Q2 2021 Triplepoint Venture Growth BDC Corp Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Triple point venture growth B D. C. 's second quarter 2021 earnings conference call.
This time all lines have been placed in a listen only mode. After the Speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time.
This conference is being recorded on a replay of the call will be available and an audio webcast on the Triple point venture Growth's BDC website company management is pleased to share with you on the company's results for the second quarter of 2021.
Today, representing the company is Jim Levee, Chief Executive Officer, and Chairman of the board.
<unk> Srivastava, President and Chief investment Officer, and Chris Mathieu Chief Financial Officer, before I turn the call over to Mr. On the Bay I'd like to direct your attention to the customary safe Harbor disclosure in the company's press release regarding forward looking statements and remind you that during this call management will make certain statements that relate to.
Future events or the company's future performance or financial condition, which are considered forward looking statements under federal Securities Law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to <unk>.
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 Dot T. P D G Dot com.
Now I'd like to turn the conference over to Mr. Lebesgue.
Thank you operator.
Good afternoon, and thank you all for joining the T. P V G second quarter earnings call.
We made strong progress during this past quarter from exceeding our funding targets to maintaining high credit quality and to increasing our portfolio yield return on average equity and net asset value or NAV.
The most notable progress is a continued rise we are seeing in signed term sheets, which was 1 of the highest quarterly totals and T. P V. G 's history.
Additionally, our pipeline increased 50% over last quarter and has more than doubled since a year ago.
We have substantial liquidity to meet this increased demand and we're on course to achieve the growth targets, we outlined for the second half for the year and drive consistent long term growth of investment income and net asset value.
The venture capital operating environment is remarkably strong right now.
In the first half for 2021 the total for venture capital investments exits and fund raising neared or exceeded the total for all of 2020.
Deals of larger sizes continue to get announced.
And we're witnessing more investments specifically in late stage companies, which is a market where T. P V G operate.
A total of 109 billion has been committed in the first half for the year to this stage already matching the total for all of 2020.
A total of 123 U S venture capital backed companies IPO in the first half.
33 of them were specs.
Yeah.
The market factors are in our favor and as you will hear our warrant and equity portfolio stands to continue to benefit.
Along with our expectation of increased portfolio company exit events.
Okay.
As we focus on capitalizing on this robust environment, it's critically important to maintain a disciplined approach to portfolio growth.
And we don't ever want to compromise on credit quality.
For that reason, we focus on high quality companies that will enable us to generate strong returns from our debt investments as well as from our equity and warrant positions.
In the second quarter, we took important steps to meet this critical objective.
While we under earned our distribution for the quarter the trends in our portfolio remains strong in terms of signed term sheets increased fundings and high credit quality, we expect to continue to generate NII in excess of our distribution over the long term as we have cumulatively done so since our IPO.
Yeah.
We're particularly excited about T. P V ge's promising and deep portfolio all created by our model of working with a select group of leading venture capital investors and having a targeted focus on venture growth stage companies.
This has provided a solid foundation for us to execute against our plan.
Our portfolio companies enable major changes in how people live work and use technology.
Large scale technology, driven transformations I think everyone sees are well underway.
And software health and wellness, whereas I think of it health Tech Robotics E Commerce, Fintech and other sectors.
The particular set of circumstances produced by Covid have accelerated significant market to erupt disruptions through technology and digital transformation.
We've witnessed wholesale changes in enterprise and consumer behavior.
These all promise to speed market acceptance of new products and services going forward.
All good news for our portfolio companies.
We believe the tailwind associated with these changes will persist well past the continued rollout of vaccines.
It will continue to drive outsized growth across many of our portfolio companies.
P. P V. G will continue to benefit from investments in many of these tailwind sectors such as health Tech.
Corolla G nearer ex medley in hydro or some other companies in this sector, where consumer demand combined with regulatory actions are driving massive disruptions in telemedicine.
On demand pharmaceutical delivery and connected fitness.
Last quarter alone for example, HIMSS completed its 1.6 billion stack capsule raise 300 million and tempo close to $220 million equity round.
Gray Orange and Joy and Trans 6.
Are all examples of our company is benefiting from the supercharge robotics and automation sector.
Covid exposed as for agility of the world supply chain.
There is great need for continued investment in robotics and logistics to support the ever growing shift to online procurement.
In this sector enjoy announced a $1.2 billion back merger last quarter, and gray Orange and Transfix have each raised over $125 million.
Savi checks Grove Mint.
Minted and rent the runway are examples of many of our ecommerce companies, which have been boosted by the pandemic driven change on the retail landscape.
