This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MARCH 18, 2015

Filed pursuant to Rule 497
File No. 333-178516

PRELIMINARY PROSPECTUS SUPPLEMENT
(to Prospectus dated July 2, 2014)

2,380,000 Shares

Horizon Technology Finance Corporation

Common Stock



 

We are offering for sale 2,000,000 shares of our common stock and the selling stockholder, Compass Horizon Partners, LP, is offering 380,000 shares of our common stock. These shares are being offered at a discount from our most recently determined net asset value per share of $14.36 pursuant to the authority granted by our common stockholders at a special meeting of stockholders held on January 22, 2015.

We cannot issue shares of our common stock below net asset value unless our Board of Directors determines that it would be in our and our stockholders’ best interests to do so. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. See “Risk Factors” and “Sales of Common Stock Below Net Asset Value” of this prospectus supplement.

We are a non-diversified, closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. We are externally managed by Horizon Technology Finance Management LLC, a registered investment adviser under the Investment Advisers Act of 1940, as amended. Our investment objective is to maximize our investment portfolio’s return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We make secured debt investments to development-stage companies in the technology, life science, healthcare information and services and cleantech industries.

Our common stock is listed on the NASDAQ Global Select Market under the symbol “HRZN”. The last reported closing price for our common stock on March 17, 2015 was $14.29 per share. The net asset value per share of our common stock at December 31, 2014 (the last date prior to the date of this prospectus supplement on which we determined net asset value) was $14.36.

Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value. This risk is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade above, at or below net asset value. Investing in our common stock involves a high degree of risk and should be considered highly speculative. See “Risk Factors” beginning on page S-12 of this prospectus supplement and page 19 of the accompanying prospectus to read about factors you should consider, including the risk of leverage and dilution, before investing in our common stock.

This prospectus supplement and the accompanying prospectus contain important information you should know before investing in our common stock. Please read them before you invest and keep them for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the SEC. We maintain a website at www.horizontechnologyfinancecorp.com and make all of our annual quarterly and current reports, proxy statements and other publicly filed information available free of charge on or through our website. This information is also available free of charge by contacting us at 312 Farmington Avenue, Farmington, Connecticut 06032, Attention: Investor Relations, or by calling us collect at (860) 676-8654. The SEC also maintains a website at http://www.sec.gov that contains such information. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus.

   
  Per share   Total
Public offering price   $            $         
Underwriting discounts and commissions   $     $  
Proceeds, before expenses, to us(1)   $     $  
Proceeds, before expenses, to the selling stockholder(2)   $     $  

(1) Before deducting offering expenses payable by us related to this offering, which we estimate will be approximately $100,000.
(2) The selling stockholder will pay the underwriting discounts and commissions in connection with the shares being offered by the selling stockholder in this offering.

The underwriters have the option to purchase from us up to an additional 357,000 shares of common stock at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus supplement, to cover overallotments, if any. If the overallotment option is exercised in full, the total public offering price will be $    , the total underwriting discounts and commissions will be $    , and the total proceeds to us, before deducting estimated offering expenses payable by us of $100,000, will be $    .

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

The underwriters expect to deliver the shares on or about March   , 2015.

Book-Running Managers

 
Keefe, Bruyette & Woods
A Stifel Company
  Oppenheimer & Co.

Co-Lead Managers

 
Sterne Agee   Wunderlich

Prospectus supplement dated March   , 2015


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 
  Page
About This Prospectus Supplement     iii  
Cautionary Note Regarding Forward-Looking Statements     iv  
Prospectus Supplement Summary     S-1  
The Offering     S-6  
Fees and Expenses     S-9  
Risk Factors     S-12  
Use of Proceeds     S-15  
Capitalization     S-16  
Sales of Common Stock Below Net Asset Value     S-17  
Price Range of Common Stock     S-22  
Selling Stockholder     S-23  
Selected Consolidated Financial and Other Data     S-24  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     S-25  
Underwriting     S-39  
Legal Matters     S-43  
Independent Registered Public Accounting Firm     S-43  
Available Information     S-43  
Index to Consolidated Financial Statements     SF-1  

PROSPECTUS

 
  Page
About this Prospectus     1  
Prospectus Summary     2  
Offerings     9  
Fees and Expenses     13  
Selected Consolidated Financial and Other Data     16  
Risk Factors     19  
Cautionary Note Regarding Forward-Looking Statements     48  
Use of Proceeds     49  
Price Range of Common Stock and Distributions     50  
Ratio of Earnings to Fixed Charges     52  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     53  
Senior Securities     68  
Business     69  
Portfolio Companies     79  
Management     86  
Certain Relationships and Related Transactions     94  
Our Advisor     95  

i


 
 

TABLE OF CONTENTS

 
  Page
Investment Management and Administration Agreements     96  
Control Persons and Principal Stockholders     103  
Determination of Net Asset Value     105  
Dividend Reinvestment Plan     107  
Description of Securities That We May Issue     109  
Description of Common Stock That We May Issue     110  
Description of Preferred Stock That We May Issue     115  
Description of Subscription Rights That We May Issue     117  
Description of Debt Securities That We May Issue     119  
Description of Warrants That We May Issue     130  
Shares Eligible for Future Sale     132  
Selling Stockholders     133  
Regulation     135  
Brokerage Allocations and Other Practices     140  
Plan of Distribution     141  
Material U.S. Federal Income Tax Considerations     144  
Custodian, Transfer Agent, Dividend Paying Agent and Registrar     152  
Legal Matters     152  
Independent Registered Public Accounting Firm     152  
Where You Can Find More Information     153  
Index to Consolidated Financial Statements     F-1  

ii


 
 

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS SUPPLEMENT

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We, the selling stockholder and the underwriters have not authorized any other person to provide you with different information from that contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any shares of our 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 contained in this prospectus supplement and the accompanying prospectus is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of our common stock. This prospectus supplement supersedes the accompanying prospectus to the extent it contains information different from or in addition to the information in that prospectus.

This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of common stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more information about the common stock we may offer from time to time. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. You should read this prospectus supplement and the accompanying prospectus together with the additional information described under the heading “Available Information” in this prospectus supplement before investing in our common stock.

iii


 
 

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to factors identified elsewhere in this prospectus supplement and the accompanying prospectus, including the “Risk Factors” sections of this prospectus supplement and the accompanying prospectus, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

our future operating results, including the performance of our existing debt investments and warrants;
the introduction, withdrawal, success and timing of business initiatives and strategies;
changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;
the relative and absolute investment performance and operations of our Advisor;
the impact of increased competition;
the impact of investments we intend to make and future acquisitions and divestitures;
the unfavorable resolution of legal proceedings;
our business prospects and the prospects of our portfolio companies;
the impact, extent and timing of technological changes and the adequacy of intellectual property protection;
our regulatory structure and tax status;
the adequacy of our cash resources and working capital;
the timing of cash flows, if any, from the operations of our portfolio companies;
the impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy;
the ability of our portfolio companies to achieve their objective;
our ability to cause a subsidiary to become a licensed Small Business Investment Company;
the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our Advisor;
our contractual arrangements and relationships with third parties;
our ability to access capital and any future financings by us;
the ability of our Advisor to attract and retain highly talented professionals; and
the impact of changes to tax legislation and, generally, our tax position.

This prospectus supplement, the accompanying prospectus and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “plan,” “potential,” “project,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.

iv


 
 

TABLE OF CONTENTS

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. These forward-looking statements do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act of 1933, as amended, or the Securities Act, or Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. You should understand that, under Sections 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus supplement, the accompanying prospectus or in periodic reports we file under the Exchange Act.

v


 
 

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider before investing in our common stock. You should read this prospectus supplement and the accompanying prospectus carefully, including the information set forth under “Risk Factors,” “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements contained in this prospectus supplement and/or the accompanying prospectus.

Horizon Technology Finance Corporation, a Delaware corporation, was formed on March 16, 2010 for the purpose of acquiring, continuing and expanding the business of its wholly owned subsidiary, Compass Horizon Funding Company LLC, a Delaware limited liability company, which we refer to as “Compass Horizon,” raising capital in its initial public offering, or IPO, and operating as an externally managed business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Except where the context suggests otherwise, the terms “we,” “us,” “our” and “Company” refer to Horizon Technology Finance Corporation and its consolidated subsidiaries. In addition, we refer to Horizon Technology Finance Management LLC, a Delaware limited liability company, as “HTFM,” our “Advisor” or our “Administrator.”

Our Company

We are a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries, which we refer to collectively as our “Target Industries.” Our investment objective is to generate current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making secured debt investments, which we refer to as “Venture Loans,” to venture capital backed companies in our Target Industries, which we refer to as “Venture Lending.” We also selectively lend to publicly traded companies in our Target Industries. Venture Lending is typically characterized by (1) the making of a secured debt investments after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan.

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC, under the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected 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. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on our investment company taxable income and net capital gains that we distribute to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements.

From our inception through December 31, 2014, we funded 120 portfolio companies and invested $656.7 million in debt investments (including 70 debt investments, in the amount of $303.4 million, that have been repaid). As of December 31, 2014, our total debt investment portfolio consisted of 50 debt investments with an aggregate fair value balance of $199.2 million. As of December 31, 2014, 43.6%, or $86.9 million, of the fair value balance of our total debt investment portfolio was held through our 2013-1 Securitization. As of December 31, 2014, our net assets were $138.2 million, and all of our existing debt investments were secured by all or a portion of the tangible and intangible assets of the applicable portfolio company. The debt investments in our portfolio are generally not rated by any rating agency. If the individual debt investments in

S-1


 
 

TABLE OF CONTENTS

our portfolio were rated, they would be rated below “investment grade” because they are subject to many risks, including volatility, intense competition, short product life cycles and periodic downturns.

For the year ended December 31, 2014, our debt investments had a dollar-weighted annualized yield of 15.3% (excluding any yield from warrants). The warrants we receive from time to time when making loans to portfolio companies are excluded from the calculation of our dollar-weighted annualized yield because such warrants do not generate any yield since we do not receive dividends or other payments in respect of our outstanding warrants. We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors. As of December 31, 2014, our debt investments had a dollar-weighted average term of 42 months from inception and a dollar-weighted average remaining term of 31 months. In addition, we held warrants to purchase either common stock or preferred stock in 75 portfolio companies. As of December 31, 2014, substantially all of our debt investments had an original committed principal amount of between $2 million and $15 million, repayment terms of between 28 and 48 months and bore current pay interest at annual interest rates of between 9% and 13%.

For the year ended December 31, 2014, our total return based on market value was 8.2%. Total return based on market value is calculated as the change in the ending market value over the beginning of period price per share plus distributions paid per share during the period, divided by the beginning price.

Our advisor

Our investment activities are managed by our Advisor and we expect to continue to benefit from our Advisor’s ability to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate investments and manage our diversified portfolio of investments. In addition to the experience gained from the years that they have worked together both at our Advisor and prior to the formation by our Advisor, the members of our investment team have broad lending backgrounds, with substantial experience at a variety of commercial finance companies, technology banks and private debt funds, and have developed a broad network of contacts within the venture capital and private equity community. This network of contacts provides a principal source of investment opportunities.

Our Advisor is led by five senior managers, including its two co-founders, Robert D. Pomeroy, Jr., our Chief Executive Officer, and Gerald A. Michaud, our President. The other senior managers include Christopher M. Mathieu, our Senior Vice President and Chief Financial Officer, John C. Bombara, our Senior Vice President, General Counsel and Chief Compliance Officer, and Daniel S. Devorsetz, our Senior Vice President and Chief Credit Officer.

