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spk00: Ladies and gentlemen, thank you for standing by and welcome to the Runway Growth Finance fourth quarter 2021 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Alex Strong, Investor Relations. Please go ahead.
spk01: Thank you, Operator. Good afternoon, everyone, and welcome to the Runway Growth Finance conference call for the fourth quarter and fiscal year ended December 31st, 2021. With us on the call today from Runway Growth Finance are David Sprang, Chairman, Chief Executive Officer, Chief Investment Officer and Founder, and Tom Raderman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's fourth quarter and fiscal year 2021 financial results released just after today's market close and can be accessed from Runway Growth's Investor Relations website at investors.runwaygrowth.com. We have arranged for a replay of the call at the Runway Growth webpage or by using the telephone number and passcode provided in today's earnings release. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, and without limitation, the uncertainty surrounding the COVID-19 pandemic and other factors we identified from time to time in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC-related filings, please visit our website. And with that, I will turn the call over to David.
spk05: Thank you, Alex, and welcome everyone to Runway Growth Finance Corps' fourth quarter earnings conference call. Before I begin my prepared remarks, on behalf of the entire Runway team, our thoughts and prayers go out to all of those directly and indirectly impacted by the tragic events ongoing in Ukraine. Today, I'll begin by providing some fourth quarter and full year 2021 highlights, review how runway growth is uniquely positioned to compete for deals, and then discuss our market outlook before passing it to Tom to review our financial results. 2021 was a monumental year for runway growth. We became a publicly traded company, successfully raised capital through both debt and equity offerings, achieved record quarterly and annual origination volume of $216 million and $563 million respectively, and recognize zero credit losses for the year. Before discussing our fourth quarter results further and sharing our market outlook, I want to provide a quick overview of the Runway Growth platform and our investment process for those of you who are new to the Runway story. Runway Growth is an established direct origination platform focused on sponsored and non-sponsored senior secured first lien debt investments. We lend to late and growth-stage businesses in technology, life sciences, healthcare, and information services, and select consumer services and products industries. Our investment process is credit-driven and focused on principal protection with the potential for equity upside. In short, our portfolio has the downside protection of debt and the upside of equity. I started Runway Growth in 2015 after 25 years as a VC consultant and growth debt lender because I saw the opportunity to empower entrepreneurs across two underserved segments of the growth lending market. First, late and growth stage venture-backed companies were outliving the ability of their VC partners to fund growth and were looking for non-dilutive growth capital. And second, non-sponsored growth lending was an untapped vertical. Although these deals take more time to source, They generally enjoy more favorable terms and conditions for the lender. These two segments have provided the initial foundation for runway growth's track record of durable growth and stability across various economic backdrops. Recently, a third vertical has started to emerge, which we see as an integral segment of the runway growth platform going forward. The third vertical is growth-focused PE-backed, as opposed to venture-backed companies. Runway deployed loans to two such companies in Q4, which I'll touch on further in a moment. Our Originations team, which grew from three to six during 2021, has an average of 22 years of experience, and along with our other investment professionals, manage a portfolio of 39 late and growth stage companies in the technology, life sciences, and select consumer services and products industries. Earlier this year, we added Rachel Goldstein as Senior Vice President of Growth to our origination team. Rachel is focused on enhancing our origination activities, focused on top-of-funnel lead generation, sales operations and analytics, and market expansion. Previously, Rachel held a similar position at Leiter Capital, a leading revenue-based financing firm focused on early-stage SaaS and technology companies. Moving down the funnel, I want to talk about our proprietary credit and underrating process, which we believe differentiates runway growth from peers and makes us an ideal partner for entrepreneurs looking to raise growth capital while minimizing dilution. We believe our team brings unparalleled thoughtfulness in terms of developing customized funding solutions to meet the borrower's needs, rooted in our investment team's deep sector knowledge and intimate understanding of our borrowers' businesses. We