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Venture Lending & Leasing IX

Filed: 9 Nov 18, 2:33pm


FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission file number 814-01253

Venture Lending & Leasing IX, Inc.
(Exact Name of Registrant as specified in its charter)
Maryland82-2040715
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
104 La Mesa Drive, Suite 102, Portola Valley, CA94028
(Address of principal executive offices)(Zip Code)

(650) 234-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]  No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x]   No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer [ ]Accelerated filer [ ]Non-accelerated filer [x]Smaller reporting company [ ]
Emerging growth company [ ]   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class Outstanding as of November 9, 2018
Common Stock, $.001 par value 100,000




VENTURE LENDING & LEASING IX, INC.
INDEX

PART I — FINANCIAL INFORMATION
  
Item 1.Financial Statements
  
 Condensed Statements of Assets and Liabilities (Unaudited)
 As of September 30, 2018 and December 31, 2017
  
 Condensed Statements of Operations (Unaudited)
 For the three and nine months ended September 30, 2018
  
 Condensed Statement of Changes in Net Assets (Unaudited)
 For the nine months ended September 30, 2018
  
 Condensed Statement of Cash Flows (Unaudited)
 For the nine months ended September 30, 2018
  
 Notes to Condensed Financial Statements (Unaudited)
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk
  
Item 4.Controls and Procedures
  
PART II — OTHER INFORMATION
  
Item 1.Legal Proceedings
  
Item 1A.Risk Factors
  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
  
Item 3.Defaults Upon Senior Securities
  
Item 4.Mine Safety Disclosures
  
Item 5.Other Information
  
Item 6.Exhibits
  
SIGNATURES




PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VENTURE LENDING & LEASING IX, INC.

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

 September 30, 2018 December 31, 2017
ASSETS   
Loans, at estimated fair value   
   (Cost of $51,757,518 and $0)$51,757,518
 $
Cash and cash equivalents6,189,987
 25,000
Dividend and interest receivables616,420
 
Other assets60,769
 
Total assets58,624,694
 25,000
    
LIABILITIES   
Accrued management fees1,811,250
 
Due to the manager
 184,165
Accounts payable and other accrued liabilities214,837
 $
Total liabilities2,026,087
 184,165
    
NET ASSETS$56,598,607
 $(159,165)
    
Analysis of Net Assets:   
    
Capital paid in on shares of capital stock$63,525,000
 $25,000
Accumulated undistributed deficit(1,781,371) (184,165)
Distribution in excess of net investment income(5,145,022) 
Net assets (equivalent to $565.99 and ($0.16) per share based on 100,000 shares of capital stock outstanding - See Note 6)$56,598,607
 $(159,165)
    
Commitments & Contingent Liabilities:   
Unfunded unexpired commitments (See Note 4)$24,250,000
 $


See notes to condensed financial statements



3



VENTURE LENDING & LEASING IX, INC.


CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

 For the Three Months Ended September 30, 2018  For the Nine Months Ended September 30, 2018 
      
INVESTMENT INCOME:     
Interest on loans$1,411,618
  $1,636,371
 
       Other interest and other income87,983
  107,556
 
Total investment income1,499,601
  1,743,927
 
      
EXPENSES:     
Management fees1,811,250
  3,022,058
 
Organization costs
  27,654
 
Banking and professional fees181,443
  207,115
 
Other operating expenses43,625
  84,306
 
Total expenses2,036,318
  3,341,133
 
      
Net investment loss(536,717)  (1,597,206) 
      
Net decrease in net assets resulting from operations$(536,717)  $(1,597,206) 
Net decrease in net assets resulting from operations per share$(5.37)  $(15.97) 
Weighted average shares outstanding100,000
  100,000
 
 


See notes to condensed financial statements


4



VENTURE LENDING & LEASING IX, INC.


CONDENSED STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

    
 For the Nine Months Ended September 30, 2018 
Net decrease in net assets resulting from operations:  
Net investment loss$(1,597,206) 
Net decrease in net assets resulting from operations(1,597,206) 
   
Return of capital to shareholder(5,145,022) 
Contributions from shareholder63,500,000
 
Net increase in capital transactions58,354,978
 
   
Total increase in net assets56,757,772
 
   
Net assets  
Beginning of period(159,165) 
   
End of period$56,598,607
 


 
See notes to condensed financial statements


5



VENTURE LENDING & LEASING IX INC.

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

 For the Nine Months Ended September 30, 2018 
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net decrease in net assets resulting from operations$(1,597,206) 
Adjustments to reconcile net decrease in net assets resulting from operation to net cash used in operating activities:  
Net increase in dividend and interest receivables(616,420) 
Net increase in other assets(60,769) 
Net increase in accounts payable, due to the manager, other accrued liabilities, and accrued management fees1,841,922
 
Origination of loans(57,625,000) 
Principal payments on loans5,867,482
 
Acquisition of equity securities(5,145,022) 
Net cash used in operating activities(57,335,013) 
   
CASH FLOWS FROM FINANCING ACTIVITIES:  
Contributions from shareholder63,500,000
 
Net cash provided by financing activities63,500,000
 
   
Net increase in cash and cash equivalents6,164,987
 
   
CASH AND CASH EQUIVALENTS:  
Beginning of period25,000
 
End of period$6,189,987
 
   
SUPPLEMENTAL DISCLOSURES:  
NON-CASH OPERATING AND FINANCING ACTIVITIES:   
 
