or publicly owned firms, these companies may be more vulnerable to economic downturns, may have more limited access to capital and higher funding costs, may have a weaker financial position, and may need more capital to expand or compete. These businesses also may experience substantial variations in operating results. They may face intense competition, including from companies with greater financial, technical and marketing resources. Furthermore, some of these companies do business in regulated industries and could be affected by changes in government regulation. Accordingly, these factors could impair their cash flow or result in other events, such as bankruptcy, which could limit their ability to repay their obligations to us and may adversely affect the return on, or the recovery of, our investment in these businesses.

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Our investment strategy focuses on emerging companies in the information technology and life science industries, which are subject to many risks, including volatility, intense competition, shortened product life cycles and periodic downturns.

        We intend to invest, under normal circumstances, at least 80% of the value of our total assets (including the amount of any borrowings for investment purposes) in emerging companies in the information technology and life science industries. Many of these companies may have narrow product lines and small market shares, which tend to render them more vulnerable to competitors' actions and market conditions, as well as general economic downturns. The revenues, income (or losses) and valuations of emerging companies in the information technology and life science industries can and often do fluctuate suddenly and dramatically. In addition, emerging technology markets are generally characterized by abrupt business cycles and intense competition, and the competitive environment can change abruptly due to rapidly evolving technology. Beginning in mid-2000, it became apparent that there was substantial excess production capacity and a significant slowdown in many emerging technology industries. This overcapacity, together with a cyclical economic downturn, resulted in substantial decreases in the market capitalization of many emerging companies in the information technology and life science industries. While such valuations have recovered to some extent, such decreases in market capitalization may occur again, and any future decreases in emerging company valuations in these industries may be substantial and may not be temporary in nature. Therefore, our portfolio companies may face considerably more risk of loss than companies in other industry sectors.

        Because of rapid technological change, the average selling prices of products and some services provided by emerging companies in the information technology and life science industries have historically decreased over their productive lives. As a result, the average selling prices of products and services offered by emerging companies in these industries may decrease over time, which could adversely affect their operating results, their ability to meet obligations under their debt securities and the value of their equity securities. This could, in turn, materially adversely affect our business, financial condition and results of operations.

Our portfolio companies operating in the life science industry are subject to significant government regulation and certain special risks particular to that industry.

        We invest in companies in the life science industry that are subject to extensive regulation by the Food and Drug Administration, or FDA, and to a lesser extent, other federal and state agencies. If such portfolio companies fail to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations. Portfolio companies that produce medical devices or medicines are subject to the expense, delay and uncertainty of the approval process for their products. In addition, new laws, regulations or judicial interpretations of existing laws and regulations might adversely affect a portfolio company. Portfolio companies may have a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process. Any of these factors could materially and adversely affect the operations of a portfolio company and, in turn, impair our ability to timely collect principal and interest payments owed to us.

Economic recessions or downturns could result in a decrease of venture capital spending, impair our portfolio companies' ability to repay our loans, increase our non-performing assets, decrease the value of our portfolio, reduce our volume of new loans and harm our operating results, which may have an adverse effect on our results of operations.

        General economic conditions may affect our activities and the operation and value of our portfolio companies. Economic slowdowns or recessions may result in a decrease of venture capital spending, which would limit our lending opportunities. Furthermore, many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these

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periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

        A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company's ability to meet its obligations under the loans that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. These events could harm our financial condition and operating results.

The inability of our portfolio companies to commercialize their technologies or create or develop commercially viable products or businesses would have a negative impact on our investment returns.

        The possibility that our portfolio companies will not be able to commercialize their technology, products or business concepts presents significant risks to the value of our investment. Additionally, although some of our portfolio companies may already have a commercially successful product or product line when we invest, technology-related products and services often have a more limited market or life span than products in other industries. Thus, the ultimate success of these companies often depends on their ability to continually innovate in increasingly competitive markets. Their inability to do so could affect our investment returns. In addition, the intellectual property held by our portfolio companies often represents a substantial portion of the collateral securing our investments and/or constitutes a significant portion of the portfolio companies' value that may be available in a downside scenario to repay our loans. We cannot assure you that any of our portfolio companies will successfully acquire or develop any new technologies, or that the intellectual property they currently hold will remain viable. Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Neither our portfolio companies nor we has any control over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful.

An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.

        We invest primarily in privately held companies. Generally, very little public information exists about these companies, and we are required to rely on the ability of the members of our management team to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and a smaller market presence than larger competitors. They are thus generally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could affect our investment returns.

        In addition, our success depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible for the day-to-day operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company's development. The loss of one or more key managers can hinder or delay a company's implementation of its business plan and harm its financial condition. Our portfolio companies may not be able to attract and retain qualified managers and personnel. Any inability to do so may negatively affect our investment returns.

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If our portfolio companies are unable to protect their intellectual property rights, our business and prospects could be harmed, and if portfolio companies are required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced.

        Our future success and competitive position depend in part upon the ability of our portfolio companies to obtain and maintain proprietary technology used in their products and services, which will often represent a significant portion of the collateral, if any, securing our investment. In addition, the intellectual property held by our portfolio companies often represents a substantial portion of the collateral securing our investments and/or constitutes a significant portion of the portfolio companies' value that may be available in a downside scenario to repay our loans. Our portfolio companies will rely, in part, on patent, trade secret and trademark law to protect that technology, but competitors may misappropriate their intellectual property, and disputes as to ownership of intellectual property may arise. Portfolio companies may, from time to time, be required to institute litigation to enforce their patents, copyrights or other intellectual property rights, to protect their trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources. Similarly, if a portfolio company is found to infringe or misappropriate a third party's patent or other proprietary rights, it could be required to pay damages to such third party, alter its products or processes, obtain a license from the third party and/or cease activities utilizing such proprietary rights, including making or selling products utilizing such proprietary rights. Any of the foregoing events could negatively affect both the portfolio company's ability to service our debt investment and the value of any related debt and equity securities that we own, as well as any collateral securing our investment.

If our investments do not meet our performance expectations, you may not receive distributions.

        We intend to make distributions of income on a quarterly basis to our stockholders. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may be limited in our ability to make distributions. See "Regulation." Also, restrictions and provisions in any future credit facilities may limit our ability to make distributions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including failure to obtain, or possible loss of, the federal income tax benefits allowable to RICs. See "Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company." We cannot assure you that you will receive distributions at a particular level or at all.

Any unrealized depreciation we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution.

        As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith pursuant to procedures approved by our board of directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Any unrealized depreciation in our loan portfolio could be an indication of a portfolio company's inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.

The lack of liquidity in our investments may adversely affect our business, and if we need to sell any of our investments, we may not be able to do so at a favorable price. As a result, we may suffer losses.

        We generally invest in loans with terms of up to four years and hold such investments until maturity, and we do not expect that our related holdings of equity securities will provide us with liquidity opportunities in the near-term. We expect to invest in companies whose securities are not

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publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near term. However, to maintain our qualification as a business development company and as a RIC, we may have to dispose of investments if we do not satisfy one or more of the applicable criteria under the respective regulatory frameworks. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. We may also face other restrictions on our ability to liquidate an investment in a public portfolio company to the extent that we possess material non-public information regarding such portfolio company. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

If the assets securing the loans we make decrease in value, we may not have sufficient collateral to cover losses and may experience losses upon foreclosure.

        We believe our portfolio companies generally will be able to repay our loans from their available capital, from future capital-raising transactions or from cash flow from operations. However, to attempt to mitigate our credit risks, we will typically take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. In many cases our loans will include a period of interest-only payments. There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company's financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan's terms or that we will be able to collect on the loan should we be forced to enforce our remedies.

        In addition, because we invest in emerging companies in the information technology and life science industries, a substantial portion of the assets securing our investment may be in the form of intellectual property, if any, inventory and equipment and, to a lesser extent, cash and accounts receivable. Intellectual property, if any, that secures a loan could lose value if the company's rights to the intellectual property are challenged or if the company's license to the intellectual property is revoked or expires. In addition, we sometimes obtain only a commitment by the portfolio company not to grant liens to any other creditor on intellectual property. In such cases, we may have additional difficulty recovering our principal in the event of a foreclosure. Inventory may not be adequate to secure our loan if our valuation of the inventory at the time we made the loan was not accurate or if there is a reduction in the demand for the inventory. Similarly, any equipment securing our loan may not provide us with the anticipated security if there are changes in technology or advances in new equipment that render the particular equipment obsolete or of limited value or if the company fails to adequately maintain or repair the equipment. Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure.

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

        We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically

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have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elects to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

        We invest primarily in loans issued by our portfolio companies. Some of our portfolio companies will be permitted to have other debt that ranks equally with, or senior to, our loans in the portfolio company. By their terms, such debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of our loans. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any payment in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with our loans, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy.

There may be circumstances where our loans could be subordinated to claims of other creditors or we could be subject to lender liability claims.

        Even though we have structured certain of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower's business, including in rendering significant managerial assistance, or instances where we exercise control over the borrower.

We do not expect to control any of our portfolio companies.

        We do not expect to control any of our portfolio companies, even though our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.

Risks Related to this Offering

Our common stock price may be volatile and may decrease substantially.

        The trading price of our common stock following this offering may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay and the liquidity of our common stock may be limited, in each case depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following:

•

price and volume fluctuations in the overall stock market from time to time;

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•

significant volatility in the market price and trading volume of securities of registered closed-end management investment companies, business development companies or other financial services companies;



•

our inability to deploy or invest our capital;



•

fluctuations in interest rates;



•

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;



•

operating performance of companies comparable to us;



•

changes in regulatory policies or tax guidelines with respect to RICs or business development companies;



•

not electing or losing RIC status;



•

actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;



•

changes in the value of our portfolio of investments;



•

general economic conditions and trends; or



•

departures of key personnel.

        In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business.

There is a risk that you may not receive dividends or that our dividends may not grow over time.

        We intend to make distributions of income on a quarterly basis to our stockholders. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a business development company, we may be limited in our ability to make distributions.

We may allocate the net proceeds from this offering in ways with which you may not agree.

        We will have significant flexibility in investing the net proceeds of this offering and may use the net proceeds from this offering in ways with which you may not agree or for purposes other than those contemplated at the time of the offering.

We will initially invest a portion of the net proceeds of this offering in high-quality short-term investments, which will generate lower rates of return than those expected from investments in accordance with our investment objective.

