TPVG - NYSE

Good afternoon ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This conference is being recorded and a replay of the call will be available and the audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you that the company's results for the second 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 press 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 are 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 the latest SEC filings, please visit the company's website at www.tpvg.com. Now, I'd like to turn the conference over to Mr. Labe.

Good afternoon, everyone and welcome to TPVG's second quarter earnings call. I'll start by talking about the venture market. The data speaks for itself. As the National Venture Capital Association PitchBook data shows in the first half of 2023, the venture capital ecosystem has struggled to adapt to market dynamics that we haven't seen in years. PitchBook further states that this shift in the landscape has impacted all the sectors in all the stages of the venture ecosystem. They're all well below the high watermark set in the past 2 years. Deal value, it's down 46%, exit values, 77% and fundraising is down 73%. That's all over the first half of 2023 compared to last year. Investment activity by the venture funds into private companies continues to be really volatile. During this period, evaluation resets that we've been talking about in these calls, investors have pulled back on the amount of capital they're deploying, primarily driven by the uncertainty in the broader economy and financial markets. We believe the continued disconnects out there between public market multiples and valuations and private market valuations, combined with the lack of IPO and M&A exits these days and the withdrawal of the nontraditional growth investors has made it very difficult for many later in growth stage companies to raise capital. As we've been discussing during these past several quarters and we'll get into further, venture lending has been impacted by these conditions as well, most notably by this reduced level of equity investing. Leveraging the power of the TriplePoint Capital platform and in our experience gained over the past 18 years, our focus in the second quarter and year-to-date continues to be 3 priorities that we believe will enable us to navigate through the current market and position TPVG to benefit as conditions improve through time. Having been through many of these venture capital market cycles, we believe it's appear to demonstrating patience and taking timely advantage of lending opportunities with this market backdrop. Specifically, our priorities are focused on maintaining our earnings power and our strong liquidity, managing the portfolio and positioning TPVG for the future. Regarding our earnings power, with a portfolio of almost $940 million, we generated net investment income, or NII, of $18.8 million or $0.53 per share as we once again over-earned our regular quarterly dividend of $0.40 per share. TPVG also achieved a weighted average portfolio yield for the second quarter of 14.7%. We're also focused on maintaining strong liquidity and a diversified capital structure, adding to TPVG's stable foundation. Based on current liquidity exceeding our unfunded commitments and cash flows from our existing portfolio, we believe we have ample liquidity well into 2024. Another priority continues to be to manage and monitor the portfolio. It starts with frequent contact we're having with our portfolio companies and their investors on an active basis. In addition, our teams are out there. They're monitoring portfolio company plans and business progress. We're regularly assessing their financial condition and capital structure matters and there's always an active review of capital needs and financing strategies. We're very proactive these days given today's volatile market. As Sajal is going to discuss, we're working our way through some exciting credit -- excuse me, existing credit issues created by these macroeconomic and venture market changes. Last quarter, almost 90% of the portfolio on a fair value basis was performing at our 2 best credit scores and we believe are adapting well to these current market conditions. This includes 14 companies that raised capital year-to-date. 10 of them last quarter raised more than $326 million alone. Several of our portfolio companies are growing, they're expanding and they're executing according to