Distributions of equity securities to shareholder$5,145,022
 



See notes to condensed financial statements

6



VENTURE LENDING & LEASING IX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1.ORGANIZATION AND OPERATIONS OF THE FUND
Venture Lending & Leasing IX, Inc. (the “Fund”) was incorporated in Maryland on June 28, 2017 as a non-diversified closed-end management investment company electing status as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”) and is managed by Westech Investment Advisors, LLC, (“Manager” or “Management”). The Fund will be dissolved on December 31, 2028 unless an election is made to dissolve earlier by the Board of Directors of the Fund (the “Board”). One hundred percent of the stock of the Fund is held by Venture Lending & Leasing IX, LLC (the “Company”). Prior to commencing its operations on May 2, 2018, the Fund had no operations other than accruing organizational expenses, the sale to the Company of 100,000 shares of common stock, $0.001 par value (“Shares”) in June 2017 and the receipt of $25,000 from the Company as consideration for the purchase of the Shares. This issuance of stock was a requirement to apply for a finance lender’s license from the California Commissioner of Corporations, which was obtained on September 22, 2017.

The Funds investment objective is to achieve a superior risk adjusted investment return and seeks to achieve that objective by providing debt financing to portfolio companies; most of which are private. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments and distributes these warrants to its shareholder upon receipt. The Fund also has guidelines for the percentage of total assets which will be invested in different types of assets. The portfolio investments of the Fund primarily consist of debt financing to early and expansion stage venture capital-backed technology companies.

In the Managers opinion, the accompanying condensed interim financial statements (hereafter referred to as “financial statements”) include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations for interim periods. Certain information and note disclosures normally included in audited annual financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) have been omitted; however, the Fund believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the nine months ended September 30, 2018 are not necessarily indicative of what the results would be for a full year. These financial statements should be read in conjunction with the financial statements and the notes included in the Funds Annual Report on Form 10-K for the year ended December 31, 2017.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and cash equivalents with maturities of 90 days or less. Included in this are money market mutual funds that are valued at their most recently traded price prior to the valuation date. Within cash and cash equivalents, as of September 30, 2018, the Fund held 6,939,066 units in the Blackrock Treasury Trust Institutional Fund at $1 per unit at a yield of 1.86%. Cash and cash equivalents were $6,189,987, which represented 10.9% of the net assets of the Fund.

7



Interest Income
Interest income on loans is recognized on an accrual basis using the effective interest method including amounts from the amortization of discounts attributable to equity securities received as part of a loan transaction. Additionally, fees received as part of the transaction are added to the loan discount and amortized over the life of the loan.

Investment Valuation Procedures

The Fund accounts for loans at fair value in accordance with the valuation methods below. All valuations are determined under the direction of the Manager, in accordance with those valuation methods.

The Funds loans are valued coincident with the issuance of its periodic financial statements, the issuance or repurchase of the Funds shares at a price equivalent to the current net asset value per share, and at such other times as required by law. On a quarterly basis, Management submits to the Board a valuation report and valuation notes, which details the rationale for the valuation of each investment.

As of September 30, 2018, the financial statements include nonmarketable investments of $51.8 million (or 88.3% of total assets), and as of December 31, 2017, the Fund had not yet commenced investment operations and accordingly had no nonmarketable investments. The fair value of each investment is determined by the Manager in the absence of readily determinable market values. Because of the inherent uncertainty of these valuations, estimated fair values of such investments may differ significantly from the values that would have been used had a readily available market for the securities existed, and the differences could be material. Below is the information used by the Manager in making these estimates.

Loans

The Fund defines fair value as the price that would be received to sell an asset or paid to lower a liability in an orderly transaction between market participants at the measurement date. Because there is no readily available market price and no secondary market for substantially all of the debt investments made by the Fund into borrowing portfolio companies, Management determines fair value based on hypothetical markets, and on several factors related to each borrower, including, but not limited to, the borrowers payment history, available cash and “burn rate,” revenues, net income or loss, the likelihood that the borrower will be able to secure additional financing in the future, and an evaluation of the general interest rate environment. The amount of any valuation adjustment considers estimated amount and timing of cash payments of principal and interest from the borrower and/or liquidation analysis and is determined based upon a credit analysis of the borrower and an analysis of the expected recovery from the borrower, including consideration of factors such as the nature and quality of the Funds security interests in collateral, the estimated value of the Funds collateral, the size of the loan, and the estimated time that will elapse before the Fund achieves a recovery. Management has evaluated these factors and has concluded that together, the effect of deterioration in the quality of the underlying collateral, increase in size of the loan, increase in the estimated time to recovery, and increase in the hypothetical market coupon rate would have the effect of lowering the value of the current portfolio of loans.

Non-accrual Loans

The Funds policy is to classify a loan as non-accrual when the portfolio company is delinquent for three consecutive months on its monthly loan payments, or, in the opinion of Management, either ceases or drastically curtails its operations and Management deems that it is unlikely that the loan will return to performing status. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed for the quarter in which the loan was placed on non-accrual status. Any uncollected interest related to quarters prior to when the loan was placed on non-accrual status is added to the principal balance, and the aggregate balance of the principal and interest is evaluated in accordance with the policy for valuation of loans in determining Management’s best estimate of fair value. Interest received by the Fund on non-accrual loans will be recognized as interest income if and when the proceeds received exceed the book value of the respective loan.

8



If a borrower of a non-accrual loan resumes making regular payments and Management believes that such borrower has regained the ability to service the loan on a sustainable basis, the loan is reclassified back to accrual or performing status. Interest that would have been accrued during the time a loan was classified as non-accrual will be added back to the remaining payment schedule causing a change in the effective interest rate.
As of September 30, 2018 and December 31, 2017, there were no loans classified as non-accrual.