        We will initially invest a portion of the net proceeds of this offering in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities may earn yields substantially lower than the income that we anticipate receiving once these proceeds are fully invested in accordance with our investment objective.

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Investing in shares of our common stock may involve an above average degree of risk.

        The investments we make in accordance with our investment objective may result in a higher amount of risk, volatility or loss of principal than alternative investment options. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not be suitable for investors with lower risk tolerance.

Prior to this offering, there has been no public market for our common stock, and we cannot assure you that the market price of shares of our common stock will not decline following the offering.

        Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. We cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which it will trade after this offering or to any other established criteria of our value. Shares of closed-end management investment companies offered in an initial public offering often trade at a discount to the initial offering price due to sales loads, underwriting discounts and related offering expenses. In addition, shares of closed-end management investment companies have in the past frequently traded at discounts to their net asset values and our stock may also be discounted in the market. This characteristic of closed-end management investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our net asset value. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of common stock purchased in this offering soon after the offering. In addition, if our common stock trades below its net asset value, we will generally not be able to sell additional shares of our common stock to the public at its market price without first obtaining the approval of our stockholders (including our unaffiliated stockholders) and our independent directors to such issuance.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

        Upon consummation of this offering, we will have                        shares of common stock outstanding (or                        shares of common stock if the over-allotment option is fully exercised). Following this offering, sales of substantial amounts of our common stock or the availability of such shares for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of equity securities should we desire to do so.

Investors in this offering will incur immediate dilution upon the closing of this offering.

        The initial public offering price of a share of common stock in this offering is higher than our as-adjusted pro forma net asset value per share of $        . As a result, investors purchasing stock in this offering will incur immediate dilution of $        per share. See "Dilution" on page 40 for more information.

Terrorist attacks and other acts of violence or war may affect any market for our common stock, impact the businesses in which we invest and harm our operations and our profitability.

        Terrorist attacks may harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the United States or United States businesses. Such attacks or armed conflicts in the United States or elsewhere may impact the businesses in which we invest directly or indirectly, by undermining economic conditions in the United States or elsewhere. Losses resulting from terrorist attacks are generally uninsurable.

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Certain provisions of the Delaware General Corporation Law and of our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

        The Delaware General Corporation Law, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock.

Certain of our current members will continue to have significant influence over our management and affairs.

        After the completion of this offering, and assuming no exercise of the underwriters' over-allotment option, Drawbridge and D.B. Zwirn together will beneficially own approximately        % of our common stock. In addition, we expect that a representative of D.B. Zwirn will be elected as an officer of the Company and a member of our investment committee. As a result, although they have not agreed to vote together on any particular matters that may come before our stockholders, Drawbridge and D.B. Zwirn may be able to exert influence over our management. Drawbridge and D.B. Zwirn or their respective affiliates may acquire additional shares of our equity securities in the future. This concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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FORWARD-LOOKING STATEMENTS

        The matters discussed in this prospectus, as well as in future oral and written statements by management of Horizon Technology Finance Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this prospectus include, but are not limited to, statements as to:

•

our future operating results;



•

our business prospects and the prospects of our prospective portfolio companies;



•

the impact of investments that we expect to make;



•

maintenance of our informal relationships with third parties, such as venture capital firms;



•

the dependence of our future success on the general economy and its impact on the industries in which we invest;



•

the ability of our portfolio companies to achieve their objectives;



•

our expected financings and investments;



•

our regulatory structure and tax status;



•

our ability to operate as a business development company and a regulated investment company;



•

the adequacy of our cash resources and working capital; and



•

the timing of cash flows, if any, from the operations of our portfolio companies.

        For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this prospectus, please see the discussion under "Risk Factors." You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this prospectus.

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RESTRUCTURING; ELECTION TO BE REGULATED AS A
BUSINESS DEVELOPMENT COMPANY AND
A REGULATED INVESTMENT COMPANY

Restructuring

        Since we commenced investment operations in 2004, we have operated our business as a limited liability company through Finance LLC and its wholly owned subsidiary, Funding LLC, as well as two limited liability companies in which Finance LLC maintains a 0.5% capital interest, Funding II and Funding III. Commencing in June 2005, we also began operating part of our business through Funding IIIB, which is also a limited liability company in which Finance LLC maintains a 0.5% capital interest. In this prospectus, we refer to Funding II, Funding III and Funding IIIB as the Funding Subsidiaries. Prior to our Restructuring and election to be regulated as a business development company, the three Funding Subsidiaries did not register as investment companies in reliance upon the exception in Section 3(c)(7) of the 1940 Act; Funding LLC did not register in reliance upon Section 3(c)(1) of the 1940 Act.

        Each of the three Funding Subsidiaries is financed by a different investor as follows:

•

Drawbridge maintains a 99.5% capital interest in Funding II.



•

D.B. Zwirn maintains a 99.5% capital interest in Funding III.



•

LeMoyne maintains a 99.5% capital interest in Funding IIIB.

        Each of Drawbridge and D.B. Zwirn committed to contribute up to $150.0 million of capital to Funding II and Funding III, respectively, approximately $117.0 million and approximately $118.1 million of which had been funded by Drawbridge and D.B. Zwirn, respectively, as of December 31, 2005.

        Finance LLC has been responsible for sourcing our loans. As we closed each loan, Funding LLC initially funded the loan and simultaneously participated 100% of its interest in that loan to Funding II and Funding III based on their respective election to participate in such loan. Funding III participated a portion of its interest in certain of the loans to Funding IIIB at a later date.

        The Restructuring will consist of the following transactions:

•

Prior to the completion of this offering, each of the Funding Subsidiaries will liquidate and distribute all of its assets and liabilities to its members (i.e., Drawbridge, D.B. Zwirn, LeMoyne and Finance LLC).



•

Immediately thereafter, each of the members will contribute all of the assets and liabilities received in those liquidations to Funding LLC, and Finance LLC will contribute its operating assets to Funding LLC, all in exchange for 100% of the ownership interests in Funding LLC. Of that 100%, it is expected that approximately 3.4% will be held by Finance LLC, approximately 48.0% will be held by Drawbridge, approximately 38.9% will be held by D.B. Zwirn and approximately 9.7% will be held by LeMoyne.



•

Subsequently, but prior to the completion of this offering, Funding LLC, simultaneously with its election to be treated as a business development company, will convert into a Delaware corporation and will be renamed Horizon Technology Finance Corporation, or Finance Corporation. In connection with that conversion, Drawbridge, D.B. Zwirn, LeMoyne and Finance LLC's membership interests in Funding LLC will be converted into            ,            ,             and            shares, respectively, of common stock of Finance Corporation, representing the same percentage interests in Finance Corporation as they held in Funding LLC immediately before conversion.

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•

Thereafter and prior to the completion of this offering, Finance LLC, which at that point will have no assets other than shares of Finance Corporation, will merge into Finance Corporation and, in connection therewith, Messrs. Pomeroy and Michaud will each receive in respect of their interests in Finance LLC shares of Finance Corporation's common stock and certain other employees of Finance LLC will receive in respect of their interests an aggregate of    shares.



•

In addition, prior to the completion of this offering, Finance Corporation will make two grants to each of Messrs. Pomeroy and Michaud and other employees of Finance Corporation of options to purchase an aggregate of            shares and            shares of Finance Corporation's common stock at exercise prices of $            and $             per share, respectively.

        Despite their ownership interest in us, we are not managed or sponsored by Drawbridge (or its affiliate, Fortress Investment Group), D.B. Zwirn or LeMoyne.

Election to be Regulated as a Business Development Company and a Regulated Investment Company

        Prior to the completion of this offering, we expect to file an election to be regulated as a business development company under the 1940 Act. In addition, we intend to elect to be treated as a RIC under Subchapter M of the Code for our first taxable year. Our election to be a business development company and to be treated as a RIC will have a significant impact on our future operations. Some of the most important effects of our election to be a business development company and our election to be treated as a RIC are outlined below.

•

We will report our investments at market value or fair value with changes in value reported through our statement of operations.

        We will report all of our investments, including debt investments, at market value or, for investments that do not have a readily available market value, at their "fair value" as determined in good faith pursuant to procedures approved by our board of directors. Changes in these values will be reported through our statement of operations under the caption of "net unrealized appreciation (depreciation) on investments." See "Determination of Net Asset Value."

•

Our ability to use leverage as a means of financing our portfolio of investments will be limited.

        As a business development company, we will be required to meet a coverage ratio of total assets to total senior securities of at least 200%. For this purpose, senior securities include all borrowings and any preferred stock we may issue in the future. Our ability to utilize leverage as a means of financing our portfolio of investments will be limited by this asset coverage test.

•

We intend to distribute substantially all of our income to our stockholders. We generally will be required to pay income taxes only on the portion of our taxable income and gains we do not distribute to stockholders (actually or constructively).

        As a RIC, we intend to distribute to our stockholders substantially all of our income and the excess of realized net short-term capital gains over realized net long-term capital losses, although we have not yet determined whether we will retain certain net long-term capital gains and elect to treat such net capital gains as deemed distributed to our stockholders. If this happens, you will be treated as if you received an actual distribution of the capital gains and reinvested the net after-tax proceeds in us. You also would be eligible to claim a tax credit against your federal income tax liability (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we pay on the deemed distribution. See "Certain United States Federal Income Tax Considerations."

        As a RIC, so long as we meet certain minimum distribution, source-of-income and asset diversification requirements, we generally will be required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively).

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•

We intend to comply with the 1940 Act requirements applicable to business development companies.

        As a business development company, we are required to have a majority of directors who are not "interested" persons of us under the 1940 Act. Therefore, following the completion of this offering, our board will be composed of a majority of non-interested directors. In addition, we will have taken the necessary action to comply with the 1940 Act, including adopting a code of ethics, fidelity bond and custody arrangements. See also "Regulation."

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USE OF PROCEEDS

        We estimate that the net proceeds to us from the sale of the common stock that we are offering will be approximately $                  ($                  if the underwriters exercise the over-allotment option in full), after deducting the sales load and estimated expenses of the offering (including the expenses attributable to the selling stockholders) of $                  payable by us. An increase (or decrease) of $1.00 per share in the public offering price from the assumed public offering price would increase (decrease) net proceeds from this offering, after deducting the sales load, by approximately $                  . We will not receive any of the proceeds of the sale of shares of common stock by the selling stockholders. We plan to use the net proceeds to us to invest in portfolio companies in accordance with our investment objective and strategy described in this prospectus and to pay our operating expenses. As described previously in this prospectus, our investment objective and strategy, generally, is to invest 80% of the value of our net assets, including the value of any borrowings for investment purposes, in a diverse portfolio of loans and warrants in emerging companies in the information technology and life science industries.

