An Easier Way to Invest in Tomorrow’s Innovators

Shah Gilani|August 15, 2022

Have you ever dreamed of being an early investor in a high-flying tech company like Meta (FB), but you’re not sitting on an extra $10 million, $25 million, or $50 million to invest early in a company’s history?

Of course, you have. We all have!

Today, I want to introduce you to a simple but relatively unknown investment that lets you ride alongside venture capital firms while at the same time receiving inflation-beating cash distributions.

I’m talking about Business Development Companies, also known as BDCs for short.

A business development company is an organization that invests in small- and medium-sized companies in the initial stages of their development.

BDCs allow smaller, nonaccredited investors to invest in them (the BDC), and by extension, in small growth companies.

And, because BDCs are regulated investment companies (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don’t pay corporate income tax on profits before distributing them to shareholders.

That makes BDCs a great way for individual investors to get paid healthy dividends as early investors, especially when the BDC uses floating rate loans that produce more money when rates rise.

One of my favorite BDCs is Hercules Capital, Inc (HTGC).

HTGC provides venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development – from startups to expansion stage, including select publicly listed companies.

Previous clients included social media darlings Facebook and Pinterest; tech-darlings like 23andMe; and Covid favorites, Postmates.

In addition to having a keen eye on early-stage investments, a whopping 94% of HTGC’s investments are floating rate loans with interest rate floors.

That means when interest rates rise, so do the profits that HTGC generates – and because HTGC must distribute over 90% of their profits to shareholders, they have the ability to pay out inflation-beating dividends.

Speaking of which, at the current price, HGTC is delivering a juicy 9.03% yield.

So, if you’re looking for a way to generate huge yields while at the same time having exposure to early-stage investment opportunities, consider HTGC.

Make sure to check back in next Monday and every Monday thereafter, as I take some time to draw your attention to a series on inflation-beating investment ideas.

Until then, have a great week.

Cheers

Shah