TriplePoint Venture Growth BDC - Earnings Call - Q3 2018
October 31, 2018
Transcript
Speaker 0
Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth's Third Quarter twenty eighteen Earnings Conference Call. At this time, all lines have been placed in a listen only mode. After the speakers' remarks, there will be a question and answer period and instructions will follow at that time. This conference call is being recorded and a replay of the call will be available as an audio webcast on the TriplePoint Venture Growth website. I would now like to turn the call over to Andrew Olson, Chief Financial Officer of TriplePoint Venture Growth.
Mr. Olson, please go ahead.
Speaker 1
Thank you, operator, and thank you, everyone, for joining us today. We are pleased to share with you our results for the third quarter twenty eighteen. Here with me are Jim Labe, Chief Executive Officer and Chairman of the Board and Satya Srivastava, President and Chief Investment Officer. Before I turn the call over to Jim, I would like to direct your attention to the customary Safe Harbor disclosure in our press release regarding forward looking statements and remind you that during this call, we may make certain statements that relate to future events or the company's future performance or financial condition, which may be considered forward looking statements under federal securities law. We ask that you refer to our most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements.
We do not undertake any obligation to update our forward looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit the company's website at tpvg.com. And with that, I'll turn it over to Jim.
Speaker 2
Thanks, Andrew, and good afternoon. Last quarter, I told you we were on a 2018 roll. Well, now we're on a 2018 tear. We are delivering on the 2018 plans and goals that we set out at the beginning of the year. We are accelerating towards a strong finish to 2018 we've been talking about in all these earnings calls.
We are on the path to closing out what we believe will be an exceptional year of performance. Our year to date accomplishments already include hitting some new income and originations records. We've also had IPOs or acquisitions at several of our portfolio companies, and we raised additional capital for substantial deployment for both year end and 2019 opportunities. The trade winds are all blowing in our direction, favorable venture capital market conditions, the highest originations pipeline we've had since our IPO and a strong rate and billing momentum in signing up new business. Our year to date performance continues to demonstrate the return potential of our unique venture lending model.
The model has also proven the benefit of in our access to and providing debt financing to successful and innovative high growth companies backed by our select venture capital leading investors, not only here in The U. S, but also in Europe. I'm really proud of this quarter's accomplishments. Here are some of the highlights I'd like to share with you. Once again, we hit a new quarterly record for investment income.
This is the second consecutive quarter we've achieved a record for quarterly investment income. This brings us to more than $46,000,000 in investment income year to date. We also earned record net investment income or NII during the quarter. In fact, we've generated a record total NII for the first three quarters of this year. We've also increased our net asset value per share, again, for the third consecutive quarter.
During the quarter, we generated a very attractive portfolio yield, a 19.3% weighted average annualized portfolio yield at origination during the quarter. We believe we're on track to again achieve what we accomplished last year as well, attaining the highest portfolio yield among the venture lending BDCs. We continue to experience IPOs and acquisitions at our portfolio companies and had another portfolio company complete its IPO this quarter. During the quarter, Farfetch completed its very successful and a very high profile IPO, raising more than $850,000,000 Amazon also completed its acquisition of our portfolio company, PillPack. Based on some of the publicly announced fundraising activity and many of the published articles out there on some of our other portfolio companies, we expect to see more successful exits coming.
There were also a few repayments this quarter, which is to be expected. This is a given with the exceptionally high quality and growth profile of our technology companies. And as we have said, we expect customer prepayments to continue as part of each quarter's activity as well. These prepayments are not only testimonials to the quality of our portfolio, but also big contributors to the high portfolio yield and record levels of investment income. I'm also pleased to announce that our sponsor, TriplePoint Capital, was named the 2018 Specialist Lender of the Year at the Investors All Stars Awards ceremony in London.
TriplePoint was one of only seven finalists for the award. The award was judged based on commitment to the industry and driving it forward, the number and value of loans originated and notable loans made and the impact of involvement in industry. I believe this award demonstrates not only TriplePoint's global reach, but also its prominence in the venture lending marketplace. While it's one thing to share all these records and achievements, they're all now in the past and behind us. I've saved the two most exciting quarterly developments for last.
