Q1 2021 Triplepoint Venture Growth BDC Corp Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the Triple point venture growth, the first quarter 2020 One earnings conference call.
At this time all lines have been placed in a listen only mode.
After the Speakers' remarks, there will be and 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 and an audio webcast on the triple point venture growth DTC website.
The company management is pleased to share with you the company's results for the first quarter 2021.
Today, representing the company is Jim <unk>, Chief Executive Officer, and Chairman of the board.
So the three of the Sava, President and Chief investment Officer and.
And Chris Mathieu Chief Financial Officer.
Before I turn the call over to Mr. La <unk> and I'd like to direct your attention to the customary safe Harbor disclosure and the accompanying press 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 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 or any 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 Dot TPG Dot com.
Now I'd like to turn the conference call over to Mr. <unk>.
Thank you operator, good afternoon, and thank you for joining us for our first quarter 2021 earnings call.
It's been a little more than a year and to the pandemic and we like and the changes during this period two of pendulum swing.
And the early months of the pandemic the overriding focus was on the survival.
And now more than a year later, the pendulum has swung the other way.
The topics of focus are now on record levels of venture capital investment record valuations record exit activity and the strong demand for venture lending.
The venture capital ecosystem has demonstrated its strength and its resilience during 2020 and were all off to a robust start here in 2021.
The strong investment activity environment enhances the prospects and credit quality of our existing portfolio companies.
It also drives demand for debt financings from new companies, enabling us to achieve our portfolio growth goals over the course of the year.
Our focus remains on continuing to execute on our playbook and the work. We're doing now will translate to a very busy second half of the year, given this pickup and venture investment venture fund raising and our growing pipeline.
As we progress through the remainder of the year, we will remain disciplined and balanced and responds to adapting to the post COVID-19 recovery.
We will continue our exclusive focus and high growth companies backed by a group of leading select venture capital investors.
Given our experience in the field and our franchise TPG has never been better positioned to capitalize on today's market and.
What we think of as riding the wave.
When you have substantial liquidity lined up.
And combine it with long standing venture capital relationships and a strong pipeline.
That's the formula for driving outsized to yield.
During the first quarter, we continue to position ourselves to take advantage of the strong demand we are seeing from venture growth stage companies.
We expect this to continue throughout 2021.
And the first quarter, we increased signed term sheets by 142% year over year, and our pipeline continues to be more than $1 billion.
We expect to accelerate funding throughout 2021 and are poised to drawn our ample liquidity, which we further enhanced and the first quarter through upsizing our credit facilities.
And also completing our second investment grade notes offering under very attractive terms.
During the quarter, we also increase NAV, which was driven by growing our EPS to <unk> 38.
And the significant progress we have made and strengthening our credit quality, which has resulted and TPG has very strong credit outlook.
While we under earned our distribution for the quarter, we expect to make it up during the year based on prepayments are healthy spillover income and our expectation that fundings will continue to accelerate throughout the year.
We remain and a strong position to generate NII or net investment income in excess of our distribution over the long term as we always have.
In fact over the last four years and cumulatively since our IPO, we have over earned our distribution.
We've also paid three special distributions, including one that we just made last quarter.
Additionally, another trend that we will benefit from is the acceleration of exit events and their income contributions.
During the first quarter.
50 venture capital backed companies for publicly listed including our portfolio companies' HIMSS and view, which completed their spec mergers during the first quarter.
There is currently two additional <unk> portfolio companies that are and the process of going public the spec and a number of others and very active discussions.
Our portfolio companies remained strong and we are pleased how they have adapted to the new environment, putting 2020 behind them and positioning themselves to excel and the emerging post COVID-19 world.
Market conditions remain very favorable for us for the first quarter a record $52 billion of capital was deployed across almost 1300 deals in the late stage venture market.
This is the segment, which <unk> operates and and targets.
More importantly, we remain in regular and active dialogue with our select venture capital investors to help maintain a high quality pipeline consistent with our investment objectives.
We have not stopped or dropped our venture capital partner interactions to chase near term deal flow per our playbook now is the time to be justice proactive and our interactions with them as we were a year ago during the peak of the pandemic.
This helps us gain insight understand market dynamics match your activity alongside of them and remain ready to support their existing and new venture growth stage portfolio companies as these opportunities develop.
