Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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 Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer. Before I turn the call over to Mr. Labe, 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. 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 update 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. Labe. 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 $0.54 per share. We once again overearned the regular quarterly distribution of $0.40 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 $1.03 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 PitchBook third quarter data, overall venture capital investment activity decreased relative to the prior quarter, amounting to the lowest quarterly total in the past 6 years. These numbers are well below the highs we experienced in the '21 and '22 period. They're more comparable to activity levels in the 2018 through 2020 period. Having said that, and relevant…

Thank you, Jim, and good afternoon. During the third quarter, TriplePoint Capital, our global investment platform and the adviser 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 3 companies to TPVG. This included 1 new portfolio company, Kay Health, a company backed by Primary Venture Partners, Lee Ventures, Cedar Sinai Hospital and other investors, which provides patients remote access to health care services through their smartphones using AI technology. During the third quarter, TPVG funded $12.7 million in debt investments to 5 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% in 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 million 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…

Thank you, Sajal, and hello, everyone. During the third quarter, we generated substantial core interest income from our high-yielding diversified loan portfolio, while successfully reducing our balance sheet leverage on a net basis. We increased our liquidity position in the quarter through the modest use of the ATM program, loan prepayments and reduction in unfunded loan commitments. The reduction in unfunded loan commitments was accomplished through commitment expirations and fundings in excess of new commitments. Total investment income was $35.7 million as compared to $29.7 million for the third quarter of 2022. This increase of 20% was due to growth in the average portfolio size as well as higher investment yields. Our portfolio yield was 15.1% on total debt investments this quarter as compared to 13.8% for the prior year period. Onboarding yields continue to be strong and stable. Operating expenses were $16.6 million as compared to $12.8 million for the third quarter of 2022. These expenses consisted of $9.3 million of interest expense, $4.6 million of management fees and $2.7 million of G&A expenses. We recorded elevated legal expenses of $550,000 and higher excise tax expense of $325,000 compared to the prior quarter due to the sizable increase in spillover income estimated for the full year. With the shareholder-friendly total return requirement under our incentive fee structure, the incentive fee expense was reduced by $3.8 million during the third quarter and $11.3 million for the 9 months ended September 30. We ended -- we earned net investment income of $19.1 million or $0.54 per share compared to $16.9 million or $0.51 per share in the same period in 2022. The company recognized net realized losses on investments of $25.6 million, resulting primarily from the write-off of HiQ, which was rated 5 on our watch list and its removal from…

[Operator Instructions]. And our first question comes from Finian O'Shea with Wells Fargo. Finian O’Shea: First question on the e-commerce sector downgrades. Sajal, you gave some color on that. Was part of it related to a pullback in venture capital commitments to this sector? And if so, how does that translate to your portfolio that you downgraded? Is there a visible fundraising issue you see for these companies?

Yes, thanks for the question. So again, I think the downgrade was not to all of our e-commerce and consumer portfolio companies. This is a sector where we've had some great success as a platform and for TPVG historically. This is really specific to a certain set of portfolio companies were going to be mentioned, were particularly during the summer, saw some negative sentiment. Interesting enough, the strong weather or the favorable weather impacted a number of these portfolio companies as well. And so that plus, again, negative consumer sentiment changes that we saw over the course of the year from folks like Apple, Google and Facebook on their search algorithms and the level of information that they share, increasing customer acquisition costs. So again, I'd say specific to certain elements of the sector and to specific companies, I'd say with regards to venture financing, it's mixed. We are seeing and we have seen of the portfolio companies that have raised capital this year, a number of them are in e-commerce and consumer companies. I would say, again, we're -- it's a balanced approach to the sector and doesn't change our overall outlook to e-commerce and consumer. Finian O’Shea: That's helpful. And just a follow-up on the dividend. Jim mentioned you would like to continue to overearn the dividend, but of course, there's a bit of deleveraging, and you'll have the incentive fee turn back on. Where do you see the sort of run rate of your earnings power as the BDC portfolio, et cetera, settle following this deleveraging exercise? And what does that mean for the 40% -- sorry, $0.40 payout you have currently?

Yes. Fin, good question. I think we have done some analysis on that and thinking about the impact on the overall coverage. Given the strength right now of the consistent coverage we've had, even if we bring back the incentive fee once the NAV stabilizes, we still see $0.40 as a solid number going forward, given the fully scaled up portfolio and the yields that are being generated and the level of fixed rate leverage we have, we think it bodes well for long-term coverage. Right now as far as maintaining that dividend, that's the strategy given the higher leverage ratio, it doesn't make sense right now to start looking at increasing dividend, but rather maintain the NAV.

Our next question comes from Crispin Love with Piper Sandler.

