TriplePoint Venture Growth BDC (NYSE:TPVG) Q2 2019 Earnings Call

0:00 Good day and welcome to the Triple Point Venture Growth second quarter 2019 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Christopher Gastelou, Interim Chief Financial Officer. Please go ahead.

0:42 Thank you, Ashley, and thank you everyone for joining us today. We are pleased to share with you our results for the second quarter of 2019. Here with me are Jim LeBay, Chief Executive Officer and Chairman of the Board, and Sajal Srivastava, President and Chief Investment Officer. Before I turn the call over to Jim, I would like to direct your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements and remind you that during this call, we will make certain statements that relate to future events or the company's future performance or financial condition, which may be considered forward-looking statements under federal securities law. We ask that you refer to our most recent filings with the Securities and Exchange Commission for important factors that could cause actual results differ materially from these statements.

1:30 We do not undertake any obligation to update our 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 tpvg.com. Now, I'll turn the call over to Jim.

1:56 Thanks, Chris, and good afternoon, everybody. The second quarter represented not only another good quarter, the term that we've been using to describe the past several quarters, but the quarter was truly a great quarter. Our business continued with its ongoing strong performance and returns. In this quarter, we're pleased that our results also reflect and demonstrate the power and value of the warrant kicker. The component that we receive as part of the loans we make in our venture lending business, as well as the direct equity investments that we make in some of our portfolio companies. Once again, we generated a quarter of strong earnings and more than covered our dividend.

2:41 We're making great progress on all fronts, with our earnings, growth in net assets, originations, funding activities, ROE, Sajal Srivastava, James Labe All the signs bode well for the remainder of 2019, and we remain excited on the outlook for continued growth in the portfolio.

3:30 Here's a few of the highlights. Our earnings per share more than doubled over the quarter of a year ago. We earned well in excess of our dividend from an NII perspective. We continue to post attractive portfolio yields with a 16.5% weighted average portfolio yield on our debt investments, including prepayments. This was the exact same weighted average portfolio yield that we had last quarter as well. We had a notable unrealized gain this quarter from an IPO at one of our portfolio companies, and we actually had another IPO within our portfolio occur as well just after the close of last quarter. Our Net Investment Income, or NII, for the first half of this year also increased 36% over the same period of a year ago.

4:24 We also saw our NAV increase this quarter by 60 cents. Another outstanding achievement was a 28.5% ROE for the quarter, based on the total net income and help by our unrealized gains, certainly an ROE figure all by itself in a class for BDCs. Our ROE for the quarter based on net investment income was 12%, a number that we've been running good 10% or more above for the last several quarters as well. To wrap up, I'd like to point out that all of these quarterly accomplishments were achieved with only modest leverage. And now with increased credit facilities, The signed term sheets we already have in-house and a strong pipeline.

5:13 This capacity and the ability to employ additional leverage gives us the potential to enhance our returns even further. The recent IPOs at CrowdStrike and Medallia greatly contribute to our unrealized gains. During the second quarter, CrowdStrike completed its IPO on June 12th. It opened trading at $63.50, After pricing its IPO at $34 a share, which was above the high end of its expected range, the company raised more than $600 million. While we were under a six-month lockup period, as of the end of the quarter, the unrealized gain on our investment was $18 million.

5:58 The stock continues to perform well, and as of yesterday's close at $94 a share, it represents an unrealized gain of $25 million in total. In addition, after the close of the quarter, as I mentioned, another portfolio company, Medallia, they priced an IPO at $21 a share and raised over $325 million. As of yesterday's close, Medallia's stock price was nearly double its IPO price. Aside from these IPOs, we continue to also have positive developments in many other portfolio companies, with several raising new rounds of capital or getting acquired. Sajal will provide more specifics on these events.

