If the line in the Nov. 5 third-quarter earnings commentary from the chairman/CEO of Farmington’s Horizon Technology Finance Corp. was meant to draw attention, it did.
“While venture-capital investment remains robust … the industry is facing increased competition for new loans,” Robert D. Pomeroy Jr. stated in the earnings report.
“We are using our favorable liquidity position to compete for attractive opportunities,” Pomeroy continued, “but will not chase pricing and structures that we do not believe provide adequate risk adjusted returns.”
So, what exactly did he mean by “increased competition for new loans” and “not chasing pricing and structures”?
Horizon President Gerald Michaud was willing to elaborate.
What Pomeroy was referring to, Michaud said, was the velocity of “hot money” — from venture- and hedge-fund investors and others — hunting out fresh opportunities to redeploy proceeds collected from this year’s rich load of equity cashouts via initial public offerings, mergers/acquisitions, plus investors chasing bigger returns than are available from the stock or commodities markets or other investments.
“These markets have their own life cycles,” Michaud said.
Horizon is bumping into more of those investors in its quest to sate its appetite for bankable credits, with an equity kicker, to startup technology and life-sciences businesses, Michaud said.
The pressure Horizon’s rivals are under to deploy their capital could result in deals that make no financial sense despite their yields being higher than traditional bank loans, even before cashing in equity warrants.
That’s what Pomeroy declared that his company is working hard to avoid.