their individual financial plans and also operating ahead of plan as well as a fewer achieving positive EBITDA. We upgraded credit ratings on 3 of the portfolio companies which had strong performance and they had projected cash runways extending beyond our loan maturity dates. We upgraded Pill Club as its loan was assumed in conjunction with the sale of the company. This quarter, for a few portfolio companies, primarily those which we have been previously talking about and identified, we lowered their credit ratings due to some ongoing challenges and developments they had in the quarter. Given the broader market and current challenging times, we will continue to proactively work through the issues which can arise in this environment and we remain engaged with the rest of the portfolio. We've been through many of these cycles in the past and we believe an upturn in the market is dependent on the return of stability in the public market and technology company multiple specifically as well as technology companies digesting and adapting to today's new environment. As venture investors remain -- gain confidence in valuations and valuation metrics, we believe it will enable companies to obtain values based on expectations for future year revenues and exceed their current private valuations. In the interim, many companies will remain on their path of bringing down operating burn to conserve cash and to extend their runways. As we've mentioned before in these calls, the environment for many venture growth stage companies has changed, from business plans of growth at all costs, transitioning into plans of conserved cash at all costs. The third priority I mentioned is our focus on TPVG's long-term positioning and leadership in the venture lending market. We're looking to capitalize on changes in the competitive landscape that have occurred in the venture lending market since the Silicon Valley Bank crisis earlier this year. We're continuing to set the groundwork for when market conditions improve as well and we're taking advantage of those opportunities we are seeing in the current market environment. We see resilience, for example, in the fintech, software, enterprise, cybersecurity, health tech and travel segments, among other sectors. These companies are all looking to capitalize on utilizing our debt to help accelerate their plans or in some cases, we're helping finance opportunistic acquisitions. These are the type of sectors and use cases we'll continue to focus on in the near term and our pipeline today reflects this strategy. While it's a pretty challenging market, for TPVG, it's about working through this period of volatility and building our pipeline for the future. I continue to see and witness glimmers of progress in the horizon and growing signs of increased investment activity. This includes pockets of technology investments being funded and operating in today's recalibrated and very valuation-sensitive environment. The entrepreneurs that we meet with now are sharply focused on the path to profitability as opposed to topline growth. Many of the venture capitalists we have spoken with have shared an optimistic outlook that they have for increased investment activity in 2024. They tell us about a growing pickup in investment activity at their funds and while it's still early, they continue to expect to see improvement into next year. We believe this is a reasonable assessment given the more than $290 billion out there of estimated dry powder that venture capital funds raised in '21 and '22 which is yet to be invested according to PitchBook and VCA. While our results will continue to depend upon our ability to deploy capital and effectively manage credit, based on our track record and our success investing more than $13 billion of venture loans across the TriplePoint Capital platform and our experienced multi-cycle tested team, we believe we're in a position to capitalize on opportunities over the long term. We believe venture lending is about investing for the long term which includes obtaining warrant and equity investments in the portfolio which now span across 119 companies at TPVG. As we progress through the remainder of the year, we expect to continue to focus on the priorities we've outlined here as well as draw upon TriplePoint Capital's differentiated strategy in order to continue to capitalize on market opportunities over the long term. With that, let me turn the call over to you, Sajal.