6:47 For delivering this performance, dividend coverage, and returns to our shareholders, we didn't have to stretch. We didn't need to use excessive leverage. We didn't change market strategies or our investment discipline. We continue to keep and stick to our long-standing venture lending business fundamentals at venture growth stage companies. These haven't changed since the day of our IPO five years ago, a little over five years ago. As we look ahead, momentum in our market remains strong and the demand for venture lending at venture growth stage companies continues to be brisk, as evidenced by our large and growing pipeline. There's no lack of deal flow. We plan to capitalize on this pipeline and build upon the achievements of these first two quarters of 2019 for the remainder of this year and the years well beyond.

7:43 Our performance speaks for itself. This is about results, not words. In closing, I'd also like to acknowledge that this month marked the 20th anniversary of Sajal and I working together, which is unprecedented in the venture lending industry. and is across two industry-leading platforms. TriplePoint Capital as well as TPVG have benefited from the continuity of our partnership and leadership together over that 20-year period. And we look forward to at least another 20 or more years of leading the industry and the TriplePoint platform. I'll now turn the call over to Sajal.

8:25 Thank you, Jim. Happy anniversary and good afternoon, everyone. During the second quarter, we signed $204 million of term sheets at TriplePoint Capital, closed $98 million of debt commitments with nine companies, and added five new companies to the portfolio at TPBG. The first was Talkspace, which is an online and mobile therapy platform matching patients with licensed therapists and psychiatrists. Talkspace has raised more than $100 million of capital from Norwest Venture Partners, Spark Capital, Steve Case's Revolution, and other investors. Imperfect Produce is an online grocer creating a more sustainable food system by sourcing Imperfect Produce and surplus food directly and delivering these goods to consumers through a customizable subscription service.

9:17 Imperfect has raised more than $47 million of capital from Norwest Venture Partners, Shasta Ventures, Maveron, and other investors. TransFix is an online freight marketplace that uses algorithms and machine learning to provide full-load shippers better prices and truck owners with more attractive routes. TransFix has raised more than $78 million of capital from new enterprise associates, Canvas Ventures, Lair Ventures, and other investors. Curology is a direct-to-consumer subscription-based service offering prescription-based skin care products. Curology has raised more than $20 million of capital from Forerunner Ventures, Sherpa Capital, and other investors.

10:02 Finally, Bird, which operates as a dockless electric scooter company developing a vehicle sharing platform. Bird has raised more than $270 million of capital from Sequoia Capital, Excel Partners, CRV, and other investors. As Jim mentioned, we achieved a record level for our investment portfolio this quarter as a result of funding $72.5 million of debt investments with a 13.8% weighted average yield on new fundings to 13 companies. That 13.8% yield on new fundings is up from 13% last quarter. We also funded $1.7 million of equity investments in five companies.

10:47 During the quarter, we had $42.5 million in portfolio company prepayments which contributed to our 16.5% overall weighted average quarterly portfolio yield. Without prepayments, our portfolio yield was 13.7%. As a lender, we're always happy to get our capital back. Prepayments are one way, and we had a meaningful amount last quarter. But we're also pleased that our portfolio generates between 2 and 3 million of natural principal amortization per month. Moving on to credit quality, the weighted average investment ranking of our debt investment portfolio was 2.03 as compared to 1.95 at the end of the prior quarter.

11:32 As a reminder, under our rating system, loans are rated from 1 to 5, with 1 being the strongest credit rating, and new loans are initially generally rated 2. MindCandy was upgraded from Orange 4 to Yellow 3, due to continued improvement in capital raising activities. Cambridge Broadband and Rowley were downgraded from yellow three to orange four due to delays in fundraising or strategic activities as well as general performance below plan. MapR Technologies, a company where we have only equipment financing outstanding, was downgraded from white two to red five during the quarter. As reported in the press, MapR is in active M&A discussions.

12:19 As Jim mentioned, during the quarter, CrowdStrike had its successful IPO and has traded up almost 50% since then. During Q2, we also had six portfolio companies raise over $600 million of equity in private rounds, and post-quarter end, Medallia completed its IPO and has been trading well. Alongside our record-level investment portfolio, we have a strong backlog that provides great visibility into potential near-term portfolio growth over the next few quarters. At the end of Q2, our unfunded commitments totaled roughly $350 million to 25 companies, of which $91 million is dependent upon the companies reaching milestones before the capital becomes available to them.

