TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen, and welcome to the Triple Point Venture Growth BDC third quarter 2020 earnings conference call. At this time, all lines have been placed in the listen early mode. After the speaker's prepared 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 Triple Point Venture Growth BDC website. Company Management is pleased to share with you the company's results for the third quarter 2020. Today representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board. Sajal Srivastava, President and Chief Investment Officer and Chris 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 release regarding forward-looking statements and remind you that during this call, management will make certain statements that relates to future events or the company's future performance or financial conditions, which are considered forward-looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Security and Exchange Commission for important factors that could cause actual results to differ materially from these statements. and James Labe.

Thank you, operator, and good afternoon, everyone. We hope that our shareholders and their families are healthy and are staying that way during this pandemic. Our priority is protecting the health of our employees, and together with our venture capital partners and entrepreneurs, supporting our portfolio companies during this uncertain time. We're now eight months into the pandemic, and our advisor continues to operate and conduct business remotely to source and close transactions. In this environment, our portfolio companies have all adapted COVID-adjusted plans, and a number are outperforming these plans, and more than 86% of our portfolio companies have also raised capital here in 2020. After the initial pause earlier in the year, new deals are getting done in our venture capital markets in these investments, as well as our new originations, are in sectors that are geared for success in the COVID environment. So with this pandemic as a backdrop, we remain cautious but are experiencing the signs of continued growth, not only through the doubling of signed term sheets and five times the amount of customer funding since past quarter versus the previous quarter, but also with the growth activity well underway here in the fourth quarter. We believe this positive trend will continue in our business and serve as the basis for meaningful growth in 2021. This is due to several reasons. The first is our focus on technology. We are living in a different world and one of uneven consequences. The technology sector is one of the more sustainable parts of the economy today and is in an area for investment for the foreseeable future. TriplePoint will continue to benefit from this trend as we provide loans and invest primarily in technology-driven companies and sectors, many of them experiencing tailwinds and stand to benefit in this environment. Many of our portfolio companies operate in the virtual and digital technology world of today, and TPVG is well-positioned to take advantage of this ecosystem as new venture capital investments remain focused in it. Another trend that favors our continued growth in 2021 is venture capital investment and fundraising activity. The venture capital investment pace at later stage companies, typically the venture growth stage companies that we target for our loans, continues to be brisk and is on track to be at least equal to or even exceeding last year, which in itself was a record. In fact, the venture capital mega deal count alone is projected to set a record in 2020, according to the NVCA, National Venture Capital Association, for those not familiar with it. All these factors translate into increased new business opportunities for TPVG right through the end of this year and into 2021. Our select group of leading venture capital investors and the funds with whom we have had these long-standing profitable relationships have also raised more than $50 billion since 2018, of which 35 of that alone was raised last year and this year to date, including several of our select funds, which closed new multi-billion dollar funds here in 2020. Believe me, this provides plenty of dry powder to support our existing portfolio companies as well as for all this new and growing investment activity. Another trend that we're benefiting from in this environment is a continued liquidity and fundraising by companies as well as the exit activity that everyone is seeing out there with venture capital-backed technology companies this year. We're seeing this not only within our own portfolio companies but within the broader venture ecosystem as well, further validating the needs of these companies for venture lending. This activity continues to be robust this year and includes everything from the emergence of these SPACs to multi-billion dollar acquisition exits. Increased opportunities for venture lending in today's environment also includes providing financing for many of the companies out there that are actively considering opportunistic acquisitions in the COVID era. Companies which are also planning for growth using both equity and debt as part of their additional runway and financing strategy plans, and companies supplementing their equity raises, among many other uses. It's also a nice pickup that we're experiencing from companies which are outperforming their earlier COVID shell plans, as I think of them. Instead of following these shell plans, which might have called for rounds of further layoffs today or further reductions in burn or marketing, a number of these companies are beginning to hire again and are increasing their burn rates to support growth well beyond these initial shell plan expectations. All of which obviously creates additional opportunities for us to support their growth. While we're pleased with the portfolio's health and our progress, please don't misunderstand. We also remain cautious during these uncertain times and are mindful of Covad's potential impact. Most of our portfolio companies have adapted to this environment, but we are closely monitoring the portfolio for any challenges that may arise. Fortunately, we have the right team to manage our portfolio and maintain its stability. Turning to the quarter and to sum up our solid performance for this past quarter, we over-earned our distribution to shareholders. We decreased our leverage. We increased our net asset value. We improved our liquidity position. We experienced no new credit downgrades. And we grew the levels of signed term sheets, debt investment fundings, commitments, and also the size of our overall pipeline. Our liquidity remains strong and our pipeline is growing. and all of this adds up to what we believe is a foundation for a strong year and momentum going into 2021. This will be our last earnings call before year end, and Sajal and Chris will be going into more detail on our portfolio and finances. But I want to stress that we are encouraged by the signs of recovery in our business, our prospects for growth heading into 2021 and beyond, and the continuing venture capital investment trends in technology. And once again, we expect to over earn our distribution for this year. We wish all of you continued good health during this period, and I'd now like to turn the call over to Sajal.