These developments further reinforce why we believe we're on the path to a strong finish for 2018 and very bullish on our business heading into 2019. The first achievement is ending the quarter with $2.00 $4,000,000 of signed term sheets at venture growth stage companies. This is a strong indication of the demand in our market and demonstrates the strength of our originations team and the TriplePoint platform. It further reinforces the direction we believe we are headed for ending this year and getting a jump start into 2019. We are not experiencing any downward pressure on terms or any downward pressure on our originations.
Some venture lenders are winning deals on that basis, were not affected and continue to maintain our standards, which you can see in our resulting yield. The second big accomplishment last quarter was raising an additional $95,000,000 in equity. This included $5,000,000 in the form of a private placement from both Colony Capital and Goldman Sachs Asset Management or GSAM and $90,000,000 in the form of a public offering. This provides us with the fuel and firepower necessary for the increased originations pipeline and demand heading into 2019. There is no lack of deal flow or demand for debt financing.
The demand, in fact, has only continued to increase every single quarter since the beginning of 2017. To summarize, as I always say, we will stick to our knitting and exercise our investment discipline. This is while our industry leading yield profile, our strong credit quality, the quality of venture growth stage companies in our pipeline and the activity and progress among our portfolio companies speaks for itself. We expect to once again this year achieve earnings in excess of our dividend. If you can't tell, we're on track to a strong finish to 2018, well underway and what we foresee a really robust outlook heading into 2019.
It's really nice to sit here and to be able to repeatedly use phrases such as record this or record that when we are reporting quarterly earnings. We have the team, the capital, the pipeline and the reputation and track record complete for us heading into an outstanding year. Our aspirations and planning ambitions are also to turn 2019 into another remarkable year. With that, I'll now turn the call over to Sujal.
Speaker 3
Thank you, Jim, and good afternoon, everyone. In Q3, TriplePoint Capital signed approximately $2.00 $4,000,000 of term sheets, reflecting particularly strong market demand, and we closed $63,000,000 of debt commitments with six companies with five new to the portfolio. We ended the quarter with $242,000,000 of unfunded commitments. I'll talk more about unfunded commitments in a moment. On a year to date basis, we have signed $562,000,000 of term sheets and closed $320,000,000 of debt and equity investments.
As you can see, we have significant backlog already going into Q4. With respect to new companies added to the portfolio in the quarter, the first I'd like to discuss is Enjoy, which is a provider of a personal e commerce platform designed to change the way people buy and experience electronic products and gadgets. Enjoy is led by Ron Johnson, the former CEO of JCPenney and former Senior Vice President of Retail Operations at Apple, where he pioneered the concept of the Apple retail store and the Genius Bar. Enjoy has raised more than $80,000,000 of equity capital from Andreessen Horowitz, Kleiner Perkins, Highland Capital, Oak Investment Partners and others. Factual is a provider of platform designed to maximize data accuracy, transparency and accessibility.
Factual has raised more than $100,000,000 of equity capital from Andreessen Horowitz, Index Ventures, Upfront Ventures and others. Hired is a provider of a marketplace for recruiting software engineers. The company's platform offers a curated marketplace that matches engineers, product managers, data scientists, web developers and sales professionals with technology companies. Hired has raised more than $130,000,000 of equity capital from Comcast Ventures, Crosslink Capital, Lumia Capital and the Ontario Pension Board and others. Passport Labs is a developer of a parking and transportation management platform designed to centralize as well as control parking and transit systems.
Passport has raised more than $60,000,000 of equity capital from Bain Capital Ventures and others. Tangible Play is a gaming company that aims to create a new play movement to unleash the boundaries of the screen from mobile devices, including iPads and Amazon Fires, with the launch of its inaugural product, Osmo. Osmo expands the playing field and engages creative thinking and social interaction, allowing any object to interact with the digital device. Tangible Play has raised approximately $40,000,000 of equity capital from Accel Partners, Upfront Ventures and others. Overall, during Q3, we funded $53,000,000 of debt investments to eight companies, dollars 250,000 of equity in one company and acquired warrants valued at $900,000 in nine companies.
On a year to date basis, we have funded $145,000,000 of debt and equity investments to 19 companies. As you may have seen in today's earnings release, so far here in Q4, we've closed $65,000,000 of new debt investments and already funded $55,000,000 of new investments. During Q3, we also had $93,000,000 of prepayments, which helped push our portfolio yield to 19.3%. Excluding the impact of prepayments, our portfolio yield was 14%, which was up slightly from 13.9% last quarter. Moving on to credit quality.