13:08 162.7 million of our unfunded commitments will expire during 2019,157.3 million will expire during 2020, and 30 million will expire in 2021 if not drawn prior to expiration. During the quarter, we renewed and increased our warehouse facility from 210 million to 265 million with our existing lenders and added an accordion feature enabling us to upsize to 400 million. We anticipate tapping into the accordion in Q3 as we look to lock in additional variable rate funding capacity to take advantage of movements by the Fed. As we utilize our warehouse and lever up, we will look to use long-term debt as the way to free up capacity, diversify our balance sheet, and approach one times leverage.

14:00 As of quarter end, our top five positions represented 36.5 of the total debt investment portfolio on a fair value basis, down from 50.9% in Q2 2018. We continue to make progress in diversifying our portfolio, thanks in part to overall portfolio growth, as well as utilization of our co-investment capabilities. Since receiving our exemptive order, TPVG has made 10 co-investments with TPC's proprietary vehicles, and this gives us meaningful financial flexibility as we scale the business. In closing, given that we are at the halfway mark on the year, we are pleased by the record level of our investment portfolio, year-to-date NII in excess of our dividend, substantial NAV growth, and exit activity of our portfolio companies.

14:55 We are heads-down focused on a strong finish for the second half of the year and on maintaining our credit quality. I'll now turn the call over to Chris to highlight some of the key financial metrics achieved during the quarter.

15:08 Thank you, Sajal. As mentioned by Jim and Sajal, the second quarter was another strong quarter for TPVG. Second quarter total investment and other income was $18.9 million, an increase of 14.4% compared to the second quarter of 2018. Our investment portfolio generated a weighted average yield of 16.5% during the quarter, including prepayments and other activity, and 13.7% without. This compares to 17.2% and 13.9% in the second quarter of 2018. The increase in total investment income relative to the prior year was primarily due to portfolio growth and to a lesser extent, the favorable impact of the rise in benchmark interest rates.

15:54 Expenses during the quarter were 8.8 million consisting of interest and fee expense of 3 million, base management fees of 2.1 million, income incentive fee of $2.5 million, and administrative and general expenses of $1.2 million. Expenses increased approximately 14.4% over the second quarter of 2018 when they totaled $7.8 million and were comprised of $2.5 million of interest and related expense, base management fee of $1.8 million, income incentive fee of $2.2 million, and administrative and general expenses of $1.2 million. The increase in expenses was largely related to asset growth, which impacts management fees, higher average debt outstanding, and higher incentive fees associated with performance.

16:45 Net investment income for the second quarter was up 15% to $10.1 million, or 41 cents per share, compared with $8.8 million, or 50 cents per share, in the second quarter of 2018. The increase in NII was driven by portfolio growth, while the decrease in NII per share relates to a higher share count and the higher level of prepayment income on a per share basis realized in the second quarter of 2018. We had nominal net realized losses of $17,000 in the second quarter, which related to foreign exchange effects on our non-dollar denominated debt investments. And we had net unrealized gains during the quarter of $13.8 million, or $0.55 per share, consisting of mark-to-market activity on the investment portfolio.

17:33 As discussed earlier on the call, the mark-to-market appreciation was primarily due to price appreciation in our publicly traded equity holdings and CrowdStrike and was somewhat offset by fair value marks across the portfolio. Overall, net crease and net assets for the quarter was $23.9 million, or $0.96 per share, compared with $8.4 million, or $0.47 a share, in the year-ago period. During the quarter, we generated return on average equity of 28.4% and return on average assets of 18.2% on an annualized basis. This compares to an ROE and ROA of 14.2% and 8.6% for the year-ago quarter.