To summarize.
We're bullish on Tpg's outlook.
The fundamentals are there the demand is robust and the second quarter is already off to a strong start.
We have a sizeable backlog pipeline and liquidity position and we expect to continue to draw on our differentiated platform, our best in class management, and our strong and select venture capital investor relationships to grow and a very prudent manner.
As we look to the future we continue to foresee a strong and stable yields from our high quality portfolio and continued accretion and our warrant and equity positions, which includes our anticipation of more portfolio exit event and are excited on the outlook for the remainder of 2021.
I'd now like to turn the call over to Sergio.
Thank you, Jim and good afternoon and it is.
Jim mentioned during the quarter, we executed on the playbook, we put together last year and anticipation of a strong recovery and the venture capital and venture lending ecosystems in 2021, our playbook for the first quarter was intended to position our business and our team to prepare for and execute on driving capital.
CNC and credit quality and portfolio growth over the course of the year key objectives for the quarter included building strong funding capacity and overall liquidity, increasing our use of leverage diversifying and reducing our cost of capital concluding prior credit situations and of course originating high.
Quality and high yielding investments we accomplished most if not all of these objectives during the quarter. However, our earnings were impacted by the significant prepay activity, we've experienced over the past several quarters on our overall portfolio size, despite strong new commitments growing investment fundings and stable.
Core portfolio yield is in the past, we believe any shortfall is temporary and will be more than made up during the rest of the year and as the fundamentals of our industry and our business continues to be strong.
With regards to investment portfolio activity during the quarter Triple point capital signed a 192 million of term sheets with venture growth stage companies and we closed $90 million of debt commitments to seven companies at TPG, both signed term sheets and closed commitments were up from last quarter three.
Three portfolio companies, where fin techs or financial technology company.
The company's two where and the consumer fitness or better yet fitness Tech category and tour companies in the mobility category with one focused on warehouse automation with software and robots and the other and the E bike manufacturer almost all of these companies have raised equity rounds recently and many actually have enterprise values.
Greater than half of $1 billion.
We also received warrants valued at $1 6 million in 13 portfolio companies as a result of these commitments of new fundings as compare to receiving warrant investments representing $3 8 million of value and 26 companies during all of 2020.
Given the strong equity investment activity within our portfolio, which will actually discuss in more detail later, we made for direct equity investments valued at $2 3 million in 2020 as a whole we made direct equity investments of $2 3 million in eight companies.
During the first quarter, we funded $56 9 million and debt investments to seven companies, which was in line with the guidance. We gave of targeted gross fundings between 50, and 75 million for Q1 and Q2.
The debt investments, we funded during the quarter carried a weighted average annualized portfolio yield of 12, 6% at origination the.
The yield profile of this quarter reflects the strong credit profile and substantial cash reserves of the obligor and funded in fact, one obligor funded is EBITDA positive and another has several billion of cash reserves and.
Notice and today's earnings release, we have funded over $20 million of new loans, just one month into the second quarter and we are funding request and process from portfolio companies for roughly an additional $25 million to $30 million here in may and.
As a result, we expect to come in towards the higher end of the $50 million to $75 million targeted gross funding range for the second quarter.
And with the prior guidance, we expect gross fundings for Q3 and Q4 to come in between 101 hundred $50 million per quarter supported by our backlog as we were building the backlog of your building as well as the pattern of our portfolio of companies drawing on existing unfunded commitments towards the second half of the year.
We are seeing substantial equity fundraising activity in the venture capital industry as a whole and within our portfolio in particular, which we believe is a testament to its quality during the quarter 10 portfolio companies raised over $700 million and capital and total in addition to five portfolio companies raising over 200 million cash and capital.
Last quarter, and 27 portfolio companies raising rounds during 2020 as a whole.
Robust the venture capital industry wide equity financing activity does three things first it creates demand for debt to complement or top off and equity raise and to the drawn upon in the future.
And for others. It allows them to accelerate growth even faster in order to achieve higher valuations when they ultimately raise equity and therefore, they raise debt to help finance that accelerated growth and third for those companies that have raised equity capital and already have debt. It allows them to delay drawing on existing lines and in many cases.
To pay off outstanding debt to save on interest expense given their large cash positions, although given the cash burn profile, there's always the potential to revisit of debt financing with him after a couple of quarters.