Warrants and Equity Securities

Warrants and equity securities that are received in connection with loan transactions will be measured at a fair value at the time of acquisition. Warrants are valued based on a modified Black-Scholes option pricing model which considers, among several factors, the underlying stock value, expected term, volatility, and the risk-free interest rate. It is anticipated that such securities will be distributed by the Fund to the Company simultaneously with, or shortly following, their acquisition.
The underlying asset value is estimated based on information available, including information regarding recent rounds of funding of the portfolio company, or the publicly-quoted stock price at the end of the financial reporting period for warrants for comparable publicly-quoted securities.
Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on an index of publicly traded companies grouped by industry and which are similar in nature to the underlying portfolio companies issuing the warrant (“Industry Index”). The volatility assumption for each Industry Index is based on the average volatility for individual public companies within the portfolio company’s industry for a period approximating the expected life of the warrants. A hypothetical increase in the volatility of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The remaining expected lives of warrants are based on historical experience of the average life of the warrants, as warrants are often exercised in the event of acquisitions, mergers, or initial public offerings and terminated due to events such as bankruptcies, restructuring activities, or additional financings. These events cause the expected term to be less than the remaining contractual term of the warrants. The Fund assumed the average duration of a warrant is 3.5 years for the nine months ended September 30, 2018. The effect of a hypothetical increase in the estimated initial term of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The risk-free interest rate is derived from the constant maturity tables issued by the U.S. Treasury Department. The effect of a hypothetical increase in the estimated risk-free rate used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The Fund engages an independent valuation company to provide valuation assistance with respect to the warrants received as part of loan consideration, including an evaluation of the Fund’s valuation methodology and the reasonableness of the assumptions used from the perspective of a market participant. The independent valuation company also calculates several of the inputs used, such as volatility and risk-free rate.

Other Assets and Liabilities
As of September 30, 2018 and December 31, 2017, the fair values of Other Assets and Liabilities are estimated at their carrying values because of the short-term nature of these assets and liabilities.
Commitment Fees
Unearned income and commitment fees on loans are recognized using the effective interest method over the term of the loan. Commitment fees are carried as liabilities when received for commitments upon which no draws have been made. When the first draw is made, the fee is treated as unearned income and is recognized as described above. If a draw is never made, the forfeited commitment fee less any applicable legal costs becomes recognized as other income after the commitment expires.


9



Recent Accounting Pronouncements
    
In August 2018, the Securities and Exchange Commission (“SEC”) issued Release No. 33-10532 Disclosure Update and Simplification, which amended Regulation S-X and certain other securities laws (the “Amendments”) effective November 5, 2018. The SEC adopted the Amendments with the intention of simplifying reporting through the elimination of redundant, duplicative, overlapping, outdated, or superseded disclosure requirements. The Fund has reviewed and adopted the applicable Amendments, including with respect to Regulation S-X. The Amendments did not have a material impact on the Fund's financial statements or disclosures.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820),” which made changes to the fair value measurement disclosure requirements in ASC 820, “Fair Value Measurements and Disclosures.” The changes included new disclosure requirements, elimination of some requirements and the modification of others. ASU 2018-13 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2019. The Fund does not believe that ASU 2018-13 will have a material impact on its financial statements or disclosures, but continue to evaluate the ASU requirements.
3.     SCHEDULES OF INVESTMENTS
As of September 30, 2018, all loans were valued using significant unobservable inputs and were made to non-affiliates as follows (unaudited):

Borrower
Percentage of
Net Assets
Estimated Fair Value 9/30/2018  Par Value 9/30/2018
Final
Maturity
Date
Enterprise Networking     
SnapRoute, Inc. $3,241,916
 $3,241,916
11/1/2021
Subtotal:5.7%$3,241,916
 $3,241,916
 
      
Internet     
Amino Payments, Inc. $591,643
 $591,643
12/1/2021
Protecht, Inc. 920,038
 920,038
12/1/2021
Thrive Market, Inc. 7,107,119
 7,107,119
4/1/2022
Subtotal:15.2%$8,618,800
 $8,618,800
 
      
Medical Devices     
Medrobotics Corporation $8,844,856
 $8,844,856
6/1/2021
NeuMoDx Molecular, Inc. 3,132,543
 3,132,543
4/1/2023
Subtotal:21.2%$11,977,399
 $11,977,399
 
      
Other Healthcare     
Discover Echo, Inc. $629,899
 $629,899
12/1/2020
Subtotal:1.1%$629,899
 $629,899
 
      
Other Technology     
Aclima, Inc. $1,950,196
 $1,950,196
7/1/2021
Hint, Inc. 2,180,693
 2,180,693
8/1/2021
Kobo360 Inc.* 480,275
 480,275
9/1/2020
Make School, Inc. 930,317
 930,317
8/1/2021

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Borrower
Percentage of
Net Assets
Estimated Fair Value 9/30/2018  Par Value 9/30/2018
Final
Maturity
Date
Nevada Nanotech Systems, Inc. 893,649
 893,649
6/1/2021
Plethora, Inc. 697,076
 697,076
9/1/2021
Scoot Networks, Inc. 889,271
 889,271
3/1/2021
Strong Arm Technologies, Inc. 1,054,699
 1,054,699
5/1/2021
Theatro Labs, Inc. 1,409,778
 1,409,778
8/1/2022
Subtotal:18.5%$10,485,954
 $10,485,954
 
      
Security     
Nok Nok Labs, Inc. $956,539
 $956,539
6/1/2022
Safetrust Holdings, Inc. 439,628
 439,628
6/1/2021
Subtotal:2.5%$1,396,167
 $1,396,167
 