Thank you, Jim and good afternoon, everyone. During the second quarter, TriplePoint Capital, our global investment platform and the adviser to TPVG, signed $114 million of term sheets with venture growth stage companies compared to $199 million of term sheets in Q1 which reflects our approach to originations across our platform in light of current market conditions. Given our continued focus on TPVG's overall leverage position, during the quarter, we allocated $18 million of new commitments with 4 companies to TPVG including 1 new portfolio company, Tempus Ex Machina, a company backed by Andreessen Horowitz, Silver Lake and others which provides analytics and data sets from sporting events using AI and machine learning. During the second quarter, TPVG funded $30.6 million in debt investments to 8 portfolio companies which is at the lower end of our guided range for the quarter. These investments carried a weighted average annualized portfolio yield of 16.4% at origination. Of the $30.6 million funded during the quarter, $17.1 million was related to existing unfunded commitments and the remaining $13.5 million was from new commitments made during the quarter. As Chris will cover in more detail, our unfunded commitments are at $180 million as of today, with $63 million set to expire this quarter and another $32 million by year-end. Similar to our experience during the pandemic, we continue to see lower-than-expected utilization of existing unfunded commitments prior to their expiration and are projecting fundings for both Q3 and Q4 to be in the $25 million to $50 million range per quarter. We also expect loan prepay and contractual amortization activity from the existing portfolio to potentially match or exceed fundings in Q3, similar to our experience in Q2. During Q2, our $34 million of loan prepayments helped increase our weighted average annualized portfolio yield on total debt investments to 14.7% for the quarter. Excluding prepayment-related income, core portfolio yield was 14.1%. We expect the increase in prime rate in Q2 and again last week to benefit yield during the second half of 2023 as well. Our debt investment portfolio company count at the end of Q2 was 56, represented 21 different subsectors and our top 10 portfolio companies represent 34% of our total debt investments. In Q2, 7 portfolio companies raised $304 million of capital and 3 portfolio companies which closed rounds in Q1, raised an additional $22 million during the second quarter, bringing our total to 14 portfolio companies raising $390 million of capital year-to-date. Our portfolio companies saw an increase in aggregate amounts raised in Q2 over Q1. We believe this bodes well for not only the operating runway these portfolio companies will have but also for their future credit outlook. Despite the challenging environment, during the quarter, we sold our warrants and equity investments in Toast which had completed its IPO in 2021 and we recorded a realized gain of $3 million, bringing our cumulative gross realized gains from warrant equity investments since TPVG's IPO to $48 million. The interesting story on Toast is that they never drew on the venture loan commitment we made to them in 2018. And our $3 million of realized gains represents 100x multiple on our original fair value of the warrant we received. We continue to hold 184 warrant equity investments in 115 companies with a total cost and fair value of $71 million and $89 million, respectively, as of Q2. We believe Revolut, WorldRemit, Monzo, Upgrade, Signify, Cohesity and Passport Labs are some of the higher-profile portfolio companies that could potentially drive future upside value over time as market conditions improve. Although we saw a slight improvement in our weighted average credit score from Q2, we did see ongoing stress with existing companies on our credit watch list, the situations developed either during the quarter or shortly thereafter that warranted further credit downgrades and fair value reduction. We also downgraded 2 new names and upgraded 4 names during the quarter. 88% of our portfolio on a fair value basis is performing at our 2 best credit scores and we believe are adapting well to current market conditions. During the second quarter, we upgraded 3 obligors with a total of $33 million in principal balance, including Monzo Bank, FlashParking and Mockingbird from Category 2 to Category 1 due to strong performance above expectations and cash runway. In addition, during the quarter, we removed Pill Club with a principal balance of $20 million from Category 3 in conjunction with its acquisition by our portfolio company, Thirty Madison. The outstanding principal balance was assumed in full under new loan structure secured by Thirty Madison. These loans are current, accruing income and rated Category 2. This was a positive outcome and a testament to our team's skills in managing a challenging credit situation. In Q2, we added 1 company to Category 3, Mystery Tackle Box with the principal balance of $5 million and 1 company in the Category 4 Made Renovation with a principal balance of $10 million due to developments in its strategic financing process. With regards to our other Category 4 rated asset ROLI, we continue to see improved operating performance. The company increased sales in Q4 '22 and has performed to plan in 2023, with new product initiatives targeted for the second half that should be capitalized for growth. With regards to Category 5 assets, Underground Enterprises with a $6 million principal balance was downgraded to Category 5 due to our revised expectations for an extended recovery process in conjunction with its bankruptcy filing on May 1. Luko, with a principal balance of $17.4 million was downgraded to Category 5 as a result of its announced agreement in June to be acquired by Admiral Group, a U.K.