As of September 30, the weighted average internal credit rating of the debt investment portfolio was 2.09 as compared to 1.92 at the end of the prior quarter. As a reminder, under our rating system, loans are rated from one to five, with one being the strongest credit rating and new loans are initially generally rated two. During the quarter, we removed $91,000,000 of loans from categories one and two due to prepays. We added $43,000,000 of new loans to category two, upgraded two customers with a combined principal balance of $20,000,000 from category two to category one and downgraded one customer with a principal balance of $6,700,000 from category three to category four. During the quarter, PillPack closed its sale to Amazon for $1,000,000,000 resulting in a $1,000,000 realized gain for us.
Farfetch successfully closed its initial public offering, resulting in over $3,000,000 of additional unrealized gain for us based on its closing price, and several portfolio companies raised additional capital as well. We continue to see strong demand and have a robust pipeline of near term opportunities. Our unfunded commitments totaled $242,000,000 to 15 companies, of which $72,000,000 is dependent upon the companies reaching milestones. Almost 80% of our fundings this quarter came from last quarter's unfunded commitments, and 50 of our fundings on a year to date basis have come from unfunded commitments. As we've said in the past, unfunded commitments show how hard at work we are and our great visibility into near term portfolio growth.
As we said at the beginning of the year, our highest priority in 2018 is to capitalize on the strong demand for venture growth stage lending and grow the company from an exceptional but small cap BDC to a larger and more diversified BDC. We're very proud of our progress to date. In particular, our equity raise, which was above our net asset value, our co investment approval and our shareholder approval of lower asset coverage will enable us to grow while meeting the strong demand, signed term sheets and backlog in the form of unfunded commitments we have today and expect to see in the near term. On top of that, we've made substantial progress on diversifying our portfolio and some of our larger customer concentrations. Since Q1, we have rotated out of three of our top five positions, thanks to acquisitions, prepays and co investments, generating significant additional income in process.
Given our strong performance to date, our taxable earnings are on track for the second year in a row to exceed our distributions. We continue to be thoughtful about the impact of our continued portfolio growth, prepays and our exceptional portfolio yield as well as the benefits of higher leverage, but have kept our quarterly distribution at $0.36 and we'll evaluate based on our outlook and progress. Another area of focus for us is on the Investor Relations front. We're pleased to have added research coverage again in Q4, bringing us to four new analysts in 2018. We're also focused on ways to engage with existing and new institutional and retail investors domestically and in Europe, Canada and Asia.
Here in Q4, we've participated so far in one non deal roadshow and are coordinating additional ones for 2018 and early twenty nineteen as well. We won't likely speak until the next year, so we would like to thank our investors and partners for their support and our team for the strong results thus far in 2018. We're excited for what's in store for 2019. I'll now turn the call over to Andrew to highlight some of the key financial metrics achieved during the quarter.
Speaker 1
Thanks, Sajal. I'm pleased to report the financial results for the third quarter twenty eighteen. As mentioned by Jim and Sajal, we ended the quarter with record investment income, NAV appreciation, net investment income in excess of our dividend, positive portfolio company exit activity driving realized gains and a well positioned balance sheet for future portfolio growth. The robust performance was achieved through measured portfolio fundings, coupled with a healthy recycling of our investment portfolio as a result of portfolio company M and A activity. Total investment and other income was up 7% to 17,700,000 or $0.82 per share for the 2018 compared to $16,600,000 or $0.93 per share for the 2018.
Our investment portfolio generated a weighted average portfolio yield of 19.3, including prepayments and other activity during the quarter and 14% without. This is compared to the equally exceptional 17.213.9% in Q2 twenty eighteen. The increase in total investment income relative to the prior quarter was primarily due to higher prepayment and other income related to portfolio turnover, and the increase in recurring portfolio income is mainly due to the cumulative rise in benchmark interest rates. Net investment income for the quarter was up 14% to $10,000,000 or $0.46 per share compared to $8,800,000 or $0.50 per share in the 2018. Expenses during the quarter were generally flat relative to the prior quarter at $7,700,000 consisting of interest and fee expense of $2,100,000 base management fee of $1,800,000 income incentive fee of 2,500,000.0 and administrative and general expenses of $1,200,000 We recognized net realized gains of $900,000 or $04 per share in the 2018 from disposition of investments in two companies, bringing year to date net realized gains to $1,700,000 or $09 per share.
