TriplePoint Venture Growth BDC - Earnings Call - Q4 2020

Transcript

Speaker 0

Good afternoon, ladies and gentlemen, and welcome to TriplePoint Venture Growth BDC Fourth Quarter twenty twenty Earnings Conference Call. At this time, all lines have been placed in a listen only mode. After the speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference call is being recorded and a replay of the call will be available in 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, Jim Labe, Chief Executive Officer and Chairman of the Board Svadjul Srivastava, President and Chief Investment Officer and Chris Matthew, 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 press 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 the federal securities law. You are asked to refer to the company's most recent filings with the 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 not cautioned to place undue reliance on any forward looking statements made during the call, which reflects 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 will turn the call over to Mr. Lebe.

Speaker 1

Thank you, operator. Good afternoon, and thanks for joining us for our fourth quarter and year end twenty twenty earnings call. 2020 was clearly an unprecedented year, and we would like to acknowledge our dedicated professionals for their unrelenting commitment last year as well as take this opportunity to thank our venture capital partners and entrepreneurs for their ongoing support and collaboration, which remains a core differentiator for us and also a critical driver in our success. Before we review the quarter and talk about 2020, I'd like to mention that the TriplePoint team is off to the races in a big way in 2021 already. This past Monday, we closed $200,000,000 in our private notes offering.

In January, we upsized our revolving credit facilities, and we continue to see liquidity events in the portfolio this year. The pipeline and deals under evaluation are also continuing to grow significantly, and our strategic financing expansion plans are underway. This is the power of the TriplePoint platform at work, and we are demonstrating our experience and leadership in the venture lending market, bar none. The great start to this year is all part of the continuing story coming off a very successful 2020. The strong results in 2020, in fact, amid the global pandemic, highlights further our unique TriplePoint venture lending platform, the quality and resilience of our portfolio and our long standing relationships with our select venture capital investors.

We're pleased with the performance of the portfolio and the significant progress we have made advancing our playbook quarter by quarter for all of last year, including deploying capital strategically and taking steps to position TPVG for growth. While Chris and Sajal will go in greater detail on the quarter and year's end results, I wanted to share just a few of the key 2020 performance highlights. We realized almost $30,000,000 of gross capital gains last year, not only offsetting our credit losses, but more importantly, it served as a basis of making another special distribution to our shareholders while also allowing for significant spillover income generating into this year. This was the third time, in fact, that we have made a special distribution to shareholders over the last six years. We also overearned our dividend for the year and the amount overearned increased each successive quarter as the year unfolded.

This was the fourth year in a row that TPVG has overearned its distributions for the year. Cumulatively, in fact, we have also over earned our distributions since the date of our IPO and achieved this important objective. During the year, our portfolio continued to generate strong yields and we continued our focus to diversify it and further strengthen its credit quality. Finally, we enhanced our liquidity position markedly through a number of capital financing transactions during the year, which Chris and Sajja will get a lot more into. The significant progress we made last year has now set the stage, as I mentioned, for 2021 and beyond.

Given the power of our differentiated platform, our long standing relationships and reputation with our select venture capital investors and the most experienced and best in class management team in venture lending, we are well positioned to capitalize on the strong demand we're seeing from venture growth stage companies for all of our debt financing solutions. Today's market conditions, as folks probably know, remain highly favorable as well. The venture capital market is coming off its strongest year ever on record. New investment activity is robust. According to the NVCA, or National Venture Capital Association, venture capital investment in The United States broke another record in 2020, topping a $150,000,000,000 for the first time.

Further, capital firms raised approximately 74,000,000,000 last year, which includes several of our select venture capital investors whose funds collectively raise more than 20,000,000,000 of that. For our venture growth stage companies, which operate in the late stage venture capital market segment, the total deal count was estimated at more than 3,400 deals covering more than a $100,000,000,000 that was invested last year. And the spike in exit and liquidity events for VC backed companies in the last half, particularly of 2020, including the emergence of SPACs as IPO exits, have further fueled the favorable venture market conditions. The market strength from 2020 has continued so far unabated here into 2021. We expect demand for venture lending to remain strong.

Most companies have adapted to the new environment and 2020 is behind them. Our companies remain bullish on their plans and the opportunities this year in what soon may seem to be the emerging post COVID stages. As we survey the landscape, we are identifying new investment opportunities that have risen over the last year due to changes in how people live, work, and use technology. As highlighted throughout the pandemic, the technology sector is extremely resilient and we expect to benefit from the continued investment in this space as we provide loans and invest primarily in technology driven companies and industries. Many of our companies are in direct to consumer goods and services, virtual collaboration businesses, cloud based enterprise solutions, Internet security, real estate technology, and several other sectors experience outside growth in this environment.

We believe that these will continue to be major drivers for us going forward. And when combined with our sponsor's exceptional reputation, our experienced team, and the power of the TriplePoint platform, all of these factors translate into exciting new opportunities. I'd like to wrap up with some closing comments and observations. We are proud of the steps we took during the past year that have enabled us to post strong results in these uncertain times and also to advance important objectives that will drive our future success. Specifically, as we look to the year ahead, you've heard we are advantageously positioned to accelerate our growth and continue to provide shareholders with exceptional long term returns.