It impacted consumer purchasing behavior forever.
Brands are now able to build relationships with their customers directly through digital marketing.
E Commerce companies and perfect Foods, and Savage ex both announced closing equity rounds greater than $100 million this year.
Upgrade.
Did you inactive hours at just a few of our companies that are fintech recipients of the huge disruption underway in the core monetary interest structure of the economy and the capital markets.
The pandemic accelerated changes in legacy banking systems and payment platforms.
New lending platforms or underwriting risk and taking advantage of big data to address segments for the population that are currently underserved rare.
<unk> is an example reese.
We recently announced the closing of an 800 million dollar equity round at a 33 billion dollar valuation.
The positive trends in our excitement in these technology sectors. If you can't tell continues.
We foresee substantial equity fundraising activity in the venture capital industry as a whole and within our portfolio in particular.
It's a testament to our portfolio's quality.
We believe future venture lending opportunities are large and plentiful given today's environment.
This robust industry wide equity financing activity continues to create demand for debt to complement our top off an equity raise in some cases.
For many companies planning to raise equity in today's environment that enables him to accelerate growth in order to achieve higher valuations when they raise.
In fact, we're now seeing demand is back again from those companies raise large equity rounds last year, some of whom actually paid off their lines with us when they close around and now theyre seeking debt again.
The volatility in the pipe market of recent for specs has also created in a number of situations where companies are now expecting the process to take longer.
And they are raising more equity and debt with us to continue to remain private.
Today's market is ripe for triple points venture lending strategy and our portfolio is poised to continue to reap these rewards.
As we've highlighted in the past a fundamental strength as our differentiated platform.
Triple point capital will continue to benefit from these sustainable tailwind for the innovation economy.
This is led by our deep relationships with founders and entrepreneurs as well as leading venture capital firms.
We'll continue to stick to our disciplined approach to the investment process based on identifying promising deal flow.
And standing at the ready with our deep liquidity.
To deliver attractive returns from our portfolio of debt warrants and equity investments.
I'll now turn the call over to Sergio.
Thank you Jim and good afternoon, as Jim mentioned, the venture capital markets and the demand for venture lending continue to be particularly robust and were making disciplined progress as we execute on our playbook for 2021.
With regards to investment activity during the second quarter Triple point capital signed $250.8 million of term sheets with venture growth stage companies, our fourth highest quarterly level for venture growth stage signed term sheets.
<unk> IPO 7 years ago, and we closed $102.5 billion of debt commitments for fixed companies at T. D V. G C.
Signed term sheets and closed commitments were both up from last quarter.
We continue to invest in high quality companies in attractive and growing sectors. The sectors of our investments closely resemble the investment activity of the top venture capital funds and as Jim mentioned the sectors. We continue to be most excited and focused on our software Fintech E Commerce and health Tech.
Which were all quite active from a private markets and public markets perspective.
Of the new portfolio companies this quarter to our software as a service for SaaS companies to our direct to consumer subscription businesses..1 is an online marketplace and the last 1 is in the business of acquiring and rolling up profitable small businesses that sell on Amazon and other marketplaces.
During the second quarter. We also received warrants valued at $2.2 million and 7 portfolio companies in conjunction with our debt commitments as compared to receiving warrants valued at $1.6 million and 13 companies last quarter. This increase demonstrates that we are capturing more equity upside potential from our portfolio companies.
While still raising the bar on yield.
We also made 3 direct equity investments valued at 200000 during the quarter of which 1 has more than doubled during the same quarter again, reflecting the access we have to high quality investment opportunities in the robust equity environment. This brings our total to $2.5 million of direct equity investments to 6 companies ear to date.
During the second quarter, we funded 76 million in debt investments to 7 companies, which exceeded the high end of the $50 million to $75 million range, we guided for quarterly.
Gross fundings for Q2.
Approximately 95 per cent of our fundings came from new debt commitments that we closed in Q2, so a real healthy statistic and demonstration of our efforts to drive utilization of our commitments more effectively.
So far we have funded over $18 million of new loans here in the third quarter consistent with prior guidance. We expect gross fundings for Q3, and Q4 to come in between 100 and $150 million per quarter, which is supported by our pipeline our backlog of signed term sheets high utilization rates of <unk>.
New commitments at close sizable unfunded commitments as well as the pattern of our portfolio companies drawing on existing unfunded commitments towards the second half of the year.
We also continue to build a high yielding portfolio with the debt investments we funded during the quarter carrying a weighted average annualized portfolio yield of 13, 2% at origination which is up from 12, 6% last quarter for new investments.
