FIDUS INVESTMENT Corp

Fidus Investment Corporation (FIC) operates as an externally managed business development company (BDC) under the Investment Company Act of 1940, as amended, and intends to qualify annually as a regulated investment company (RIC) for U.S. federal income tax purposes ⁶. The company's shares are listed on the NASDAQ Global Select Market under the symbol "FDUS" ⁶. FIC makes investments directly or through its two wholly-owned investment company subsidiaries, Fidus Mezzanine Capital III, L.P. ("Fund III") and Fidus Mezzanine Capital IV, L.P. ("Fund IV"), collectively referred to as the "SBIC Funds" ⁶. These SBIC Funds are licensed by the U.S. Small Business Administration (SBA) to operate as small business investment companies (SBICs) and utilize SBA-guaranteed debentures to enhance stockholder returns ⁶. The company's headquarters are in Evanston, Illinois, with additional offices in Charlotte, North Carolina, and New York, New York ¹⁴.

FIC's core business model involves providing customized debt and equity financing solutions to lower middle-market companies, defined as U.S.-based companies with revenues between $10.0 million and $150.0 million ⁶. The investment objective is to achieve attractive risk-adjusted returns through current income from debt investments and capital appreciation from equity-related investments ⁶. The investment strategy includes partnering with business owners, management teams, and financial sponsors to provide financing for ownership transactions, recapitalizations, strategic acquisitions, business expansion, and other growth initiatives ⁶. The company targets lower middle-market companies with annual EBITDA between $5.0 million and $30.0 million, with investments typically ranging from $5.0 million to $35.0 million per portfolio company ⁶.

The company's investment portfolio is diversified across various industries. As of December 31, 2025, the largest concentrations by fair value were Information Technology Services at 35.7% ¹¹, Business Services at 13.3% ¹¹, Specialty Distribution at 6.7% ¹¹, Healthcare Products at 6.6% ¹¹, and Utilities: Services at 5.5% ¹¹. Other notable industry segments include Healthcare Services at 5.1% ¹¹, Component Manufacturing at 4.8% ¹¹, Building Products Manufacturing at 3.7% ¹¹, Consumer Services at 3.7% ¹¹, and Retail at 3.1% ¹¹.

FIC's investments primarily consist of debt instruments, including first lien debt, second lien debt, and subordinated debt, often coupled with equity interests such as preferred stock, common stock, warrants, and other equity interests ⁹. First lien debt investments are secured by a first priority lien on assets and may include stand-alone, "last out," or "unitranche" loans, with most providing for a variable interest rate, generally with a Prime or SOFR floor ⁹. Second lien debt investments are secured by a junior lien on assets and typically involve no contractual loan amortization, often including payment-in-kind (PIK) interest ⁹. Subordinated debt is generally unsecured and ranks junior to first and second lien debt, often featuring higher fixed interest rates with cash pay and PIK components, and deferred principal amortization ⁹. Equity securities are typically direct minority investments or warrants, often acquired in conjunction with debt investments ⁹.

As of December 31, 2025, FIC had debt and equity investments in 103 portfolio companies with an aggregate fair value of $1.3 billion ⁶. The weighted average yield on debt investments as of December 31, 2025, was 12.6% ⁶. For the year ended December 31, 2025, the total return based on net asset value (NAV) per share was 12.0%, and the total return based on market value was 0.6% ⁷. As of December 31, 2025, the company's total assets were $1,324.8 million at fair value ¹⁰ and $1,299.3 million at cost ¹⁰. The geographic distribution of investments by fair value as of December 31, 2025, included the Southeast at $387.2 million (29.1%) ¹⁰, Northeast at $263.1 million (19.9%) ¹⁰, Southwest at $283.0 million (21.4%) ¹⁰, West at $213.1 million (16.1%) ¹⁰, Midwest at $162.4 million (12.3%) ¹⁰, and Canada at $16.0 million (1.2%) ¹⁰.

Comparing year-over-year, as of December 31, 2025, the aggregate fair value of investments increased to $1.3 billion from $1.1 billion as of December 31, 2024 ⁶. The number of portfolio companies increased from 91 to 103 over the same period ⁶. The weighted average yield on debt investments remained stable at 12.6% in 2025 compared to 2024 ⁶. Total return based on NAV per share decreased from 12.4% in 2024 to 12.0% in 2025, while total return based on market value significantly decreased from 20.1% in 2024 to 0.6% in 2025 ⁷. The geographic allocation of fair value shifted slightly, with the Midwest increasing from 11.1% to 12.3% and the Southeast decreasing from 31.2% to 29.1% ¹⁰. The weighted average investment rating of the portfolio remained stable at 2.0 on a fair value basis and 2.2 on a cost basis for both 2025 and 2024 ¹⁴.

During the period, Fund I and Fund II completed their wind-down plans and relinquished their SBIC licenses on March 20, 2020, and March 7, 2024, respectively ⁶. Fund III and Fund IV received their SBIC licenses on March 21, 2019, and September 30, 2024, respectively ²⁴. The company's board of directors approved the continuation of the Investment Advisory Agreement and the Administration Agreement to June 20, 2026 ¹⁹.

The company's investment objective is to provide attractive risk-adjusted returns by generating both current income from debt investments and capital appreciation from equity-related investments ⁶. The investment strategy focuses on customized financing solutions for lower middle-market companies, targeting those with predictable revenues, positive cash flows, defensible market positions, diversified customer and supplier bases, and proven management teams ⁶. The company aims to maintain a diversified portfolio across various industries and geographic regions to mitigate adverse economic events ⁶.