Our teams are active. In in today's venture markets, the strong prospects for our venture lending business model, our reputation driven industry leading platform, and some new use cases and expanded financing products with our enhanced ability to scale the business to take advantage of the strong fundamentals of the venture ecosystem have made us more excited today than we've ever been. We look forward to continuing to work closely with our portfolio companies and our select venture capital investors and entrepreneurs, many of whom have emerged from a very challenging year and are now in a very strong position and extremely promising 2021 in front of them. While we are pleased with our progress, we also remain disciplined during these times and will continue to abide by the principles of triple Points Goodall's 4R's, reputation, relationships, references and returns. I will now turn the call over to Sajal.

Speaker 2

Thank you, Jim, and good afternoon. As we look back to 2020, we are pleased with our performance during a very challenging period of time. Our outperformance on so many fronts was a direct result of the more than twenty one year track record that Jim and I have together, the playbook we put together in response to the pandemic, having been through periods of significant volatility together before, the quality and perseverance of our team, and equally important, being sponsored by a well established, highly regarded and proven global investment platform, TriplePoint Capital. Our playbook for 2020 was to take a quarter by quarter approach. And in Q1, despite coming off a particularly strong 2019, we took actions to set TPVG up to weather the storm and further sharpened our focus on our team, our portfolio companies and our venture capital relationships as well as strategically raised equity and our first investment grade debt offering to give us significant liquidity.

In Q2, investors really began to see the benefit of our differentiated venture growth stage lending approach, our resilient portfolio and in particular, the benefit of our sponsor relationship whereby our platform stepped up with a $50,000,000 backstop facility to provide its support of TPVG and enhance our financial strength. While TPVG never needed to use the facility, we appreciated the commitment during a volatile period. Q3 was generally consistent with Q2, but based on feedback from our venture capital partners, activity of our investment team and continued real time strategic planning, we began to shift to offense again, so to speak. The strategy paid off in Q4 with a strong finish for 2020 that has set us up for success and growth here in 2021. In every quarter of 2020, we generated income in excess of our distribution and increased our portfolio yield.

Even more importantly, throughout the year, we demonstrated the core differentiators of venture growth stage lending related to both credit quality and the realized warrant in equity gains we generated. More specifically, during the fourth quarter, TriplePoint Capital signed $172,000,000 of term sheets with venture growth stage companies and closed $73,000,000 of debt commitments to six companies at TPVG. We received warrants valued at $2,000,000 in 11 portfolio companies and made equity investments of $05,000,000 in three portfolio companies. For the full year, TPC signed $490,000,000 of term sheets with venture growth stage companies and we closed $277,000,000 of debt commitments with 23 companies at TPVG. We acquired warrant investments representing $3,800,000 of value and made equity investments of 2,300,000.0 During the fourth quarter, we funded $67,000,000 in debt investments to nine companies, representing an increase of 77% from the third quarter.

The debt investments funded during the quarter carried a weighted average annualized portfolio yield of 14.3% at origination. During the year, we funded $2.00 $5,000,000 of debt investments to 24 companies with a weighted average annualized portfolio yield of 13.5 at origination. During Q4, we had loan repayments of $74,000,000 and as a result, we achieved an overall weighted average portfolio yield of 15.2% for the quarter. Excluding prepayments, core portfolio yield was 12.2%. In 2020, we had $2.00 $3,000,000 in 400,000.0 in portfolio company prepayments, resulting in an overall weighted average portfolio yield of 13.8% for the yield.

Excluding prepayments, core portfolio yield was 12.5% for the full year. As of the end of the year, our 69 portfolio companies were spread across 31 subsectors with our largest concentration in business application software, which represents nearly 12% of our portfolio. As Jim mentioned, we continue to see strong equity fundraising activity in our portfolio, which is a testament to its quality. During the quarter, five portfolio companies raised over $200,000,000 of capital. This brings our total to 27 portfolio companies raising over $3,000,000,000 of capital during 2020, with more than 70% of our portfolio companies having twelve months or more of cash runway.

Moving on to credit quality, the weighted average investment ranking of our debt investment portfolio was essentially flat with the prior quarter's rating of 2.1. Under our rating system, loans are rated from one to five, with one being the strongest credit quality and new loans are generally rated two initially. During the quarter, one portfolio company was upgraded from category two to one, one company was upgraded from category three to two as a result of closing of financing And one company was removed from Category III as a result of its acquisition and prepayment of our loan in full. We downgraded one company from Category II to III given their continued impact from COVID. And one company, Nottel was downgraded from category three to five.

We downgraded Nottel to category five in the fourth quarter after their unsuccessful attempts to both raise an external round of financing and complete a strategic sale. The company filed for bankruptcy in January 2021. However, prior to the filing, we sold our loans to a third party for a 50% cash recovery and a potential equity kicker, which will be finalized when the bankruptcy process is completed and the new company emerges. Importantly, the credit situation is now behind us. I would like to highlight that our Q4 mark represents our cash recovery in Q1 from the loan sale only and not the potential future value from the equity kicker when finalized.

Unrealized losses on Nottel during the quarter were offset by unrealized gains from improved performance and upgrades and other watch list obligors as well as continued strong realized and unrealized gains from our equity and warrant investments. During the quarter, we sold our remaining positions in CrowdStrike and Medallia as well as realized gains from the sale of Freshly to Nestle, generating $4,200,000 in total from these three companies. From a track record perspective, since our IPO almost seven years ago, TPVG's net credit losses are $11,400,000 which represents 0.4% of our cumulative commitments and 0.7% of our cumulative fundings or roughly 10 basis points per year. As of 12/31/2020, we held warrants in 64 companies and equity investments in 24 companies with a total cost and fair value of $49,100,000 and $50,400,000 respectively. 2020 was an unprecedented year for realizing gains from our warrant and equity portfolio.