Our strategy

Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. To further implement our business strategy, we expect our Advisor to continue to employ the following core strategies:

Structured investments in the venture capital and private equity markets.  We make loans to development-stage companies within our Target Industries typically in the form of secured loans. The secured debt structure provides a lower risk strategy, as compared to equity investments, to participate in the emerging technology markets because the debt structures we typically utilize provide collateral against the downside risk of loss, provide return of capital in a much shorter timeframe through current-pay interest and amortization of principal and have a senior position to equity in the borrower’s capital structure in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private equity investments, our investment returns and return of our capital do not require equity investment exits such as mergers and acquisitions or IPOs. Instead, we receive returns on our debt investments primarily through regularly scheduled payments of principal and

S-2


 
 

TABLE OF CONTENTS

interest and, if necessary, liquidation of the collateral supporting the debt investment upon a default. Only the potential gains from warrants depend upon equity investments exits.
“Enterprise value” lending.  We and our Advisor take an enterprise value approach to the loan structuring and underwriting process. Enterprise value includes the implied valuation based upon recent equity capital invested as well as the intrinsic value of the applicable portfolio company’s particular technology, service or customer base. We secure our senior or subordinated lien position against the enterprise value of a portfolio company.
Creative products with attractive risk-adjusted pricing.  Each of our existing and prospective portfolio companies has its own unique funding needs for the capital provided from the proceeds of our Venture Loans. These funding needs include funds for additional development “runways,” funds to hire or retain sales staff or funds to invest in research and development in order to reach important technical milestones in advance of raising additional equity. Our loans include current-pay interest, commitment fees, end-of-term payments, or ETPs, pre-payment fees, success fees and non-utilization fees. We believe we have developed pricing tools, structuring techniques and valuation metrics that satisfy our portfolio companies’ financing requirements while mitigating risk and maximizing returns on our investments.
Opportunity for enhanced returns.  To enhance our debt investment returns, in addition to interest and fees, we obtain warrants to purchase the equity of our portfolio companies as additional consideration for making debt investments. The warrants we obtain generally include a “cashless exercise” provision to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrants in our portfolio companies has allowed us to participate in the equity appreciation of our portfolio companies, which we expect will enable us to generate higher returns for our investors.
Direct origination.  We originate transactions directly with technology, life science, healthcare information and services and cleantech companies. These transactions are referred to our Advisor from a number of sources, including referrals from, or direct solicitation of, venture capital and private equity firms, portfolio company management teams, legal firms, accounting firms, investment banks and other lenders that represent companies within our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which the funds it manages have invested.
Disciplined and balanced underwriting and portfolio management.  We use a disciplined underwriting process that includes obtaining information validation from multiple sources, extensive knowledge of our Target Industries, comparable industry valuation metrics and sophisticated financial analysis related to development-stage companies. Our Advisor’s due diligence on investment prospects includes obtaining and evaluating information on the prospective portfolio company’s technology, market opportunity, management team, fund raising history, investor support, valuation considerations, financial condition and projections. We seek to balance our investment portfolio to reduce the risk of down market cycles associated with any particular industry or sector, development-stage or geographic area. Our Advisor employs a “hands on” approach to portfolio management requiring private portfolio companies to provide monthly financial information and to participate in regular updates on performance and future plans.
Use of leverage.  We use leverage to increase returns on equity through our credit facility provided by Key Equipment Finance, or the Key Facility, through our 7.375% senior notes due 2019, or the 2019 Notes, and our $189.3 million securitization of secured loans, or the 2013-1 Securitization. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information about the Key Facility, 2013-1 Securitization and 2019 Notes. In addition, we may issue additional debt securities or preferred stock in one or more series in the future, the specific terms of which will be described in the particular prospectus supplement relating to that series.

S-3


 
 

TABLE OF CONTENTS

Market opportunity

We focus our investments primarily in four key industries of the emerging technology market: technology, life science, healthcare information and services and cleantech. The technology sectors we focus on include communications, networking, wireless communications, data storage, software, cloud computing, semiconductor, internet and media and consumer-related technologies. The life science sectors we focus on include biotechnology, drug delivery, bioinformatics and medical devices. The healthcare information and services sectors we focus on include diagnostics, medical record services and software and other healthcare related services and technologies that improve efficiency and quality of administered healthcare. The cleantech sectors we focus on include alternative energy, water purification, energy efficiency, green building materials and waste recycling. We refer to all of these companies as “technology-related” companies and intend, under normal market conditions, to invest at least 80% of the value of our total assets in such businesses.

We believe that Venture Lending has the potential to achieve enhanced returns that are attractive notwithstanding the high degree of risk associated with lending to development-stage companies. Potential benefits include:

interest rates that typically exceed rates that would be available to portfolio companies if they could borrow in traditional commercial financing transactions;
the debt investment support provided by cash proceeds from equity capital invested by venture capital and private equity firms;
relatively rapid amortization of principal;
senior ranking to equity and collateralization of debt investments to minimize potential loss of capital; and
potential equity appreciation through warrants.

We believe that Venture Lending also provides an attractive financing source for portfolio companies, their management teams and their equity capital investors, as it:

is typically less dilutive to the equity holders than additional equity financing;
extends the time period during which a portfolio company can operate before seeking additional equity capital or pursuing a sale transaction or other liquidity event; and
allows portfolio companies to better match cash sources with uses.

Competitive strengths

We believe that we, together with our Advisor, possess significant competitive strengths, including:

Consistently execute commitments and close transactions.  Our Advisor and its senior management and investment professionals have an extensive track record of originating, underwriting and managing Venture Loans. Our Advisor and its predecessor have directly originated, underwritten and managed more than 185 Venture Loans with an aggregate original principal amount over $1.1 billion since operations commenced in 2004.

Robust direct origination capabilities.  Our Advisor’s managing directors each have significant experience originating Venture Loans in our Target Industries. This experience has given each managing director a deep knowledge of our Target Industries and an extensive base of transaction sources and references.

Highly experienced and cohesive management team.  Our Advisor has had the same senior management team of experienced professionals since its inception. This consistency allows companies, their management teams and their investors to rely on consistent and predictable service, loan products and terms and underwriting standards.

Relationships with venture capital and private equity investors.  Our Advisor has developed strong relationships with venture capital and private equity firms and their partners.

S-4


 
 

TABLE OF CONTENTS

Well-known brand name.  Our Advisor has originated Venture Loans to more than 185 companies in our Target Industries under the “Horizon Technology Finance” brand.

Recent developments

On August 1, 2014, we entered into an amended and restated investment management agreement, or the Investment Management Agreement, with the Advisor, effective July 1, 2014. The amendments to Investment Management Agreement (i) removed cash and cash equivalents from gross assets when calculating the base management fee payable to the Advisor and (ii) placed a fee cap and deferral mechanism on the incentive fees based on income, if any, payable to the Advisor.

Stockholder Meeting

We held a special meeting of our stockholders on January 22, 2015. Our common stockholders voted to authorize us, with the approval of our Board of Directors, or our Board, to sell shares of our common stock at any time through January 21, 2016 at a price or prices below our then current net asset value per share in one or more offerings, subject to certain conditions, including limiting the number of shares issued in each offering to not more than 25% of our then outstanding common stock prior to each offering and limiting the sales price per share to not more than 15% below the then current net asset value per share.

Distributions

On March 6, 2015, our Board declared monthly distributions per share of our common stock, payable as set forth in the table below.

   
Record Dates   Payment Dates   Distributions Declared
March 20, 2015     April 15, 2015     $ 0.115  
April 20, 2015     May 15, 2015     $ 0.115  
May 20, 2015     June 15, 2015     $ 0.115  

Participants in this offering will not receive the distribution to be paid on April 15, 2015.

Company Information

Our administrative and executive offices and those of our Advisor are located at 312 Farmington Avenue, Farmington, Connecticut 06032, and our telephone number is (860) 676-8654. Our corporate website is located at www.horizontechnologyfinancecorp.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus.

S-5


 
 

TABLE OF CONTENTS

THE OFFERING

Common stock offered by us    
    2,000,000 shares
Common stock offered by selling stockholder    
    380,000 shares
Common stock outstanding prior to this offering    
    9,630,617 shares
Common stock to be outstanding after this offering    
    11,630,617 shares (excluding 357,000 shares of common stock issuable pursuant to the overallotment option granted to the underwriters).
Overallotment Option    
    357,000 shares
Use of proceeds    
    We will not receive any proceeds from the sale of shares of common stock sold by the selling stockholder.
    The net proceeds from this offering (excluding the underwriters’ overallotment option and before deducting estimated expenses payable by us of approximately $100,000) will be approximately $27.7 million based on an assumed public offering price of $14.29 (which was the last reported closing price of our stock on March 17, 2015), which includes underwriting discounts and commissions.
    We intend to use the net proceeds from this offering to make investments in portfolio companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. See “Use of Proceeds” in this prospectus supplement for more information.
Listing    
    Our common stock is traded on the NASDAQ Global Select Market under the symbol “HRZN.”
Dividend Reinvestment Plan    
    We have adopted a dividend reinvestment plan, or DRIP, for our stockholders. The dividend reinvestment plan is an “opt out” DRIP. As a result, distributions to our stockholders are automatically reinvested in additional shares of our common stock, unless a stockholder specifically “opts out” of the DRIP so as to receive cash distributions. Stockholders who receive distributions in the form of stock will be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash.
Distributions    
    We intend to continue making quarterly distributions to our stockholders. These distributions, if any, will be determined by our Board, from time to time.
Taxation    
    We have elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Accordingly, we generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders. To maintain our RIC tax treatment, we must meet specified source-of-income, distribution, asset diversification and other requirements.

S-6


 
 

TABLE OF CONTENTS

    Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a distribution declared prior to filing the final tax return related to the year which generated such taxable income. See “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.
Risk factors    
    See “Risk Factors” beginning on page S-12 of this prospectus supplement and beginning on page 19 of the accompanying prospectus for a discussion of risks you should carefully consider before deciding to invest in shares of our common stock.
Trading at a discount    
    Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value. We are generally able to issue and sell our common stock at a price below our net asset value per share when we have stockholder approval. The risk that our shares may trade at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares will trade above, at or below net asset value. See “Risk Factors” in this prospectus supplement and the accompanying prospectus and see “Sales of Common Stock Below Net Asset Value” in this prospectus supplement.
Investment Management Agreement    
    Under the Investment Management Agreement, subject to the overall supervision of our Board, our Advisor manages our day-to-day operations and provides investment advisory services to us. For providing these services, our Advisor receives a base management fee from us, paid monthly in arrears, at an annual rate of 2% of (i) our gross assets, including any assets acquired with the proceeds of leverage less (ii) assets consisting of cash and cash equivalents. Our Advisor has agreed to waive the base management fee relating to the proceeds raised in this offering, including any exercise of the overallotment option (to the extent such fee is not otherwise waived and regardless of the application of the proceeds) until the earlier to occur of (i) March 31, 2016 and (ii) the last day of the second consecutive calendar quarter in which our net investment income exceeds distributions declared on shares of our common stock for the applicable quarter.
    The Investment Management Agreement also provides that our Advisor may be entitled to an incentive fee under certain circumstances. The incentive fee has two parts, which are independent of each other, with the result that one part may be payable even if the other is not. Under the first part, subject to a “Fee Cap and Deferral Mechanism”, we will pay our Advisor quarterly in arrears 20% of the amount by which our accrued net income after operating expenses and excluding the effect of any realized capital gains and losses and any unrealized appreciation and depreciation or Pre-Incentive Fee Net Investment Income, for the quarter exceeds 1.75% (7% annualized) of our net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” feature.

S-7


 
 

TABLE OF CONTENTS

    The incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and will be expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income, or the Incentive Fee Look-back Period, commenced on July 1, 2014 and will increase by one quarter in length at the end of each of the 12 succeeding calendar quarters, after which time, the Incentive Fee Look-back period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap, or the Incentive Fee Cap, and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees, or collectively, the Incentive Fee Cap and Deferral Mechanism. The Incentive Fee Cap is equal to (a) 20.0% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. We only pay incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. Cumulative Pre-Incentive Fee Net Return during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.
    Under the second part of the incentive fee, we will pay our Advisor at the end of each calendar year 20% of our realized capital gains from October 28, 2010 through the end of that year, computed net of all realized capital losses and all unrealized depreciation on a cumulative basis through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee is not subject to any minimum return to stockholders. The Investment Management Agreement may be terminated by either party without penalty by delivering written notice to the other party upon not more than 60 days’ written notice. See “Investment Management and Administration Agreements — Investment Management Agreement” in the accompanying prospectus.

S-8


 
 

TABLE OF CONTENTS

FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary. The following table and example should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contain a reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in the Company.

