TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen. Welcome to the Triple Point Venture Growth BDC Corp. Third Quarter 2023 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star and zero. 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 the 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 third quarter of 2023. Today representing the company is Jim Labbe, 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. Labbe, 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're 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. Labbe. Please go ahead, sir.

Good afternoon, everyone, and welcome to TPVG's third quarter earnings call. Turning to the results for the quarter, our focus continued to be on the priorities we believe will enable us to navigate through the current challenging markets. Specifically, our focus is maintaining our earnings power and our strong liquidity, managing the portfolio, and positioning TPVG for the future. Regarding our earnings power, TPVG generated net investment income, or NII, of 19.1 million during the quarter, or 54 cents per share. We once again over-earned the regular quarterly distribution of 40 cents per share. Since our IPO, we have provided shareholders cumulative distributions of $14.65 per share. And our focus remains on producing NII that covers the distribution over the long term. As of quarter's end, we have an estimated $3 per share of spillover income. TPVG also achieved a weighted average portfolio yield for the third quarter of 15.1%, benefiting from both prepayment income as well as the favorable interest rate increase during May and July. We ended the quarter with increased liquidity as we experienced both higher repayment activity and successfully reduced unfunded commitments. TPVG liquidity now exceeds unfunded commitments and provides us with the capacity to capitalize on new investment opportunities heading into 2024. As we've shared for the last several quarters, venture capital markets remain challenging given the backdrop of macroeconomic uncertainties restricted monetary policies, inflationary, supply chain, geopolitical, and other issues. According to the NVCA, National Venture Capital Association Pitch Book Third Quarter data, overall venture capital investment activity decreased relative to the prior quarter, amounting to the lowest quarterly total in the past six years. These numbers are well below the highs we experienced in the 21 and 22 periods. They're more comparable to activity levels in the 2018 through 2020 periods. Having said that, and relevant to TPVG, aggregate investment into late stage and venture growth stage companies was actually up quarter over quarter, some $25 billion versus $21.6 billion, according to PitchBook. This activity included a very prominent transaction, Amazon's $4 billion investment into Anthropic. Pitch also points out a pickup and exit activity, 35.8 billion in the third quarter versus only 6.6 billion in the second quarter. This includes a number of IPOs featuring venture and PE-backed companies, Arm, Klaviyo, and Instacart. These transactions were sizable and created significant exit opportunities. While we expect conditions to remain the same as we close out 2023, we do see glimmers and are witnessing a pickup in the venture capital investment momentum. There's some early signs which point to the potential for a more active investment outlook for 2024 in venture capital and in venture lending. This includes recent conversations we've had with VCs in the last few weeks, citing investment activity within their funds on a gradual rise, and the general sentiment among many investors and entrepreneurs, which seems to be the expectation that next year will be a more active year for investing. This is further supported by the significant amount of capital raised by venture funds in the last two years that has been sitting on the sidelines waiting to be deployed. We believe that a more robust return to growth in the VC market, however, will not materialize until public market multiples stabilize. The overall investor sentiment continues on its path to improve, and investors begin to actively deploy their dry powder. There is a new market reality in venture that is emerging, one with a more conservative investment approach. For the deals getting done in today's market, the operational investment principles have changed. The emphasis is now on managing cash burn and demonstrating a projected path to profitability, as opposed to the guiding principle just two or three years ago, where venture investors sought growth at all costs. While we don't expect any overnight changes, as I will get into, we continue to find pockets of opportunity for new growth stage investments reflecting this new market reality. and we expect to be able to increase our allocation of investments to TPVG in the quarters ahead. Turning to the portfolio and credit quality, as Saja will cover in more detail, during the quarter, our teams brought some existing credit situations to conclusion, continued to proactively work through others, and managed smaller dollar-sized ones which developed during the quarter. Our teams remain closely engaged with our stress portfolio companies in this environment. There were some notable developments in the quarter. In a significant transaction, our portfolio company Metropolis announced an agreement to acquire publicly traded SP Plus for $1.5 billion. TempestX Machina, whose proprietary video and data sync technology serves as an operating system for sports, rebranded as Infinite Athlete, and acquired Injury Analytics from BioCorp. Portfolio companies such as Corelight, Ernin, Flash, Calderas, Overtime, Monzo, and others continue to make notable progress in achieving their plans, and they're well positioned in this challenging environment. Another priority is remaining focused on TPVG's long-term positioning and leadership in the venture lending market. in the wake of the Silicon Valley bank crisis earlier this year. Heading into next year, we are both setting the groundwork to be