TPVG - NYSE

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth BDC Corporation First Quarter 2023 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference is being recorded and a replay of this call will be available in an audio webcast on the TriplePoint Venture Growth website. Company |is pleased to share with you the company's results for the first quarter of 2023. Today representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer. Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary Safe Harbor disclosure in the company's release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward-looking statements under federal securities law. You're asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com. Now, I would like to turn the call over to Mr. Labe.

Good afternoon everyone, and thank you for joining TPVG's first quarter earnings call. During the first quarter of 2023, we continue to maintain our selective approach given these markets. We grew the portfolio to nearly $1 billion and generated net investment income or NII of $0.53 per share continuing to demonstrate the earnings power of our portfolio. NII for the quarter exceeded our quarterly distribution of $0.40 per share. Including TPVG's most recent distribution increase in March of this year, we have now increased our quarterly distribution to 11% since the third quarter of 2022. Based on our net income during the quarter, we realized a 17.8% ROE, which is the second consecutive quarter we've been above the 17% ROE level. We also achieved the weighted average portfolio yield for the quarter of 14.7% and our eighth consecutive quarter of increasing core portfolio yield. While credit was impacted this quarter, given the current down cycle in macroeconomic market conditions, our team is working through these events in this cycle as it's part of the multi-decade experience in venture lending and our long-term track record. Given the unprecedented developments at both Silicon Valley Bank and Signature Bank last quarter and extending right into this quarter at First Republic Bank, there are significant and lasting impacts from these events and we expect these developments will continue to have a monumental effect on our market. The demise of Silicon Valley Bank was a very unfortunate situation from an institutional and a human perspective. From a market perspective, it is turning into a major game changer that is significantly and potentially permanently altered the competitive landscape for venture lending, translating into what we believe are increased in growing opportunities for the overall TriplePoint Capital platform to capitalize over the long term, including a very promising long-term outlook for TPVG. While some banks are in the process of stepping in to fill the void created by SVB, their focus has been on traditional bank services such as depository, credit card, investment management, and other services. In terms of enter lending given this emerging post-SVB environment, bank appetites have changed and we have witnessed considerable tightening. As we've discussed in the past, this is a highly specialized business and venture lending has significant barriers to entry. To date we really haven't seen any of these other banks or for that matter any other participants enter the venture lending market in a meaningful way. Based on conversations with our venture capital partners, portfolio companies, and active prospects that are in the pipeline now more than ever, they recognize the importance of separating the commercial bank and the lending relationship as well as it's becoming more conscious of the hidden cost limitations and the associated drawbacks of bank lending. This has further demonstrated the value of the TriplePoint financing relationship and the role and importance of our venture lending as part of these companies overall financing strategies. The departure of SVB has also resulted in increased deal flow and has contributed to our building TriplePoint platform, which also includes providing newer replacement loans previously received from banks. At the platform level, we have a number of high quality lending opportunities to companies backed by our select venture partners where we are or will be replacing a major market participant, who is no longer active or as active and where we're becoming the new source for lending. The pipeline is continuing to build as these are not overnight situations and will continue to be part of our portfolio growth and build out over the next few quarters and well into the future years. Turning to the current venture markets, during the first quarter, we've continued to see lower venture capital investment activity quarter-over-quarter driven by no surprise, primarily by the tightening monetary policy and the downturn in public company multiples and valuations. We're in a cycle. We're in a period of valuation resets for venture growth stage companies. Given this market backdrop, however, based on conversations with some of our venture capital partners, there is already early signs and a very widespread belief that investment momentum will pick up later this year and into 2024, especially given the 300 billion of PitchBook NVCA's estimated dry powder that venture capital funds still have at their disposal. Although VCs continue to focus on existing companies and tell us they're continuing to wait out this market volatility, there's now a growing and strong sense among them forecasting better times ahead. With that said, across our sponsors platform, we are finding new pockets of venture capital investment activity starting to pop up and witnessing investment appetites starting to increase in tech investing and it's not only in such fields as generative AI, but in several other sectors as well. We continue to find the deals are still getting done. It's simply been taking longer in a slower pace. Within the pipeline we also continue to have demand for venture lending from companies planning out their timetables and also encompassing debt in their financing strategies and capitalization plans. Some of these companies are seeking financing for opportunistic acquisitions or previously equity only companies, which are continuing to turn towards debt and layering in as part of their go forward plans. Venture growth stage companies that raised equity over the last year or so at attractive valuations continue to turn towards venture debt given the valuation sensitive markets. And finally, the longer timelines for public listings and the need for additional runway between equity rounds have been serving as another driver. Having stated all these opportunities, however, TPVG is going to continue to remain selective as we concentrate on opportunistically ourselves investing in what we believe to be the highest quality venture growth stage companies. Consistent with our approach, we will focus on companies that have recently raised capital, have meaningful revenue scale and whose plans in the next one to two years will position them to perform well in this volatile economic environment and under these current challenges. Despite the macroeconomic environment, inflationary concerns in the broader economy, a number of TPVG portfolio companies continue to grow with some experiencing tailwinds for achieving profitability. We're pretty optimistic on the outlook for many of these diverse investments that we funded in 2022 and the portfolio benefits from investments in these sectors as diversified as network detection, frontier tech space, enterprise, vertical software, fintech, next generation sports, digital media, and others to name a few. To wrap up the exit of SVB during the end of March we'll have significant and lasting impacts on the market over the long-term and create multi-year opportunities. We add these opportunities already underway for us in the wake of the SVB development to the widespread belief that investment momentum will pick up later this year and into 2024, and along with our select venture capital partners forecast better times ahead. Based on our track record of working with these select venture capital partners and our success in investing approximately $10 billion of venture loans at the TriplePoint platform level, we will continue to draw on our differentiated platform and our experienced team to maintain the quality of our investment portfolio as well as to capitalize on these developments in a disciplined fashion over the long-term to create sustainable shareholder value. With that, I'll turn the call now over to Sajal.