 
Stockholder Transaction Expenses
        
Sales Load (as a percentage of offering price)     3.00 %(1) 
Offering Expenses (as a percentage of offering price)     0.35 %(2) 
Dividend Reinvestment Plan Fees     (3) 
Total Stockholder Transaction Expenses (as a percentage of offering price)     3.35 % 
Annual Expenses (as a Percentage of Net Assets Attributable to Common Stock)(4)
        
Base Management Fee     2.95 %(5) 
Incentive Fee Payable Under the Investment Management Agreement     1.81 %(6) 
Interest Payments on Borrowed Funds     2.89 %(7) 
Other Expenses (estimated for the current fiscal year)     2.17 %(8) 
Acquired Fund Fees and Expenses     0.00 %(9) 
Total Annual Expenses (estimated)     9.82 %(5)(10) 

(1) Represents the underwriting discounts and commissions with respect to the shares sold by us in this offering.
(2) The offering expenses of this offering borne by us are estimated to be approximately $100,000. Offering expenses as a percentage of offering price is based on an assumed public offering price of $14.29 (which was the last reported closing price of our shares on March 17, 2015). No incremental offering expenses are expected to be incurred by us as a result of the shares offered by the selling shareholder in this offering. If the underwriters exercise their overallotment option in full, the offering expenses borne by us (as a percentage of the offering price) will be approximately 0.30%.
(3) The DRIP expenses are included in “Other Expenses” in the table. See “Dividend Reinvestment Plan” in the accompanying prospectus.
(4) Net Assets Attributable to Common Stock equals estimated average net assets for the current fiscal year and is based on our net assets at December 31, 2014 and includes the net proceeds of the offering estimated to be received by the Company.
(5) Our base management fee under the Investment Management Agreement is based on our gross assets, less cash and cash equivalents, which includes assets acquired using leverage, including any leverage disclosed in the accompanying prospectus, and is payable monthly in arrears. The management fee referenced in the table above is based on our gross assets, less cash and cash equivalents, of $214 million as of December 31, 2014 and includes net proceeds of the offering, after the net proceeds have been invested in portfolio companies, and $25 million of assets estimated to be acquired in the current fiscal year using leverage. See “Investment Management and Administration Agreements — Investment Management Agreement” in the accompanying prospectus. In addition, our Advisor has agreed to waive its base management fee relating to the proceeds raised in this offering, including any exercise of the overallotment option (to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised) until the earlier to occur of (i) March 31, 2016 and (ii) the last day of the second consecutive calendar quarter in which our net investment income exceeds distributions declared on shares of our common stock for the applicable quarter.
(6) Our incentive fee payable under the Investment Management Agreement consists of two parts:

The first part, which is payable quarterly in arrears, subject to a “Fee Cap and Deferral Mechanism,” equals 20% of the excess, if any, of our “Pre-Incentive Fee Net Investment Income” over a 1.75% quarterly (7% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our Advisor receives no incentive fee until

S-9


 
 

TABLE OF CONTENTS

our net investment income equals the hurdle rate of 1.75% but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, our Advisor will receive 20% of our Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply. The first part of the incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash.

The second part of the incentive fee equals 20% of our Incentive Fee Capital Gains, if any. Incentive Fee Capital Gains are our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee is payable, in arrears, at the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date). For a more detailed discussion of the calculation of this fee, see “Investment Management and Administration Agreements — Investment Management Agreement” in the accompanying prospectus.

The incentive payable to our Advisor represents our estimated annual expense incurred under the first part of the incentive fee payable under the Investment Management Agreement over the next twelve months. As of December 31, 2014, our cumulative realized capital gains and unrealized capital appreciation did not exceed our cumulative realized capital losses and unrealized capital depreciation. Given our strategy of investing primarily in Venture Loans, which are fixed-income assets, we believe it is unlikely that our cumulative realized capital gains and unrealized capital appreciation will exceed our cumulative realized capital losses and unrealized capital depreciation in the next twelve months. Consequently, we do not expect to incur any Incentive Fee Capital Gains during the next twelve months. As we cannot predict the occurrence of any capital gains from the portfolio, we have assumed no Incentive Fee Capital Gains.

(7) Interest payments on borrowed funds represent our estimated annual interest payments on borrowed funds based on current debt levels as adjusted for projected increases in debt levels over the next twelve months.
(8) Includes our overhead expenses, including payments under the Administration Agreement, based on our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement. See “Investment Management and Administration Agreements — Administration Agreement” in the accompanying prospectus. “Other Expenses” are based on estimated amounts to be incurred on an annual basis.
(9) Amount reflects our estimated expenses of the temporary investment of offering proceeds in money market funds pending our investment of such proceeds in portfolio companies in accordance with the investment objective and strategies described in this prospectus supplement and the accompanying prospectus.
(10) “Total Annual Expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We 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 (defined as total assets less indebtedness and after taking into account any incentive fees payable during the period), rather than the total assets, including assets that have been funded with borrowed monies.

S-10


 
 

TABLE OF CONTENTS

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. 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 less than those shown. In calculating the following expense amounts, we have assumed that our annual operating expenses remain at the levels set forth in the table above.

       
  1 Year   3 Years   5 Years   10 Years
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
  $ 95.83     $ 273.87     $ 435.15     $ 775.06  

The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or lesser than those shown.

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 less than 5%. The incentive fee under the Investment Management Agreement is unlikely to be significant assuming a 5% annual return and is not included in the example. This illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher. If the 5% annual return were derived entirely from capital gains, you would pay expenses on a $1,000 investment of $88.39, $254.64, $407.80 and $739.97 over periods of one year, three years, five years and ten years, respectively. See “Investment Management and Administration Agreements — Investment Management Agreement — Examples of Incentive Fee Calculation” in the accompanying prospectus for additional information regarding the calculation of incentive fees.

In addition, while the example assumes reinvestment of all dividends and other distributions at net asset value, participants in our DRIP receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution. This price may be at, above or below net asset value. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our DRIP.

S-11


 
 

TABLE OF CONTENTS

RISK FACTORS

Investing in our common stock involves a number of significant risks. Before you invest in our common stock, you should be aware of various risks, including those described below and those set forth in the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our common stock. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, you may lose all or part of your investment. The risk factors described below, together with those set forth in the accompanying prospectus, are the principal risk factors associated with an investment in our common stock as well as those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.

Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or securities to subscribe for or convertible into shares of our common stock.

At a special meeting of stockholders, our stockholders approved a proposal designed to allow us to access the capital markets in a way that we would otherwise be unable to as a result of restrictions that, absent stockholder approval, apply to BDCs under the 1940 Act. Specifically, our stockholders have authorized us to sell shares of our common stock at any time through January 21, 2016 at a price below the then current net asset value per share in one or more offerings, subject to certain conditions, including limiting the number of shares available for issuance to no more than 25% of our then outstanding common stock and limiting the sales price per share to no more than 15% below the then current net asset value per share. Any decision to sell shares of our common stock below its then current net asset value per share is subject to the determination by our Board that such issuance is in our and our stockholders' best interests.

The issuance or sale by us of shares of our common stock at a discount to net asset value poses a risk of dilution to our stockholders. In particular, stockholders who do not purchase additional shares at or below the discounted price in proportion to their current ownership will experience an immediate decrease in net asset value per share (as well as in the aggregate net asset value of their shares if they do not participate at all). These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets, potential earning power and voting interests from such issuance or sale. In addition, such sales may adversely affect the price at which our common stock trades.

Further, if our current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering is at, above or below the then current net asset value per share, their voting power will be diluted. For additional information and hypothetical examples of these risks, see “Sales of Common Stock Below Net Asset Value” in this prospectus supplement.

Pending legislation may allow us to incur additional leverage.

As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Recent legislation introduced in the U.S. House of Representatives, if eventually passed, would modify this section of the 1940 Act and increases the amount of debt that BDCs may incur by modifying the asset coverage requirement from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase.

S-12


 
 

TABLE OF CONTENTS

We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions.

Our business is highly dependent on the Advisor and its affiliates’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
events arising from local or larger scale political or social matters, including terrorist acts; and
cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders.

There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time and, a portion of distributions paid to you may be a return of capital.

We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. 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. Our ability to pay distributions might be adversely affected by the impact of one or more risk factors described in this report. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. All distributions will be paid at the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with BDC regulation and such other factors as our Board may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, the amount available for distribution could be reduced.

On an annual basis, we must determine the extent to which any distributions we made were paid out of current or accumulated earnings, recognized capital gains or capital. Distributions that represent a return of capital (which is the return of your original investment in us, after subtracting sales load, fees and expenses directly or indirectly paid by you) rather than a distribution from earnings or profits, reduce your basis in our stock for U.S. federal income tax purposes, which may result in higher tax liability when the shares are sold, even if they have not increased in value or have lost value.

If we make loans to borrowers or acquire loans that contain deferred payment features, such as loans providing for the payment of portions of principal and/or interest at maturity, this could increase the risk of default by our borrowers.

Our investments with deferred payment features, such as debt investments providing for ETPs, may represent a higher credit risk than debt investments requiring payments of all principal and accrued interest at regular intervals over the life of the debt investments. For example, even if the accounting conditions for income accrual were met during the period when the obligation was outstanding, the borrower could still default when our actual collection is scheduled to occur upon maturity of the obligation. The amount of ETPs due under our investments having such a feature currently represents a small portion of the applicable borrowers’ total repayment obligations under such investments. However, deferred payment arrangements increase the incremental risk that we will not receive a portion of the amount due at maturity. Additionally, because investments with a deferred payment feature may have the effect of deferring a portion of the borrower’s payment obligation until maturity of the debt investment, it may be difficult for us to identify and

S-13


 
 

TABLE OF CONTENTS

address developing problems with borrowers in terms of their ability to repay us. Any such developments may increase the risk of default on our debt investments by borrowers.

In addition, debt investments providing for ETPs are subject to the risks associated with debt investments having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants). See “We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash” in the accompanying prospectus.

Sales in the public market of substantial amounts of our common stock by the selling stockholder may have an adverse effect on the market price of our common stock, and the registration of a substantial amount of insider shares, whether or not actually sold, may have a negative impact on the market price of our common stock.

Sales of substantial amounts of our common stock, or the availability of such common stock for sale, whether or not actually sold, could adversely affect the prevailing market price of 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.

Comments from current and future SEC staff review of our SEC filings could lead to changes in our disclosures compared to the disclosures in this prospectus supplement and the accompanying prospectus.

We have recently received correspondence from the staff of the SEC relating to one of our filings. We have not yet engaged in communications and correspondence with the SEC staff in relation to their comments, and as a consequence as of the date of this prospectus supplement, we still have outstanding comments from the SEC staff. While we have tried to be responsive to the SEC comments received which we believe are applicable to this prospectus supplement and the accompanying prospectus and while we also believe that none of the SEC comments will materially impact our disclosures in the prospectus supplement and accompanying prospectus, we may receive additional comments from the SEC staff which may relate to information contained in this prospectus supplement and the accompanying prospectus. Such comments may require that we amend or supplement our disclosures in a way which is not reflected in this prospectus supplement and the accompanying prospectus.

S-14


 
 

TABLE OF CONTENTS

USE OF PROCEEDS

We estimate that the net proceeds from the sale of 2,000,000 shares of common stock offered by us pursuant to this prospectus supplement will be $27.6 million (or $32.6 million if the underwriters fully exercise their overallotment option), based on an assumed public offering price of $14.29 (which was the last reported closing price of our common stock on March 17, 2015) after deducting the underwriting discounts and commissions and estimated offering expenses of $100,000 (none of which are attributable to shares offered by the selling stockholder) payable by us. We will not receive any proceeds from the sale of shares of our common stock offered by the selling stockholder pursuant to this prospectus supplement.

We intend to use the net proceeds from this offering to make investments in portfolio companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. We estimate that it will take up to six months for us to substantially invest the net proceeds of any offering made pursuant to this prospectus supplement, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurances that we will be able to achieve this goal. Pending such use, we will invest the remaining net proceeds of this offering primarily in cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less from the date of investment. These temporary investments may have lower yields than our other investments and, accordingly, may result in lower distributions, if any, during such period. See “Regulation — Temporary Investments” in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.

S-15


 
 

TABLE OF CONTENTS

CAPITALIZATION

The following table sets forth:

our actual capitalization as of December 31, 2014; and
our capitalization on an as-adjusted basis giving effect to the sale of 2,000,000 shares of our common stock by us in this offering (assuming no exercise of the underwriters’ overallotment option) based on a public offering price of $14.29 per share, which was the last reported closing price of our common stock on March 17, 2015, less estimated underwriting discounts and commissions of $857,400 and estimated offering expenses payable by us of $100,000.

This table should be read in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included in this prospectus supplement and the accompanying prospectus.

   
  As of December 31, 2014
     Actual   As-Adjusted for this Offering
     (In thousands)
Cash and investment and restricted investments in money market funds   $ 11,350     $ 38,973  
Key Facility     10,000       10,000  
2013-1 Securitization     38,753       38,753  
2019 Notes     33,000       33,000  
Total borrowings   $ 81,753     $ 81,753  
Net assets:
                 
Preferred stock, par value $0.001 per share; 1,000,000 shares authorized,
no shares issued and outstanding
           
Common stock, par value $0.001 per share; 100,000,000 shares authorized, 9,628,124 shares issued and outstanding, actual and 11,628,124 shares issued and outstanding, as adjusted     10       12  
Paid-in capital in excess of par     155,240       182,861  
Accumulated distributions in excess of net investment income     (1,102 )      (1,102 ) 
Net unrealized depreciation on investments     (4,737 )      (4,737 ) 
Net realized loss on investments     (11,163 )      (11,163 ) 
Total net assets   $ 138,248     $ 165,871  

S-16


 
 

TABLE OF CONTENTS

SALES OF COMMON STOCK BELOW NET ASSET VALUE

At a January 22, 2015 special meeting of stockholders, our stockholders approved our ability, with the approval of our Board, to sell shares of our common stock at any time through January 21, 2016 at a price or prices below the then current net asset value per share in one or more offerings, subject to certain conditions, including limiting the number of shares issued in each offering to not more than 25% of our then outstanding common stock prior to each offering and limiting the sales price per share to not more than 15% below the then current net asset value, which we refer to as the Stockholder Approval. In order to sell shares of common stock pursuant to the Stockholder Approval, a majority of our directors who have no financial interest in the sale and a majority of our independent directors must:

find that the sale is in our best interests and in the best interests of our stockholders; and
in consultation with any underwriter or underwriters of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares of common stock, or immediately prior to the issuance of such common stock, that the price at which such shares of common stock are to be sold is not less than a price which closely approximates the market value of those shares of common stock, less any distributing commission or discount.

