TriplePoint Venture Growth BDC Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

Key Takeaways

  • TPVG reported net investment income of $0.53 per share in Q1, exceeding its $0.40 distribution and marking an 11% distribution increase since Q3 2022, while delivering a 17.8% ROE for the second consecutive quarter.
  • The portfolio’s weighted average yield rose to 14.7% in Q1 (up from 14.2% in Q4 2022) and is poised to benefit further from February–March rate hikes.
  • Failures at SVB, Signature and First Republic have altered the venture lending landscape, creating a durable competitive edge for TPVG and boosting its pipeline of new and replacement loans.
  • Portfolio diversification improved with 59 funded borrowers (vs. 48 a year ago), top-10 concentration down to 32% (from 40%), and over half of those top-10 companies either EBITDA-positive or projected to be.
  • As of March 31, TPVG maintained 1.49x leverage, $188 million of liquidity (including $27 million of spillover income), and a cumulative net loss rate under 3% of commitments since inception.
AI Generated. May Contain Errors.
Earnings Conference Call
TriplePoint Venture Growth BDC Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth BDC Corporation First Quarter 2023 Earnings Conference Call. This conference is being recorded and a replay of this call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the Q1 of 2023. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board Sajal Srivastava, President and Chief Investment Officer and Chris Matthew, Chief Financial Officer. Before I turn the call over to Mr.

Operator

Labe, I'd like to direct your attention to the customary Safe Harbor disclosure in the company's press release regarding forward looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward looking statements made during the call, which reflect management's opinion only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.

Operator

Tpvg.com. Now, I'd like to turn the conference over to Mr. Labe.

Speaker 1

Good afternoon, everyone, and thank you for joining TPVG's Q1 earnings call. During the Q1 of 2023, we continued and generated net investment income or NII of $0.53 per share continuing to demonstrate the earnings power of our portfolio. NII for the quarter exceeded our quarterly distribution of $0.40 per share. Including TPVG's most recent distribution increase in March of this year, we have now increased our quarterly distribution 11% since the Q3 of 2022. Based on our net income during the quarter, we realized a 17.8 percent ROE, which is the 2nd consecutive quarter we've been above the 17% ROE level.

Speaker 1

We also achieved a weighted average portfolio yield for the quarter of 14.7 percent and our 8th While credit was impacted this quarter, Given the current down cycle and macroeconomic market conditions, our team is working through these events in this cycle as it's part of the multi decade experience in venture lending and our long term track record. Given the unprecedented developments at both Silicon Valley Bank and Signature Bank last quarter and extending right into this quarter at First Republic Bank, There are significant and lasting impacts from these events, and we expect these developments will continue to have a monumental effect From a market perspective, it is turning into a major game changer that has significantly and potentially permanently altered the competitive landscape for venture lending, translating into what we believe are increased and growing opportunities While some banks are in the process of stepping in to fill the void created by SCB, Their focus has been on traditional bank services, such as depository, credit card, investment management and other services. In terms of venture lending, given this emerging post SCB environment, bank appetites have changed To date, we really haven't seen any of these other banks or for that matter, any other participants Enter the venture lending market in a meaningful way.

Speaker 1

Based on conversations with our venture capital partners, and the associated drawbacks of bank lending. This has further demonstrated the value of the TriplePoint Financing relationship and the role and importance of our venture lending as part of these companies' overall financing strategies. The departure of SCB has also resulted in increased deal flow and has contributed to our building TriplePoint platform, which also includes providing new or replacement loans previously received from banks. At the platform level, We have a number of high quality lending opportunities to companies backed by our select venture partners, where we are or will be replacing a major market The pipeline is continuing to build as these are not overnight situations and will continue to be part of our portfolio growth and build out over the next few quarters and well into the future years. Turning to the current venture markets, during the first We've continued to see lower venture capital investment activity quarter over quarter, driven by no surprise, primarily by the tightening monetary policy and the downturn in public company multiples and valuations.

Speaker 1

We're in a cycle. We're in a period of valuation resets for venture growth stage companies. Given this market backdrop, however, Based on conversations with some of our venture capital partners, there's already early signs and a very widespread belief that investment momentum will pick later this year and into 2024. Especially given the $300,000,000,000 in pitch book NVCA's estimated dry powder that venture capital funds still have at their disposal. Although VCs continue to focus on existing companies and TELUS Continuing to wait out this market volatility, there's now a growing and strong sense among them forecasting better times ahead.