We are seeing all three right now in addition to equity investors willing to invest earlier, while still rewarding anticipated future growth from evaluation perspective, the robust equity environment is generally very positive improving the outlook and liquidity of existing portfolio companies and as a result, we also rich.
We've accelerated fees and income from Prepays.
Given our portfolio of quality, our unique access to these rounds of financing and the robust exit environment. We are also increasing our direct equity investment activity to take advantage of our relationships for the benefit of shareholders. These are not purchases of secondary positions from third party marketplaces or sellers.
And where we're actually selectively investing and rounds typically led by one or more of our select VC funds and invest alongside of them in most cases and existing <unk> and in other cases feature of of course the.
These are rounds of are generally arent even available to many other venture capital investors. So we think this is something very differentiated for our shareholders that we expect will have a long term benefit of not only of the upside potential from the investments, but also from cementing our relationship as a lender to these companies.
During Q1, we had loan prepayments of $36 million and as the result, we achieved an overall weighted average annualized portfolio yield on total debt investments of 13, 3% for the quarter, excluding prepayments core portfolio yield was 11, 9% as Chris will go into detail. Later these were more seasoned loans that paid off early.
This quarter here in the second quarter, we have and we've had about $46 million of prepays generating more than 2 million of accelerated income.
At the end of the quarter, our 71 portfolio of companies were spread of cost 30, subsectors with our largest concentration again in business application software, which represents nearly a 11, 5% of our portfolio.
Moving on to the credit quality during the quarter. One company was removed from category. One as a result of of prepay and one company was removed from category five as part of the sale of our notes, which was consistent with our fair value Mark on that investment as of Q4.
Based on the continued progress of our two category three out of the Gores and we expect it.
Upgrade both over the next one to two quarters or one category four portfolio company. Rowley is are the only loan on non accrual and continues to build momentum with its business and we are cautiously optimistic for their continued progress and here in 2020 one.
During the quarter two portfolio companies completed their spec mergers HIMSS and view with our positions and both companies, reflecting and additional net unrealized gain of $1 2 million.
Our portfolio companies talk space and live learning technologies announced their spec mergers during the first quarter as well.
As mentioned in today's earnings release subsequent to quarter and portfolio companies Sounder and enjoy also announced spec mergers.
Generally speaking, we don't Mark up our investments in these companies until merger exchange ratios are announced and when they are we further discount and given the uncertainty associated with their completion, so that generally results in gains and our investment on and unrealized basis. After the spec merger closes rather than before.
While there has been some slowdown of new spak issuances and there hasnt been a slowdown and the exit activity within our portfolio. In fact, we have another almost dozen T. P. V. G portfolio companies actively exploring spec exits ipos or M&A exit this year, which if consummated will unlock additional.
<unk> value for our shareholders from our equity and warrant portfolio.
In closing we continue to follow our long term playbook of nurturing strong relationships with our select venture capital partners and many of the needs of their venture growth stage companies through deliberate and disciplined portfolio growth, while generating strong returns for shareholders with that I'll now turn the call over to Chris.
Great. Thanks, agile and Hello, everyone. Let me take you through and update on the financial results for the first quarter of 2021 total investment income was $20 million with the portfolio yield of 13, 3% on total debt investments for the first quarter as compared to $28 million and 12.
7% for the first quarter of 2020 operating expenses were $11 1 million as compared to $8 $6 million for the first quarter of 2020 and operating expenses for the quarter consisted of $4 4 million of interest expense $2 9 million of base management fees $2 2 million of income in <unk>.
Sensitive fees of half a million dollars of administrative agreement expenses and $1 million of general and administrative expenses.
We earned net investment income of $8 $9 million or 29 cents per share and net investment a net increase in net assets, resulting from operations of $11 9 million or <unk> 38 per share.
During the first quarter of the company recorded a $15 $7 million or 51 per share of net realized losses on investments consisting primarily of the sale of the company's investments and no tell which was rated a five credit on the Companys watchlist.
Net unrealized gains on the investments for the first quarter were $18 6 million or <unk> 60 per share, resulting primarily from the reversal and recognition of previously recorded unrealized losses associated with no tell as well as net unrealized gains on fair value adjustments to the existing portfolio.
And was partially offset by $1 $4 million of unrealized losses due to changes and foreign exchange rates.