Thank you, Jim, and good afternoon. As Jim discussed, we continue to remain active in the venture lending market at our platform TriplePoint Capital, and maintain our extremely selective and focused approach with $199 million of signed term sheets with venture growth stage companies in Q1. Given TPVG's leverage position, we are selectively allocating new commitments to TPVG with the majority going to other vehicles on the TriplePoint Capital platform and as a result for the first quarter closed debt commitments at TPVG is totaled $4 million. During the first quarter, we funded $57.6 million in debt investments to 11 portfolio companies, landing at the lower end of our guided range for the quarter, which carried an adjusted weighted average annualized portfolio yield of 14.1% at origination. Of the obligors funded during the quarter, roughly half generate annualized revenues in excess of $100 million reflecting the increased size and scale of our portfolio companies. Our core weighted average portfolio yield for Q1 was 14.7%, which was up from 14.2% in Q4 and represented our eighth consecutive quarterly increase. Our Q1 portfolio yield does not yet reflect the 2 – 25 basis point rate increases announced in February and March, which will more meaningfully impact portfolio yields starting in Q2. As a result, we are optimistic for another quarter of increased portfolio yield and for portfolio yield to continue to stay strong in 2023 given the rate environment. Although we didn't have any prepayments in Q1, they continue to be a part of the business and we still expect at least one to two customer prepayments per quarter with one previously announced prepayment expectation of ForgeRock's $30 million loan in conjunction with closing their take private transaction in addition to others in the works. In terms of our expectations for fundings in Q2 with our reduced allocation of new commitments to TPVG and low utilization of existing unfunded commitments, our forecast for gross investment fundings is in the range of $25 million to $75 million for the second quarter, down from our prior guidance of $50 million to $100 million with the potential to grow as we increase our allocation of new commitment to TPVG. During the quarter, we made continued progress on diversifying the TPVG portfolio by increasing the number of funded borrowers to 59 as compared to 48 one year ago. In addition, our top 10 obligors represent 32% of our total debt investments as compared to 40% one year ago. While not typical for venture growth stage companies, more than half of our top 10 obligors are either EBITDA positive or are projected to achieve EBITDA. We continue to see equity fundraising activity in our portfolio despite the challenging environment, although at lower levels in Q1, which we believe was also impacted by events associated with the venture banking market during the quarter. In Q1, seven portfolio companies raised approximately $64 million of capital. This brings the total to 32 portfolio companies rising over $1.6 billion of capital in the past year. We expect to see fundraising activity gradually pick up within our portfolio quarter-over-quarter over the course of the year. Our equity and warrant portfolio grows well with 155 warrant equity investments as of Q1 2023 as compared to 128 investments as of one year ago. As of March 31st, we held warrants in 107 companies, up from 86 companies as of Q1 2022, and held equity investments in 48 companies up from 42 companies as of Q1 2022 with a total cost and fair value of 71 million and 93 million respectively. During the quarter, we saw a reduction in the fair value of our warrant and equity positions reflecting market conditions as well as down rounds in some cases despite strong underlying performance from many of our portfolio companies. It's important to note that we continue to have numerous companies that are growing and expanding and executing according to and many cases ahead of plan, as well as achieving EBITDA, particularly those companies in the fintech, software, enterprise and travel segments, which is why we continue to expect our cumulative warrant and equity investments to generate realized gains in excess of our cumulative realized losses over the long-term. In terms of outlook for the portfolio and credit quality, given the environment for direct equity fundraising, the playbook for most of our portfolio companies is to continue to grow, but to do so thoughtfully while optimizing their cash burn rates to extend their runway to either achieve profitability or for a future equity rates. With this background, as of the end of the quarter, approximately 84% of our portfolio is ranked at our two best credit scores, which means that they are performing at or above expectations despite market conditions, and we upgraded one company from category two to category one with a principle balance of $15 million. As Jim mentioned, credit was impacted during the quarter due to conditions in the equity fundraising market, which we believe were also impacted by events in the venture banking market. We downgraded demand, also known as Luko, an insurtech company with principle balance of $17 million from category two to category three due to delays in its strategic financing process. We also downgraded RenoRun, a construction, technology and logistics company with principal balance of $3 million from Category 2 to Category 3. RenoRun has filed for creditor protection in Canada to facilitate a sale or liquidation process, and we look to our recovery on our loan, both from their cash on hand and other potential asset sales, including the entire enterprise and asset – and IP, sorry. Underground enterprises and the e-commerce retail with principle balance of $6 million was downgraded from Category 2 to Category 3 and has filed for Chapter 7 bankruptcy protection. We provided an inventory based financing facility to the company and look to recovery on our loan from the underlying inventory as well as other potential asset sales, including the entire enterprise and IP. Hey Favor, also known as Pill Club, an online pharmacy with the principle balance of $20 million filed for Chapter 11 bankruptcy protection with the intent to continue operations and potentially reorganize as a standalone enterprise or sell to another company. This is an ongoing situation and we expect more developments to occur in the near term that could result in substantial or full recovery of our loan. Also, during the quarter VanMoof an e-bike company with a principal balance of $23 million and Health IQ, an insured tech company with a principal balance of $25 million, which were both previously rated 3, were downgraded to Category 4 as they continue to navigate through challenges in their sectors and businesses as well as developments in their strategic financing processes. We are in a challenging period of time for venture capital investing and for public technology companies and expect some obligors to experience stress. As we have demonstrated before our teams have effectively managed through these situations. As a reminder, since TPVG inception now 10 years ago, our cumulative net loss rate remains under 3% of cumulative commitments or 32 basis points per annum and 2% of fundings or 22 basis points per annum. In closing, we remain focused on all aspects of our business and we'll continue to follow our long-term playbook with a focus on generating strong returns for shareholders, neither needs of venture growth stage companies, and further nurturing strong relationships with our select venture capital partners. With that, I'll now turn the call over to Chris.