Speaker 1

With that said, across our sponsors platform, we are finding new pockets of venture capital investment activity starting to pop up and witnessing investment appetite starting to increase in tech investing and it's not only in such fields as generative AI, but in several other sectors as Well, we continue to find that deals are still getting done. It's simply been taking longer in a slower pace. Within the pipeline, we also continue to have demand for venture lending from companies planning out their timetables and also encompassing debt in their financing strategies and capitalization plans. Some of these companies are financing for opportunistic acquisitions or previously equity only companies which are continuing to turn towards debt and layering in as part of their go forward plans. Venture growth stage companies that raised equity over the last year or so at attractive valuations Having stated all these opportunities, however, TPVG is going to continue to remain selective Consistent with our approach, we will focus on companies that have recently raised capital, have meaningful revenue scale and whose plans in the next 1 to 2 years will position them to perform well in this volatile economic environment and under these current challenges.

Speaker 1

Despite the macroeconomic environment, inflationary concerns in the broader economy, A number of TPVG portfolio companies continue to grow, with some experiencing tailwinds for achieving profitability. We're pretty optimistic on the outlook for many of these diverse investments that we funded in 2022 And the portfolio benefits from investments in these sectors as diversified as network detection, frontier tech space, Enterprise vertical software, FinTech, Next Generation Sports Digital Media and others to name a few. To wrap up, the exit of SCB during the end of March will have significant and lasting impacts on the market over the long term and create multi year opportunities. We add these opportunities already underway for us in the wake of the SVB development Based on our track record of working with these select venture capital partners as well as to capitalize on these developments in a disciplined fashion over the long term to create sustainable shareholder value. With that, I'll turn the call now over to Sajal.

Speaker 2

Thank you, Jim, and good afternoon. As Jim discussed, we continue to remain active in the venture lending market at our platform TriplePoint Capital and maintain our extremely selective and focused approach with $199,000,000 of signed term sheets with venture growth stage companies in Q1. Given TPVG's leverage position, we are selectively new commitments to TPVG with the majority going to other vehicles on the TriplePoint Capital platform and as a result for the Q1 closed debt Commitments at TPVG totaled $4,000,000 During the Q1, we funded $57,600,000 in debt investments 14.1 percent at origination. Of the obligors funded during the quarter, roughly half generate annualized revenues in excess of 100,000,000 reflecting the increased size and scale of our portfolio company. Our core weighted average portfolio yield for Q1 was 14.7%, which was up from 14.2% in Q4 and represented our 8th consecutive quarterly increase.

Speaker 2

Our Q1 portfolio yield does not yet reflect The 2 25 basis point rate increases announced in February March, which will more meaningfully impact portfolio yields starting in Q2. As a result, we are optimistic for another quarter of increased portfolio yield and for portfolio yield to continue to stay strong in 2023 given the rate environment. Although we didn't have any prepayments in Q1, they continue to be a part of the business and we still expect at least 1 to 2 customer prepayments per quarter with one previously announced prepayment expectation of ForgeRock's $30,000,000 loan in conjunction with closing their take private transaction in addition to others in the works. In terms of our expectations for fundings in Q2, With our reduced allocation of new commitments to TPVG and low utilization of existing unfunded commitments, our forecast for gross investment fundings is in the range of $25,000,000 to $75,000,000 for the 2nd quarter, down from our prior guidance of $50,000,000 to $100,000,000 with the potential to grow as we increase our allocation of new commitment to TPVG. During the quarter, we made continued progress Diversifying the TPVG portfolio by increasing the number of funded borrowers to 59 as compared to 48 1 year ago.

Speaker 2

In addition, our top 10 obligors represent 32% of our total debt investments as compared to 40% 1 year ago. While not typical for venture growth stage companies, more than half of our top 10 obligors are either EBITDA positive or are projected to achieve EBITDA. We continue to see equity fundraising activity in our portfolio despite the challenging environment, although at lower levels in Q1, which we believe was also impacted by events associated with the Venture Banking market during the quarter. In Q1, 7 portfolio companies raised approximately $64,000,000 of capital. This brings the total to 32 portfolio companies raising over 1.6 We expect to see fundraising activity gradually pick up within our portfolio quarter over quarter over the course of the year.

