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  • Gladstone Investment Corporation Quarterly Overview for the period ended December 31, 2012
  • Legal DisclaimerThis presentation may include forward-looking statements. These forward-lookingstatements include comments with respect to our objectives and strategies, and the resultsof our operations and our business.However, by their nature, these forward-looking statements involve numerous assumptions,uncertainties and opportunities, both general and specific. The risk exists that thesestatements may not be fulfilled. We caution readers of this presentation not to place unduereliance on these forward-looking statements as a number of factors could cause futurecompany results to differ materially from these statements including those factors listedunder the caption “Risk Factors” in our 10K and 10Q filings and our registration statementas filed with the Securities and Exchange Commission, all of which can be found on ourweb site at or the SEC web site, statements may be influenced in particular by factors such as fluctuationsin interest rates and stock indices, the effects of competition in the areas in which weoperate, and changes in economic, political, regulatory and technological conditions. Wecaution that the foregoing list is not exhaustive.When relying on forward-looking statements to make decisions, investors should carefullyconsider the aforementioned factors as well as other uncertainties and events. 2
  • Overview• Gladstone Investment Corporation • Business Development Company (BDC) with publicly traded common and preferred stock • Common stock (NASDAQ: GAIN) • Preferred stock (NASDAQ: GAINP) • Current common stock dividend is $0.60 per share (per year), paid monthly at $0.05 per share • Paid $0.03 bonus dividend per common share in March 2012 • First preferred stock dividend was paid in March 2012. The annual rate per month is 7.125% or $0.1484 per share • Managed by Gladstone Management Corporation, an investment adviser registered with the SEC that manages more than a billion dollars of assets • One of a family of funds known as The Gladstone Companies ( • Focused on investing in subordinated debt, preferred stock, and common stock or warrants to purchase common stock in buyouts of private U.S. businesses • Went public in 2005 and has never missed paying a monthly dividend• Current Portfolio • Over $273 million at fair value in total investments as of December 31, 2012 • Invested in 21 companies across 15 states and 13 industries as of December 31, 2012Disclaimer: Past performance is not an indication of future performance 3
  • What is Gladstone Investment?• Gladstone Investment Corporation is a publicly traded business development company (BDC) that invests in debt and equity securities consisting primarily of senior loans, subordinated loans, mezzanine debt, preferred equity, and common stock or warrants to purchase common stock in small and medium-sized U.S. businesses in connection with buyouts and other recapitalizations.• The company seeks to: • Lend to and invest in companies with proven cash flows and successful track records led by great managers • Generate current income to pay monthly dividends to stockholders • Achieve capital gains from the sale of appreciated equity securities• Gladstone Investment is operated by an experienced management team 4
  • Experienced Management TeamDavid Gladstone, Chairman & CEO• Over 25 years of experience investing in mid-sized and small private businesses• Current Chairman and CEO of all four Gladstone public funds; these are public companies #7 - #10 in his career (most recent IPO in January 2013)• Past Chairman of Allied Capital and American Capital while both were very profitable• MBA from Harvard Business School; MA from American University; BA from University of Virginia 5
  • Experienced Management TeamTerry Brubaker, COO David Dullum, President• More than 25 years experience in • More than 25 years experience in managing businesses portfolio investing• Currently COO and head of portfolio • Currently President of Gladstone management for all four Gladstone public Investment funds • Experienced in investing, due diligence,• Previously on the acquisition team of reviewing hundreds of new opportunities James River Corp., as it grew from $200 and reviewing each new investment million to $7 billion in revenues • Past partner of New England Partners, a• Group VP of two operating divisions at small buyout fund located in Boston and James River with 2,300 employees, $440 Washington, DC million in revenue and 14 locations • Past partner of Frontenac Company for• After James River, was CEO of two over 14 years in Chicago, investing in businesses with 800 employees, $250 many mid-market businesses in the million in revenue and 4 locations Midwest• Former consultant with McKinsey & • MBA from Stanford; BS in Engineering Company from Georgia Tech• MBA from Harvard Business School; BSE in Aeronautical Engineering from Princeton University 6