Great. Thank you, Sajal. And hello everybody. During the first quarter, we grew core income yields from our loan portfolio, we continued to diversify the portfolio and while we had elevated leverage as of quarter end, we now sit with a record portfolio size, a diversified capital structure, and ample liquidity to meet our targeted funding range. Let me drill down a bit more and share an update on the financial results for the first quarter of 2023. Total investment income was $33 million as compared to $27 million for the first quarter of 2022. Our core portfolio yield, which excludes the impact of loan prepayment income, was 14.7% on total debt investments as compared to 12.7% for the first quarter of 2022. The onboarding yields continue to be strong and stable. Operating expenses were $15 million as compared to $13.8 million for the first quarter of 2022. These expenses consisted of $9 million of interest expense, $4.3 million of management fees and $1.6 million of G&A expenses. Due to the shareholder friendly structure of our total return requirement under the incentive fee structure, our income incentive fee expense was reduced by $3.7 million during the first quarter. We earned net investment income of $18.6 million or $0.53 per share compared to $0.44 per share in the same period last year. Net change and unrealized losses on investments for the first quarter was $10.9 million, consisting of $6.6 million of net unrealized losses on the debt portfolio and $4.2 million of net unrealized losses on the warrant and equity portfolio, resulting from fair value adjustments. As of quarter end total net assets were $414 million or $11.69 per share compared to $420 million or $11.88 per share as of December 31, 2022. Our Board of Directors declared a regular quarterly dividend of $0.40 per share. The dividend is from ordinary income to stockholders of record as of June 15 to be paid on June 30. In addition to overrunning the first quarter dividend, we continue to retain spillover income, which totalled $27 million or $0.70 per share at the end of the period to support additional regular and supplemental dividends in the future. Now, let's move to our investment commitments. We ended the quarter with $254 million of unfunded investment commitments, of which an aggregate of $73 million was dependent upon the portfolio company reaching certain milestones. Of this total amount, $152 million or 60% of this total will expire during – excuse me, 2023. Now, just a quick update on our balance sheet leverage and overall liquidity. As of March 31, an aggregate of $395 million was outstanding in fixed rate investment grade term notes. And $220 million was outstanding on the revolving credit facility. In connection with the term notes, DBRS issued an investment-grade rating in connection with those transactions and recently reaffirmed our investment grade standing at a BBB. We ended the quarter with a leverage ratio of 1.49 times. As of quarter end the company had total liquidity of $188 million consisting of $58 million in cash and $130 million available under the revolving credit facility. In addition to this liquidity, the existing, seasoned and diversified portfolio provides predictable cash flows, which bodes well for sustained liquidity throughout 2023. Specifically, we have more than $130 million of contractual cash flows from the existing portfolio scheduled to flow back to the company in 2023 and more than $400 million throughout 2024. I would also like to remind you that loan prepayments are a natural part of our venture lending model, and while they vary from quarter-to-quarter, we expect that they will have one to two customers prepay in any particular quarter over the long-term. As an example, as Sajal had mentioned, we have line of sight on companies such as ForgeRock, which is expected to prepay all of its loans in Q2 or Q3 this year in an aggregate amount of $30 million. In November, we announced the launch of an ATM stock issuance program, and although we have not issued any shares under that program as of today, we do look to issue shares over the coming year. So this completes our prepared remarks and we will be happy to take questions from you. And so operator could you please open the line at this time?

