Good afternoon, ladies and gentlemen. And welcome to the TriplePoint Venture Growth BDC Third Quarter 2020 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers’ prepared remarks, there will be an opportunity to ask questions and instructions will follow at that time.

This conference call is being recorded and a replay of the call will be available and an audio webcast on the TriplePoint Venture Growth BDC website. Company management is pleased to share with you the company’s results for the third quarter 2020.

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..

Thank you, Operator, and good afternoon, everyone. We hope that our shareholders and their families are healthy and are staying that way during this pandemic. Our priority is protecting the health of our employees and together with our Venture Capital Partners and entrepreneurs, supporting our portfolio companies during this uncertain time.

We’re now eight months into the pandemic and our advisor continues to operate and conduct business remotely to source and close transactions. In this environment, our portfolio companies have all adapted COVID adjusted plans and a number are outperforming these plans. And more than 86% of our portfolio companies have also raised capital here in 2020.

After the initial pause earlier in the year, new deals are getting done in our venture capital markets and these investments, as well as our new originations are in sectors that are geared for success in the COVID environment.

So with this pandemic as a backdrop, we remain cautious, but are experiencing the signs of continued growth, not only through the doubling of signed term sheets and five times the amount of customer fundings this past quarter versus the previous quarter. But also with the growth activity well underway here in the fourth quarter.

We believe this positive trend will continue in our business and serve as a basis for meaningful growth in 2021. This is due to several reasons. The first is our focus on technology. We are living in a different world in one of uneven consequences.

The technology sector is one of the more sustainable parts of the economy today and is an area for investment for the foreseeable future..

Thank you, Jim, and good afternoon.

During the third quarter TriplePoint Capital signed $146 million of term sheets with venture growth stage companies, up from $93 million of signed term sheets during the second quarter and almost doubled the $80 million of term sheets signed during the first quarter, reflecting continued strong demand for debt financing.

During the third quarter, TPVG closed $87 million of debt commitments with nine companies, up five times from the $14 million of closed debt commitments during the second quarter.

The industry leading position of the TriplePoint Capital platform not only has resulted in significant deal flow for TPVG from our select VCs and their venture grow stage portfolio companies, but also enables us to co-invest across the platforms many investment vehicles, so we do not miss out on deal flow due to transaction size, while also optimizing the hold size for us at TPV G..

Great. Thank you, Sajal, and Hello, everyone. Let me take you through an update on the results for the third quarter of 2020. Total investment and other income was $23.1 million for the third quarter of 2020, as compared to $15.7 million for the third quarter of 2019.

The weighted average annualized portfolio yield was 14.1% on total debt investments for the third quarter of 2020, as compared to 13% for the prior year. The increase in total investment and other income was primarily driven by an increase in the average debt investment portfolio size and also by fees earned from loan prepayments.

Total operating expenses were $10.9 million for the three -- for the third quarter of 2020, as compared to $8.6 million for the third quarter of 2019.

Total operating expenses for the quarter consisted of $3.5 million of interest expense, $3.3 million of management fees, $3.1 million of incentive fees and $1 million of general and administrative expenses.

The increase in overall operating expenses is primarily driven by an increase in the gross assets of the company and overall increase in borrowings and are offset by lower administrative and G&A costs associated with significant operating efficiencies in 2020.

Net investment income for the third quarter was $12.2 million or $0.40 per share, compared to $7.1 million or $0.29 per share in the third quarter of 2019. Return on average equity based on net investment income for the quarter was a very healthy 11.8%, despite the lower leverage we recorded in the quarter.

Net realized gains on investments totaled $4.1 million and net unrealized losses on investments for the third quarter were $1.9 million, resulting in a net increase in net asset value from net gains of $2.2 million or $0.07 per share.

Net realized gains are the result of $6 million of gains realized on the sale of CrowdStrike and Medallia stock offset by $1.9 million of losses associated with the final disposition of the Munchery investment.