leverage proprietary risk analytics and employ a credit discipline that matches company risk with loan risk in a dual-sided pricing matrix to optimize deal terms for both parties. Runway Growth actively monitors our portfolio companies on the defensive side to prevent credit losses and on the offensive side to provide additional capital to companies that are meeting their objectives to fund further growth. The end result for runway growth shareholders is an underlying portfolio that provides for a stable and attractive return from debt investments, all while, we believe, taking on less risk than our peers. In 2021, runway growth benefited from its warrant positions in three portfolio companies that entered the public market, Brilliant Earth, Ouster, and Porch Group. These types of liquidity events highlight the benefit we experience on the equity side as we exercise our warrant positions, which are a part of nearly every loan we fund. Since inception, runway growth has rarely won deals based on pricing alone. We win due to our investment team's deep sector knowledge, thoughtfulness of our deal structures, and credit disciplines. We believe we are quickly becoming a preferred lender in our markets due to our thorough understanding of our borrower's business and our reputation for being a solid partner with a steady hand. Turning back to quarterly and full-year results, runway growth's fourth quarter was marked by strong execution against the strategy we introduced on our third quarter call. To thoughtfully deploy capital and utilize leverage to drive portfolio growth, further empower management teams we believe in and strengthen return on equity for our shareholders. We further built upon our track record of strong return on investment and industry-leading low credit losses, generating total investment income of $17.6 million and net investment income of $10.9 million in Q4, a 2% sequential increase. In addition to experiencing no credit losses in 2021, Runway growth maintained an industry-leading low loss ratio of 20 basis points per year on a gross basis and one basis point per year on a net basis based on cumulative commitments. Our annualized yield on debt investments held roughly flat at 14% compared to the prior period. We calculate the debt investment yield by taking the total related investment income during the period divided by the daily average of debt investments outstanding during the period. Our originations team drove prudent portfolio growth in Q4, allowing us to fund six investments across new and existing portfolio companies, growing runway gross total loan commitments and funded investments to $1.45 billion and $1.18 billion since inception. Two of these investments in Q4 were made to late-stage PE-backed companies, Vertex One and Epic I.O. As more tech-oriented PE platforms emerge and invest in companies with great potential but insufficient cash flow or assets to support loans from their traditional lending sources, we believe there will be even greater opportunities for runway growth in the future. The investments we made in growing our originations teams started to bear fruit in Q4. and we expect an even greater impact in 2022 as the team's integration into the runway growth system comes into view and the team is fully up and running. We will also selectively add to our originations team in 2022 to continue to enhance prudent portfolio growth. In December, we announced a $70 million debt private placement in the form of 4.25% senior unsecured notes due in 2026, and we completed the first closing in December and the second closing a few weeks ago. As a reminder, runway gross leverage ratio target for the portfolio is between 0.8 and 1.1 times. On the operational side, in recognition of the growth and quality of our team, Greg Greifeld, Managing Director, Head of Credit, has also assumed the role of Deputy CIO. Tom Ratterman now serves as COO in addition to his role as CFO. As mentioned earlier, we were pleased to recently welcome Rachel Goldstein, Senior Vice President of Growth, to the Runway Growth Team. Before turning it over to Tom, I want to spend a moment on the overall VC landscape and what we're seeing for 2022. We've all seen the numbers from PitchBook, but to rehash, we're coming off another consecutive record year for the VC market. with 2021 US VC investment topping $300 billion for the first time and nearly doubling 2020's total of $166.6 billion, which was the previous record. The historically robust market over the past few years has created a large addressable market and laid the groundwork for lending opportunities in the future. Our view is that in 2022, Even in a rising rate environment, debt is going to remain cheaper than equity and the cost differential between debt and equity capital will be further magnified. The bottom line is that equity is getting more expensive and debt remains cheaper than equity. So borrowers, particularly late-stage borrowers that in the past might have been attracted to high-valued equity, are now going to be even more interested in debt. I will now turn it over to Tom to review our financial results.