We had net change in unrealized depreciation during the quarter of $5,000 or $00 per share, consisting of the reversal of previously recognized net unrealized appreciation into net realized gains of $1,500,000 offset by mark to market appreciation of $1,500,000 on the investment portfolio. The above activity resulted in a net increase in net assets for the quarter of October or $0.50 per share compared to $8,400,000 or $0.47 per share in the prior quarter, bringing year to date net income to $27,200,000 or $1.43 per share, nearly topping our annual dividend of $1.44 per share and three quarters worth of work. During the quarter, we generated a return on average equity of 14.8% and a return on average assets of 10.5% on an annualized basis. We also generated a return on average equity of 14.3% and return on average assets of 9.1% for the nine months ended September 3038 annualized. Now turning to the balance sheet.
We funded $53,600,000 of debt and equity investments to nine companies during the quarter and had four companies repay our outstanding obligations prior to maturity in the amount of $91,000,000 One company repaid its outstanding obligations at maturity in the amount of $5,000,000 and we had principal amortization on the remaining portfolio of 7,000,000 All told, we ended the quarter with long term investments of $351,000,000 or down slightly from the prior quarter. At quarter end, we held 128 investments in 49 companies with a cost and fair value of approximately $352,000,000 The company's debt portfolio ended the quarter with a cost of $333,000,000 of which 53% carried floating rates. Our unfunded commitments totaled $242,000,000 to 15 companies, of which $72,000,000 is dependent upon the company's reaching milestones. Of the total commitments outstanding, dollars 26,000,000 will expire in 2018, 146,000,000 will expire in 2019 and $70,000,000 will expire in 2020 if not drawn prior to expiration. During the company, the company during the quarter, the company raised $94,600,000 of net proceeds from the issuance of 6,900,000.0 shares of common stock in a public offering and concurrent private placement at a price of $13.7 per share.
As part of the offering, the adviser paid approximately $3,000,000 of underwriting fees and discounts. Proceeds from the capital activity were used to offset borrowing costs in the short term, but are intended to fund long term investment growth in the coming quarters. Any excess liquidity used to purchase short term investments in the form of T bills were excluded from the base management fee calculation. We ended the quarter with total liquidity of $274,000,000 consisting of cash of $14,000,000 net short term investments of $50,000,000 and $210,000,000 of undrawn availability on our revolving credit facility. Total outstanding borrowings as of quarter end were approximately $75,000,000 of long term fixed rate notes at a cost of 5.75% and nothing drawn under our revolving credit facility, giving us a leverage ratio of 22%.
We ended the quarter with net assets of $336,000,000 or $13.59 per share. This is up $0.14 from $13.45 per share in the prior quarter. And at NAV, our annualized dividend yield generates nearly 11%. With that, I'm pleased to announce for the 2018, our Board of Directors declared a distribution of $0.36 per share payable on December 14 to stockholders of record as of November 30. This marks the nineteenth consecutive quarter we have increased or maintained our quarterly distribution rate.
And with that, I'll turn it over to Jim for some closing remarks.
Speaker 2
Thanks again, Andrew. At this point, we'll be happy to take any of your questions. Operator, could you please open the line?
Speaker 0
We will now begin the question and answer session. Our first question comes from Ryan Lynch with KBW. Please go ahead,
Speaker 4
Hey, good afternoon guys and nice quarter posted. First question on the unfunded commitments, if I look at the end of Q2, you guys had unfunded commitments of about $2.00 $3,000,000 and then in the third quarter you funded about 53,000,000 So you guys had a closed or had about a 25% I guess closing rate from those unfunded commitments. If I look at the end of the third quarter you guys had unfunded commitments of about $242,000,000 and you've already closed or funded $55,000,000 of new investments in the fourth quarter. So you guys are having a much higher close rate of over 50% so far. Can you just talk about what is driving the high fundings as a percentage of unfunded commitments so far in the fourth quarter?
Speaker 3
Sure. Ryan, I'll start and then Andrew, please jump in. So I would say, kind of they're not actually correlated. So as I mentioned during my part of the script, so of the fundings we had in Q3, roughly 70% were from prior quarters' unfunded commitments. And so typically, what happens is the fundings in a quarter are not generally from that quarter's closed commitments.