And given the strong market conditions and activity already underway in 2021, we are optimistic for the continued unlocking of substantial value from these assets over time. In fact, a couple of notable events in Q1 so far include HIMZ's successful SPAC merger completion, View's anticipated completion of their SPAC merger and Group Internets, who goes by TuckSpace, announced SPAC merger. Our equity and warrant positions in these three companies are valued at 1,900,000 as of twelvethirty one. In addition, several other portfolio companies are in active fundraising and strategic discussions. We continue to be excited for the near term monetization of these very special components associated with our high yielding debt investments.

And over the long term, we expect warrant and equity investments to generate realized gains in excess of our realized losses, which is consistent with the track record of TriplePoint Capital, whose platform wide realized gains are multiples of its platform wide credit losses, which is unmatched in the industry. As we look to credit in 2021, we saw last year that venture capital backed companies in general were extremely resilient to the impact of the pandemic, but there were a few subsectors in our portfolio such as travel, real estate, and capital markets dependent fintech companies that were negatively impacted. Monitoring and working with our companies in these subsectors and their VC investors was a key element of our playbook. And as we closed out last year, we feel we resolved or exited many, if not all, those situations so that we can focus 2021 on new investments. More broadly, as we look to 2021, we believe our execution in 2020 and year to date here in 2021 has provided us with a strong foundation and momentum for advancing our goal of increasing the size of our investment portfolio and the scale and diversification of TPVG while meeting the needs of our select venture capital firms and their venture growth stage portfolio companies.

As Jim mentioned, the key tailwinds for us are our sponsors' exceptional reputation, relationships and collaborative approach, which were only further demonstrated during the volatility of 2020, along with a particularly robust venture capital equity fundraising and investment environment, which is translating into a strong pipeline for us. In addition, based on our extensive relationships with our select VC investors and the growing needs of their portfolio companies, we've been working on some new use cases and financing structures for some of their fintech, e commerce and software portfolio companies as well as certain companies with exceptional scale, and we'll roll out some of these financings on a broader basis here in 'twenty one. Our expectation this year for portfolio growth is for quarterly fundings to start in the 50,000,000 to $75,000,000 range per quarter on a gross basis for Q1 and Q2 and then increase to 100,000,000 to $150,000,000 range per quarter on a gross basis for the third and fourth quarters. With regards to prepays, they continue to be a part of the business and we appreciate getting our capital back as well as the accelerated income, but it doesn't help our goal to maintain a scaled and fully diversified portfolio.

And so we are working on ways to maintain our investments after companies raise large rounds of financing. On the liquidity front, while closing with the closing of TPVG's second investment grade private notes offering, combined with our recent success extending and expanding our revolving credit facility, we have lowered our cost of capital, increased our liquidity position and diversified and broadened our funding sources. We are pleased to have had more than 30 investors in the notes offering this week and to now have eight banks in our revolving credit facility. We intend to take advantage of this leverage to fund portfolio growth for us here in 2021. We also intend to continue to benefit from our exemptive relief order to co invest with other entities in the TriplePoint platform and further diversify as we scale as well as take advantage of some of the JV and syndication partnerships among us, our sponsor and our strategic partners.

With regards to the dividend, we're proud to have declared our third special dividend since our IPO, funded primarily from the realized Warren equity gains and to still have generated net investment income in excess of our distributions during a year like 2020 while operating at such low leverage. We continue to have significant spillover income, but more importantly, as we reach a more consistent scale of our portfolio and we see more frequent realized gains, we expect to review both our regular and special dividend policies. In closing, we are proud of our performance during 2020 and are excited to pursue our objectives for this year, but we will maintain a deliberate and disciplined approach to growth, and we will continue to follow our long term playbook with a focus on generating strong returns for shareholders, meeting the needs of venture growth stage companies and further nurturing strong relationships with our select venture capital partners. With that, I'll turn it over to Chris.

Speaker 3

Great. Thanks, Sajal, and hello, everybody. Before I get into the quarterly figures, I'd like to again highlight just a few of the milestones reached for the year 2020 as we ended the year on a strong note. For the full year 2020, we had a record high total investment income of $91,200,000 and a record high NII of $47,900,000. We enhanced our overall liquidity on both sides of the balance sheet, diversified the portfolio, fully covered our quarterly distributions, and increased spillover income even after the declaration of special dividend.

Let me take you through an update on the financial results for the fourth quarter and full year 2020. Total investment income was 23,000,000 for the 2020 or an increase of 10% as compared to $21,000,000 for the 2019. Total investment income was $91,000,000 for the full year 2020 or an increase of 24% as compared to $73,000,000 in 2019. Totaling operating expenses were 11,500,000.0 for the 2020 as compared to 10,000,000 for the 2019. Total operating expenses for the full year 2020 were $43,300,000 as compared to 35,100,000.0 for the full year of 2019.

The increase here from on overall operating expenses is primarily driven by an increase in the asset base. Net investment income for the fourth quarter was 11,900,000.0 or 39¢ per share compared to $11,100,000 or 45¢ per share in the 2019. Net investment income for the full year of 2020 was $47,900,000 or a dollar 57 per share compared to $83,000,000 or $1.54 per share for the full year of 2019. NII per share for the quarter and for the year was impacted by a higher share count given the equity offering we completed in January 2020. During the fourth quarter, the company recorded $4,000,000 of net realized gains on investments, primarily consisting of realized gains from the sale of publicly traded shares held in CrowdStrike and Medallia and realized gains from the acquisition of Freshly Inc.