      
Software     
Blockdaemon, Inc. $215,332
 $215,332
8/1/2021
Dynamics, Inc. 6,118,747
 6,118,747
8/1/2021
Interana, Inc. 2,848,050
 2,848,050
6/1/2021
Invoice2Go, Inc. 818,360
 818,360
3/1/2022
Metricly, Inc. 445,550
 445,550
11/1/2021
Mines.io, Inc.* 665,410
 665,410
12/1/2021
Oohlala Mobile, Inc.* 465,687
 465,687
9/1/2021
Resilio, Inc. 193,135
 193,135
3/1/2021
Skillshare, Inc. 1,843,895
 1,843,895
6/1/2021
Workspot, Inc. 661,832
 661,832
9/1/2021
Subtotal:25.2%$14,275,998
 $14,275,998
 
      
Technology Services     
Zeel Networks, Inc. 1,131,385
 1,131,385
3/1/2022
Subtotal:2.0%$1,131,385
 $1,131,385
 
      
Total Loans (Cost of $51,757,518)91.4%$51,757,518
 $51,757,518
 
* Indicates assets that the Fund deems “non-qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of the Fund’s total assets at the time of acquisition of any additional non-qualifying assets. As of September 30, 2018, 2.8% of the Fund’s assets represented non-qualifying assets. As part of this calculation, the numerator consists of all eligible portfolio companies as defined in Section 2(a)(46) of the 1940 Act; and the denominator consists of total assets less the assets described in Section 55(a)(7) of the 1940 Act.

As of December 31, 2017, the Fund had not yet commenced investment operations and accordingly had no loans or other investments to report.
4. FAIR VALUE DISCLOSURES
The Fund primarily provides asset-based financing to start-up and emerging growth venture-backed companies which are generally made to borrowers pursuant to commitments whereby the Fund agrees to finance assets and provide working or growth capital up to a specified amount for the term of the commitment, upon the terms and subject to the

11



conditions specified by such commitment. Even though these loans are generally secured by the assets of the borrowers, the Fund in most cases is subject to the credit risk of such companies. As of September 30, 2018, the Funds investments in loans were primarily to companies based within the United States and it is anticipated that the Fund’s portfolio will be well diversified and consist of companies in the communications, information services, media, and technology, including software and technology-enabled business services, bio-technology, and medical devices industry sectors, among others. The percentage of net assets that each industry group represents is shown with the industry totals above (the sum of the percentages does not equal 100 percent because the percentages are based on net assets as opposed to total loans). All loans are senior to unsecured creditors and other secured creditors, unless as indicated in the Schedule above.

The Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale. Because there is no readily available market price and no secondary market for substantially all of the debt investments made by the Fund to borrowing portfolio companies, Management determines fair value (or estimated exit value) based on a hypothetical market, and several factors related to each borrower.

Loan balances in the tables above are summarized by borrower. Typically, a borrowers balance will be composed of several loans drawn under a commitment made by the Fund with the interest rate on each loan fixed at the time each loan is funded. Each loan drawn under a commitment may have a different maturity date and amount.

For the three months and for the period from May 2, 2018, the commencement of investment operations, through September 30, 2018, the weighted-average interest rate on performing and all loans were 16.24% and 15.35%, respectively, which were inclusive of both cash and non-cash interest income. For the three months and for the period from May 2, 2018, the commencement of investment operations, through September 30, 2018, the weighted-average interest rate on the cash portion of the interest income were 12.23% and 11.48%, respectively.

Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants and new loans funded during the period.

The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and loan as described in our loan accounting policy. Such changes result in the fair value adjustments made to the individual loans, which in accordance with GAAP, would be based on the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date. Where the risk profile is consistent with the original underwriting, which is primarily the case for this loan portfolio, the par value of the loan will approximate fair value.

As of September 30, 2018 and December 31, 2017, the Fund has unexpired commitments to borrowers of $24.3 million and $0, respectively.

Valuation Hierarchy
Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10 “Fair Value Measurement”, the Fund categorizes its fair value measurements according to in a three-level hierarchy. The hierarchy prioritizes the inputs used by the Funds valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:


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Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Transfers of investments between levels of the fair value hierarchy are recorded on the actual date of the event or change in circumstances that caused the transfer. There were no transfers in and out of Level 1, 2, and 3 during the period ended September 30, 2018.

The Funds cash equivalents were valued at the traded net asset value of the money market mutual fund, and therefore, these measurements are classified as Level 1.

The Fund’s loan transactions are individually negotiated and unique, and because there is no market in which these assets trade, the inputs for these assets, which are valued using estimated exit values, are classified as Level 3.  

The following table provides quantitative information about the Fund’s Level 3 fair value measurements of its investments as of September 30, 2018. In addition to the techniques and inputs noted in the tables below, the Fund may also use other valuation techniques and methodologies when determining its fair value measurements.

Investment Type - Level 3
Debt Investments Fair Value at 9/30/18 Valuation Techniques / Methodologies Unobservable Input Weighted Average / Amount / Range
         
Internet $8,618,800
 Hypothetical market analysis Hypothetical market coupon rate 15%
         
Medical Devices $11,977,399
 Hypothetical market analysis Hypothetical market coupon rate 19%
         
Other Technology $10,485,954
 Hypothetical market analysis Hypothetical market coupon rate 17%
         
Security $1,396,167
 Hypothetical market analysis Hypothetical market coupon rate 16%
         
Software $14,275,998
 Hypothetical market analysis Hypothetical market coupon rate 21%
         
Other* $5,003,200
 Hypothetical market analysis Hypothetical market coupon rate 15%
         
  51,757,518
      
*Other loans, as of September 30, 2018, were comprised of companies in the Enterprise Networking, Other Healthcare and Technology Services industries.

