SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q  x
  QUARTERLY REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ending March 31, 2001oro
  TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
  from ___________ to ______________
 Commission file number 0-29591 Venture
  Lending & Leasing III, Inc.(Exact Name of
  Registrant as specified in its charter)Maryland
  77-0534084(State or other
  jurisdiction of incorporation or
  (I.R.S. Employeror organization)
  Identification No.)2010
  North First Street, Suite 310, San Jose, CA 95131(Address of principal
  executive offices) (Zip Code)(408)
  436-8577(Registrants
  telephone number, including area code)
 Indicate by check mark whether the
registrant has (i) filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days.
YesxNoo Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date: Class
  Outstanding as of May
  7, 2001Common Stock, $.001par
  value
  100,000
   VENTURE LENDING & LEASING III, INC.

INDEX

PART I  FINANCIAL INFORMATIONItem 1.
  Financial StatementsStatement
  of Financial Position (Unaudited) As of March 31, 2001 and December 31, 2000Statement of Operations
  (Unaudited) For the Three Months Ended March 31, 2001Statement
  of Changes in Shareholders Equity (Unaudited) For the Period From May 19,
  2001 (Commencement of Operations) Through December 31, 2000 and the Three
  Months Ended March 31, 2001Statement of Cash
  Flows (Unaudited) For the Three Months Ended March 31, 2001Notes to Financial
  StatementsItem 2.
  Managements
  Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
  Quantitative & Qualitative Disclosures
  About Market RiskPART II  OTHER INFORMATIONItem 1.
  Legal
  ProceedingsItem 2.
  Changes
  in Securities and Use of ProceedsItem 3.
  Defaults
  upon Senior SecuritiesItem 4.
  Submission
  of Matters to a Vote of Security HoldersItem 5.
  Other
  InformationItem 6.
  ExhibitsSIGNATURES


VENTURE LENDING & LEASING
III, INC. STATEMENT OF FINANCIAL POSITION
(UNAUDITED) AS OF MARCH 31, 2001 AND
DECEMBER 31, 2000 March 31, 2001
  December 31, 2000ASSETSLoans
  at estimated fair value (Cost of $117,245,350 and $77,086,690)
  $114,131,350
  $77,086,690Cash
  and cash equivalents
  12,050,619
  9,720,784Other
  assets
  386,462
  292,930Total assets
  126,568,431
  87,100,404LIABILITIES
  AND SHAREHOLDER'S EQUITYLiabilities:Bank loans
  43,863,870
  37,500,000Accrued management fees
  2,079,056
  2,161,680Accounts payable and other accrued
  liabilities
  3,217,295
  2,396,942Total liabilities
  49,160,221
  42,058,622Shareholder's
  equity:Common stock: $0.001 par value, 200,000
  shares authorized; Issued and outstanding - 100,000 shares
  100
  100Capital in excess of par value
  88,004,400
  51,022,400Distributions
  (3,812,491)
  (2,396,740)Accumulated deficit
  (6,783,799)
  (3,583,978)Total shareholder's equity
  77,408,210
  45,041,782Total liabilities and
  shareholder's equity
  $126,568,431
  $87,100,404 The
accompanying notes are an integral part of these statements VENTURE LENDING & LEASING
III, INC.

STATEMENT OF OPERATIONS
(UNAUDITED)

FOR THE THREE MONTHS ENDED
MARCH 31, 2001



INVESTMENT
  INCOME:Interest on loans
  $3,011,831Interest on short-term investments
  252,641Total investment income
  3,264,472EXPENSES:Management fees
  2,079,057Interest expense
  738,834Other operating expenses
  294,551Total expenses
  3,112,442Net investment income
  152,030Net
  change in unrealized loss from investment transactions
  (3,351,851)Net loss
  $(3,199,821)Net
  loss per share
  $(32.00)Weighted
  average shares outstanding
  100,000The
accompanying notes are an integral part of these statements

VENTURE  LENDING & LEASING III, INC.

STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY (UNAUDITED)FOR THE PERIOD ENDED DECEMBER 31, 2000 *AND
THE THREE MONTHS ENDED MARCH 31, 2001

Common Stock
  Capital in Excess
  of
  
  AccumulatedShares
  Par Value
  Par Value
  Distributions
  deficit
  TotalBALANCE,
  May 19, 2000
  $100,000
  $100
  $24,900
  $-
  $-
  $25,000Contribution of capital
  -
  -
  50,997,500
  -
  -
  50,997,500Distributions
  -
  -
  -
  (2,396,740)
  -
  (2,396,740)Net loss
  -
  -
  -
  -
  (3,583,978)
  (3,583,978)BALANCE,
  December 31, 2000
  $100,000
  $100
  $51,022,400
  $(2,396,740)
  $(3,583,978)
  $45,041,782Contribution of capital
  
  
  $36,982,000
  
  
  36,982,000Distributions
  
  
  
  $(1,415,751)
  
  (1,415,751)Net loss
  
  
  
  
  $(3,199,821)
  (3,199,821)BALANCE,
  March 31, 2001
  $100,000
  $100
  $88,004,400
  $(3,812,491)
  $(6,783,799)
  $77,408,210* FOR THE PERIOD FROM MAY 19, 2000
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000

The
accompanying notes are an integral part of these statements

VENTURE LENDING & LEASING
III, INC.

STATEMENT OF CASH FLOWS
(UNAUDITED)

FOR THE THREE MONTHS ENDED
MARCH 31, 2001

CASH FLOWS
  FROM OPERATING ACTIVITIES:Net loss
  $(3,199,821)Adjustments to reconcile net income to
  net cash provided by operating activities:Net change in unrealized gain from
  investment  transactions
  3,351,851Increase in deferred assets (net of
  amortization)
  (521)Increase in other assets
  (93,011)Net increase in accounts payable,accrued
  liabilities, and deferred fees
  499,878Net cash provided by operating activities
  558,376CASH FLOWS
  FROM INVESTING ACTIVITIES:Acquisition of loans
  (49,292,793)Principal payments on loans
  9,134,133Acquisition of warrants
  (1,415,751)Net cash used in investing activities
  (41,574,411)CASH FLOWS
  FROM FINANCING ACTIVITIES:Contribution of capital
  36,982,000Loan from bank
  25,000,000Repayment of bank loans
  (18,636,130)Net cash provided by financing
  activities
  43,345,870Net increase in cash and cash
  equivalents
  2,329,835CASH AND
  CASH EQUIVALENTS:Beginning of period
  9,720,784End of period
  $12,050,619CASH PAID
  DURING THE PERIOD FOR:Interest
  $875,603NON-CASH
  FINANCING ACTIVITIES:In-kind distributions to shareholder
  $1,415,751Unrealized loss on hedging activities
  $237,851The
accompanying notes are an integral part of these statements.

VENTURE LENDING & LEASING
III, INC.

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)March 31,
2001

1.ORGANIZATION
AND OPERATIONS OF THE FUND

Venture
Lending & Leasing III, Inc., (the Fund), was incorporated in Maryland on
February 1, 2000 as a nondiversified closed-end management investment company
electing status as a business development company (BDC) under the Investment
Company Act of 1940.  100% of the stock
of the Fund is held by Venture Lending & Leasing III, LLC (the
Company).  Prior to commencing its
operations on May 19, 2000, the Fund had no operations other than the sale to
the Company of 100,000 shares of common stock, $0.001 par value for
$25,000.  This issuance of stock was a
requirement in order to apply for a lenders license. In the period between
February 1, 2000 and May 19, 2000, the Fund was not subject to SEC reporting
requirements.  The Fund became subject
to SEC reporting requirements on May 19, 2000.