        We estimate that it will take six to 12 months for us to invest substantially all of the net proceeds to us consistent with our investment objective, depending on the availability of attractive investment opportunities and market conditions. Pending the uses described above, including investment in accordance with our investment strategy, we intend to invest the net proceeds to us in cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the date of investment.

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DISTRIBUTIONS

        We intend to distribute quarterly dividends to our stockholders. To avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of:

•

98% of our ordinary income for the calendar year,



•

98% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and



•

any ordinary income and net capital gains for the preceding year that were not distributed during such year.

We will not be subject to excise taxes on amounts on which we are required to pay corporate income tax (such as retained realized net long-term capital gains in excess of realized net short-term capital losses, or net capital gains). In order to obtain the tax benefits applicable to RICs, we will be required to distribute to our stockholders with respect to each taxable year at least 90% of the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. As a RIC, we intend to distribute to our stockholders substantially all of our income, although we have not yet determined whether we will retain for investment net capital gains and elect to treat such net capital gains as a deemed distribution. If this happens, you will be treated as if you received an actual distribution of the capital gains we retain and then reinvested the net after-tax proceeds in our common stock. You would be eligible to claim a tax credit against your federal income tax liability (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. Please refer to "Certain United States Federal Income Tax Considerations" for further information regarding the consequences of our possible retention of net capital gains. We may also make actual distributions to our stockholders of some or all realized net long-term capital gains in excess of realized net short-term capital losses. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if we fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See "Regulation."

        We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, cash dividends will be automatically reinvested in additional shares of our common stock unless the stockholder specifically "opts out" of the dividend reinvestment plan and chooses to receive cash dividends. See "Dividend Reinvestment Plan."

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CAPITALIZATION

        The following table sets forth our cash, cash equivalents and capitalization as of December 31, 2005;

•

on an as adjusted basis after giving effect to the Restructuring; and



•

on a pro forma as adjusted basis to reflect (i) the sale by us of                        shares of common stock in this offering at an assumed initial public offering price of $                  per share (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated expenses of the offering (including expenses attributable to selling stockholders) payable by us; and (ii) the application of the estimated net proceeds that we expect to receive from our sale of common stock in this offering as described under "Use of Proceeds."

        The pro forma information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the actual public offering price of our common stock, the actual number of shares of common stock we sell in this offering, and the actual amount of net capital contributions by our investors between December 31, 2005 and the date of the Restructuring. This table assumes no exercise of the underwriters' over-allotment option of shares. You should read this table together with "Use of Proceeds" and our balance sheet included elsewhere in this prospectus.

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DILUTION

        If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as-adjusted net asset value per share of our common stock immediately after the completion of this offering.

        As of December 31, 2005, after giving effect to the Restructuring, the as-adjusted net asset value of our common stock would have been $                  million, or $                  per share. We determined net asset value per share before this offering by dividing the net asset value (total assets less total liabilities) by the number of shares of common stock to be issued to the Holders in accordance with the Restructuring described under "Restructuring; Election to be Regulated as a Business Development Company and a Regulated Investment Company—Restructuring."

        After giving effect to the sale of our common stock in this offering assuming an initial public offering price of $                  per share (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), and after deducting estimated sales load and estimated expenses of the offering (including the expenses attributable to selling stockholders) payable by us, our as-adjusted net asset value as of December 31, 2005 would have been approximately $                  million, or $                  per share. This represents an immediate increase in our net asset value per share of $                  to existing stockholders and dilution in net asset value per share of $            to new investors who purchase shares in this offering. The following table illustrates this per share dilution:

        The following table summarizes, as of December 31, 2005, and after giving effect to the Restructuring, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering assuming an initial public offering price of $                  per share (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), before deducting the sales load and estimated offering expenses payable by us (including the expenses attributable to the stockholders). To the extent the underwriters' over-allotment option is exercised there will be further dilution to new investors.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with our combined financial statements and related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors," "Forward-Looking Statements; Market Data" and elsewhere in this prospectus.

Overview

        We are an internally managed venture debt finance company that offers senior and subordinated working capital loans, senior revolving loans, bridge loans and equipment loans to emerging companies in the information technology and life science industries. In conjunction with making our loans, we typically receive warrants to purchase stock and often obtain equity participation rights. We may also make direct equity investments from time to time, although we do not expect those investments to be significant to our overall business. We primarily finance privately held, development-stage companies backed by established venture capital firms. To a limited extent, we also selectively finance publicly traded companies, typically life science companies. Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants.

        We seek to invest, under normal circumstances, at least 80% of the value of our net assets, plus the amount of any borrowings for investment purposes, in emerging companies in the information technology and life science industries.

        Prior to the completion of this offering, we will be an internally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act and we intend to elect to be treated as a RIC under Subchapter M of the Code for our first taxable year. As a business development company we are required to meet regulatory tests, including the requirement to invest at least 70% of our total assets in certain types of qualifying assets. See "Regulation." As a RIC, we generally will not have to pay corporate-level taxes on any income or gains that we distribute to our stockholders, provided we meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of the sum of our net ordinary income plus the excess, if any, realized net short-term capital gains over realized net long-term capital losses. See "Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company." We expect to use leverage to make investments.

Portfolio Composition

        We formed the company in May 2003 and commenced investment operations in April 2004. Our investments made to date were made prior to the time we became a business development company and prior to the time we became subject to the 1940 Act. See "Restructuring; Election to be Regulated as a Business Development Company and a Regulated Investment Company." Prior to our Restructuring and election to be treated as a business developed company, the three Funding Subsidiaries did not register as investment companies in reliance upon the exception in Section 3(c)(7) of the 1940 Act; Funding LLC did not register in reliance upon Section 3(c)(1) of the 1940 Act. Through December 31, 2005, we had funded 46 portfolio companies and had invested $234.9 million in loans and equity. See "Summary—Investment Summary." As of December 31, 2005, we had outstanding debt investments in 43 companies with an aggregate fair value of $214.5 million, held warrants to purchase stock in 46 of our portfolio companies and had equity participation rights in 25 of our portfolio companies. See "Portfolio Companies." As of March 31, 2006, we have exercised equity

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participation rights in seven of our portfolio companies for an aggregate purchase price of approximately $2.3 million.

        As of December 31, 2005, we had outstanding loan commitments to 13 companies, representing $65.9 million. In addition to our portfolio companies having discretion whether to draw down such commitments, in some cases, the right of a company to draw down its commitment is subject to the company achieving specific milestones (e.g., an additional equity raise or the completion of a clinical trial), as well as other funding conditions typical of any other commercial loans (e.g., no event of default). Consequently, these commitments may not result in funded investments.

        We generate revenue in the form of interest income on loans and capital gains, if any, on warrants or other equity-related securities that we receive in conjunction with our loans. We also endeavor to obtain commitment fees, pre-payment fees and non-utilization fees. Our loans are typically secured by all or a portion of the tangible and intangible assets of the portfolio companies. We typically lend to private companies following or in connection with their receipt of a round of venture capital equity financing. Our current investments are primarily senior and subordinated working capital loans, senior revolving loans and bridge loans that are typically secured by all or a portion of the tangible and intangible assets of the portfolio company. As of December 31, 2005, senior secured loans, senior secured revolving loans, subordinated loans, equity investments and warrants comprised 58.9%, 6.6%, 31.6%, 0.8% and 2.1%, respectively, of our investment portfolio at fair value. Of our total investment portfolio, we classified 13.7% as senior secured loans, although such loans were subject by their terms to potential future subordination if, for example, the borrower incurs additional debt against a specified percentage of its accounts receivable.

        Our primary operating expenses include the payment of salaries and benefits to our employees, professional fees payable to third party advisors, including valuation services, accounting and legal fees, and general and administrative costs in connection with the creation and management of our portfolio. We expect that our cash compensation expense will increase in the future as a result of our efforts in making new investments as well as managing our portfolio. In addition, we expect to incur non-cash compensation expense in connection with the issuance of stock options to our employees at the time of this offering and in the future. These expenses are likely to be material. We will also incur additional expenses as a public company that we have not incurred in the past, including higher insurance costs, reporting and printing costs, custodial and transfer agent fees, and independent director fees. We expect that, after taking account in future periods of the costs of this offering and the related costs of becoming a public company, our expenses as a percentage of net assets will stabilize.

        As of December 31, 2005, our loans had an original committed principal amount of between $1.5 million and $18 million, repayment terms of between six and 48 months and bore interest at an annual interest rate of 8.5% to 13.0%. Through December 31, 2005, the dollar-weighted average yield on all of our debt investments was approximately 11.9%. In conjunction with our venture debt investments, we typically receive warrants in an amount between 5% and 20% of the committed loan amount. These warrants generally permit us to purchase stock in the portfolio company of the same type and at the same price per share as paid by investors in the portfolio company's most recent round of equity financing. To a lesser extent, we may also receive equity participation rights in a later round of equity financing of the portfolio company.

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        As of December 31, 2005 and 2004, the composition of our portfolio at fair value was as follows:

        For the year ended December 31, 2005, the dollar-weighted average yield on all of our outstanding debt investments was approximately 11.9%. Yields are computed using annualized actual interest income earned for the year ended December 31, 2005, including amortization of loan fees, divided by the dollar-weighted average fair value of debt investments. As of December 31, 2005, $199.7 million of our loan portfolio investments at fair value were at fixed interest rates, which represented approximately 93% of our total portfolio of investments at fair value. For the year ended December 31, 2004, the dollar-weighted average yield on all of our outstanding debt investments was approximately 12.3%. As of December 31, 2004, $47.2 million of our loan portfolio investments at fair value were at fixed rates, which represented approximately 100% of our total portfolio of investments at fair value.

Portfolio Asset Quality

        We analyze and then rate the credit risk within our portfolio on a monthly basis. Companies are rated on a 1 through 4 scale, with 3 as the rating for our standard level of risk. A rating of 4 represents an improved and better credit quality. A rating of 2 or 1 represents a deteriorating credit quality and increasing risk. See "Business—Our Lending Process—Portfolio Management and Reporting." These investment ratings are generated internally, and we can not guarantee that others would assign the same ratings to portfolio investments. We may or may not continue to report portfolio asset quality following the completion of this offering.