18:18 Net investment income as a percentage of average equity was 12% for both the quarter and six months ended June 30th, 2019. Now turning to the balance sheet. We funded $72.5 million of debt investments to 13 companies, acquired $0.7 million of warrants in 10 companies, and made $1.7 million of equity investments in five companies during the quarter. We had four companies repay outstanding obligations prior to maturity in the amount of $42.9 million and had principal amortization on the remaining debt portfolio of $8.4 million. All told, we ended the quarter with long-term investments of $496 million at fair value, up 24.5% from the prior year and up 14.4% from year-end 2018.

19:08 At quarter end, we held 166 investments in 65 companies with a cost basis of $482.4 million and a fair value of $496 million. The company's debt portfolio at quarter end had a cost basis of $457.2 million and Fair Value of $444.7 million. We ended the quarter with total liquidity of $203.6 million consisting of cash of $24.4 million and $179.2 million of under-run availability under our revolving credit facility subject to borrowing base and other restrictions. Total outstanding borrowings for the quarter end were approximately $159 million, consisting of $75 million of long-term fixed rate notes maturing in 2022, and $86 million drawn under our revolving credit facility.

19:59 This put us at a leverage ratio of 0.5 times, which is essentially flat versus Q1, and gives us ample capacity to expand the portfolio without accessing additional capital. We ended the quarter with net assets of $352.7 million, or $14.19 per share. This is up 69 cents year to date and $1.05 from a year ago. During the second quarter, we distributed $0.36 per share, consisting of our regular quarterly dividend. I'm pleased to announce that our Board of Directors declared a distribution of $0.36 per share for the third quarter. of which 51.6% represents a spillover dividend as a result of over earning the quarterly dividends in the fiscal year ended December 31, 2018. The dividend is payable on September 16th to stockholders of record as of August 30th. This marks the 22nd consecutive quarter we have increased or maintained our quarterly distribution rate.

20:59 I'll now turn the call back over to Jim.

21:03 Thanks again, Chris. At this point, we'll be happy to take your questions. Operator, can you please open the line? We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we'll pause momentarily to assemble our roster. Your first question comes from Finian O'Shea Wells Fargo. Please go ahead.

21:44 Finian O'Shea Wells Fargo Hi guys, good afternoon. Thanks for taking my question and congratulations on the quarter and anniversary. Question on a couple of the portfolio names downgraded, Roly and Mind Candy. You footnote that part of those loan structures have become past due. Can you comment first, high level, given the robust venture capital environment, what that might mean for companies that couldn't find a solution or catch a bid from a new venture sponsor perhaps?

22:29 and then more on the ground level, what sort of game plan you would have for a company that still holds some value according to your mark but is obviously past due on the loan per se. Thank you.

22:51 I'll start and then Jim, Chris, please jump in. So, Finn, to answer your question, generally, when there are delays in fundraising activity, you know, we collaborate with the sponsors and, you know, be helpful where we can. And in certain situations, it may be delaying payment or deferring payment. And then our expectations are for either full catch-up of the payment post-capitalist strategic event occurring or or those may get added to principal balance. So generally that's our rule of thumb is we may delay or defer payments during those extended periods for the rounds or the strategic processes to happen and then once they do, caught up and then current.

23:38 Very well. Thank you for the color. And then if we can do another name on Imperfect Produce sounds like sort of one of these delivery services of perhaps not widely distributed food. Those businesses, at least on the headline sense, haven't held up very well in some cases. And also that name, I think you mentioned, has raised $47 million. which is on the lower end, I think, you know, of companies that you typically finance on their lifespan.

24:23 Can you kind of, you know, give us some color on the asset value or the intellectual property value on that name?