spk04: Thanks, David, and to everyone for joining us today. During the fourth quarter, we completed six investments in new and existing portfolio companies totaling $216.1 million compared to $154.1 million in the prior quarter. At year end, our total investment portfolio was excluding U.S. Treasury bills, had a fair value of approximately $684.5 million compared to $586.4 million at the end of the third quarter, an increase of 17%. As of December 31, 2021, runway growth had net assets of $606.2 million, increasing 20% from $504.0 million at the end of Q3. NAV per share increased to $14.65 at the end of Q4 from $14.60 at the end of Q3. Proceeds received from principal payments decreased to $94.1 million in the fourth quarter from $101.2 million in the third quarter. Although principal repayments declined slightly, some of the underlying factors that generate prepayments for the very late stage portfolio remained intact during Q4 2021. On a GAAP basis, we recorded total investment income of $17.6 million during the fourth quarter, comprised of approximately $16.9 million of interest income and approximately $0.7 million of other income. Total investment income for the full year 2021 was $71.4 million compared to $57.6 million for 2020 representing a 24 percent increase. Our dollar-weighted average annualized yield on debt investments was 14 percent for Q4 and 13.8 percent for the full year, as compared to 15.6 percent and 14.9 percent for the prior year periods. The slight decline in yield is primarily due to tighter deal pricing across the markets we participate in and the refinancing of our earlier transactions which had higher contractual interest rate floors than our newer investments. Turning to our expenses, for the fourth quarter of 2021, total operating expenses were $6.7 million compared to $5.8 million in the fourth quarter of 2020. Total expenses for the full year 2021 were $26.9 million compared to $19.6 million for the prior year. The increase was driven primarily by expenses that tend to grow proportionately with portfolio growth, including debt financing and interest expense, as well as the cost associated with becoming a publicly traded company. Our performance-based incentive fee was $2.7 million for Q4 and $9.2 million for the full year, compared to $2.4 million and $7.3 million for the prior year periods. Interest expense decreased to 0.3 million in the fourth quarter from 0.8 million in the third quarter due to a decline in average borrowings as we received approximately 93 million in net proceeds from our initial public offering. Our base management fee was 2.3 million up from 1.8 million in last year's fourth quarter due to the increase in the average size of our portfolio. During the quarter, we produced 8.2 million of realized gains due to the sale of our common shares of Ouster Inc., which compares favorably to 0.7 million of realized gains for the prior quarter. We recorded net unrealized depreciation of 0.1 million in the fourth quarter, which was driven by adjustments to the equity portfolio. One of the hallmarks of the runway growth model is our initial underwriting and due diligence process, coupled with active management and monitoring of our investments to provide continued stability across the portfolio. In a reflection of this, Runway's weighted average portfolio rating improved to 2.04 in Q4 from 2.20 in Q3. A reminder that our risk rating system is based on a scale of one to five, where one represents the most favorable credit rating. At the end of 2021, Mojix, Inc.' 's performance showed substantial improvement, which contributed to our improved portfolio rating. We're pleased to report that in January 2022, Mojix came off non-accrual status. Turning now to liquidity, our total available liquidity as of December 31, 2021, was $158.7 million, including unrestricted cash and cash equivalents and a borrowing capacity of $154 million under our credit facility, subject to existing terms and conditions. As David mentioned, we raised an additional $70 million with the issuance of five-year 4.25% senior unsecured notes, $20 million of which we closed on in December 2021, and $50 million in early February 2022. Our revolving credit facility provides cost-effective debt capital with the ability to expand and fund continued portfolio growth. Our weighted average cost of debt was 3.54 percent at the end of Q4, increasing slightly from 3.50 percent at the end of the prior period. End of period leverage was 13.4 percent, and asset coverage was 582 percent, as compared to 16 percent and 461 percent at the end of the prior period, respectively. This short-term decrease in leverage was due to net proceeds from our IPO of approximately 93 million after deducting