The offering of common stock being made pursuant to this prospectus supplement is at a price below our most recently reported net asset value per share of $14.36 as of December 31, 2014.

In making a determination that this offering of common stock below its net asset value per share is in our and our stockholders’ best interests, our Board considered a variety of factors, including:

the effect that the offering below net asset value per share would have on our existing stockholders, including the potential dilution they would experience as a result of the offering;
the amount per share by which the offering price per share and the net proceeds per share are less than our most recently determined net asset value per share;
the relationship of recent market prices of par common stock to net asset value per share and the potential impact of the offering on the market price per share of our common stock;
whether the estimated offering price closely approximates the market value of shares of our common stock;
the potential market impact of being able to raise capital during the current financial market difficulties;
the nature of any new investors anticipated to acquire shares of our common stock in the offering;
the anticipated rate of return on and quality, type and availability of investments that we would be able to make as a result of this offering; and
the leverage available to us, both before and after the offering, and the terms thereof.

Sales by us of our common stock at a discount from net asset value per share pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering. Any sale of common stock at a price below net asset value per share will result in an immediate dilution to many of our existing common stockholders even if they participate in such sale. See “Risk Factors — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or securities to subscribe for or convertible into shares of our common stock” in this prospectus supplement and “Risk Factors — Risks Relating to Our Offering Under This Prospectus” in the accompanying prospectus.

S-17


 
 

TABLE OF CONTENTS

The following three headings and accompanying tables explain and provide hypothetical examples on the impact of an offering of our common stock at a price less than net asset value per share on three different types of investors:

existing stockholders who do not purchase any shares in this offering;
existing stockholders who purchase a relatively small amount of shares in this offering or a relatively large amount of shares in this offering; and
new investors who become stockholders by purchasing shares in this offering.

Net asset value per share used in the tables below is based on our most recently determined net asset value per share as of December 31, 2014. The net asset value per share used for purposes of providing information in the table below is thus an estimate and does not necessarily reflect actual net asset value per share at the time sales are made. Actual net asset value per share may change based on potential changes in valuations of our portfolio securities, accruals of income, expenses and distributions declared and thus may be different than at the assumed sales prices shown below. See “Recent Developments” in this prospectus supplement.

The tables below provide hypothetical examples that illustrate the impact that an offering at a price less than net asset value per share may have on the net asset value per share of stockholders and investors who do and do not participate in such an offering. However, the tables below do not show and are not intended to show any potential changes in market price that may occur from an offering at a price less than net asset value per share and it is not possible to predict any potential market price change that may occur from such an offering.

Impact On Existing Stockholders Who Do Not Participate in this Offering

Our existing stockholders who do not participate in this offering below net asset value per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in this offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate dilution in the net asset value of the shares of common stock they hold and their net asset value per share. These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power and voting interests due to such offering. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced, or potential increases and decreases in net asset value per share. This decrease could be more pronounced as the size of the offering and level of discounts increases. Further, if existing stockholders do not purchase any shares to maintain their percentage interest, their voting power will be diluted.

S-18


 
 

TABLE OF CONTENTS

The following chart illustrates the level of net asset value dilution that would be experienced by an existing 0.10% stockholder who does not participate in this offering at an assumed public offering price of $14.29 per share, which was the last reported closing price of our common stock on March 17, 2015, with a 3.00% underwriting discount and $100,000 of expenses ($13.81 per share net). It is not possible to predict the level of market price decline that may occur following this offering.

     
  Prior to Sale
Below NAV
  Following
Sale
  %
Change
Offering Price
                          
Price per Share to Public            $ 14.29           
Net Proceeds per Share to Issuer            $ 13.81           
Decrease to Net Asset Value
                          
Total Shares Outstanding     9,628,124 (1)      11,628,124 (2)      20.77 % 
Net Asset Value per Share   $ 14.36     $ 14.26       (0.70 )% 
Dilution to Nonparticipating Stockholder
                          
Shares Held by Stockholder A     9,630       9,630           
Percentage Held by Stockholder A     0.10 %      0.08 %      (20.00 )% 
Total Net Asset Value Held by Stockholder A   $ 138,287     $ 137,324       (0.70 )% 
Total Investment by Stockholder A (Assumed to Be Net Asset Value per Share)            $ 138,287           
Total Dilution to Stockholder A (Total Net Asset Value Less Total Investment)            $ (963 )          
Investment per Share Held by Stockholder A (Assumed to be Net Asset Value per Share on Shares Held Prior to Sale)   $ 14.36     $ 14.36           
Net Asset Value per Share Held by Stockholder A            $ 14.26           
Dilution per Share Held by Stockholder A (Net Asset Value per Share Less Investment per Share)            $ (0.10 )          
Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)                       (0.70 )% 

(1) Reflects actual shares outstanding at December 31, 2014.
(2) Excludes underwriters’ overallotment option to purchase 357,000 shares.

Impact On Existing Stockholders Who Do Participate in this Offering

Our existing stockholders who participate in this offering or who buy additional shares in the secondary market at the same or lower price as we obtain in this offering (after expenses and commissions) will experience the same types of net asset value dilution as the nonparticipating stockholders, although at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares of our common stock immediately prior to the offering. The level of net asset value dilution will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience net asset value dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience accretion in net asset value per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to such offering. The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who over participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience net asset value dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their

S-19


 
 

TABLE OF CONTENTS

shares, which often reflects to some degree announced or potential increases and decreases in net asset value per share. This decrease could be more pronounced as the size of the offering and the level of discounts increase.

The following chart illustrates the level of dilution and accretion in this offering for a current 0.10% stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 1,000 shares, which is 0.05% of an offering of 2,000,000 shares) rather than its 0.10% proportionate share and (2) 150% of such percentage (i.e., 3,000 shares, which is 0.15% of an offering of 2,000,000 shares rather than its 0.10% proportionate share) at an assumed public offering price of $14.29 per share, which was the last reported closing price of our common stock on March 17, 2015, with a 3.00% underwriting discount and $100,000 of expenses ($13.81 per share net). It is not possible to predict the level of market price decline that may occur following this offering.

         
    50% Participation   150% Participation
     Prior to Sale
Below NAV
  Following
Sale
  %
Change
  Following
Sale
  %
Change
Offering Price
                                            
Price per Share to Public            $ 14.29              $ 14.29           
Net Proceeds per Share to Issuer            $ 13.81              $ 13.81           
Decrease/Increase to Net Asset Value
                                            
Total Shares Outstanding     9,628,124 (1)      11,628,124 (2)      20.77 %      11,628,124 (2)      20.77 % 
Net Asset Value per Share   $ 14.36     $ 14.26       (0.70 )%      14.26       (0.70 )% 
Dilution/Accretion to Participating Stockholder
                                            
Shares Held by Stockholder A     9,630       10,630       10.38 %      12,630       31.15 % 
Percentage Held by Stockholder A     0.10 %      0.09 %      (10.00 )%      0.11 %      10.00 % 
Total Net Asset Value Held by Stockholder A     138,287       151,584       9.62 %      180,104       30.24 % 
Total Investment by Stockholder A (Assumed to be Net Asset Value per Share on Shares Held Prior to Sale)            $ 152,577              $ 181,157           
Total Dilution to Stockholder A (Total Net Asset Value Less Total Investment)            $ (993 )             $ (1,053 )          
Investment per Share Held by Stockholder A (assumed to Be Net Asset Value per Share on Shares Held Prior to Sale)   $ 14.36     $ 14.35              $ 14.34           
Net Asset Value per Share Held by Stockholder A              14.26                14.26           
Dilution per Share Held by Stockholder A (Net Asset Value per Share Less Investment per Share)            $ (0.09 )             $ (0.08 )          
Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)                       (0.63 )%               (0.56 )% 

(1) Reflects actual shares outstanding at December 31, 2014.
(2) Excludes underwriters’ overallotment option to purchase 357,000 shares.

S-20


 
 

TABLE OF CONTENTS

Impact On New Investors

Investors who are not currently stockholders and who participate in this offering and whose investment per share is greater than the resulting net asset value per share due to selling compensation and expenses paid by us will experience an immediate decrease, although small, in the net asset value of their shares and their net asset value per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in this offering and whose investment per share is also less than the resulting net asset value per share will experience an immediate increase in the net asset value of their shares and their net asset value per share compared to the price they pay for their shares. These latter investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to such offering. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in net asset value per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

The following chart illustrates the level of dilution for new investors that will be experienced by a new investor who purchases the same percentage (0.10%) of the shares in the offering as the stockholder in the prior examples at an assumed public offering price of $14.29 per share, which was the last reported closing price of our common stock on March 17, 2015, with a 3.00% underwriting discount and $100,000 of expenses ($13.81 per share net).

     
  Prior to Sale
Below NAV
  Following
Sale
  %
Change
Offering Price
                          
Price per Share to Public            $ 14.29           
Net Proceeds per Share to Issuer            $ 13.81           
Decrease to Net Asset Value
                          
Total Shares Outstanding     9,628,124 (1)      11,628,124 (2)      20.77 % 
Net Asset Value per Share   $ 14.36     $ 14.26       (0.70 )% 
Dilution to New Investor
                          
Shares Held by Stockholder A           2,000           
Percentage Held by Stockholder A     0.00 %      0.02 %          
Total Net Asset Value Held by Stockholder A         $ 28,520           
Total Investment by Stockholder A (At Price to Public)            $ 28,580           
Total Dilution to Stockholder A (Total Net Asset Value Less Total Investment)            $ (60 )          
Investment per Share Held by Stockholder A            $ 14.29           
Net Asset Value per Share Held by Stockholder A         $ 14.26           
Dilution per Share Held by Stockholder A (Net Asset Value per Share Less Investment per Share)            $ (0.03 )          
Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)                       (0.21 )% 

(1) Reflects actual shares outstanding at December 31, 2014.
(2) Excludes underwriters’ overallotment option to purchase 357,000 shares.

S-21


 
 

TABLE OF CONTENTS

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the NASDAQ Global Select Market, under the symbol “HRZN.” The following table sets forth, for each fiscal quarter since January 1, 2013, the range of high and low closing sales price of our common stock, the closing sales price as a percentage of our NAV and the distributions declared per share by us for each quarter.

           
    Closing Sales Price   Premium/
Discount of
High Sales
Price to NAV(2)
  Premium/
Discount of
Low Sales
Price to
NAV(2)
  Distributions
Declared Per
Share(3)
Period   NAV(1)   High   Low
Year ended December 31, 2015
                                                     
First Quarter(4)   $   $ 14.39     $ 13.61       *%      *%    $ 0.345 (5) 
Year ended December 31, 2014
                                                     
Fourth Quarter   $ 14.36     $ 14.27     $ 13.45       (1 )%      (6 )%    $ 0.345  
Third Quarter   $ 14.38     $ 14.72     $ 12.90       2 %      (10 )%    $ 0.345  
Second Quarter   $ 14.23     $ 14.89     $ 12.59       5 %      (12 )%    $ 0.345  
First Quarter   $ 14.32     $ 14.61     $ 12.43       2 %      (13 )%    $ 0.345  
Year ended December 31, 2013
                                                     
Fourth Quarter   $ 14.14     $ 14.34     $ 12.95       1 %      (8 )%    $ 0.345  
Third Quarter   $ 14.95     $ 14.47     $ 13.26       (3 )%      (11 )%    $ 0.345  
Second Quarter   $ 14.89     $ 14.69     $ 12.93       (1 )%      (13 )%    $ 0.345  
First Quarter   $ 15.12     $ 15.93     $ 14.38       5 %      (5 )%    $ 0.345  

(1) The NAV per share presented in the table is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs per share shown are based on outstanding shares at the end of such period.
(2) Calculated as of the respective high or low closing sales price divided by the quarter end NAV.
(3) We have adopted an “opt out” DRIP, for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions are automatically reinvested in additional shares of our common stock, unless they specifically opt out of the DRIP so as to receive cash distributions. See “Dividend Reinvestment Plan” in the accompanying prospectus.
(4) From January 1, 2015 through March 17, 2015.
(5) $0.115 of which is payable on each of April 15, 2015, May 15, 2015 and June 15, 2015. Participants in this offering will not receive the distribution to be paid on April 15, 2015.
* Not yet determined at the time of filing.