During the quarter, we had loan prepayments of $46 million and as a result, we achieved an overall weighted average annualized portfolio yield on total debt investments of 13, 9% for the quarter, excluding prepayments core portfolio yield was 12% slightly up from 11, 9% last quarter.
Here in the third quarter, we've had $18 million of loan prepayments generating 400000 on accelerated income.
We continue to see substantial equity fund raising activity in the venture capital industry and within our portfolio in particular, which is again, a testament to our portfolio's quality during the quarter 5 portfolio companies raised over $600 million of capital in total in addition to 10 portfolio companies raising over 700 million of capital into.
Total in Q1.
Moving on to credit quality, the credit outlook for our portfolio remained strong with 90% of our debt investments in our top 2 categories.
Distant with Q1, no obligor ours were added to category 3.4 and 5 and no obligor as were placed on non accrual during the second quarter.
In fact, the weighted average investment ranking of our debt investment portfolio improved to 2.06 compared to $2..1 1 as at the end of Q1.
During the quarter 1 company was upgraded from category 3 to category 2 as a result of completing a financing lease.
Moving to only 1 company in category, 3 which is project finance and international graduate student lending company.
During Q2, <unk> paid down $5 million on outstanding loans to us and we're pleased to report debt here in Q3 prodigy completed its first securitization issued $228 million of investment grade asset backed securities and our remaining loans will now switch from Pik interest to cash pay interest based on these.
On the other developments at prodigy, we expect to upgrade them to category 2 here in Q3 or 1 category for portfolio company really continues to be our only loan on non accrual and our mark was flat with last quarter prior to currency fluctuations.
During the quarter talk space completed their spec merger and after the end of the quarter. We have a total unrealized gain of 600000 based on our warrant and equity positions in the company, even though the company never drew on their deadline and their unfunded commitment expired unused.
[noise] Tpg's total to 3 successfully completed spec mergers.
We also have 5 portfolio companies with the announced back mergers in process.
Bird rides enjoy inspiron O and saunter, all announced their specs in Q2 and live learning technologies announced its back during the first quarter, our cost basis in equity and warrants in these 5 companies totaled $1.7 million with a fair value of $3 million as of Q2 Gen.
Generally we do not mark up on investments in these type of situations until merger exchange ratios are announced and then we further discount to fair values given the uncertainty associated with their completion.
As you can see there hasnt been a slowdown in exit activity within our portfolio. In fact, we continue to have more than a dozen T. P. V. G portfolio companies actively exploring ipos spak mergers or M&A, which if consummated could unlock substantial additional value for our shareholders from our equity and warrant portfolio.
In addition, the private equity raising activity for our portfolio companies continues to result in significant enterprise value accretion, particularly in the Fintech and software sectors..1 portfolio company that I would like to highlight is resolute accompany that the triple point platform has supported since their series a.
The round in 2016 and T. P. V. G has been involved with since their series C equity round as both a lender and an investor in the company the.
The revenue team has built a global leader in the Fintech space and announced in Q3 and equity raised at a 33 billion valuation.
Although we have not completed our fair value process for Q3, we estimate T. P V Gs equity and warrant investments to be valued between 10 and $20 million up from $1.8 million as of Q2 or an increase between 25 and 60 cents per share to net asset value.
While still on rise realized gains. This is another great development from the TPG portfolio, but more importantly, not the only 1 that we believe will deliver meaningful gains as we have many portfolio companies that are heads down and doing great things.
Clearly we are excited by the outlook for both unrealized and realized gains on the equity and warrant portfolio, which position us to provide shareholders with capital gains and to grow net asset value, but we're also pleased with the solid credit outlook and our strong yield portfolio, sorry strong yield profile for the portfolio and as Jim mentioned.
And we will not compromise, our Holly selective investment strategy and our thoughtful portfolio construction for growth's sake, we have a track record of covering our distributions since inception and have plenty of spillover income to cover the recent shortfall compared to NII or large pipeline strong levels of signed term sheets.
Increasing commitment growth higher utilization rates and meaningful levels of unfunded commitments are great indicators for near term portfolio growth, which we believe will enable us to cover the distribution on a quarterly basis. This year, but we're not going to force portfolio growth unnaturally.
Jim and I are now starting our 23rd year of working together and our track record is unmatched we've been through several market cycles together and have consistently delivered exceptional performance throughout by being thoughtful and focused and we're quite excited for what's in store for TPG with that I'll now turn the call over to Chris.
Thank you sigal and Hello, everybody.
Let me take you through our financial results for the second quarter of 2021.