The
accompanying  financial statements in
Management's opinion, include all adjustments 
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations for interim
periods. Certain information and note disclosures normally included in audited
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted; however, the Fund believes that the
disclosures made are adequate to make the information presented not misleading.
The interim results for the three months ended March 31, 2001 are not
necessarily indicative of what the results would be for the full year.  It is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the Funds Annual Report for the year ended December 31, 2000.

2.          SUMMARY OF
INVESTMENTS:

Loans generally are made to borrowers
pursuant to commitments whereby the Fund commits to finance assets up to a
specified amount for the term of the commitments, upon the terms and subject to
the conditions specified by such commitment. 
The Funds investments in loans are entirely within the United States
and are diversified among the industries shown below.  The percentage of shareholders equity (net assets) that each
industry group represents is shown with the industry totals below.  (The sum of the percentages does not equal
100 percent because the percentages are based on net assets as opposed to total
loans).

Application
  Service ProvidersAccess360
  $3,789,499eOnline
  3,832,149Jamcracker
  546,058Ultrabridge (CA)
  1,105,420Subtotal:12.0%
  $9,273,126BiotechnologyZyomyx
  $1,383,520Subtotal:1.8%
  $1,383,520Communication
  EquipmentAmber Networks
  $6,325,639Astral Point
  1,864,677Calix Networks
  4,328,186Coriolis Networks
  1,121,530Gluon Networks
  3,945,443Network Robots
  618,585Nexsi
  137,649Taqua
  1,971,505Subtotal:26.2%
  $20,313,214Communication
  Service ProvidersAppgenesys
  $4,858,685Coreon
  1,383,972Everest Broadband
  3,485,156Totality
  2,070,929UM Communications
  2,622,372Subtotal:18.6%
  $14,421,114Computers
  & PeripheralsAndes Networks
  $565,735Subtotal:0.7%
  $565,735InternetBridgeSpan
  $3,326,551Coremetrics
  3,615,193ECtone
  1,231,871Postini
  1,822,221QuinStreet
  6,264,082RivalWatch
  163,718Slam Dunk Networks
  458,761Viquity
  789,929Subtotal:22.8%
  $17,672,326Medical
  DevicesNeomend
  $641,911Subtotal:0.8%
  $641,911OtherAtomicTangerine
  $3,591,292Subtotal:4.6%
  $3,591,292PhotonicsCalmar Optcom
  $420,029Gemfire
  1,001,606LaserSharp
  688,420Network Elements
  3,952,755Novera Optics
  7,452,739Onix Microsystems
  2,547,622Optinel Systems
  607,654Tsunami Optics
  1,455,998Subtotal:23.4%
  $18,126,823SemiconductorsIshoni Networks
  $4,532,657Pacific Broadband
  2,673,599Summit MicroElectronics
  5,308,017VxTel
  2,474,497Subtotal:19.4%
  $14,988,770SoftwareBang Networks
  $2,613,928Believe
  1,114,139Ceon
  1,800,441eTime Capital
  2,314,305North Systems
  432,598OnDemand
  458,375Syndeo
  4,419,733Subtotal:17.0%
  $13,153,519Total:147.4%
  $114,131,350The Fund provides asset-based financing
primarily to start-up and emerging growth venture-capital-backed
companies.  As a result, the Fund is
subject to general credit risk associated with such companies. At March 31,
2001, the Fund has unfunded commitments to borrowers of $314.4 million.

As of March 31, 2001 loans with a cost
basis of $6.2 million and a fair value of $3.1 million have been classified as
non-accrual.

3.          EARNINGS PER
SHARE

Basic earnings per share are computed by
dividing net income, less dividends on preferred stock, by the weighted average
common shares outstanding.  Diluted
earnings per share are computed by dividing net income, less dividends on
preferred stock, by the weighted average common shares outstanding, including
the dilutive effects of potential common shares (e.g., stock options).  The Fund has no preferred stock or
instruments that would be potential common shares; thus, reported basic and
diluted earnings are the same.