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Finian O'Shea with Wells Fargo. Please go ahead with your question.

Hi everyone. Good afternoon. Question on leverage. Sajal I know you gave a couple guideposts on fundings and repays with ForgeRock and such, but where does that overall bring you for say, next quarter? And then where do you want the BDC to be in terms of net leverage right now?

Sure. Chris, do you want to actually take this question?

Sure, yes. So we are at 1.49x gross leverage. We do have cash on the balance sheet to essentially fund all of the current expected fundings for the next quarter. So Q2 we don't expect to increase leverage, but rather just use the liquidity on balance sheet. We would look to the prepayments that we mentioned as well as just normal cash flows from the portfolio in Q3 and into Q4. So really not expecting much movement in overall leverage over the next quarter or two. Depending on the prepayment activity that will depend on what would look – what we would look like at the end of the year as far as overall leverage.

Sure, that’s helpful. Thank you. And just a follow-up on the fundings both this quarter and for the anticipated ones this coming quarter, how much of that has been from previously underwritten, unfunded commitments?

Yes, well, I'd say here in Q1 and Q2 it's a hundred percent from existing unfunded – commit or 90 plus percent from existing unfunded commitments, given the slower pace of allocation to TBVG.

And just final question, any color you can give us on how much that reflects liquidity at the borrower level?

Yes, great question. So, I would say, given what I would say is lower expected utilization than we anticipated, I think, it's a function of the work that our portfolio of companies are doing to balance this growth versus cash burn rate. I think in this environment it's not growth at all costs. As I said earlier, I think, it's a balance between appropriate levels of growth, and having sufficient cash runway, plus having line of sight to EBITDA profitability or beyond. So, I would say lower utilization is just reflection of lower cash burn rates and more effective use of the existing cash resources and being more disciplined when it comes to their growth outlook.

Great. Thanks so much.

And our next question will come from Crispin Love with Piper Sandler. Please go ahead with your question.