Total investment income for the quarter was $23 million with a portfolio yield of 13, 9% on total debt investments for the second quarter as compared to $23.8 million and $13.7 per cent for the prior year period total investment income reflects a lower debt balance.
Because of significant loan prepayment activity since the start of the pandemic. We're pleased that the portfolio yields continue to be strong and stable.
Operating expenses were $10.9 million, an 11% reduction as compared to $12.3 million for the prior year period, we recorded lower operating expenses across all major categories, including for $1 million of interest expense and amortization of fees $3.1 million of base management fees.
$2.4 million of incentive fees.
500000 of administrative expenses and 800000 of general and administrative expenses net investment income was $9.4 million or <unk> 30 per share for the second quarter compared to $8.9 million or <unk> 29 per share for the first quarter.
Net unrealized gains on investments for the second quarter were $3.2 million or <unk> 10 per share, resulting primarily from favorable fair value adjustments on debt investments of $1.9 million on warrant and equity investments of 800000 and favorable changes in foreign exchange rates of 500000.
During the second quarter. The company recorded a 1 time $681000 or <unk> <unk> per share net realized loss on extinguishment of debt. This was the result of the full redemption on April 5th of our baby bonds with this redemption complete we expect a positive effect to earnings as we continue to lower our.
Cost of capital going forward.
Net asset value increased quarter over quarter and year to date.
Net increase in net assets, resulting from operations was $12 million or <unk> 39 per share. Despite the 1 time loss on extinguishment of debt and not covering the regular quarterly distributions.
As of quarter end total net assets were $403.1 million or $13 <unk> per share compared to $401 million or $13 per share as of March 31st and $404 million.
For $12.97 per share as of year end.
I'm pleased to announce that our board of directors has declared a regular quarterly distribution of 36 per share from ordinary income on July 28 to stockholders of record as of August 31st to be paid on September 15th.
We continued to retain significant spillover income, which totaled $12.4 million or <unk> 40 per share at the end of the quarter to support additional distributions in the future as we continue to experienced portfolio growth over time and further record loan prepayment income we expect to see net investment income grew.
ROE to a sustained level to cover our current regular quarterly distribution levels.
Now, let's move to our commitments. We are pleased to note that we have had high utilization rates of our new commitments during the quarter. We ended the quarter with $164 million of unfunded commitments to 22 portfolio companies.
$70 million of this total will expire during 2021 and 85 million will expire during 2022, if not drawn prior to exploration.
<unk>, 7% of these unfunded commitments have contractual floating interest rates all of these unfunded commitments have a prime rate floor of 3 on a quarter or higher.
This compares to the existing loan portfolio outstanding at quarter end, which had 50% contractual floating interest rates.
Now just a quick update on our credit facility term debt and funding capacity.
At the end of the quarter, there were no outstanding balances under our $350 million revolving credit facility.
As of quarter end term notes outstanding totaled $270 million and we ended the quarter with 8.67 times leverage ratio or an asset coverage ratio of 249% in April given the strength and diversity of our portfolio and a reasonable level of leverage we maintain D. V. R. S confirmed the company's <unk>.
Great.
It'll be long term issuer rating and upgraded T P vg's trend outlook to stable.
As of quarter end, the Companys total liquidity.
Was $383 million compared to $252 million as of December 31, we.
We believe that we have sufficient available capital today to execute on the funding estimates that have been provided during our call.
We continue to have a substantial investment funding capacity, resulting from successful debt raises over the last 12 months and ongoing healthy cash flows from the current portfolio. We continue to see the ongoing contractual repayments of principal and loan prepayments as a natural and important part of our high quality and <unk>.
If I'd venture lending portfolio.
We expect to draw capital under our revolving credit facility when needed to grow the portfolio with accretive debt financing, which will benefit our shareholders.
So this completes our prepared remarks, and we'd be happy to take your questions. So operator could you. Please open the line at this time.
We will now begin the question and answer session.
A question you May Press Star then 1 on your attached on phone.
If you are using a speakerphone please pick up your handset before pressing Nikki.
So let's try your question. Please press Star then 2.
Our first question today comes from Finian O'shea with Wells Fargo.
Yeah.
Hi, everyone. Good afternoon.
First question subtle.
Just to ask I guess about the growing venture landscape on on both the debt and equity side.
Now we talk about.
New debt entrance often on this call but.
I'm seeing more.
The more you know 5 financial investment firms across the board going into venture equity.
Can you talk about how.
Generally these these pockets are.
In terms of their demand for for venture debt.
And their strategies as it is it generally more or less.
Jim actually do you want to talk about the competitive landscape and maybe.
Yeah and from a competitive standpoint at least in terms of the market, we're serving and recall, we're only working a group with a group of the better select venture capital investors.