As of the end of the quarter of the company's total net assets were $401 $8 million or $13 per share compared to $404 million or $12 97 per share at December 31.
And I'm pleased to announce that our board of directors has declared a distribution of 36 per share from ordinary income on April 29 to stockholders of record as of June 16th.
And to be paid on June 30th we have significant spillover income totaling approximately $14 million or <unk> 45 per share at the end of the quarter to support additional distributions and the future.
Before I share and update on commitments and availability of capital for investing I would like to remind everyone that while prepayments are of natural part of our venture lending model. It does come with a great deal of uncertainty. We previously shared with you that portfolio of company liquidity events, such as Ipos or M&A events.
We will often get very little advance notice of loan prepayments and having said that one of the other aspects of prepayment activity is that the origination vintage of alone that prepays really does matter.
Given the nature of income acceleration when a loan prepays the characteristics of income changes and the longer the loan remains outstanding.
For example should alone repay or prepay and its first year, we would generally recognize of comparatively higher level of income acceleration as compared to alone prepaid and say the second or third year outstanding for example, central mentioned earlier that we had already had $46 million of loan prepay.
<unk> and Q2 generating more than $2 million of accelerated income and this compares to $36 million of prepayments in Q1, which generated approximately $2 $2 million and income.
And now let's move to our commit.
Commitments, we reported unfunded commitments totaling $168 million based on our success, increasing commitments by $90 million for the quarter.
Hundred and $22 million of this total will expire during 2021, if not drawn prior to exploration.
In addition, all of our unfunded commitments have of prime rate floor, and now set to 3.25% or higher.
The company ended the quarter with a record level of investment funding capacity, resulting from successful debt raises and strong cash flows from the portfolio.
We continue to see the ongoing amortization of principal and loan prepayments of natural and very at a very good aspect of high quality and diversified venture lending portfolio.
And as of quarter and the company increased its total liquidity of two $466 million compared to $252 million as of December 31.
Our total liquidity consisted of $116 million and cash and $350 million of availability under our credit facility.
As previously reported as of year end, we increased our total commitments under the credit facility to $325 million and extended the revolving period to November of 2022, and further extended the scheduled maturity date to may of 2020 for.
This amendment enhance the effect of borrowing capacity for us during the extended term of the credit facility and.
In January we further increased total commitments out of the credit facility to $350 million and added an additional lender to the bank syndicate we.
We continue to also have the flexibility to increase the line further to $400 million under the existing accordion feature.
In March we completed a $200 million private institutional notes offering. These notes are unsecured and bear interest at a rate of four 5% per year payable semi annually and mature in March of 2026.
D Vrs issued and investment grade credit rating and connection with the transaction.
Recall that we completed our first investment grade institutional notes offering in March of 2024 of total of $70 million, which remains outstanding today.
With the proceeds from the offering we immediately paid down a $118 million outstanding on our credit facility and on April 5th we fully redeemed at par our traded baby bonds, which carried a higher interest rate at five and three quarter percent.
With this redemption complete we expect to lower our cost of capital going forward.
During the month of March we incurred approximately $360000 and interest expense from the date, we closed the 2020 six notes to the date, we were permitted to redeem the baby bonds.
In connection with the redemption, we do expect to record of realized loss on repayment of debt of approximately $660000 and the second quarter.
We will re borrow under our credit facility over the remainder of the year to grow the portfolio with accretive debt financing to benefit our shareholders.
We expect that we will have sufficient available capital to execute on the funding estimates that had been previously provided by subtle during his remarks.
Aggregate outstanding borrowings at the end of the quarter with $345 million and consisted of $270 million of private debt notes and $75 million of baby bonds.
As of the quarter and there were no debt outstanding under our credit facility. We ended the quarter with eight six times leverage ratio or and asset coverage ratio of 217%.
But with the baby bond redemption completed just a few days after the end of the quarter. We note that the leverage ratio.
Is five seven times or on a pro forma basis.
During the first quarter D. Drs maintained its investment grade rating on TPG, given the strength and diversity of the portfolio and reasonable level of leverage we maintained and in April of <unk> confirmed the company's investment grade Triple the long term issuer rating and upgraded tpg's trend outlook to stable.
This completes our prepared remarks and at this time, we'd like to take your questions and so operator, if you could please open the line for questions at this time.