4.  IMPLEMENTATION OF
FINANCIAL ACCOUNTING STANDARDS:

In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.  SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value.  SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings.

SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000, and the Fund has adopted its
provisions effective July 1, 2000. Derivatives that are used to hedge the
companys floating rate debt are now marked to market.  The resulting gain or loss is recorded as an
increase or decrease in unrealized gains from other security transactions.  The market value of the instrument is
treated either an asset or as a liability depending on if its value is negative
or positive.

Item 2.Managements Discussion and Analysis of
Financial Condition and Results of Operations

General

Venture
Lending & Leasing III, Inc. (Fund) is a closed-end, non-diversified
management investment company electing status as a business development company
under the Investment Company Act of 1940 (1940 Act).  The Fund's investment objective is to
achieve a high total return.  The Fund
will provide asset-based financing to carefully selected venture capital-backed
companies, in the form of secured loans. 
The Fund generally will receive warrants to acquire equity securities in
connection with its portfolio investments. 
The Fund generally distributes these warrants to its shareholder upon
receipt.

The
Funds shares of Common Stock, $.001 par value are sold to its shareholder
under a stock purchase agreement.  The
Fund has issued 100,000 of the 200,000 shares that were authorized. The Funds
shareholder may make additional capital contributions to the Fund.

In addition to the historical
information contained herein, this Quarterly Report contains certain
forward-looking statements. The reader of this Quarterly Report should
understand that all such forward-looking statements are subject to various
uncertainties and risks that could affect their outcome.  The Fund's actual results could differ
materially from those suggested by such forward-looking statements.  Factors that could cause or contribute to
such differences include, but are not limited to, variances in the actual
versus projected growth in assets, return on assets, loan losses, expenses,
rates charged on loans and earned on securities investments and competition
effects as well as other factors. This entire Quarterly Report should be read
to put such forward-looking statements in context and to gain a more complete
understanding of the uncertainties and risks involved in the Fund's business.

Results
of Operations For the Three Months ended March 31, 2001

Total investment income for the
three months endingMarch 31, 2001 was $3.3 million, of which $3.0 million consisted
of interest on venture loans outstanding during the period. The majority of the
remaining income consisted of interest on the temporary investment of
cash.  The cash is held pending investment
in venture loans.   Revenues are
expected to increase in the future as additional investments are made during
future periods.

Total
expenses were $3.1 million for the three months ending March 31, 2001.  Management fees were the largest expense and
are based on committed capital to the Company for the first two years of the
Funds life, thereafter they will be charged based upon the Funds total
assets.

Total
other operating expenses for the three months ending March 31, 2001 were $0.3
million.  Legal and banking fee
comprised a majority of the other operating expenses for the three months ended
March 31, 2001.  Net investment income
for the three months ending March 31, 2001 was $0.2 million.

The Fund incurred no realized gains
or losses during the period.  The Fund
incurred an unrealized loss from investment transactions of $3.4 million.  This unrealized loss was due to a reserve
taken on loans from two borrowers as well as a loss resulting from interest
rate hedging transactions during the period.   
Net loss for the three months ended March 31, 2001 was $3.2 million. On
a per share basis, the net loss was $32.00 for the three months ended March 31,
2001.

Liquidity
and Capital Resources March 31, 2001

Total
capital contributed to the Fund was approximately $88.0 million atMarch
31, 2001. 
Committed capital to the Company at March 31, 2001 was $314.8 million,
of which $94.4 million has been called and received.

The
Fund has in place $75.0 million in debt facilities to finance the acquisition of
asset-based loans.  As of March 31,
2001, lenders had committed $66.5 million toward these facilities, while the
remaining amount of this facility is expected to be committed shortly.  As of March 31, 2001, $43.9 million was
outstanding under these facilities.  At
March 31, 2001, the Fund had interest rate swap transactions outstanding with a
total notional principal amount of $25 million.  The effect of these swap transactions is to convert the variable
commercial paper rate into a fixed rate on the contract notional value.  The amortization schedule for each borrowing
under the facility is expected to correspond to the amortization of the loans
acquired with the proceeds of each borrowing.