Thanks. And good afternoon everyone. Just first looking at asset quality, looking at your release, you have zero investments right now in the red category, but as you mentioned, three companies filed for bankruptcy since quarter end. And Sajal, you mentioned some comments on recovery for those investments, but can you dig a little deeper into that as to what types of recovery – what types of recovery you might expect on those investments on either a percentage or dollar basis, and then your confidence there?

Yes, again, obviously these are ongoing situations and so it's hard to give full information just because they continue to develop. But I would say, as we said in our prepared remarks, I mean, I think, we generally are confident for or believe to see full or complete recovery, assuming facts and circumstances as of today in developments that we expect to occur.

Great, thanks, Sajal. And then just relatedly, can you speak to kind of your credit quality outlook broadly in the portfolio, just in the current environment, separate from those investments? And then just some thoughts if you think we would be seeing – if we might see additional bankruptcies over the near term just given the environment?

Yes, let me start and then I'll ask Jim to jump in. So, I would say listen, I think, critical outlook for venture lending venture debt is a direct equity investment environment. And so I would say Q1 is absolutely a challenging – was a challenging environment for direct equity investing. I think, as Jim mentioned, due to market conditions and critical factors in the equity world and I think it was further exacerbated by the developments as Jim mentioned in the venture banking environment. So if you add that the month of March was very much a challenging time for both VCs, and venture bank and companies as they were sort of navigating the volatility and the uncertainty in that environment. And so I think what you saw is a lot of financing activity and other strategic events either paused or delayed and as just to see kind of things and conditions improve. And then those things either continue or not continue. And so I'd say again, Q1 in my opinion was probably one of the worst quarters from a direct equity investment environment because of all of those factors. As we look to Q2, Q3, and beyond, as Jim mentioned, I think, our select VCs are – they are deploying capital, they are being selective how they are deploying capital. And so, we have indicators to see that, listen, we think it's going to stabilize and then pick up, ideally over the course of this year and into 2024. As we look to credit outlook, again, I think, the really good news is that, our portfolio companies have been preparing and have been cutting burn, managing runway, adding capital to their balance sheets. And again, I think, a critical element was the other – the venture banking developments and the volatility and the uncertainty in Q1 brought a lot of things to the head. So, I think we are expecting stability when it comes to the rest of the portfolio. But again, it's all critical on direct equity investment activity, stabilizing and picking up over the course of the year for those companies that may not be profitable or have sufficient runway into 2024 and beyond.

Yes, and I think you covered it nicely. I can't really add much other than, again, there has been a pullback by some of the venture funds, no surprise in this market. But there is also, at the same time, companies are going through some stressful situations and continue to conserve cash, moderate their burn rate, revise growth plans to more moderate growth plans and work on the paths of profitability. But it's also got to be balanced by not only amount of dry powder, but within the portfolio, as I mentioned, there is a number of companies that are experiencing some tailwinds in this environment. And an example company today in the portfolio not public, but just signed a term sheet at an uptick, which given this environment is maybe some signs of where things are headed. Got it. Just working through the situations and the outlook looks pretty good in terms of the end of the year 2024 for tech investing.

Thank you guys. I really appreciate the time, Jim and Sajal.

And our next question will come from Kevin Fultz with JMP Securities. Please go ahead with your question.

Hi. Good afternoon and thank you for taking my question. There's a figure in the PitchBook NVCA Venture Monitor that highlights the funding gap that has recently accelerated within late stage VC. Essentially the figure shows that late stage capital demand to supply ratio reached a decade high in the first quarter of 2023 at just about 3.2 times, which compares to 0.9 times in the first quarter of 2022. I'm curious what your view is on the shift in capital availability for late stage companies both what you're seeing in the market within your own portfolio, and what that could mean in terms of portfolio company liquidity, should the trend in capital demand to supply remain in balanced, or I guess even deteriorate further? Thank you.