A major growth vector for the company is leveraging its SBIC Funds, Fund III and Fund IV, which are licensed by the SBA ⁶. These funds provide access to lower-cost capital through the SBA's SBIC debenture program, which is expected to enhance returns to stockholders ⁶. The company anticipates continuing to make investments through the SBIC Funds until they reach their borrowing limit of $350.0 million for two or more SBICs under common control ⁸. This access to lower-cost SBA leverage is a significant part of the funding strategy, aiming to keep the relative cost of debt capital lower than many competitors ⁸.

The company plans to continue its partnership-oriented investment approach, focusing on opportunities where it can add value to portfolio companies ⁸. This involves concentrating on industries and market niches where the investment professionals of its investment advisor have prior experience and expertise in structuring securities across all levels of the capital structure ⁸. As a publicly-traded BDC, the company benefits from a longer investment horizon without the capital return requirements of traditional private investment vehicles, which is expected to enable it to generate attractive risk-adjusted returns and be a better long-term partner for its portfolio companies ⁸.

Operationally, the company employs rigorous due diligence and underwriting processes focused on capital preservation, targeting companies with proven business models, significant free cash flow, defensible market positions, and substantial enterprise value cushion for debt investments ⁸. Active portfolio management is a vital part of the investment process, with continuous monitoring of portfolio companies' status and progress, including monthly financial reviews, discussions with management, and review of compliance certificates and covenants ¹³. The company structures investments with comprehensive financial maintenance covenants to provide early warnings of financial difficulty and protect invested capital ¹³.

The company's capital allocation strategy involves investing primarily in debt investments and, to a lesser extent, equity securities, with typical investment sizes ranging from $5.0 million to $35.0 million per portfolio company ⁹. The company also intends to qualify annually as a RIC, which generally requires distributing at least 90% of its investment company taxable income to stockholders ²⁵. This means that earnings will not be available to fund new investments, necessitating additional capital raising in the future to continue making investments and pursuing new business opportunities ³⁸.

Management has explicitly flagged several structural headwinds and execution risks. The company operates in a highly competitive market for investment opportunities, which could reduce returns and result in losses if it cannot match competitors' pricing, terms, and structure ³². The management and incentive fee structure may create incentives for the investment advisor that are not fully aligned with stockholder interests, potentially encouraging speculative investments or favoring deferred interest securities ³³. The company may also be obligated to pay incentive compensation even if it incurs a loss and may pay more than 20% of net capital gains due to the inability to recover payments made in previous years ³³. A general increase in interest rates could make it easier for the investment advisor to receive incentive fees without a proportional increase in net earnings for the company ³³.

Geopolitical and macro factors identified as constraints include global economic, political, and market conditions, which may adversely affect the business, results of operations, and financial condition, including revenue growth and profitability ³⁷. The company is currently operating in a period of capital markets disruption and economic uncertainty, characterized by inflationary pressures, elevated interest rates, new tariffs, trade barriers, and geopolitical conflicts, which could negatively impact its business, financial condition, and operations ³⁷. An extended disruption in capital and credit markets could increase funding costs, limit access to capital markets, or result in lenders not extending credit to portfolio companies or the company itself ³⁷. The business is also dependent on bank relationships, and recent strain on the banking system may adversely impact the company and its portfolio companies ³⁸.

The company faces significant risks, including operating in a highly competitive market for investment opportunities, which could reduce returns and lead to losses ³². Potential conflicts of interest exist due to the investment advisor's obligations to other clients and other arrangements with the advisor ³³, ³⁴. The SBIC Funds are subject to SBA regulations, which limit the amount of SBA-guaranteed debt that can be borrowed to $350.0 million for two or more SBICs under common control, and restrict distributions, potentially impacting the company's ability to maintain its RIC status ³⁴, ³⁵. Global economic, political, and market conditions, including capital markets disruption, economic uncertainty, inflationary pressures, elevated interest rates, new tariffs, trade barriers, and geopolitical conflicts, may adversely affect the business, financial condition, and operations, potentially increasing funding costs and limiting access to capital ³⁷. The company's dependence on bank relationships also poses a risk, as recent strain on the banking system could negatively impact the company and its portfolio companies ³⁸. Furthermore, the management and incentive fee structure may create incentives for the investment advisor that are not fully aligned with stockholder interests, potentially encouraging speculative investments or favoring deferred interest securities, and the company may be obligated to pay incentive compensation even if it incurs a loss ³³.

Management's message to shareholders emphasizes a commitment to providing customized debt and equity financing solutions to lower middle-market companies, with an investment objective of generating attractive risk-adjusted returns through current income and capital appreciation ⁶. They highlight the strategic importance of leveraging the experience of their investment advisor's professionals, capitalizing on a strong transaction sourcing network, and serving as a value-added partner with customized financing solutions ⁸. Management also stresses employing rigorous due diligence and underwriting processes focused on capital preservation, actively managing the portfolio, maintaining portfolio diversification, and benefiting from a lower cost of capital through the SBIC program ⁸. For the year ended December 31, 2025, the total return based on net asset value per share was 12.0% ⁷, and the total return based on market value was 0.6% ⁷. The board of directors recently approved the continuation of the Investment Advisory Agreement and the Administration Agreement to June 20, 2026 ¹⁹.