They're from prior quarters' closed commitments or prior quarters' unfunded commitments. And so I would say, again, generally speaking, the fundings, for example, that we've had in Q4 were not related to the commitments we had in Q4, more related to utilization of the Q3 unfunded commitments, if that makes sense. Are some companies which do draw close, but the majority of them do not generally draw close because of their liquidity positions, the strong liquidity position. Right,
Speaker 4
right. It was just that from the the unfunded commitments in Q3, you guys have had such strong closings so far in Q4. It was much stronger than in prior quarters. So I was just wondering if there was any reason behind that.
Speaker 3
Yes. I think there's a little of timing. So the fundings in Q3 were, I guess, slightly low, 53,000,000 from our perspective. And so it's more of and then we had only a month into Q4 dollars 55,000,000. So I'd say a fair amount of that was stuff that should have funded in Q3, but happened here in Q4, and we're busy and expecting a strong Q4.
Speaker 2
Just tends to be a timing thing, as Sajal said. And these companies aren't anticipating their fundings based on a particular quarter end.
Speaker 4
Okay. And then, I might have missed this if you said it, but did you guys give any color, I know you did last quarter on, for the fourth quarter, quarter to date, any sort of color on prepayments or potential prepayment fees? I know you guys gave the funding numbers, but I was wondering what you guys had potentially coming back so far.
Speaker 3
Yes. I think we've always said generally, we expect one prepay a quarter. And to the extent that some of them are related to acquisitions like we had with PillPack and Ring that happened post quarter, we give guidance on it, but there's nothing that we can give guidance on at this time for Q4 other than we, as Jim said, expect on general at least one prepay a quarter.
Speaker 4
Okay. So nothing unusual then so far. As far as the third quarter, I just wanted to get your kind of thought process on the timing of the equity raise you guys did in the third quarter. You guys obviously had net repayments this quarter, some really nice repayments, drove a lot of fee income and drove a really strong earnings quarter in the third quarter, no doubt. But with the visibility you guys had into the strong repayments in the third quarter, can you talk about why was the equity raise done in the third quarter given you guys were actually receiving a lot of capital back?
Why did what was the thought process for raising more during that time period?
Speaker 3
Yes. I mean it's how strong and the demand in our reputation and primarily pipeline, Ryan. So our as Jim talked about during his section, the pipeline is the biggest it's ever been since the IPO of TPVG, and we're expecting a particularly strong finish for 2018 and that backlog into 2019 as well. And so, from our perspective, the bigger goal of growing TPVG based on customer and market demand. And so that was our perspective and that was the rationale is our ability to grow.
And candidly, if you look since that event, we've put $100,000,000 of work with the fundings in Q3 and the fundings here in Q4 so far, and we're far from done for the quarter. And so I think it's long term sustained growth in our business and pipeline. I think we're on track to close between two or sign 200,000,000 to $300,000,000 of term sheets a quarter. And so in order to continue to do that and continue to fund that pipeline, we need more equity capital plus the benefits of the lower asset coverage and the co investment.
Speaker 2
Yes. We need to be poised and plan for this demand in the future. You can't raise capital after the fact.
Speaker 3
Plus with the $240,000,000 of unfunded commitments, I mean, good news is that's near term visibility on where that equity capital is going to be deployed. Plus, as we said, that generally 50% to 70% of that actually gets utilized, again, is quick near term growth potential for us.
Speaker 4
Okay. Makes sense. And then just one final one, Jim. I think you mentioned in your prepared comments that as far as fundings and commitments, right, going to the market today that you guys are seeing no downward pressure on terms for the deals you're doing or really even maybe pricing. Can you just maybe explain that a little bit more?
I mean, it's definitely a competitive environment in the middle market. I know there's a lot of VC lenders out there as well. Can you just explain why you guys are not seeing really pressure on pricing in terms?
Speaker 2
Yes. It's a completely different market than my understanding of the middle market. There aren't agents, brokers, syndications, clubbing, multiple bids. This is a very specialized market. And what really prevails in terms of selection, if not price, it's reputation, references, relationships, track record, experienced team.
This is a very specialized business. It's high barriers for others. The due diligence, the understanding of these companies, working with only the top select venture investors and having the reputation and long standing relationships with them count. We haven't seen any change on the competitive landscape. There's always talk every quarter about some venture lender, this or that, but no change at all.
And again, for TriplePoint, this is not about price. It's not how we ever have marketed. And when there is some competition, we're winning at a premium.