As ofMarch
31, 2001, 10% of the Funds assets
consisted of cash and cash equivalents. 
The Fund continued to invest its assets in venture loans and during the
period.  Amounts disbursed under the
Funds loan commitments increased by approximately $49.3 million during the
three months ending March 31, 2001. Net loan amounts outstanding after
amortization increased by approximately $40.1 million. Unfunded commitments
increased by approximately $32.7 million for the three months ended March 31,
2001.  Some of the unfunded commitments
will expire prior to funding.

Amount Disbursed
  Principal Reductions
  Balance Outstanding
  Unfunded CommitmentsMarch 31, 2001
  $135.2
  million
  $17.9
  million
  $117.2
  million
  $314.4
  millionDecember 31, 2000
  $85.9
  million
  $8.8
  million
  $77.1
  million
  $281.7
  millionBecause
venture loans are privately negotiated transactions, investments in these
assets are relatively illiquid.

Item 3. 
Quantitative and Qualitative Disclosures About Market Risk

The
Fund's business activities contain elements of risk. The Fund considers the
principal types of market risk to be interest rate risk and valuation risk. The
Fund considers the management of risk essential to conducting its businesses
and to maintaining profitability. Accordingly, the Fund's risk management
procedures are designed to identify and analyze the Fund's risks, to set
appropriate policies and limits and to continually monitor these risks and
limits by means of reliable administrative and information systems and other
policies and programs.

The
Fund manages its market risk by maintaining a portfolio that is diverse by
industry, size of investment, stage of development, and borrower.  The Fund has limited exposure to public
market price fluctuations as the Fund primarily invests in private business
enterprises and the Fund distributes all equity upon receipt.

The
Fund's sensitivity to changes in interest rates is regularly monitored and
analyzed by measuring the characteristics of assets and liabilities. The Fund
utilizes various methods to assess interest rate risk in terms of the potential
effect on interest income net of interest expense, the value of net assets and
the value at risk in an effort to ensure that the Fund is insulated from any
significant adverse effects from changes in interest rates.

Based
on the model used for the sensitivity of interest income net of interest
expense, if the balance sheet were to remain constant and no actions were taken
to alter the existing interest rate sensitivity, a hypothetical immediate 100
basis point change in interest rates would have affected net income by less
than 1.5% for the three months ended March 31, 2001. Although management
believes that this measure is indicative of the Fund's sensitivity to interest
rate changes, it makes estimates to adjust for potential changes in credit
quality, size and composition of the balance sheet and other business
developments that could affect net income. 
Accordingly, no assurances can be given that actual results would not
differ materially from the potential outcome simulated by these estimates.

PART
  II  OTHER INFORMATIONItem
  1.

  Legal ProceedingsThe
  Fund will become party to certain lawsuits from time to time in the normal
  course of business.  While the outcome
  of these legal proceedings cannot at this time be predicted with certainty,
  the Fund does not expect these proceedings will have a material effect upon
  the Funds financial condition or results of operation.Item 2.

  Changes in Securities and Use of ProceedsNoneItem 3.

  Defaults Upon Senior SecuritiesNot
  applicableItem 4.

  Submission of Matters to a Vote of Security HoldersNoneItem
  5.

  Other InformationNoneItem 6.

  ExhibitsNoneSIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned duly
authorized.

VENTURE LENDING &
  LEASING III, INC.(Registrant)By:
  /S/ Ronald W. Swenson
  By:
  /S/ Brian R. BestRonald W. Swenson
  Brian R. BestChairman and Chief
  Executive Officer
  Chief Financial OfficerDate:
  May 14, 2001
  Date:
  May 14, 2001