Speaker 2

Our equity and warrant portfolio grew well with 155 born in equity investments as of Q1 'twenty three as compared to 128 investments as of 1 year ago. As of March 31, we held warrants in 107 companies, up from 86 companies as of Q1 'twenty two and held equity investments in 48 companies, up from 42 companies as of Q1 'twenty two with a total cost and fair value of $71,000,000 $93,000,000 respectively. During the quarter, We saw a reduction in the fair value of our warrant and equity positions, reflecting market conditions as well as down rounds in some cases, despite strong underlying performance from many of our portfolio companies. It's important to note that we continue to have numerous companies that are growing and expanding and executing according to, in many cases, ahead of plan, as well as achieving EBITDA, particularly those companies in the FinTech, Software, Enterprise and Travel segments, which is why we continue to expect our cumulative warrant and equity investments to generate realized gains in excess of our cumulative realized losses over the long term. In terms of outlook for the portfolio and credit quality, given the environment for direct equity fundraising, The playbook for most of our portfolio companies is to continue to grow, but to do so thoughtfully, while optimizing their cash burn rates to extend their runway to either achieve profitability or for future equity rates.

Speaker 2

With this background, As of the end of the quarter, approximately 84% of our portfolio is ranked at our 2 best credit scores, which means that they are performing at or above expectations Despite market conditions and we upgraded 1 company from category 2 to category 1 with a principal balance of 15,000,000 As Jim mentioned, credit was impacted during the quarter due to conditions in the equity fundraising market, which we believe were also impacted by events in the Venture Banking We downgraded demand also known as Blueco, an insurtech company with principal balance of $17,000,000 from Category 2 to Category 3 due to delays in its strategic financing process. We also downgraded Rental Run, construction technology and logistics company with a principal balance of $3,000,000 from Category 2 to Category 3. Rent A Run has filed for creditor protection in Canada to facilitate a sale or liquidation process, and we look to Our recovery on our loan, both from their cash on hand and other potential asset sales, including the entire enterprise and asset and IP, sorry. Underground Enterprises and E Commerce Retail with principal balance of $6,000,000 was downgraded from Category 2 to Category 3 and is filed for Chapter 7, Bankruptcy Protection.

Speaker 2

We provided an inventory based financing facility to the company and look PayFavor, also known as Pill Club, an online pharmacy with the principal balance of $20,000,000 filed for Chapter 11 bankruptcy protection with the intent to continue operations and potentially reorganize as a standalone enterprise or sell to another company. This is an ongoing situation and we expect more developments to occur in the near term that could result in substantial or full recovery of our low. Also during the quarter, VanMoof, an eBuy company with a principal balance of 23,000,000 and Health IQ, an InsurTech company with a principal balance of $25,000,000 which were both previously rated 3 We're downgraded to Category 4 as they continue to navigate through challenges in their sectors and businesses as well as developments in their strategic financing process. We are in a challenging period of time for venture capital investing and for public technology companies that expect some obligors to experience stress. As we have demonstrated before, our teams have effectively managed through these situations.

Speaker 2

As a reminder, since TPVG's inception now 10 years ago, Our cumulative net loss rate remains under 3% of cumulative commitments or 32 basis points per annum and 2% of fundings or 22 basis points per annum. In closing, we remain focused on all aspects of our business and will continue to follow our long term playbook with a focus on generating strong returns for shareholders, meeting the needs of venture with our select venture capital partners. With that, I'll now turn the call over to Chris.

Speaker 3

Great. Thank you, Sajal, and hello, everybody. During the Q1, we grew core income yields from our loan portfolio. We continued to diversify the portfolio. And while we had elevated leverage as of quarter end, we now sit with a record portfolio size, a diversified capital structure and ample liquidity to meet our targeted funding range.

Speaker 3

Let me drill down a bit more and share an update on the financial results for the Q1 of 2023. Total investment income was $33,000,000 as compared to $27,000,000 for the Q1 of 2022. Our core portfolio yield, which excludes the impact of loan prepayment income, was 14.7% on total debt investments as compared to 12.7 percent for the Q1 of 2022. The on boarding yields continue to be strong and stable. Operating expenses were $15,000,000 as compared to $13,800,000 for the Q1 of 'twenty two.