underwriting discounts, commissions, and offering expenses. It is our intent to fund portfolio growth with leverage, and as David mentioned earlier, our core leverage target is between 0.8 and 1.1 times. Before considering prepayments, we have the ability to grow our portfolio by nearly 600 million without exceeding our core leverage targets, in returning to the equity markets. On the topic of interest rate sensitivity, we believe Runway is favorably positioned for any potential interest rate hikes and that rising rates will not have a strong impact on our ability to execute against our strategy. Our loan portfolio is comprised of nearly 100 percent floating rate assets and will benefit from increasing interest rates as levels move beyond our contractual interest rate floors. We'll also continue to access the capital markets opportunistically to lock in our longer-term cost of funds. Subsequent to quarter end, Runway Growth's Board of Directors approved a stock repurchase program to acquire up to 25 million of Runway Growth's common stock. The program was approved on February 24, 2022, and expires February 23, 2023. Finally, on February 24th, 2022, our Board declared a dividend distribution for the first quarter, 22, of 27 cents per share, an increase of 8 percent from our fourth quarter dividend of 25 cents per share. As discussed on our last call, our Board intends to declare a regular quarterly dividend going forward and stabilize the distribution based on the estimated earnings for a given quarter. I'll now turn the call back to David for closing remarks.
spk05: Thanks, Tom. In closing, we are encouraged by our progress in 2021, which by all accounts was Runway Growth's best year yet. We feel good about the pipeline going into 2022 as our new originators come online with signed term sheets across both life sciences and tech. We expect to benefit from industry tailwinds and feel confident that we are well positioned in the marketplace for to compete for deals, even in an inflationary environment. With that, we now open the call for questions. Operator?
spk00: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Melissa Weddle from J.P. Morgan. Your line is now open.
spk02: Thanks so much for taking my questions today. First, wanted to start with your outlook in terms of sort of deployment and any visibility that you might have into near-term repayments. I think 4Q repayment activity was probably a little bit lower than what we had modeled. Just want to understand how you're seeing things right now.
spk05: Yeah. Hi, Melissa. Thanks for the question. As you know, prepayments are very difficult to forecast. We actually see in the current environment that we may have lower than expected prepayments because volatility in the public market has kind of diminished a little bit of the M&A activity and the expectations for sellers aren't where they had hoped. And then the other factor is that with SPACs kind of going out of favor, that's made that route a little bit more difficult and regular way IPOs are not quite as easy as they were. So we're seeing at least for the next couple quarters that there may be lower than normal prepayment, but it is very, very difficult to forecast. You know, on the new loan side, one thing that we are seeing is that equity is becoming more expensive, particularly in the late stage. A number of the most active late stage equity folks have kind of retreated and many borrowers still in need of growth capital are looking to avoid down rounds. So in that respect, the tailwinds are really moving towards us.
spk02: Got it. In terms of the new vertical, which you just touched on, sort of the late-stage companies, can you elaborate on sort of the yield expectations in that vertical versus the others where you've been more traditionally focused? Thanks so much, David.
spk05: Yeah, absolutely. And first, just to provide a little bit more color on it, there's been really over the last decade or so almost a new class of private equity firm that's been formed in the model of a Silver Lake or a Toma Bravo or a Vista, but early stage or let's call it mid-market to lower middle market. And they're now buying and investing in companies that either are not yet profitable or are dipping into being cash flow negative for growth initiatives. And that really takes it out of the realm of their traditional lending sources. So they're coming to us. And the two deals that we closed in Q4 had interest rates and terms that are pretty consistent with stuff we've done in the past. We have fairly robust covenant packages. So I would say they're a very sophisticated counterparty, though, in terms of the loan agreements. But in terms of economic terms, they're fairly similar to our traditional deals.