Speaker 3
Yes. I would only add, I think it's a testament to our team and the quality of and the hard work of differentiating of really meeting the needs. I mean we provide a very bespoke financing product. We take the time as a lender to really understand our portfolio companies' needs and structure a very unique financing for that. And I think they're willing to pay us a premium for it.
Speaker 4
Okay. That makes sense. Those are all the questions for me. I appreciate the time this afternoon.
Speaker 0
Great. Thanks, Ryan. Our next question comes from Casey Alexander with Compass Point. Please go ahead, Casey.
Speaker 5
Yes. Good afternoon. I guess after seven questions, I think you probably got most of mine. Can you indulge me by detailing for me each of the prepays during the quarter as well as the $5,000,000 loan that matured? Who they were and how much each one was, please?
Speaker 1
Yes. So we had Rent the Runway, think was our largest prepayment during the quarter. That one, I think was about $45,000,000 in total in terms of principal. In addition, we had $20,000,000 to BlueVine, which repaid during the quarter. That was just not their entire outstanding obligation.
Speaker 3
They closed an equity round during
Speaker 1
Yes. So it was just a portion of their total outstanding. We had PillPack, which had funded and closed during the had funded and prepaid during the quarter. Part of it was just to get them through to the acquisition, and that was $25,000,000 And then Retail Next was $8,000,000
Speaker 5
RetailNext, didn't that that was $8,000,000
Speaker 1
Correct.
Speaker 5
And that one just went on the books, didn't it?
Speaker 1
I think it was two quarters ago that it was funded. I don't recall exactly the funding date.
Speaker 5
And what was the $5,000,000 loan that matured and was paid off?
Speaker 1
It was World Remit.
Speaker 5
World Remit. And do you have any loans maturing in this quarter?
Speaker 1
I don't recall. We have another world remit loan that was Yes. Nothing of meaningful size.
Speaker 0
Okay.
Speaker 5
All right. That's all my questions. Thank you.
Speaker 3
Thanks, Casey.
Speaker 0
Our next question comes from Fin O'Shea with Wells Fargo. Please go ahead,
Speaker 6
Hi, guys. Thanks for taking my question. Just looking at the new investments this quarter, there are six new names. Can you kind of describe the degree of co investment across platform now that you have obviously co exemptive relief? And then I can kind of tack Part B to that question on as well.
Is there given there's a bit of a lag in commitment and funding, are we seeing this impact yet? And would that be holding back new fundings at this time still?
Speaker 3
Sure, Fin. This is Sajal. I'll start, and was glad to catch up with you out west when you came visit us early in the quarter. So for the fundings in the quarter, I think as I said earlier that roughly 70% were from existing prior unfunded commitment. And so none of the fundings in the quarter were co investment or had co investment associated with them because we only got that late in Q1.
So you wouldn't fairly quickly see the impact of that. We'd probably expect that potentially Q4 and future quarters. So I'd say no impact from co invest likely in the future. I would think we would spin it a little differently. Again, we view that as actually a benefit to TPVG given the again, we're seeing strong demand.
We're seeing the opportunity. And that's actually to one of the strengths of our platform is that customers some customers, the more robust ones, do want larger financings. And so having co investment allows us to take advantage and allocate across the platform and address portfolio diversification and concentration of which, again, as I mentioned, we rotated out of three of our top five. So we only expect the co investment to benefit TDVG on a go forward basis, not hurt it from a fundings perspective.
Speaker 6
Yes. It is sort of what I was getting at. I was sort of, should we expect a stronger level of fundings given a more seasoned and diverse eventually commitment base versus the more lumpy sole TPVG1 previously?
Speaker 3
Fair point. Yes. Correct. In that context.
Speaker 2
Yes, you're right. Absolutely.
Speaker 6
Okay. Very well. And then sort of a high level for VC fundraising, which has obviously continued to be very robust. You guys are take the position that this is very helpful in terms of demand for your capital despite being a bit of a competitor to equity. Is there a bit of a lag in terms of or if so, how much of a lag in terms of VC fundraising and demand for late stage growth in the context of late stage VC obviously, fundraising?
Speaker 3
Yes. Maybe I'll start and then Jim you can jump in. Fin, as we look to VC fundraising, we think that's a barometer for the long term outlook for our business because, typically when these funds raise new funds, those funds have investment periods between two to five years. And so that shows great. I think Sequoia just raised $8,000,000,000 And so that's not $8,000,000,000 that are going to all invest today.