Speaker 3

These expenses consisted of $9,000,000 of interest Due to the shareholder friendly structure of our total return requirement under the incentive fee structure, Our income incentive fee expense was reduced by $3,700,000 during the Q1. We earned net investment income of $18,600,000 or $0.53 per share compared to $0.44 per share in the same period last year. Net change in unrealized losses on investments for the Q1 was $10,900,000 consisting of 6 point $6,000,000 of net unrealized losses on the debt portfolio and $4,200,000 of net unrealized losses on the warrant and equity portfolio, resulting from fair value adjustments. As of quarter end, total net assets were $414,000,000 or $11.69 per share compared to $420,000,000 or $11.88 per share as of Our Board of Directors declared a regular quarterly dividend of $0.40 per share. The dividend is from ordinary income to stockholders of record as of June 15th to be paid on June 30th.

Speaker 3

In addition to over earning the 1st quarter dividend, We continue to retain spillover income, which totaled $27,000,000 or $0.70 per share at the end of the period to support additional regular and supplemental dividends in the future. Now let's move to our investment commitments. We ended the quarter with $254,000,000 of unfunded investment commitments, of which an aggregate of $73,000,000 was dependent upon the portfolio company reaching certain milestones. Of this total amount, dollars 152,000,000 or 60% of this total will expire during Now just a quick update on our balance sheet leverage and overall liquidity. As of March 31, an aggregate of $395,000,000 was outstanding in fixed rate investment grade term notes and $220,000,000 was outstanding on the revolving credit facility.

Speaker 3

In connection with the term notes, DBRS issued an investment grade rating in connection with those transactions and recently reaffirmed our investment grade standing at a BBB. We ended the quarter with a leverage ratio of 1.49 times. As of quarter end, the company had total liquidity of $188,000,000 consisting of $58,000,000 in cash and $130,000,000 available under the revolving credit facility. In addition to this liquidity, the existing seasoned and diversified portfolio provides predictable cash flows, which bodes well for liquidity throughout 2023. Specifically, we have more than $130,000,000 of contractual cash flows from the existing portfolio scheduled to flow back to the company in 2023 and more than $400,000,000 throughout 2024.

Speaker 3

I'd also like to remind you that loan prepayments are a natural part of our venture lending model and while they vary from quarter to quarter, we expect that they will have 1 to 2 customers prepay in any particular quarter over the long term. As an example, as Sajal had mentioned, we have line of sight on companies such ForgeRock, which is expected to prepay all of its loans in Q2 or Q3 this year in an aggregate amount of $30,000,000 In November, we announced the launch of an ATM stock issuance program and although we have not issued any shares under that program as So today, we do look to issue shares over the coming year. So this completes our prepared remarks and we'd be happy to take questions from you. And so operator, could you please open the line at this time?

Operator

We will now begin the question and answer session. And our first question will come from Finian O'Shea with Wells Fargo. Please go ahead with your question.

Speaker 4

Hi, everyone. Good afternoon. A question on leverage. Sajal, I know you gave a couple of guideposts on Funding and repays with ForgeRock and such, but where does that overall bring you per se next quarter? And then where do you want the BDC to be in terms of net leverage right now?

Speaker 2

Sure. Chris, do you want to actually take this question?

Speaker 3

Sure. Yes. So we're at 1.49 gross leverage. We do have cash on the balance sheet to But rather just use the liquidity on balance sheet. We'd look to the prepayments that we mentioned as well as just normal cash flows The portfolio in Q3 and into Q4, so really not expecting much movement in overall leverage over the next quarter or 2.

Speaker 3

Depending on the prepayment activity, that will depend on what would look what we would look like at the end of the year as far as overall leverage.

Speaker 4

Sure. It's helpful. Thank you. And just a follow-up on the fundings, both this Quarter and for the anticipated ones this coming quarter, how much of that is Ben from previously underwritten unfunded commitments.

Speaker 2

Yes. Well, I'd say here in Q1 and Q2, it's 100% from existing unfunded or 90% plus from existing unfunded commitments given the slower pace in allocation to TPVG.

Speaker 4

And just final question, Any color you can give us on how much that reflects liquidity at the borrower level?

Speaker 2

Yes, great question. So I would say given what I would say is lower expected utilization than we anticipated. I think it's a function of the work that our portfolio companies are doing to balance this Growth versus cash burn rate,

Operator

I

Speaker 2

think in this environment, it's not growth at all costs. As I said earlier, I think it's a balance between Appropriate levels of growth and having sufficient cash runway plus having line of sight to EBITDA profitability or beyond. So I'd say it's a lower utilization is just reflection of lower cash burn rates and more effective use of

Operator

And our next question will come from Chris Benlove with Piper Sandler. Please go ahead with your question.

