MercuryNews.com | 08/16/2006 | VC Deals: Hercules allows investment in pre-IPO start-ups“Hercules invests primarily in high-tech companies, usually through “mezzanine” debt financings coupled with an equity component such as stock warrants or options, in private companies previously funded by leading venture capital firms. The loans are typically secured by some or all of the assets of the portfolio company, according to Hercules’ regulatory filings.As a “registered investment company,” Hercules receives certain tax breaks so long as it distributes to shareholders at least 90 percent of its net ordinary income and any net short-term capital gains it realizes that are greater than its long-term capital losses. During the first six months of 2006 it paid out $6 million in dividends.Because Hercules distributes most of its income to stockholders it needs additional capital to finance growth. It raised $34 million in April, selling 3.4 million more shares at $10.55 each less than a year after its IPO.”