Rand Capital Corporation (RAND): Business Model Canvas [11-2024 Updated]

In the ever-evolving landscape of investment management, understanding the business model of companies like Rand Capital Corporation (RAND) is crucial for investors and analysts alike. This blog post delves into the Business Model Canvas of RAND, showcasing its strategic partnerships, key activities, and diverse revenue streams. Discover how this company navigates the lower middle-market space while providing unique value propositions to its stakeholders. Read on to explore the intricate components that define Rand Capital's approach to investment and growth.

Rand Capital Corporation (RAND) - Business Model: Key Partnerships

Collaborations with portfolio companies

Rand Capital Corporation engages in strategic collaborations with its portfolio companies to enhance value creation. As of September 30, 2024, the total fair value of affiliate investments was approximately $50.9 million, with unrealized appreciation of $3.6 million. The corporation has invested in several sectors, including professional services (41.7%), manufacturing (22.0%), and consumer products (13.0%).

Partnerships with financial institutions

Rand maintains partnerships with various financial institutions to secure financing and investment opportunities. The corporation has a senior secured revolving credit facility, which was established to support its investment strategy. As of September 30, 2024, the total liabilities included $3.9 million drawn from the line of credit. These partnerships allow Rand to leverage additional capital for its investment activities, thereby enhancing its portfolio performance.

Co-investment opportunities with affiliates

Co-investment opportunities are a critical component of Rand's strategy, allowing the corporation to collaborate with affiliates managed by Rand Capital Management (RCM) and Callodine Group, LLC. An exemptive order from the SEC allows Rand to co-invest with these affiliates under established conditions. This collaboration aims to optimize investment terms and align interests. For instance, the corporation's total investments at fair value were approximately $75.0 million as of September 30, 2024.

Investment Type	Cost	Fair Value	Unrealized Appreciation
Control Investments	$6.0 million	$4.9 million	($1.1 million)
Affiliate Investments	$39.5 million	$50.9 million	$11.4 million
Non-Control/Non-Affiliate Investments	$21.5 million	$19.3 million	($2.2 million)

In total, as of September 30, 2024, Rand's strategic partnerships and collaborations have positioned it competitively in the financial landscape, with a focus on enhancing shareholder value through effective resource management and risk mitigation.

Rand Capital Corporation (RAND) - Business Model: Key Activities

Managing a diversified investment portfolio

As of September 30, 2024, Rand Capital Corporation's total investments at fair value amounted to approximately $75.04 million, with the cost of investments standing at about $67.05 million. The portfolio comprises:

Investment Type	Cost	Fair Value
Control Investments	$6,043,779	$4,919,969
Affiliate Investments	$39,484,404	$50,859,581
Non-Control/Non-Affiliate Investments	$21,524,089	$19,256,017

Net unrealized appreciation was approximately $8.0 million as of the same date.

Conducting due diligence on potential investments

Rand Capital Corporation employs a rigorous due diligence process before making investments. For the nine months ended September 30, 2024, the Corporation made new investments totaling $11.07 million, which included:

• Mattison Avenue Holdings, LLC: $5.5 million
• Mountain Regional Equipment Solutions: $3.2 million
• Seybert’s Billiards Corporation: $1.8 million
• ITA Acquisition, LLC: $458,333
• BMP Food Service Supply Holdco, LLC: $107,619

This thorough approach aims to identify opportunities with favorable risk-adjusted returns.

Monitoring and supporting portfolio companies

Rand Capital Corporation actively monitors its portfolio companies, providing managerial assistance where accepted. For the nine months ended September 30, 2024, the Corporation reported:

• Net investment income of $1,209,425
• Net realized gains on investments of $11,108,282
• Net increase in net assets from operations of $11,773,670

As of September 30, 2024, the Corporation had total stockholders' equity of $70.45 million, reflecting a per-share net asset value of $27.29.

Rand Capital Corporation (RAND) - Business Model: Key Resources

Experienced management team

Rand Capital Corporation's management team is led by President and CEO Daniel Penberthy, along with Executive Vice President and CFO Margaret Brechtel. The management team has extensive experience in investment management and operations within the financial services sector.