Net unrealized losses results -- resulted from $4.9 million of the reversal of previously recorded unrealized gains on CrowdStrike and Medallia offset by $1.4 million of the reversal of previously recorded unrealized losses on Munchery, as well as $1.2 million of unrealized gains from fair value adjustments on the rest of the portfolio.

Net asset value or NAV increased from $13.17 per share to $13.28 per share up 1% from Q2 2020. The net increase in net assets from operations for the third quarter was $14.4 million or $0.47 per share. We reported unfunded commitments totaling $168 million, of which $32 million was dependent upon portfolio companies reaching certain milestones.

Of the $168 million of unfunded commitments, $85 million or 51% of this total will expire in 2020 and $83 million will expire during 2021 if not drawn prior to expiration. In addition, all of our unfunded commitments have an index rate of U.S. prime rate with a floor set to 3.25% or higher.

We continue to maintain strong liquidity to fund our new origination activity as we head toward year end. Some of this strength has come from proactive efforts this year, including the accretive sale of common stock in January, generating $80 million and the closing of our first investment grade unsecured debt in March generating $70 million.

We believe our high quality portfolio continues to have a positive impact on our liquidity position, which is generated strong loan prepayments and principal loan amortization during the first nine months of the year.

In addition to our strong current liquidity, the existing seasoned and diversified portfolio has contractual cash flows over the next five quarters of $274 million, which bodes well for the sustained liquidity well into 2021.

The strong liquidity and our modest leverage position gives us dependable funding capacity in excess of our existing unfunded commitments to grow the portfolio. As of September 30th, the company had total current liquidity of $214 million consisting of $26 million in cash and $188 million of availability under our revolving credit facility.

We continue to have the flexibility under our existing accordion feature to expand the current $300 million commitment to an additional $100 million. The revolving credit facility as compared to fixed rate debt, allows us to efficiently manage our interest expense and reduce outstanding balances when prepayments occur within our portfolio.

Aggregate outstanding balances as of September 30 were $257 million, consisting of $75 million of exchange listed fixed rate baby bonds, which mature in 2022, $70 million of private term debt, which matures in 2025 and $112 million outstanding under our multiyear revolving credit facility.

Given our aggregate borrowings as of September 30, we’ve reported a leverage ratio of just 0.63 times leverage or an asset coverage ratio of 259% at the low end of our leverage target of 1 times leverage.

We have generated NII of $1.18 per share and have paid distributions of $1.08 per share, so $0.10 per share of income in excess of our distributions with more than a quarter to go and that is after the impact of issuing 5.7 million new shares in January in connection with the public equity offering.

On top of that, we have $7.3 million of spillover income from 2019. In addition, our NAV as of September 30, of $13.28 per share is only $0.06 share -- $0.06 per share lower than our NAV pre-COVID as of December 31, 2019.

During the third quarter, we just we distributed $0.36 per share from ordinary income as part of our regular quarterly distribution. Net investment income provided 110% coverage of the quarterly distribution, despite leverage being at the lower end of our target range.

And further, we have undistributed earnings spillover from net investment income of approximately $10 million or another $0.33 per share to support additional distributions to shareholders in the future.

Pleased to announce that for the fourth quarter of 2020, our Board of Directors has declared a distribution of $0.36 per share on October 29th to shareholders of record as of November 27th. The payment date for this distribution will be on December 14th.

This completes our prepared remarks and now at this time, we’d be happy to take your questions, and so, Operator, could you please queue up the line for questions?.

The first question comes from Finn O'Shea from Wells Fargo. Please go ahead..

Hi, everyone. Good afternoon. Thanks for having me on. I just -- first question, high level, appreciating the robust fund leverage profile and such. This quarter we saw a little bit lower commitments and then you were selling some stock in the market.

Is this at all indicative of any near-term desire to generate liquidity, position the company for a more conservative outlook in any sense or maybe its one-off, but any comment you have there to describe that sort of pattern we saw this quarter? Thank you..