-based insurance company as well as its intent to sell certain business units and assets to other parties. The fair value mark for Q2 represents our expected recovery from the sale to Admiral and expectations of value from the disposal of its remaining assets. Health IQ with a principal balance of $25.1 million was downgraded to Category 5 during the second quarter due to ongoing challenges with the company's execution and strategic efforts. The fair value mark for Q2 represents our revised expectations for an extended restructuring and recovery process and our team is actively engaged with the company and other stakeholders. VanMoof with a principal balance of $22.5 million was downgraded to Category 5 during the second quarter. Subsequent to the end of the second quarter as a result of an unsuccessful M&A process, the company was declared bankrupt in the Netherlands. This was a particularly surprising and disappointing outcome as VanMoof was a 14-year-old company that had raised over $180 million of equity capital and was widely regarded as one of the leaders of the e-bike market. Despite meaningful historical revenues and launching a new line of e-bikes this year, the company was unable to attract additional capital or strategic partners. We are early in the process and actively working to maximize our recovery. Although these credit developments impacted NAV this quarter with VanMoof and Health IQ representing approximately 70% of the NAV reduction, we expect some of these situations such as VanMoof, Luko and Underground to be resolved over the next 3 to 6 months, while the others have time for recovery as our teams manage through these situations. As Jim discussed, we believe the increase in stressed assets is directly related to challenging conditions in the venture capital equity fundraising market and in the market for M&A transactions by both public and private companies. Venture capital-backed companies that have had success raising capital in the past are having a difficult time in the current environment and will continue to experience such challenges unless market conditions improve, where they delay their capital raising efforts until market conditions improve. We believe that once public market multiples stabilize, overall sentiment and outlook improve and equity investors begin to deploy the significant dry powder they have under management, we will start to see the market recover. While we are pleased to see an increasing number of portfolio companies raise rounds in Q2 and we are making progress on our recoveries, the market is still currently challenging and we continue to remain proactive and diligent as we manage through this environment. Although we believe that we are in a challenging part of the cycle for venture capital investing, we've effectively managed through cycles before which is reflected in our long-term performance at the TriplePoint Capital platform and at TPVG. Since TPVG's inception 10 years ago, our cumulative net loss rate has remained under 2% of cumulative commitments or 20 basis points per annum and 3% of fundings or 30 basis points per annum. Our underwriting processes have been refined not only over the past 10 years since TPVG's IPO but also the 18 years since we started the TriplePoint Capital platform and the 24 years that Jim and I have been working together. We utilize a rigorous approach to both fundamental credit analysis and qualitative and quantitative assessment of high-growth venture capital-backed companies and we regularly review and adjust our decision-making based on market conditions and dynamics. Considering current market dynamics and conditions, we're applying our underwriting metrics, credit standards and credit decisions to reflect the new market realities. Although credit losses are an expected part of the venture lending model, as we reexamine our historical losses, they tend to be unique situations as opposed to having common themes for the outcomes that occurred. While they all fundamentally ran out of cash and were either unable to raise the follow-on round of financing or successfully complete a sale of business or assets in excess of our loan balances, they occurred for unique reasons which we do not believe were foreseeable or expected at the time of underwriting. Keep in mind that an important element of the venture lending model is the impact of the equity kicker in the form of warrants and direct equity investments. These valve investments have the potential to drive meaningful realized gains, offset credit losses and help grow NAV over time. Since TPVG's IPO, we have generated $48 million of gross realized gains with one name in particular, generating $27 million in gross realized gains which demonstrates the potential of what one successful exit can have. As mentioned earlier, we currently hold 184 warrant and equity investments and 115 companies as at quarters end and believe many have the potential for success in the future. In summary, as Jim said, we are focused on maintaining the financial strength of TPVG, remaining in frequent contact with our select seasoned portfolio companies, are focused on our portfolio and stabilizing credit and are preparing for the future. Given our existing scale and strong portfolio yield, we expect to continue to deliver strong investment income while positioning the company to further benefit when market conditions improve. With that, I'll now turn the call over to Chris.