The following tables present the balances of assets and liabilities as of September 30, 2018 and December 31, 2017 measured at fair value on a recurring basis:


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As of September 30, 2018Level 1 Level 2 Level 3 Total
ASSETS:       
Loans
$
 $
 $51,757,518
 $51,757,518
Cash equivalents$6,939,066
 $
 $
 $6,939,066
Total$6,939,066
 $
 $51,757,518
 $58,696,584

As of December 31, 2017Level 1 Level 2 Level 3 Total
ASSETS:       
Cash equivalents$25,000
 $
 $
 $25,000
Total$25,000
 $
 $
 $25,000
† For a detailed listing of borrowers comprising this amount, please refer to Note 3, Schedule of Investments.

    
The following tables provide a summary of changes in Level 3 assets measured at fair value on a recurring basis:
 For the Three Months Ended September 30, 2018
 Loans Warrants
Beginning balance$19,527,403
 $
Acquisitions and originations35,625,000
 3,129,795
Principal reductions and amortization discounts(3,394,885) 
Distributed to shareholder
 (3,129,795)
Ending balance$51,757,518
 $

 For the Nine Months Ended September 30, 2018
 Loans Warrants
Beginning balance$
 $
Acquisitions and originations57,625,000
 5,145,022
Principal reductions and amortization discounts(5,867,482) 
Distributed to shareholder
 (5,145,022)
Ending balance$51,757,518
 $
5.EARNINGS PER SHARE
Basic earnings per share are computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average common shares outstanding. Diluted earnings (loss) per share are computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average common shares outstanding, including the dilutive effects of potential common shares (e.g., stock options). The Fund held no instruments that would be potential common shares; thus, reported basic and diluted earnings (loss) per share are the same.
6.CAPITAL STOCK
As of September 30, 2018 and December 31, 2017, the Fund had 10,000,000 shares authorized, and 100,000 Shares issued and outstanding. Total committed capital of the Company, as of September 30, 2018 and December 31, 2017, was $460.0 million and $450.0 million, respectively. Total contributed capital to the Company through September 30, 2018 and December 31, 2017 was $96.6 million and $25,000, respectively, and of which $63.5 million and $25,000 were contributed to the Fund.

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The chart below shows the distributions of the Fund for the nine months ended September 30, 2018.

 For the Nine Months Ended September 30, 2018
Distributions of equity securities$5,145,022
Total distributions to shareholder$5,145,022

Final classification of the distributions as either a return of capital or a distribution of income is an annual determination made at the end of each year dependent upon the Fund’s current year and cumulative earnings and profits.

7.MANAGEMENT FEE
As compensation for its services to the Fund, from the date of the first capital call, May 1, 2018 to June 30, 2018, the Manager received a management fee (“Management Fee”) computed and paid at the end of the quarter at an annual rate of 1.575% of the Company's committed equity capital (regardless of when or if the capital was called). The Management Fee percentage will remain 1.575% through June 30, 2019, based on the following schedule of annual percentages:
  Management Fee
Year 1 1.575%
Year 2 1.600%
Year 3 1.575%
Year 4 1.500%
Year 5 1.250%
Year 6 0.900%
Year 7 0.600%
Year 8 0.350%
Year 9 0.150%
Management fees of $1.8 million and $3.0 million were recognized as expenses for the three months ended September 30, 2018 and for the period from May 1, 2018 to September 30, 2018, respectively.
8.FINANCIAL HIGHLIGHTS

GAAP requires disclosure of financial highlights of the Fund for the three and nine months ended September 30, 2018.

The total rate of return is defined as the return based on the change in value during the period of a theoretical investment made at the beginning of the period. The total rate of return assumes a constant rate of return for the Fund during the period reported and weights each cash flow by the amount of time held in the Fund. This required methodology differs from an internal rate of return.

The ratios of expenses and net investment income (loss) to average net assets, calculated below, are annualized and are computed based upon the aggregate weighted average net assets of the Fund for the periods presented. Net income (loss) is inclusive of all income net of expenses, and excludes realized or unrealized gains and losses.

Beginning and ending net asset values per share are based on the beginning and ending number of shares outstanding. Other per share information is calculated based upon the aggregate weighted average net assets of the Fund for the period presented.

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The following per share data and ratios have been derived from the information provided in the financial statements:

 For the Three Months Ended September 30, 2018 For the Nine Months Ended September 30, 2018
    
Total return*(1.03)% 157.97 %
    
Per share amounts:   
Net asset value, beginning of period$512.65
 $(1.59)
Net investment loss(5.37) (15.97)
Net decrease in net assets from operations(5.37) (15.97)
Return of capital to shareholder(31.29) (51.45)
Contributions from shareholder90.00
 635.00
 

  
Net asset value, end of period$565.99
 $565.99
  
  
Net assets, end of period$56,598,607
 $56,598,607
    
Ratios to average net assets:   
Expenses**15.62 % 21.59 %
Net investment loss**(4.12)% (10.32)%
Portfolio Turn-over rate0%
 0%
* Total return for the three and nine months ended September 30, 2018 reflect the startup of the investment operations and were not driven by the performance of the investment portfolio. The nine month total return figure is a reflection of the Fund's negative capital at the start of the its life.
**Annualized
9.     SUBSEQUENT EVENTS
The Fund evaluated subsequent events through the date the financial statements were issued, November 9, 2018, and determined that no additional subsequent events had occurred that would require accrual or disclosure in the financial statements.

