Good afternoon ladies and gentlemen and welcome to the TriplePoint Venture Growth BDC First Quarter 2021 Earnings Conference Call. [Operator Instructions]. 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 fourth quarter and full fiscal year 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. Before I turn the call over to Mr.

Labe, I would 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 may 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 filing 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..

Thank you, operator. Good afternoon and thanks for joining us for our First Quarter 2021 Earnings Call. It's been a little more than a year into the pandemic, and we liken the changes during this period to a pendulum swing.

In the early months of the pandemic, the overriding focus was on survival and now more than a year later, the pendulum has swung the other way today. The topics of focus are now on record levels of venture capital investment record valuations record exit activity in the strong demand for venture lending.

The venture capital ecosystem has demonstrated its strength and its resilience during 2020. And we're all off to a robust start here in 2021. The strong investment activity environment enhances the prospects and credit quality of our existing portfolio companies.

It also drives demand for debt financings from new companies, enabling us to achieve our portfolio growth goals.

Over the course of the year, our focus remains on continuing to execute on our playbook and the work we're doing now will translate to a very busy second half of the year, given this pick-up in venture investment venture fundraising and our growing pipeline.

As we progress through the remainder of the year, we will remain disciplined and balanced in response to adapting to the post COVID recovery. We will continue our exclusive focus in high growth companies backed by our group of leading select venture capital investor.

Given our experience in the field in our franchise, TPG has never been better positioned to capitalize on today's market and flip for what we think of as riding the wave. When you have substantial liquidity lined up and combine it with standing venture capital relationships and a strong pipeline.

That's the formula for driving outsized during the first quarter, we continue. We need to position ourselves to take advantage of the strong demand we are seeing from venture growth stage companies. We expect this to continue throughout 2021 and the first quarter we increased signed term sheets by 142% year over year.

And our pipeline continues to be more than a billion. We expect to accelerate funding throughout 2021. And our poise drawn our ample liquidity, which we further enhanced in the first quarter through upsizing our credit facilities and also completing our second investment grade notes offering under very attractive terms.

During the quarter, we also increased It's been a little more than a year into the pandemic, and we liken the changes during this period to a pendulum swing. In the early months of the pandemic, the overriding focus was on survival and now more than a year later, the pendulum has swung the other way today.

The topics of focus are now on record levels of venture capital investment record valuations record exit activity in the strong demand for venture lending. The venture capital ecosystem has demonstrated its strength and its resilience during 2020. And we're all off to a robust start here in 2021.

The strong investment activity environment enhances the prospects and credit quality of our existing portfolio companies. It also drives demand for debt financings from new companies, enabling us to achieve our portfolio growth goals.

Over the course of the year, our focus remains on continuing to execute on our playbook and the work we're doing now will translate to a very busy second half of the year, given this pick-up in venture investment venture fundraising and our growing pipeline.

As we progress through the remainder of the year, we will remain disciplined and balanced in response to adapting to the post COVID recovery. We will continue our exclusive focus in high growth companies backed by our group of leading select venture capital investor.

Given our experience in the field in our franchise, TPG has never been better positioned to capitalize on today's market and flip for what we think of as riding the wave. When you have substantial liquidity lined up and combine it with standing venture capital relationships and a strong pipeline.

That's the formula for driving outsized during the first quarter, we continue. We need to position ourselves to take advantage of the strong demand we are seeing from venture growth stage companies. We expect this to continue throughout 2021 and the first quarter we increased signed term sheets by 142% year over year.

And our pipeline continues to be more than a billion. We expect to accelerate funding throughout 2021. And our poise drawn our ample liquidity, which we further enhanced in the first quarter through upsizing our credit facilities and also completing our second investment grade notes offering under very attractive terms.

During the quarter, we Also increased NAV, which was driven by growing our EPS to 38 tenths and the significant progress we have made in strengthening our credit quality, which has resulted in TPV GS very strong credit outlook.

While we under earned our distribution for the quarter, we expect to make it up during the year based on prepayment, our healthy spillover income and our expectation that fundings will continue to accelerate throughout the year. We remain in a strong position to generate NII or net investment income in excess of our distribution over the longterm.

As we always have in fact, over the last four years and cumulatively, since our IPO, we have over earned our distribution. We've also paid three special distributions, including one that we just made last week.