There's really been no change there there are it continues to be the aggressive equity environment.
And theres, some balance to that now which.
Which is the only competition, we worry about there's certainly folks here and there that tried to dabble in venture lending or new entrants and why not because look at the attractive yields that we generate in this business, but at the end of the day. The barriers are about reputation references relationship.
It's not about what was you know just having capital and in a business card.
And it continues to be about not only the venture ecosystem of a community of networking and in deal flow and entrepreneur said, we've worked with it but it's also about the specialized due diligence in this whole segment that it requires so at least from our standpoint, there really hasn't been any cash.
On a change in the venture lending.
Competition Arena, if that's what you're referring to.
Oh, yes for now.
For.
And.
Another I guess sort of a high level, but as it relates to.
Your origination portfolio.
Sure.
You saw decent repaid this quarter.
And in decent impact of Prepays on the top line, but.
You know feels like it's maybe not what it used to be you know.
Something we've been thinking here in recent quarters.
Perhaps a trend but is that something you observe and how would you comment on that.
Yeah, there's a subtle here what I would say is you know 1 of the benefits of working with quality sponsors and great companies as they support their companies and so you know, particularly last year right. During the uncertainty of Covid. What we saw was on our VC investors deployed more capital into their portfolio companies and so.
We saw significant amount of equity raising within the portfolio and and as a result, we saw a particularly robust prepay activity last year I think now we've seen the the mindset or theres more balance in the system I would say right last year. It was more reactive in terms of the equity raise.
Now, we're seeing folks are kind of now back to good old growth and so the capital raises our balance with regards to equity raising and debt raising and so so I would say, we're seeing because of that I think we're seeing kind of stabilization is where I would say are more return to normal when it comes to prepay levels.
Prepay activity and then I think as Jim mentioned in his remarks, what's even more interesting is we're seeing those companies that were so well funded with equity Latin fresh equity last year now coming back to the debt markets because they realize that debt is a critical part of the cap structure and theyre looking to to top off those raises so so I'd say.
Definitely we're seeing more balance and more.
Thoughtful use of both equity and debt for for companies that are raising equity now.
Sure. It makes sense and are all critical for a third 1 if possible.
So we've seen a you know this is something that happens a little bit over time, but feels like another increasing trend of your portfolio.
Portfolio companies are showing up in other bdcs I'm, not only venture ones, but more typical ones.
Would you describe that as you know.
For these companies graduating.
Into more traditional financing or or those other bdcs being perhaps more aggressive and all that that's all for me. Thank you.
Yeah, again, I would say listen we're supportive of our portfolio companies. We have the full capacity of our platform to meet their needs regardless of size or a transaction type I think though we you know we stick to our knitting when it comes to return structure and again that thoughtful balance.
<unk> debt and equity and we also have the benefit of of insight with with the venture investors that we have those long standing relationships and then you know because of our long history in let's call. It the farm system of working through the platform. We also have the added insights of track record and performance of the credit So I would say.
Our thoughts are we don't lose credits that we want to stay in assuming the risk return profile on balance is there and so we hope all all of our companies recognize that it's not about the cheapest or the largest it's about the balance and pedigree and as Jim talked about but not all not everyone necessarily sees.
So again, we've been doing this 23 years, we know you can't win them all and you know someone may come in with a dirt cheap term sheet are ridiculous size transaction and we're just not going to play in that market and so we just again stick to our knitting and and so more.
More power to others, if they want to get more aggressive with regards to price for size, where we don't want it.
Very well thank you subtle.
Yeah.
Our next question comes from Crispin Love with Piper Sandler.
Thanks.
Good afternoon, so following up on the previous prepaid question.
Just looking at the third quarter on.
I see the $8.18 million of prepayments through August for can you just talk a little bit about how July has compared to the first and second quarter and then with the third quarter would you estimate that third quarter prepayments should be similar to Q2 levels.
Chris I'll start and then maybe if you can do some of the quarter over quarter comparison, so so kristin for welcome.
I would say the our prepaid on activities primarily related here in Q3, 2 equity fund raising activity. So I'd say, there's no pattern of wealth. They pay in July or first of the month or second month and third month I think for for for these companies in particular this quarter. It was a function of when equity rounds closed.
And large equity rounds and so the.
The timing of paying us off.
It was related to that.
And I'd say in general as I mentioned earlier in the prior questions that we're definitely seeing more balance with regards to the the prepay levels and not all portfolio companies that raise equity or necessarily prepaying, all or some of their debt. So I'd say definitely more balanced Chris I don't know if you want to comment with regards to just.