Thank you, Jim, and good afternoon. During the third quarter, TriplePoint Capital signed 146 million of term sheets with venture growth stage companies, Sajal Srivastava, James Labe, Steven Mitchell Levinson, Mike Wilhelms Sajal Srivastava, James Labe, Steven Mitchell Levinson, Mike Wilhelms The industry-leading position of the TriplePoint Capital Platform not only has resulted in significant deal flow for TPVG from our select VCs and their venture growth stage portfolio companies, but also enables us to co-invest across the platform's many investment vehicles so we do not miss out on deal flow due to transaction size, while also optimizing the hold size for us at TPVG. During the quarter, we funded $38 million of debt investments to five companies, almost double the $21 million we funded last quarter. We also invested $300,000 of equity in two companies and received warrants in six companies valued at $600,000. We expect to see fundings return to the $50 to $100 million range per quarter here in Q4 and grow in 2021. During Q3, we had $49 million in portfolio company principal prepayments, which resulted in an overall weighted average portfolio yield of 14.1% for the quarter. Excluding prepayments, core portfolio yield was a stable and impressive 12.8% and slightly up from the 12.7% last quarter. Although we expected prepayment activity to be slower, we believe the higher levels reflect continued durability of our portfolio companies and the venture lending market as a whole. We also received 17 million of paydowns on revolving commitments and 19 million of scheduled principal amortization during the quarter. Year-to-date, we have received over 130 million of early and scheduled principal payments from our portfolio companies, which demonstrates the short-term and amortizing nature of our loans and also serves as a meaningful source of liquidity for TPVG each quarter. As of the end of September, 30% of our debt investments were fixed-rate loans and 70% were floating-rate loans. of those floating rate loans, 90% have prime floors set to four and a quarter or higher. All the new floating rate loans we're originating have the same targeted yields as our existing loans, but have floors set at the current prime rate and therefore have higher spreads. We continue to make progress diversifying our portfolio through our combination of new investment activity as well as through prepayments. As of quarter's end, our 71 portfolio companies are spread across 33 subsectors With our largest concentration in business application software, which represents 11% of our outstanding portfolio. Our top five investments represent 28% of our total debt investment portfolio on a fair value basis, down from 35% a year ago. And our top 10 investments represent 52% of our debt investment portfolio, down from 60% a year ago as well. During the quarter, four portfolio companies raised over $430 million of capital. This brings our total to 22 portfolio companies, raising over $2.8 billion of capital since the beginning of the year. Approximately 70% of our portfolio companies have 12 months or more of cash runway. Moving on to credit quality, the weighted average investment rating of our debt investment portfolio was essentially 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, two companies were upgraded from category 2 to 1, and one company was removed from category 5. No obligories were added to categories 3, 4, or 5. No obligories were downgraded during the quarter, and no new obligories were placed on non-accrual during the quarter. During the quarter, we closed out the credit situation on Munchery and removed them from category 5 on our credit watch list and from our non-accrual list, leaving no remaining companies in category 5. We have only one company rated four on our watch list, Roli, a music technology company. During the quarter, we saw an increase in the value of our position in Roli as a result of progress the company made during the quarter, which culminated in the launch of their Lumini keyboard on October 1st, favorable product reviews, and strong initial demand and sales. We hope to see this momentum translate into continued favorable trends for the company and our investments. We have four portfolio companies rated category three due to the impact of COVID on their businesses, as well as on their financing and strategic activities. All four companies are currently in the midst of financing or strategic activities, have experienced some delays, but are looking to complete these activities over the next one to two quarters. Our highly experienced teams are in regular and active conversations with these companies and their investors, and we have a playbook for action if the outlook for these activities Their businesses or their credit situations change. We sold a portion of our holdings in CrowdStrike, resulting in an additional $4.9 million of realized gains in Q3, bringing our total to $24.3 million of realized gains on that name alone, and also recorded $1.1 million of realized gains on our Medallia holdings. We continue to hold shares in both companies, representing $2.7 million of unrealized gain as of September 30th, and expect to exit our remaining positions over the next one to two quarters. These realized gains were offset by the realized loss from the disposition of Muntry, resulting in net realized gains of $4.1 million for the quarter. While credit losses are a part of the business, the beauty of venture lending is that additional return and value creation potential exists due to the warrants and equity investments, which should not only offset these losses, but also generate net gains in excess of credit losses over time which is consistent with our sponsor's track record. As we have noted in the past, it generally requires a longer time horizon than the average term of our loans for these gains to materialize. But on a cumulative basis, TPVG's credit losses net of realized warranted equity gains are $15.3 million over the past six and a half years since our IPO, which represents 0.6% of our cumulative commitments and 1% of our cumulative funding. So far in Q4, we've had three announced portfolio company liquidity and exit events, including Freshly's acquisition by Nestle for up to $1.5 billion, HIMS in-process SPAC merger, and QBall's acquisition by Idera. Such transactions have resulted in $30 million in loan prepayments and $2.4 million in accelerated income prior to any warranted equity gains. Sajal Srivastava 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. With that, I'll now turn the call over to Chris to highlight some of the key financial metrics achieved during the quarter.