Additionally, other trend that we will benefit from is the acceleration of exit events and their income contracts during the first quarter 50 venture capital backed companies for publicly listed, including our portfolio companies, hymns and view, which completed their spec mergers during the first quarter, there's currently two additional TPG portfolio companies that are in the process of going public via a spec and a number of others in very active discussions.

Our portfolio Companies remain strong and we are pleased how they have adapted to the new environment, putting 2020 behind them and positioning themselves to Excel in the emerging post COVID world market conditions remain very favorable for us for the first quarter.

A record 52 billion of capital was deployed across almost 1300 deals in the late stage venture market. This is the segment which TPV G operates in and targets. More importantly, we remain in regular and active dialogue with our select venture capital investors to help maintain high quality pipeline consistent with our investment objectives.

We have not stopped or dropped our venture capital partner interactions to chase near term deal flow per our playbook. Now is the time to be just as proactive in our interactions with them.

As we were a year ago during the peak of the pandemic, this helps us gain insight, understand market dynamics, match your activity alongside of them and remain ready to support their existing and new venture growth stage portfolio companies. As these opportunities develop to summarize We're bullish on TPV G's outlook, the fundamentals are there.

The demand is robust and the second quarter is already off to a strong start. We have a sizable backlog pipeline and liquidity position, and we expect to continue to draw on our differentiated platform, our best in class management and are strong and select venture capital investor relationships to grow in a very prudent manner.

As we look to the future, we continue to foresee a strong and stable yield from our high quality portfolio and continue to creation in our Warren and equity positions, which includes our anticipation of more portfolio exit events and are excited on the outlook for the remainder of 2021. I'd now like to turn the call over to Sajal..

Thank you, Jim. And good afternoon, as Jim mentioned during the quarter we executed on the playbook, we put together last year in anticipation of a strong recovery in the venture capital and venture lending ecosystems in 2021.

Our playbook for the first quarter was intended to position our business and our team to prepare for and to execute on driving capital efficiency, credit quality, and portfolio growth over the course of the year key objectives for the quarter included building strong funding capacity and overall liquidity increasing our use of leverage diversifying and reducing our cost of capital concluding prior credit situations.

And of course, originating high quality and high yielding investments we accomplish most, if not all of these objectives during the quarter, however, our earnings were impacted by the significant prepay activity we've experienced over the past several quarters on our overall portfolio size, despite strong new commitments, growing investment funding and stable core portfolio yield is in the past.

We believe any shortfall is temporary and will be more than made up during the rest of the year as the fundamentals of our industry. And our business continues to be strong. With regards to investment portfolio activity during the quarter triple point, capital signed to $192 million of term sheets with venture growth stage companies.

And we closed $90 million of debt commitments to seven companies at TPG, both signed term sheets and closed commitments were up from last quarter. Three portfolio companies were fintechs or financial technology company companies two were in the consumer fitness or better yet fitness tech category.

And two are companies in the mobility category with one focused on warehouse automation with software and robots and the other an e-bike manufacturer. Almost all these companies have raised equity rounds recently, and many actually have enterprise values greater than half a billion.

We also received warrants valued at $1.6 million in 13 portfolio companies, as a result of these commitments and new fundings as compared to receiving warrant investments, representing $3.8 million of value in 26 companies during all of 2020, given the strong equity investment activity within our portfolio at which I'll actually discuss in more detail later, we made four direct equity investments valued at $2.3 million in 2020 as a whole, we made direct equity investments of $2.3 million in eight companies.

During the first quarter, we funded $56.9 million in debt investments to seven companies, which was in line with the guidance we gave of targeted gross fundings between $50 and $75 million for Q1 and Q2, the debt investments we funded during the quarter carried a weighted average annualized portfolio yield of 12.6% at origination.

The yield profile this quarter reflects the strong credit profile and substantial cash reserves of the obligor's funded. In fact, one ABA gore funded is EBITDA positive, and another has several billion of cash reserves as noted in today's earnings release. We have funded over $20 million of new loans, just one month into the second quarter.

And we have funding requests and process from portfolio for roughly an additional $25 million to $30 million here in May.

As a result, we expect to come in towards the higher end of the $50 million to $75 million targeted gross funding range for the second quarter, consistent with the prior guidance, we expect gross fundings for Q3 and Q4 to come in between a hundred and $150 million per quarter supported by our backlog.