ready when market conditions improve, and there is a broader and sustained recovery in overall venture capital activity. This includes continued diversification and sector rotation investments for TPVG in fields such as artificial intelligence, enterprise SaaS, transformative technologies, robotics, health tech, and other sectors. This includes preferences for companies with attributes such as recently raised fresh capital, having long cash runways, having backing from our select venture investors, prudent management teams, and whose business models have proven unit economics and high retention rates. Or even those companies with strong customer bases generally with large enterprise customers. We'll also continue to evaluate hold sizes, debt to equity coverage, and other key metrics in these investment opportunities. In summary, while we expect conditions to remain the same as we close out 2023, and while sites are set on our portfolio and maintaining credit quality, we are preparing for the future. Given our existing scale and strong portfolio yield, we expect to continue to deliver strong investment income while positioning the company to further benefit when these markets improve. This includes building on our strong liquidity position and maintaining the financial strength of TPVG, returning to our targeted balance sheet leverage range, capitalizing on the change in the competitive landscape, and building our pipeline of lending opportunities from our select sponsors. adding new borrowers to our portfolio with the goal of further diversifying the portfolio, maintaining a strong yield profile, continuing to over-earn our dividend, and stabilizing net asset value and growing it over time. I'll wrap up these remarks with the same message that has sustained TriplePoint throughout many years and many market cycles. Venture lending is about investing for the long term. and we'll continue to focus on the priorities we've discussed here, as well as the core tenants of TriplePoint philosophy, relationships, reputation, references and returns, in order to continue to capitalize on market opportunities over the long term. With that, let me call the turn over to, call over to Sajal.

Thank you, Jim, and good afternoon. During the third quarter, Turtle Point Capital, our global investment platform and the advisor to TPVG, signed 58 million of term sheets with venture growth stage companies compared to 114 million of term sheets in Q2, which continues to reflect our approach to originations across our platform in light of current market conditions. With regards to new investment allocation to TPVG during the quarter, Given both current market conditions and TPVG's elevated leverage ratio, we allocated a prudent $5.6 million in new commitments with three companies to TPVG. This included one new portfolio company, K-Health, a company backed by primary venture partners, Lehrer Ventures, Cedars-Sinai Hospital, and other investors, which provides patients remote access to healthcare services through their smartphones using AI technology. During the third quarter, TBVG funded $12.7 million in debt investments to five portfolio companies. This funding level came in below our guided range for the quarter, reflecting a lower utilization of expiring unfunded commitments and continued disciplined use of debt capital by our portfolio companies. These funded investments carried a weighted average annualized portfolio yield of 14.2% at origination. Of the 12.7 million funded during the quarter, 7.1 million was related to existing unfunded commitments, and the remaining 5.6 million was from new commitments made during the quarter. As we look to the fourth quarter, we continue to expect fundings in the 25 to 50 million range and are off to a good start with 10 million funded so far. During Q3, we made significant progress, boosting our liquidity, reducing our net leverage ratio, and reducing our unfunded commitments. In fact, as of today, our total liquidity is almost double our unfunded commitments, enhancing our investment capacity as market conditions improve. During Q3, our 37.3 million of loan prepayments helped increase our weighted average annualized portfolio yield on total debt investments to 15.1% for the quarter. Excluding prepayment-related income, core portfolio yield was 14.1%. We expect the increase in the prime rate in Q3 to benefit our core investment yield here in Q4 and into 2024. We are expecting lower levels of loan prepayments in the fourth quarter and expect our $28 million loan with Metropolis to prepay upon completion of its announced transaction, likely in the second half of 2024. At the end of Q3, our debt investment portfolio company count was 54, representing 19 different subsectors, and our top 10 portfolio companies represented 37% of our total debt investments at cost. We also held 183 warrant and equity investments in 115 companies, with a total cost and fair value of $72.6 million and $87.3 million, respectively. In Q3, Three of our portfolio companies with outstanding debt raised $47 million of capital, bringing our total to 16 portfolio companies with outstanding debt, raising $437 million of capital year-to-date. This level of activity reflects both the challenging fundraising environment as well as the seasonally lower activity associated with the third quarter. As we look to the fourth quarter, we are pleased to see fundraising activity within our portfolio picking up with several portfolio companies making progress towards raising rounds here in Q4 and in Q1 2024, with one portfolio company already raising 26 million of capital and another portfolio expecting to close 30 million of capital imminently. We believe this activity early in the quarter, especially considering market conditions, is a positive reflection on the outlook for our portfolio companies and bodes well for credit quality going into 2024. With regards to credit quality, during the quarter we upgraded Metropolis with a principal balance of $27.7 million from Category 2 to Category 1 and removed ForgeRock from