Prepay activity, where we are today versus Q2 or Q1.
Yeah, I would just add that the 18 million that was referenced on the call today is 1 transaction and much like we've seen in the past.
It's it's it's really measured onesie twosies, it's not it's not you know we're not a credit card business, where there's a lot of prepayment activity. It's very much a specifically identified on short notice and so that's I would say that's consistent for both first quarter second quarter and then the 1 transaction so far this third quarter.
Okay. Thanks, that's helpful and then on looking at the funded debt investments in the second quarter.
It believe it was for 76 million to 7 portfolio companies can you just break out the mix of those of those 7 companies.
Was it a mix of new and existing portfolio companies out of 7 and then which what other Subsectors you where you funded there and I guess just also just which Subsectors are you most excited about right now.
Yeah, maybe I'll work backwards, and then give Chris [laughter].
From time to to pull in so I would say.
Clearly, what we're particularly excited about Fintech software E Commerce and in health Tech those are our core sectors that that we deploy our capital in and then I think Christian as we said in the prepared remarks, you know the good the utilization this quarter of fundings or.
Of new commitment funding so higher percentage of the portfolio companies that closed deals in Q2 actually utilize so I'd say, particularly high percentage for new customers because the transactions. This quarter were new customers and then and then I do believe there were.
Maybe 1 or 2 companies that were from existing customers that had follow on fundings.
On their unfunded commitments, Chris any more detail you wanted on yeah. There were 5 new customers and 2 existing so they're very very consistent what what social had referred to during his prepared remarks as far as our existing.
On our relationships, our existing commitments versus new commitments in the second quarter and actually funding as well.
Great. Thank you for taking my questions.
Yeah.
Our next question comes from Christopher Nolan with Ladenburg Thalmann.
Hey, guys I'm, Chris in your comments did you just for did you say that you expect quarterly EPS to cover the dividend in the second half.
I didn't say that was what I was what what are.
Our trend will be is to originate to get to a level, where it's sustainable. So we clearly need to get to the $100.150 million in the in the third and fourth quarter, and then where we are on track for doing that.
Great and I guess for Jim strategically given the discussion on and Washington are raising the capital gains tax what do you think that'd be the implications for the venture debt market.
Yeah.
So.
In the whole venture lending arena.
I think it's mostly due to the nature of the companies and also the nature of the business and the tax losses and those kinds of things that.
Changes in capital gains and the effect on on venture lending at least so far hasn't come up as any kind of potential issue for companies for prospects.
And the venture lending side I do know on the equity side.
Venture capital, there's a lot more debate a lot more issues a lot more concerns, but at least right now we don't see that as a factor in terms of whether or not a company.
Wants to use a debt financing.
With warrants attached to grow their business.
Okay. That's it for me thank you.
Our next question comes from Casey Alexander with Compass point.
Hi, good afternoon I'm.
Just 1.
Probably not very important question, but the scheduled principal amortization.
Does a lot higher for this quarter does that include like a full pay off at maturity as opposed to too you know regular kind of quarterly drip by drip amortization.
Yes, Casey that included the $5 million debt such as I had referred to in his prepared remarks.
From product from product, yeah, a little bit lumpier than you would have otherwise expected.
Yeah, So we shouldnt be looking at that level of.
Regular quarterly amortization next quarter.
Right.
Yeah Okay.
And touch on you made reference and forgive me I didn't quite catch.
Catch it at the time.
About.
Doing something to encourage better utilization of the unfunded commitments that you have and I'm not I didn't quite catch it if you could go over that again it would be helpful. Sure.
Sure Casey so as we look of the 76 million that we funded this quarter 95 percentage of those were obligor is where we closed transactions with them in the quarter, so rather than having a you know.
And on <unk> entered a loan commitment and then waiting for them 6 to 12 months to potentially draw on their unfunded commit with with US This quarter, we drove higher utilization of the new commitments to actually draw at close.
Or is there something that youre doing to encourage that or.
Well, let me take driving on that channel perspective, so for.
The yields went up and the warrant value went up I would say, it's it's an element of use case of how some of the companies where we're using the debt just negotiating discussions with them and and I would say again kind of where these companies on our from a growth perspective, just wanted to accelerate.
And and utilize the capital now so I'd say, it's a little bit of structuring a little bit of specific to the companies and then a little bit of it is how the capital is actually being used.
Okay.
Right great. Thank you for.
Sure.
Our next question comes from Devin Ryan with JMP Securities.
Hi, great good afternoon, everyone.
Great to see the growth of the pipeline and maybe dig in a little bit more if there's any other or.