As we are building the backlog, we are building as well as the pattern of our portfolio companies drawing on existing unfunded commitments towards the second half of the year, we are seeing substantial equity fundraising activity in the venture capital industry as a whole and within our portfolio in particular, which we believe is a Testament to its quality.

During the quarter 10 portfolio companies raised over $700 million in capital and total. In addition to five portfolio companies raising over $200 million in capital last quarter and 27 portfolio companies raising rounds during 2020 as a whole robust venture capital industry-wide equity financing activity does three things.

First, it creates demand for debt to compliment or top off an equity raise and to be drawn upon in the future. You know, second for others, it allows them to accelerate growth even faster in order to achieve higher valuations when they ultimately raise equity and therefore they raise debt to help finance that accelerated growth.

And third, for those companies that have raised equity capital and already have debt, it allows them to delay drawing on existing lines and in many cases to pay off outstanding debt, to save on interest expense, given their large cash positions, although given their cash burn profile, there's always the potential to revisit a debt financing with them.

After a couple of quarters, we are seeing all three right now, in addition to equity investors, willing to invest earlier while still rewarding anticipated future growth from evaluation perspective, the robust equity environment is generally very positive, improving the outlook and liquidity of existing portfolio companies.

And as a result, we also receive accelerated fees and income from prepays, given our portfolio quality, our unique access to these rounds of financing and a robust exit environment. We are also increasing our direct equity investment activity to take advantage of our relationships for the benefit of shareholders.

These are not purchases of secondary positions from third-party marketplaces or sellers rather where we're actually selectively investing in rounds typically led by one or more of our select VC funds and invest in alongside of them in most cases in existing obligor's. And in other cases, future Auburn cores.

These are rounds that are generally aren't even available to many other venture capital investors.

So we think this is something very differentiated for our shareholders that we expect will have a longterm benefit of not only the upside potential from the investments, but also from cementing our relationship as a lender to these companies during Q1, we had loan prepayments of $36 million and as a result, we achieved an overall weighted average annualized portfolio yields on total debt investments of 13.3% for the quarter, excluding prepayments core portfolio was 11.9% as Chris we'll go into detail later.

These were more seasoned loans that paid off early this quarter here in the second quarter, we have had about $46 million of prepays generating more than 2 million of accelerated income.

At the end of the quarter, our 71 portfolio companies were spread across 30 sub sectors with our largest concentration again in business application software, which represents nearly 11 and a half percent of our portfolio moving on to credit quality during the quarter one company was removed from category one as a result of a pre-pay and one company was removed from category five as part of the sale of our notes, which was consistent with our fair value mark on that investment as a Q4, based on the continued progress of our two category three Abbott Gores, we expect to upgrade both over the next one to two quarters are one category for portfolio company.

Rolly is our only loan on non-accrual and continues to build momentum with its business. And we are cautiously optimistic for their continued progress here in 2021. During the quarter two portfolio companies completed their spec mergers, HIMS and view with our positions in both companies reflecting an additional net unrealized gain of $1.2 million.

Our portfolio companies, Talkspace and live learning technologies announced their spec mergers during the first quarter, as well as mentioned in today's earnings release, subsequent to quarter end portfolio company Sonder and enjoy also announced back mergers, generally speaking, we don't mark up our investments in these companies until merger exchange ratios are announced.

And when they are, we further discount given the uncertainty associated with their completion. So that generally results in gains in our investment on an unrealized basis after the SPAC merger closes, rather than before, while there has been some slowdown in new spec issuances, there hasn't been a slowdown in exit activity within our portfolio.

In fact, we have another almost dozen TPG portfolio companies, actively exploring spec exits IPO's or M&A exit this year, which if consummated will unlock additional value for our shareholders, from our equity and warrant portfolio.

2 In closing, we continue to follow our long-term playbook of nurturing strong relationships with our select venture capital partners and meeting the needs of their venture growth stage companies through deliberate and disciplined portfolio growth while generating strong returns for shareholders. with that, I'll now turn the call over to Chris..

Great. Thanks Jolynn. Hello everyone. Let me take you through an update on the financial results for the first quarter of 2021.

Total investment income was $20 million with a portfolio yield of 13.3% on total debt investments for the first quarter, as compared to $20.8 million and 12.7% for the first quarter of 2020 operating expenses were $11.1 million as compared to $8.6 million for the first quarter of 2020 and operating expenses for the quarter consisted of $4.4 million of interest expense, $2.9 million of base management fees, $2.2 million of income incentive fees, a half a million dollars of administrative agreement expenses, and a million dollars of general and administrative expenses.