Ladies and gentlemen at this time well begin the question and answer session.
Ask the question you May Press Star and then one thing of touch tone telephone.
To withdraw your question you May press Star and two.
You are using a headset, we do ask that you. Please pick up the handset before pressing the.
Buttons to ensure the best sound quality.
Once again that is star and then one the join the question queue.
Our first question today comes from Finian O'shea from Wells Securities. Please go ahead with your question.
Hi, everyone and good afternoon, just a couple of higher a higher level questions on.
For the first with the the specs or.
Or access and general there.
And there were a couple of sadly you set of couple of were announced recently and.
And Jim said, there was a lot.
Lot of active dialogue.
Can you give us.
And at a high level of portfolio wide and.
How these.
The these valuation discussions compare to.
I suppose both of your portfolio of marks.
And the where what were yeah, just just how they compare to your portfolio marks.
Sure.
Social here. So so generally speaking most of the stack of mergers has been at premiums to the valuations for us when we received our warrants and.
And as I explained during my prepared remarks, the challenges when they announced the spacs they'll put out a number of enterprise value, but they don't actually disclose the exchange ratios and so we don't actually markup or warrant or equity investments until more information is known for example, when the merger ratios of our exchange ratio.
And are actually filed publicly and then when they do that we then further discount NAV given the uncertainty associated with the specs, but the spa.
<unk> is being completed not that we judge them individually, but just in general a liquidity discount and so that's why we don't see the.
The significant accretion and and value of our warrants and equity investments until the successful close of the spec merger.
Okay. That's helpful and and also cycle can you can you sort of recap you had some interesting commentary on.
The demand for debt being very robust.
Paired with the very robust.
Equity fundraising environments debt that would logically tell us.
The opposite was at risk that equity would be overtaking.
The the demand for debt so I guess just the.
To summarize what's what's the main driver of other companies staying.
The private for longer or are there more companies or they want more debt and their stack just.
How would you sort of simply outlined that's us.
Yeah, I'd look at it a couple of ways and so I'd say first it's just given and venture capital investment activities. So there are more companies out there. So the the market opportunity continues to grow based on D. C fundraising and VC investment activity in general.
And then I think the the other key element, which Jim remarked on as you know we're now at the other end of the pendulum, where we're in growth mode everyone's growing and they're growing fast and faster and so in order to finance that growth, they're using combination of of equity and debt or somebody using combinations of equity and debt some of using debt only.
And so we're using equity only and so I think we're seeing all of the above and and so you know sort.
We're focused on quality of companies that reach out, but but I'd say, that's generally what we're seeing we're seeing all three.
Yeah.
Okay. That's helpful. That's all for me. Thank you.
Our next question comes from Casey Alexander from Compass Point. Please go ahead with your question.
Hi, good afternoon, and thanks for taking my questions.
Okay.
Sure.
Was the quarter kind of exacerbated was there a mismatch.
And in terms of the timing of repays versus the timing of originations did did repays come early in the quarter.
And were originations stacked towards the back of the quarter.
Chris the only thing.
Yeah, well, yeah. So I think generally that is what happens Casey fundings tend to occur towards the end of the quarter and usually in the last month of a quarter and particular and Prepays I think we had announced on our year end results that we had already had some prepay so that was debt.
And really the case for Q1 and I would I would argue that that's that's pretty typical where fundings tend to average towards towards the latter half of of a quarter and prepays can happen in the early part as well.
Okay, and the Prepays came in investments that were.
Later in their maturity cycle. So they had less accelerated income associated with them and I just want to make sure that I understood correctly, what you said.
Yeah. So I misunderstood I thought your question was the timing of our prepay in the quarter specific to that if that's correct. That's what the first question was that my and my second question is now the repays debt. You did have they were also later in the maturity cycle of those investments and so they had less in terms of accelerated income.
I would say Directionally that is true and it was not it was not a significant.
But yes, directionally and that was true.
Yeah Okay.
<unk>.
You didn't.
I do want to understand make sure that I understand because you've had so many.
Transactions that involve spacs right your.
Positions in general when the spec deal close you get paid off on the debt, but the stock the the clock doesn't start ticking on your ability to monetize the equity until generally six months. After the spec deal closes. So it's similar to the way the treatment that you get for an IPO is that correct.