24:35 Yeah, well, let me comment generally on maybe our consumer companies and then can talk more specific. Maybe a high level first, I guess, Finn, is When it comes to capital raising activity, we only share information that's in the public domain. And so to the extent that for many of our companies, those rounds may actually not be announced, may not have been announced. And so we're not going to preempt generally any company and their capital raising activities. And so, again, equity round activity that we disclose is only information publicly available. Secondly, again, if you look to our core thesis of companies that are rapidly growing minimum revenues of $20 million. So in particular, as we look to e-commerce companies or consumer companies and those that may have historically raised or publicly raised lower amounts of equity capital, most of them are ridiculously efficient and have revenue growth rates and significant scale and enterprise value that are beyond the capital basis, their equity capital basis.

25:42 So my takeaway is you'll be freaking impressed by the profiles of our companies, in particular, some of the names you mentioned, just given the growth and the infrastructure they've built. I'd say last point of grocery in general, you're absolutely right. I'd say 20 years ago, the approach that many online grocery companies took were capital inefficient. And the great news is the next generation of companies have learned and are piggybacking off the knowledge gained to be more efficient, have solid unit economics, and great support from investors.

26:19 Sure. Thank you for the color. And just one more small one, if I may, on Medallia, which IPO'd post-quarter, as you noted. Were there any additional... Rights to Invest. Would we expect additional exposure post-quarter or should we go by what we see on the June 30 profile?

26:45 Hey, Finn, it's Chris. Yeah, you should go by the June 30th profile in terms of our holdings.

26:52 All right. Thank you guys again. The next question comes from Matthew Howlett, Nomura. Please go ahead.

27:02 Hey, guys. Congratulations. Thanks for taking my question. I just wanted to walk through, just to look at the back half of the year. Earlier in the year, you gave some guidance on the $75 to $150 million of funding. I know there's going to be, obviously, prepayments. You had four in there. And then you said that you're going to utilize the revolver at some point. and Jim Curse, please jump in.

27:45 So absolutely no change in terms of the guidance that we've given for quarterly fundings for second half of the year. Minimum $75 million, we hope as high as $150 million. As you know, the second half of the year is the busier time of the year for our portfolio companies as they kind of boost balance sheets for capital raising activities, year-end audited financials, things of that nature. So we continue to feel very confident for meaningful portfolio growth over the second half of the year. I think with regards to prepays, we continue to feel confident about one prepay on average a quarter. We've obviously had, I think, two or three Q2, two or three in Q1, so we're not using those to average to one.

28:30 We have not had any prepayments so far here in Q3. We have no known knowledge as of right now of any prepayments underway. But again, those things usually materialize towards the end of the quarter. and yet we are feeling given the pipeline, the backlog with the unfunded commitments and the visibility that we have of getting to target leverage by the end of the year.

28:57 I can't really add to that so I'll just embellish and reinforce by saying again one, sometimes one to two per quarter has always been our guidance and we do like and expect prepays as part of this great model and good contributors to return and Obviously pick up some prepayment penalties at the same time. Given the pipeline, we're going to continue and see strong growth in the portfolio here by year's end. That's the model.

29:27 Dave, a tremendous momentum. And I think you said that it's been a couple years since you accessed the bond to turn market there. And certainly your bank are recognizing that with the increase in the facility. Any sense on the appetite to turn out? and some dead. And could you see an improvement from when you came back a couple of years ago?

29:50 Yeah, great question. So I'd say one is a good indicator is our baby bonds are trading well, trading above par. So that's a good indicator. We're glad we did not rush to leverage up given today's Fed announcements. So again, I'd like to say that we continue to show our discipline in terms of Capital Raising. I don't say we're just in time. We're thoughtful when it comes to when. We're not going to be pressured to raise capital just because the stock may be trading a certain way or the bond may be trading a certain way. We're doing it based on the funding needs of the business. We've got great long-term support from our credit facility lenders stepping up and providing us, again, the largest single warehouse facility in the venture lending industry.

30:37 So we're proud of that. We have parties that are interested to help us with the accordion, so we're excited to pursue that. And then I think as we drive utilization, we'll explore what's the right way to take out. Is it long-term debt? Is it securitization? And so we're just, again, focused on building a quality portfolio, scaling it up, and then we'll be mindful of how best to diversify the balance sheet.