The last reported price for our common stock on March 17, 2015 was $14.29 per share. Our NAV per share on December 31, 2014 (the last date prior to the date of this prospectus supplement on which we determined NAV) was $14.36. The closing sales price for our shares on the NASDAQ Global Select Market on that date was $13.99, which represented a 3% discount to NAV per share. As of March 17, 2015 we had 13 stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.

S-22


 
 

TABLE OF CONTENTS

SELLING STOCKHOLDER

We were formed in March 2010 to continue and expand the business of Compass Horizon Funding Company LLC, or Compass Horizon, our wholly-owned subsidiary, which owned all of the portfolio investments that we acquired upon the closing of our IPO. Immediately prior to the completion of our IPO, the owners of membership interests of Compass Horizon, including Compass Horizon Partners, LP, exchanged their membership interests in Compass Horizon for shares of our common stock, and we entered into a registration rights agreement with respect to those shares. Under the terms of the registration rights agreement, we have agreed to bear specific expenses of the selling stockholder in connection with the registration and sale of such shares.

This prospectus supplement relates to our offering of 2,000,000 shares of our common stock and the offering of 380,000 shares of our common stock by Compass Horizon Partners, LP, the selling stockholder. Sales of our common stock by the selling stockholder are not subject to the restrictions on sales below net asset value that are imposed on us by the 1940 Act.

We will not receive any proceeds from the sale of shares of our common stock offered by the selling stockholder in this offering. The selling stockholder will pay the underwriting discounts and commissions in connection with the shares being offered by the selling stockholder under this prospectus supplement. We will pay certain other offering expenses, including printing, legal and filing expenses. We estimate there will be no additional offering expenses incurred by us as a result of the shares of common stock offered by the selling stockholder under this prospectus supplement.

The following table sets out certain information with respect to the ownership of our common stock by the selling stockholder as of March 17, 2015:

         
  Shares Beneficially Owned
Prior to Offering(1)
  Number of Shares Being Offered   Shares Beneficially Owned
After Offering(1)(2)
     Number   Percent   Number   Percent
Compass Horizon Partners, L.P.(3)     1,271,414       13.2 %      380,000       891,414       7.7 % 

(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Percentages are based on 9,630,617 shares of our common stock issued and outstanding as of March 17, 2015 and 11,630,617 shares of our common stock issued and outstanding after the offering (and without giving effect to the overallotment option).
(2) Assumes the sale of all of the shares of common stock offered pursuant to this prospectus supplement and no purchases or sales by the selling stockholder of additional shares of our common stock.
(3) Concorde Horizon Holdings LP is the limited partner of Compass Horizon Partners, LP and Navco Management, Ltd. is the general partner. Concorde Horizon Holdings LP and Navco Management, Ltd. are controlled by The Kattegat Trust, a Bermudian charitable trust, the trustee of which is Kattegat Private Trustees (Bermuda) Limited, a Bermudian trust company with its principal offices at 2 Reid Street, Hamilton HM 11, Bermuda.

S-23


 
 

TABLE OF CONTENTS

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial data of the Company as of December 31, 2014, 2013, 2012, 2011 and 2010, and for the years ended December 31, 2014, 2013, 2012 and 2011, the period from October 29, 2010 to December 31, 2010 and the period from January 1, 2010 to October 28, 2010 are derived from the consolidated financial statements that have been audited by McGladrey LLP, an independent registered public accounting firm. For the period prior to October 29, 2010, the financial data refer to Compass Horizon, our predecessor company. These selected financial data should be read in conjunction with our financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus supplement and the accompanying prospectus.

           
  Post-IPO as a BDC   Pre-IPO prior to becoming a BDC
(In thousands, except per share data)   Year Ended December 31, 2014   Year Ended December 31, 2013   Year Ended December 31, 2012   Year Ended December 31, 2011   October 29, 2010 to December 31, 2010   January 1, 2010 to October 28, 2010
Statement of Operations Data:
                                                     
Total investment income   $ 31,254     $ 33,643     $ 26,664     $ 24,054     $ 3,251     $ 14,956  
Base management fee     4,410       5,209       4,208       4,192       668       2,019  
Performance based incentive fee     2,005       3,318       2,847       3,013       414        
All other expenses     13,962       11,605       7,382       6,127       810       3,912  
Net investment income before excise tax     10,877       13,511       12,227       10,722       1,359       9,025  
Provision for excise tax     (160 )      (240 )      (231 )      (211 )             
Net investment income     10,717       13,271       11,996       10,511       1,359       9,025  
Net realized (loss) gain on investments     (3,576 )      (7,509 )      108       6,316       611       69  
Provision for excise tax                       (129 )             
Net unrealized appreciation (depreciation) on investments     8,289       (2,254 )      (8,113 )      (5,702 )      1,449       1,481  
Credit for loan losses                                   739  
Net increase in net assets resulting from operations   $ 15,430     $ 3,508     $ 3,991     $ 10,996     $ 3,419     $ 11,314  
Per Share Data:
                                                     
Net asset value   $ 14.36     $ 14.14     $ 15.15     $ 17.01     $ 16.75       N/A  
Net investment income     1.11       1.38       1.41       1.38       0.18       N/A  
Net realized (loss) gain on investments     (0.37 )      (0.78 )      0.01       0.81       0.08       N/A  
Net change in unrealized appreciation (depreciation) on investments     0.86       (0.23 )      (0.95 )      (0.75 )      0.19       N/A  
Net increase in net assets resulting from operations     1.60       0.37       0.47       1.44       0.45       N/A  
Per share distributions declared     1.38       1.38       2.15       1.18       0.22       N/A  
Dollar amount of distributions declared   $ 13,282     $ 13,236     $ 18,777     $ 8,983     $ 1,662       N/A  
Statement of Assets and Liabilities Data at Period End:
                                                     
Investments, at fair value/book value   $ 205,101     $ 221,284     $ 228,613     $ 178,013     $ 136,810       N/A  
Other assets     20,095       42,453       11,045       19,798       79,395       N/A  
Total assets     225,196       263,737       239,658       197,811       216,205       N/A  
Long-term obligations     81,753       122,343       89,020       64,571       87,425       N/A  
Total liabilities     86,948       127,902       94,686       67,927       89,010       N/A  
Total net assets/members’ capital   $ 138,248     $ 135,835     $ 144,972     $ 129,884     $ 127,195       N/A  
Other data:
                                                     
Weighted annualized yield on income producing investments at fair value     15.3 %      14.4 %      14.2 %      14.6 %      14.6 %      N/A  
Number of portfolio companies at period end     50       49       45       38       32       32  

S-24


 
 

TABLE OF CONTENTS

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

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with “Selected Consolidated Financial and Other Data” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus supplement and the accompanying prospectus. The information in this section contains forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” in this prospectus supplement and the accompanying prospectus and “Cautionary Note Regarding Forward-Looking Statements” in this prospectus supplement for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

We are a specialty finance company that lends to and invests in development-stage companies in our Target Industries. Our investment objective is to generate current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making Venture Loans to venture capital backed companies in our Target Industries, which we refer to as “Venture Lending.” We also selectively lend to publicly traded companies in our Target Industries. Venture Lending is typically characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan.

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Code. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on our investment company taxable income and net capital gains that we distribute to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements.

Compass Horizon, our predecessor company, commenced operations in March 2008. We were formed in March 2010 for the purpose of acquiring Compass Horizon and continuing its business as a public entity.

Our investment activities, and our day-to-day operations, are managed by our Advisor and supervised by our Board, of which a majority of the members are independent of us. Under the Investment Management Agreement, we have agreed to pay our Advisor a base management fee and an incentive fee for its advisory services to us. We have also entered into the Administration Agreement under which we have agreed to reimburse our Advisor for our allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement.

S-25


 
 

TABLE OF CONTENTS

Portfolio composition and investment activity

The following table shows our portfolio by asset class as of December 31, 2014 and 2013:

           
  December 31, 2014   December 31, 2013
     # of
Investments
  Fair
Value
  % of Total
Portfolio
  # of
Investments
  Fair
Value
  % of Total
Portfolio
     (In thousands)
Term loans     49     $ 189,127       92.2 %      48     $ 201,846       91.2 % 
Revolving loans     1       10,053       4.9       1       11,908       5.4  
Total loans     50       199,180       97.1       49       213,754       96.6  
Warrants     75       4,603       2.2       73       6,036       2.7  
Other investments     1       300       0.2       1       400       0.2  
Equity     4       1,018       0.5       4       1,094       0.5  
Total         $ 205,101       100.0 %          $ 221,284       100.0 % 

The following table shows total portfolio investment activity as of and for the years ended December 31, 2014 and 2013:

   
  December 31,
     2014   2013
     (In thousands)
Beginning portfolio   $ 221,284     $ 228,613  
New debt investments     95,323       88,362  
Less refinanced balances            
Net new debt investments     95,323       88,362  
Principal received on investments     (42,830 )      (41,166 ) 
Early pay-offs     (66,675 )      (46,331 ) 
Accretion of debt investment fees     2,339       2,635  
New debt investment fees     (1,392 )      (1,076 ) 
New equity     12       73  
Sales of investments     (7,673 )      (200 ) 
Net realized loss on investments     (3,576 )      (7,299 ) 
Net appreciation (depreciation) on investments     8,289       (2,254 ) 
Other           (73 ) 
Ending portfolio   $ 205,101     $ 221,284  

We receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period.

S-26


 
 

TABLE OF CONTENTS

The following table shows our debt investments by industry sector as of December 31, 2014 and 2013:

       
  December 31, 2014   December 31, 2013
     Debt
investments at
Fair Value
  Percentage
of Total
Portfolio
  Debt
investments at
Fair Value
  Percentage
of Total
Portfolio
     (In thousands)
Life Science
                                   
Biotechnology   $ 21,253       10.7 %    $ 16,376       7.7 % 
Medical Device     22,225       11.2       14,765       6.9  
Technology
                                   
Communications     17,732       8.9       9,359       4.4  
Consumer-Related     6,337       3.2              
Internet and Media                 6,019       2.8  
Networking     981       0.5       963       0.5  
Power Management                 13,044       6.1  
Semiconductors     30,355       15.2       37,450       17.5  
Software     53,583       26.9       66,583       31.1  
Cleantech
                                   
Alternative Energy     8,009       4.0       11,771       5.5  
Consumer-Related     396       0.2              
Energy Efficiency     4,414       2.2       11,403       5.3  
Waste Recycling                 680       0.3  
Healthcare Information and Services
                                   
Diagnostics     17,637       8.8       12,140       5.7  
Other     6,946       3.5       6,904       3.2  
Software     9,312       4.7       6,297       3.0  
Total   $ 199,180       100.0 %    $ 213,754       100.0 % 

The largest debt investments in our portfolio may vary from year to year as new debt investments are originated and existing debt investments are repaid. Our five largest debt investments represented 24% and 22% of total debt investments outstanding as of December 31, 2014 and 2013, respectively. No single debt investment represented more than 10% of our total debt investments outstanding as of December 31, 2014 or 2013.

Debt investment asset quality

We use an internal credit rating system which rates each debt investment on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and while no loss is currently anticipated for a 2-rated debt investment, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and increased risk. Our internal credit rating system is not a national credit rating system. See “Item 1 — Business” for a more detailed description of the internal credit rating system. The following table shows the classification of our debt investment portfolio by credit rating as of December 31, 2014 and December 31, 2013:

       
  December 31, 2014   December 31, 2013
     Debt
investment at
Fair Value
  Percentage
of debt
investment
  Debt
investment at
Fair Value
  Percentage
of debt
investment
     (In thousands)
Credit Rating
                                   
4   $ 44,082       22.1 %    $ 30,385       14.2 % 
3     138,109       69.4       167,231       78.3  
2     11,746       5.9       2,199       1.0  
1     5,243       2.6       13,939       6.5  
Total   $ 199,180       100.0 %    $ 213,754       100.0 % 

S-27


 
 

TABLE OF CONTENTS

As of December 31, 2014 and 2013, our debt investment had a weighted average credit rating of 3.1 and 3.0, respectively. As of December 31, 2014, there were two investments with an internal credit rating of 1, with an aggregate cost of $5.4 million and an aggregate fair value of $5.2 million. As of December 31, 2013, there were five investments with an internal credit rating of 1, with an aggregate cost of $23.2 million and an aggregate fair value of $13.9 million.

Consolidated results of operations

As a BDC and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. The consolidated results of operations described below may not be indicative of the results we report in future periods.

