Good day, ladies and gentlemen. And thank you for standing-by. Welcome to the Hercules Technology Growth Capital Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded. I would now like to introduce your host for today’s presentation Mrs. Jessica Baron, ma'am please begin.

Thank you, operator and good afternoon everyone. On the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and myself, VP of Finance and Chief Financial Officer. Hercules third quarter 2014 financial results were released just after today’s market closed. They can be accessed from the Company’s Web site at www.htgc.com. We have arranged for a replay of the call at Hercules webpage or by using the telephone number and passcode provided in today’s earnings release. I would also like to call your attention to the Safe Harbor disclosures in our earnings release regarding forward-looking information. Actual financial results filed with the Securities and Exchange Commission may differ from these contained herein due to timing delays between the date of this release and in the confirmation and final audit results. In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including without limitation the risks and uncertainties, including the uncertainties surrounding the current market turbulence and other factors we identify from time-to-time in our filings with the Securities and Exchange Commission. Although, we believe that the assumptions on what these forward-looking statements are based are reasonable, any of the assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions also can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date hereof, and Hercules assumes no obligation to update these forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit the Web site, www.htgc.com. I’d now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO. Manuel?

Thank you Jessica and good afternoon and thank you everyone for joining us today. I am once again extremely pleased to report another outstanding quarter of quarterly performance of Hercules on all fronts. This achievement could not be realized if not for the dedication and the cohesive team of united workers and employees we have here who make this possible every quarter and every year. In addition to our employee’s meaningful contribution, our growing brand awareness as the largest BDC providing to the venture capital backed companies and our reputation as a strong financial partner and growing relationship with the top-tier venture capitalist and entrepreneurs who continue to drive deal flow to us is something we are much grateful for. We would like to thank you and thank these parties for their continued trust and confidence in Hercules as a source of capital provider for them. Q3 was a extremely busy quarter, on many fronts we continued to expand our franchise and market penetration I am still interested in striking a balance shortening these calls and making it better for investors and analysts to ask calls during the Q&A session. Many of the items we will cover today in this call are detailed in our earnings release and our 10-K so we’re going to once again attempt to shorten this call and try to not focus on everything we have stated in our earnings releases and dedicate more time for the question-and-answer session to make it more informative. I once again ask for our shareholders to provide feedback on these calls as I want to continuously change and improve these calls of the benefit for our shareholders and our investors and the analysts who follow us. Now back to the call. The agenda today will cover the following matters, a…

Thanks Manuel and thanks everyone for listening. I would like to remind everyone that we filed our 10-Q as well as earnings press release after the market closed today and I’ll briefly discuss our financial results for the third quarter of ’14. Turning to the operating results, we delivered total investment income or revenue of 37 million, a decrease of 9.8% when compared to the third quarter of ’13, the year-over-year decline was driven by the decrease in the weighted average loan portfolio outstanding and the mix of early pay-offs relative to the third quarter of ’13. The all-in effective yields on our debt investments during the third quarter was 16.7%, as Manuel mentioned down approximately 20 basis points relative to the previous quarter. The slight decrease again was due to the mix of portfolio companies that paid us off early in Q3 versus Q2, this is a function of the vintage of the early repayment the contextual prepayment penalty on the loans and the balance of unamortized fees for each investment and pay-off. Interest expense and loan fees were approximately 7.9 million during the third quarter of ’14, that’s compared to 8.7 million during the third quarter 2013. The year-over-year decrease is primarily attributed to the $34.8 million pay down of SBIC debentures that happened in the first quarter of ’14, the amortization of $34.5 million of asset-backed notes, since the third quarter of ’13 and due to the 34.1 million of convertible note redemptions as Manuel mentioned. Interest expense decreased by approximately $950,000 related to the settlement of the convertible note and these decreases were offset by the addition of approximately 1.1 million of interest and fees attributed to the 2024 notes issued in the third quarter of 2014. The weighted average cost of debt increased to 6.6%…

and:

(Operator Instruction) Our first question or comment comes from the line of Troy Ward from KBW. Your line is open.

KBW: :

Your first part of your question broke up so I am sorry I don’t know the context if you don’t mind asking again we didn’t hear it.

I'm sorry. You were talking about making changes to the overall platform over the next several quarters, some long term changes to Hercules and whether that includes any changes in the focus on the assets? KBW: I'm sorry. You were talking about making changes to the overall platform over the next several quarters, some long term changes to Hercules and whether that includes any changes in the focus on the assets?