That's $8,000,000,000 theoretically over the next two to five years. And so that's what gives us, given the record level of fundraising, really strong confidence in terms of the long term outlook for our business as a whole. Now as we look to your question of more near term indicators or outlook, we would say the rate of VC investment activity. And so that's them actually deploying that capital that not only that they've just raised, but prior capital that they've raised as well. And so that's an important indicator for near term portfolio opportunities for us, right?
Those companies that have now just raised equity capital represent venture growth stage lending opportunities for us in the next six to twelve months, assuming those are later or growth stage companies. And to the extent those are early stage companies as part of the TriplePoint Capital foreign system and lifespan approach, we would expect those companies to turn in to grow up, cross the chasm, move along our football field and approach the red zone in two to four years.
Speaker 2
I can't add too much to that other than, just a reminder that, we are very highly selectively focused in terms of venture capital funds backing our portfolio companies. And it's a relatively, as you know, a select set of what we consider the top venture capital investors. There's no lack of fundraising, no lack of money they're putting to work. And you see we are at an all time high for originations. So the demand is strong among the companies being backed by this group.
And to your competitive versus equity comment, we really see ourselves as do our investors who bring us in these deals more as a supplement or an enhancement
Speaker 6
Thank you for that color and congratulations on the quarter guys.
Speaker 2
Thanks, Fin.
Speaker 0
Our next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead, Chris.
Speaker 7
Hey, guys. Has any of the trade tensions with China sort of affected the space that you guys operate at all? I know it's sort of an arcane question, but it seems the same place
Speaker 3
No. Chris, that's a very interesting question. We have not seen it from perspective in the sense that our portfolio companies are missing out on selling to international companies. What we have seen are some companies unable to raise equity capital from Chinese investors. And so because of CFIUS and other limitations.
And so, the good or bad is that there are other these companies attract global investors. And so to the extent that they can't raise it from Chinese strategics, they can raise it from other global or international strategic. So we've not seen a material impact other than, again, some companies that were interested in partnerships with Chinese investors were unable to do so.
Speaker 5
And then
Speaker 7
Jim, as a follow-up, turning to the balance sheet. I mean, obviously, you raised all the equity capital, kudos above NAV, paid down the revolver. What are you thinking in terms of growth in the balance sheet for the fourth quarter into the 2019? Are you looking to use the revolver for most of that or raise debt? I mean, give us a little guidance if you have any.
Speaker 5
Yes. Well, I'm actually going
Speaker 2
to turn the balance over to Andrew, who's going to be our organizer and manager of that. But at the end of the day, we do have this strong demand. We're going to be working on continuing to diversify the portfolio, use capital wisely, but also put it to work in some real what we think is going to be growing numbers in portfolio here heading into 2019.
Speaker 1
Yes. I'll just touch on it quickly. I think overall our strategy is we'll continue to deploy the capital that's on balance sheet, use the credit facilities. But we would look to probably lever up the balance sheet in 2019 as opposed to tap the equity markets.
Speaker 3
Then obviously prepayments, we do expect the continued pace of at least one a quarter. And so when that capital comes back, we'd expect to deploy that into funding new investments as well.
Speaker 7
Got you. Final question, dividend. On a reported basis, you guys are covering the dividend quite handily on a cash basis, estimate. You guys are doing that as well. Congratulations.
But you're so under levered right now and you're covering the dividend. I mean, going forward, you start to lever up and the earnings go up, what's your thinking on the dividend? Would it be a supplemental or just increase the base?
Speaker 1
Yes. I mean, I think overall these are conversations we have with our Board. Ultimately, they're the ones who determine the dividend rate and the distribution timing. But overall, very good. It's good to have those conversations.
Are things that we're engaged with our Board members. And I don't think there's a conclusion yet, but a good problem for us to
Speaker 7
have. Okay. Thanks for taking my question guys.
Speaker 3
Thanks, Chris.
Speaker 0
This concludes this afternoon's question and answer session. I will turn the call over to Jim Labe for some closing remarks.
Speaker 2
Expressing my appreciation to all of you for your continued interest and support in TriplePoint venture growth. Today, I guess I should also say Happy Halloween to everyone, and thank you all again for participating. We'll talk to you soon.
Speaker 0
This concludes today's call. You may now disconnect.