spk02: Got it. Thanks very much.
spk05: Of course.
spk00: Thank you. Our next question comes in the line of Casey Alexander from Compass Point. Your line is now open.
spk07: Yeah, hi. On that same point about the new vertical, I mean, would you still try to contain yourself to industries that you understand, such as technology, or would you potentially move into consumer-related or some other type of manufacturing-related industries? I mean, how broad are you willing to go in that category?
spk05: Yeah, Casey, great question, and thanks for that. And we are absolutely sticking to our categories. that are tech, broadly defined, life sciences and healthcare, broadly defined, and then consumer products and services that are tech-enabled, so generally e-commerce and tech-enabled services. So we are not going far afield. There's no strategy drift or anything like that. It's just getting into a different category of sponsor, and quite honestly, continuing our migration towards larger, less risky portfolio companies.
spk07: Okay. Thank you for that. Secondly, your originations are growing faster than ever before. You're opening up new verticals. I think what investors would like to hear is with such rapid growth and moving into a new vertical, you know, BDCs in the past have gotten into trouble by growing too fast and sort of getting out of their lane. So I think it would help investors to hear how you intend to stay credit disciplined while you experience such rapid growth because there's obviously a lot of room for you to grow with a leverage ratio of 0.13 times.
spk05: Yeah, absolutely. And I'll let Tom add in after giving some introductory comments. First of all, we are credit first through and through. That will never change. And we continue to add resources in the credit team in advance of adding to the origination team. And the originators are vertically focused, so the same people that would originate a software deal from a late stage VC also originate software deals from PE sponsors. So don't read too much into the new vertical. It's just a new type of sponsor that we're working with. Our deep industry expertise and ability to create thoughtful and bespoke loan packages based on deep knowledge of the industry and the company will not change, and neither will, of course, our focus on principle preservation, and that is the reason for looking to these later stage companies where we can do real underwriting on real businesses and have substantial covenant packages which give us the opportunity to mitigate NIST if needed.
spk04: Thanks, David. I think one of the important factors here is that we continue to demonstrate our disciplines. Yes, we have a substantial amount of capacity to build leverage, to put capital to work, 600 million. But just to emphasize what David says, we're not changing our core. There's no change for our core skills. Tech-focused, life sciences-focused, it's really just a little bit of a different sponsor than And what's really quite refreshing from our perspective is those sponsors are really embracing this because they're not met with reception from their traditional lenders that really understand underwriting ratios that are something other than just EBITDA multiples. And one of the hallmarks that I think we've built our business on and why we're viewed as a steady hand is the amount of work we do in understanding enterprise value and in right-sizing facilities for the borrowers so that there's sufficient capital to meet their business plans and be successful.
spk07: All right. Thank you for that. Just an add-on to that before my last question is, In these larger companies that are EBITDA-driven as opposed to financing round-driven, generally should we expect like less equity co-invest to go along with those? Because generally those types of loans, for the most part, tend to be loan-only and have very little equity participation.
spk05: Yeah, that's a great observation. And, you know, at the stage where we're lending, you know, these companies are often – very near getting to cash flow positive or getting to exit, or in the case of some of the life sciences deals, are fully cash collateralized for nearly the entirety of our loan. So we are not lenders, as you might see in the early stage, where there's a rule of thumb that there's two parts equity for one part debt, and then that just kind of goes on, and you're really at the you're dependent on future equity to survive. That's an element of financing risk that we try to avoid. So we're typically lending to companies that will not need any additional capital. And if they do, it's in a quantum that we could provide if we needed to. Of course, we love it when the equity sponsors are there and will continue to support along the way. But we try to avoid taking a lot of downstream financing risk.
spk07: Okay, thank you for that. And my last question relates to the share repurchase program. You know, is it your expectation that it would be active, or is this more of a, you know, discretionary in case the market just gets totally out of hand, or how do you guys see the share repurchase program? Knowing that your stock is trading at a discount to NAV and in a universe that everything trades at a premium to NAV, but one should expect your stock to move to peer group multiples as your dividend grows into the peer group yield.