No, no in fact there is absolutely zero interest in not focusing on the asset. It is much more important to focus on the growing capital needs of a lot of our companies more and more of our companies are continuously pulling us into offering revolvers inventory lines traditional ABL type financings in lieu of the banking community challenges going on out there we are being asked and pulled in that direction so those are some of the things we are talking about doing that we have been kind of teasing the market with as we’ve been exploring those opportunities that are historically lower in margin if you will but also lower in risk. So by adding the ability to tap the securitization market, for example, I’m able to now originate a lower yielding asset but maintain a nice spread in doing so. So that one of the things that we’re effectively doing is using that balance sheet much more intelligently to preserve spread but then offer additional new products or capital financing vehicles for our underlying portfolio companies.

Okay, and then similar to that, as we work a lot in the middle market, the regulatory pressures on banks is very evident. Could you speak to the regulatory pressures, potentially, on competitors in your market -- the tech banks? Do you see the tech banks being more aggressive? Do you see any regulatory changes coming that affect their ability to effectively participate in your markets? KBW: Okay, and then similar to that, as we work a lot in the middle market, the regulatory pressures on banks is very evident. Could you speak to the regulatory pressures, potentially, on competitors in your market -- the tech banks? Do you see the tech banks being more aggressive? Do you see any regulatory changes coming that affect their ability to effectively participate in your markets?

Yes all the above we are seeing a bloodbath of banks going after each other on credit that are typically sub $5 million range, it’s getting to the point of being very-very scary on how low each banks are lowing to go to each other on that pace the wonderful thing about that is because of the regulatory environment those same banks can’t do a large term loan to a cash flow negative company as well as an ABL line or line of credit of the same company and so we are definitely testing that threshold where I think banks having a $20 million-$25 million exposure to a cash flow negative company that is required subject around the venture capital dollars I think we are seeing a inability of banks to really fill that need and address that area in the market. But anything below 5 million is just horrific. If you are an asset the class originator looking to do $2 million to $4 million loans I feel terrible for you.

Are you seeing any new competition start to gravitate towards that upper level, that $20 million term note? Are there new buckets of capital starting to focus on that market yet? KBW: Are you seeing any new competition start to gravitate towards that upper level, that $20 million term note? Are there new buckets of capital starting to focus on that market yet?

No because low level market is even more sophisticated because to quote my mother-in-law, Big deals, big problems; little deals, small problems and so there is a big risk factor when you don’t know what you’re doing and start weighing into venture lending at a $20 million to $30 million level and you get it wrong in a matter 12 to 15 months you will realize you got it wrong and so the venture lending platform in the market is an asset class that typically affords to sell through the partnership process where you want to start small too big and if you want to dare to be big early on my answer is I have some companies I want to show you.

Okay. And then, I know, it’s one more for me. Historically, or more recently, I guess, you’ve talked about sectors that you stay away from. If I recall, clean tech is one of those. What are you seeing in that particular slice of the market, especially considering the energy volatility that we’ve seen in, call it the last 6 months? KBW: Okay. And then, I know, it’s one more for me. Historically, or more recently, I guess, you’ve talked about sectors that you stay away from. If I recall, clean tech is one of those. What are you seeing in that particular slice of the market, especially considering the energy volatility that we’ve seen in, call it the last 6 months?

I wouldn’t say that Hercules is out or does not care about the energy sector that’s not necessarily at all remotely accurate. I think that what we said openly is that I think that the energy space to your point is going through a bit of an adjustment right now and I think with the volatility of oil now trading as low as $70-$85 a barrel whatever you want to call it and OPEC now finally making a realization they may start putting back production little bit. I think that people start getting quite panicky when you're looking at alternative energy space and loosing oil anywhere floating below $70 a barrel people will get nervous and there are some pundits out there they are talking about oil will go to $45 a barrel, I don’t share that view. But the clean energy industries more than just a renewals and more than just simply looking at bio-fuels or new plastics it has to do with enabling semiconductor technology, enabling screen, in flexible screens, organic screens for iPod, iPhones those kind of things. So it’s a much broader industry and that’s one that we are actually because of our balance sheet and lack of competition in an energy area, we’re seeing a fairly growing pipeline of opportunities there. And we are absolutely going to capitalize on the energy, the clean energy industry renewal. So that’s an area that we are actively involve with, an area that has is still challenge and we like to see more capital thing invested in as communications, networking infrastructure those are areas that I think are still under served that I would like to see more capital flow, that’s an area of interest. The medical device category has gone through some challenging times of like for regulatory point of view and so I think that the medical device industry is probably near-term challenged, but I think there is still has some interesting opportunities there, but you got to be very-very judicious on some of the devices that you're looking at.