The following table shows consolidated results of operations for the years ended December 31, 2014, 2013 and 2012:

     
  2014   2013   2012
     (In thousands)
Total investment income   $ 31,254     $ 33,643     $ 26,664  
Total expenses     20,377       20,132       14,437  
Net investment income before excise tax     10,877       13,511       12,227  
Provision for excise tax     (160 )      (240 )      (231 ) 
Net investment income     10,717       13,271       11,996  
Net realized (loss) gain     (3,576 )      (7,509 )      108  
Net unrealized appreciation (depreciation)     8,289       (2,254 )      (8,113 ) 
Net increase in net assets resulting from operations   $ 15,430     $ 3,508     $ 3,991  
Average investments, at fair value   $ 204,862     $ 233,045     $ 187,760  
Average debt outstanding   $ 102,754     $ 115,562     $ 62,973  

Net increase in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, annual comparisons of net increase in net assets resulting from operations may not be meaningful.

Investment income

Total investment income decreased by $2.4 million, or 7.1%, to $31.2 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. For the year ended December 31, 2014, total investment income consisted primarily of $28.6 million in interest income from investments, which included $6.0 million in income from the accretion of origination fees and ETPs, and $2.6 million of fee income. Interest income on investments decreased by $3.3 million, or 10.2%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Interest income on investments decreased primarily due to a decrease of $28.2 million, or 12.1%, in the average size of our investment portfolio. Fee income on investments was primarily comprised of debt investment prepayment fees collected from our portfolio companies and increased by $0.9 million, or 50.5% primarily due to a larger aggregate amount of principal prepayments for the year ended December 31, 2014.

Total investment income increased by $7.0 million, or 26.2%, to $33.6 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. For the year ended December 31, 2013, total investment income consisted primarily of $31.9 million in interest income from investments, which included $6.4 million in income from the accretion of origination fees and ETPs and $1.7 million of fee income. Interest income on investments increased by $6.6 million, or 26.2%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Interest income on investments increased primarily due to an increase of $45.3 million, or 24.1%, in the average size of our investment portfolio. Fee income on investments was primarily comprised of debt investment prepayment fees collected from our portfolio companies and increased by $0.4 million, or 26.5%, primarily due to a one-time success fee received upon the completion of an acquisition of one of our portfolio companies.

S-28


 
 

TABLE OF CONTENTS

For the years ended December 31, 2014, 2013 and 2012, our dollar-weighted annualized yield on average debt investments was 15.3%, 14.4% and 14.2%, respectively. We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

Investment income, consisting of interest income and fees on debt investments, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments in the aggregate accounted for 20%, 23% and 22% of investment income for the years ended December 31, 2014, 2013 and 2012, respectively.

Expenses

Total expenses increased by $0.2 million, or 1.2%, to $20.4 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Total expenses increased by $5.7 million, or 39.4%, to $20.1 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Total expenses for each period consisted principally of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses.

Interest expense increased by $0.6 million, or 7.2%, to $8.7 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to the acceleration of $1.1 million of unamortized debt issuance costs and a $0.8 million prepayment fee related to the termination of our term loan facility, offset by a decrease in average borrowings of $12.8 million, or 11.1%. Interest expense increased by $3.8 million, or 89.7%, to $8.1 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Interest expense increased primarily due to an increase in average borrowings of $52.6 million, or 83.5%.

Base management fee expense decreased by $0.8 million, or 15.3%, to $4.4 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Base management fee expense decreased primarily due to (i) a decrease in average gross assets of $19.6 million, or 7.4%, (ii) our Advisor’s waiver of base management fees of $0.2 million, and (iii) as of July 1, 2014, the base management fee was calculated on gross assets less cash and cash equivalents. Base management fee expense increased by $1.0 million, or 23.8%, to $5.2 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Base management fee expense increased primarily due to an increase in average gross assets of $56.4 million, or 26.9%.

Performance based incentive fee expense decreased by $1.3 million, or 39.6%, to $2.0 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Performance based incentive fee decreased primarily due to lower Pre-Incentive Fee Net Investment Income as a result of the one-time costs associated with the termination of our term loan facility. Performance based incentive fee increased by $0.5 million, or 16.5%, to $3.3 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Performance based incentive fee increased primarily due to part one of the incentive fee increasing as Pre-Incentive Fee Net Investment Income increased year over year.

In 2014 and 2013 we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. For the years ended December 31, 2014 and 2013, we elected to carry forward taxable income in excess of current year distributions of $4.0 million and $6.1 million, respectively, and recorded at both December 31, 2014 and 2013 an excise tax payable of $0.2 million.

Professional fees and general and administrative expenses primarily include legal and audit fees and insurance premiums. These expenses for the year ended December 31, 2014 increased compared to the year ended December 31, 2013 due to increased legal fees and other costs associated with certain non-accrual investments and other assets. We believe there will be no ongoing expenses associated with these non-accrual investments.

S-29


 
 

TABLE OF CONTENTS

Net realized gains and losses and net unrealized appreciation and depreciation

Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized. Realized gains or losses on investments include investments charged off during the period, net of recoveries. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

During the year ended December 31, 2014, we realized net losses totaling $3.6 million primarily due to the resolution of three debt investments that were previously on non-accrual status which were partially offset by realized gains on the sale of equity received upon the exercise of warrants. As a result of the resolution of the debt investments that were on non-accrual, we recognized $5.0 million of realized net losses and $7.6 million of unrealized appreciation. During the year ended December 31, 2013, we realized losses totaling $7.5 million primarily due to two debt investments that were on non-accrual status. During the year ended December 31, 2012, we realized net gains totaling $0.1 million primarily due to the sale of equity received upon the exercise of warrants of one portfolio company.

During the year ended December 31, 2014, net unrealized appreciation on investments totaled $8.3 million which was primarily due to the reversal of previously recorded unrealized depreciation on three debt investments that were settled in the period and one debt investment that returned to accrual status. During the year ended December 31, 2013, net unrealized depreciation on investments totaled $2.3 million which was primarily due to the unrealized depreciation on debt investments on non-accrual status offset by the reversal of previously recorded unrealized depreciation on debt investments that were settled in the period. During the year ended December 31, 2012, net unrealized depreciation on investments totaled $8.1 million which was primarily due to the unrealized depreciation on the debt investments on non-accrual status.

Liquidity and capital resources

As of December 31, 2014 and 2013, we had cash and investments in money market funds of $8.4 million and $26.5 million, respectively. Cash and investments in money market funds are available to fund new investments, reduce borrowings, pay expenses and pay distributions. In addition, as of December 31, 2014 and 2013, we had $2.9 million and $6.0 million, respectively, of restricted investments in money market funds. Restricted investments in money market funds may be used to make monthly interest and principal payments on our $90 million aggregate principal amount of fixed-rate asset-backed notes issued in conjunction with the 2013-1 Securitization, or the Asset-Backed Notes. Our primary sources of capital have been from our private and public equity offerings, use of our revolving credit facilities and issuance of our 2019 Notes and Asset-Backed Notes.

As of December 31, 2014, the outstanding principal balance under the Key Facility was $10.0 million. As of December 31, 2014 and 2013, we had borrowing capacity under the Key Facility of $40.0 million and $50.0 million, respectively, of which $35.6 million and $4.8 million, respectively, was available, subject to existing terms and advance rates.

Our operating activities provided cash of $36.7 million for the year ended December 31, 2014, and our financing activities used cash of $53.6 million for the same period. Our operating activities provided cash primarily from principal payments received on debt investments, partially offset by investments made in portfolio companies. Our financing activities used cash primarily to pay down borrowings and pay distributions to our stockholders.

Our operating activities provided cash of $6.5 million for the year ended December 31, 2013, and our financing activities provided cash of $17.8 million for the same period. Our operating activities provided cash primarily from principal payments received on debt investments, offset by investments made in portfolio companies. Our financing activities provided cash primarily from the issuance of our Asset-Backed Notes. This increase from investing activities was partially offset by repayments of $56.7 million of borrowings and $12.6 million of distributions paid to our stockholders.

Our operating activities used cash of $36.1 million for the year ended December 31, 2012, and our financing activities provided cash of $35.8 million for the same period. Our operating activities used cash

S-30


 
 

TABLE OF CONTENTS

primarily for investing in portfolio companies, net of principal payments received. Our financing activities provided cash primarily from the issuance of our 2019 Notes for net proceeds of $31.7 million, and the completion of a follow-on public offering of 1.9 million shares of common stock for net proceeds of $29.5 million. These increases from investing activities were partially offset by repayments of $8.6 million of borrowings and $15.1 million of distributions paid to our stockholders.

Our primary use of available funds is to make debt investments in portfolio companies and for general corporate purposes. We expect to raise additional equity and debt capital opportunistically as needed, and subject to market conditions, to support our future growth to the extent permitted by the 1940 Act.

In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders all or substantially all of our investment company taxable income. In addition, as a BDC, we are required to maintain asset coverage of at least 200%. This requirement limits the amount that we may borrow.

We believe that our current cash and investments in money market funds, cash generated from operations, and funds available from our Key Facility will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months.

Current borrowings

The following table shows our borrowings as of December 31, 2014 and 2013:

     
  December 31, 2014
     Total
Commitment
  Balance
Outstanding
  Unused
Commitment
     (In thousands)
Asset-Backed Notes   $ 38,753     $ 38,753     $  
Key Facility     50,000       10,000       40,000  
2019 Notes     33,000       33,000        
Total   $ 121,753     $ 81,753     $ 40,000  

     
  December 31, 2013
     Total
Commitment
  Balance
Outstanding
  Unused
Commitment
     (In thousands)
Asset-Backed Notes   $ 79,343     $ 79,343     $  
Fortress Facility     75,000       10,000       65,000  
Key Facility     50,000             50,000  
2019 Notes     33,000       33,000        
Total   $ 237,343     $ 122,343     $ 115,000  

On November 4, 2013, through our wholly owned subsidiary, Credit II, we renewed and amended our revolving credit facility which, among other things, assigned all rights and obligations to Key. The interest rate on the Key Facility is based upon the one-month London Interbank Offered Rate, or LIBOR, plus a spread of 3.25%, with a LIBOR floor of 0.75%. The interest rate was 4.00% as of December 31, 2014 and 2013.

The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $50 million commitment provided by Key. The Key Facility is collateralized by loans held by Credit II and permits an advance rate of up to 50% of eligible loans held by Credit II. The Key Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the loans securing the Key Facility to certain criteria for qualified loans and to comply with portfolio company concentration limits as defined in the related loan agreement. We may request advances under the Key Facility through November 4, 2016, or the Revolving Period. After the Revolving Period, we may not request new advances, and we must repay the outstanding advances under the Key Facility as of such date, at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed 50% of the

S-31


 
 

TABLE OF CONTENTS

aggregate principal balance of our eligible loans to our portfolio companies. All outstanding advances under the Key Facility are due and payable on November 4, 2018.

On March 23, 2012, we issued and sold aggregate principal amount of $30 million 2019 Notes, and on April 18, 2012, pursuant to the underwriters’ 30-day option to purchase additional notes, we sold an additional $3 million of the 2019 Notes. The 2019 Notes will mature on March 15, 2019 and may be redeemed in whole or in part at our option at any time or from time to time on or after March 15, 2015 at a redemption price of $25 per security plus accrued and unpaid interest. The 2019 Notes bear interest at a rate of 7.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notes are our direct, unsecured obligations and (1) rank equally in right of payment with our future senior unsecured indebtedness; (2) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2019 Notes; (3) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness and (4) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of December 31, 2014, we were in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the NYSE under the symbol “HTF”.

We, through our wholly owned subsidiary Credit III, entered into the Fortress Facility, on August 23, 2012. The interest rate on the Fortress Facility was based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00%. The interest rate was 7.00% as of December 31, 2013.

The Fortress Facility permitted advances through August 23, 2016, or the Draw Period. After the Draw Period, we would have been required to repay the outstanding advances under the Fortress Facility as of such date, at such times and in such amounts as were necessary to maintain compliance with the terms and conditions of the Fortress Facility, particularly the condition that the principal balance of the Fortress Facility not exceed 66% of the aggregate principal balance of our eligible loans to our portfolio companies. The unused line fee equaled 1.00% of any unborrowed amount available under the Fortress Facility annually. All outstanding advances under the Fortress Facility were due and payable on August 23, 2017.

The Fortress Facility was collateralized by loans and warrants held by Credit III and permitted an advance rate of up to 66% of eligible loans held by Credit III. The Fortress Facility contained covenants that, among other things, required us to maintain a minimum net worth, to restrict the loans securing the Fortress Facility to certain criteria for qualified loans and to comply with portfolio company concentration limits as defined in the related loan agreement.

Effective June 17, 2014, we terminated the Fortress Facility. In connection therewith, a loan and security agreement and other related documents governing the Fortress Facility were also terminated. As such, we have no borrowing capacity under the Fortress Facility as of December 31, 2014. Upon termination of the Fortress Facility, we accelerated $1.1 million of unamortized debt issuance cost and paid a $0.8 million prepayment fee.