First off, on the HiQ write-off in the quarter, are there any expectations there for any potential recoveries on that loan? And then just on that loan as well, what was the total write-off and the incremental amount in the third quarter that wasn't already unrealized previously?

Sure. I'll start with the business update and then, Chris, if you can give the numbers. So I would say, Chris, no, we're not expecting any additional recovery. Again, we wanted to get this one past us and move on. So we wrote off the full amount of our loan.

And the total realized loss was $25 million, and there was about $7 million in the current quarter that impacted NAV. It's not $25 million plus $7 million. So $7 million of $25 million was in the current quarter and the rest had already previously been an unrealized loss or unrealized depreciation in prior periods.

Okay. Okay. That makes sense. And then just a broader question on the industry and the competitive environment. I'm curious if you could just talk about how the competitive environment has shifted recently or I guess, over the last few quarters since the bank turmoil earlier this year? Are you seeing any recent activity from banks getting involved or a pickup from private lenders or just -- or any others in the space where that's impacting the competitive landscape there?

Yes, I would say, if anything, we continue to see pullback of the nontypical nontraditional non-long-term participants in the market. And then I would add, overall, as you've seen just from most of us reporting that I'd say deal volume has slowed down. And so I wouldn't say anyone is taking necessarily more market share or the competitive dynamic, particularly on the tech side, has materially changed.

The next question comes from Christopher Nolan with Ladenburg Thalmann.

Given your comments on the leverage, should we assume that the cash levels remain at elevated levels in the fourth quarter?

Yes.

And then Jim can comment a -- and then the comments in terms of maintaining the NAV rather than increasing the dividend, should we read into that higher excise taxes going forward?

Yes. Yes. So we had an additional accrual of about $325,000 this quarter to do, I'll call it, catch-up given that we were over earning consistently so far this year. So we should expect a higher level of excise tax through the end of the year.

And final question. A while ago, I believe the Journal had an article talking about how the SEC was looking possibly at applying a fiduciary standard to venture capital investments where it would effectively raise the bar in terms of the responsibility of the venture capital investor in new companies. And I don't know whether or not you heard of anything like that and if you have, if you have any comments on it?

I have not -- just looking around the table, not heard about or look too deeply. I would only comment, Chris, that given the fact that we work with a very select group of venture capital investors whom we've had long-standing relationships, they're generally very active investors in their portfolio companies as well. And so with their board seats with their involvement and with their strong opinions. So I would say, well, I guess, generally, it could be viewed as a good thing. I would say our investors are already pretty active with our portfolio -- or their portfolio companies in general.

The next question comes from Vilas Abraham with UBS.

Just on the nature of the repayments that you received in the quarter, the prepayments there as high as they've been in a couple of quarters. Is any of that pull forward from what you may have expected in Q4?

No, not really. So ForgeRock was the largest that we had indicated we expected a prepayment, and that's the lion's share of the prepayment that occurred this quarter, and that was not pulled from, say, a Q4 event.

Okay. And then as we think about deleveraging starting the beginning of next year, is that just really going to be a function here of what prepayments look like in the first half?

Yes. You think it's a combination of contractual repayments, just the normal aging of the portfolio and the schedule of the principal that comes through. We have a couple of loans that are also maturing in the first half of the year. And usually, we see 1 or 2 loans prepay each quarter. So even if it's a more muted prepayment environment, we still expect to see some of that. So it's a combination of all of that.

All right. And one on expenses. It looks like G&A was up a little bit here. And in Q3, I think you said something about $500,000 in legal expenses, I think, is a part of that. Is that the main item that is going to potentially come out here in Q4?

Correct. Yes. So the elevated level of legal will not likely be that high and excise tax could be similar as I think Chris had mentioned earlier.

Okay. Got it. And then just maybe a bigger picture question. You guys mentioned investment activity picking up here a bit. And I'm just curious, do you think that's a function of the VC investors being very comfortable with where valuations are and the kind of opportunities there, they're seeing now? Or is it more a function of they have to do something with the dry powder that they have had for a little while now? And if it is the latter, what do you think that means for the quality of the deals that we may see over the next 12 to 18 months?

Yes, I can handle that. I can speak only in terms of the select investors, the smaller universe of what we consider to be the top venture investors that we deal with and it is absolutely not the latter. There is not -- they are -- investments are not driven by the pressure to deploy. That's certainly in the background, but it's the opportunities that are emerging in what we're calling the new market realities here today, particularly at the very early stages, which is a little less focus of TPVG, but in many sectors, and there's just many opportunities particularly now that there's been a shift. And as I mentioned, it's more the path to profitability for these new companies, managing cash burn as opposed to several years ago where it was growth. We're pretty excited or at least they are in terms of the opportunities here in the future.

The next question comes from Ryan Lynch with KBW.