We are net investment income of $8.9 million or $0.29 per share, and net investment.

A net increase in net assets resulting from operations of $11.9 million or $0.38 per share during the first quarter, the company recorded five $15.7 million or $0.51 per share of net realized losses on investments consisting primarily of the sale of the company's investments in Notel, which was rated a five credit on the company's watchlist net unrealized gains on the investments for the first quarter we're $18.6 million or $0.60 per share resulting primarily from the reversal and recognition of previously recorded unrealized losses associated with Notel as well as net unrealized gains on fair value adjustments to the existing portfolio, and was partially offset by $1.4 million of unrealized losses due to changes in foreign exchange rates.

As of the end of the quarter, the company's total net assets were $401.8 million or $13 per share compared to $400.4 million or $12 and $0.97 per share at December 31st.

I'm pleased to announce that our board of directors has declared a distribution of $0 36 per share from ordinary income on April 29th to stockholders of record, as of June 16th to be paid on June 30th, we have significant spillover income totaling, approximately $14 million or $0.45 per share at the end of the quarter to support additional distributions in the future.

Before I share an update on commitments and availability of capital for investing, I would like to remind everyone that while prepayments are a natural part of our venture lending model, it does come with a great deal of uncertainty.

We previously shared with you that portfolio company, liquidity events, such as IPO's or M&A events we will often get very little advanced notice of loan. Pre-payments having said that one of the other aspects of prepayment activity is that the origination vintage of alone that prepays really does matter.

Given the nature of income acceleration when a loan prepays, the characteristics of income changes, the longer the loan remains outstanding, for example, should alone repay or prepay in its first year, we would generally recognize a comparatively higher level of income.

Acceleration is compared to a loan prepaid and say it's second or third year outstanding. For example, such a mentioned earlier that we had already had $46 million of loan prepayments in Q2 generating more than $2 million of accelerated income. This compares to $36 million of prepayments in Q1, which generated approximately $2.2 million in income.

Now let's move to our commitments. We reported unfunded commitments, totaling $168 million based on our success increasing commitments by $90 million for the quarter $122 million of this total will expire during 2021, if not drawn prior to expiration.

In addition to all of our unfunded commitments, have a prime rate floor now set to three and a quarter percent or higher the company ended the quarter with a record level of investment funding capacity resulting from successful debt raises and strong cash flows from the portfolio.

We continue to see the ongoing amortization of principal and loan prepayments as a natural and very, very good aspect of high quality and diversified venture lending portfolio.

As a quarter end, the company increased its total liquidity to $466 million compared to $252 million as of December 31st, our total liquidity consisted of $116 million in cash and $350 million of availability under our credit facility.

As previously reported as of year-end, we increased our total commitments under the credit facility to $325 million and extended the revolving period to November of 2022 and further extended the scheduled maturity date to May of 2024.

This amendment enhanced the effective borrowing capacity for us during the extended term of the credit facility in January, we further increased total commitments under the credit facility to $350 million and added an additional lender to the bank syndicate.

We continue to also have the flexibility to increase the line further to $400 million under the existing according feature in March, we completed a $200 million private institutional notes offering these notes are unsecured and bear interest at a rate of four and a half percent per year payable semi-annually and mature in March of 2026, DVRs issued an investment grade credit rating in connection with the transaction recall that we completed our first investment grade institutional notes offering in March of 2020 for a total of $70 million, which remains outstanding today with the proceeds from the offering, we immediately paid down $118 million outstanding on our credit facility.

And on April 5th, we fully redeemed at par our treated baby bonds, which carried a higher interest rate at five and three quarter percent. With this redemption complete, we expect to lower our cost of capital going forward. During the month of March, we incurred approximately $360,000 in interest expense.

From the date we closed the 2026 notes to the date. We were permitted to redeem the baby bonds in connection with the redemption, we do expect to record a realized loss on repayment of debt of approximately $660,000.

In the second quarter, we will, re-borrow under our credit facility over the remainder of the year to grow the portfolio with a creative debt financing to benefit our shareholders.