spk04: Thanks, Casey, and thanks for the vote of confidence on the peer group multiples coming in line with the peer group multiples. I think as we sit down as a company and look at the share repurchase agreement and discuss that with our board, it's We feel strongly that our stock, as it's trading today, is undervalued, and we wanted to put a program in place that reflects that confidence of the board and of the company. And we've got it there to act opportunistically and execute as we see fit to take advantage of the market being undervalued.
spk07: All right, great. Thank you for taking my questions. I appreciate it. Thank you.
spk00: Thank you. Our next question comes from the line of Finan Ocea from Wells Fargo Securities. Your line is now open.
spk06: Hi, everyone. Good afternoon. Can you help us think about the Oak Tree Opportunistic Funds ownership in the BDC? How do you envision and what sort of timeline do you see for their presumed exit? And also in there, can you touch on how their secondaries might interplay with your own growth plans as you seek to do secondaries of your own, assuming there would be some coordination between you and the fund there?
spk04: Thanks, Finn. So Oaktree, compared to the rest of the shareholders, the pre-IPO shareholders, has an extended lockup. which continues over four quarters. And they are a strong supporter of our business. They are, frankly, more of a buyer when the shares are trading below book value, as evidenced by their 10B51 program and the exhausting that full $15 million by the end of February. So, they're very thoughtful. And when they do exit, it will be in a very organized and efficient manner. There's no time frame on that right now. They're smart investors and they'll do everything in coordination with us. What they do not want to do is impair our ability to raise capital so they wouldn't want to suck all the air out of the market so that we weren't able to tap the equity markets when ready. And as we see it now, assuming normalized prepayments and you know, continuing our origination trend, we wouldn't expect to need to be back in the equity markets until 2023.
spk06: Okay, sure, that's helpful. And then as a follow-up, you had a pretty good quarter in activity and earnings, so congrats on that. Are you able to offer us any color on what your goal might be by this point in as to where you're able to bring the dividend, say by year end or next year, just how you might be thinking about that given you've been moving pretty well.
spk04: Well, thanks and appreciate the kind words on the quarter. We would expect to continue driving our ROE, which will drive the dividend, and we are going to add to our origination teams to continue to backstop and support the trend that we have in future originations. We have a lot of capital to deploy, and we would expect to be in the lower end of our leverage range if things go according to plan by the end of Q4 or early Q1 2023. Okay.
spk06: Oh, sorry, I was on mute. Thank you so much. Thanks, Ben. Thank you.
spk00: Thank you. Our next question comes from the line of Bryce Rowe from Hovde. Your line is now open.
spk08: Thanks. Good evening, I guess, from the East Coast. Wanted to just touch on the, I guess, the unrealized appreciation here in the quarter, obviously, with the Alster game. might have expected a reversal of that unrealized as you realize that gain. So could you speak to, you know, is there any particular investment that's driving the unrealized appreciation for the quarter here?
spk04: So the ouster was realized that was to date our single largest equity gain. The other Gains came through a variety, but probably any single largest gain would have been in our public equity position in Brilliant Earth.
spk08: Okay, that's helpful. And then, Tom, just wanted to kind of follow up on your comments about asset sensitivity. Where do you see the weighted average floor within the portfolio at this point? And will you start to, is there a point at which where you get, you know, maybe exponential or increasing benefit from a rate increase?
spk04: Yes. So, slide 20 of our investor presentation gives a demonstration of the sensitivity there in terms of what happens to earnings. But for the most part, well, one, every borrower is at their contractual floor. We've definitely seen the higher floors from the 2018, 2019 vintages be refinanced out just through the normal course of those businesses maturing. So the floor is pretty close to a half percent right now. Okay.