        The following table shows the distribution of our debt investments on the 1 to 4 investment rating scale at fair value as of December 31, 2005:

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Results of Operations

        The following table shows the components of our combined net income for the years ended December 31, 2005 and 2004 and for the period from May 2, 2003 (date of inception) to December 31, 2003):

Comparison of the Years Ended December 31, 2005 and December 31, 2004

Total Operating Income

        Total operating income is comprised of interest income and fees and other income. Interest income was primarily derived from our interest bearing investments and our fees and other income was primarily derived from our loan commitment fees. Commitment fees were deferred and amortized into income over the life of the related investment. Total operating income increased by $14.9 million, from $1.9 million for the year ended December 31, 2004 to $16.8 million for the year ended December 31, 2005.

        Interest income increased by $12.9 million from $1.6 million for 2004 to $14.5 million for 2005. The increase in interest income was primarily attributable to the increase in the size of our interest-bearing investment portfolio, and to a lesser extent, the increase in the interest rates charged on new investments made in 2005 compared to new investments made in 2004. We funded a total of $186.8 million of new investments in 2005 compared to $48.1 million in 2004. For 2005, the average fair value balance outstanding of our interest-bearing investment portfolio was approximately $130.9 million as compared with approximately $23.6 million for 2004. The weighted average interest rate of the portfolio as of December 31, 2005 and December 31, 2004 was 11.2% and 11.4%, respectively.

        Fees and other income increased by $2.0 million from $302,000 in 2004 to $2.3 million in 2005. The increase in fees and other income was primarily attributable to our larger investment portfolio. Substantially all the fees relate to commitment and due diligence fees being amortized into income over the term of the related investment, including, where a warrant was received at the time of an

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investment, the accretion to income of the initial warrant values. Commitment fees totaled $1.9 million and $282,000 for 2005 and 2004, respectively.

Total Operating Expenses

        Total operating expenses is comprised of salaries and benefits, professional fees and general and administrative expenses. Total operating expenses increased by $2.3 million, from $1.0 million in 2004 to $3.3 million in 2005. The increase was largely attributable to an increase in salaries and benefits expense as a result of an increase in investment activities.

        Salaries and benefits expense increased by $2.1 million, from $595,000 in 2004 to $2.7 million in 2005. This increase was due primarily to higher compensation to existing employees as a direct result of an increase in new investment volume during the year and to a lesser extent, due to the additional employees hired in 2005 to make and to manage our investments.

        Professional fees increased by $84,000, from $183,000 in 2004 to $267,000 in 2005. This increase was due primarily to legal fees incurred in connection with general corporate matters and for fees in connection with our annual audit.

        General and administrative expense increased by $97,000, from $222,000 in 2004 to $319,000 in 2005. This increase was due primarily to an increase in business development activities, as well as an increase in overhead costs such as insurance, rent and utilities.

Net Realized Gains on Investments and Net Unrealized Depreciation on Investments

        During 2005, we realized a gain of $48,000 from the exercise and sale of one of our warrant investments. We had no realized gains on investments during 2004.

        Net unrealized depreciation on investments increased by $2.5 million, from $62,000 in 2004 to $2.6 million in 2005.

        Net unrealized depreciation on investments was the net change in the fair value of our investment portfolio. For 2005, we recorded unrealized depreciation of $2.6 million on our investment portfolio, of which $2.1 million related to one of our investments. In 2005, we recorded unrealized losses on this debt investment and reduced the estimated fair value of our investment to $2.5 million, which is approximately $2.4 million less than our cost basis in this investment.

Net Income

        Net income was $10.9 million and $873,000 for 2005 and 2004, respectively. The increase in net income is due to the factors discussed above.

Comparison of the Year ended December 31, 2004 and the period from May 2, 2003 (date of inception) to December 31, 2003

        We commenced investment activities in April 2004. Consequently, our results of operations in 2003 related primarily to start-up activities. Operating expenses in 2003 included primarily legal and consulting fees. Accordingly, we have not presented a comparison of the results of operations and cash flows for the year ended December 31, 2004 to the period from May 2, 2003 (date of inception) to December 31, 2003. Rather we have provided additional analysis related to 2004 in our comparison of the year ended December 31, 2005 to the year ended December 31, 2004.

Financial Condition, Liquidity and Capital Resources

        We generate cash flow primarily from operations, including customer principal payments, income earned from investments in our portfolio companies and, to a lesser extent, the temporary investment

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of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, commitment fees and pre-payment and non-utilization fees. We also intend to generate cash from the net proceeds of this offering and from future borrowings. Our primary use of funds is investments in portfolio companies and cash distributions to holders of our common stock. After we have used the net proceeds of this offering and from future borrowings, we expect to raise additional capital to support our future growth through future equity offerings, issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act.

Cash, cash equivalents and cash flows

        At December 31, 2005 and December 31, 2004, we had $2.7 million and $467,000, respectively, in cash and cash equivalents. We primarily invest cash on hand in interest bearing deposit accounts.

        For 2005, net cash provided by operating activities totaled $11.7 million, an increase of $10.3 million over 2004. This increase was due primarily to higher interest income generated from a larger average investment portfolio.

        For 2005, net cash used for investing activities totaled $170.4 million an increase of approximately $122.7 million over 2004. This change was due primarily to higher investment originations in 2005, partially offset by $8.6 million in loan prepayments and $7.8 million in scheduled loan amortizations.

        We expect in the normal course of business to have unfunded commitments to extend credit. Unfunded commitments to provide funds to portfolio companies will not be reflected on our balance sheet and may be significant from time to time. As of December 31, 2005, we had unfunded commitments of approximately $65.9 million. These commitments will be subject to the same underwriting and ongoing portfolio management as the on-balance sheet financial instruments that we hold. As of December 31, 2005, we had extended non-binding term sheets to 12 prospective new portfolio companies representing approximately $60.5 million of venture loan investments. These investments are subject to the finalization of our due diligence and approval process as well as the negotiation of definitive agreements with the prospective portfolio company and, as a result, may not result in completed investments.

        During the three months ended March 31, 2006, we funded additional investments to 14 companies totalling $54.9 million. As of March 31, 2006, we had executed non-binding term sheets with six prospective portfolio companies, representing $30.0 million. These proposed investments are subject to the completion of our due diligence and approval process, as well as negotiation of definitive documentation with the prospective portfolio companies and, as a result, may not result in completed investments. In addition, as of March 31, 2006, we had issued non-binding term sheets to 30 companies representing $215.2 million in potential loans. There is no guarantee that we will enter into any of these transactions.

        For 2005, net cash provided by financing activities totaled $161.0 million, an increase of approximately $114.3 million over 2004. This increase was due primarily to $187.2 million in capital received from our investors to fund the higher portfolio growth in 2005.

        In addition, we may elect to use leverage to make investments in portfolio companies. See "Business" for more information. As a business development company, we generally are required to meet a coverage ratio of total assets to total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. Over time, we expect to target a debt-to-equity ratio on an overall portfolio basis of 0.7 to 1.0.

        We have historically provided our investors with monthly distributions from excess cash generated from our portfolio, which included both net income and return of capital. Distributions totaled $26.2 million and $1.6 million for 2005 and 2004, respectively.

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        Following the restructuring and the consummation of this offering, in order to satisfy the requirements applicable to RICs under Subchapter M of the Code, we intend to continue to distribute to our stockholders substantially all of our ordinary income and realized net short-term capital gains to the extent they exceed realized net long-term capital losses. However, we may elect to retain certain net long-term capital gains, pay applicable income taxes with respect thereto, and treat such retained capital gains as deemed distributions. Taxable income generally differs from net income (loss) for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Taxable income includes cash fees collected and certain non-cash items. Non-cash taxable income is reduced by certain non-cash expenses, such as realized losses and depreciation and amortization expense. See "Dilution" for more information.

        As a result of this offering, we expect that we will have sufficient capital to provide from six to 12 months of new investment funding. This may change due to a number of factors including the level of portfolio company early pre-payments and the level, timing and structure of new investments. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and debt-related markets.

Borrowings

        We may enter into a debt financing facility in order to obtain funds which may be made available for investments. See "Obligations and Indebtedness."

Dividends

        We intend to elect to be taxed as a RIC under Subchapter M of the Code for our first taxable year. We intend to distribute quarterly dividends to our stockholders, commencing after the end of the first full fiscal quarter following the completion of this offering.

        As long as we qualify as a RIC, we will not be taxed on our "investment company taxable income" or realized net capital gains, to the extent that such taxable income and gains are distributed to stockholders on a timely basis. Annual tax distributions generally will differ from net income for the fiscal year due to temporary and permanent timing differences in the recognition of income and expenses, returns of capital and net unrealized appreciation or depreciation, which are not included in taxable income. To qualify as a RIC under Subchapter M of the Code, and to avoid corporate-level tax on our income, we must, in general, for each taxable year:

•

have in effect at all times during the taxable year an election to be treated as a business development company;



•

derive at least 90% of our gross income from dividends, interest, gains from the sale of securities and other specified types of income;



•

meet asset diversification requirements as defined in the Code; and



•

distribute to stockholders at least 90% of our investment company taxable income as defined in the Code.

We intend to take all steps necessary to qualify for the federal tax benefits allowable to RICs, including distributing annually to our stockholders at least 90% of the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. Unless a stockholder elects otherwise, these distributions will be reinvested in additional shares of our common stock through our dividend reinvestment plan. We may retain any realized net long-term capital gains in excess of realized net short-term capital losses and elect to treat such net capital gains as a deemed distribution to our stockholders. We may also make actual distributions to our stockholders of some or

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all of such net long-term capital gains. See "Certain United States Federal Income Tax Considerations—Taxation as a Regulated Investment Company" and "Dividend Reinvestment Plan." There can be no assurance that we will qualify for treatment as a RIC in any future years.

        We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to (1) the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and (2) provisions in our future credit facilities, if any. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the federal income tax benefits allowable to a RIC. We cannot assure stockholders that they will receive any distributions or distributions at any particular level.

Critical Accounting Policies

        The combined financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Income Recognition

Loan Interest

        Interest on loans is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the loan is placed on non-accrual status and recognizing interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as principal pay downs until the loans are repaid or until they are no longer considered to be on non-accrual status.