(Intentionally left blank)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information contained herein, the information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Fund with respect to future events and financial performance and are subject to several risks and uncertainties, many of which are beyond the Fund’s control. All statements, other than statements of historical facts included in this report, regarding the strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Fund are forward-looking statements. When used in this report, the words “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Fund does not undertake any obligation to update or revise publicly any forward-looking statements, whether resulting from new information, future events or otherwise.

The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Fund’s actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, competition and macro-economic changes including inflation, interest rate expectations, among other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Fund’s business.

Overview

The Fund is 100% owned by the Company. The Fund’s shares of Common Stock, at $0.001 par value, were sold to its sole shareholder, the Company, under a stock purchase agreement. The Fund has issued 100,000 of the Fund’s 10,000,000 authorized shares. The Company may make additional capital contributions to the Fund.

The Fund is a financial services company providing financing and advisory services to a variety of carefully selected venture-backed companies that have received equity funding from traditional sources of venture capital equity funding (e.g., a professionally managed venture capital firm) as well as non-traditional sources of venture capital equity funding (e.g., angel investors, strategic investors, family offices, crowdfunding investment platforms, etc.) ("Venture-Backed Companies") primarily throughout the United States with a focus on growth-oriented companies. It is anticipated that the Fund’s portfolio will be well diversified and consist of companies in the communications, information services, media, and technology, including software and technology-enabled business services, bio-technology, and medical devices industry sectors, among others. The Fund’s capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital. On May 1, 2018, the Company called and received its first capital from investors. On May 2, 2018, the Fund made its first investment, and became a non-diversified, closed-end investment company under the 1940 Act. While the Fund intends to operate as a non-diversified investment company within the meaning of Section 5(b)(2) of the 1940 Act, from time to time, the Fund may act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act.

The Fund expects to eventually elect to be treated a Regulated Investment Company (“RIC”) under the Internal Revenue Code (the "Code") for federal income tax purposes. Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income it distributes to the Company as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.

To qualify as a RIC under the Code, the Fund is required to meet various ongoing requirements, including those for asset diversification. If the Fund fails to meet these requirements, it will be taxed as an ordinary corporation on its taxable income for that year (even if that income is distributed to the Company) and all distributions out of its earnings and profits will be taxable to the Members of the Company as ordinary income; thus, such income will be

17



subject to a double layer of tax. There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.

The Fund’s investment objective is to achieve superior risk adjusted investment returns by primarily providing debt financing to portfolio companies. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments and either upon receipt, or soon thereafter, it will generally distribute these warrants to its shareholder. The Fund also maintains limits for the percentages of total assets which will be invested in different types of assets.

The portfolio investments of the Fund primarily consist of debt financing to Venture-Backed Companies in the technology sector. The borrower’s ability to repay its loans may be adversely impacted by several factors, and as a result, the loan may not be fully repaid. Furthermore, the Fund’s security interest in any collateral over the borrower’s assets may be insufficient to make up any shortfall in payments.

 Transactions with Venture Lending & Leasing VIII, Inc. (“Fund VIII”)  

The Manager also serves as manager for Fund VIII.  The Fund's Board of Directors determined that so long as Fund VIII has capital available to invest in loan transactions with final maturities earlier than December 31, 2025 (the date on which Fund VIII will be dissolved), the Fund may invest in each portfolio company in which Fund VIII invests (“Investments”).  Generally, the amount of each Investment will be allocated 50% to the Fund and 50% to Fund VIII, or such other allocations as may be determined by the respective fund boards.  The ability of the Fund to co-invest with Fund VIII is subject to the conditions (“Conditions”) set forth in certain exemptive relief currently being sought by the Fund from the SEC from the provisions of Sections 17(d) and 57 of the 1940 Act and Rule 17d-1 thereunder.   After June 30, 2022, the Fund will no longer be permitted to enter into new commitments to borrowers; however, the Fund will be permitted to fund existing commitments.  The Manager is permitted to extend the Fund's investment period by up to two (2) additional calendar quarters in its sole and absolute discretion.
 
To the extent that clients, other than Fund VIII, advised by the Manager invest in opportunities available to the Fund, the Manager will also allocate such opportunities among the Fund and such other clients in a manner deemed fair and equitable considering all of the circumstances in accordance with the Conditions.

Critical Accounting Policies
Critical Accounting Policies and Practices are those accounting policies and practices that are both the most important to the portrayal of the Fund’s net assets and results of operations and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on net assets or operating performance is material.
In evaluating the most critical accounting policies and estimates, the Manager has identified the estimation of fair value of the Fund’s loan investments as the most critical of the accounting policies and accounting estimates applied to the Fund’s reporting of net assets or operating performance. In accordance with GAAP, the Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale. There is no readily available market price or secondary market for the loans made by the Fund to borrowers, hence Management determines fair value based on a hypothetical market and the estimates are subject to high levels of judgment and uncertainty. The Fund’s loan investments are considered Level 3 fair value measurements in the fair value hierarchy due to the lack of observability over many of the important inputs used in determining fair value.
Critical judgments and inputs in determining the fair value of a loan include payment history, available cash and “burn rate,” revenues, net income or loss, operating results, financial strength of borrower, prospects for the borrower’s raising future equity rounds, likelihood of sale or acquisition of the borrower, length of expected holding

18



period of the loan, collateral position, the timing and amount of liquidation of collateral for loans that are experiencing significant credit deterioration and collection becomes collateral dependent as well as an evaluation of the general interest rate environment. The Manager has evaluated these factors and has concluded that the effect of a deterioration in the quality of the underlying collateral, increase in the size of the loan, increase in the estimated time to recovery, and increase in the hypothetical market coupon rate would have the effect of decreasing the fair value of loan investments. The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and the loan. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, the par value of the loan often approximates fair value.
The actual value of the loans may differ from management’s estimates, which would affect net change in net assets resulting from operations as well as assets.

