TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth VDC Corporation first quarter 2023 earnings conference call. At this time, all lines have been placed in a listen-only mode. After the speaker's remarks, there will be an opportunity to ask questions, and instructions will follow at that time. This conference is being recorded, and a replay of this call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the first quarter of 2023. Today, representing the company is Jim LeBay, Chief Executive Officer and Chairman of the Board, Sajul Srivastava, President and Chief Investment Officer, and Chris Matthew, Chief Financial Officer. Before I turn the call over to Mr. LeBay, I'd 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 will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward-looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities 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 cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect 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'd like to turn the conference over to Mr. LeBay.

Good afternoon, everyone, and thank you for joining TPVG's first quarter earnings call. During the first quarter of 2023, we continued to maintain our selective approach given these markets. We grew the portfolio to nearly $1 billion and generated net investment income, or NII, of 53 cents per share, continuing to demonstrate the earnings power of our portfolio. NII for the quarter exceeded our quarterly distribution of 40 cents per share. Including TPVG's most recent distribution increase in March of this year, we have now increased our quarterly distribution 11% since the third quarter of 2022. Based on our net income during the quarter, we realized a 17.8% ROE, which is the second consecutive quarter we've been above the 17% ROE level. We also achieved a weighted average portfolio yield for the quarter of 14.7% and our eighth consecutive quarter of increasing core portfolio yield. While credit was impacted this quarter, given the current down cycle and macroeconomic market conditions, our team is working through these events in this cycle as it's part of the multi-decade experience in venture lending and our long-term track record. Given the unprecedented developments at both Silicon Valley Bank and Signature Bank last quarter, and extending right into this quarter at First Republic Bank, there are significant and lasting impacts from these events. And we expect these developments will continue to have a monumental effect on our market. The demise of Silicon Valley Bank was a very unfortunate situation from an institutional and a human perspective. From a market perspective, it is turning into a major game changer that has significantly and potentially permanently altered the competitive landscape for venture lending, translating into what we believe are increased and growing opportunities for the overall triple point capital platform to capitalize over the long term, including a very promising long term outlook for TPVG. While some banks are in the process of stepping in to fill the void created by SCB, their focus has been on traditional bank services, such as depository, credit card, investment management, and other services. In terms of venture lending, given this emerging post-SCB environment, bank appetites have changed and we have witnessed considerable tightening. As we've discussed in the past, This is a highly specialized business, and venture lending has significant barriers to entry. To date, we really haven't seen any of these other banks, or for that matter, any other participants enter the venture lending market in a meaningful way. Based on conversations with our venture capital partners, portfolio companies, and active prospects that are in the pipeline, now more than ever, They recognize the importance of separating the commercial bank and the lending relationship, as well as becoming more conscious of the hidden costs, limitations, and the associated drawbacks of bank lending. This has further demonstrated the value of the triple point financing relationship and the role and importance of our venture lending as part of these companies' overall financing strategies. The departure of SEB has also resulted in increased deal flow and has contributed to our building TriplePoint platform, which also includes providing newer replacement loans previously received from banks. At the platform level, we have a number of high-quality lending opportunities to companies backed by our select venture partners where we are or will be replacing a major market participant who's no longer active or as active and where we're becoming the new source for lending. The pipeline is continuing to build, as these are not overnight situations, and will continue to be part of our portfolio growth and build out over the next few quarters and well into the future years. Turning to the current venture markets during the first quarter, we've continued to see lower venture capital investment activity quarter over quarter. driven by no surprise, primarily by the tightening monetary policy and the downturn in public company multiples and valuations. We're in a cycle. We're in a period of valuation resets for venture growth stage companies. Given this market backdrop, however, based on conversations with some of our venture capital partners, there's already early signs and a very widespread belief that investment momentum will