For any additional color you can share just on the makeup and how it's been evolving whether it's on your pricing structure and.
Kind of comparing the first company then versus the last company zone.
Jim do you want to take the pipeline question.
Oh yeah.
Yeah. So.
So if.
In terms of pipeline growth and some other drivers.
It's a little bit more of a balance environment now it was 1 thing during a let's say the the height of the 2020 pandemic, where there were huge rounds and entrepreneur is where we're grabbing big valuations and to $300 million are at once and in rounds.
That was the those are the primary are a way to finance companies and now I think with the step back even with these kinds of valuations in this environment. It's you know after all you using debt to complement and enhance the equity raise.
Ms using debt to finance acquisitions versus just pure equity dollars and some of the other things going on as I mentioned in prepared remarks about.
The stack environment.
Some of the code the interest rate increases and inflationary fears out there and everything it's like I would say, there's there's a lot more I guess I keep using the word balance here that we're seeing and the pipeline literally AR increased 50% over last quarter.
I'm actually expecting debt that kind of Oh right. The preview. This current quarter I don't know if I answered your question or not but in the market today as it is despite robust yeah go ahead, if I might add.
I would say Devin. This is it's fundamentally the companies are focused on growth and so what.
What growth means is it's they're accelerating spend and so they they need more capital and as Jim was referring to it's now it's a more of a balance between using equity and debt and I think it goes back to that core theme of right now investors private equity investors for the next round are rewarding companies for <unk>.
<unk> line growth for achieving those business milestones sooner and faster and so it's in the.
The alignment for these companies to accelerate growth because theyre being rewarded for it because that's what investors are focused on for this next round and so and then the value proposition of venture debt continues to be right, where less dilutive than raising equity and so it's just.
That's why we just continue to see strong demand.
Okay. That's great color. Thank you and then.
Maybe a bigger picture question just love to get your reaction here clearly you guys have done this a long time and so as you think about the evolution of the venture space and really get the quality of the companies that are in this space today, whether it's been tech or software ecommerce for some other areas.
That are attractive.
How has that progressed.
Have you seen an environment with as many call it quality companies as there are today in those areas.
It's been an evolution here, but in a positive way and does that at all change your thinking on leverage comfort or kind of bigger picture does that change anything just given that there has been kind of a progression in terms of quality of I think the entire universe, but love to just get your thoughts on that yeah, I mean, let me.
Starting on Jim Please feel free to add in so so I would say you know again, we've been through a couple of these cycles. What we again, we can only comment on the universe of other venture capital funds that we work for right what sorts of an upper echelon, a higher tier, but what I would say what would definitely strikes me as different is you know.
20 years ago during the Tech bubble, you would see 6 or 8 companies that did the same thing and they were funded by Premier V. C's, but they all kind of did I can tell you. There are probably 3 different pet stores are equivalent and so there were just a number there was a lot more money funding a lot more overlapping come.
<unk> and I think what makes us feel really great is despite these strong levels if not record levels of VC equity investment activity. We're not seeing you know the fifth version of that whatever the getting funded and so it's I think again, we're just seeing great companies, great Subsectors getting funded great teams.
Yes, there is some overlap, but it's not as head to head is as we saw or Commoditized switch, which makes us feel really great I think interestingly enough.
You know I would say, we're not seeing increased levels of leverage within those companies because again, we're in a robust equity environment and so we continue to have a playbook, we know what their representative amount of debt a company on each stage of their development vis vis other milestones and enterprise value and.
Investor base should be so I don't think you'll see us kind of get overly aggressive from that perspective, because you.
We've been there done that but I would definitely say, we're just feeling great. I mean, these are great companies solid companies and great backing and doing good things in achieving a lot of great things.
Yeah, I can only add them.
Haven't been involved in it that long with the sixties, probably 1 V. C started but my observation is for pretty much along those lines as well as really venture capital. The field itself has progressed and maybe it's a recency effect, but I would absolutely agree.
The quality is probably the highest over this long span and being involved in the business and I think in large part some of it to do venture capital. There's a lot more developed has progressed through the years VC firms are more organized sectors technologies structuring.
Deals is much better understand understood now than maybe 10 years ago, and 10 years before that.
And a lot of it's just learning from the ups and downs excesses of the past, but it's a much more refined business and G to see all this money in the market today and the opportunities for debt and the quality of these companies and entrepreneurs again in that upper echelon that we.
Deal and as just have to use that word overused word exciting, it's very exciting times and.
Some of the best times, we've seen in the market over the long span.
Okay.
Great I will I'll leave it there thanks very much.
