TriplePoint Venture Growth BDC Corp.

Good afternoon and welcome to the Triple Shot conference call. All participants will be in listen-only mode. Should you need assistance, please sign all conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press Start then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jim Labe. Please, Jim, go ahead.

Thanks, Operator, and good afternoon, everyone. I'd like to start by mentioning that some of us are in remote locations affected by the tropical storm. which has made its way and continuing to make its way up the East Coast and apologize in advance for any technical issues now or that may arise during the call. On behalf of TPVG, we hope that our shareholders and their families are healthy and continue to stay that way. Our first priority is protecting the health of our employees and supporting our portfolio companies during this global pandemic. As a global firm, We continue to work closely with our venture capital partners, entrepreneurs, and investors within the venture ecosystem. For this past quarter, we continued to follow the playbook that we all outlined in the first quarter. Although this was a light quarter by volume, it reflected our cautious approach and our goal of maintaining stability in this market. We believe this was the right approach given uncertain times. Our business, as you can see, held up well during the quarter as we continued to weather through this economic environment. For the quarter, our net investment income, or NII, was more than 11.5 million, or 38 cents per share, which more than covered our dividend, and we also achieved a weighted average annualized portfolio yield of 13.7% for the quarter. Most significantly, We benefited during the quarter from a powerful component to our returns, one that is part of our differentiated venture lending business model and attests to the quality of the select venture capital-backed companies in which we invest. This is the equity component of our lending transactions. Sajal likes to call it the secret sauce. These are typically stock warrant positions, equity investments, or even a combination of both that we negotiate as part of our venture lending transactions. During the quarter, we recognized almost 20 million in realized gains alone through the sale of the publicly held stock that we received in CrowdStrike. As a result, to date, we've already generated an 86% internal rate of return since our initial debt investment in CrowdStrike. And that's not including that there's still more to follow. This equity component is another benefit related to our venture lending business, and CrowdStrike is not a one-trick pony. It joins the club with a long list of other successful portfolio company equity exits we've had, companies such as Nutonix, Ring, Dollar Shave Club, PillPack, and others. And as Sajal will get into, there are many more companies in the portfolio in the works. Sajal and Chris will also get into more detail, but overall our portfolio maintained its resiliency and we are pleased with the outlook for the last half of this year. Many companies in our portfolio are stronger. Most have significantly extended their runway through cost reductions and capital inflows, whether equity or debt, as a result of implementing strategies and plans in response to this pandemic. Quite a few of our companies are now beating these plans, in fact, implying that the situation is not as bad as they had forecasted a few months ago. This has already led to a healthier TPVG portfolio of companies with lower burn rates, stronger liquidity positions, and extended operating cash runway. In fact, more than two-thirds of our portfolio companies have raised capital since the start of this year and through this COVID period so far for an impressive total of more than $1.6 billion of proceeds to date. And at quarter's end, 72% of our companies had more than 12 months of cash on hand or were in the process of closing additional capital. While we will continue to assess the market, It continues to be active, and more and more deals are getting done, and we are now busy at work handling an uptick in originations demand and foresee actively deploying increased amounts of capital in the second half. Many of our select leading venture capital funds, those with which we've had these long-standing profitable relationships, are telling me that they've worked through what many are calling the three-month pause. This was a period of working through their existing investments in the first round of management and stabilization of their portfolios during this COVID period. Nowadays, by and large, their portfolio companies have adapted to the new environment. Our select funds have also raised more than $50 billion since 2018, of which $30 billion of this was raised last year and through the first half of this year. We can't ignore this amount of There's five of these new multibillion-dollar funds that were closed in 2020 here alone already. So as a result, there's no lack of equity capital. Our select VCs not only continue to support their companies and have capital generally reserved for this purpose, so-called dry powder, as I think of it, but they are now turning towards new investments in the market and beginning to source and actively close new deals. As a result, while we are carefully maintaining a balance here in the second half and continue to follow our playbook, we have already turned up our originations by a notch and foresee a continued increase in these originations right through the end of this year given this notable pickup in investment activity. Given the enormous amount of equity and now more stabilized portfolio, these venture capital investments are surfacing in increasing numbers and dollars. I don't want to mislead anyone and let you think we're all out of the woods yet, but certainly we have made it through the first phase in the venture ecosystem, and now there's many new investment opportunities that are coming up in both technology and life sciences. that are growing out of this unfortunate pandemic. And many of them are, in fact, aimed at the post-COVID period. These