Thank you, Sajal and hello, everyone. During the second quarter, the earnings power of the portfolio remained strong as we generated substantial core interest income from our loan portfolio and stable portfolio yields, while TPVG continued to hold a diversified portfolio. As we entered the second half of the year, we believe our current liquidity position and unfunded commitments are well matched and combined with contractual cash flows from our existing, seasoned and diversified portfolio positions us well into 2024. Given our outlook on long-term liquidity, we expect to reduce overall leverage ratios and capitalize on new investment opportunities in 2024. Total investment income was $35.2 million as compared to $27.4 million for the second quarter of '22. This increase of 28% was due to growth in the average portfolio size and higher investment yields. Our portfolio yield was 14.7% on total debt investments this quarter as compared to 14.5% for the second quarter of '22. Excluding prepayment-related income, portfolio yield was 14.1% which was down from 14.7% in Q1, primarily due to lower deferred fees associated with unfunded commitments which expired during Q2 compared to Q1. Onboarding yields continue to be strong and stable. Loan prepayments contributed less than 1% of the total portfolio yield this quarter with a total of $33.8 million of principal prepayments and $1.4 million of accelerated income. Operating expenses were $16.3 million as compared to $14.8 million for the second quarter of '22. These expenses consisted of $9.9 million of interest expense, $4.5 million of management fees and $1.9 million of G&A expenses. Due to the shareholder-friendly terms of the total return requirement under the incentive fee structure, our incentive fee expense was reduced by $3.8 million during the second quarter and $7.5 million for the 6 months ended June 30. We earned net investment income of $18.8 million or $0.53 per share compared to $12.7 million or $0.41 per share in the same period in 2022. Net realized gains on investments for the second quarter were $1.9 million. This primarily included realized gains of $2.9 million from the sale of publicly listed common stock in Toast Inc. The net change in unrealized losses on investments for the second quarter was $41.6 million, consisting of $37.8 million of net unrealized losses on the debt investment portfolio, $1.3 million of net realized losses on the warrant and equity portfolio and $2.5 million from a reversal of previously recorded unrealized gains from investments we realized during this period. As of quarter end, the company's net assets were $379.4 million or $10.70 per share compared to $414 million or $11.69 per share as of March 31. 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 September 15 to be paid on September 29. In addition to over-earning the second quarter dividend, we continue to retain undistributed income which totaled $32.1 million or $0.90 per share at the end of the period to support additional regular and supplemental dividends in the future. The NII to dividend coverage was strong at 133% for the second quarter. Now just an update on unfunded investment commitments, overall liquidity and sources and status of balance sheet leverage. We ended the second quarter with $205 million of unfunded investment commitments, down from $254 million last quarter and $54 million dependent upon the portfolio company reaching certain milestones. All of these unfunded investment commitments have contractual floating interest rates. The decline in these balances are primarily due to new fundings and commitment expirations in excess of any new commitments that we closed during the second quarter. Of the total amount, $88 million are set to expire in Q3, $32 million in Q4 and $57 million in 2024. In fact, $25 million of unfunded commitments have already expired or were terminated in Q3 to date. Given these recent expiries, our unfunded commitments are approximately $180 million as of today. Given this activity, total unfunded commitments are well matched against our current liquidity position which we believe puts TPVG in a favorable position as we look to make new commitments and delever the portfolio. We expect that 25% to 50% of the current unfunded commitments will expire without funding. As of quarter end, the company had current liquidity of $199 million, consisting of $89 million in cash and $110 million available under the revolving credit facility. In addition to this current liquidity, the existing portfolio provides contractual cash flows which bodes well for sustained liquidity. Loan prepayments are a natural part of our venture lending model. And while prepayments are difficult to project and are expected to vary from quarter-to-quarter, we believe that there will be 1 to 2 portfolio companies with loan prepayments each quarter to occur over time. We currently expect $30 million to $45 million in loan prepayments in Q3. We continue to maintain a diversified capital structure. As of June 30, an aggregate of $395 million was outstanding in fixed rate investment-grade term notes and $240 million was outstanding on our floating rate revolving credit facility which has a total commitment available to TPVG of $350 million. DBRS has issued an investment-grade credit rating on the company and in April of '23, reaffirmed the investment-grade issuer rating of BBB. Our fixed rate borrowings account for 62% of our outstanding leverage at quarter end, while 60% of our debt investments are at floating rates and have benefited from increasing interest rates over time. With our latest fixed rate debt offering completed in Q1 of 2022, we have 3 steps to the ladder of debt maturities with the maturities to occur in 2025, '26 and '27. We ended the quarter with a gross leverage ratio of 1.67x and a 1.44x net leverage ratio which is net of cash on hand. We expect to maintain this level of gross leverage through the end of the year while deploying our existing cash into new investments from funding requests sourced from our existing unfunded commitments. We expect to deleverage the portfolio in the first half of 2024 as we receive the contractual amortization and periodic prepayments in the portfolio. During the next 4 quarters, we expect $180 million in cash flows from contractual principal payments from the portfolio, excluding any prepayments and proceeds from the sale of private or public equity securities in the portfolio that we may receive over time. Last year, we announced the launch of an ATM issuance program. No shares have been issued as of today but we may look to issue shares over the coming year. So this completes our prepared remarks. We'd be happy to take your questions. And so operator, could you please open the line at this time?