Loan Commitment Fees and Other Fees

        We receive a variety of fees in the ordinary course of conducting our business, including advisory fees, commitment fees, amendment fees, non-utilization fees and prepayment fees (collectively the "Fees"). In a limited number of cases, we may also receive a non-refundable deposit earned upon the termination of a transaction. We recognize Fees, which qualify as loan origination fees, in accordance with the Statement of Financial Accounting Standards No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases," ("SFAS 91"). SFAS 91 requires that we recognize loan origination fees using the interest method. We account for our Fees for counterparty loan commitments with multiple loans in accordance with SFAS 91 Staff Implementation Guidance regarding credit facilities with multiple draw downs and the Emerging Issues Task Force Issue 00-21 "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 addresses revenue arrangements with multiple deliverables and states that the total consideration received for the arrangement be allocated to each unit based upon each unit's relative fair value. In connection with all of our loan arrangements, warrants have been received from the portfolio company as additional commitment fees. The portfolio companies that grant these interests are typically non-publicly traded companies. We record the financial instruments received at fair value. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. The fair value of the warrant is accreted into income using the interest method over the term of the related loan. When an investment is placed

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on non-accrual, the amortization of the related Fee income is discontinued until the loan is repaid or until it is no longer considered to be on non-accrual status.

Valuation of Investments

        Value, as defined in Section 2(a)(41) of 1940 Act, is, for those securities for which a market quotation is readily available, the market price and, for all other securities and assets, fair value is determined in good faith by the board of directors. Since there is typically no readily available market value for the investments in our portfolio, we value all of our investments at fair value as determined in good faith by our management pursuant to a valuation policy and a consistent valuation process. In the future, fair value will be determined pursuant to policies and procedures adopted by our board of directors. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined under these procedures may differ significantly from the values that would have been used had a ready market existed for the investment.

        There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has decreased in value, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value.

        We invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, operating covenants, ownership and corporate governance parameters, and in some instances dilution parameters and liquidation preferences. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation.

        With respect to private debt and equity securities, each investment is valued using industry valuation benchmarks, and, where appropriate, such as valuing private warrants, the input value in our valuation model may be assigned a discount reflecting the illiquid nature of the investment and/or our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private debt or equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the date of the relevant period end.

        In connection with our determination of the fair value of investments at December 31, 2005 and December 31, 2004, we engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to review independently the determination of fair value of our portfolio company investments. Houlihan Lokey is a U.S. valuation firm which engages in a significant number of valuation assignments each year. In connection with our review of the fair value of our investments as of December 31, 2005 and 2004, Houlihan Lokey reviewed 100% of our portfolio investments. Houlihan Lokey will provide additional valuation advisory services on a quarterly basis on selected portfolio investments based on factors such as size and age of investment, and current credit rating of the investments.

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Recent Accounting Pronouncements

        In December 2004, the FASB issued SFAS No. 123-R, which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123-R supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach to accounting in Statement 123-R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the issuer's financial statements based on their fair value. We are required to adopt the provision of the standard effective for the first interim period of the first fiscal year beginning after June 15, 2005. We expect to establish an employee stock option plan in 2006 that will require accounting treatment pursuant to SFAS No. 123R. We expect to issue common shares to certain of our employees in connection with the Restructuring and to grant options to those employees concurrently with our offering. Accordingly, we expect to incur a non-cash charge to compensation expense of approximately $         million in the period of the offering in accordance with SFAS No. 123R.

        In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," ("SFAS 154") which replaces Accounting Principles Board Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for, and reporting of, accounting changes and error corrections. It established retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not currently expect that the new guidance will have a material impact on the Company's financial condition, results of operations or cash flows.

Off-Balance Sheet Arrangements

        We are party to financial instruments with off-balance sheet risk in the ordinary course of business to meet the financial needs of customers. These instruments include commitments to extend credit and involve elements of credit risk in excess of the amount recognized in the balance sheet. We attempt to limit our credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

        The balance of unused commitments to extend credit was $65.9 million and $19.8 million at December 31, 2005 and 2004, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate us to extend credit, such as investment draws, revolving credit arrangements or similar transactions. Commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

        Currently, we do not engage in hedging activities because we have determined that the cost of hedging the risks associated with interest rate changes outweighs the risk reduction benefit. We monitor this strategy on an ongoing basis and may engage in certain hedging activities in the future as we deem appropriate.

        Our corporate headquarters are leased under an arrangement which calls for monthly rent payments until November 2009. Total rent expense amounted to $80,000 and $50,000 for 2005 and 2004, respectively. It is likely that we will acquire additional office space to accommodate the additional professionals required to originate and manage our business.

        Future minimum rental commitments as of December 31, 2005 for our non-cancelable operating lease were as follows:

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OBLIGATIONS AND INDEBTEDNESS

        We may enter into a debt financing facility after the completion of this offering in order to obtain funds which may be made available for investments. We have received preliminary term sheets that generally describe the basic terms and provisions of such a facility from multiple arrangers on behalf of their related financial institutions, including an affiliate of Banc of America Securities LLC, one of the underwriters of this offering. In connection with such a facility, we may establish a wholly owned, bankruptcy-remote special purpose subsidiary, and on an ongoing basis contribute portfolio loans to this subsidiary and grant a security interest in such portfolio loans and related rights in favor of this subsidiary. Completion of any such facility would be subject to, among other things:

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completion by the investors participating in such facility of required due diligence,



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agreement on all terms of such facility,



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negotiation, execution and delivery of definitive documentation in form, scope and substance satisfactory to the investors participating in such facility,



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each participating investor's satisfaction with our financial condition, performance and investment portfolio,



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no material adverse changes in our financial condition, performance and investment portfolio or in any other information disclosed to the participating investors,



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each participating investor's receipt of all internal credit approvals and, to the extent necessary, certain rating agency approvals, and



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confirmation of compliance with all regulatory matters.

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BUSINESS

General

        We are an internally managed venture debt finance company that offers senior and subordinated working capital loans, senior revolving loans, bridge loans and equipment loans to emerging companies in the information technology and life science industries. In conjunction with making our loans, we typically receive warrants to purchase stock and often obtain rights to purchase stock in subsequent equity financings, which we refer to as equity participation rights. We primarily finance privately held, development-stage technology companies backed by established venture capital firms. To a limited extent, we also selectively finance publicly traded companies, typically life science companies. Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants.

        We focus our investments primarily in two key segments of the emerging technology market: information technology and life science. The information technology industry has numerous sub-industries that we specifically target, which include communications, data center infrastructure, hardware, networking, wireless communications, data storage, software, semiconductor, internet and media, consumer-related technologies. We also target certain sub-industries of the life science industry, which include biotechnology, drug delivery, bioinformatics, diagnostics and medical devices.

        We typically lend to private companies following or in connection with their receipt of a round of venture capital equity financing. Our current investments are primarily senior and subordinated working capital loans, senior revolving loans and bridge loans that are typically secured by all or a portion of the tangible and intangible assets of the portfolio company. As of December 31, 2005, senior secured loans, senior secured revolving loans, subordinated loans, equity investments, and warrants comprised 58.9%, 6.6%, 31.6%, 0.8%, and 2.1%, respectively, of our investment portfolio at fair value. Of our total investment portfolio, we classified 13.7% as senior secured loans, although such loans were subject by their terms to potential future subordination if, for example, the borrower incurs additional debt against a specified percentage of its accounts receivables.

        As of December 31, 2005, our loans had an original committed principal amount of between $1.5 million and $18 million, repayment terms of between six and 48 months and bore interest at an annual interest rate of 8.5% to 13.0%. Through December 31, 2005, the dollar-weighted average yield on all of our debt investments was approximately 11.9%. In conjunction with our venture debt investments, we typically receive warrants in an amount between 5% and 20% of the committed loan amount. These warrants generally permit us to purchase stock in the portfolio company of the same type and at the same price per share as paid by investors in the portfolio company's most recent round of equity financing. To a lesser extent, we may also receive equity participation rights in a later round of equity financing of the portfolio company. We may also make direct equity investments from time to time, which we do not expect to be a significant portion of our portfolio. We target annualized total returns on invested capital of between 15% and 20% over the life of our investments, including interest income on loans and proceeds, if any, derived from our exercise of warrants or sales of other equity interests received in connection with such loans. We can offer no assurance, however, that we will receive all scheduled interest payments or that we will realize any returns on related equity interests.

        We formed the company in May 2003 and commenced investment operations in April 2004. Through December 31, 2005, we had funded 46 portfolio companies and had invested $234.9 million in loans and equity. See "Summary—Investment Summary." As of December 31, 2005, we had outstanding debt investments in 43 companies with an aggregate fair value of $214.5 million, held warrants to purchase stock in 46 of our portfolio companies and had equity participation rights in 25 of our portfolio companies. See "Portfolio Companies." As of March 31, 2006, we have exercised equity participation rights in seven of our portfolio companies for an aggregate purchase price of approximately $2.3 million. Thus, if our portfolio companies have not drawn down or do not draw

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down their commitments or they repay or prepay their loans, the number of our portfolio companies may exceed the number of portfolio companies to which we have outstanding commitments or loans.

        As of December 31, 2005, we had outstanding loan commitments to 13 companies, representing $65.9 million. In addition to our portfolio companies having discretion whether to draw down such commitments, in some cases, the right of a company to draw down its commitment is subject to the company achieving specific milestones (e.g., an additional equity raise or the completion of a clinical trial), as well as other funding conditions typical of any other commercial loans (e.g., no event of default). Consequently, these commitments may not result in funded investments.

        We seek to invest, under normal circumstances, at least 80% of the value of our net assets, plus the amount of any borrowings for investment purposes, in emerging companies in the information technology and life science industries.

        Each of our co-founders, Robert D. Pomeroy, Jr., our Chairman and Chief Executive Officer, and Gerald A. Michaud, our President and Chief Operating Officer, has over 15 years of experience in the venture lending industry. Christopher M. Mathieu, our Chief Financial Officer, has over 13 years of experience in the venture lending industry. We have an additional nine professionals who have an average of over seven years of experience in the venture lending industry, including marketing, legal, accounting and portfolio management.