Access to capital through credit facilities

As of September 30, 2024, Rand Capital Corporation had access to a $25 million senior secured revolving credit facility with M&T Bank. At this date, $3.9 million had been drawn from the facility, with an interest rate of 8.46%. The facility is structured to mature on June 27, 2027, and is secured by the corporation’s portfolio assets.

Credit Facility Details	Amount Available	Amount Drawn	Interest Rate	Maturity Date
Senior Secured Revolving Credit Facility	$25 million	$3.9 million	8.46%	June 27, 2027

Investment management expertise

Rand Capital Corporation focuses on investing in lower middle-market companies with a committed management team. As of September 30, 2024, the total cost of investment securities stood at approximately $67.1 million, with a fair value of $75 million. The corporation's investment strategy emphasizes higher yielding debt instruments and equity investments, aiming for favorable risk-adjusted returns.

Investment Portfolio Summary	Cost	Fair Value	Net Unrealized Appreciation
Total Investments	$67.1 million	$75 million	$7.98 million

In the nine months ending September 30, 2024, Rand Capital made new investments totaling approximately $11 million across various portfolio companies, further demonstrating its active investment management approach.

New Investments (Nine Months Ended September 30, 2024)	Company	Investment Amount
1	Mattison Avenue Holdings, LLC	$5.5 million
2	Mountain Regional Equipment Solutions	$3.2 million
3	Seybert’s Billiards Corporation	$1.8 million
4	ITA Acquisition, LLC	$458,333
5	BMP Food Service Supply Holdco, LLC	$107,619

Rand Capital Corporation (RAND) - Business Model: Value Propositions

Focus on high-yield debt and equity investments

Rand Capital Corporation specializes in high-yield debt and equity investments, primarily targeting privately held companies. As of September 30, 2024, the total cost of investment securities stood at approximately $67.1 million, with a net unrealized appreciation of about $8.0 million. The portfolio is designed to generate significant current income while also providing opportunities for capital appreciation.

Targeting lower middle-market companies

Rand Capital's investment strategy focuses on the lower middle-market segment, which includes companies with annual revenues typically ranging from $5 million to $50 million. This sector is characterized by a high potential for growth and relatively lower competition, allowing Rand to establish strong relationships with management teams. The company has made substantial investments in this area, with notable new investments totaling approximately $11.07 million during the nine months ended September 30, 2024.

Investment	Type	Cost	Fair Value (Sept 30, 2024)
Mattison Avenue Holdings, LLC	Debt/Equity	$5,500,000	$5,500,000
Mountain Regional Equipment Solutions	Debt/Equity	$3,204,545	$3,204,545
Seybert’s Billiards Corporation	Debt/Equity	$1,800,000	$1,800,000
ITA Acquisition, LLC	Debt/Equity	$458,333	$458,333
BMP Food Service Supply Holdco, LLC	Debt/Equity	$107,619	$107,619

Potential for capital appreciation and income generation

Rand Capital aims to provide both capital appreciation and income generation through its strategic investments. For the nine months ended September 30, 2024, the company reported a net increase in net assets from operations of approximately $11.77 million. The net asset value per share (NAV) increased to $27.29 from $23.56 at the end of the previous year, reflecting a robust operational performance.

The investment portfolio, as of September 30, 2024, consisted of investments valued at approximately $75.04 million at fair value, representing a significant portion of Rand's total assets of $79.8 million. This strategic positioning allows Rand to capitalize on favorable market conditions while delivering consistent returns to its shareholders.

Rand Capital Corporation (RAND) - Business Model: Customer Relationships

Regular communication with portfolio companies

Rand Capital Corporation maintains a robust communication strategy with its portfolio companies, ensuring consistent interaction and support. As of September 30, 2024, the total cost of investment securities was approximately $67.1 million, highlighting the scale of their investment portfolio. The corporation's commitment to portfolio management includes providing managerial assistance to companies that accept such support, which is facilitated by RCM, their external investment adviser.

Transparent reporting to shareholders

Rand Capital Corporation emphasizes transparency in its financial reporting to shareholders. For the nine months ended September 30, 2024, the net increase in net assets from operations was $11,773,670, showcasing strong operational performance. The corporation reported net investment income of $1,209,425 during the same period. The total stockholders’ equity at the end of this period was $70,446,636, reflecting effective capital management.