We expect that we will have sufficient available capital to execute on the funding estimates that have been previously provided by central during his remarks aggregate outstanding borrowings at the end of the quarter, with $345 million and consisted of $270 million of private debt notes and $75 million of baby bonds.

As of the quarter end, there were no debts outstanding under our credit facility. We ended the quarter with 0.8, six times leverage ratio or an asset coverage ratio of 217%.

So with the baby bond redemption completed just a few days after the end of the quarter, we note that the leverage ratio is 0.5, seven times or on a pro forma basis during the first quarter, DVRs maintained its investment grade rating on TPG, given the strength and diversity of the portfolio and reasonable level of leverage we maintain.

And in April, DBRS confirmed the company's investment grade, triple B long-term issuer rating and upgraded TPGs trend outlook to stable. This completes our prepared remarks. And at this time we'd like to take your questions. And so operator, if you could please open the line for questions at this time,.

Ladies and gentlemen, at this time, we'll begin the question and answer session. [Operator Instructions] Our first question today comes from Finn O'Shea - Wells Fargo Securities Please go ahead with your question..

Hi everyone. Good afternoon. Just a couple higher, higher level questions on first with the specs or, or exits in general. There were a couple of sadly you said a couple were announced recently, and Jim said there was a lot of active dialogue.

Can you give us just a high level of portfolio wide how these valuation discussions compare to, I suppose, both of your portfolio marks and were where yeah, just how they compare to, your portfolio marks..

So generally speaking most of the spec mergers have been at premiums to the valuations for us when we received our warrants. As I explained during my, my prepared remarks, the challenges when they announced the specs, they'll put out a number enterprise value, but they don't actually disclose the exchange ratios.

And so we don't actually mark up our warrant or equity investments until more information is known. For example, when the merger ratios or exchange ratios are actually filed publicly. And then when they do that, we then further discount given the uncertainty associated with the specs being completed.

Not that we judge them individually, but just in general, a liquidity discount. And so that's why we don't see the significant accretion in value of our warrants and equity investments until the successful close of the spectrum. .

Okay. That's helpful.

And also Sigal, can you, can you sort of recap, you had some interesting commentary on the demand for debt being very robust P you know, paired with the very robust equity fundraising environments that, that would, you know, logically tell us perhaps the opposite was at risk, that equity would be overtaking the, the demand for that.

So I guess just to summarize what's, what's the, the, the main driver, are there companies staying private for longer? Are there more companies, or they want more debt in their stack? Just how would you sort of simply outline that sauce?.

Yeah, I'd look at it a couple of ways. So I'd say first it's just given venture capital investment activity. So there are more companies out there. So the, the, the market opportunity continues to grow based on VC fundraising and VC investment activity in general.

And then I think that the other key element, which Jim remarked on is, you know, we're now at the other end of the pendulum where we're in growth mode everyone's growing and they're growing fast and faster.

And so in order to finance that growth they're using combination of equity and debt, or some are using combinations and pick, we end it, some are using debt only, and some are using equity only. And so I think we're seeing all of the above.

And so you know, so we're, we're focused on quality of companies that reach out, but, but I'd say that's generally what we're seeing. We're seeing all three..

Okay. That's helpful. That's all for me. Thank you..

Our next question comes from Casey Alexander from Compass Point, please go ahead with your question. .

Hi, good afternoon. And thanks for taking my questions.

Was there was the quarter kind of exacerbated? Was there a mismatch in terms of the timing of repays versus the timing of originations? Did, did repays come early in the quarter and were originations stacked towards the back of the quarter? Chris, do you wanna take that?.

Yeah, yeah, I will. Yeah. So I think generally that is what happens, Casey fundings tend to occur towards the end of the quarter and usually in the last month of a quarter in particular and prepays, I think we, we had announced on our year end results that we had already had some prepay. So that was definitely the case for Q1.

And I would, I would argue that that's, that's pretty typical. We're fundings tend to average short towards the latter half of, of a quarter in prepays can happen in the early part as well..

Okay. The prepays came in investments that were later in their maturity cycles, so they had less accelerated income associated with them. I just want to make sure that I understood correctly what you said..

Yeah. So I misunderstood. I thought your question was the timing of prepaid in a quarter specific to no,.

That's correct. That's what the first question was that my, my second question is now the repays that you did have, they were also later in the maturity cycle of those investments. And so they had less in terms of accelerated income..