By Nestle. During the full year of 2020, the company recorded $28,800,000 of gross realized gains on investments and $8,600,000 on a net basis. Net unrealized losses on investments for the fourth quarter and for the full resulted primarily from the reversal and recognition of previously recorded unrealized gains and fair value adjustments on the existing portfolio. As of year end, the company's net asset value was $400,000,000 or $12.97 per share as compared to 332,000,000 or $13.34 per share as of a year ago 02/2019. The change in the company's net assets per share in 2020 included the 10¢ per share impact of the special dividend as well as the higher share count as a result of our $80,000,000 equity offering, back in January 2020.

During the fourth quarter, we declared our regular quarterly distribution of 36¢ per share from ordinary income and the additional special dividend of 10¢ per share sourced from the net realized capital gains earned and recorded in 2020. In the fourth quarter, we covered our current regular quarterly distribution by a 108%. And for the full year, we covered our current regular distribution by a 109% before declaring the special dividend. I'm pleased to announce that for the '21, our board of directors has declared another 36¢ per share on February 24 to stockholders of record as of March 15 to be paid on March 31. After this declaration, we continue to have significant estimated undistributed taxable earnings with spillover income of $16,200,000 or 53¢ per share at the end of the year to support additional distributions in the future.

We reported unfunded commitments totaling a $132,000,000, of which 92% or a 122,000,000 of this total will expire during 2021 if not drawn prior to expiration. In addition, all of our unfunded commitments have a prime rate floor set to 3.25% or higher. Aggregate outstanding borrowings as of year end were $263,000,000 and consisted of 75,000,000 of fixed rate baby bonds, 70,000,000 of private term debt, and a 118,000,000 outstanding under our revolving credit facility. With the aggregate borrowings as of year end, our leverage ratio is point six six times or an asset coverage ratio of 252%. As of year end, the company had total liquidity of 252,000,000, which was almost double our unfunded commitments consisting of 45,000,000 in cash and 207,000,000 of availability under our revolving credit facility.

We successfully amended the revolving credit facility in December by increasing the commitments from 300,000,000 to 325,000,000, and we extended the revolving period to November 2022 and extended the maturity date to May 2024. We were pleased to announce that we also expanded our lender syndicate just after year end and in January further increased our total commitments under the revolver by another $25,000,000, bringing the total commitment to 350,000,000 while we continue to have the flexibility to increase the line to 400,000,000 under our existing accordion feature. We have advanced, the the liquidity of the company, and we have enhanced our funding capacity and flexibility to fund investments with the closing of our $200,000,000 private notes offering that Sajal and Jim mentioned earlier. We fully paid down our revolving credit facility this week by a $100,000,000, and we plan to use some of the proceeds this week from this week's offering to redeem all of our outstanding 5.75% notes due 2022. And these baby bonds, which are listed on the New York Stock Exchange, are expected to be extinguished within the next sixty days.

We have again successfully extended the maturity of our borrowing at attractive cost of capital. And importantly, we are refinancing our most expensive term debt, the baby bonds, with 22% cheaper notes. Concurrently with the private notes offering this week, DBRS maintains its investment grade rating on TPVG, given the strength and diversity of our portfolio and the reasonable level of leverage we maintain. We continue our journey on the execution of our leverage strategy where we are migrating from largely a floating rate liability structure to an attractive blend of fixed and floating rate instruments and a more balanced allocation between a revolving credit facility and long term notes. Our weighted average term to maturity has been extended, and the earliest term debt maturity will be now 2025 followed by 2026 for the most recent offering.

So this completes our prepared remarks. And at this time, we'd be happy to take any questions that you have. And so, operator, could you please open the line, for questions at this time?

Speaker 0

And we will now begin the question and answer session. And our first question today will come from Devin Ryan with JMP Securities. Hi, Devin.

Speaker 4

So really appreciate all the outlook commentary, but I want to dig in a little bit more on the portfolio. Leverage levels right now is still well below the target of 1x. And so you've got a lot of capacity and appreciate some of the commentary on investment expectation. But how are you thinking about kind of overall portfolio growth or the potential for that in 2021, just given some of the commentary kind of on the prepayment side and maybe a little bit elevated exit activity, kind of how that all plays through? And then tied into that, kind of the impact or how we should be thinking about kind of the portfolio yield with that?

Speaker 2

Great. I'll start, and then Chris and then Jim, please jump in. So Devin, I think we definitely have line of sight on portfolio growth this year. Obviously, we want to be balanced since we're focused on quality and return thresholds and things of that nature. But given the pipeline that we have term sheets outstanding plus the unfunded commitments that we have or backlog coming into this year, we feel pretty confident in terms of our ability to grow the investment portfolio.

And so we view using both the term debt offering as well as our revolver as the primary sources of portfolio growth. And then we'll take it from there as we see portfolio amortization and prepays. We as mentioned in my write up, do have some thoughts on how we can keep those high quality assets from those companies that raise huge rounds of financing to not prepay us and have some thoughts to help mitigate. It's a balanced situation of wanting to get prepays to get your capital back as a lender and get that accelerated income, but at the same time, keeping a large diversified high quality portfolio is also very important. And so I think we'll continue to always have prepays.

It's a nature of the beast, but our goal this year is to do what we can in a smart way to slow that down a bit. Chris, anything to add?