First question I had was, you mentioned on this call and in the past, your guys' focus is working with really a select group of what you would call kind of top-tier VC sponsors to source your investments. Given the credit issues that you guys have experienced in this most recent venture sort of down cycle, have you guys put any consideration to modify that strategy and maybe branch out to a wider group of VC sponsors versus focusing on what you guys would call a more selected top tier or top -- kind of top group but much more curated group?

Yes, Ryan. So a very interesting question. Listen, I think, again, from our perspective, we look to our long-term track record. So obviously, we're looking to our relationships and our interactions with these funds and our portfolio companies over multiple years, multiple cycles. And so again, I'd say our track record continues to be strong over the 10-year time period since TPVG's inception. Having said that, we always review and evaluate the selected inter capital funds that we work with based on our interactions with them, our performance with them, their position in the market, their track record. So it's not a fixed list forever, right? It's a living, breathing list that benefits from experienced track record. And so I would say it's fundamentally a combination of both. So yes, it has the folks that we have deep relationships with, but it also adjust and correct based on performance and experience and it also deals with the realities of changes in the venture capital landscape.

Okay. Understood. And then I believe, and correct me if I'm wrong, I believe you said that as we move into 2024, you expect credit stress effect to decline in your portfolio. I'm just curious, I guess, what are the assumptions that you guys are using to give you confidence in that statement? Is there any sort of macro changes that would need to occur in order for you to continue to have that sentiment? Or what sort of gives you that confidence in that? Because it seems like right now, based on the current VC trends, unless there's going to be a big shift in sort of recovery in the VC marketplaces, whether it's fundraising or investment or exit opportunities, it feels like it could last well into 2024. So I'd just love to have you unpack that statement a little bit more?

Yes. Yes, absolutely. So again, I think I covered it a fair amount of it in our prepared remarks. But I would say, again, we're not expecting overall market conditions to change materially here in Q4 and then early into 2024, right? The VC market is not going to kind of flip the other direction overnight. But what we're seeing, right, is that our portfolio companies now have -- have had almost a year to deal with the realities of this economic environment and the change in the venture capital environment to understand what the new standards and the new metrics for success are in the venture capital ecosystem not only from an operational perspective but also from a fundraising perspective. We talked about managing that balance between hyper growth and burn at all cost. We talked about driving solid unit economics, either having a path to profitability, being profitable or convincing investors how you can with an incremental financing. So I would say it's not the market recovery that we're banking on or that we're optimistic as we look to 2024. Candidly, it's the hard work of our entrepreneurs and our portfolio companies of adapting and changing and surviving and making it through. And so clearly, we've had some portfolio companies that weren't successful in pivoting and adjusting to the environment changes, and that explains the stress that we've seen. But we also have roughly 90%, right, that's sitting in our top 2 categories where they've responded and they -- not all of them are that have success in 2024, but I'd say we feel, again, we're coming to the end, given the adapting and the adjustment. But again, conditions can change, execution. These are start-up companies that can make mistakes, and so things could change. But at least as we look today, we look at the response, we look at the game plan, we look at the cash runway of the portfolio companies. And then the last piece is the fundraising activity even in this environment that our portfolio companies here in Q4 and Q1 that are on track for, again, I think it's small amount of light at the end of the tunnel. We're not saying it's over, but some positive data points for us as we go into '24.

The next question comes from Casey Alexander with Compass Point.

Just a couple of questions. Chris, you said you pulled cash down from the credit facility at the end of the quarter to meet some regulatory hurdles. Could you tell me how much that was? Because I just -- I'm trying to get to a more normalized leverage ratio at the end of the quarter as opposed to the reported 1.62x.

Yes. So I would say the -- that is a quarterly event that you would expect to see for at least the next 2 or 3 quarters, but that's not the average cash outstanding. So if you're trying to calculate weighted average debt outstanding for interest expense. So there are a number of quarterly tests that all BDCs have. And I would say there's at least a handful that do the same approach that we're doing where they have a larger gross asset. And some people use it through swaps or treasury bills. We found that it's most efficient to use the existing credit facility we have to gross up the balance sheet. But to answer, I guess, most direct, you should expect for at least another 2 or 3 quarters that the cash balance would be elevated. So kind of gross net leverage would be kind of consistent with what you're seeing for this quarter.

Okay. Secondly, you mentioned in response to a previous question that there's a couple of companies that where your loans are maturing in the first part of next year. And by your inhibition, you don't expect the environment to change. How confident are you -- there's nothing more binary than the maturity date of a term loan. How confident are you that those companies have a financing or some type of an event that creates the conditions that will allow them to make timely repayment on those loans.