Jack.
So it's actually it's a mix Oh, sorry, just I would say, it's a combination of the two Casey So I'd say in certain situations, where we have of direct equity investment alongside warrants that were more likely to be subject to the lockup and then and scenarios, where we're just generally of warrant holder.
We're less likely to be subject to the lockup.
Oh that's interesting.
I didn't realize that.
And and.
Uh huh.
Okay, I think that that's all of my questions I'll step back into queue, if I have anymore I'll hop back yet.
Okay.
Our next question comes from Christopher Nolan from Ladenburg Thalmann. Please go ahead with your question.
Thank you for taking my questions on the equity investments that Jim was referring to and is prepared statement.
Equity investments of roughly 7% of of the portfolio now what percentage are you looking to increase them.
Going forward.
Yeah.
So as.
Jim answering I would say, we're not managing the business by a certain percentage <unk>.
The equity investments are opportunistic.
We're being very selective with them and it's only because of this environment and some of the let's say better high quality companies, we're seeing that having a small slice of participation and them alongside of our debt financing lines. We think is beneficial to all and so we're it's always goes.
And to be a smaller percentage of our business and it's more of an enhancement to yields and returns and opportunistic in todays environment than it is some kind of manage control percentage of business.
And so it would be a side by side of the equity and debt.
So that'd be the type of the structure that you'd be looking at and those type of excuses.
Generally generally and some rare cases of equity may start and then we do the debt. Other cases, most cases debt starts and then we'll have the right to invest some some equity as part of the deal.
Great and as a follow up and that's the more general venture capital question can you how would you characterize the.
The venture capital equity environment is the and <unk>.
Terms of Vcs are able to secure from companies.
Similar to what they would have been a year ago or are they more in favor of the company just try and get a sense as to.
Where are the leverages in terms of the calling of the venture capital equity.
Funding.
So two of them they want to add to this as well, but for sure we always hate using the word robust but.
There is an awful lot of equity capital out there, there's a lot of participation by some of the.
Call it non traditional participants and look the theres record valuations there is.
The record amounts of equity.
And 100 million or so is the new norm for venture growth stage companies and and equity raising but.
In the long term.
You know is it some change it's all great drivers, who are debt and and acquisitions by the way or another.
Very good use of our debt financings of these days opportunistically, but in the in the long run I would say equity has gotten more competitive if anything because of the amount of equity.
Not really affecting venture lending this is more and the equity world, but you know we're focused on working with just our select venture capital investors and they pretty much are associated with the best call of Tech and life science deals of the last several decades and and the venture ecosystem the best deals.
Continue to go to the best venture capital funds, and our opinion and Thats kind of what we focus and concentrate on and so kind of a long answer to your question, but in this environment.
Yeah, there's a lot of equity and little more competitive among the the venture capital fund at large.
Great. Thank you.
Our next question comes from Ryan Lynch from <unk>. Please go ahead with your question.
Yeah.
Hey, good afternoon guys.
I just wanted to talk about kind of the.
And the environment for deploying.
Capital.
You know look like quarter to day, you guys had received net net repayments due to the strong prepayment.
Prepayments you guys had so far quarter to date.
Based on everything you said it sounds like the <unk>.
Venture capital equity markets Youre going to continue the strong you announced several spak mergers and it sounds like exit activity could potentially be pretty robust, which is good for your equity investments.
And as well as you know.
Some of your warrants, but it seems like that could potentially put pressure on net growth and the portfolio. So can you talk about growing your portfolio on a net basis.
Given the robust exit opportunities and the environment today.
Hey, Brian subtle here and so I would say you know I think it's a it's the it's a function of pipeline and portfolio management. So as we look to.
The existing unfunded commitments that we have right. So we would we would look to the robust equity and M&A activity, our exit activity impacting utilization and actual actually utilization or timing of utilization of existing unfunded commitments, but then I'd say it.
The new originations of the new pipelines of new opportunities, where we have more certainty of utilization and so I'd say, it's just the again.
Portfolio mix question, and so we're going through the year.
A rebalancing of sorts of again, given the strong equity investment activity of the portfolio and.
Those with significant amount of cash reserves and unfunded commitments, either delaying or not going to draw and then we're replenishing the pipeline and the the commitments with new unfunded commitments with either draws that close or higher likelihood of utilization given where we're entering attaching from our commitment perspective.