On June 28, 2013, we completed the 2013-1 Securitization, a $189.3 million securitization of secured loans which we originated. 2013-1 Trust, a wholly owned subsidiary of ours, issued the Asset-Backed Notes, which are rated A2(sf) by Moody’s Investors Service, Inc. We are the sponsor, originator and servicer for the transaction. The Asset-Backed Notes bear interest at a fixed rate of 3.00% per annum and have a stated maturity of May 15, 2018.

The Asset-Backed Notes were issued by 2013-1 Trust pursuant to a note purchase agreement, or the Note Purchase Agreement, dated as of June 28, 2013, by and among us, the Trust Depositor, as the Trust Depositor, 2013-1 Trust and Guggenheim Securities, LLC, or Guggenheim Securities, as initial purchaser, and are backed by a pool of loans, or the Trust Loans, made to certain portfolio companies of ours and secured by certain assets of such portfolio companies. The Trust Loans are serviced by us. In connection with the issuance and sale of the Asset-Backed Notes, we have made customary representations, warranties and covenants in the Note Purchase Agreement. The Asset-Backed Notes are secured obligations of 2013-1 Trust and are non-recourse to us.

S-32


 
 

TABLE OF CONTENTS

As part of the transaction, we entered into a sale and contribution agreement, or the Sale and Contribution Agreement, dated as of June 28, 2013, with the Trust Depositor, pursuant to which we sold or contributed the Trust Loans to the Trust Depositor. We made customary representations, warranties and covenants in the Sale and Contribution Agreement with respect to the Trust Loans as of the date of the transfer of the Trust Loans to the Trust Depositor. We also entered into a sale and servicing agreement, or the Sale and Servicing Agreement, dated as of June 28, 2013, with the Trust Depositor and 2013-1 Trust pursuant to which the Trust Depositor sold or contributed the Trust Loans to 2013-1 Trust. We made customary representations, warranties and covenants in the Sale and Servicing Agreement. We serve as administrator to 2013-1 Trust pursuant to an administration agreement, dated as of June 28, 2013, with 2013-1 Trust, Wilmington Trust, National Association, and U.S. Bank National Association. 2013-1 Trust also entered into an indenture, dated as of June 28, 2013, which governs the Asset-Backed Notes and includes customary covenants and events of default. In addition, the Trust Depositor entered into an amended and restated trust agreement, dated as of June 28, 2013, which includes customary representations, warranties and covenants. The Asset-Backed Notes were sold through an unregistered private placement to “qualified institutional buyers” in compliance with the exemption from registration provided by Rule 144A under the Securities Act and to institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who, in each case, are “qualified purchasers” for purposes of Section 3(c)(7) under the 1940 Act.

Under the terms of the Asset-Backed Notes, we are required to maintain a reserve cash balance, funded through principal collections from the underlying securitized debt portfolio, which may be used to make monthly interest and principal payments on the Asset-Backed Notes.

On June 3, 2013, we entered into a promissory note with Guggenheim Securities, or the Promissory Note, whereby Guggenheim Securities made a term loan to us in the aggregate principal amount of $15 million, or the Term Loan. We granted Guggenheim Securities a security interest in all of our assets to secure the Term Loan. On June 28, 2013, we used a portion of the proceeds of the private placement of the Asset-Backed Notes to repay all of our outstanding obligations under the Term Loan and the security interest of Guggenheim Securities was released.

As of December 31, 2014 and 2013, our other assets were $4.0 million and $5.7 million, respectively, which is primarily comprised of debt issuance costs and prepaid expenses.

Contractual obligations and off-balance sheet arrangements

The following table shows our significant contractual payment obligations and off-balance sheet arrangements as of December 31, 2014:

         
  Payments due by period
     Total   Less than
1 year
  1 – 3 Years   3 – 5 Years   After
5 years
     (In thousands)
Borrowings   $ 81,753     $ 11,674     $ 29,914     $ 40,165     $  
Unfunded commitments     25,700       25,700                    
Total   $ 107,453     $ 37,374     $ 29,914     $ 40,165     $  

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As of December 31, 2014, we had unfunded commitments of $25.7 million. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the financial instruments that we hold on our balance sheet. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

In addition to the Key Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with our Advisor. We have agreed to pay a fee for investment advisory and management services consisting of two components (1) a base management fee equal to a percentage of the value of our gross assets less cash or cash equivalents and (2) a two-part incentive fee. We have also entered

S-33


 
 

TABLE OF CONTENTS

into a contract with our Advisor to serve as our administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of our Advisor’s overhead in performing its obligations under the agreement, including rent, fees and other expenses inclusive of our allocable portion of the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. See Note 3 to our consolidated financial statements for additional information regarding our Investment Management Agreement and our Administration Agreement.

Distributions

In order to qualify as a RIC and to avoid corporate level tax on the income we distribute to our stockholders, we are required under the Code to distribute an amount generally at least equal to 90% of our investment company taxable income to our stockholders on an annual basis. Additionally, we must distribute or be deemed to have distributed by December 31 of each calendar year an amount generally at least equal to the sum of 98% of our ordinary income (taking into account certain deferrals and elections) for such calendar year and 98.2% of the excess of our capital gains over our capital losses (adjusted for certain ordinary losses), generally computed on the basis of the one-year period ending on October 31 of such calendar year; and 100% of any ordinary income and any excess of capital gains over capital losses for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax to avoid a U.S. federal corporate excise tax. We intend to make monthly distributions to our stockholders as determined by our Board.

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 our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including the possible loss of our qualification as a RIC. We cannot assure stockholders that they will receive any distributions.

To the extent our taxable earnings fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains.

We have adopted an “opt out” DRIP for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. If our common stock is trading above net asset value, a stockholder receiving distributions in the form of additional shares of our common stock will be treated as receiving a distribution of an amount equal to the fair market value of such shares of our common stock. We may use newly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.

Related party transactions

We have entered into the Investment Management Agreement with the Advisor. The Advisor is registered as an investment adviser under the Advisers Act. The investment activities are managed by the Advisor and supervised by the Board, the majority of whom are independent directors. Under the Investment Management Agreement, we have agreed to pay the Advisor a base management fee as well as an incentive fee. During the years ended December 31, 2014, 2013 and 2012, we paid the Advisor $6.4 million, $8.5 million and $7.1 million, respectively, pursuant to the Investment Management Agreement.

Our Advisor is 60% owned by HTF Holdings LLC, which is 100% owned by Horizon Technology Finance, LLC. By virtue of their ownership interest in Horizon Technology Finance, LLC, Messrs. Pomeroy and Michaud may be deemed to control our Advisor.

S-34


 
 

TABLE OF CONTENTS

We have also entered into the Administration Agreement with the Administrator. Under the Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our General Counsel, Secretary and Chief Compliance Officer, our Chief Financial Officer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement the Administrator provides us with the office facilities and administrative services necessary to conduct our day-to-day operations.

The predecessor of the Advisor has granted the Company a non-exclusive, royalty-free license to use the name “Horizon Technology Finance.”

We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor may manage other investment vehicles, or Advisor Funds, with the same investment strategy as us. The Advisor may provide us an opportunity to co-invest with the Advisor Funds. Under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in such investments. Accordingly, we may apply for exemptive relief which would permit us to co-invest subject to certain conditions, including, without limitation, approval of such investments by both a majority of our directors who have no financial interest in such transaction and a majority of directors who are not interested persons of us as defined in the 1940 Act.

Critical accounting policies

The discussion of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we describe our significant accounting policies in the notes to our consolidated financial statements.

We have identified the following items as critical accounting policies.

Valuation of investments

Investments are recorded at fair value. Our Board determines the fair value of our portfolio investments. We apply fair value to substantially all of our investments in accordance with GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. We have categorized our investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. The three categories within the hierarchy are as follows:

Level 1 Quoted prices in active markets for identical assets and liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

S-35


 
 

TABLE OF CONTENTS

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Our Board determines the fair value of investments in good faith, based on the input of management, the audit committee and independent valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under our valuation policy and a consistently applied valuation process. The Board conducts this valuation process at the end of each fiscal quarter, with 25% (based on fair value) of our valuation of portfolio companies that do not have a readily available market quotations subject to review by an independent valuation firm.

Income recognition

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. For the year ended December 31, 2014, we recognized as interest income interest payments of $0.3 million received from one portfolio company whose debt investment was on non-accrual status.

We receive a variety of fees from borrowers in the ordinary course of conducting our business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, we may also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred, and along with unearned income, are amortized as a level yield adjustment over the respective term of the debt investment. All other income is recorded into income when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.

Certain debt investment agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to the extent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we do not expect the borrower to be able to pay all principal and interest due.

In connection with substantially all lending arrangements, we receive warrants to purchase shares of stock from the borrower. We record the warrants as assets at estimated fair value on the grant date using the Black-Scholes valuation model. We consider the warrants loan fees and record them as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with our income recognition policy. Subsequent to origination, the warrants are also measured at fair value using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized gain or loss on investments. Gains from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains on investments.

Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, are calculated using the specific identification method. We measure realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of our portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

S-36


 
 

TABLE OF CONTENTS

Income taxes

We have elected to be treated as a RIC under subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, we are required to meet certain source of income and asset diversification requirements, and we must timely distribute to our stockholders an amount generally at least equal to 90% of our investment company taxable income, as defined by the Code, for each tax year. We, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year distributions, we will accrue excise tax, if any, on estimated excess taxable income as taxable income is earned.

We evaluate tax positions taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with Topic 740, as modified by Topic 946, of the Financial Accounting Standards Board’s, or FASB, Accounting Standards Codification, as amended, or ASC. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, are recorded as a tax expense in the current year. It is our policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. We had no material uncertain tax positions at December 31, 2014 and 2013.

Recently issued accounting standards

In June 2013, FASB issued Accounting Standards Update 2013-08, Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements, or ASU 2013-08, containing new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to be measured at fair value and requiring certain additional disclosures. This guidance is effective for annual and interim periods beginning on or after December 15, 2013. ASU 2013-08 did not have a material impact on our consolidated financial position or disclosures.

Quantitative And Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the periods covered by our financial statements, the interest rates on the debt investments within our portfolio were at floating and fixed rates. We expect that our debt investments in the future will primarily have floating interest rates. As of December 31, 2014 and 2013, 64% and 11%, respectively, of the outstanding principal amount of our debt investments bore interest at floating rates and 36% and 89%, respectively, of the outstanding principal amount of our debt investments bore interest at fixed rates. The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index.

Assuming that the consolidated statement of assets and liabilities as of December 31, 2014 was to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates may affect net income by more than 1% over a one-year horizon. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets on the consolidated statement of assets and liabilities and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

While our 2019 Notes and Asset-Backed Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision based on a LIBOR index which resets daily, and any other credit facilities into which we enter in the future may have floating interest rate provisions. We have used hedging instruments in the past to protect us against interest rate fluctuations and we may use them in the future. Such instruments may include swaps, futures, options and forward contracts. While hedging activities may insulate us against

S-37


 
 

TABLE OF CONTENTS

adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Because we currently fund, and will continue to fund, our investments with borrowings, our net income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income.

S-38


 
 

TABLE OF CONTENTS

UNDERWRITING

We and the selling stockholder are offering the common stock described in this prospectus supplement and the accompanying prospectus through a number of underwriters. Keefe, Bruyette & Woods, Inc. and Oppenheimer & Co. Inc. are acting as representatives of the underwriters. We and the selling stockholder have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholder have agreed, severally and not jointly, to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus supplement, the number of shares of common stock listed next to its name in the following table:

 
Underwriter   Number of
Shares
Keefe, Bruyette & Woods, Inc.         
Oppenheimer & Co. Inc.         
Sterne, Agee & Leach, Inc.         
Wunderlich Securities, Inc.         
Total           

The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares of common stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are severally obligated to take and pay for all shares of common stock offered hereby (other than those covered by the underwriters’ overallotment option described below) if any such shares are taken. We, the Advisor and the selling stockholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

Overallotment Option

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an aggregate of 357,000 additional shares of common stock at the public offering price set forth on the cover page hereof, less the underwriting discounts and commissions, solely to cover overallotments, if any. To the extent such option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of common stock as the number set forth next to such underwriter’s name in the preceding table bears to the total number of shares set forth next to the names of all underwriters in the preceding table.

Lock-Up Agreements

Each of us, our directors and executive officers and the selling stockholder has agreed that, without the prior written consent of Keefe, Bruyette & Woods, Inc. on behalf of the underwriters, it will not, during the period ending 90 days after the date of this prospectus supplement:

offer pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequence of ownership of the common stock;

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.

S-39


 
 

TABLE OF CONTENTS

The restrictions described in the preceding paragraph do not apply to:

the sale of shares to the underwriters;
the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus supplement of which the underwriters have been advised in writing; or
transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares.

