James Labe: Yes. Yes, absolutely. So again, I think I covered it a fair amount of it in our prepared remarks. But I would say, again, we’re not expecting overall market conditions to change materially here in Q4 and then early into 2024, right? The VC market is not going to kind of flip the other direction overnight. But what we’re seeing, right, is that our portfolio companies now have — have had almost a year to deal with the realities of this economic environment and the change in the venture capital environment to understand what the new standards and the new metrics for success are in the venture capital ecosystem not only from an operational perspective but also from a fundraising perspective. We talked about managing that balance between hyper growth and burn at all cost.
We talked about driving solid unit economics, either having a path to profitability, being profitable or convincing investors how you can with an incremental financing. So I would say it’s not the market recovery that we’re banking on or that we’re optimistic as we look to 2024. Candidly, it’s the hard work of our entrepreneurs and our portfolio companies of adapting and changing and surviving and making it through. And so clearly, we’ve had some portfolio companies that weren’t successful in pivoting and adjusting to the environment changes, and that explains the stress that we’ve seen. But we also have roughly 90%, right, that’s sitting in our top 2 categories where they’ve responded and they — not all of them are that have success in 2024, but I’d say we feel, again, we’re coming to the end, given the adapting and the adjustment.
But again, conditions can change, execution. These are start-up companies that can make mistakes, and so things could change. But at least as we look today, we look at the response, we look at the game plan, we look at the cash runway of the portfolio companies. And then the last piece is the fundraising activity even in this environment that our portfolio companies here in Q4 and Q1 that are on track for, again, I think it’s small amount of light at the end of the tunnel. We’re not saying it’s over, but some positive data points for us as we go into ’24.
Operator: The next question comes from Casey Alexander with Compass Point.
Casey Alexander: Just a couple of questions. Chris, you said you pulled cash down from the credit facility at the end of the quarter to meet some regulatory hurdles. Could you tell me how much that was? Because I just — I’m trying to get to a more normalized leverage ratio at the end of the quarter as opposed to the reported 1.62x.
Christopher Mathieu: Yes. So I would say the — that is a quarterly event that you would expect to see for at least the next 2 or 3 quarters, but that’s not the average cash outstanding. So if you’re trying to calculate weighted average debt outstanding for interest expense. So there are a number of quarterly tests that all BDCs have. And I would say there’s at least a handful that do the same approach that we’re doing where they have a larger gross asset. And some people use it through swaps or treasury bills. We found that it’s most efficient to use the existing credit facility we have to gross up the balance sheet. But to answer, I guess, most direct, you should expect for at least another 2 or 3 quarters that the cash balance would be elevated. So kind of gross net leverage would be kind of consistent with what you’re seeing for this quarter.
Casey Alexander: Okay. Secondly, you mentioned in response to a previous question that there’s a couple of companies that where your loans are maturing in the first part of next year. And by your inhibition, you don’t expect the environment to change. How confident are you — there’s nothing more binary than the maturity date of a term loan. How confident are you that those companies have a financing or some type of an event that creates the conditions that will allow them to make timely repayment on those loans.