Our Business Strategy

        Our investment objective is to maximize our portfolio's total return by generating current income and capital appreciation from our loans and warrants. To meet this objective we apply our expertise in venture debt product development and transaction sourcing, our knowledge of the information technology and life science industries, and our disciplined underwriting process to add value to our customers' businesses and thereby obtain returns that we believe exceed those returns that can be obtained in traditional commercial finance products. To implement our business strategy, we employ the following venture lending practices:

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Direct Origination. We typically originate our transactions directly from information technology and life science companies. These transactions are sourced from referrals from venture capital firms, information technology and life science management teams, and legal and accounting firms that represent information technology and life science companies. Our management team has worked on numerous transactions with many of these sources over a 15-year venture lending history.



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Creative Products with Attractive Risk-Adjusted Pricing.  We use creative debt product solutions to meet customer and market demand based on expertise and knowledge gained by our management team in providing venture debt products to over 375 venture capital-backed technology companies over a 15-year period. We have developed pricing tools, structuring techniques and valuation metrics to maximize returns on each investment. As of December 31, 2005, our existing loan portfolio had interest rates ranging from 8.5% to 13.0%. In addition, all of the loans in our existing loan portfolio have warrant grants ranging from 5% to 20% of our loan commitment amount, although we may elect in the future to extend loans that are not accompanied by warrant grants. We also endeavor to obtain commitment fees, pre-payment and non-utilization fees and equity participation rights to enhance our loan and investment portfolio returns.



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"Enterprise-value" Lending.  We take an enterprise value approach to our loan structuring and underwriting process. We typically secure a senior or subordinated lien position against the enterprise value of a company and seek to obtain pricing enhancements in the form of warrants that we anticipate will build long-term asset appreciation and other "success-based" fees. We

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believe these methods reduce the downside risk of venture lending. When we do not get a lien on the portfolio company's intellectual property, we typically obtain a covenant that such company will not grant a lien on such intellectual property to anyone else. "Enterprise-value" lending requires the lender to have an extensive understanding of the companies it lends to and markets it serves. We believe that this in-depth understanding of how private venture capital-backed technology companies grow in value, finance that growth over time, and the various business cycles they will encounter can be carefully analyzed by venture lenders who have substantial experience, relationships and knowledge within the markets they serve. Understanding the underlying loan-to-value proposition of a venture capital-backed development-stage technology company requires having insight into how a company's investors have acted in supporting comparable companies in the past, knowing the historical performance of the management team in meeting forecasts and projections, having some knowledge base and historic perspective of how long it takes to fully develop and commercialize products for a variety of information technology and life science products, understanding the competitive environment that the company will face as it brings its product to market, and knowing where to locate and evaluate comparable companies' historic valuations. This in-depth insight into these important qualitative factors is outside of normal underwriting considerations of cash usage analysis and collateral coverage. We believe the experience that our management team possesses gives us enhanced capabilities in making these qualitative "enterprise-value" evaluations, which we believe provides for a high quality venture loan portfolio with value-added returns for our stockholders.

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Disciplined Underwriting Process.  We use a disciplined underwriting process that includes redundant validation of information, extensive knowledge of our industries, outside expert consultation, comparable industry valuation metrics, sophisticated financial analysis related to development-stage companies and other quantitative and qualitative measures.



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Customized Loan Documentation Process.  We have employed an internally managed documentation process that assures that each loan transaction is documented using our specifically tailored "enterprise-value" venture loan documents. We use experienced in-house senior legal counsel to oversee the documentation and negotiation of each of our transactions.



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Active Portfolio Management.  Because we expect most of our loan portfolio customers to be privately held, venture capital-backed, development-stage technology companies, we apply a "hands on" approach to our portfolio management processes and procedures. We require our private portfolio companies to provide monthly financial information, and we typically participate in quarterly discussions with management and investors of our loan portfolio companies. We also generally conduct annual visits to our portfolio companies' offices. Internally, we require monthly management reporting to our senior management team on each portfolio company, and we internally rate our portfolio companies based on the changing dynamics of that company, and engage our senior management in any loan transaction that may be potentially impaired.



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Portfolio Composition.  We view the monitoring of the composition of our portfolio as an important part of our overall growth and portfolio management strategy. We regularly monitor our loan portfolio to avoid undue focus in any sub-industry, stage of development or geographic area. By constantly monitoring our loan portfolio we attempt to reduce the risk of down market cycles associated with any particular industry, development stage or geographic area. As of December 31, 2005, the fair value of our loan investments was $214.5 million in 43 venture-backed, development-stage technology companies. Of those investments, 16 companies representing $91.5 million are life science companies (which includes biotechnology and medical device companies) and 27 companies representing $123.0 million are information technology companies (which includes communications, data center infrastructure, hardware, network

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infrastructure, semiconductor and software companies). See "Portfolio Companies." In addition, 22 companies, representing $118.7 million, are located in the Western part of the United States and 21 companies, representing $95.7 million, are located in the Eastern part of the United States. While we currently do not have any portfolio companies organized or having principal operations outside the United States, in the future we may determine to make such investments. We do not expect those investments to constitute a significant portion of our portfolio. Of the 43 companies in our portfolio, we consider eight companies, representing $36.2 million to be early in their development stage, 11 companies, representing $57.8 million, to be in the middle of their development stage and 24 companies, representing $120.5 million, to be in later stage of development. The following charts show the diversification of our loan portfolio as of December 31, 2005.

Our Market Opportunity

Venture lending

        Venture lending has been a complement to venture capital investing since the mid-1980s. Prior to that time, venture capital-backed technology and life science companies relied primarily on equity capital to finance their enterprises through the development stage. In the mid-1980s, some boutique equipment leasing/lending companies began leasing capital equipment to venture capital-backed technology and life science companies through secured leasing arrangements. Eventually these leasing companies extended their lease offerings to attribute value to significant "soft costs" such as leasehold improvements, which were sometimes supported by cash collateral. In the 1990s these venture leasing/lending companies began to refine and expand their lending products to "enterprise" type loans that were used to provide working capital to venture capital-backed technology and life science companies for product development and pre-revenue marketing and sales costs. These loans were generally

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secured by an all asset lien against the borrower's assets. Today, "enterprise-value" lenders have developed sophisticated financing products based on experience gained in lending to venture capital-backed technology and life science companies for over a decade in good and bad markets. We believe those individuals, including our management team and companies who pioneered venture lending in the 1980s and 1990s and have gained experience and knowledge by working through numerous business cycles are best positioned to successfully originate, underwrite and manage a venture loan enterprise.

        We believe that venture lenders have the potential to achieve enhanced returns in exchange for the increased level of risk associated with lending to development-stage companies. Potential benefits to venture lenders include the following:

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Higher Interest Rates.  Venture loans typically bear interest at rates that exceed the rates available in traditional commercial financing transactions. We believe these rates provide a risk-adjusted return to lenders compared with other types of debt investing, and provide a significantly less expensive alternative to equity financing for development-stage companies.



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Support of Venture Capital Equity Investors.  In most cases, venture lenders enter into a venture loan in conjunction with or immediately after a substantial venture capital equity investment in the borrower. This equity investment supports the venture loan by initially providing a source of cash to fund the borrower's debt service obligations. In addition, because the venture debt ranks senior in priority of payment to the equity investment, the borrower must repay that debt before the equity investors realize a return on their investment. If the portfolio company subsequently becomes distressed, its venture capital investors will likely have an incentive to assist it in avoiding a payment default, which could lead to foreclosure on the secured assets. We believe that the support of the equity investors increases the likelihood of a venture loan being repaid.



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Relatively Rapid Amortization of Loans.  Venture loans typically require that interest payments begin within one month of closing, and principal payments begin within twelve months of closing, thereby returning capital to the lender and reducing the capital at risk with respect to the investment. Because venture loans are typically made at the time of or soon after a portfolio company completes a significant equity financing, the portfolio company usually has sufficient funds to begin making scheduled principal and interest payments even if it is not then generating revenue. To the extent that a borrower is able to increase its "enterprise-value" during the term of the loan (which is typically between 24 and 48 months), the lender may benefit from a reduced loan-to-value ratio, which reduces the risk of the loan.



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Senior Ranking to Equity and Collateralization.  Venture loans are typically secured by some or all of the borrower's assets, thus making them senior to equity. In many cases, if a borrower defaults on its loan, the value of this collateral will provide the lender with an opportunity to recover all or a portion of its investment. Because holders of equity interests in a borrower will generally lose their investments before we experience losses, we believe that the likelihood of losing all of our invested capital in a venture loan is lower than would be the case with an equity investment.



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Potential Equity Appreciation Through Warrant Interests.  Venture lenders are typically granted equity participation rights in portfolio companies, usually in the form of warrants to purchase preferred stock. Historically, this warrant coverage on venture debt investments to development-stage companies has been between 5% and 20% of the loan amount and has permitted venture lenders to purchase stock in the portfolio company, mostly of the same type and at the same price per share as paid by the investors in the most recent round of equity financing. Warrants or other equity securities provide a venture lender with an opportunity to participate in the potential growth in value of the portfolio company, thereby increasing the potential return on investment.

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        We believe that venture lending also provides an attractive financing source for borrowers, their management teams and their venture capital investors. Potential benefits to borrowers include the following:

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Venture Debt Allows Borrowers to Match Cash Sources with Uses.  Debt is often used to fund infrastructure costs, including office space and laboratory equipment. The use of debt to fund infrastructure costs allows a portfolio company to spread these costs over time, thereby conserving cash at a stage when its revenues may not be sufficient to cover expenses. Similarly, working capital financing may be used to fund selling and administrative expenses ahead of anticipated corresponding revenue. In both instances, equity capital is preserved for research and development expenses.



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Venture Debt is Typically Less Dilutive than Venture Equity Financing.  Venture debt allows a company to access the cash necessary to implement its business plan without diluting the existing equity interests in such company. Typically, the warrants or other equity securities issued as part of a venture lending transaction result in only minimal dilution to existing investors as compared to the potential dilution of an equity round of financing.



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Venture Debt Extends the Time Period During Which a Borrower Can Operate Before Seeking Additional Equity Financing.  By using venture debt, development-stage companies can postpone the need for their next round of equity financing, thereby extending their cash available to fund operations. This delay can provide borrowers with additional time to improve technology, achieve development milestones and, potentially, increase the company's valuation before seeking more equity investments.