31:04 Great. And then last question. I know you have a real stable Sajal Srivastava, James Labe, Steven Mitchell Levinson

31:34 Yeah, no, I mean, I'd say definitely at the end of the day, it's what our entrepreneurs and our VC partners, they're the ones that drive the exit activity. The great news is that our VCs are in it for the long haul. They're not here to make a quick killing, so to speak, on the investments. They're investing in industry-leading, multibillion-dollar potential companies. I would say there's no doubt that our entrepreneurs and VCs are mindful of the current challenges both on the private basis and in the publics and in the M&A. And I think those that see the ability to drive further value and make some interesting realizations are exploring it. I would encourage you maybe Google some of our larger portfolio companies and you can see those that have some chatter with regards to exit activity.

32:27 But as Jim said, there are definitely others that are exploring, considering, and working on exit activity events.

32:36 Great, guys. Thanks a lot and congrats. Your next question comes from Casey Alexander, Compass Point. Please go ahead.

32:47 Good afternoon, and also, again, congrats on the 20 years and on some incredible successes this quarter. I think I know the answer to this, but could you explain why there's no capital gains incentive fee accrual given the unrealized gains that you had in the quarter?

33:10 Yeah, sure, Casey. This is Chris, and thanks for the question. So essentially, the short answer is that the cumulative gains, you know, it's a lifetime test that we haven't, you know, exceeded the threshold yet. And that may be a little hard for you to discern because we did revise some of our accounting a couple of years ago. So you don't necessarily see that show up in the balance sheet.

33:40 So you still have tax book losses that you can apply the gains to even though they're not on the balance sheet?

33:47 Yes. Well, you kind of flipped subjects to tax. We're talking capital gains incentive fee here.

33:57 Well, I mean, without it being on the balance sheet, how would we know how to model expected capital gains?

34:04 Yeah, I think maybe simplified, it's We've had historic realized losses, and those realized losses are offsetting the incentives associated with these capital gains, Chris. Is that the simple way to say it?

34:20 Another way, yes.

34:22 Right, but without it being on the balance sheet, how much do we know is there? I mean, I know this, I had this conversation with Andrew Olson when this was done, and this was a part of the conversation that we had, that when you remove those losses from the balance sheet, we don't know what's sheltered or not.

34:40 Yeah, so we can get maybe more detail offline, but I think, you know, the gross numbers was we had, it was about 20 million upwards. prior to this quarter, so you can see that this quarter didn't quite overcome $20 million yet?

34:56 Okay.

34:59 Just correct me if I'm wrong, Chris, but I think in our footnotes in the queue, there is a statement about the cumulative realized losses and gains.

35:15 Okay, secondly, yeah, go ahead. I was going to say, we can maybe get to a little more detail offline.

35:22 Okay, that's fine. Secondly, Medallia, at the second quarter, the mark was $610,000. Do you know what that mark related to in terms of a price per share for Medallia? I mean, we can see where it's trading now, but the IPO didn't happen until... James Labe, Steven Mitchell Levinson, Mike Wilhelms

36:15 I think they might have even posted the price range before quarter end. Maybe I'm off on that, but the rules relate to us. Since the IPO occurred prior to the publishing of the financial statements, we were able to factor in a little bit the outcome of the IPO and coming up and striking a fair value mark at quarter end.

36:38 Okay, on MAP-R, do you know, I understand that it's in some sort of a sale process, but do you know what the residual value of the equipment that is under the equipment lease is compared to what the valuation is that you're carrying it at the end of the quarter?

37:05 Generally, Casey, we're financing mission-critical equipment, servers, furniture, hardware, data center equipment, and so the fair value mark that we put for the quarter is our expected recovery, factoring in residual value, payments from potential M&A, and things of that nature. But generally speaking, hardware residuals are anywhere from 10 to... 30% of original cost if you look at the historic hardware lease financing data.