spk08: That's helpful. And then maybe the last one for me is we're in the beginning of March here now, two months into the quarter. Any sign or any commentary on first quarter activity so far, whether it be origination activity or repayment activity?
spk05: Yeah, Bryce, and thanks for hanging in there late on the East Coast. So, as I said earlier, it's very difficult to predict prepayment activity. Like I said, I think it's going to be lower than typical. As far as origination goes, there's the typical seasonality that we see every year, and the typical within a quarter, things all happen in the last month, and unfortunately, often too much in the last couple weeks. And that's probably what we'll continue to see in 2022. We do feel very good, and I'd say that we have the largest funnel that we've ever had and feel really good about the strength of our origination team as it stands today. And as Tom mentioned, we're going to continue to invest in building that team. And so feel good about the outlook for 2022 overall.
spk04: Just one comment. The prepayment characteristics as originations tend to come at the last day of the quarter, right? So do the prepayments. So it's not unusual to get a prepayment notice two weeks out and really, really spoil your quarter end.
spk08: All right. I appreciate the call. Y'all have a good night.
spk05: Yeah, you too.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Our next question comes from the line of Sarkis Sherbiachyong from B. Reilly Securities. Your line is now open.
spk03: Hi, everyone. Thank you for taking my question here and a good quarter here that you put out the gates. Just wanted to kind of go back and revisit the comment you made on borrowers needing growth capital. They're looking to avoid down rounds. Are you seeing venture debt become kind of a more, I don't want to say viable alternative, but essentially a more preferred alternative to the VC equity? And if so, are you able to be more choosy in kind of the pipeline?
spk05: So that is a fantastic question. And the answer is yes. And that's a trend that we've been leveraging and writing for five years. But we believe that what we're seeing in the market today, with equity, particularly late stage, overvalued, you know, overenthusiastic equity participants kind of cooling off or at least cooling their heels for a while, that right now debt is very much cheaper than equity and is attractive and is particularly attractive for folks that want to avoid the down round. So I think the way you described it is absolutely fair. We haven't really started to see dramatic changes in terms and conditions on our loan, but we are extremely picky, and that is not new. I think it's one of the reasons that our credit losses are so low. It's a testament to our strategy in terms of focusing on late-stage, less risky companies. and then underwriting to further filter them, and then being really active and aggressive in our monitoring and portfolio management. And so I think everything you said is true. It's not new for us, but it's the ability to be even more picky, I guess.
spk03: Got it. Thanks for that. And just kind of a follow-on to this thought, You know, any changes on kind of the spreads you're able to capture, you know, as you look into this pipeline in this environment? Are the spreads stable, you know, increasing, decreasing? Anything you can kind of help us with regarding pricing?
spk05: Yeah, so it's interesting. There's a chart, I believe, in the deck that we provided that shows the spreads have been pretty stable. And, you know, we... have, as we have gone later stage, larger, less risky companies, you know, there is a little bit of a spread compression, but it's not meaningful. And we think that we're definitely getting the right end of the bargain in that in terms of the reduction in risk more than makes up for a few basis points less in spread. And then in terms of trends, I'd say the market is competitive. There are some fantastic competitors out there that do a great job, and I don't see that changing. There was a period of time where there were a number of, I guess you could call them tourists that were in the market or folks that were just dabbling from another part of the credit spectrum, and we don't see those as much today. But the normal cast of characters are all very solid and doing a great job. And so I don't really expect major spread expansion, but we're also not seeing compression either.
spk03: Great. Thank you and wish you continued success.
spk05: Thanks. Thank you.
spk00: Thank you. At this time, I am showing no further questions. I would like to turn the call back over to David Spring for closing remarks.
spk05: Great. Thank you, Operator, and thank you all for your support of runway growth, and we hope you all stay along for the journey ahead. We hope everyone is staying safe and healthy, and we look forward to updating you on our first quarter results in May. Good night.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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