        We believe that current market dynamics favor venture lending. First, the level of venture capital investment has stabilized since the rise and fall of technology stocks in 1999-2002. Although the current level of venture capital investing is lower than the peak year of 2000, the level of venture capital investing has been relatively stable since 2003. According to Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005, venture capital investment in 2003, 2004 and 2005 was approximately $19.2 billion, $21.5 billion and $22.2 billion, respectively. Current venture capital investing compares favorably to the similar normalized venture capital investing periods of 1997 (approximately $13.0 billion) and 1998 (approximately $17.7 billion). Since 2003 valuations of venture capital-backed development-stage technology companies have been steadily increasing. In addition, median valuations for information technology companies have almost doubled in 2005. We believe that valuations will continue to increase as venture capital-backed technology companies continue to develop their products and bring them to market. As a result, we believe investors, including venture debt lenders who hold equity stakes in these companies, stand to gain economic benefits through valuation appreciation over the coming years. In the case of venture lenders, the increase in valuations would also provide for additional downside risk protection if loan-to-value ratios continue to improve during the term of their loans to venture capital-backed technology companies. We believe that the combination of the increase in venture capital equity financing transactions, improvement in the relative quality of companies being supported by venture capital investments, lower valuations of development-stage companies as compared with 1999-2002 levels and greater awareness of and demand for venture debt financing make the venture debt market attractive for new investment.

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Venture Capital Investments: Dollar amount of transactions ($ in billions)

Source: Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005.

Venture Capital Investments: Number of transactions

Source: Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005.

        We believe the signs of growth in the number of companies funded and the amount of equity capital having been invested by the venture capital industry from the beginning of 2003 through 2005 is a positive indicator for venture lenders. While we know of no industry statistics on venture lending over the past ten years, we believe historically as venture capital investing volume increases and decreases so does venture lending volume. Historically, there have been a number of metrics and analytics used by venture lenders in underwriting loans to venture capital-backed technology companies. A number of those metrics are tied to venture capital investment, such as how much equity has been raised by the company, when the last equity round was completed, what was the most recent valuation for the company, and who are the investors in the company. Logically, as venture capitalists increase the number of companies they invest in, the amount of capital they invest, and valuations continue to rise, venture lenders will find a greater number of venture capital-backed technology companies that meet their underwriting criteria, and there may be more venture capital-backed companies that will seek venture debt to leverage the additional equity raised.

Valuations of venture capital-backed technology companies ($ in millions):

Source: Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005.

        Since 2003, valuations of venture capital-backed, development-stage technology companies have been steadily increasing. According to Ernst & Young/VentureOne Venture Capital Report for the fourth quarter of 2005 median valuations for venture capital-backed companies have increased from $10 million in 2003 to $13 million in 2004 to $15.0 million in 2005. We believe that this trend will continue as venture capital-backed technology companies continue to develop their products and bring them to market. As a result, we believe investors, including venture debt lenders who hold equity stakes in these companies, stand to gain economic benefit through valuation appreciation over the coming years. In the case of venture lenders, the increase in valuations also provides for additional downside risk protection as loan-to-value ratios will continue to improve during the term of their loans to venture capital-backed technology companies.

Emerging Information Technology and Life Science Industries

        We focus our investments primarily in two key segments of the emerging technology market: information technology and life science. The information technology industry has numerous sub-markets that we specifically target, including communications, networking, wireless communications, data storage, software, semiconductor, internet and media and consumer-related technologies. We also target certain sub-markets of the life science industry, including biotechnology, drug delivery, bioinformatics, diagnostics and medical devices.

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Information Technology

        The information technology industry broadly defined had over 10,000 venture capital-backed companies as of December 31, 2005, according to Dow Jones VentureSource. Historically, venture capital financing has been a primary driver in funding the early development stage of many information technology companies. For example, well known and successful public companies such as Google, Inc., Ebay, Inc., Cisco Systems, Inc., Netscreen Technologies, Inc. (subsequently acquired by Juniper Networks, Inc. for approximately $4 billion), RF Micro Devices, Inc., RSA Security, Inc., Silicon Graphics, Inc., Silicon Laboratories, Inc., Sun Microsystems, Inc., Symantic Corporation, Volterra Semiconductor Corporation and Yahoo!, Inc. all received venture capital funding prior to completing an initial public offering. Likewise, many privately held, venture capital-backed, development-stage information technology companies use venture debt as part of their financing strategy. Of the above-named companies, Google, Inc., Netscreen Technologies, Inc., Silicon Laboratories, Inc. and Volterra Semiconductor Corporation used venture debt financing prior to going public. We believe that as venture capital-backed information technology companies analyze the various financing alternatives available to them for product development, infrastructure build out and marketing, an increasing number of these companies will opt to use a combination of venture capital financing and venture debt financing to keep their overall cost of capital lower and increase capital availability.

        Information technology companies develop new products and services that generally fall into two categories: evolutionary products and services or revolutionary products and services. The first category, evolutionary products and services, addresses existing markets with developing products or services that can make companies or individuals more productive or more efficient. Many software development companies fall into this category. The second category, revolutionary products and services, creates new markets that are driven by a revolutionary technology platform. E-mail, internet protocol and voice over internet protocol, or VoIP, fall in this category. This industry is evolving rapidly with changing technology and is not susceptible of rigid classification. Unlike life science companies, information technology companies are generally on a fast track to get their products to market ahead of competing technologies. As a result, these companies have numerous but smaller rounds of equity and debt financings during a shorter development phase.

        Historically, venture capital backed information technology companies could rely on the initial public offering, or IPO, market and merger and acquisition, or M&A, market as reliable exit strategies upon proof of concept of their technology product or service. However, based on the experience from the years 2000-2002, the IPO and M&A markets have increased considerably the standard of what constitutes a good IPO or M&A candidate. In the current market, successful information technology company candidates for an IPO or M&A exit must not only have early sales success of their product or service but also must be at or close to profitability. As a result, information technology companies are increasingly requiring incremental private equity and debt financing to achieve the higher exit opportunity criteria. We believe venture debt will play an increasing role in providing incremental financing for many of these companies as it is less dilutive to existing shareholders (including the management) than incremental equity financing. We also believe that an increased amount of debt can be supported by the higher valuations that these later stage companies command.

Life Science

        The life science industry broadly defined is made up of over 1,400 companies as of June 2005, according to Ernst & Young. This industry is evolving rapidly with changing technology and is not susceptible of rigid classification. Historically, life science companies have used a mix of venture capital, corporate collaborations and venture debt to provide a portion of the substantial amount of capital needed to bring an FDA approved product to market. For example, well known and successful public life science companies such as Millenium Pharmaceuticals, Inc., Caliper Life Sciences, Inc., Cephalon, Inc., Cell Genesys, Inc., Cubist, Inc. and Medimmune, Inc. all used both venture capital and

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venture debt prior to becoming public companies. We believe that the cost to bring one life science product to market through a rigorous regulatory approval process can exceed $100 million and take between seven and 16 years. As a result, life science companies are required to complete numerous financings during their development stage and are very dependent on the private equity and debt markets to achieve those financing requirements. The use of venture debt to meet some of the capital demands of life science companies provides a lower cost solution than using only equity venture capital financing and expands the life science company's access to capital.

        According to Ernst & Young's Global Biotechnology Report 2005, there were 55 life science products under review at the FDA at the beginning of the year. Traditionally, life science companies have numerous ways of monetizing their intellectual property. One approach is to develop new drugs or medical devices that meet unmet demands in curing or incrementally improving existing treatments for known diseases. Life science companies can also partner with large pharmaceutical companies to co-develop products from the life science company's underlying technology and receive royalty payments if the products are brought to market. The development timeline to complete the monetization of life science technology is long and usually spans a number of business cycles. As a result, life science companies generally have a minimum of one to two years of cash on hand at all times to ensure that there will be no interruption in their product development strategy due to uncertain capital markets. Therefore, the life science industry has become more reliant in recent years on private equity and debt financing to insure that they have sufficient capital to execute their technology development plans over a long development time line.

        According to Ernst & Young's Global Biotechnology Report 2005, life science companies completed 172 venture capital financing rounds in 2004 representing $3.5 billion, which represents a record amount of venture capital investment in life science companies. We believe that life science companies are increasingly using venture debt as part of their long term financing strategies as well. Historically, life science companies must reach certain milestones in their product development to achieve higher valuations. We believe increasing numbers of life science companies are using venture debt to reach development milestones prior to seeking additional venture capital or other alternative financing opportunities. In addition, the public markets represent an alternative financing vehicle for some later stage life science companies; however, the window of opportunity for completing an IPO may not be available to such companies when they require capital. As a result, many life science companies use venture debt as a means to extend their cash to sustain their operations until the optimal public market opportunity arises.

        By virtue of the significant amount of capital required by both information technology companies and life science companies to complete their technology and market development cycle, we believe that venture debt will continue to play an increasing role as part of the financing strategy for these venture capital backed development-stage companies.

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Stages of Development of Venture-backed Companies

        Below is a typical development curve for a life science or information technology company reflecting the various points along the development curve where venture debt would be a reasonable financing solution:

Investment Criteria

        We have identified several criteria that we believe will prove important in achieving our investment objective with respect to prospective portfolio companies. These criteria provide general guidelines for our investment decisions. However, we caution you that not all of these criteria will be met by each prospective portfolio company in which we choose to invest.

        Portfolio Composition.    We generally invest in venture capital-backed emerging companies in either the information technology or life science industry. We seek to diversify our portfolio by including companies that range from an early stage (in which they consume cash for the development of technology) to a later-stage (in which they use cash to build a sales and business development organization to increase sales to a growing customer base).

        Continuing Support from One or More Venture Capital Holders.    We generally seek to invest in companies in which one or more established venture capital sponsors have previously invested and continue to make a contribution to the management of the business. We believe that established venture capital sponsors can serve as a committed partner and advisor and will assist their portfolio companies and their management teams in creating value.

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        Company Stage of Development.    While we invest in companies at various stages of development, we generally require that prospective portfolio companies be beyond the seed stage of development and have received at least their first institutional round of equity financing. We expect a prospective portfolio company to demonstrate its advancement of technology. The anticipated growth rate of a prospective portfolio company is a key factor in determining the value that we ascribe to any warrants or other equity securities that we may acquire in connection with making debt investments.