Speaker 3

Yes. I would just say, I think you're right. It's a constant, challenge between portfolio growth, which is a great thing given the spreads that we have in our business, but also prepayment income with the fee accelerations and prepayment fees are also nice, kickers for, enhancing the NII for the year. So, the prepays are hard to project. They are built into the portfolio.

And with the mature portfolio that we have here, I would expect those to continue. Just not sure of the frequency and velocity of of when they come.

Speaker 4

Okay. Terrific. That's great color. And then just a follow-up, maybe taking a step back. I'd love to just get kind of your overall thoughts on the implications of kind of what we're seeing in STACK market.

Obviously, you have a few portfolio companies that are tight in. I think the expectation is that this trend, maybe it's a little bit hot right now, but it's really structurally not going anywhere. And so I'm curious kind of how you guys view that as whether it's an opportunity or if it changes at all, how you're thinking about underwriting, the frames or even kind of the overall investment funnel? Just the bigger picture because it feels like, obviously, we've seen a pretty big acceleration over the past year. There's going be a lot to come over this upcoming year and perhaps the SPAC craze isn't necessarily going anywhere.

Speaker 2

Yes. Let me start, and then, Jim, I think you've got some great insights from the sponsor world. So Devin, great question. I think one of our bankers used the word SPAC factory to refer to our platform since I think we're approaching almost two dozen both announced and soon to be announced SPAC exit across the global TriplePoint Capital platform. I would say again, it's a testament to the quality of the VC sponsors that we work with, focusing on the select group of venture capital investors.

And so I think keep in mind, we are a lender. So as a lender, we look to liquidity for portfolio companies as a great thing. So if they're raising capital in the private markets or the public markets, we're indifferent and we like more cash and it helps service our debt. From the other perspective, right, we have that we talked about the football field analogy and playing for the end zone or the touchdown, right? And so a SPAC is an exit event.

It's liquidity for our equity kickers and our warrants. And we view that we're appreciative to have an exit event. And if it means that our portfolio companies can go public faster through a SPAC than they can through a traditional IPO, I think conceptually, supportive or we're indifferent. We'll let our select VCs and other Board members determine which exit path they prefer. But I'd say from our perspective as a lender, have nothing against them.

We're supportive of exit in general, and we're supportive of more liquidity for our portfolio companies. Jim, how about your thoughts?

Speaker 1

Yeah. I I I guess what comes to my mind is that we're not running our business. He stays on stack fever or the portfolio is not based on all kinds of suppositions, hypothetical cases of when and if there'll be a SPAC. I mean, currently SPACs are certainly in favor. Depends on who you talk to, whether they're gonna last for a month or ten years, and and we're not going to get into or run our business based on that kind of speculation.

But with I think it's 75,000,000,000 plus out there, which is out there looking for targets, 250 plus vehicles. A bunch of our select and other venture funds themselves have SPACs. And for most of the companies, Sajudhuri mentioned, have over 20 now, one way or another, at the platform level in the process and more even growing. It's not just for what we call moonshot technology companies, you know, r and d companies, electric batteries, and so forth, but it's also for a number of revenue generating companies, some which are doing extremely well and and cash flow positive, which are also getting out. And as you go across the board in SPAC land, with the venture funds, for some companies, it's a great way to get out earlier instead of going through that long year plus cycle and process.

And again, these could be good revenue generating companies while for others, it it takes away that whole administrative issue and hassle of of having to raise that next equity round. So, again, we think it's a good trend right now, but we're not dependent on running our business on it.

Speaker 4

Okay. Thank you, guys. Appreciate you taking the questions, and congrats on a nice end of the year. Thank you.

Speaker 0

And our next question will come from Finian O'Shea with Wells Fargo Securities. Please go ahead.

Speaker 5

Hi, everyone. Thank you. Just to continue on that interesting dialogue there with with the SPAC market apparently taking you know, digging farther from pre IPO down to earlier stage, you know, then you have, as you mentioned, the high level of VC capital raising. You know, you have new venture lenders raising funds. Can you just, you know, tie all this together and and talk about what, the competition is like for a venture growth stage loan right now?

Speaker 1

Yeah. I'll take a first stab at that. So, Joel, feel free to add. But having been in this, in my case, over thirty years and Sajal and I doing this together for twenty two plus, this business is not about rates. It's not about interest, terms, and it's a very specialized market.

Yes, there's some very attractive returns in this. And and obviously, in good times, it's gonna attract various names and entrants. But we've been through the cycles. We've seen folks come and go. And at the end of the day, it's about the experience.

It's about the expertise. It's about the reputation, the references and relationships about the firm. It's not about, you know, what's the spread, what's the percentage over this or that, or for many cases, not even about the name as much as about the party, the reputation, the team, the deal flow, and there's a reason that we believe we're the leader in the segment.

Speaker 2

Yes. Maybe I could add. So, Finna, so I think what what we're seeing is particularly coming off the, you know, the resiliency of of the pandemic to the venture and the tech ecosystem and then signs of hopefully recovery of the global economy as you talked about the capital markets are heating up. I think what that's causing is a catalyst companies to grow. And so I think that's kind of the fundamental most important factor, right?

Venture backed companies, tech companies are growing. They're growing, which means they need capital. And so that capital and if anything, because of the environment they're in, they're actually turning up a burn, right? So when we saw in the midst of COVID companies, our portfolio companies, other tech and venture backed companies were cutting burn, cutting marketing spend, cutting headcount to preserve runway. Now we're seeing again signs of growth acceleration, increase in burn, which is causing the demand for more capital.