Yes. Kevin, that's a good question. So I would say a couple of factors as we look to the later stage companies, right? Those are companies where the valuation methodology is probably more reliant on the public comparables and the public multiples. And so I think the challenges again as Jim alluded to, there is a mismatch in terms of where prior round valuations were during 2021 and 2022 for a number of these companies and where multiples are today. And so the playbook for those companies is, you've got to make the decision. Will you grow into your current valuation? And if so, then the playbook is, listen, how can we extend runway, add some incremental capital from your existing investors to get, and then hope for multiple – some multiple recovery. But fundamentally it's just a function of time and your valuation is not an obstacle for raising incremental capital. I think for other companies where, listen they were valued on robust multiples that may not come back or are on growth rates that are not capable in this environment. They have to make the hard decision of; do you do the down round? Do you do other forms of financing flat rounds with preps? And so, so I think that it's a valuation issue for a number of companies. And then I'd add the other element of it is, the participants in that stage of the market included venture funds, PE funds, hedge funds, crossover funds. And so I'd say, again given the multiple compression a number of those non-traditional participants experienced major markdowns on their public book, have marked downs on their private book, and so they're currently not as active as they used to be. And so that's also what's causing the shortfall or the mismatch in the demand versus supply. So what you need is you need time to transpire, you need multiple accretion, you need good data points, you need good companies to come to market. And so I'd say again that's why we're expecting to see this recovery come later this year not in the next quarter or so. But later this year into 2024 is a number of those factors all improve income together.

They also tend to be opportunities for us to look at. The key is selectivity and being highly selective, but these are actually opportunities as well for our venture lending in the pipeline.

Great. I appreciate your insight there. And I'll leave it there. Thank you.

And our next question will come from Ryan Lynch with KBW. Please go ahead with your question.

Hey, good afternoon. My first one just has to do with given your current leverage ratio of 1.49 times and around $175 million of unfunded commitments that are aligned on any certain milestones. Is it fair to assume that throughout the majority of 2023 that new funding will primarily be to existing portfolio companies and you'll use repayments and prepayments pretty much too just deleverage the balance sheet?

Yes. I think that's correct.

Yes, I think that's right.

Okay. And then the other one that I had, I'd love to just hear and I get it, it's sensitive but – so if you can't come, whatever you can say is fine, but I'm curious to hear your thoughts on investment like The Pill Club. I mean, there's been articles out there that talk about the bankruptcy and a huge decline in revenue as well as huge legal fees in that business. Now, I can't see – I don't see it’s financial, so I don't know if they're sitting on a bunch of cash or something like that or your loan is over collateralized, but something like that. But I guess what gives you the confidence to mark that investment where it is as well as there's other loans in the portfolio that are in bankruptcy or in the process of bankruptcy that you guys have marked pretty close to par. What in either the pill - The Pill Clubs specifically or any other investments that that are going through this period, it gives you the confidence kind of mark on where you are despite sort of these fundamental deterioration and the…

Yes. Ryan, let me answer that. I think a great question. So I have to remember that they're easier paths to – if you wanted to shut down a company that you don't necessarily go through the bankruptcy process. So from our perspective in collaboration with the company’s investors to select these C funds, you look at when there's value there's interest in those assets, there's value in those assets and you look at what's the best path to free-up those assets to either reemerge or to sell to other parties. So I would say there's a playbook in managing stress credit situations, and it's a function of our assessment of underlying value and our playbooks with our teams. And so, so I would say the – and then as you look to the method by which you look to recovery as you said, right there are various assets these companies have. In certain cases when we're doing inventory financing, we're secured not only by a formula based financing for that inventory, so we're not financing 100%, generally it's a discount. So we're secured by that underlying inventory, plus we have the enterprise too. So as you look to recovery its great, the underlying asset that we financed and then the value of the business, the intellectual property whatever it may be. When you look to as again, other scenarios, right? There's a liquidity, there's cash and so again you look through the benefit of liquidation process is an orderly way to unlock those assets to the senior creditors. And then again, I'd say more broadly, when you look to acquirers out there in this environment, they generally want things clean and free. So again, I think a bankruptcy process and for companies themselves, right, there's a way when there's strong, solid fundamentals of these businesses, but they may have unsecured claims or creditors. And so going through the Chapter 11 process in general is a way to again, cleanse, clean up, restructure secured debt and then come back and again give it another shot or sell to other companies. So again I think that, it's our team's assessment of the playbook, the path and the underlying assets. And in collaboration with our companies, we determine the course of action and that's how we look to set our fair values based on assessment of the probabilities, and the likelihoods and the values of those assets.