The 90-day restricted period described above is subject to extension such that, in the event that either during the last 17 days of the 90-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (b) prior to the expiration of the 90-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day period, the “lock-up” restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. The release of any securities subject to these lock-up agreements is considered on a case-by-case basis. Factors that would be considered by Keefe, Bruyette & Woods, Inc. in determining whether to release securities subject to these lock-up agreements may include the length of time before the lock-up agreement expires, the number of shares or other securities involved, the reason for a requested release, market conditions at the time of the requested release, the trading price of our common stock, historical trading volumes of our common stock and whether the person seeking the release is an officer, director or affiliate of ours.

Commissions and Discounts

The underwriters propose to offer the shares directly to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at a price that represents a concession not in excess of $     per share below the public offering price. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters.

The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us and the selling stockholder per share of common stock. The underwriting fee is $     per share. The following table shows the price per share of common stock and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ overallotment option.

       
  Per share   Total
     Without
Additional
Shares
  With
Additional
Shares
  Without
Additional
Shares
  With
Additional
Shares
Initial price to public   $     $     $     $  
Underwriting discounts and commissions payable by us on shares sold to the public   $     $     $     $  
Proceeds, before expenses, to us   $     $     $     $  
Proceeds, before expenses, to the selling
stockholder
  $          $          $          $       

(1) Before deducting offering expenses payable by us related to this offering, which we estimate will be approximately $100,000 (none of which are attributable to the shares being offered by the selling stockholder).
(2) The selling stockholder will pay the underwriting discounts and commissions in connection with the shares being offered by the selling stockholder pursuant to this prospectus supplement.

S-40


 
 

TABLE OF CONTENTS

Price Stabilization, Short Positions and Penalty Bids

In connection with this offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. A short sale involves syndicate sales of shares in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions.

Stabilizing transactions consist of some bids or purchases of shares of our common stock made for the purpose of preventing or slowing a decline in the market price of the shares while the offering is in progress.

In addition, the underwriters may impose penalty bids, under which they may reclaim the selling concession from a syndicate member when the shares of our common stock originally sold by that syndicate member are purchased in a stabilizing transaction or syndicate covering transaction to cover syndicate short positions.

Similar to other purchase transactions, these activities may have the effect of raising or maintaining the market price of the common stock or preventing or slowing a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. Except for the sale of shares of our common stock in this offering, the underwriters may carry out these transactions on the NASDAQ Global Select Market, in the over-the-counter market or otherwise.

We, the selling stockholder and the underwriters do not make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the shares. In addition, we, the selling stockholder and the underwriters do not make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Sales Outside the United States

No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the common stock, or the possession, circulation or distribution of this prospectus supplement or accompanying prospectus or any other material relating to us or the common stock in any jurisdiction where action for that purpose is required. Accordingly, the common stock may not be offered or sold, directly or indirectly, and none of this prospectus supplement, the accompanying prospectus or any other offering material or advertisements in connection with the common stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.

Each of the underwriters may arrange to sell common shares offered hereby in certain jurisdictions outside the United States, either directly or through affiliates, where it is permitted to do so.

Hong Kong

Shares of our common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

S-41


 
 

TABLE OF CONTENTS

Notice to Prospective Investors in the Dubai International Financial Centre

This document relates to an exempt offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with exempt offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The shares of our common stock which are the subject of the offering contemplated by this prospectus may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares of our common stock offered should conduct their own due diligence on our common stock. If you do not understand the contents of this document you should consult an authorized financial adviser.

Electronic Delivery

The underwriters may make this prospectus supplement and accompanying prospectus available in an electronic format. The prospectus supplement and accompanying prospectus in electronic format may be made available on a website maintained by any of the underwriters, and the underwriters may distribute such documents electronically. The underwriters may agree with us to allocate a limited number of common stock for sale to their online brokerage customers. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.

The addresses of the underwriters are:

Keefe, Bruyette & Woods, Inc., 787 Seventh Avenue, Fourth Floor, New York, NY 10019; Oppenheimer & Co. Inc., 85 Broad Street, 26th Floor, New York, NY 10004; Sterne, Agee & Leach, Inc., 800 Shades Creek Parkway, Birmingham, AL 35209 and Wunderlich Securities, Inc., 6000 Poplar Ave., Suite 150, Memphis, TN 38119.

Conflicts of Interest

Certain of the underwriters and their affiliates were underwriters in connection with our IPO and our subsequent debt offering, for which they received customary fees.

The underwriters and/or their affiliates from time to time provide and may in the future provide investment banking, commercial banking and financial advisory services to us, for which they have received and may receive customary compensation.

In addition, the underwriters and/or their affiliates may from time to time refer investment banking clients to us as potential portfolio investments. If we invest in those clients, we may utilize net proceeds from this offering to fund such investments, and the referring underwriter or its affiliate may receive placement fees from its client in connection with such financing, which placement fees may be paid out of the amount funded by us.

S-42


 
 

TABLE OF CONTENTS

LEGAL MATTERS

Certain legal matters regarding the shares of common stock offered by this prospectus supplement will be passed upon for us by Dechert LLP, Washington, D.C. Dechert LLP has from time to time represented the Advisor and the underwriters on unrelated matters. Certain legal matters in connection with the shares of common stock offered hereby will be passed upon for the underwriters by Freshfields Bruckhaus Deringer US LLP.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The consolidated financial statements and the effectiveness of internal control over financial reporting appearing in this prospectus and elsewhere in the registration statement have been audited by McGladrey LLP, an independent registered public accounting firm, as stated in their reports appearing elsewhere herein, and are included in reliance upon such reports and upon the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

We have filed with the SEC a registration statement, of which this prospectus supplement forms a part, on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the shares of our common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and the shares of common stock being offered by this prospectus supplement and the accompanying prospectus.

As a public company, we file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We maintain a website at www.horizontechnologyfinancecorp.com and make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available, free of charge, on or through our website. This information is also available, free of charge, by contacting us at 312 Farmington Avenue, Farmington, Connecticut 060302, Attention: Investor Relations, or by calling us collect at (860) 676-8654. The SEC maintains a website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.

S-43


 
 

TABLE OF CONTENTS

Index to Consolidated Financial Statements

 
  Page
Management’s Report on Internal Control over Financial Reporting     SF-2  
Report of Independent Registered Public Accounting Firm     SF-3  
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting     SF-4  
Consolidated Statements of Assets and Liabilities as of December 31, 2014 and 2013     SF-5  
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012     SF-6  
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2014, 2013 and 2012     SF-7  
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012     SF-8  
Consolidated Schedules of Investments as of December 31, 2014 and 2013     SF-9  
Notes to the Consolidated Financial Statements     SF-24  

SF-1


 
 

TABLE OF CONTENTS

Management’s Report on Internal Control over Financial Reporting

Management of Horizon Technology Finance Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. The Company’s internal control system is a process designed to provide reasonable assurance to management and the board of directors regarding the preparation and fair presentation of published financial statements.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles. The Company’s policies and procedures also provide reasonable assurance that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework issued in 1992. Based on the assessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm that audited the financial statements has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, which report appears herein.

SF-2


 
 

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Horizon Technology Finance Corporation

We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Horizon Technology Finance Corporation and Subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments as of December 31, 2014 and 2013, by correspondence with custodians or borrowers or by other appropriate auditing procedures where replies from custodian or borrowers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Horizon Technology Finance Corporation and Subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Horizon Technology Finance Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992, and our report dated March 10, 2015 expressed an unqualified opinion on the effectiveness of Horizon Technology Finance Corporation’s internal control over financial reporting.

/s/ McGladrey LLP
 
New Haven, Connecticut
March 10, 2015

SF-3


 
 

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting

To the Board of Directors and Stockholders
Horizon Technology Finance Corporation

We have audited Horizon Technology Finance Corporation and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Horizon Technology Finance Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Horizon Technology Finance Corporation and Subsidiaries as of December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014 and our report dated March 10, 2015 expressed an unqualified opinion.

/s/ McGladrey LLP
New Haven, Connecticut
March 10, 2015

SF-4


 
 

TABLE OF CONTENTS

Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Assets and Liabilities
(In thousands, except share data)

   
  December 31,
     2014   2013
Assets
                 
Non-affiliate investments at fair value (cost of $209,838 and $234,310, respectively) (Note 4)   $ 205,101     $ 221,284  
Investment in money market funds     27       1,188  
Cash     8,417       25,341  
Restricted investments in money market funds     2,906       5,951  
Interest receivable     4,758       4,240  
Other assets     3,987       5,733  
Total assets   $ 225,196     $ 263,737  
Liabilities
                 
Borrowings (Note 6)   $ 81,753     $ 122,343  
Distribution payable     3,322       3,315  
Base management fee payable (Note 3)     356       439  
Incentive fee payable (Note 3)     799       852  
Other accrued expenses     718       953  
Total liabilities     86,948       127,902  
Commitments and Contingencies (Notes 7 and 8)
                 
Net assets
                 
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of December 31, 2014 and 2013            
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 9,628,124 and 9,608,949 shares outstanding as of December 31, 2014 and 2013, respectively     10       10  
Paid-in capital in excess of par     155,240       154,975  
Accumulated (distributed in excess of) undistributed net investment income     (1,102 )      1,463  
Net unrealized depreciation on investments     (4,737 )      (13,026 ) 
Net realized loss on investments     (11,163 )      (7,587 ) 
Total net assets     138,248       135,835  
Total liabilities and net assets   $ 225,196     $ 263,737  
Net asset value per common share   $ 14.36     $ 14.14  

 
 
See Notes to Consolidated Financial Statements

SF-5


 
 

TABLE OF CONTENTS

Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Operations
(In thousands, except share data)

     
  Year Ended December 31,
     2014   2013   2012
Investment income
                          
Interest income on non-affiliate investments   $ 28,636     $ 31,904     $ 25,289  
Fee income on non-affiliate investments     2,618       1,739       1,375  
Total investment income     31,254       33,643       26,664  
Expenses
                          
Interest expense     8,707       8,124       4,283  
Base management fee(1) (Note 3)     4,410       5,209       4,208  
Performance based incentive fee(1) (Note 3)     2,005       3,318       2,847  
Administrative fee (Note 3)     1,113       1,169       1,082  
Professional fees     3,074       1,464       1,027  
General and administrative     1,068       848       990  
Total expenses     20,377       20,132       14,437  
Net investment income before excise tax     10,877       13,511       12,227  
Provision for excise tax (Note 7)     (160 )      (240 )      (231 ) 
Net investment income     10,717       13,271       11,996  
Net realized and unrealized (loss) gain on investments
                          
Net realized (loss) gain on investments     (3,576 )      (7,509 )      108  
Net unrealized appreciation (depreciation) on investments     8,289       (2,254 )      (8,113 ) 
Net realized and unrealized gain (loss) on investments     4,713       (9,763 )      (8,005 ) 
Net increase in net assets resulting from operations   $ 15,430     $ 3,508     $ 3,991  
Net investment income per common share   $ 1.11     $ 1.38     $ 1.41  
Net increase in net assets per common share   $ 1.60     $ 0.37     $ 0.47  
Distributions declared per share   $ 1.38     $ 1.38     $ 2.15  
Weighted average shares outstanding     9,621,011       9,583,257       8,481,604  

(1) During the years ended December 31, 2014 and 2013, the Advisor waived $238 and $144 of base management fee, respectively. During the year ended December 31, 2014, the Advisor waived $107 of performance based incentive fee. Had these expenses not been waived, the base management fee for the years ended December 31, 2014 and 2013 would have been $4,648 and $5,353, respectively, and performance based incentive fee for the year ended December 31, 2014 would have been $2,112.

 
 
See Notes to Consolidated Financial Statements

SF-6


 
 

TABLE OF CONTENTS

Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Changes in Net Assets
(In thousands, except share data)

             
  Common Stock   Paid-In
Capital in
Excess of
Par
  Accumulated
Undistributed
(distributions in
excess of) Net
Investment
Income
  Net Unrealized
(Depreciation)
Appreciation
on Investments
  Net
Realized
Gain
(Loss) on
Investments
  Total
Net Assets
  Shares   Amount
Balance at December 31, 2011     7,636,532     $ 8     $ 124,512     $ 4,965     $ (2,659 )    $ 3,058     $ 129,884  
Issuance of common stock, net of offering costs(1)     1,909,000       2       29,523                         29,525  
Net increase in net assets resulting from
operations
                      11,996 (2)      (8,113 )      108       3,991  
Issuance of common stock under dividend reinvestment plan     21,693             349                         349  
Distributions declared                       (15,533 )            (3,244 )      (18,777 ) 
Balance at December 31, 2012     9,567,225       10       154,384       1,428       (10,772 )      (78 )      144,972  
Net increase in net assets resulting from operations                       13,271 (2)      (2,254 )       (7,509 )      3,508  
Issuance of common stock under dividend reinvestment plan     41,724             591