So as you know, right, there are two sides to the equation. There's the equity side and the debt side. So our thesis has always been to venture backed companies, get equity from quality sponsors, right? That's important. That's a critical source of capital for your business.

The strategic value associated with certain venture capital firms and private equity funds, you want them in your cap table. And then the role of venture debt is to minimize the dilution of the total raise and to complement the equity capital. So don't over raise equity, raise it from the right parties, the right sponsors, the right valuations and then layer on venture debt so that you get to the total capital needs of your business. But you, entrepreneur, minimize the total dilution that you take And at the same time for the existing VCs and existing sponsors, right, we help boost their returns as well by preserving their ownership and also reducing the check size that they necessarily have to write as well. So it's kind of win win from entrepreneur's perspective, from the existing investor's perspective.

And again, given the current environment, it's causing the demand for debt. As Jim said, listen, competition, there's always going to be competition. If there wasn't, we'd sort of be scratching our heads. But I think we offer more than just money, which I think is the theme that Jim was coming with, particularly the the way that we handle ourselves during not only the last year's volatility, but the cycles before that. And I think, you know, our our VC sponsors recognize and value trusted partnerships being there in good times and bad, long term track records.

In the venture world, in particular, in the tech world, it's about pedigree and reputation. Our portfolio companies don't pick certain VCs or certain sponsors because they gave them the highest valuation or they wrote the biggest check, right? It's the track record. It's the value add. And so we think our thesis has always been that the entrepreneurs that value reputation, track record and long partnership are the ones that we wanna work with, and and that's how we run our business.

So I

Speaker 4

hope that answers that.

Speaker 1

I guess I can only add as a footnote and you've hit the competitive nerd question here. Competitive nerd question that is. But as Sajal says, it's definitely a balance on the equity debt spectrum. And the competition at the venture growth stage primarily remains equity. It's not other so called venture lenders as much as for companies with so much equity out there so many alternatives hitting that right spectrum of amount of triple point debt and the amount of equity.

Speaker 5

Sure. I think it's all very helpful. And just a follow-up. I guess, I think both Jim and Sajal mentioned new new financing products, new products. Can you just give us any color on on this platform growth, how it relates to the BDC?

And, actually, let me thread in there. I think I also see the term life sciences more on your your website. Correct me if that's not new. But just to make sure you address that as well, tell us about the new products.

Speaker 2

Yeah. Well well, Fin, I'll start. So so first, we're not gonna tell you all of our products so that world knows. So I just generally say, as we said, listen, we've given our expertise and track record and the relationships, we've just and the pattern recognition and the needs of our companies, we've identified certain sectors. I think we mentioned again in the consumer, FinTech and software in particular, those companies have growing and unique needs given the asset base, the burn profile and the exit profile.

And so we've, for many years, been putting together financing products for them and given our large platform, have multiple vehicles and allocate appropriately. And so we just see a growing opportunity to help those companies with their growth and really to target our capital for the specific use case that they're focused on. And so I think it's exciting. It's pretty nifty, and we've had some real successes. And I think the other key is we're definitely seeing our companies, again, going back to this thesis of growth and scale.

I mean, our companies are getting bigger, several $100,000,000 worth of reoccurring revenue, and they want to continue to be a triple point portfolio company. And so, the needs of a company like that are very different than a company that's just on the cusp of the 20,000,000 to $25,000,000 venture growth stage limit for us or qualifying metric. And so it's important for us to have the broad products and needs for those earlier growth and those later growth, whatever you wanna call them. And so I think that's the exciting thing for us.

Speaker 1

And I would only add, know, to the extent life sciences is a large word, a big sector and means a lot to different folks. But we definitely have been active in, call it the digital health sector. Health and wellness is a number of TPVG portfolio companies in that broader definition. And, what we do in that segment is a function of what our select investors do. That is an area that's starting to grow and certainly platform wide, so not just TPVG, particularly at the early stages.

We're seeing a little bit more activity and continuing to work in that market to an extent as well.

Speaker 5

Very well. Thank you.

Speaker 0

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

Speaker 6

Jim, I think your slip of the tongue competitive nerds was an attempt to describe every single person on this call.

Speaker 1

So better take it back.

Speaker 6

Congratulations on the $200,000,000 financing. I'm not surprised to see it. A lot of people are gonna be sad to see the baby bonds go by. Everybody certainly enjoyed those. Do you know what the and this is for Chris, actually.

Do you know what the remaining deferred amortization of offering costs on the baby bonds is gonna be? I assume that'll be a second quarter charge.

Speaker 3

That yeah. That'll so that'll be a charge as a a cost from a realized loss from extinguishment of debt. So not part of NII. It'll be below the line, about 600,000.

Speaker 6

Okay. That'll be below the line, 600,000. Great. Thank you. Seeing as yourself described as the SPAC factory, does the preponderance of SPACs hitting your portfolio companies, is that going to make it create some difficulty for you to get to the target leverage ratio?

Because generally, when a company is bought by a SPAC, there are additional investors brought in who bring substantial capital. And at the end of the day, the lenders to the nonpublic company get taken out. So is that going to make it difficult to get to the target leverage ratio or create some difficulty?

Speaker 2

Yeah. Casey, I think it depends on the the the profile of the company. If we look at maybe our historical specs, those have been companies that have paid us off some some time ago. And so I would say it's a function of the of the bar that is set for for SPACs. And so we in the platform, we had a portfolio company eleven years ago, we lent originally to them.