Category 1 as a result of its $30 million loan prepayment. We received $1.9 million of proceeds from the liquidation of Rent-a-Run, reducing our exposure to $400,000. We expect Rent-a-Run to remain a Category 3 asset until we are paid off in full, which is expected to occur in 2024 and will represent 100% recovery. During the third quarter, certain of our e-commerce and consumer portfolio companies experienced continued challenges as they managed through ongoing market and sector specific issues, including negative consumer sentiment, increasing customer acquisition costs, lower than expected revenue during the summer, higher than normal levels of inventory, and continued impact of inflation on their cost of goods sold, in addition to developments in their runway extension efforts, paths to profitability, and strategic efforts. During the quarter, we downgraded the credit ratings of three e-commerce and consumer companies from Category 2 to Category 3 due to these developments in the quarter, Dia Styling, Outdoor Voices, and Naked One World, with a combined total principal balance of $19.4 million and a combined total failure value of 19.7 million for the three companies as of Q3. We also downgraded the credit rating of two e-commerce and consumer companies from category three to category four, also due to these developments in the quarter. Project 1920, which operates as Senrev, and Mystery Tackle Box, which also operates as Catchco, with a combined total principal balance of nine million and a combined total fair value of 7.6 million for the two companies as of Q3. Given the upcoming holiday season, Q4 is generally an important quarter for retail, e-commerce, and consumer companies, and we believe some of our category three and four companies could see a boost if they close out the year with a strong quarter, which could potentially put them in better positions for 2024. Untitled Labs, which operated under the name Made Renovations, with a loan fare value of 2.7 million as of Q3, was downgraded from Category 4 to Category 5. After a pivot in the business and unsuccessful financing and strategic efforts, the company announced in October that it was closing its business and selling off certain of its assets. Our Q3 mark represents our expected recovery amount from that process. Health IQ, with a loan fare value of $7.2 million as of Q2, was removed from Category 5 in Q3 as a result of its bankruptcy filings. As mentioned in prior quarters, we had downgraded the company due to ongoing challenges with the company's execution and prior failed capital raising and strategic efforts. As we mentioned during last quarter's call, we had expected to enter into an extended restructuring and recovery process with the company and its key stakeholders, and we were disappointed to see in Q3 that the parties could not come to agreement on that plan, and ultimately a bankruptcy and full liquidation process was pursued instead. And as a result, we have written off our entire position to put the situation behind us. During the quarter, we also adjusted the fair values for two Category 5 loans in the process of sale or liquidation, demand and underground enterprises based on updated recovery estimates. On a more positive note, during the quarter, e-bike portfolio company VanMoof, a Category 5 loan, was acquired by Lavoie, the electric scooter unit of Formula One engineering and technology firm McLaren Applied. We're looking forward to working with their chairman, Nick Fry, the former CEO of the Mercedes Formula One team, and their UK-based private equity sponsor, Grable Capital, for the next phase of VanMoof's journey and our recovery. We are currently in the process of closing the transaction, and our scheduled investments will reflect our revised securities, as well as any revised recovery estimates for the combined companies at year end. TPBG's recovery will include a combination of debt and equity in Lavoie as well as continued security positions in the assets of VanMoof, not otherwise acquired by Lavoie, that we intend to liquidate over the coming quarters. We believe the continued stress in certain assets during the quarter and the year are directly related to the ongoing challenging conditions in the venture capital equity fundraising market and in the M&A market for both public and private companies, as well as certain sector-specific circumstances related to the overall macroeconomic environment. While we expect market conditions to remain the same here in Q4 and as 2024 starts, we have seen many of our portfolio companies over the past couple of quarters respond and adapt favorably to this new market reality, as I will describe shortly, And from what we currently can see, we believe are building momentum to succeed in 2024 and beyond. Our portfolio companies have now had almost a year to adjust to managing growth and driving in economics with reasonable paths to profitability, lowering burn rates, and having realistic expectations for raising additional capital. A number of companies are also seeing strong revenue and margin tailwinds in their businesses, having achieved profitability or having significant cash runway to achieve profitability. As we look to 2024, we currently believe we will see new credit stress events decline and that we will begin to see potential positive developments and outcomes from our portfolio companies due to their adaptation, execution, and performance despite market conditions. Nevertheless, we will continue to remain proactive and diligent as we navigate these conditions and manage our portfolio. In summary, as Jim said, we are focused on maintaining the financial strength and liquidity position of TPVG, remaining in frequent contact with our portfolio companies, stabilizing credit quality, and preparing for returning to portfolio growth in 2024. Given our existing scale and strong portfolio yield, we expect to continue to deliver strong investment income while positioning the company to further benefit when markets improve. With that, I will now turn the call over to Chris.