[Operator Instructions] Our first question will come from Crispin Love with Piper Sandler.

Did you say that you expect third quarter and fourth quarter new debt fundings to be in the range of $25 million to $50 million per quarter. And if that was the case, was the previous guide there, $100 million to $150 million per quarter?

Crispin, it's Sajal. The previous guidance was $25 million to $75 million. That's the guidance we gave last quarter. And so given that we're just focused on utilizing the existing unfunded commitments and given the market environment, we're taking the target to $25 million to $50 million.

Okay, that's helpful. And then just on leverage, at 1.67x right now, I'm curious what the reasons are for maintaining that leverage through the end of the year rather than bringing it down through an equity raise as it's much higher than where you typically run at. I think you've said in the past that kind of would typically run, I think it was 1.25x or less or 1.4x or less. So, curious about the reasoning there.

Yes. This is Chris. So certainly, raising equity is an option. We have the ATM program that we can use currently. It's a much smaller program, obviously. We do have the option. We have our active shelf to do an overnight offering, if that made sense. But right now, what we're focused on is what we can control which is deployment of capital and managing the portfolio. But certainly, an overnight equity offering is something that is open to companies that are listed.

Next question will come from Vilas Abraham with UBS.

With the decline in NAV and the jump in leverage, are you pushing up against any covenant issues with the revolver? Or just how should we think about that?

That's a good question. This is Chris. We look at that on a regular basis, not just at quarter end but throughout the quarter and we're comfortable with where we are on existing covenants, whether it's on the term debt or on the revolvers, we're fine.

Okay. And you talked about in the prepared comments, 14 companies portfolio raising capital year-to-date. Is it fair to assume those are largely all down around still?

Vilas, this is Sajal. So I would say the majority are flat to down, although there are some that were up. I would say the majority tend to be from existing investors with, again, a few that were led by new external investors.

Okay. And maybe last one. You touched on taking advantage of opportunities after the SCB collapse. Can you talk about what that means, what's the time frame there? And from a personnel perspective, do you feel like you're well positioned to take advantage or do you need to add head count in certain areas?

It's a great question, Vilas. So as we mentioned last time as well, there's some very good opportunities in light of the SCB development but these are not overnight situations. They're a little bit over the long term. So in the short term, what this means is these are opportunities. I talked about this last time as well, where banks are -- the separation between banks for bank, bank services, credit cards, foreign exchange, things they do and lending that the market is a little bit more separated and lending now doesn't mean from a commercial bank, it can absolutely mean from a nonbank and that's become more important than ever since the days of SCB. So we actively are talking at the platform level and have instances where we've replaced SCB loans, ones where we're currently evaluating these and also ones as we play out the rest of the pipeline this year and next year that will continue to be growing opportunities. But it's not like these companies replaced SCB in a day or overnight. And to address this, yes, we absolutely have been and continue to staff up for what we see improvement in the markets overall but also in wake of the SCB development.

The next question will come from Casey Alexander with Compass Point.

I'm curious why you would carry $78 million in cash and not use some portion of that cash to pay down the revolving credit facility and report a lower leverage ratio. I mean it seems to me that if you took $40 million of that, it would bring the leverage ratio down to 1.56, still not within your range but maybe a little less eye-popping. Is there a technical reason why you're not doing that?

Yes Casey, thanks. This is Chris. So yes, we're more about managing cash to make sure we have the liquidity for funding transactions. And oftentimes, you'll see from month to month or quarter end, we'll have higher cash balances in readiness to fund new transactions that occur kind of within a 5-day notice window. That's all that is. Rather than paying down for optics, we wanted to make sure we were ready to fund transactions.

Okay. Secondly, I think you mentioned that 10 companies had raised $300-some million. Growth-stage companies, late-stage growth companies need a lot more than $30 million and that would be the average of what you mentioned. I mean, so is it -- is what you're seeing sort of stopgap equity deals to kick the can down the road because these don't sound like the type of funding that's going to last 2 or 3 years?

I'll take that, Casey. This is Sajal. So I would say, keep in mind -- so I'd say the -- what's changed, right, a year ago or 2 years ago, right, as you said, right, companies would raise equity rounds every 3 to 6 months versus the more average of 12 to 18 months. And so I would say the other key thing is companies have been bringing their burn rates down. So I would say it's a hybrid between raising what they need to have sufficient runway in anticipation of either times getting better or market conditions getting better. For a number of others, it's on the path to get to profitability. For some others, it's to milestones that investors have agreed to that then unlock future tranches of capital. So I'd say it's a combination of all those scenarios. But also given where valuations are, no one is motivated necessarily where multiples are to over raise equity in this environment given the debt dilution impact.