Sure. Hi, Finn. Sajal here, I will start and then please Jim and Chris jump in. So, Finn, I’d say, the deleveraging that occurred this quarter was more, as a result of our portfolio companies, so the prepayment activity and the scheduled principle amortization.

So not necessarily conscious of us, proactively looking to maintain large cash reserves or deleverage ourselves. I think the benefit of using warehouse facilities is that we’re able -- when we do get prepayment activities, we’re able to pay down our credit lines, delever or save on interest expense our shareholders benefit from that.

But I’d say really, it was more of a function of our portfolio companies. I would then counter and say, I think important thing to notice is that our level of term sheets -- signed term sheets have been relatively consistent if not growing quarter-over-quarter.

But the rate of commitment of TPVG has increased as our liquidity has increased, our unfunded have reduced and so, I’d say, it’s the opposite, I think, where we’re seeing strong market conditions, as Jim talked about in the VC equity ecosystem and the venture lending ecosystem.

And so I think we’re positioning for continued growth and demand, which we’re seeing not only here in Q4, but going into 2020 as well. Jim, Chris any thought..

Yeah. I can only add that, I think, the word caution and cautious may have been applicable. They’re in the early COVID onset and quarters, but there’s absolutely not a pattern here.

And if anything agree with Sajal, not only have the commitments been up this past quarter versus a previous one, but we’re pretty much positioning and gearing up, as well as staffing up now for increased originations and the growth activity we see. So there is not a pattern that at least we’re aware of..

Yeah. Yes. Of course, I was just talking about this brief moment in the balance sheet. But that’s all very helpful. Thanks. Just another small question on the loan, GoEuro, I think, you added a small convert of follow on. This -- was that in conjunction.

They raised a large round or were you sort of jumping in on that or is that something that that’s normal for you to invest in a follow on or is that consistent with your co-investment style, any color….

Yeah..

… you have there? And that’s all for me. Thank you guys..

Okay. Good question, Finn. Yeah.

Finn, so, as you saw, GoEuro did announce a capital raise during the quarter and given that -- a part of our strategy, not only of getting the equity kickers, but it’s getting access to those private rounds that traditional investors can’t get access to and so by benefit of the lending relationship plus prior equity investments that we’ve made in the company we were able to get access to this round that occurred here in Q3 and did our pro rata investments and participated in that round.

So we view that as a benefit of the lending relationship was getting access to invest in that round..

The next question comes from Devin Ryan of JMP Securities. Please go ahead..

Hi. This is Kevin Fultz on for Devin. Thank you for taking my questions.

So, just a question around portfolio company liquidity, can you provide some insight into the cash runway that existing portfolio companies have?.

Kevin, good to meet you. This is -- sorry, Jim. Let me start then please jump in. As mentioned during my section, so we’ve seen some fantastic equity raising activity on a year-to-date basis within the portfolio.

I think the number was, let’s see, year-to-date basis we’ve had 22 portfolio companies raised over $2.8 billion of capital since the beginning of the year and that 75% of our portfolio companies have at least 12 months of cash runway.

And then in any given quarter, we have between three to six portfolio companies raising equity, so that number is always theoretically, should increase as quarters go on..

Okay. Great. That’s helpful.

And then in terms of find new ways of performing due diligence over the past seven months of a pandemic, have there been any changes in how you’ve done due diligence or you find new ways to perform that in a remote work environment?.

Great.

Jim, would you want to take that one?.

Yeah. And I was just going to provide the same numbers as previous Sajal did on that question, and nice to meet you as well. Yeah. So, the -- at the end of the day, the due diligence process hasn’t changed, and if anything, it’s probably a little more advantageous, because everything is remote.

We’re able to pretty easily contact investors, customer references, all the things that we do and typically more because of the current environment affording those opportunities. So the level of work, the level of investment committee details is not only the same, it’s even more improved and it’s always been, which is a very, very high level..

