John Hecht: Congratulations on a good year and a good quarter, and I appreciate you taking my questions. First 1 is, I mean, it’s very clear that the public markets have gone from a kind of hard landing to softer landing kind of valuation and narrative and expectation that I’m wondering, Scott, maybe how does the feel in the venture capital world in terms of their viewpoint on the climate. And what does that mean for kind of the demand for your product and the opportunity set?
Scott Bluestein: Sure. Thanks, John. What we’re seeing across the ecosystem is, I would say, caution, but also optimism. The VC firms have record amounts of liquidity available to invest. When you look at the investment activity numbers for 2022, you can look at it 1 of 2 ways. You can look at it relative to 2021, which was the best year on record, and you can say that it was down year-over-year, which is absolutely factual. But you can also look at it and say that the 2022 investment numbers represented the second strongest year in the history of venture capital activity. And so we chose to sort of look at it somewhere in the middle. We think the fundraising activity that was a record level in 2022 is a very strong signal of what we expect to be an acceleration of VC investment activity over the next 12 to 24 months.
We’re also continuing to see the same trends that we saw throughout 2022. Good companies are able to raise money. The valuation discussions are a little bit more difficult. The VC firms are more valuation sensitive. But deals are still getting done for the companies that deserve to be funded. And whether it’s on the equity side or the debt side, there have always been and there will continue to be a handful of companies that probably should not be getting financed. And until all of that sort of works its way through the system, and that will take some time, you’re going to continue to have this sort of volatility that we’re seeing both in the public markets and in the private markets as well.
John Hecht: Okay. That’s great color. And then the second question is, look, I mean, you’ve had a history of extraordinarily low losses. And obviously, your current credit book is still really strong. I know you have regulatory restrictions on leverage. But given your kind of loss content and your credit book, is there any potential appetite to kind of move towards the higher end of your leverage target over time? Or how do we just think about the application of leverage you’ve — given your — again, that terribly low loss ratio over time?
Scott Bluestein: Thanks, John, for the question. Two things. One, and we’ve talked about this publicly before. In the venture lending or growth-stage lending asset class, driving leverage up is really challenging. And the reason for that is the duration of our assets. Throughout 2022 on a quarterly basis, our average duration was somewhere between 12 and 16 months. Right now, our average duration is roughly 15 months. And so when your portfolio is turning that rapidly, it’s very difficult to drive leverage up on a consistent and sustained basis. As of the end of Q4, we were operating at roughly 113.7% from a GAAP leverage perspective. Our guidance or our ceiling as publicly indicated is about 125%. So there is some room for us to drive that up.
And if the portfolio growth is as strong as we expect it to be in 2023, it would not surprise us if that number gets driven up slightly, but we’re not a firm that has traditionally or will, on a go-forward basis, push the envelope with respect to leverage because even though it might help generate some additional return. We don’t think in our asset class, it’s the most prudent thing to do.