Yes. Casey, this is Sage. I'll take it. So I would say to the extent that there was concern, those companies would be on our credit watch list today, we wouldn't wait for the future event. But I would say, again, and Chris, you can correct me wrong. I mean I think a fair amount of that is natural amortization that's coming. So these aren't necessarily bullet payments of the few companies that may or may not have a bullet payment in Q1 or Q2, I think it's on a case-by-case basis. But I would just say, as we look to Q1, it's -- sorry, Q4 and Q1, it's mostly natural amortization.

Meaning monthly principal payments as opposed to a lump sum final maturity.

And then I would say, just generally speaking, when it comes to extensions, it's on a fact and circumstance basis of extending maturity dates depending on the credit situation and credit rating and cash runway the company.

Okay. Great. Now when I look at this quarter's activity with $20 million of scheduled principal amortization, that seems like a high amount, were there's some bullet payments in there?

We take a look, I think during the quarter -- I mean, it was $70 million of the cash we had, we had $30 million of, $30 million to $40 million of prepays, right, Chris. We had repaid on revolvers. Again, is another component of the cash that we saw. And then portfolio amortization. I don't know if you had the detail...

Right. I'm looking at the $20 million specifically stated as scheduled principal amortization. And that seems like a large amount. So I'm trying to understand if there was any bullet maturities in that as to -- there was...

There was one representing $12 million.

Our next question comes from Brian McCann [ph] with JMP Securities.

So I appreciate the outlook commentary heading into next year. But if 2024 doesn't play out as expected and the recovery across the industry has pushed out even further. What's the expectation for portfolio performance, specifically as it relates to nonaccruals and just underlying credit quality? And then what might that mean for the trajectory of leverage?

Yes. unfortunate again, with a crystal ball, I don't want to be joking here. Obviously, we take it quarter-to-quarter, we take in fact in circumstances. And I would say the good news is as we look to our higher-rated credit score companies that have significant amount of cash runway to make it through 2024 and beyond. So I would say that's one element. I'd say the second -- so existing cash runway continues to be strong for our top 2 rated credit watch list companies. I'd say the second element is despite the depressed market, again, as we talked about, our portfolio companies are raising new rounds of financing with one already here in Q4 of $30 million, a second one happening imminently and more underway. So I think, again, we feel our remaining our top 2 rated portfolio companies are attracting follow-on capital they have earlier this year. We believe that they're doing so here in Q4 and Q1. And then I do think, again, it's -- we're seeing sectors that continue to attract strategic interest equity interest. I don't want to say AI, for example, everything and anything with Aon and get funded are acquired today. So I'd say that's a more balanced outlook. I can't really comment on 2024 other than, yes, if our goal is to delever by virtue of the scheduled amortization, I think we see upside from portfolio company prepayments. Again, we talked about how challenging Q3 was for the entire venture capital ecosystem. And we had one of our highest levels of portfolio company prepaying liquidity of $70 million of cash generated in the third quarter. So again, I don't want to say during really tough quarters, we should expect that kind of cash generation. But I would say, again, it's not all doom and gloom to the extent that this challenging environment continues to be the same conditions for a prolonged period of time.

Helpful. And then just a follow-up, does a higher for longer interest rate environment impact how you're thinking about just managing the portfolio broadly for the long term? And then does this at all impact the sectors you ultimately will invest into over time?

Interesting question. I would say as we look to higher yields, right, I do think from our perspective, right, there is a cap on the total return that we can make on an individual loan, right? If we're charging a certain high level or 20% return on the loan from the debt component, I think equity investors will take a second look and say, "My gosh, that's approaching equity-like returns, particularly when you factor in the warrant". And so I -- maybe I'll just provide that financing instead of this company taking venture debt, and then it makes you think about the companies who don't raise equity or who sponsors don't say, forget it, we'll do it instead. And then it means are you getting adversely selected because the new companies that you're talking to with these really high rates are ones whose investors don't want to give them more capital. That's why our approach has been to hold yields generally in the same level, but take on what we think are companies with stronger credit profiles, as Jim mentioned, lending to companies that have recently raised rounds of equity financing. We have seen the reset in their valuations. So from an LTV perspective, we feel stronger in terms of using that as a calculation and then have lower cash burn rates, longer cash runway. So I think that's our perspective on that. But I think on the other hand, we do think of the impact of interest expense on their cash flow. And so that obviously impacts burn rates. And so it's something to be mindful of. But again, the majority of our portfolio companies are focused to get to profitability, but they aren't necessarily there yet today.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim for any closing remarks. Please go ahead.

Okay. Thank you. And as always, I'd like to thank everyone for listening and participating in today's call. I hope you found it helpful. We look forward to talking with you all again next quarter. Thanks, again. Have a nice day. Bye-bye.

The conference call has now concluded. Thank you for attending today's presentation. You may all now disconnect.