Speaker 5

Thanks and good afternoon everyone. Just first looking at asset quality, looking at your Right now in the red category, but as you mentioned, 3 companies filed for bankruptcy since quarter end. And, Sal, you mentioned some comments on recovery for Those investments, but can you dig a little deeper into that as to what types of recovery you might expect On those investments on either a percentage or dollar basis and then your confidence there?

Speaker 2

Yes. Again, obviously, these are ongoing And so it's hard to give full information just because they continue to develop. But I would say as we said in our prepared remarks, I mean, I think We generally are confident for or believe to see full or complete recovery assuming facts and circumstances as of today in developments that we expect to occur.

Speaker 5

Great. Thanks, Azul. And then just relatedly, can you just speak to kind of your credit quality Outlook broadly in the portfolio, just in the current environment separate from those investments? And then just on thoughts If you think we would be seeing if you we might see additional bankruptcies over the near term just given the environment.

Speaker 2

Yes. Let me start and then I'll ask Jim to So I'd say, listen, I think the critical outlook for venture lending, venture debt is a direct equity investment environment. And so I would say Q1 is Absolutely a challenging environment for direct equity investing. I think, as Jim mentioned, due to market conditions and Critical factors in the equity world and I think it was further exacerbated by the developments as Jim mentioned In the Venture Banking environment, so if you add that, the month of March was very much a challenging time for both VCs and Venture Banks and Companies as they were sort of navigating The volatility and the uncertainty in that environment. And so I think what you saw is a lot of financing activity and other strategic events either paused or delayed and as just to see kind of fittings and conditions improve And then those things either continue or not continue.

Speaker 2

And so I'd say again Q1 in my opinion was probably one of the worst quarters from a direct equity investment Because of all of those factors, as we look to Q2, Q3 and beyond, as Jim mentioned, I think Our select VCs are they're deploying capital, they're being selective how they're deploying capital. And so we have indicators to see that listen, As we look to credit outlook, again, I think the really good news is that our portfolio companies have been preparing and They have been cutting burn, managing runway, adding capital to their balance sheets. And again, I think a critical element was the other The Venture Banking developments and the volatility and uncertainty in Q1 brought a lot of things to the head. So I think we're expecting stability When it comes to the rest of the portfolio, but again, it's all critical on direct equity investment activity Stabilizing and picking up over the course of the year for those companies that may not be profitable or have sufficient runway into 2024 and beyond.

Speaker 1

Yes. And I think you covered it nicely. I can't really add much other than Again, there's been a pullback by some of the venture funds, no surprise in this market. But there's also At the same time, companies are going through some stressful situations and continue to conserve cash, moderate their burn rates, It revised group growth plans to more moderate growth plans and work on the path to profitability, but it's also got to be balanced by Not only the amount of dry powder, but within the portfolio, as I mentioned, there's a number of companies that are experiencing Some tailwinds in this environment and an example, the company today in the portfolio, Not public, but just signed a term sheet at an uptick, which given this environment It was maybe some signs of where things are headed, but it just working through the situations and the outlook looks pretty good in terms of

Operator

And our next question will come from Kevin Foltz with JMP Securities. Please go ahead with your question.

Speaker 6

Hi, good afternoon and thank you for taking my question. There's a figure in the pitch book NVCA Venture Monitor that highlights the funding gap It's a decade high in the Q1 of 2023 at just about 3.2x. It compares to 29x in the Q1 of 2022. I'm curious what your view is on the shift in capital availability for late stage companies, both what you're seeing in the market and within your own portfolio And what that could mean in terms of portfolio company liquidity should the trend in capital demand to supply remain in balance or I guess even deteriorate further? Thank you.

Speaker 2

Yes, Kevin, that's a good question. So I would say a couple of factors as we look to the later stage companies, right? Those are Companies where the valuation methodology is probably more reliant on the public comparables and the public multiples. And so I think the challenges again as Jim alluded to, there is a mismatch in terms of where prior round valuations We're during 2021 2022 for a number of these companies and where multiples are today. And so the playbook for those companies is You've got to make the decision, will you grow into your current valuation?

