Venture Lender Hercules Technology Pulls Out of San Diego

2/17/09Follow @bvbigelow

Hercules Technology Growth Capital (NASDAQ: HTGC), a specialty finance company based in Palo Alto, CA, has closed its San Diego office—roughly a year and a half after announcing its expansion into the San Diego venture market.

The public company, which issues loans to startup technology companies and also makes venture investments, had three employees in San Diego, including managing directors Kim Davis King and Killu Sanborn. Hercules disclosed the layoffs as part of a staff reduction of five individuals, or approximately 11 percent of its total workforce, in financial results reported last week for its fourth-quarter and year ended Dec. 31.

The company did not specify where the layoffs occurred and Hercules’ offices were closed for the holiday yesterday. So it was not possible to determine where the other two layoffs occurred. Most of Hercules’ venture lending and investment activity is focused in Silicon Valley, although the company also maintains offices in Boston, Boulder, CO, and Chicago.

While Hercules reported a 39 percent gain in fourth-quarter revenue, compared to the same period in 2007, Hercules co-founder, chairman, and CEO Manuel Henriquez described the economic environment as “unprecedented” in a conference call transcribed by the web site, Seeking Alpha. “In my 20 years as an investor, I have never seen such a dramatic and quickly deteriorating market as we are currently witnessing today,” Henriquez said.

“Hercules expects a significant and continued downturn of venture capital activities in 2009, where we are predicting for a modeling point of view to see anywhere between $20 to $22 billion of (nationwide) venture capital activities,” Henriquez told analysts. That’s a 24- to 31-percent decline from the $29 billion the venture industry invested last year.

Henriquez said during the conference call that Hercules faces a $70 million payment in April on a major line of credit, which has prompted the company to both conserve its cash and seek additional financing. “Liquidity is suddenly the Holy Grail of the financial services community, followed by a heightened and continued awareness of credit concerns,” Henriquez said. “Despite the government’s attempt to unlock the credit and capital markets, we have seen little to no activity in terms of gaining access to these credit facilities.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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