Okay. Thank you. That’s helpful. And then lastly, I know on previous calls, you mentioned that deal pricing hadn’t materially changed since the onset of a pandemic.

Just curious if you’ve seen an improvement in documentation over that period at all?.

Do you want to grab that, Sajal?.

Sure. Yeah. I would say venture -- the -- I would say, one of the benefits of our platform is, we have pretty thorough explore -- elaborate loan docs and pretty consistent, and I think consistency is pretty important aspect of being a premier lender.

And so I would say, we have not seen any material change in the structure, legal or financial, or covenant profile of our loans and I think that’s something that our companies -- portfolio companies and VCs -- VC sponsors think very highly of that consistency.

So I’d say, they’ve always been tight and lender friendly, and balanced, and no particular changes over the past couple quarters..

Okay. That makes sense and that’s it for me. Congrats on a strong quarter and nice speaking to you guys as well..

Thank you..

Thank you..

The next question comes from Christopher Nolan of Ladenburg Thalmann. Please go ahead..

Hey, guys. Ladenburg Thalmann.

Sajal did you or Chris, did you guys mentioned what the prepayment estimate is for the fourth quarter? If you did, I missed it?.

Yeah. We did not mention the prepayment estimate. But we did -- we do have -- we did announce that we had $32 million of actual prepayments already this quarter that generated about $2.4 million of accelerated income. So that’s already out there this evening with the release..

Okay.

So no guidance, right?.

Correct..

Okay. Turning to ROLI, couple questions on ROLI. ROLI non-accrual, fair number of its credit seem to be maturing or matured at 10/31.

Were those extended or renewed?.

Yes. We are -- Chris, we’re in the process of working on a global restructuring of our outstanding indebtedness with them, based on that -- we were waiting for the product launch and positive developments that happened during the third quarter..

Got you. And if I heard you correct, Sajal, ROLI is a musical products maker..

Yeah. Musical technology company. They make keyboards, synthesizers plus software and other technology..

Got you. Okay. That’s it for me. Thank you..

The next question comes from Ryan Lynch of KBW. Please go ahead..

Hey. Good afternoon and thanks for taking my questions. First one, just a higher level question, as we are still in the middle of this downturn, but we’re -- we’ve been in and embedded at this point, have you surprised by, as a higher level, how well that your overall portfolio is held up.

I mean, you mentioned earlier, you are now going down at a few pennies since this year and also how strong the venture ecosystem has really held up during this downturn?.

Yeah. I would ask -- oh, go ahead. You can start, Sajal..

Yeah. I was going to say, Ryan again, I think, we’re -- Jim and I are now in our 22nd year of working together across two leading platforms. We’ve seen our fair shares of cycles. And so I think it’s too early to get overly confident or excited about the pandemic is far from over. We are second wave, third wave.

So I think we are pleased to see that the thesis that we had articulated to our investors of how working with these selected VCs and the better select VCs in their portfolio companies in our experience and track record.

The thesis was that these funds in their portfolio companies at the venture growth stages outperformed not only during good times, but also during more challenging times.

And so I’d say that, we’re not surprised in the sense that, we’re showing the performance that we have, because, again, that was always the thesis, the best deals could have the best VCs and so we should see better track record.

I would say, I think, we are pleased, but not surprised to see the rate of equity investment activity for the venture asset class as a whole. There’s no doubt that our -- again, our experience across the cycles. The company started during period -- periods of volatility.

I mean, Jim and I can go back to Facebook and YouTube and Netflix back in the day prior cycles. And so we’re not surprised to see premier venture funds deploy capital during periods of volatility to take advantage of dislocation, valuations, and potentially less competition on the VC side.

So I think we’re sort of its playing out, but we’re not getting overly confident. It’s -- I think part of that’s why we’re keeping also substantial liquidity to be able to take advantage of opportunity, but also the world can change, things can change and so we just always want to be prepared.

Jim, anything to add?.

Yeah. It’s very hard to, because maybe after 22 years, we think alike, and absolutely, VC is not always good times. But it’s -- so it’s the wrong word to use during this phase.