Lastly, one of the companies that you mentioned that was in the [indiscernible] category, it sounded like you were saying Luko. I can't find that in the schedule of investments. What am I doing wrong?

Yes. Sorry, it's called Demain, D-E-M-A-I-N, Demain. Luko is their...

D-E-M-A-I-N. Sounds like domain?

Demain, correct.

Next question will come from Ryan Lynch with KBW.

Just following up on one of Casey's questions regarding the cash balance. I guess I'm still not understanding why the cash balance is that high. I mean I think you mentioned you expect fundings in the third quarter of $25 million to $50 million. You also expect to receive some prepayments to probably offset that. So I just want to understand what's the need to have $90 million of cash if you're only expecting to fund $25 million to $50 million in the quarter plus...

Yes, Ryan, maybe just to add on to what Chris said. So again, part of it is in anticipation of liquidity. I think the other point is we collect cash at the end of the month. So that's also cash coming in from portfolio company payments. And so again, it's a little bit of -- you've got -- you have cash ready for fundings, you collect cash from the monthly payments from customers. And then obviously, correct post, now we pay down our lines, post end of month or end of quarter after the cash frees up. And so again, it's a fund timing thing more than anything as the primary reason.

Yes. A good example is we did pay down the line just recently, $65 million. So we don't keep that outstanding all the time. It's a revolver where we can draw and pay back.

Yes, understood. And then the other one, I just wanted to make sure I was kind of understanding the dynamics going on here. So I think you said you expect leverage to sort of remain the same throughout 2023 and then deleverage -- start to deleverage in 2024. I know that's not assuming any sort of like capital raise or anything like that. But I guess, to the extent that leverage stays flat and then decreases throughout 2023 and then decreases in 2024, is that just the function of the interplay between the level of funding you expect from existing borrowers to sort of decline as we roll into 2024 and some of those unfunded commitments roll off? Is that kind of the interplay that's going to drive your expectations right there?

That's exactly right. So what we're basically doing is looking at the unfunded commitment levels going from the $200 million down to $180 million and looking at the expected fundings of those unfunded commitments. And then also layering in some level of the unknown which is the prepayment factor. So we do have some line of sight on Q3 prepayments but we just don't have that information for Q4. So we do expect some level of prepay which would help towards that deleveraging. But right now, it's just too early to tell.

Next question will come from Christopher Nolan with Ladenburg Thalmann.

Given the status of the -- or the slowdown in the venture debt market, who do you expect to take you out on these maturing investments?

Chris, again, on a number of our investments that are amortizing. So it's not a bullet-type structure on other transactions where there -- we generally see equity capital. So when robust equity comes back, we'd look to equity. And then the nonbank lenders in venture lending continue to evaluate opportunities. And so I'd say it's a function of all 3, prepays -- sorry, equity raises, from amortization, normal amortization and then it's a smaller amount is refi. Refis have always generally been a small percentage of our business.

And then I guess as a more general question, I mean, the slowdown in the venture debt market, I mean, obviously, SCB went away but were major funds really hobbled by SCB seizure and that just sort of has thrown a wrench into the works?

Yes. I would say from a venture capital fund perspective, there's really not been any change. They've all recovered from their own issues with SCB and their own banking things at the fund level. In terms of their underlying companies, there's definitely been the transition in many cases from SCB to other banks. But what venture lenders are benefiting from, again, is the fact that newer banks aren't necessarily in the market these days to go out and lend to these companies. They're very fine -- they're fine preventing -- providing the banking services. For the lending requirements, this has been new opportunities to turn to nonbanks and recognize the value and importance of them on the lending side. So if you will, there's room for both and opportunities for both. But these are things that are taking some time. There's a little pause when you change banks. We also want to continue to be cautious and selective in this environment. But definitely, that's one of many parts of the future opportunities here for nonbank.

Appears there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks.

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 have a nice day.