Thank you. Our next question or comment comes from the line of Ron Jewsikow from Wells Fargo Securities. Your line is open

Yes, thanks for taking my questions. Just a quick question on your 2019 bonds, could you remind us kind of what call protection is there on those as they sit today? Because we noticed that you were able to price 10-year bonds tighter than the current rate on those. Wells Fargo Securities: Yes, thanks for taking my questions. Just a quick question on your 2019 bonds, could you remind us kind of what call protection is there on those as they sit today? Because we noticed that you were able to price 10-year bonds tighter than the current rate on those.

Those are the 10-year bonds.

No, he is asking about the seven-year bond.

2019, sorry, yes. Wells Fargo Securities: 2019, sorry, yes.

We have so many bonds now even I am getting confused with that.

But don’t worry I am not.

So the tranching of the seven-year bonds the ones that are done in 2012. Those are a three-year non-call and they start coming off the call projection in April and I think there is three tiers April, May or April, June, September I believe is when the call feature starts running off on those.

Right, about 85 million of the call protections come off in April.

Okay. And then shifting focus a little bit towards the ABL investments, given that they carry lower yields and probably lower risk, should we expect more funding on the Union Bank facility you just, I believe, lowered your pricing on? Wells Fargo Securities: Okay. And then shifting focus a little bit towards the ABL investments, given that they carry lower yields and probably lower risk, should we expect more funding on the Union Bank facility you just, I believe, lowered your pricing on?

Yes, we definitely view the ability of the ABL assets are one that lend themselves much more to a bank financing structure. And ABL assets, in all earnest we just started a process late in Q2, I mean it shouldn’t take to take, to get a meaningful portfolio there it probably is going to take us a year to achieve like a $100 million, $150 million of ABL portfolio and yes there are lower yields, but as I said because of lower yields we can then match fund those against our bank lines and harvest that spread 300 to 500 basis points.

Yes, it makes total sense. And then just one housekeeping item. On the Dance pharma withdrawal, was that fundamental, or was that market-driven? Wells Fargo Securities: Yes, it makes total sense. And then just one housekeeping item. On the Dance pharma withdrawal, was that fundamental, or was that market-driven?

I refuse and nor will I ever speculate as to underlying portfolio companies will and what they went through to do the withdrawals, so that’s something entirely in a control of their Board of Directors and we have no say or perspective on that.

Thank you. Our next question or comment comes from the line of Chris York from JMP Securities. Your line is open.

I just wanted to touch on expenses a little bit. As you guys talked about in your prepared remarks, planning to continue some strategic changes, add maybe five to eight professionals. How should we think about your SG&A and operating expenses, I guess, going forward in 2015? JMP Securities: I just wanted to touch on expenses a little bit. As you guys talked about in your prepared remarks, planning to continue some strategic changes, add maybe five to eight professionals. How should we think about your SG&A and operating expenses, I guess, going forward in 2015?

Well, as we have always done and I am sure you're aware of our operating expenses will always lead revenue generation because it takes anywhere between six to nine months for a new originator and new hire to actually become productive, the first six months we are obsessively retraining or reconditioning to Hercules underwriting and so expenses will always lag revenues. That said, as I indicated in my opening remarks, we expect the hiring process to take probably nine to 15 months. So I think you may see that expenses marginally upward kind of ballpark here, $0.25 million to several million dollars per quarter as we dial in those new hires. But it's going to be only done as we may dial in two guys or two folks initially and as they become productive we’ll adopt two or three more in and we should step them in gradually not all at once.

Thank you. Our next question or comment comes from the line of Fin O'Shea from Raymond James. Your line is open.

Hi, guys thank you. Aside from the ABL, on just more generally with leverage, should the market continue to get more aggressive versus your expectations or even call it the minus 20% or 20 basis points a quarter, would you guys be willing to increase leverage to up your earnings profile? Raymond James: Hi, guys thank you. Aside from the ABL, on just more generally with leverage, should the market continue to get more aggressive versus your expectations or even call it the minus 20% or 20 basis points a quarter, would you guys be willing to increase leverage to up your earnings profile?

Clearly the answer is yes. If the debt capital markets are open and predictable I mean, one of the things that people forget, as our own underwriting because of our competitor our own personal capital raises become also equally competitive on the down side. So I would like investors being to focus on what is that NIM of the net interest margin of spread and that’s why I spend a lot of time looking at it preserving that because if our yields on the front-end are coming down or being compressed, our yields on the backend from a leverage point of view are equally going down as well. So it’s kind of the win-win. And so we intend to continue to capitalize the leverage in the balance sheet and pursuing additional debt financing transactions if and when those debt capital markets are attractive and open.

