Horizon Technology Finance Corp. (HRZN) recently began trading at a discount to net asset value, creating an entry point into the BDC space for investors, says Casey Alexander, Senior Vice President at Gilford Securities Incorporated. HRZN is a venture-debt business, and the company invests in businesses that have already attracted capital from investors like IBM Ventures and Kleiner Perkins.
“We are actively helping investors accumulate a position in Horizon Technology Finance as we speak. We’re talking to investors on a regular basis about increasing their exposure to Horizon Technology Finance because we believe that at the current price with a yield, a current yield of 10%, that when it hopefully repeats its history and trades back towards net asset value in excess of $16 that we will receive the 12% current yield and 12% to 15% appreciation, thus giving us a total return of something between 20% and 30%, an above-average total rate of return for our investors,” Alexander said.
Horizon Technology Finance provides a little slice of debt on the back end of venture capital deals that involve large capital investors for working capital, says Alexander, which in his opinion partially protects the investment since there are large amounts by the likes of IMB Ventures and Kleiner Perkins. The deals are more diversified too, he says.
“In a business development company with a market cap of $140 million or so, their deals are cut into 4, 5, 6, 7 million dollar slices. Also, venture debt deals tend to amortize or pay down faster than the average business development company middle-market deal does, so the overall risk exposure to each loan declines fairly quickly over the life of the loan, which in general is only four to five years to begin with,” Alexander said.