  • Experienced Management Team David Gladstone Terry Brubaker David Dullum Bob CutlipChairman, CEO & President Chief Operating Officer President Sr. Managing Director 25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience Managing Directors and Directors^ Lud Kimbrough David Meier Laura Gladstone Greg Bowie Blair Gertmenian25+ Years Experience 25+ Years Experience 13 Years Experience 11Years Experience 11 Years Experience John Freal John Sateri Buzz Cooper M. Kipp Kranbuhl Erika Highland25+ Years Experience 24 Years Experience 25+ Years Experience 15 Years Experience 12 Years Experience Bob Pierce Chris Daniel Michael Beckett Chris Lee Kyle Largent25+ Years Experience 21Years Experience 18 Years Experience 12 Years Experience 11 Years Experience Jennifer Simpson Matt Tucker 14 Years Experience 15 Years ExperienceOver 20 professionals concentrating on sourcing, due diligence and portfolio management and 15 professionals in operations and reporting ^ Directors noted here are not members of the funds’ boards of directors, rather, these are junior Managing Director positions of the Adviser 7
  • Target MarketWhy we target companies in the lower middle marketSmaller companies typically offer a more compelling investment profilethan larger ones because of:  Lower purchase price multiples  Lower debt multiples  More protective covenants for lenders  Meaningful equity investment and likely multiple expansion upon exit  Small businesses are often less complicated 8
  • Examples of Investments Made in Private Businesses• Small manufacturer of a product or a service business needs money to grow• Banks will make short-term loans if the business has collateral and solid cash flow• The business gets from us: – Management expertise, – A long-term loan, but at a higher interest rate, and – Additional capital in the form of an equity co-investment• We typically get: – An attractive long-term loan that pays monthly interest that we can pass on as monthly dividends to our shareholders, – Board seats and an ownership stake in the company through our equity investment, and – Potential for accrued dividend payouts on our preferred equity, as well as capital appreciation of our common stock upon an exit 9
  • Focus on Certain IndustriesAreas where opportunities exist• Light and specialty manufacturing• Established software companies• Business services• Distribution/Logistics• Healthcare services• Consumer productsAreas we avoid and have not invested in• Housing and home mortgage companies• Banking, financial institutions or leasing companies• High technology or early stage companies 10
  • Typical Investment Structure Senior & Junior Debt Preferred & Common Stock (80%) (20%) Senior debt with a variable rate with a  Options or warrants to own Common minimum rate of 8-10% Stock Subordinated debt with a variable rate with  Preferred stock a minimum or fixed rate with current pay of  Dividend paid or accrued at 6% to 12-15% 8% per year 5-year term with interest only paid  5 year term 1st and 2nd Lien: some collateral and  Common stock reasonable cash flow coverage  Usually accompanied with the Strong inter-creditor agreement that avoid requirement that the borrower buy back blockage of interest payments our stock and warrants Reasonable covenants such as maximum  Expected gross return is 25% to 30% leverage ratios Options or success fees to enhance the return Expected gross return is 12% to 15%, depending on risk profileDisclaimer: Past performance is not an indication of future performance 11
  • Track Record as of December 31, 2012• Common Stock dividend of 5 cents per month, $0.60 per year – Raised the dividend twice in 2011 for a total increase of 25%, plus paid an extra dividend of $0.03 per share in March of 2012• Paid 91 consecutive monthly dividends as of January 31, 2013 – Dividend yield is 8.0% as of February 1, 2013 – Dividends have been 100% covered by cash earnings over the past three years• Had $345.9 million in assets and had $44.5 million of short-term borrowings (repaid January 3, 2013) and $24.5 million outstanding under the revolving credit facility – Ratio of debt to equity is relatively low for a public lending company and is always less than 1-to-1 by law• Currently invested in 21 companies across 15 states and 13 different industriesDisclaimer: Past performance is not an indication of future performance 12
  • Portfolio Diversification as of December 31, 2012 Gladstone Investment: By Industry at fair value Chemicals, Plastics, and Rubber - 22.0% Containers, Packaging, and Glass - 14.2% Machinery - 12.8% Leisure, Amusement, Motion Pictures, Entertainment - 11.1% Home and Office Furnishings - 8.9% Electronics - 8.8% Diversified/Conglomerate Manufacturing - 8.8% Aerospace and Defense - 5.1% Automobile - 3.2% Buildings and Real Estate - 2.9% Cargo Transport - 2.8% Beverage, Food and Tobacco - 0.2% 13