37:42 Yeah, and these have been paying down for quite a while, right? Correct. Yeah, okay. All right, thanks. Thanks for taking my questions. Thank you. Your next question comes from Christopher Nolan with Leidenberg Talman. Please go ahead. Please go ahead, Christopher Nolan.

38:07 Hi, guys. Sajal, for the 75 to 150 growth that Matt was discussing, is that for portfolio growth or is that just funding before prepayments?

38:17 That's funding. Thanks, Chris. Yeah, correct. That's prepayments.

38:22 Okay. So are you guys still targeting for the $300 to $600 million growth or sounds like you're coming in below that?

38:30 Well, 300 to 600 of total fundings for the year offset by prepayments. We've had roughly 90 million of prepayments here today.

38:41 Gotcha. And in your comments, I thought I heard that you guys were talking about using long-term debt, you know, possibly. Given the interest rate environment, I mean, at least for the balance of the 2019s, shouldn't we expect you just to use the credit facility more actively?

39:00 Yeah, no, I mean, again, right, especially after today, right? So, again, for us, you want to make sure we have sufficient funding capacity, and so it's a balance of we don't want to over-optimize. We want to make sure we have sufficient liquidity. I mean, the good news, right, is with a 16.5% yielding portfolio, we're somewhat indifferent with 25, 50 bps changes in Fed rates, and so it means deploy more capital, deploy more but yeah, we want to be mindful of making sure we don't rush to raise leverage and lock ourselves into higher cost long-term capital if we expect rates to come down.

39:43 Final question, are you seeing more entrance into the venture debt market?

39:49 You know, it's a question without coming across the wrong way that People ask almost every month, and it's been, I want to say, 20 years now since our anniversary. So there's always speculation. There's always talk. There's always all kinds of folks in the so-called venture lending business are about to jump into it. And at least the market that we serve, again, which is working with just a defined group of select venture capital investors, leading ones associated with some of the biggest tech, life science successes of the past several decades. In the market we serve, there's been no change, imperceptible, no change at all. So maybe out in the larger market, there's things going on, but not in our market.

40:40 And you can tell that by looking at our pipeline and our deal flow and our business.

40:47 Thank you, Jim. Your next question comes from Ryan Lynch, KBW. Please go ahead.

40:57 Hey, good afternoon, and thanks for taking my questions. First one, you talked about CrowdStrike and a couple other names. It obviously seems like a very healthy IPO market and venture capital market in general. You saw the benefits of this quarter and probably next quarter with the big move up in CrowdStrike. I'm just wondering, With that sort of very healthy IPO market and venture capital market, we saw the benefits, but are there any dynamics that present some issues? A couple I could think about would be guys IPOing versus taking on venture debt because the IPO markets are open, or companies maybe prepaying quicker because those markets are open, which could hurt portfolio growth. just trying to think through, there are obviously some positive dynamics, but what are some of the struggles that occur with a really healthy IPO market and venture capital market today?

41:56 Yeah, no, a very thoughtful question, Ryan. So I would say an interesting takeaway or the way that we look at it is when you see robust M&A and IPO activity, what our data shows is it actually causes other companies to accelerate, to move faster, right? And it shows that, hey, we need to run faster, grow faster, to potentially pursue an exit event faster and sooner. And so what does that mean? These are cash burning companies. It means that they need to spend more. In order to spend more, they need more capital. And so that's really where we would argue the value proposition of venture debt in particular is the greatest because it enables those companies to raise more capital for that growth acceleration without setting a valuation like an equity round does which then would be what the basis for an M&A or an IPO.

42:49 So I'd say high level we think there's a benefit as it causes more demand as companies want to kind of accelerate growth. On the other hand though, as you point out, these companies may not be around for as long and the journey may not be as long and so that may delay or cut off a long-term potential customer down the road. But again, if you look at the data The average time for M&A and IPO for a venture-backed company, although it's come back a little bit, is still between seven and nine years from that initial funding. So it's not like prior times where that acceleration to the exit event was a year, two, or three. So it still represents a strong opportunity for venture debt. I think the last point, though, is to the extent that we're in a robust equity environment as we saw in 2017 and here now and then.