pick up later this year and into 2024, especially given the $300 billion of PitchBook and VCA's estimated dry powder that venture capital funds still have at their disposal. Although VCs continue to focus on existing companies and tell us they're continuing to wait out this market volatility, there's now a growing and strong sense among them forecasting better times ahead. With that said, across our sponsors' platform, We are finding new pockets of venture capital investment activity starting to pop up and witnessing investment appetite starting to increase in tech investing. And it's not only in such fields as generative AI, but in several other sectors as well. We continue to find that deals are still getting done. It's simply been taking longer and a slower pace. Within the pipeline, we also continue to have demand for venture lending from companies planning out their timetables and also encompassing debt in their financing strategies and capitalization plans. Some of these companies are seeking financing for opportunistic acquisitions or previously equity-only companies which are continuing to turn towards debt and layering in as part of their go-forward plans. Venture growth stage companies that raised equity over the last year or so at attractive valuations continue to turn towards venture debt, given the valuation-sensitive markets. And finally, the longer timelines for public listings and the need for additional runway between equity rounds have been serving as another driver. Having stated all these opportunities, however, TPVG is going to continue to remain selective. as we concentrate on opportunistically ourselves investing in what we believe to be the highest quality venture growth stage companies. Consistent with our approach, we will focus on companies that have recently raised capital, have meaningful revenue scale, and whose plans in the next one to two years will position them to perform well in this volatile economic environment and under these current challenges. Despite the macroeconomic environment, inflationary concerns, and the broader economy, a number of TPVG portfolio companies continue to grow, with some experiencing tailwinds or achieving profitability. We're pretty optimistic on the outlook for many of these diverse investments that we funded in 2022 and the portfolio benefits from investments in these sectors as diversified as network detection, Frontier Tech Space, Enterprise Vertical Software, FinTech, Next Generation Sports Digital Media, and others to name a few. To wrap up, the exit of SVB during the end of March will have significant and lasting impacts on the market over the long term and create multi-year opportunities. We had these opportunities already underway for us in the wake of the SVB development to the widespread belief that investment momentum will pick up later this year and into 2024, and along with our select venture capital partners, forecast better times ahead. Based on our track record of working with these select venture capital partners and our success in investing approximately 10 billion of venture loans at the TriplePoint platform level, we will continue to draw on our differentiated platform and our experienced team to maintain the quality of our investment portfolio, as well as to capitalize on these developments in a disciplined fashion over the long term to create sustainable shareholder value. With that, I'll turn the call now over to Sajal.

Thank you, Jim, and good afternoon. As Jim discussed, we continue to remain active in the venture lending market at our platform, Triple Point Capital, and maintain our extremely selective and focused approach with 199 million of signed term sheets with venture growth stage companies in Q1. Given TPVG's leveraged position, we are selectively allocating new commitments to TPVG, with the majority going to other vehicles on the TripleCoin Capital platform. And as a result, for the first quarter, closed debt commitments at TPVG totaled 4 million. During the first quarter, we funded 57.6 million in debt investments to 11 portfolio companies, landing at the lower end of our guided range for the quarter, which carried an adjusted weighted average annualized portfolio yield of 14.1% at origination. Of the obligors funded during the quarter, roughly half generate annualized revenues in excess of $100 million, reflecting the increased size and scale of our portfolio companies. Our core weighted average portfolio yield for Q1 was 14.7%, which was up from 14.2% in Q4, and represented our eighth consecutive quarterly increase. Our Q1 portfolio yield does not yet reflect the two 25 basis point rate increases announced in February and March, which will more meaningfully impact portfolio yields starting in Q2. As a result, we are optimistic for another quarter of increased portfolio yield and for portfolio yield to continue to stay strong in 2023, given the rate environment. Although we didn't have any prepayments in Q1, they continue to be a part of the business, and we still expect at least one to two customer prepayments per quarter, with one previously announced prepayment expectation of $430 million loan in conjunction with closing their take private transaction in addition to others in the works. In terms of our expectations for fundings in Q2, with our reduced allocation of new commitments to TPVG, and low utilization of existing unfunded commitments, our forecast for gross investment