Results of Operations - For the three and nine months ended September 30, 2018
Total investment income for the three and nine months ended September 30, 2018 was $1.5 million and $1.7 million, respectively, and which primarily consisted of interest received on the venture loans outstanding. The remaining income consisted of interest and dividends on the temporary investment of cash. The average gross outstanding performing and all loans for the three and nine months ended September 30, 2018 were $34.8 million and $14.2 million, respectively. The average interest rate on the gross outstanding performing and all loans for the same periods were 16.24% and 15.35%, respectively. Both the increase in the average gross outstanding balances and interest rates contributed to the increase in investment income. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants, and new loans funded during the year.
    
Organization costs were $0 and less than $0.1 million for the three and nine months ended September 30, 2018.

Banking and professional fees were $0.2 million and $0.2 million for the three and nine months ended September 30, 2018, respectively. Banking and professional fees were primarily from the accrual of the audit review conducted in the second quarter of 2018.

Management fees for the three and nine months ended September 30, 2018 were $1.8 million and $3.0 million. Management fees were calculated as 1.575% of committed capital and remain at this percentage for the next three quarters based on the schedule of annual percentages below. For the nine months, the fees calculated from May 1, 2018, the date of the first capital call, to September 30, 2018.

Annual Period Management Fee
Year 1 1.575%
Year 2 1.600%
Year 3 1.575%
Year 4 1.500%
Year 5 1.250%
Year 6 0.900%
Year 7 0.600%
Year 8 0.350%
Year 9 0.150%
    
Other operating expenses for the three and nine months ended September 30, 2018 were less than $0.1 million.

    

19



Net investment loss and net decrease in net assets resulting from operations for the three and nine months ended September 30, 2018 were $0.5 million and $1.6 million, respectively. On a per share basis, the net decrease in net assets resulting from operations for the three and nine months ended September 30, 2018 were $5.37 and $15.97, respectively.

Liquidity and Capital Resources – September 30, 2018 and December 31, 2017

Total capital contributed to the Fund was $63.5 million and $25,000 as of September 30, 2018 and December 31, 2017, respectively. Committed capital to the Company as of September 30, 2018 and December 31, 2017 was $460.0 million and $450.0 million, respectively, of which $96.6 million and $25,000 had been called as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, the remaining available committed capital was $363.4 million of committed capital, which expires on the Fund’s fifth anniversary of its first investment unless extended. Management is permitted to extend the Fund’s investment period by up to two (2) additional calendar quarters in its sole and absolute discretion.

     As of September 30, 2018 and December 31, 2017, 10.6% and 100.0% of the Fund's total assets consisted of cash and cash equivalents, respectively. For the nine months ended September 30, 2018, the Fund invested $57.6 million in venture loans. Net loan amounts outstanding were $51.8 million for the same period. Unexpired, unfunded commitments totaled approximately $24.3 million as of September 30, 2018.

As of
Cumulative Amount
Disbursed
Principal
Reductions and Fair
Market Adjustments
Balance
Outstanding - Fair
Value
Unexpired
Unfunded
Commitments
September 30, 2018$57.6 million$5.9 million$51.8 million$24.3 million

Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid. It is the Management’s experience that not all unfunded commitments will be used by borrowers.

The Fund will seek to meet the requirements to qualify for the special pass-through status available to RICs under the Code, and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it distributes to its shareholder. To qualify as a RIC, the Fund must distribute to its shareholder for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) (“Distribution Requirement”). To the extent that the terms of the Fund’s venture loans provide for the receipt by the Fund of additional interest at the end of the loan term or provide for the receipt by the Fund of a purchase price for the asset at the end of the loan term (“residual income”), the Fund would be required to accrue such residual income over the life of the loan, and to include such accrued undistributed income in its gross income for each taxable year even if it receives no portion of such residual income in that year. Thus, in order to meet the Distribution Requirement and avoid payment of income taxes or an excise tax on undistributed income, the Fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of income it actually receives. Those distributions will be made from the Fund’s cash assets, from amounts received through amortization of loans or from borrowed funds.

As of September 30, 2018, the Fund has cash reserves of $6.2 million and approximately $16.3 million in scheduled receivable payments over the next twelve months. Additionally, the Fund has access to uncalled capital of $363.4 million as a liquidity source. Together, these amounts are sufficient to meet the current commitment backlog and operational expenses of the next year. The Fund regularly evaluates potential future liquidity resources and demands before making additional future commitments.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Fund’s business activities contain various elements of risk of which Management considers interest rate and credit risk to be the principal types of risks. Because the Fund considers the management of risk essential to conducting its business and to maintaining profitability, the Fund’s risk management procedures are designed to identify and analyze the Fund’s risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.  

The Fund manages its market risk by maintaining a portfolio that is diverse by industry, size of investment, stage of development, and borrower. The Fund has limited exposure to public market price fluctuations as the Fund primarily invests in private business enterprises and distributes all equity investments upon receipt to the Company.

The Fund’s investments are subject to market risk based on several factors, including, but not limited to, the borrower’s credit history, available cash, support of the borrower’s underlying investors, available liquidity, “burn rate,” revenue income, security interest, secondary markets for collateral, the size of the loan, and term of the loan, and the ability to exit via Initial Public Offering or Merger and Acquisition.

The Fund’s exposure to interest rate sensitivity is regularly monitored and analyzed by measuring the characteristics of assets and liabilities. The Fund utilizes various methods to assess interest rate risk in terms of the potential effect on interest income net of interest expense, the value of net assets and the value at risk in an effort to ensure that the Fund is insulated from any significant adverse effects from changes in interest rates.