Okay, great. And just one more follow-up related to your general thoughts. We're seeing color here on a very robust VC market, but also very robust competition on the investing side, if you could just give us your thoughts on that? Raymond James: Okay, great. And just one more follow-up related to your general thoughts. We're seeing color here on a very robust VC market, but also very robust competition on the investing side, if you could just give us your thoughts on that?

Sure, there is absolutely no question that venture capitalists to venture capitalists are themselves seeing a pretty significant competition with each other and we want to jockeying to make a last run of equity capital investment in that next soon to be IPO pop or big IPO win out there. So with we are dealing in an environment right now which is very pro-entrepreneurs both from a debt capital provider point of view from themselves as well as from the equity capital provider themselves which leads to higher valuations for their own company. So if you are an entrepreneur this is a fantastic market to start a company in right now and build one.

Awesome and would you say it's a big positive, also, for the debt providers? Raymond James: Awesome and would you say it's a big positive, also, for the debt providers?

It is because one of the most things that we look for is a fast liquidity turnaround. So as we put capital in this company and achieve an IPO or M&A event that IPO capital comes back to us with the nice capital gains and we recycle that invest in another crop of new company. So it’s a good environment across the board.

Thank you. Our next question or comment comes from the line of Aaron Deer from Sandler O'Neill. Your line is open.

Manuel, I would like to hear about the competitive nature of the market. Can you maybe talk specifically about how that's affecting rates on new originations and I guess let's exclude the ABL stuff since we know that that's lower rate. But if you look, apples-to-apples, at credits that you're originating today versus a year ago, how much lower are the rates on those credits? Sandler O'Neill: Manuel, I would like to hear about the competitive nature of the market. Can you maybe talk specifically about how that's affecting rates on new originations and I guess let's exclude the ABL stuff since we know that that's lower rate. But if you look, apples-to-apples, at credits that you're originating today versus a year ago, how much lower are the rates on those credits?

So you would be fascinated by this analysis I just did earlier this week. I went back and looked at the interest rate on our transactions I think it was 8 or 10 quarters, and the most interesting revelation was, from an interest rate point of view it’s absolutely flat for almost a 10 year period of time while the toggle or the differences that you're seeing and manifesting themselves are more surrounding around terms and conditions so that may lead to longer only interest only period, different amortization schedules, different warrant coverages but the rates themselves the coupon themselves are pretty much static. We have not seen over the last 10 quarters I did analysis much changed in the coupon rates of our loans. We have certainly seen anywhere between on a fully burdened yield basis you have probably seen a change between 60 to 120 basis points when you kind of look at on apples-to-apples driven primarily from an OID compression as less warrants have been issued.

Are you characterizing what is then a higher level of risk that you're taking on the balance sheet, given the different terms and structure? Sandler O'Neill: Are you characterizing what is then a higher level of risk that you're taking on the balance sheet, given the different terms and structure?

Well I know you always like to look at risk that way. I think our risk profile is self evident by continuing historical performance. So the answer is I don’t think we are taking any more risk than we took 10 years ago seven years ago. So I think the risk profile of these companies one and the same and I don’t think it’s changed at all.

Aaron I think that the calibrating point there as mentioned on the call and the prepared remarks to that we have more milestones embedded into these commitments which we are making to these portfolio companies. So I would say from a risk perspective through the length that we look at these companies the risk is the same or have been improved as we have fine tuned our structuring of tranching out these investments.

And we are walking away from a lot more transactions that we probably had in a long-time. I think when you look at our approval rating from initial interested company to us approving it a year or two years ago we may have been in a 15%, 20% overall approval rating. I think today we are barely at 8% or 10% of those meaning for every 100 companies we look at we are only approving 8 to 10 of those while two years ago we were probably more like 12 to 15 of those companies as an example so our risk rating or risk approval process has gotten significantly tighter and more difficult.

So there’s other aspects to the credit that are actually getting better that offset maybe a longer IO period or something like that? Sandler O'Neill: So there’s other aspects to the credit that are actually getting better that offset maybe a longer IO period or something like that?

Absolutely one of the gaining items of your question is very important is, as previous caller asked as you see a higher level of predictability from an exit. Meaning that two or three years ago you may be forecasting an exit for that company either IPO or M&A that was three years out today you may be looking at a window that could be a short as 15 and 24 months for example. And getting a great excess to the capital market the other element of that has to do the with other the two prior callers with the robustness of the venture capital market having $37 billion of invested means of venture community it is pretty much flushed with capital and therefore that capital helps us get our debt repaid and mitigate any downside risk at our companies specially underwrite the right ones.