But it’s really the quality of our companies and the VCs, we continue and have always worked with, which is part of managing through whatever we want to call it this new norm and adjusting the plans to profitability and in many of the things underway, which results in some performance.

And again, we talked earlier about the uptick in growth and new investments and some of the COVID area investments. And we’ve been through cycles and been through this before.

And if you stick to the better venture capital backed companies and the bitter venture capital funds, which is at the heart of our model, you make it through these periods and then some..

Okay. That’s helpful commentary. And then, in your guy’s press release, you mentioned the fourth quarter Hims is going public through a merger with SPAC. I just wanted to have you guys, hear your opinion on? Obviously, there’s been a huge increase in SPAC formation really over the last year.

And I wanted to know, do you think that the increased formation of those is going to be large enough that it could actually potentially have a meaningful impact on VC backed companies exit strategies or is it simply just another structure of a -- that -- of a company that would already -- that would likely be taken out just via a different structure, whether it’s an IPO or an acquisition or something like that? Do you think that the increased formation of the SPAC is going to have a meaningful impact on the availability of the central bank companies to have you no more exit opportunities?.

Yeah. It’s a really good question, Ryan. So I’d say, at a high level, I think, we’re pleased and welcome the emergence of SPACs. I think it’s still very early as an asset class or an exit class, I guess, better phrase.

There have been some initial transactions within our TriplePoint platform, I think we’re up to four or five portfolio companies that have either completed or have announced these merger events. I think it’s still early in terms of for -- well, let’s wear multiple hats.

So as a lender, I think, we’re pleased because usually these events are takeout events for our debt and so it’s an opportunity for us to get our capital back. It’s the exit. It’s the touchdown that we play to and so we get our loans back, we get our acceleration of income, fantastic.

I think as we look to our equity kickers, it’s a little balanced in the sense that, yes, these are some great valuations that are occurring with the SPAC liquidity events.

But they do require longer roll forward or lockup periods for existing investors than a traditional IPO and so at least we’ve seen in general, nine months to 12 months versus the usual 180 days for a typical IPO.

I then think to your other comment of, are there companies that are going through the SPAC process companies that would have gone public or may not have gone public and is this a new? I think it’s still too early to tell. I definitely think that stacks are an interesting form of exit, but you still have to be IPO ready.

You can’t just decide tomorrow, you don’t want to go public as a SPAC and so I think there’s a fair amount of prep work that companies have to do in order to be ready.

And so then the question is, do you go public on your own? Do you go for the SPAC, or again, and then it has merger like qualities and so would you take an all cash deal versus -- and so I think again, it’s still too early.

I think our VC partners are really kind of seeing the data points, seeing some of the track record from existing events and I think we’ll learn more to see.

But I think, generally a positive thing, because again, it causes growth and acceleration and theoretically, the need for more debt for companies to accelerate growth to get ready for us back exit..

Thanks..

Okay. I would only add, SAPC have emerged here during COVID and I would agree with Sajal. I think it’s a little speculative to see what the long-term or even the kind of near-term effects on venture capital exits overall is going to be.

I think the majority of exits from making the rounds or continue going to continue to be IPOs and M&A’s, but this is a factor now and there will be some SPACs. It’s just not at least currently seen as a huge major significant exit event of the future. But, again, it’s speculative.

We’ll see where it goes and it does have to be companies that are IPO ready, absolutely..

Okay. Yeah. I appreciate your guys color and commentary. You guys have a great insight into that market. So thank you for that. Those are all my questions. So I appreciate the time. Have a great afternoon..

Thanks, Ryan..

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Labe for closing remarks..

Thank you, Operator. We’d like to thank our stakeholders and all our TriplePoint friends and everyone on the line for listening or participating in our call. And we hope everyone continues to remain healthy and look forward to talking with you next quarter. Thanks a lot. Good-bye..

That concludes today’s call. You may now disconnect..