So I would say so far, we have not seen a case where an obligor with existing loans outstanding has pursued the SPAC merger. It's been some time after our debts paid off. And so so we haven't had any near term impact from existing debt outstanding. But but yet to the extent that they can attract cheaper capital, although, again, I'd say most of the time, these pipes are equity, not necessarily debt. And so there's an opportunity clearly to, if you know the credit and if you have a history there, to provide capital in a potential despact company post IPO.

Speaker 6

Okay, great. Thank you. I'm curious about Prodigy. In that, Prodigy came down to the eleventh hour before they were able to pay essentially at maturity. And and and it was clearly a little bit of a dicey situation and one that you had marked down in the in the credit bucket.

So you you then extended a new loan at a lower rate than the last loan and picking. And so I'm just curious as to the color because those are sort of an incongruous combination of facts that would result in a new loan at a lower rate, but picking the interest.

Speaker 2

Yes. So good catch, Casey. So yes, during the quarter, we restructured our loans with Prodigy, which is for those international graduate student lending business. And actually, as you pointed out, it was a they raised a significant amount of capital during Q3 and Q4 on the leverage side as well as other capital for the company. So a portion so we restructured a portion of our loans, plus we actually did convert a portion of our loans into a preferred equity tranche into the company.

And so the I think the really impressive thing is that the based on the company's kind of activities and progress, we they're actually set up really well for long term success. Their portfolio has actually held up pretty well. And I think more importantly, the securitization markets have come back and are quite favorable. So I think we're we've our mark is the same in aggregate essentially from where we were Q3 to Q4, so reflecting a little bit of the noise and some of the other factors. But more importantly, I think, again, the company is set up for for long term success in our opinion.

Speaker 6

Do you have a sort of a time frame in mind at which you think you might be able to take it off of PIK?

Speaker 2

It it actually has a structure, and so I don't think it's but, yes, we we do expect it to come off PIC prior to you know, in in the near future.

Speaker 6

Okay. Next, I'd like to to ask, if anything, what you guys think you learned from the no till experience? And and I ask that in light of the fact that I asked about it over several quarters. It was still marked in the mid- to high 90s and ultimately resulted in a 50% payoff. Was there something to be learned?

I mean we all gained from experience and making mistakes, which I certainly make my fair share of them. What what possibly could you guys have learned from the Notel experience?

Speaker 2

Yeah. Let me start, and then, Jim, please jump in. So so I I'd say again, Notel is was quite the victim of COVID and sheltering in place, This company raised hundreds of millions of dollars of equity from premier venture capital funds, sovereign wealth funds and large real estate organizations. So it had the backing of some very sophisticated intelligent equity investors as well as us on the leverage side. And so I think as we discussed during the write up, the company attempts for extra liquidity and strategic and pursue them and they were unsuccessful.

So I think our mark during that period of time represented our assessment of the the fact pattern, the facts and circumstances, and the likelihood associated with those events. And once those events, you know, the the probabilities associated with them reduced, then, you know, our our fair value reflects that. So I would say, listen, I think we had hoped for a recovery sooner. We had hoped for events to occur, be it equity, it strategic M and A. And when those didn't, that's when I think the takeaway is we're moving fast, right?

Things change, things change quickly. And so I think it's interesting scenario here where if you look, we've had success of working through challenged credits. I'll pick on Mind Candy, I'll pick on some other names, some that we exited in the quarter, in fact, got full repayment. And I think the difference here with Nortel was one, hey, we assess the situation, the complexity of it, the near term and long term needs of the company and we determine, listen, this isn't one where it makes sense for us to, you know, stay in, put more capital in, kind of have our workout teams and our investment teams kind of be engaged for for more. We said, listen, we assessed it, and an opportunity came and and we took advantage

So listen, no credit manager is perfect and we never said we were. I think as we look to the entry point of that credit, we all of our underwriting supported lending to that company and lending the amounts that we did. I don't think any of us could have factored in COVID. I don't think any of us could have factored in the fact pattern of Nortel that not the whole world knows about and it is what it is. But I think we're proud of how we handled it and how timely we did it and the ultimate recovery.

I mean, company fought for bankruptcy and so we got a 50% return plus we have some upside potential. So I think it's not a drag on our team. It's not a drag on more capital from us. And so all things being considered, was a it's something that's behind us and resolved. And yes, we're not happy about taking a loss.

We never should be. But I think we're optimistic of our existing warrant and equity portfolio's ability to recover those losses as we've done in the past. Jim, anything else?

Speaker 6

All right. Great. Thank you for that. Go ahead, Jim. I'm sorry.

Speaker 1

Well, actually, my comments would pretty much mirror what Sajal said. And in terms of what would be different, most likely, nothing because it's a it's a COVID casualty, and no one would have force foresaw COVID COVID coming. So and there were certainly multiple it's a privately held company, and and so there's just so much we can say. But as Sajal mentioned, there were multiple equity signed term sheets, debt term sheets, etcetera, and things just didn't work out. And all things considered, to use Sajal's exact words, we actually, as credit managers, I think when you look at the larger picture, had not only a very good recovery here, but there's still more to go, and we'll see where that goes on a portion of it.

As well as from any perspective, we avoided what might otherwise have been years of bankruptcy proceedings and and costs and and so on and so forth.

Speaker 6

Okay. Great. Thank you for that. Lastly, just any update on Roley?

Speaker 2

Yeah. I mean, you know, we if you look the the value accreted quarter over quarter for for Roley, so it's not out of the woods, but if you've seen some very favorable product reviews and some awards that they won for their product in Q4. So we continue to be balanced, but we feel, again, conditions continue to improve at rolling.