Period	Net Increase in Net Assets	Net Investment Income	Total Stockholders’ Equity
September 30, 2024	$11,773,670	$1,209,425	$70,446,636

Active engagement in investment strategy discussions

Rand Capital Corporation actively engages in discussions regarding investment strategies with its shareholders and portfolio companies. This engagement is crucial for aligning interests and enhancing decision-making processes. As of September 30, 2024, the corporation's total investments at fair value approximated $75,035,567, which was about 107% of net assets. The effective management of these investments is supported by a strategic focus on higher yielding debt instruments and equity investments in lower middle market companies.

Investment Type	Total Investments (Fair Value)	Percentage of Net Assets
Control Investments	$4,919,969	6.98%
Affiliate Investments	$50,859,581	72.6%
Non-Control/Non-Affiliate Investments	$19,256,017	27.4%

Rand Capital Corporation (RAND) - Business Model: Channels

Investor presentations and reports

Rand Capital Corporation utilizes investor presentations to communicate its financial performance and strategic direction. As of September 30, 2024, the company reported a net increase in net assets from operations of $11,773,670, compared to $5,437,671 for the same period in 2023. The net asset value (NAV) per share increased to $27.29 from $23.56 over the same period.

Financial statements and disclosures

The corporation’s financial statements provide critical insights into its performance. As of September 30, 2024, total assets were reported at $79,798,119, a slight decrease from $81,021,982 at December 31, 2023. Total liabilities significantly decreased to $9,351,483 from $20,206,769, indicating improved financial health. The total stockholders' equity (net assets) reached $70,446,636.

Period	Total Assets	Total Liabilities	Net Assets	Net Asset Value per Share
September 30, 2024	$79,798,119	$9,351,483	$70,446,636	$27.29
December 31, 2023	$81,021,982	$20,206,769	$60,815,213	$23.56

Direct communication with stakeholders

Rand Capital Corporation maintains direct communication with stakeholders via regular updates and reports prepared by Rand Capital Management, LLC (RCM), the external investment adviser. As of September 30, 2024, the amounts payable to RCM included a base management fee of $309,265 and an income-based incentive fee of $178,218. The total due to the investment adviser amounted to $487,483.

Fee Type	Amount Payable (September 30, 2024)
Base Management Fee	$309,265
Income-Based Incentive Fee	$178,218
Total Due to Investment Adviser	$487,483

Rand Capital Corporation (RAND) - Business Model: Customer Segments

Institutional Investors

Rand Capital Corporation (RAND) actively targets institutional investors, who play a significant role in its capital structure. As of September 30, 2024, the total net assets of RAND were approximately $70.4 million. Institutional investors typically look for stable returns and risk-adjusted investments, which RAND aims to provide through its diversified portfolio of investments, primarily in lower middle-market companies.

High-Net-Worth Individuals

High-net-worth individuals (HNWIs) represent another crucial customer segment for Rand Capital. These investors often seek opportunities that offer higher yields compared to traditional investments. In the nine months ended September 30, 2024, Rand reported a net investment income of $1.2 million, which highlights its potential to attract HNWIs looking for attractive investment vehicles. Additionally, the increase in net assets from operations was $11.8 million in the same period.

Business Development Companies (BDCs)

Rand Capital also engages with other Business Development Companies (BDCs) as part of its strategy to co-invest and enhance its investment opportunities. The company’s investment portfolio includes a variety of BDCs, with total investments at fair value amounting to approximately $75.0 million as of September 30, 2024. This collaboration allows RAND to leverage the expertise and resources of other BDCs, facilitating access to additional capital and investment opportunities.

Customer Segment	Characteristics	Investment Focus	Financial Data
Institutional Investors	Stable returns, risk-adjusted investments	Diversified portfolio in lower middle-market companies	Net assets: $70.4 million as of September 30, 2024
High-Net-Worth Individuals	Seeking higher yields than traditional investments	Investment vehicles offering attractive returns	Net investment income: $1.2 million for the nine months ended September 30, 2024
Business Development Companies (BDCs)	Collaboration on investments, shared expertise	Co-investment opportunities	Total investments at fair value: $75.0 million as of September 30, 2024

Rand Capital Corporation (RAND) - Business Model: Cost Structure

Operating expenses related to investment management

The operating expenses for Rand Capital Corporation related to investment management for the nine months ended September 30, 2024, totaled approximately $5,213,568, which reflects a significant increase of 64.8% compared to $3,164,522 for the same period in 2023.

