David Spreng: Yeah. Of course. Well, so first of all, as it relates to the underwriting, if there is not a sponsor and we really define that as, to be sponsored, the company needs to have an investor or more than one investor that could be called and we will return the call and actually provide capital on a very short notice. So that’s what VCs are meant to do. That’s what PE firms do. And a non-sponsored company could be an owner-operated business and it could even be a public company or it could be a private company that had venture investors, and they may still sit on the Board, but they are out of dry powder and have no ability to support the company. And if that is the case, either of those things, if for whatever reason, there’s no deep pocket to call in an emergency then our underwriting is going to be much more focused on liquidity, path to profitability, a predictability of revenues and we are going to — everything is going to be a lot tighter, I would say, and that is how we underwrite these.
And so they are going to be a little more mature. They are very often even they are older and have been around a long time. And in some cases, they have been profitable for years and years and years and then they decide there’s a growth initiative that justifies an investment, and perhaps, even dropping out of profitability. But after a year or two, they will return, and of course, we are going to analyze that extremely closely to make sure that we believe it and understand the scenarios of what would happen if for whatever reasons, that return to profitability takes longer than planned. So the underwriting is different, and I would say, it’s characterized as being more conservative and more cautious and requiring more liquidity, and probably, tighter covenants.
And then on — in the situation of distress, it depends which one of the non-sponsored buckets you are in, if it’s an owner-operated business where it’s like the entire livelihood of the owner, CEO, you know they are going to do everything in their power to not hand the keys over to us, where the venture model, whether we like it or not and we tend to focus on the late-stage companies were where this is less prevalent, but the venture model is still based on home runs and based on being willing to walk away from a loser because you know you are going to have a winner in one of the next deals. That’s not the case with an owner-operated company. It’s their whole life. So from that perspective, the counterparty is much more motivated to make sure that there is not a problem.
And then in the case of a public company and you will see we have several in the portfolio and most of them are in the biotech world and our able to tap into the public markets through the ATM structure and that’s an important part of our underwriting, making sure that they are able to gain access to additional capital. And then, most importantly is we will really scrutinize as we do with every company, how quickly we could sell the company, because at the end of the day, most of our companies are going to end their lives in an M&A process, and if there is a default, we don’t want to foreclose, we want to pressure them, encourage them to sell the business. And so really understanding who the buyers are, what the multiples are and how quickly it can be sold.
That analysis will be even more important in a non-sponsored company. I don’t think we have ever had a loss or a workout as it related to a non-sponsored company. I mean we have only had four losses — four workouts and almost no losses. So, so far, the non-sponsored part of our business has been without any kind of blemish.