I would say directionally. That is true. It was not, it was not a significant, but yes, directionally. That was true..

Yeah. Okay. You didn't I do want to understand, make sure that I understand, because you've had so many transactions that involve SPACs right.

Your positions in general, when the spec deal closed, you get paid off on the debt, but the stock that the clock doesn't start ticking on your ability to monetize the equity until generally six months after the spec deal closes. So it's similar to the way the treatment that you get for an IPO.

Is that correct?.

So it's actually, it's a mix. Oh, sorry. I would say it's a combination of the two Casey. So I'd say in certain situations where we have a direct equity investment alongside warrants, we're more likely to be subject to the lockup. And then in scenarios where we're just generally a warrant holder, we're less likely to be subject to the lockup..

That's interesting. I didn't realize that. Okay. And, and okay. I think that's, that's all of my questions. I'll step back in the queue. If I have any more, I'll hop back. .

Our next question comes from Christopher Nolan from Latin Burke Feldman. Please go ahead with your question..

Hey guys, thank you for taking my questions. On the equity investments that Jim was referring to in his prepared statement equity investments are roughly 7% of the portfolio.

Now, what percentage are you looking to increase them going forward?.

So Jim answering. I would say w we're not managing the business by a certain percentage. Equity investments are opportunistic. We're being very selective with them, and it's only because of this environment and some of the, let's say better high quality companies.

We're seeing that having a small slice of participation in them alongside of our debt financing lines, we think has beneficial to all.

So we're, it's always going to be a smaller percentage of our business, and it's more of an enhancement to yields and returns and opportunistic in today's environment than it is some kind of manage control percentage business,.

Right. And so it'd be a side-by-side of equity and debt. So that'd be type of structure that you'd be looking at in those types of assistance..

Generally, generally, in some rare cases, equity may start and then we do the debt, other cases, most cases, death starts, and then we'll have the right to invest some, some equity as part of the deal. Right. And there's.

A followup.

And as a more general venture capital question, can you, how, how would you characterize the venture capital equity environment is the terms that VCs are able to secure from companies similar to what they would have been a year ago, or are they more in favor of the company? Just trying to get a sense as to where the leverages in terms of the venture capital equity funding.

Yeah. Yeah..

Some people may want to add to this as well, but for sure, we, we always hate using the word robust, but it there's an awful lot of equity capital out there. There's a lot of participation by some of the call it non traditional participants. And look, there's there's record valuations.

There is a record amounts of equity and a hundred million or so is the new norm for venture growth stage companies and inequity raising. But in the term you know, is it some chain it's, it's all great drivers for our debt and acquisitions by the way or another very good use of our debt financing.

So these days opportunistically, but, but in the, in the long run, I would say equity has gotten more competitive.

If anything, because of the amount of equity not really affecting venture lending, this is more in the equity world, but, you know, we're focused on working with just our select venture capital investors, and they pretty much are associated with the best call it tech and life science deals in the last several decades.

And in the venture ecosystem, the best deals continue to go to the best venture capital funds in our opinion. And that's kind of what we focus and concentrate on. So kind of a long answer to your question, but in this environment yeah, it was a lot of equity. It's a little more competitive among the venture capital fund at large..

Our next question comes from Ryan Lynch from KBW. Please go ahead with your question..

Hey, good afternoon guys. I just want to talk about kind of the, the environment for deploying you know, capital you know, looks like quarter to date. You guys have received net net repayments due to the strong prepayment.

Pre-Payments you guys had so far quarter to date based on everything you said, it sounds like the venture capital equity markets are going to continue to be strong. You announced several SPAC, mergers. It sounds like exit activity could potentially be pretty robust, which is good for your equity investments.

As well as, you know some of your warrants, but it seems like that could potentially put pressure on, you know, net growth in the portfolio.

So can you talk about growing your portfolio on a net basis given the robust exit opportunities in the environment today?.

Hi, Ryan, so I would say, you know, I think it's a, it's a, it's a function of pipeline and portfolio management.

So as we look to, you know, the existing unfunded commitments that we have, right? So we would, we would look to, you know, the robust equity and M&A activity or exit activity impacting utilization and actual utilization or timing of utilization of existing unfunded commitments.

But then I'd say it's the new originations, the new pipeline, the new opportunities where we have more certainty of utilization. So I'd say it's just a, again, a portfolio mix question.