  • Geographic Diversification as of December 31, 2012 We have investments to businesses in states highlighted in blue 14
  • Historical Net Investment Income Net Investment Income Total Amount Amount Per FYE March 31: (in millions) Common Share 2006 $5.9 $0.36 2007 $11.1 $0.67 2008 $13.1 $0.79 2009 $13.4 $0.62 2010 $10.6 $0.48 2011 $16.2 $0.73 2012 $13.7 $0.62 2013* $14.2 $0.59 *Annualized based on nine months of operating resultsDisclaimer: Past performance is not an indication of future performance 15
  • Our Portfolio is Growing Size of interest-bearing Weighted Average Interest-Bearing Assets debt investment portfolio has increased 26% a year 225.0 Restart since we restarted Origination Activity $204.7 $202.7 origination activity, to over $200.0 Weighted Average Balance ($ mm) $200 million. $174.4 $177.1 175.0 $165.2 Size of entire portfolio has $152.5 $161.4 increased from $140 150.0 $147.3 $135.2 million to over $270 $122.7 $129.2 125.0 million, at fair value. 100.0 75.0 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Weighted Average Interest-Bearing Assets 33.2%Disclaimer: Past performance is not an indication of future performance 16
  • Interest Income and Investment Yields are Increasing Restart Interest income is 7.0 Origination Restart Activity 16% Origination $6.5 growing at 33.2% a Activity $6.5 year. $6.0 15% The yield on our $5.4 $5.5 Interest Income ($ mm) interest-bearing debt $5.1 14% 5.0 investments has $4.7 Yield (%) $4.5 $4.4 increased from 12.7% 13% 12.5% 12.5% 12.5% 12.5% 10.3% to 12.7% 4.0 $3.9 $3.8 12.0% 12.2% since we restarted $3.5 11.5% 11.8% 12% our originations. 11.3% 3.0 11% 10.3% 2.0 10% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Interest Income Yield 17 Disclaimer: Past performance is not an indication of future performance 17
  • Gladstone Statistics vs. Public Market BDCs GAIN BDC Median (3) Price to Net Asset Value 0.86x (1) 1.03x Debt to Equity (as of 12/31/12) 21.6% (2) 51.3% Dividend Yield 8.0% 9.0% Total Market Value $198 $326 (1) Selling at a discount to value (2) Excludes short-term borrowings. (3) Source: Raymond James BDC Industry Weekly Newsletter, February 8, 2013Disclaimer: Past performance is not an indication of future performance 18
  • We are a Shareholder Focused Company• Maintain the monthly distribution and dividends to stockholders and grow that distribution when earnings increase• Emphasis on stability of income first and growth in income second• Maintain liquidity so shareholder may buy or sell the stock in the market• Published quarterly reports and hold quarterly calls for shareholders• Robust informational website ( and notifications by e-mail to those who sign up• Shareholder dividend reinvestment plan for common stock• Audited by PricewaterhouseCoopers LLP• Investor Relations Hotline: (866) 366-5745• Adviser with strong reputation ( 19
  • Highlights• Experienced Management Team: Operating team with a successful track record underwriting private businesses• Successful CEO: Has a “brand name” reputation demonstrated by the success of ten public companies• Business Model: Emphasis on deal flow from a proprietary originations network and strategic relationships with LBO funds• Conservative Underwriting: Focused on the cash flow of the small value-oriented businesses• Focused on Interest Income Plus Capital Gains: Interest payments on our loans allow us to pay dividends to our shareholders and capital gains are extra 20
  • Why own Gladstone Investment Common Stock? High Monthly Dividends Paid From Cash Earnings:  Current annual yield of 8.0% as of February 1, 2013  Increased the dividend last year by 25% and paid a bonus dividend of $0.03  Dividends have been 100% covered by cash earnings over the past three years  Paid 91 consecutive monthly dividends since the IPO (over 7 years ago) Capital Gains Upside: 32% of assets are invested in the stock of businesses. The stocks do not contribute to our monthly dividend, but do provide for potential realized capital gains Conservative Balance Sheet with Low Leverage: Weighted average leverage during the latest quarter was less than 30% of net assets ($1 debt to $3 equity) Diversification: Investments in multiple companies in multiple states and industries Strong and Experienced Management: Operating team of 50+ professionals with a successful track record of investing in private businesses Liquidity for Investors: Common stock is listed on NASDAQ: GAIN Disclaimer: Past performance is not an indicator of future performance. 21
  • Other Information• Website for Gladstone Investment • • Contains much more information about our company and the companies in our portfolio• Website for our investment adviser •• Information on all funds managed by the company’s investment adviser •• Common stock traded on NASDAQ (GAIN)• Preferred stock traded on NASDAQ (GAINP) 22