Speaker 6

All right, great. Thank you for taking my questions. I really appreciate it.

Speaker 4

Thank you, Casey. Thank you.

Speaker 0

And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker 2

Guys. Jim, what as the company is growing, what investments do you see offer the best operating leverage for your company?

Speaker 1

Well, by operating leverage, could you elaborate?

Speaker 2

Sure. Which ones can grow revenues more than they grow expenses?

Speaker 1

Oh, well, I'm not sure what we're at the level where we'd want to again, these are privately held companies get into in the individual names. One of the biggest

Speaker 2

I'm not talking about TriplePoint. What investments you wanna make in your existing business, back end systems, people, or whatever, that you can actually grow the TriplePoint business?

Speaker 1

Yeah. So from that standpoint, we're talking about growing and and scaling. And so across the platform, and again, TPVG is the focus here, but we are in a staff up mode, a hiring mode, an originations mode, increase. Sajal talked about how our plans for some financing products, new ones, expansions are, I'd say, not only underway but well underway. So we are building and continue to build the infrastructure.

There's just so much we wanna say in terms of expansion in the European markets. It's always a trade off between the cost of growing and growth itself. But I think that's how I view it.

Speaker 2

I would just add, Chris, as we look to what's it's the sponsor our venture capital fund relationships are so critical. Right? Because they're investing in their portfolio companies that turn into potential and prospective portfolio companies for us. And so, you know, the key element of the platform strategy is lending to all stages of portfolio companies, right? Early, later in growth, TPVG focuses solely on the venture growth stage.

So the leverage and the benefit to TPVG is as our sponsor is active in the early and the later stages, those other segments, those portfolio companies translate it's like a farm system, right? So as they grow and develop, they become potential TPVG portfolio companies. And so the leverage and scale is not only continuing to foster and build our and deepen our select VC relationships from deal flow for growth stage obligors, but it's also to continue to foster our early stage and later stage business segments of the platform because, again, those portfolio companies will one day grow up or hopefully grow up to be TPVG portfolio companies. And so I think that's a critical element to that. And that's why we then elaborated on so that's one vector or a couple of vectors of growth.

And then to quote some of our consumer e commerce portfolio companies, right, driving up LTV, right? You've got a certain CAC, right? There's a time and there's a credit underwriting and then driving up lifetime value. And the way you drive up lifetime value is either multiple credit facilities with that portfolio company or multiple different financing products. And so that's what we're focused on.

And as we talked about some of these new strategies and structures, it's driving up LTV potential with existing portfolio companies and potential new ones. And so that's what we're excited about.

Speaker 0

Okay. That's it for me. Thank you. And our next question will come from Ryan Lynch with KBW. Please go ahead.

Speaker 7

Hey, good afternoon. I just have two questions. The first one is on Prodigy. Your preferred shares, I don't believe that they have any yield component to them. Can you confirm that?

And then assuming that they don't, I would assume that the structure of that would then allow you to participate on the upside and potentially gain into value in that investment if that company's performance turns out to perform well?

Speaker 2

Yes. So Ryan, they do have yield component associated with them, they do have a senior ranking in the cap table. So they're not traditional equity. We don't have board seats or anything like that. We're not in a control position.

And and so I think that's kind of one of the benefits is a it's a very much a hybrid like structure.

Speaker 7

What what is the yield on that? I I didn't see it in the the 10 k.

Speaker 2

Chris, do you

Speaker 4

have that handy?

Speaker 3

Yeah. It's 8% pick. So it's consistent with the debt.

Speaker 7

Okay. And then just the only other one that I add was you talked about quarterly fundings going from 50 to 75,000,000 in q one and Q2 to 100,000,000 to $150,000,000 in Q3 and Q4. I guess what sort of assumptions or changes in the market environment are you making relative to what that market environment looks like today that gives you the confidence that you'll be able to basically double your fundings in the back half of 2021?

Speaker 2

Yes. Ryan, I'd say if we were to look at the track record of TPVG, let's say, we crossed out 2020, and if you looked at where we were in 2019, basically, we're articulating a pattern you've seen before. And so it's a couple of factors. So one, it's not some hope or promise of great, these guys have got to go generate back half of the year and that's we've got a $1,000,000,000 plus kind of pipeline as it is. What it is, is a couple of things.

One is generally portfolio companies draw on debt towards the end of the year, right, because they want to use it before it expires. They want to boost their balance sheets for year end audit purposes and because if they're going to fund raise in the next year. So that's why the second half of the year is generally larger fundings than the first half of the year. And then I I think the other part of it is just, you know, there's this pent up of fundraising of people that we're waiting to see how 2020 panned out before they looked to raise more debt or raise more equity capital. And so we're also seeing that right now as we look to kind of the portfolio and continued increase in demand that we're seeing there.

Speaker 1

So I'd

Speaker 2

say no change in methodology, no huge assumptions, no hiring lots of people to go find pipeline. We've got line of sight to it. It's kind of consistent with what we've demonstrated in prior growth years.

Speaker 7

Okay, understood. Thanks for taking my questions.

Speaker 4

Great.

Speaker 0

And this will conclude our question and answer session. I'd like to turn the conference back over to Jim Labe for any closing remarks.

Speaker 1

Okay. Thank you, operator. I'd like to thank as always our stakeholders and all our TriplePoint friends. I'd like to thank there's quite a few on the line and everyone else for listening or participating in our call. We hope everyone continues to remain healthy and look forward to talking with you next quarter.

Thanks everyone. Goodbye.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.