Our next question comes from Ryan Lynch with K B W.
Hey, good afternoon. Thanks for taking my questions. The first 1 I just wanted to hit on a debt.
The kind of market activity.
Yeah.
They kind of outlet for exits and prepayments I mean.
So far in the first 2 quarters in 2021, it doesn't look like ex dates or prepayments have really been elevated relative share there.
Kind of activity.
That you have seen in the in the venture capital space and so I'm. Just wondering do you expect that day changes because 1 would think that debt given the activity in the venture space that debt prepayments and exits would actually increase.
But again, we haven't seen that do you expect that to occur on the second half of 2021 and do you expect.
You guys fund needs to be able to outpace that if that is going to occur.
Yeah, right, so I would say.
You know the prepayment activity for US has been primarily due to private raises of equity capital not M&A or IPO financings.
We're not banking on it take out you know, we don't need that exit event.
To take us out so so it's it's primarily equity fundraising because these companies just have so much cash and their banks that they are paying us off so when that the exit event actually occurs.
Theres no prepayment because again, we've been prepaid for some time I'll pick on revenue as an example.
Huge equity rent well, that's on an exit but you huge raise.
<unk>.
Some of them they have paid us off some time ago or so I would say you know clearly here and there we do have some portfolio companies that you know, let's say the spec generation that that may have some debt outstanding, but I would say historically its been the takeout or the prepay has been as a result of an equity raise and that's why when we see the exit event.
Being at an IPO and M&A or a spec merger, where we're only seeing the uplift in the equity and warrants because we we already saw the debt free prepaid now as we look to second half of this year in terms of prepayment activity from our core equity raises as I mentioned, we're just seeing a little.
More balance from portfolio companies that are fund raising or that are closing fund raises debt.
Debt, there, they're either waiting to pay off the debt, they're either not paying off the debt or we're talking with them about creative ways to keep the debt outstanding So I'd say.
And again, we're coming off a base of last year, where there was just so much equity activity that we saw such a.
Unusual our Lehigh prepay activity, but definitely more balance this year and I think we'd expect more balances as we kind of end of the year, which we think will then translate into meaningful portfolio growth.
Okay.
That's helpful color on understood.
Then the other question I had was.
You talked a lot about and this is for the last really several quarters.
A matter of capital coming into bad debt the venture.
Venture capital ecosystem with a level of several portfolio companies, you know engaging spak mergers or raise significant amounts of capital you on the private markets. It.
It feels like it's a really robust exit environment slash a good environment for capital.
Capital, raising and increasing valuations across the debenture space now I understand that you guys do have a big <unk>.
Again likely coming in in the third quarter for.
From a revolt, but are you surprised because there's a little bit surprising given the level of activity that there is in the marketplace in the venture space.
You guys book values, only got 40 basis points.
In the first 2 quarters in total in 2021, I would have expected more games via the equity and warrant portfolio, just given how robust the backdrop in the environment, you're in and kind of what you've talked about as far as capital Raisings and.
<unk> activity.
Great question, Chris do you want to take.
Take it in and comment on private company valuations.
The equity valuation.
It is you know it is an interesting question.
Public versus private valuation cycle. It's it's it's not as simple as just taking you know the last round times. The number of shares we hold it's much more complicated than that you know on.
On the revenue situation is as an example, there there's a range of acceptable private company valuation methodologies that have to be applied including you know.
Liquidity discounts.
And preferences and the like and so on the other the other thing that we're experiencing that subtle talked a little bit about earlier on the call was the impact of our approach to being more conservative on valuations for those portfolio companies impacted by potential upside valuation on the spec side. So.
There's a handful of names that are already in this back process that we expect upside, but you don't price deals today based on future value, but on current fair value and so I think there's some hidden gems in there and so those will come out over time in this back kind of ultimate ultimate dis backing and going on are going through that process, but again a lot.
You know all of our portfolio companies are private so we have private warrants preferred stock substantially all preferred stock so.
It's a little bit more complicated and there's a there's a lag between those events compared to having all public listed securities where you see that pop right away and it's just less volatile in our portfolio. So we didn't have the downside that you might have seen in other portfolio say a year from a year ago from today.
Mhm.
On.
Understood I appreciate the commentary.
Those are all my questions.
Have a good afternoon.
Thank you.
This concludes our question and answer session I'd like to turn the call back over to Mr. Bob Day for any closing remarks.
Thank you operator, as I always like to thank everyone for listening and participating in today's call. We hope everyone enjoys the rest of the summer and have a very healthy August then continuing remaining good health.
We look forward to talking with you all again next quarter.
Thanks, again, everyone and goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.