Very well detailed, I really appreciative your comment. And then just one last one if I could, you mentioned you think investment momentum meaning venture capital and investors that momentum potentially picking up later this year into 2024. I'm just curious what are the drivers behind that, that position just because it seems like most of the indicators today seem that things are just going to get tighter sort of throughout the year with probably continually fairly high rates of slowdown in the economy. There's obviously been stress in the lending system and then probably some realized losses in some venture capital equity portfolios. So it just seems that obviously I know you'd like that that investment activity to pick up later in this year in 2024, but I guess, what are the factors that that you think could reverse and make that the case?

I can grab that and feel...

I did wanted...

Yes. Feel free to add Sajal but, venture capital investing is about the long-term and it's for the long-term, and these are typically 10-year plus in investment funds and they're looking at the future. They're not looking at this quarter or today's interest rate increases. Those are not factors. What are the factors are? Well one, there's about $300 billion plus of dry powder that is looking to get deployed. Two, we are headed in terms of my rounds towards more of a call it a irrational or reasonable valuation type market after the highs of the recent past, and so there's another momentum for investing. Three is tech investing is not dead and if anything, it – as folks look towards efficiencies, particularly if we head more towards a recession and everything else as artificial AI, which is all the conversations and kind of the new environment here proposed the last, very high couple of years of valuations is something that's very appealing because these are investments in three, five years or whatever may be IPOs. And so there's opportunities and I'll just finish, feel free to add Sajal but some of the best investments we've done historically here at TriplePoint as well as within the venture lending decades have been investing in these down cycle periods. We're in a down cycle and some of the best tech successes of the past were born perhaps 2008, 2009 and so forth. So there's a lot of things shaping up ripe for venture capital investing in later this year, next year and the future.

Yes. I mean, I'll only add two things. One is we're also gleaning these insights, Ryan from conversations with the fund themselves, and I'd say it's a function. What we're seeing is the clear the more experienced funds that have weathered the storm that have been through cycles definitely view this environment that has having the potential for opportunity of some of the, the best deals to get done, but it's a question of when do you capitalize? It's not necessarily the second, but its building and I think that's what we're talking to is that momentum is building over time as quality companies and new entrepreneurs come to market. And then I'd say the other piece of it is just from the communication to their investors. So to their [indiscernible] LPs venture fundraising. Given the fundraising that's going on and the marketing and the messaging, they're also signaling that they do expect it to pick up and that they expect, 23 vintages, 24 vintages really to be some of their better vintages given the environment.

Okay. I appreciate the time this afternoon.

And our next question will come from Casey Alexander with Compass Point. Please go ahead with your question.

All right. Good afternoon. Is it safe to say that RenoRun, Underground and Hey Favor will all go on non-accrual in the second quarter?

Unless something – yes, so unless something happens more immediate that that would be a fair assumption?

Okay. Secondly, in relation to Hey Favor and rolling back to Medly Health, in both cases there were some form of management fraud that contributed to the situation. And it looks to me like they came out of the same underwriting pod. I mean, is there a flaw in your underwriting process that you failed to pick up on the situation that they existed in Hey Favor and Medly Health?

Okay. Sajal will answer.

Absolutely not. Again, we stand by our underwriting and our track record, again as you look we've had 170 obligors or borrowers at TPVG we've had credit losses in roughly 10 to 11. Our loss rates are 3% of commitments, 2% of funding, so I would say the data speaks for itself that our underwriting and our track record over the long-term works. And so I'd say that's first answer. I would say, again we're not suggesting at both companies where they're fraud, I think Medly, it's again in the public – in the filings not suggesting fraud at Hey Favor, and again, I think all are unique circumstances and situations.

All right. Okay. I'll, I'll stop there for now. Thanks.

And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead with your question. Mr. Nolan, your line is open.

Sorry guys. Is VanMoof and IQ, the two Canadian companies that you were discussing earlier in terms of going into the bankruptcy process?

No, no. The one Canadian company was RenoRun.

Okay. So VanMoof [ph] and HighQ [ph], which I believe are both non-accrual this quarter are completely separate from that.

They're not – they did not file for bankruptcy. Correct.

Okay. Any details you can provide on that or is that something to that?

Again, as we mentioned during the prepared remarks, I think they were downgraded due to just challenges in their market environments and some of their performance as well as their financing processes.

Okay. Okay. That's it for me. Thanks Sajal.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Jim Labe for any closing or marks. Please go ahead, sir.

Thank you, operator. As always, I'd like to thank everyone for listening and participating in today's call. We look forward to talking with you all again next quarter. Thanks again and everyone have a nice day. Goodbye.