Because the Fund’s loans all impose a fixed interest rate upon funding, changes in short-term interest rates will not directly affect interest income associated with the loan portfolio as of September 30, 2018. However, those changes could have the potential to change the Fund’s ability to originate loan commitments, acquire and renew bank facilities, and engage in other investment activities. Further, changes in short-term interest rates also could affect interest rate expense, realized gain from investments and interest on the Fund’s short-term investments.
Based on the Fund’s Condensed Statement of Assets and Liabilities as of September 30, 2018, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in investments and cash balances.
 
Effect of Interest rate change byOther Interest and Other Income/(Loss)Total Income/(Loss)
(0.50)%$(30,950)$(30,950)
1%$61,900$61,900
2%$123,800$123,800
3%$185,700$185,700
4%$247,599$247,599
5%$309,499$309,499

Although Management believes that the foregoing analysis is indicative of the Fund’s sensitivity to interest rate changes, it does not take into consideration potential changes in the credit market, credit quality, size and composition of the assets in the portfolio. It also does not assume any new funding to borrowers, repayments from borrowers or defaults on borrowings. Accordingly, no assurances can be given that actual results would not differ materially from the table above.


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Item 4.  Controls and Procedures:

Evaluation of Disclosure Controls and Procedures:

As of the end of the period covered by this quarterly report on Form 10-Q, the Fund’s chief executive officer and chief financial officer conducted an evaluation of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934). Based upon this evaluation, the Fund’s chief executive officer and chief financial officer concluded that the Fund’s disclosure controls and procedures were effective in timely alerting them of any material information relating to the Fund that is required to be disclosed by the Fund in the reports it files or submits under the Securities Exchange Act of 1934.

Changes in Internal Controls:

There were no changes in the Fund’s internal controls over financial reporting or in other factors that could have materially affected, or is reasonably likely to materially affect, the Fund’s internal controls over financial reporting during the period covered by this quarterly report on Form 10-Q.

(Intentionally left blank)

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PART II OTHER INFORMATION

Item 1.  Legal Proceedings

The Fund may become party to certain lawsuits from time to time in the normal course of business. While the outcome of any legal proceedings cannot now be predicted with certainty, the Fund does not expect any such proceedings will have a material effect upon the Fund’s financial condition or results of operation. Management is not aware of any pending legal proceedings involving the Fund.

Item 1A. Risk Factors

The following discussion point should be read in conjunction with Item 1A - “Risk Factors” in the Fund’s 2017 Annual Report on Form 10-K for a detailed description of the risks attendant to the Fund and its business.

Changes to U.S. trade policy may have a negative effect on the global economy and/or our portfolio companies and, in turn, harm the Fund.

Significant changes to U.S. trade policy, including changes to current legislation and trade agreements and the imposition of tariffs have been discussed by the current U.S. presidential administration and certain members of Congress. Recently, the administration has imposed tariffs on a range of goods imported into the U.S., and a few countries have retaliated with tariffs against the United States. These retaliatory actions could trigger extended “trade wars” between the U.S. and its trading partners, resulting in additional barriers to the international market, inclusive of customers, vendors, and potential investors. Under these circumstances, the cost of goods for some portfolio companies could increase, resulting in lower consumer demand for their goods and reduced cash flows. While it is unknown whether and to what extent new legislation will be enacted into law, the enactment or amendment of trade legislation and/or renegotiation of trade agreements may impose additional compliance costs on portfolio companies, restrict their ability to participate in international markets and otherwise disrupt their current operations.

Special risk considerations have arisen relating to Saudi Arabia.

Investments in portfolio companies that receive funding from sources with direct or indirect ties to Saudi Arabia involve special considerations not typically associated with investments in other assets. These risks include, among others, the possibility that Saudi investment may decrease or become unavailable as a result of restrictions imposed against the Saudi government or funding sources with direct or indirect ties to Saudi Arabia. Recent allegations against the Saudi Arabian government relating to the death of an American-based journalist have exacerbated these risks, as several multinationals have severed ties or indicated their intent to substantially reduce or terminate business relationships with Saudi Arabia and some foreign countries have signaled that their diplomatic relations with Saudi Arabia may be negatively impacted, including through the possible imposition of sanctions, which could also result in retaliatory actions. Given Saudi Arabia’s significant venture investment activities, portfolio companies that receive funding from sources with direct or indirect ties to Saudi Arabia, particularly those tied to the Saudi government, and the venture capital sector as a whole, may experience decreased access to capital, be unable to obtain funding, or experience significant financial setbacks or disruptions. Additionally, companies with contracts with Saudi Arabia or with companies within Saudi Arabia could experience deleterious effects of the political situation.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Prior to the Fund's commencement of operations on May 2, 2018, the Fund sold 100,000 Shares to the Fund’s sole shareholder, the Company, for $25,000 in June 2017. No other shares of the Fund have been sold; however, the Fund received an additional $63.5 million of paid in capital during the period from May 2, 2018, commencement of operations, through September 30, 2018, which is expected to be used to acquire venture loans and fund operations.


23



Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.


24



Item 6.  Exhibits



25



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VENTURE LENDING & LEASING IX, INC.
(Registrant)

By:/s/ Maurice C. WerdegarBy:/s/ Martin D. Eng
Maurice C. WerdegarMartin D. Eng
President and Chief Executive OfficerChief Financial Officer
(Principal Executive Officer)(Principal Financial Officer)
Date:November 9, 2018Date:November 9, 2018


26



EXHIBIT INDEX

Exhibit NumberDescription
31.1-32.2Certifications pursuant to The Sarbanes-Oxley Act of 2002.


          









27