43:46 If companies choose to go the equity path, top off rounds of financing, maybe to set valuation prematurely, then yeah, that does cause either them to prepay our debt, delay drawing on unfunded commitments or not potentially utilize our debt at all. So again, it's multiple levers, but at least given the pipeline and the data points that we're seeing, we're feeling really good that it's just causing kind of the entire ecosystem to pull itself up, run faster, and burn a little more capital and need more capital.

44:22 Okay, that makes sense. It's a very helpful, thorough answer. One other question I had, if I just look at your year-to-date highlights, you guys closed about $290 million of new commitments year-to-date and have funded about $163 million. So can you just walk through maybe historically what percentage, when you guys make a new commitment, what percentage of those commitments actually end up funding down the road, if you have kind of a ballpark figure with that? and then also I know some of those commitments they're milestone based so obviously if the company doesn't hit their milestone it won't get funded but maybe can you talk about some of the other reasons why you make a commitment it eventually doesn't end up in the funded category?

45:09 Great question. So let me start and please Jim jump in. So I'd say the fundamental data point for Ryan for everyone for the triple point approach is We fundamentally lend to great companies that have recently raised a round of equity financing. So we lend to companies that have cash. So we are not last-minute bridge financing. And that's a strategic part of our approach, lending to companies that have recently closed a round of financing. It validates investor support. It validates enterprise value. It validates your LTV calc, right? And so we then provide our commitments to those companies, generally with a 12 to 18-month availability period, to burn through some of that equity capital that they've raised. And after they've burned through that capital, use our venture debt to give them more runway so that they can achieve more milestones and command a higher valuation rate Be it in that next equity round, be it in the IPO, or be it in an M&A. So again, we're that lighter fluid financing to help them maximize valuation for that next event.

46:24 So what happens sometimes, or so that's the general thesis of our approach to lending, of lending to companies with cash, and the fact that they delay typically the time that they use our debt typically towards the middle or the end of the availability period. And so we expect generally when we commit to a company that a small percentage will draw it closed because, again, of the meaningful liquidity they have day one, and that we'll expect to see some initial utilization between month six and nine, and then the maximum, if not the majority of the utilization towards the end of the availability period before it expires. And that's why we report when the unfunded commitments expire because we think, again, there is a correlation to expiration and utilization of our unfunded commitment. You know, I would say we used to say the rule of thumb was 75% of our unfunded commitments would get utilized before the end of the availability period.

47:28 I think given the robust private equity Thank you very much. that's available to them and they may ask for us to extend availability or we terminate and then revisit like we use the halftime analogy and come back 12 months later in the third or fourth quarter.

48:10 Yeah, I think that's well said and covers it. I mean, there's some other uses, acquisitions and so forth that our companies use these lines for, but I think that covers it very well.

48:21 That makes sense and that's Really good caller. Those are all the questions that I had today. Great quarter. I appreciate the time.

48:30 Thank you. Your next question comes from Casey Alexander, Compass Point. Please go ahead.

48:43 Hi, just a quick follow-up. Knowing that the Fed did cut rates today and so that does affect the prime rate, when does that take effect on your loans? Does it take effect immediately or does it take effect at the end of the third quarter?

49:01 It takes effect immediately, but keep in mind we do set prime floors for our portfolio companies and so to the extent that loans were originated in a All right. Great. Thank you. This concludes our question and answer session. I would now like to hand the conference back over to Jim Labe for any closing remarks.

49:50 Thanks. I'll close again by expressing my appreciation to all of you for your continued interest and support in TriplePoint Venture Growth and attending, I guess, our 20th anniversary month here between the co-founders. and hope you share our enthusiasm and excitement heading into the back half here at 2019 and what we believe is going to be a truly strong finish for the year. Thanks and we'll speak to everyone again soon. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.