Okay understood.
And then.
Let me know if I'm mischaracterizing, it and I believe you said you made $2 $3 million.
You reported $2 $3 million and direct equity investments and the four companies this quarter.
That did not have any associated debt investments and you had previously made which I believe is.
Something that debt is sort of a new focus of yours going forward and making just the sole equity investments.
Correct me, if I'm wrong with that that debt, but.
But if I'm correct and that.
Why why sort of.
Why make that strategy share, it's not a complete drag to ship of the wide kind of helped that a little bit more.
And this environment what are you seeing there and then can you just provide kind of a framework that you guys use to identify and and and and how you guys choose and I'm, assuming you guys get those opportunities a lot.
And you know what is the framework and you guys are using.
Specifically true.
Use those those companies and you're willing to just make direct equity investments into without debt.
Sure, Let me start and then Jim.
And sorry to jump in as well so so Ryan let me first comment of of the four equity investments made during the quarter all of our existing portfolio of company. So so so it's it's not.
But I do think that there is a timing so there's scenarios, where again given the robust equity environment given the relationships, we have where we're talking to a portfolio company of about a debt financing.
And we may be and term sheet stage, and then and in equity around potentially preempts and so again the benefit of the triple point relationship and the connection and their desire to want to build the partnership with us. Despite the fact that they are raising large huge equity rounds, we say well, let's let's let's use this as an opportunity to build partnership and build the relationship earlier.
And so we will say great we see the knowledge of who's leading the round the valuation we knew it was something attractive to us from a debt perspective, and so we use the fact that we have access that we have the knowledge to say great actually let's and this scenario right of checks in the equity round establish ourselves into the company and the cap table develop that report.
With the team get the knowledge of the learning see how they perform and then when the debt opportunity arises, we can preempt or potentially and drive a premium because of the fact that we're already in the the cap table. So I'd say that's the the nuance here is because of the the the robust equity environment the scenarios now.
Now, where we're seeing the equity may go and sooner rather than lend first C of equity round happened and then right and equity check I think that is also a piece and that's what some of this quarter was but I think the other comment we're saying as you know historically these were smaller checks that we're writing and I think because of the robust exit environment because of.
The quality of the companies that we're seeing we're also proposing to take these transaction sizes up before they were again, we said.
The $2 3 million and eight companies last year versus $2 3 million and foreign companies. This year. So we're saying we think it moves the needle more for to make the check sizes slightly larger not huge were not leading rounds and and that's another key thing to point out. We're not these are not rounds, where we're taking board seats or ownership or major we're continued to be of minority shareholder.
<unk>. This is not a p/e model, where we're saying we want to be of controlling investor. This is us taking advantage of the access the the unique kind of relationships, we have to get into around win plenty of other V. C's and tried to the lead that round or or and co invest and they couldn't and because of our position.
And we're able to do so.
Mhm, Okay, I guess I can only add we're not in the Standalone and never will be standalone and venture capital equity businesses. There's plenty of good folks we work with that are well known for that and in addition, there is a number of cases out there are I mean, we're pretty proud of our written proposals outstanding has doubled the.
And this quarter over last quarter, you started to hear about the backlog and sizeable pipeline, but in some of these cases will be talking to the companies on debt along will come the equity round haven't yet finalized our debt and so we will.
We have a small piece of the equity and then put our debt together, but there are always generally associated and we're not and the stand alone.
Equity business.
Okay.
Understood.
I just had one kind of quick modeling one Chris you mentioned.
2 million of accelerated income and this quarter.
Excuse me in Q and Q2 already.
The <unk> versus $2 2 million and you received all of Q1 do you by any chance have the accelerated income and you guys received in the fourth quarter of 2020.
If you don't have that and you can always follow up.
Yeah, I can follow up I think I have that in the and the earnings release, we would've had that and they're like.
And follow up with you on that okay.
That's all from me I appreciate the at the time this afternoon guys.
And our next question comes from Devin Ryan from JMP. Please go ahead with your question.
Okay great.
First of all thanks for all the detail here.
And most of my questions have been asked but.
I'll start with just the higher level of one on the spot market since you.
You guys touched on it and that's impacting the business a bit so clearly.