fundings is in the range of 25 to 75 million for the second quarter, down from our prior guidance of 50 to 100 million, with the potential to grow as we increase our allocation of new commitment to TPVG. During the quarter, we made continued progress on diversifying the TPVG portfolio by increasing the number of funded borrowers to 59 as compared to 48 one year ago. In addition, our top 10 obligors represent 32% of our total debt investments as compared to 40% one year ago. While not typical for venture growth stage companies, more than half of our top 10 obligors are either EBITDA positive or are projected to achieve EBITDA. We continue to see equity fundraising activity in our portfolio despite the challenging environment. although at lower levels in Q1, which we believe was also impacted by events associated with the venture banking market during the quarter. In Q1, seven portfolio companies raised approximately $64 million of capital. This brings the total to 32 portfolio companies raising over $1.6 billion of capital in the past year. We expect to see fundraising activity gradually pick up within our portfolio quarter over quarter over the course of the year. Our equity and warrant portfolio grew as well, with 155 warrant and equity investments as of Q123, as compared to 128 investments as of one year ago. As of March 31st, we held warrants in 107 companies, up from 86 companies as of Q122, and held equity investments in 48 companies, up from 42 companies as of Q122, with a total cost and fair value of $71 million and $93 million, respectively. During the quarter, we saw a reduction in the fair value of our worn and equity positions, reflecting market conditions, as well as down rounds in some cases, despite strong underlying performance from many of our portfolio companies. It's important to note that we continue to have numerous companies that are growing and expanding and executing according to, in many cases, ahead of plan, as well as achieving EBITDA, particularly those companies in the fintech, software, enterprise, and travel segments, which is why we continue to expect our cumulative warranted equity investments to generate realized gains in excess of our cumulative realized losses over the long term. In terms of outlook for the portfolio and credit quality, given the environment for direct equity fundraising, the playbook for most of our portfolio companies is to continue to grow, but to do so thoughtfully while optimizing their cash burn rates to extend their runway to either achieve profitability or for a future equity rate. With this background, as of the end of the quarter, approximately 84% of our portfolio is ranked at our two best credit scores, which means that they are performing at or above expectations despite market conditions, and we upgraded one company from category two to category one with a principal balance of 15 million. As Jim mentioned, credit was impacted during the quarter due to conditions in the equity fundraising market, which we believe were also impacted by events in the venture banking market. We downgraded Demand, also known as Luco, an insurtech company with a principal balance of $17 million from Category 2 to Category 3, due to delays in its strategic financing process. We also downgraded Renorun, a construction technology and logistics company, with principal balance of $3 million from category two to category three. Renner Run has filed for creditor protection in Canada to facilitate a sale or liquidation process, and we look to our recovery on our loan, both from their cash on hand and other potential asset sales, including the entire enterprise and asset, and IP, sorry. Underground Enterprises, an e-commerce retail with principal balance of $6 million, was downgraded from Category 2 to Category 3 and is filed for Chapter 7 Bankruptcy Protection. We provided an inventory-based financing facility to the company and looked to recovery on our loan from the underlying inventory, as well as other potential asset sales, including the entire enterprise and IP. PayFavor, also known as Pill Club, an online pharmacy with a principal balance of $20 million, filed for Chapter 11 Bankruptcy Protection with the intent to continue operations and potentially reorganize as a standalone enterprise or sell to another company. This is an ongoing situation, and we expect more developments to occur in the near term that could result in substantial or full recovery of our loan. Also during the quarter, VanMoof, an eBuy company with a principal balance of $23 million, and HealthIQ, an insurtech company with a principal balance of $25 million, which were both previously rated 3, were downgraded to Category 4 as they continue to navigate through challenges in their sectors and businesses, as well as developments in their strategic financing processes. We are in a challenging period of time for venture capital investing and for public technology companies that expect some obligors to experience stress. As we have demonstrated before, our teams have effectively managed through these situations. As a reminder, since TPBG's inception now 10 years ago, our cumulative net loss rate remains under 3% of cumulative commitments, or 32 basis points per annum, and 2% of fundings, or 22 basis points per annum. In closing, we remain focused on all aspects of our business and 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 now turn the call over to Chris.