Speaker 2

And if so, then the playbook is, listen, how can we extend runway, add some incremental capital from your existing investors to get to the and then hope for multiple some multiple recovery, but fundamentally it's just a function of time and your valuation is not an obstacle for raising incremental capital. I think for other companies where listen they were valued on robust multiples that may not come back or on growth rates that are Capable in this environment, they have to make the hard decision of do you do the down round, do you do other forms of financing flat And so I think that it's a valuation issue for a number of companies. And then I'd add the other element of it is the participants in that Stage of the market included venture funds, PE funds, hedge funds, crossover funds. And so I'd say again given the multiple compression, A number of those non traditional participants experienced major markdowns on their public book, have markdowns in the private book and so they're currently not as active as they used to be and so that's also what's causing the shortfall or the mismatch in the demand versus So what you need is you need time to transpire, you need multiple accretion, you need good data points, you need good companies to come to market.

Speaker 2

And so So I'd say that again, that's why we're expecting to see this recovery come later this year, not in the next quarter or so, but later this year into 'twenty four as a number of those factors all improve and come together?

Speaker 1

They also tend to be opportunities for us to look at. The key is selectivity and being highly selective, but These are actually opportunities as well for our venture lending in the pipeline.

Speaker 6

Great. I appreciate your insight there, and I'll leave it there. Thank you.

Operator

And our next question will come from Ryan Lynch with KBW. Please go ahead with your question.

Speaker 7

My And of unfunded commitments that aren't aligned or any certain milestones, is it fair to assume that throughout the majority of 20 23 that new fundings will primarily be to existing portfolio companies and you'll use Repayments and prepayments pretty much to just deleverage the balance sheet?

Speaker 2

Yes,

Speaker 3

I think that's right.

Speaker 7

Okay. And then the other one that I had, I'd love to just hear and I get it's sensitive, but So if you can't comment, whatever you can say is fine. But I'm curious to hear your thoughts on an investment like The Pill Club, I mean, there's been articles out there that talk about the bankruptcy and a huge decline in revenue as well as huge legal fees in that business. I can't see I don't see it's financials. I don't know if they're sitting on a bunch of cash or something like that or your loan is over collateralized, but something Matt, I guess what gives you the confidence to mark that investment where it is as well as there's other loans in the portfolio that are In bankruptcy or in the process of bankruptcy that you guys have marked pretty close to par, what is in either The pill club specifically or any other investments that are going through this period gives you the confidence kind of mark on where you are despite sort of these fundamental deterioration and the Yes.

Speaker 2

Ryan, let me answer that. I think a great question. So I have to remember that There are easier paths to if you wanted to shut down the company, you don't necessarily go through the bankruptcy process. So from our There's interest in those assets, there's value in those assets and you look at what's the best path to free up those assets to either reemerge or to sell to other parties. So I would say there's a playbook in Managing express credit situations and it's a function of our assessment of underlying value in our playbooks with our teams.

Speaker 2

And So I would say the and then as you look to the method by which you look to recovery, as you said, right, there are various assets these companies have. In certain cases, when we're doing inventory financing, we're secured not only by a formula based Financing for that inventory, so we're not financing 100%, generally it's a discount. So we're secured by that underlying inventory, plus we have the enterprise So as you look to recovery, it's great, the underlying asset that we financed and then the value of the business, the intellectual property, whatever When you look to, as again, other scenarios, right, there's no liquidity, there's cash. And so again, you look through the benefit of liquidation process is an orderly way to unlock those assets to the senior creditors. And then again, I'd say more broadly, when you look to acquirers out there in this environment, they generally want things clean and free.

Speaker 2

So again, I think a bankruptcy process and for companies themselves, right, there is a way when there are strong solid fundamentals of these businesses, But they may have unsecured claims or creditors, and so going through the Chapter 11 process in general is a way to again Cleanse, clean up, restructure, secure debt and then come back and again give it another shot or sell to other companies. So again, I think that it's our team's assessment of the playbook, the path And the underlying assets and in collaboration with our companies, we determine the course of action and that's how we look to set our fair values based on our assessment of The probabilities and the likelihoods and the values of those assets.

Speaker 7

Incredibly detailed. I really appreciate your comments. And then just one last one, if I could. You mentioned you think investment momentum, meaning venture capital and investors, that momentum potentially picking up later Here into 2024. I'm just curious, what are the drivers behind That position just seems like most of the indicators today seem that things are just going to get tighter sort of throughout the year with probably continually fairly high rates, a slowdown in the economy.

Speaker 7

There's obviously some stress in the lending system, and then probably some realized losses in some venture capital Equity and Portfolios. So it just seems that obviously, I know you'd like that investment activity to pick later this year in 2024. But I guess what are the factors that you think could reverse and make that the case?