include safe office environments and telemedicine and many new virtual and digital services that address the post-COVID period. While this new investment activity is promising and providing increased future lending opportunities, There also remains other needs for venture lending at venture growth stage companies as well. These include financing lines for opportunistic acquisitions, pre-IPO lines for planning and timing purposes, and helping in the timing and optimization of balance sheets as companies navigate uncertainty in equity round valuations in their financing strategies. Finally, we're also finding support and many more. As Chris will get into, our liquidity remains strong. along with the fresh equity and debt capital we raised in the first quarter of this year, we have ample capacity to meet all our unfunded commitments, and we did not experience any significant credit deterioration or have any new non-accruals this past quarter. To add to this, we do not presently foresee the need to utilize the $50 million backstop facility from our manager. This is the one that we announced and established in the previous quarter, Again, more of a precaution in keeping with our conservative and best-in-class practices as a BDC. To wrap up, safety remains our first priority, and our advisor, Triple Point Capital, has been operating and continues to run 100% remotely. While we're pleased with the portfolio's health and our progress, we will continue to work through the impact of the current economic environment and operate by our playbook. We have the right team to manage our portfolio and maintain its stability, as well as the liquidity to manage through this period, and we are now responding to the increased demand in the marketplace. With the initial shock of COVID and its impact having been worked through, we're now getting deals done. We are busy deploying increased amounts of capital and handling this increasing originations activity and look forward to a strong finish for the year. Right now, our three Rs, the foundation of our firm, have never been more important. Relationships, reputation, and references. These are more important than ever in our venture ecosystem as we continue to work with our venture investors, entrepreneurs, and portfolio companies. We wish all of you continued good health during this period, and let me now turn the call over to Sajal. Sajal, are you there?

Yes. Sorry, everyone. I was dropped. Thank you, Jim, and good afternoon. Implications of the hurricane. I hope all of our stakeholders and their families remain safe and healthy during these challenging times, just so you're where I am okay as well. As Jim mentioned, managing our existing portfolio has always been our highest priority, but it is even more important during periods of significant volatilities. We are proud on a number of fronts of the performance and developments within the portfolio, which we believe reflects the uniqueness of our investment strategy, the quality and durability of our portfolio companies, the potential for additional returns and value accretion from our investments over the long term, and of course, the experience and efforts of our team. During the second quarter, we signed 93 million of term sheets with venture growth stage companies at TriplePoint Capital, up from 80 million of signed term sheets during the prior quarter, and closed 14 million of debt commitments with four companies at TPVG. As Jim mentioned, a critical benefit of the TriplePoint Capital platform is our frequent communication with our select group of venture capital firms and our platform's robust activity in the venture lending markets, as demonstrated by our higher level of signed venture growth stage term sheets quarter over quarter. Furthermore, by having multiple vehicles of investment capital and our co-invest exemptive relief order, our sponsor is able to allocate and co-invest dynamically across its vehicles based on investment strategy, capital available for investment, and portfolio diversification and concentration targets and limits. Since the start of COVID, TPVG has benefited from our platform's highly selective and continued deal flow from our best relationships, but acquired smaller allocations of these opportunities as we focus on maintaining flexibility and liquidity as we weather the COVID crisis. As we look to the rest of the year, as Jim mentioned, given TPVG's substantial and growing liquidity position, we expect TPVG to take a larger portion of new debt commitment co-investments. During the quarter, we funded 21 million of debt investments to seven companies with a 14.4% weighted average yield. We also invested 125,000 of equity in one company and received warrants in four companies valued at 200,000. Our 21 million of fundings this quarter was down from our 79 million of debt investment fundings in Q1. Our reduced level of fundings to date demonstrates the strong cash position An operating runway that exists at many of our portfolio companies, as well as the trust and confidence they and their venture capital investors have in us, is a consistent and dependable financing partner. As we look to the rest of the year, we expect to see fundings return to the 50 to 100 million range per quarter by Q4. During Q2, we had 25 million in portfolio company principal prepayments, which resulted in an overall weighted average portfolio yield of 13.7% for the quarter. Excluding prepayments, core portfolio yield was a stable and impressive 12.7% despite the 125 basis point reduction in the U.S. prime rate in March. So far in Q3, we've had 29 million of prepayments which have generated approximately 1 million of accelerated income. Although we expected prepayment activity to be milder, we believe the higher levels reflect continued durability of our portfolio companies and the venture lending market as a whole. We also received $12 million of scheduled principal amortization during the second quarter, demonstrating the short-term and amortizing nature of our loans, which serves as an additional source of liquidity for TPVG each quarter. As the end of Q2, 30% of our funded debt