        Operating Plan.    We generally require that a prospective portfolio company, in addition to having sufficient access to capital to support leverage, demonstrate an operating plan capable of generating cash flows or the ability to raise the additional capital necessary to cover its operating expenses and service its debt. We generally expect that the enterprise value of a prospective portfolio company, plus cash on hand, should be sufficient to cover the principal balance of debt borrowed by such company. In addition, we generally expect that the amount of cash available to the prospective portfolio company is sufficient to cover more than six months of its anticipated expenses.

        Liquidation Value of Assets.    The prospective liquidation value of the assets collateralizing our loans is an important factor in our credit analysis. We emphasize both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such as intellectual property, networks and databases.

        Terms.    Although terms will vary based on the borrower and other conditions, our standard repayment term is between 24 and 48 months. The amortization schedule varies, but there is generally some form of an interest only period and, in some cases, a balloon payment at the end of the term. We also typically collect a commitment fee and may be entitled to a prepayment fee.

        Warrants.    We generally receive warrants having terms consistent with the most recent round of venture capital financing. We do not view the upside appreciation potential of warrants as a means to mitigate risk, but rather to ensure that the compensation we receive is appropriate for the level of risk being undertaken. We also often seek to receive rights to invest in a future round of a borrower's equity financing; such opportunities to invest are at our option and not an obligation.

        Experienced Management of Portfolio Companies.    We generally require that our portfolio companies have an experienced management team. We also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors.

        Exit Strategy.    Prior to making a debt investment that is accompanied by an equity-related security in a prospective portfolio company, we analyze the potential for that company to increase the liquidity of its equity through a future event that would enable us to realize appreciation in the value of our equity interest. Liquidity events typically include an IPO or a sale of the company.

Investment Process

        We believe that we are a leader in the venture lending industry and the depth and breadth of experience of our investment professionals in all aspects of venture lending exceeds that of many of our competitors. We have created an integrated approach to our loan origination, underwriting, approval and documentation process that effectively combines the skills of our professionals. This process allows us to move efficiently and quickly from our initial contact with a prospective client to the closing of a transaction while consistently maintaining our rigorous underwriting standards. After closing, we employ a "hands-on" portfolio management process which includes a proprietary ratings system and constant contact with our borrowers. During the process, several of our professionals become involved in the analysis, decision-making and portfolio management with respect to each potential lending opportunity.

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We believe that the high level of staff involvement in the various phases of our process allows us to minimize our credit risk while delivering superior service to our clients.

Our Lending Process

        Origination.    Our loan origination process begins with our industry-focused regional managing directors who are charged with identifying, contacting and screening our prospective clients. They meet with key decision makers and deal referral sources such as venture capitalists and senior executives within our target industries. We believe the Horizon brand and management team is well known within the venture capital community, as well as by many repeat entrepreneurs and board members. These broad relationships, which reach across the venture capital industry, give rise to most of our deal origination.

        The managing director will obtain review materials on the prospective client and from those materials, as well as other available information, determine whether it is appropriate for us to issue a term sheet. The managing director bases this decision to proceed on his or her experience in venture lending and the target industry, the competitive environment and the customer's needs and will often seek the counsel of our senior management and the underwriting team.

        Term Sheet.    If the managing director determines, after review and consultation with senior management, that the potential transaction meets our initial credit standards, we issue a term sheet to the potential portfolio company.

        The terms of the transaction are tailored to a borrower's specific funding needs while taking into consideration the market dynamics, quality of management team, the institutional equity investors involved and applicable credit criteria, which may include: borrower's existing cash resources, the development of its technology, and the anticipated timeline to the next round of equity financing.

        Underwriting.    Once the term sheet has been negotiated and executed and the prospective client has remitted a good faith deposit, the responsible managing director in conjunction with the underwriting team requests additional due diligence materials from the potential borrower and arranges for a due diligence visit.

        We request the following information as part of the underwriting process:

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Annual and interim financial information;



•

Capitalization tables showing details of equity raised and ownership;



•

Recent presentations to investors or board members covering the borrower's current status and opportunity;



•

Detailed business plan, including executive summary and market opportunity;



•

Detailed background on all members of management;



•

Articles and papers written about the company and its market;



•

Detailed forecast for the current and subsequent fiscal year including monthly cash forecast;



•

Information on competitors and the borrower's competitive advantage;



•

Marketing information on the borrower's products, if any;



•

Information on the intellectual property; and



•

Introduction to the company's scientific advisory board and industry thought leaders.

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        Due Diligence.    The due diligence process includes a formal visit to the client's location and interviews with the senior management team including the chief executive officer, chief financial officer, chief scientific or technology officer, principal marketing or sales professional and other key managers of the borrower. The process is extended to include contact with key analysts that affect the borrower's business, including analysts that follow the technology market, thought leaders in the information technology or life science industries and important customers or partners, if any. Outside sources of information are researched, including industry publications, scientific and market articles, Internet searches, publicly available information on competitors or competing technologies and information known to the underwriting team from their experience in the technology markets.

        A key element of the due diligence process is interviewing key existing investors in the company. Often the venture capital investors are also members of the board of directors. While these board member/investors are not independent sources of information, their support for management and prospective intention to support the borrower's further development are critical elements of our decision to lend.

        Investment Memorandum.    Upon completion of the due diligence process and review and analysis of all of the information provided by the borrower and obtained externally, the credit officer will prepare for approval an investment memorandum.

        The investment memorandum generally covers:

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Investment thesis;



•

Company and transaction overview;



•

How much of our investment is at risk;



•

Why this investment is worth the risk;



•

Risks and mitigants;



•

Loan description;



•

Company overview including market, competition, products, technology, sales pipeline, management, intellectual property, etc.;



•

Venture sponsorship;



•

Summary financial results;



•

Projections and cash forecasts, including company forecast and our potential downside scenario projections; and



•

Exit valuation.

        The investment memorandum is reviewed by the senior credit officer and submitted to the investment committee for approval.

        Approval.    Prior to the Restructuring, Drawbridge and D.B. Zwirn have veto rights with respect to transactions for Funding II and Funding III, respectively. Following the completion of the Restructuring, we will have an investment committee which will be delegated approval authority by our board of directors. A representative of D.B. Zwirn, one of our current investors, will be an officer of the Company and a member of the investment committee.

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        Opportunity Pipeline.    The following chart illustrates the selectivity of our loan approval process activity from our inception on May 2, 2003 to March 31, 2006.

        The dollar amounts and percentages at the left side of the chart represent the dollar amounts at each step and the percentage of screened prospects remaining at each step. The success rate is based on the percentage (based on dollar amount) of potential loans in the prior step that advanced to that step. Note that some loans were still under consideration as of March 31, 2006 and therefore are not included in the calculation of a success rate. Historical selectivity data may be different than future results.

        Loan Closing and Funding.    Approved investments are generally documented and closed by our in-house legal and loan administration staff. Loan documentation is based upon standard templates created by us for use in the venture debt market and are customized for each transaction to reflect the specific deal terms. The transaction documents will typically include a venture loan and security agreement, warrant agreement and applicable perfection documents, including Uniform Commercial Code financing statements, and, as applicable, may also include a landlord agreement, patent and trademark security grants, a subordination agreement and other standard agreements for commercial loans in the venture debt industry. Funding requires final approval by our general counsel, chief executive officer and chief financial officer and confirmation by the applicable senior credit officer that all of the terms of the approval have been met.

        Portfolio Management and Reporting.    We maintain communication with our portfolio companies in a number of ways. We contact portfolio companies for operational and financial updates at least quarterly by phone and perform annual onsite reviews; companies judged to have greater credit risk may be contacted on a monthly basis. All private companies are required to provide financial statements on a monthly basis. For public companies, we rely on the publicly reported quarterly financials. We also typically receive copies of bank and security statements, as well as any other information required to verify reported financials. This allows portfolio management to contact a company regarding any unexpected developments in the statements.

        We analyze and then rate the credit risk within our portfolio on a monthly basis. Companies are rated on a 1 through 4 scale, with 3 as the rating for our standard level of risk. A rating of 4 represents an improved and better credit quality. A rating of 2 or 1 represents a deteriorating credit quality and increasing risk. These investment ratings are generated internally, and we cannot guarantee that others would assign the same ratings to portfolio investments.

        Companies rated a 1 or 2 are monitored closely for adverse developments. We typically have regular contact with management, the board and the major equity holders of these companies to

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discuss strategic initiatives to correct the deterioration (for example, cost reductions, new equity issuance or strategic sale of the business).

        The table below describes each rating level:

        We assign ratings by evaluating the matrix of criteria to determine the rating most appropriate given all of the circumstances. We use whole numbers for ratings only. We assign a rating of 3 to newly funded deals, unless extraordinary circumstances require otherwise.

        The following table shows the distribution of our debt investments on the 1 to 4 investment rating scale at fair value as of December 31, 2005:

        The dollar weighted average rating of the portfolio was 3.03 on a weighted average basis as of December 31, 2005.

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Managerial Assistance

        As a business development company, we will offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance may involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We may receive fees for these services.

Competition

        We compete for investments with other business development companies and investment funds (including private equity funds), as well as traditional financial services companies such as commercial banks and other financing sources. We believe we compete effectively with these entities primarily on the basis of the experience, industry knowledge and contacts of our investment professionals, our responsiveness and efficient investment analysis and decision-making processes, our creative financing products and highly customized investment terms. We do not seek to compete primarily on the interest rates we offer and believe that some of our competitors make loans with rates that are comparable or lower than our rates. We believe that our expertise in financing emerging companies in the information technology and life science industries enables us to assess the value of intellectual property assets, evaluate the business prospects and operating characteristics of prospective portfolio companies and, as a result, identify investment opportunities that produce attractive risk-adjusted returns. For additional information concerning the competitive risks see "Risk Factors."

Employees

        As of March 31, 2006, we had 12 employees, including investment and portfolio management professionals, operations and accounting professionals, legal counsel and administrative staff.

Offices

        Our principal executive offices are located at 76 Batterson Park Road, Farmington, Connecticut 06032. We also have an office in Pleasant Hill, California.

Legal Proceedings

        We are not a party to any pending legal proceedings.

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PORTFOLIO COMPANIES

        The following table sets forth certain information as of December 31, 2005 regarding each portfolio company in which we had a debt or equity investment. The general terms of our loans and other investments are described in "Business—Our Investments." We offer to make available significant managerial assistance to our portfolio companies. In addition, we may receive rights to observe the board of directors meetings of our portfolio companies.