And so we're going through the, you know a rebalancing of sorts of, again, given the just strong equity investment activity, the portfolio those with significant amount of cash reserves, not funding commitments, either delaying or not going to draw, and then we're replenishing the pipeline and the commitments with new unfunded commitments with either draws at close or higher likelihood of utilization, given where we're entering, attaching from our commitment perspective..

And then let me know if I'm mis-characterizing this, but I believe you said you made $2.3 million, you deploy $2.3 million in direct equity investments in a four companies this quarter you know, that did not have any associated dead best.

And to do that previously made, which I believe is you know, something that, that is sort of a new focus of yours going forward and making, just see sole equity investments.

So correct me if I'm wrong with that, but, if I'm correct in that, why, sort of, you know, why make that strategy shift, not a complete treasure ship of the why kind of tilt, you know, that a little bit more you know, in this environment, what are you seeing there? And then can you just provide kind of a framework that you guys use to identify and, and, and, and how you guys choose? Cause I'm assuming you guys get those opportunities a lot.

You know, what is the framework that you guys are using to specifically choose those, those companies that you're low and you just make direct equity investments into without debt?.

Sure. Let, let me start. And then Jim may make sense for you to jump in as well. So, so Ryan, let me first comment of the four equity investments made during the quarter all were existing portfolio company. So, it's not but I do think that there is a timing.

So there's scenarios where again, given the robust equity environment, given the relationships we have, where we're talking to a portfolio company about a debt financing we may be in term sheet stage and then an equity round potentially preamps.

And so again, the benefit of the triple point relationship and the connection and their desire to want to build a partnership with us, despite the fact that they're raising large, huge equity rounds, we say, well, let's use this as an opportunity to build partnership and build a relationship earlier.

And so we'll say, great, we see the knowledge of who's leading the round, the evaluation. We knew it was something attractive to us from a debt perspective.

And so we use the fact that we have access, that we have the knowledge to say, great, actually let's in this scenario, write a check in the equity round establish ourselves into the company and to the cap table, develop that rapport with the team, get the knowledge of the learning, see how they perform.

And then when the debt opportunity arises, we can preempt or potentially even drive a premium because of the fact that we're already in the cap table.

So, so I'd say that's the, the nuance is because of the, the, the robust equity environment there scenarios now where we're seeing the equity may go in sooner rather than lend first equity round happen, and then write an equity check. I think that is also a piece and that's what some of this quarter was.

But I think the other comment we're saying is, you know, historically these were smaller checks that we were writing.

And I think because of the robust exit environment, because of the quality of the companies that we're seeing, we're also proposing to take these transaction sizes up before they were again, we said you know, $2.3 million in eight companies last year versus $2.3 million and four companies this year.

So we're saying we think it moves the needle more to, to make the check sizes slightly larger, not huge. We're not leading rounds. And, and that's another key thing to point out. We're not, these are not rounds where we're taking board seats or ownership or major, or continue to be a minority shareholder participating.

This is not a PE model where we're saying we want to be a controlling investor. This is us taking advantage of the access, the, the unique kind of relationships we have to get into around when plenty of other VCs haven't tried to lead that round or, or co-invest, and they couldn't. And because of our position, we're able to do so..

Okay. I can only add we're not in the, a standalone and never will be standalone venture capital equity businesses. There's plenty of good folks we work with that are well-known for that. And in addition, there is a number of cases out there. I mean, we're pretty proud of our written proposals.

Outstanding is doubled a, this quarter over last quarter, you started to hear about the backlog and sizable pipeline, but in some of these cases, we'll be talking to the companies on debt along will come the equity round. Haven't yet finalized our debt.

And so we'll have a small piece of the equity and then put our debt together, but they're always generally associated and we're not in the standalone equity business?.

Okay, understood. I just had one kind of quick modeling wine. Chris, you mentioned $2 million of accelerated income in this quarter. Excuse me, in Q into two already versus $2.2 million that you've received all of Q1.

Do you, by any chance have the accelerate income you guys received in the fourth quarter of 2020, if you don't have that even always follow up? Yeah, I can follow up..

I think we have that in the earnings release. We would have had that in there. I can follow up with you on that. .

Devin Ryan from JMP. Please go ahead..

You know, really most of my questions have been asked, but I'll start with just a higher level one on the stock market.