investments were fixed rate loans and 70% were floating rate loans. Of those floating rate loans, 96% have a prime floor set to four and a quarter or higher. All the new floating rate loans we are originating have the same targeted yields as our existing loans, but have floors set at the current prime rate and therefore have higher spreads and will benefit if and when the prime rate increases. We're also pleased to report that our portfolio companies continue to have success raising follow-on equity capital, with six portfolio companies raising over $250 million of equity capital in private rounds during the second quarter, which provides them with additional cash runway. This is in addition to the nine portfolio companies raising over $1.3 billion of equity during Q1. So far in Q3, we've had two portfolio companies raise equity rounds, with more in the works. Moving on to credit quality, the weighted average investment ranking of our debt investment portfolio was flat with the prior quarter's rating of 2.0. Under our rating system, loans are rated from 1 to 5, with 1 being the strongest credit quality, and new loans are typically initially rated 2. During the quarter, one company was upgraded from Category 2 to 1, one company was upgraded from 3 to 2, and one company was downgraded from 2 to 3. Consistent with Q1, no obligors were added to categories 4 or 5, and no obligors were placed on non-accrual during the second quarter. With regards to the companies in category 5, during the quarter, we closed out prior credit situations with Harvest Power and Cambridge Broadband, which completed asset sales resulting in recoveries consistent with our prior quarter marks. and removed both obligors from category five on our watch list and from our non-accruals. That leaves only Muntry in category five and we expect to finalize the recovery process in Q3 and then remove them from our watch list and non-accruals. We have one company rated four on our watch list, Roli, a music technology company. During the quarter, we further mark down our loans on Roli, reflecting the impact of COVID on some of our recovery assumptions associated with the ongoing turnaround of the company. Here in Q3, the company has made good progress and we expect to see some favorable trends over the next couple of quarters. During the quarter, we sold 80% of our holdings in CrowdStrike, resulting in 19.4 million of realized gains. As a reminder, in 2016, we provided the initial 25 million loan commitment to CrowdStrike and as part of our continued partnership with them, increased our commitment over time to 40 million as their business group. Our loans included an equity kicker in the form of a warrant and the right to invest in their next round of private financing. In 2017, they prepaid our loan, resulting in an IRR on our loan of 34%. In June 2019, CrowdStrike went public at $34 a share and during Q2 20, we sold 220,000 shares with an average sale price of $90.80 per share, resulting, as Jim mentioned, in a total IRR of 86% since our initial loan funding. At the end of the quarter, we still were holding on to over 56,000 shares of CrowdStrike. These realized gains from CrowdStrike were offset by the realized losses from Cambridge and Harvest as part of removing them from the watch list, along with other realizations, resulting in net realized gains of $800,000 for the quarter. While credit losses are part of the business, the beauty of venture lending is the additional return and value creation potential that exists due to the warrants and equity investments, which should not only offset these losses, but also generate gains in excess in credit losses over time, consistent with our sponsor's track record. But again, it generally requires a longer horizon than the term of our loans for these gains to materialize, as we have seen from CrowdStrike. Net unrealized gain on investments for the second quarter were $8.9 million, resulting from the reversal of previously recorded unrealized losses on loans to Cambridge and Harvest, $2.5 million of valuation adjustments related to mark-to-market related changes and credit-related adjustments, partially offset by the reversal of previously recorded unrealized gains associated with the shares of CrowdStrike sold during the quarter. As of June 30th, our top five positions represented 25.8% of the total debt investment portfolio on a fair value basis, relatively flat from 25.3% last quarter and down from 36.6% in Q2 2019. We continue to focus on building the scale of TPVG while diversifying our portfolio, thanks in part to overall portfolio growth, prepayments, and utilization of our co-investment capabilities. Before I hand the call over to Chris, I'd like to spend a few minutes reviewing the TPVG investment track record. Since the IPO of TPVG in 2014, we have made $2.5 billion of commitments to approximately 100 portfolio companies. Of that $2.5 billion, we have funded $1.5 billion so far, and that funded portfolio has generated $345 million of gross investment income and 181 million of net investment income after all fees and expenses. Our debt investments have generated quarterly portfolio yields of 12.7% at the lowest and 19.9 at the highest. This same portfolio has had 18 million of cumulative net credit losses after factoring in the realized gains from our warrant and equity investments, Translating into a net loss rate of 0.7% on commitments and 1.2% on fundings. And keep in mind, we are sitting on another $7 to $8 million worth of publicly traded stock in CrowdStrike and Medallia that we have yet to realize. But more importantly, we currently hold 92 warrant and equity investments. with a current cost basis of $41 million, which we expect will generate returns in excess of our credit losses and create meaningful net asset value, as we have demonstrated at our platform. We believe this is a very powerful additional source of long-term return for us and our investors, but we are still in the early innings. But at TriplePoint, we play to win. With that, I'll now turn the call over to Chris to highlight some of the financial metrics achieved during the quarter.