Recent slowdown of new Ipos, because there was a record number of Ipos announced in the us and the first quarter of interest 400 spectrum or looking for a deal.
And I think you noted and maybe another dozen firms and the portfolio exploring specs and so I'm just curious with some of the recent and maybe indigestion in the market is that changing appetite or at least are you hearing that at all from some of the portfolio of companies around their appetite to go public V S back and maybe.
And that changes kind of the trajectory here or on the flip side is there just so much money at the.
Still looking to do a deal but this is going to take.
And at least a few quarters or more of the kind of work through the system, even if we don't see and other kind of IPO quarter like the first quarter.
Hey, Devin this is subtle so I'd say the the the the dozen or so portfolio companies pursuing the exits this year, it's actually not all facts and so it's actually it's it's all three forms its backs its IPO traditional the traditional old school of Ipos, and and M&A and so I'd say definitely we have a.
The portfolio companies exploring actively looking at working on traditional Ipos and and so I think it's again, it's a function of.
And the entrepreneur of the investors in terms of what path of exit they'd like to pursue.
I think theres no doubt that there's a the spec market has been impacted by some of the accounting and regulatory changes, but again, we're still continuing to see existing spec sponsors continue to be active in terms of reaching out and exploring conversations with companies. So I don't think it's necessarily slowed down existing spec sponsors of although it may of.
It's slowed down new spec sponsors ability to raise capital and then I think again as I've said before our perspective is spacs are empowering for portfolio of companies right at the enables them to make the decision if they want to go public versus the traditional investment bank and and then deciding no disrespect of investment banks and so I'm sorry.
And you think there are generally positive, but the ultimate kind of self governing aspect of of pipe is of our stack is the pipe and your ability to raise the pipe and so I think that's what keeps the sanity and the spot market is the you know the the quality of the pipe market and the standards that's required for companies to raise the incremental capital.
Okay, great color and thanks for the the nuance in there and on my question and.
And then maybe the follow up I appreciate all the commentary just around kind of how strong kind of of the debt and equity markets are at the moment and.
Clearly a lot of optimism I'm curious if you look at it more from a sub sector perspective are there any areas where.
And the risk rewards are standing out and I'm not sure how much you want of share, but where maybe there's a little bit more interesting opportunity where.
And.
And somewhat.
And the differentiated versus another area of the market from a sub sector perspective.
You know a key element of our model is to invest where our select VC or to <unk>.
And to those Subsectors of Tech, where our select sponsors are investing their capital. So I'd say, our model is and to to second guess or to to say that we want to go in this sector, because everyone's going that way I would generally say that across the board and all sectors and subsectors are performing well, but I think fundamentally.
We want to lend to those sectors, where the equity dollars are flowing into because that validates the enterprise value of it validates our investor support and generate significant liquidity for those companies and so those are all kind of key characteristics for us from a credit perspective, and and so I think that's kind of what ultimately governs us.
Do think there are some sectors where.
And you could argue equity valuation multiples are super robust and and and so as you look to your upside potential from the war, you're sort of making sure that you you are.
Not.
And getting too aggressive in terms of assumptions from upside returned because the valuations may be particularly robust, but I'd say generally we wanna be and those sectors that are attracting the the equity dollars.
Yep.
I gotcha, Okay. Thank you so much I appreciate it.
And our next question is a follow up from Casey Alexander from Compass point. Please go ahead with your follow up.
Yeah.
Yeah I just wanted to clarify one thing that Chris said, you said that the effective leverage ratio pending the repayment of the baby bond was five seven and I was.
Is that correct.
Yes, so basically just take the leverage as at the end of the quarter of used cash to pay down and the bonds and you get to the point $5 seven.
Yeah, Okay I got it. Thank you just wanted to double check make sure that they've got I heard that right. Thank you okay.
And ladies and gentlemen, im showing no additional questions and I'd like to turn the conference call back over to Mr. <unk> for any closing remarks.
Thank you operator, and thanks to everyone for joining our call today as you can tell we're pretty bullish for our prospects for the remainder of the year of the fundamentals are there. The demand is robust and we have a healthy backlog pipeline and the liquidity now in order to achieve our goals in 2021.
Thanks for your continued support and we look forward to talking to you on our next earnings call have a good day everyone.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending.
May now disconnect your lines.