Key components of these operating expenses include:

Expense Type	Amount (Q3 2024)	Amount (Q3 2023)	Increase	% Increase
Base Management Fee	$309,265	$268,609	$40,656	15.1%
Income Based Incentive Fees	$178,218	$0	$178,218	N/A
Capital Gains Incentive Fees	$313,000	$(41,300)	$354,300	N/A
Interest Expense	$245,006	$290,522	$(45,516)	-15.7%
Professional Fees	$113,168	$120,828	$(7,660)	-6.4%
Total Expenses	$1,333,930	$809,936	$523,994	64.7%

Interest expenses on borrowed capital

As of September 30, 2024, Rand Capital Corporation had an outstanding balance of $3,900,000 drawn on its senior secured revolving credit facility, which incurs interest at a variable rate of 8.46%. The total interest expense for the nine months ended September 30, 2024, was approximately $1,028,198, compared to $707,834 for the nine months ended September 30, 2023.

The increase in interest expense can be attributed to a higher average outstanding debt balance during the reporting period. The breakdown of interest expenses is as follows:

Period	Interest Expense
Q3 2024	$1,028,198
Q3 2023	$707,834

Administrative costs and compliance expenses

Administrative costs and compliance expenses for Rand Capital Corporation have also seen an increase. For the nine months ended September 30, 2024, the total administrative costs amounted to $436,935, an increase from $392,110 in the same period in 2023. The primary components include:

• Directors' Fees: $196,950
• Insurance: $33,891
• Corporate Development: $10,813
• Other Administrative Fees: $118,167

Overall, the total administrative costs and compliance expenses reflect a focused effort to maintain regulatory compliance and effective governance within the organization while managing operational efficiency.

Rand Capital Corporation (RAND) - Business Model: Revenue Streams

Interest income from portfolio investments

As of September 30, 2024, Rand Capital Corporation reported total investment income of approximately $6.42 million for the nine months ended, reflecting an 18.7% increase compared to the same period in the previous year. Interest from portfolio companies accounted for $5.75 million of this total, which represents a 33.6% increase from $4.31 million in the nine months ended September 30, 2023. The breakdown of interest income from portfolio companies is as follows:

Type of Investment	Interest Income (Nine Months Ended September 30, 2024)	Interest Income (Nine Months Ended September 30, 2023)	Percentage Change
Control Investments	$550,535	$506,800	8.6%
Affiliate Investments	$3,522,726	$2,731,575	29.0%
Non-Control/Non-Affiliate Investments	$1,681,209	$1,067,745	57.5%
Total Interest from Portfolio Companies	$5,754,470	$4,306,120	33.6%

Dividends from equity holdings

Dividend income for Rand Capital Corporation in the nine months ended September 30, 2024, amounted to $282,135, a significant decrease of 65.7% from $821,756 in the same period of the prior year. This decline is attributed to fluctuating profitability among the LLCs and corporations in which Rand has invested. The specific dividend distributions for the nine months ended September 30, 2024, include:

Investment	Dividend Income
FS KKR	$105,600
Pennantpark	$54,600
Carlyle	$41,280
Tilson	$39,375
Barings	$31,200
Ares	$10,080
Total Dividend Income	$282,135

Fee income from advisory services

For the nine months ended September 30, 2024, Rand Capital Corporation generated fee income of $383,046, which represents a 37.1% increase compared to $279,476 in the same period in 2023. The fee income is derived from advisory services provided to portfolio companies and is segmented as follows:

Type of Fee Income	Fee Income (Nine Months Ended September 30, 2024)	Fee Income (Nine Months Ended September 30, 2023)	Percentage Change
Control Investments	$13,547	$12,726	6.5%
Affiliate Investments	$331,369	$246,816	34.2%
Non-Control/Non-Affiliate Investments	$38,130	$19,934	91.0%
Total Fee Income	$383,046	$279,476	37.1%

Updated on 16 Nov 2024

Resources:

1. Rand Capital Corporation (RAND) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Rand Capital Corporation (RAND)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Rand Capital Corporation (RAND)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.