Okay. And then you guys had some nice net realized gains the past couple of quarters. The unrealized losses, though, have been there as well. And I just want to get a little color on that. Is that mostly tied to the non-accruals that you have currently? Or are there any specific warrant positions or maybe public companies where there are some marks that are being taken there? Sandler O'Neill: Okay. And then you guys had some nice net realized gains the past couple of quarters. The unrealized losses, though, have been there as well. And I just want to get a little color on that. Is that mostly tied to the non-accruals that you have currently? Or are there any specific warrant positions or maybe public companies where there are some marks that are being taken there?

In the warrant side you can look at our scheduled investment as well in the previous quarter. We all know that there was a lot of volatility around the measurement date of 930. You’ll see that some of our holdings in some of the portfolio companies that we have in the life science basis have to appreciate a period of good they were a few loans that we did take some impairments on the current on cash pay et cetera. They’re just coming up on some pretty critical fund raising milestones for those particular companies. And that it should be just both to the depreciation we booked for the quarter, but also as a remainder when we do have a realized gain there was of $4 million slipping out of unrealized depreciation. So we had to book to booking the realized gain so a part of that really just in effectible keeping yes.

Aaron as you know, we have got great lengths in our earnings to have this table that Jessica has really honed in on over the last couple of years which is quite helpful. And you’ll see that collateral based impairment meaning trouble credit impairment is only two point to actually the loan itself is only 2.1 million. The total collateral impairment is $2.6 million of that. So we got a great length to make sure that investors are able to have a very high level of transparency you will see in this table that shows you the level one and two assets versus level three assets that are impaired on a fair value basis as opposed to credit related.

Thank you. Our next question or comment comes from the line of Christopher Nolan from MLV & Company. Your line is open.

I’ll be really quick here. Does the strong IPO and M&A market impact your portfolio growth outlook for 2015 as people start thinking about using equity as an alternative to venture debt? MLV: I’ll be really quick here. Does the strong IPO and M&A market impact your portfolio growth outlook for 2015 as people start thinking about using equity as an alternative to venture debt?

Chris you will be surprised with my comment. It’s actually the opposite of that because if you were an entrepreneur and you believe that you can start your company six months from now or a year from now at a higher valuation. The last thing to do is take an equity round today. So what is going on is when you have a very robust M&A and IPO market demand for debt actually increases quite dramatically which is why you’re seeing our portfolio or demand for capital from us has gone up so dramatically as entrepreneurs all want to preserve ownership with our company and anticipation of an exit or an exit occurring in six, 12, nine, 18 months for now that’s important. So what we go out of our way to do is we are not there to compete with venture capital dollars or venture capital partners. So we want to just compliment or supplement those equity dollars so we work diligently both the entrepreneurs and the venture capitalists to find their right balance but yes in a very robust exit market debt demand goes to the roof.

Great and my follow-up is given the robust, or developing venture market, any update to the realized gains that you guys gave guidance on earlier in the year? I believe that you gave guidance of $20 million to $30 million for 2014. And just given the strong market trends in the venture market, wonder whether you can give any updated color on that? MLV: Great and my follow-up is given the robust, or developing venture market, any update to the realized gains that you guys gave guidance on earlier in the year? I believe that you gave guidance of $20 million to $30 million for 2014. And just given the strong market trends in the venture market, wonder whether you can give any updated color on that?

Sure one of the few things to realize is that often times when a company goes public we may be subject to what’s called a universal banker the investment bank lock up meaning you haven’t lockup and so we may be frozen from selling. So sensibly any idea that takes place in Q4 we will not be able to monetize that because we’re going to be locked up but slightly through Q1 of 2015. So you have that phenomenon to deal with. So a lot of the harvesting that you may see occurs in Q4 just so happens to be our public holdings that we have today is those are freely available to trace assuming that we hit the threshold venture valuation that we think is appropriate. So most of that gain is going to come in the form of those pre-existing public companies we have already today.

(Operator Instructions)

Howard I think we are ready to do the closing comments, and I think we're done. Or do you have anybody else in the queue?

I am sure no additional audio comments at this time, sir.

So let me make the closing comments, then. Thank you everybody and thank you operator for joining us today. We look forward to meeting with investors over the next couple of weeks. We are going to be in various conferences on the East Coast throughout the month of November. Feel free, you can look at those conferences on our Web site if you like to meet with us, we have availability, more than happy to meet with our investors at any point of time. Feel free to contact our Investor Relations department. And again thank you for being a shareholder of Hercules. And we look forward to our conference call on the fourth quarter. Thank you everybody.