Speaker 1

I can grab that and feel free to add, Sajal. But venture capital investing is about the long term and it's For the long term and these are typically 10 year plus investment funds and they're looking at the future. They're not looking at this Quarter or today's interest rate increases, those are not factors. What are the factors are? Well, 1, There's about $300,000,000,000 plus of dry powder that is looking to get deployed.

Speaker 1

2, we are headed in terms of my rounds Towards more of a, call it, a rational or reasonable valuation type market after the highs of the recent past. And So there's another momentum for investing. 3 is tech investing is not dead. And if anything, It's as folks look towards efficiencies, particularly if we head more towards a recession and everything else as Artificial AI, which is all day conversations and kind of the new environment here Post the last very high couple of years of Valuations is something that's very appealing, because these are investments in 3, 5 years or whatever, maybe IPOs. And so there's opportunities and I'll just finish, feel free to add Sajal, but some of the best investments we've done historically here At TriplePoint as well as within the venture lending decades have been investing in these Down cycle periods, we're in a down cycle and some of the best tech successes of the past were born perhaps 2,008, 2009 Seeing in later this year, next year and in the future.

Speaker 2

Yes. I mean, I'll only add 2 things. 1 is, We're also gleaning these insights, Ryan, from conversations with the fund themselves. And I'd say it's a function what we're seeing is the clearly the more Funds that have weathered the storm that have been through cycles definitely view this environment as having the potential for opportunity of some of The best deals to get done, but it's a question of when do you capitalize. It's not actually the second, but it's building and I think that's what we're talking to is that Momentum is building over time as quality companies and new entrepreneurs come to market.

Speaker 2

And then I'd say the other piece of it is just from the communication to their investor, So to their LPs, venture fundraising, given the fundraising that's gone on and the marketing and the messaging, they're also signaling that they do expect it to pickup and that they expect 'twenty three vintages, 'twenty four vintages really to be some of their better vintages given the environment.

Speaker 7

Okay. I appreciate the time this afternoon.

Operator

And our next question will come from Casey Alexander with Compass Point. Please go ahead with your question.

Speaker 8

Hi, good afternoon. Is it safe to say that Reno Run, Underground and Hayfavor will all go on non accrual in the 2nd quarter?

Speaker 2

Yes, unless

Speaker 3

something happens more immediate, that would be a fair assumption.

Speaker 8

Okay. Secondly, in relation to Hayfavor and rolling back to Medley Health, in both cases, There were some form of management fraud that contributed to the situation. And it looks to be like they came out of the same underwriting pod. I mean, is there a flaw in your underwriting process that you failed to pick up On the situation to the existed in Hay Paper and Medley Health?

Speaker 2

Okay. So I will answer it. Absolutely not. Again, we stand by our Underwriting in our track record again as you look we've had 170 obligors or borrowers at TPVG. We've had credit losses in roughly 10% to 11%.

Speaker 2

Our loss rates are 3% of commitments, 2% of funding. So I would say The data speaks for itself that our underwriting and our track record over the long term works. And so I'd say that's my first answer. I would say, again, we're not suggesting at both companies where they're fraud. I think Medley, it's again in the public in the filings, Not suggesting fraud at hayfavor and again I think all are unique circumstances and situations.

Speaker 2

Okay. I'll stop there for now. Thanks.

Operator

And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead with your question. Mr. Nolan, your line is open.

Speaker 9

Sorry, I guess. Is VanMoof and HiQ the 2 Canadian companies that you were discussing earlier in terms of going into the bankruptcy process?

Speaker 2

No, no. The one Canadian company was Rent A Run.

Speaker 9

Okay. So HiMoof and HiQ, which I believe are both non accrual this quarter, Are completely separate from that?

Speaker 2

They're not they did not file for bankruptcy, correct.

Speaker 9

Okay. Any details you can provide on that or is that something that

Speaker 2

Again, as we mentioned in the prepared remarks, I think they were downgraded due to just challenges in their market environments in

Operator

And this concludes our question and answer session. I'd like to turn the conference back over to Mr. Jim LeVay for any closing remarks. Please go ahead, sir.

Speaker 1

Thank you, operator. As always, I'd like to thank everyone for listening and participating in today's call. We look forward to talking with you all again next quarter. Thanks again and everyone have a nice day. Goodbye.

Operator

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

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