Since you know, you guys touched on it and it's impacting the business a bit too clearly you know, recent slowdown in new IPO's, but there was a record number of IPOs announced in the in the first quarter, I think there was 400 stacks or more looking for a deal. And, and I think you noted maybe another dozen firms in the portfolio exploring specs.

And so I'm just curious with some of the recent maybe indigestion in the market, is that changing appetite or at least are you hearing that at all from some of the portfolio companies around their appetite to go public via SBACK and, and maybe that changes kind of the trajectory here or on the flip side is, are just so much money that the still is looking to do a deal, but you know, this is going to take you know, at least a few quarters or more to kind of work through the system, even if we don't see another kind of IPO quarter, like the first quarter ?.

Devin, this is subtle. So I'd say that the, the, the dozen or so portfolio companies pursuing exits this year, it's actually not all specs. And so it's actually a, it's all three forms.

It's it's backs, it's IPO, traditional, traditional old school IPO's and an M&A, and so I'd say definitely we have a, you know portfolio companies exploring actively looking at not working on traditional IPOs.

And so I think it's, again, it's a function of you know, the entrepreneur or the investors, you know, in terms of what path of exit they'd like to pursue.

You know, I think there's no doubt that there's the spec market has been impacted by some of the accounting and regulatory changes, but again, we're, we're still continuing to see existing spec sponsors continue to be active in terms of reaching out and exploring conversations with companies.

So I don't think it's necessarily slowed down existing spec sponsors, although it may have exploded down new spec sponsors ability to raise capital.

And then I think, again, as I've said before, you know, our perspective is SPACs are empowering for portfolio companies, right? It enables them to make the decision if they want to go public versus, you know, a traditional investment bank and them deciding to go disrespect to investment banks.

And so we, we think they're generally positive, but the ultimate kind of self-governing aspect of a pipe is of a spec, is the pipe in your ability to raise the pipe.

And so I think that's what keeps the sanity in this black market is the, you know, the, the quality of the pipe market and the standards that's required for, for companies to raise the incremental capital..

Okay. great color and thanks for the nuance and everyone on my question. And then maybe the follow-up you know, appreciate all the commentary just around kind of how strong kind of both debt and equity markets are at the moment. And, you know, clearly a lot of optimism.

I'm curious if you look at it more from a sub sector perspective, you know, are there any areas where you know, the risk rewards are standing out, I'm not sure how much you want to share, but you know, where, where maybe there's a little bit more interesting opportunity where, you know somewhat differentiated versus, you know, another area of the market from a, you know, some sector perspective?.

A key element of our model is to invest where our select VC or to lend to those sub sectors of tech where our select sponsors are investing their capital. So I'd say our, our model isn't to second guess, or to to say that we want to go in this sector, because everyone's going that way.

I would generally say that across the board all, all sectors sectors are performing well, but I think fundamentally we want to lend to those sectors where the equity dollars are flowing into because that validates enterprise value it validates investor support. It generates significant liquidity for those companies.

And so those are all kind of key characteristics for us from a credit perspective. And so I think that's kind of what ultimately governs us. I do think there are some sectors where you can argue equity, valuation, multiples are super robust.

And, and, and so as you look to your upside potential from the warrant, you're, you're sort of making sure that you, you are you know, not you know, getting too aggressive in terms of assumptions from upside return, because, you know, valuations may be particularly robust, but I'd say generally we want to be in those sectors that are attracting the Equity dollars..

Yep. I got you. Okay. Thank you so much. Appreciate it..

And our next question is a follow-up from Casey Alexander from Compass Point, please go ahead with your up..

Yeah. I just wanted to clarify one thing that Chris said, you said that the effective leverage ratio pending the repayment of the baby bond was 0.57.

Was that correct?.

That's right. Yep. So basically just take the leverage as of the end of the quarter use cash to pay down nd you get 2.57..

I got it. Thank you. Just wanted to double check, make sure that I heard that right..

The gentlemen is showing no additional questions. I'd like to turn the conference, call back over to Mr. Labe for any closing remarks. .

Thank you operator, and thanks to everyone for joining our call today. As you can tell, we're pretty bullish for our prospects for the remainder of the year as the fundamentals are there, the demand is robust and we have a healthy backlog pipeline and the liquidity now in order to achieve our goals in 2021, thanks for your continued support.

And we look forward to talking to you on our next earnings call, have a good day, everyone..

And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your lines..