TriplePoint Venture Growth BDC Corp. (NYSE:TPVG) Q4 2022 Earnings Call Transcript

TriplePoint Venture Growth BDC Corp. (NYSE:TPVG) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Fourth Quarter 2022 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speaker’s remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference call is being record and a replay of the call will be available in the audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company’s results for the fourth quarter and full fiscal year of 2022. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer.

Before I turn the call over to Mr. 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 laws. 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 opinions only as of today. To obtain copies of our latest SEC filings, please visit the company’s website at www.tpvg.com. Now I’d like to turn the conference over to Mr. Labe. Please go ahead.

Jim Labe: Good afternoon, everyone, and thank you for joining TPVG’s fourth quarter earnings call. During 2022, we achieved several key objectives while continuing to take our selective approach given market volatility. We grew the portfolio to record levels, generated both record investment income and record NII and over-earned our distribution. Other accomplishments included further diversifying the portfolio, maintaining our target leverage ratio and growing our core portfolio yield, which has now expanded over the past seven consecutive quarters. During the year, we also raised accretive equity capital and increased overall leverage as well as extended our credit lines to strengthen our balance sheet. Turning to some fourth quarter highlights.

The earnings power of the business remains strong. We generated net investment income of $0.58 per share and exceeded our $0.37 quarterly distribution. We’re pleased to announce that our Board of Directors has approved an 8% increase in the distribution to $0.40 per share. This represents the second consecutive increase in our quarterly distribution. Our distribution has now increased by 11% over the past two quarters. Since going public almost nine years ago, we have declared $13.45 per share in distributions, including four special distributions with the most recent special distribution declared in December 2022. Over this time, we’ve also exceeded our distributions on a cumulative basis and maintain sizable spillover income. Turning to the venture market.

Tightening monetary policy and the downturn in public company multiples and valuations have continued to impact venture capital investment activity. Quarter-over-quarter activity in 2022 dropped off steadily. According to PitchBook, in Q4, an estimated 936 deals closed for a total of $1.35 billion, the lowest quarterly deal value since the second quarter of 2018. For many companies, prior year plans of growth at all costs, have shifted to revise plans of conserving cash at all costs. Venture capital investors are continuing to be selective with their investments, especially when it comes to new investments and continue to spend time with existing portfolio companies, encouraging moderate growth and monthly cash burn rates. In today’s environment, small inside investor-led grounds and convertibles, reduced growth plans and cash runway past to profitability are coming.

Given aggressive valuations from the past and a reduced revenue outlook, for some companies, capital raising in this environment is often a challenge. This is a period of valuation resets and potential down rounds. While not all companies will face this scenario, we anticipate there will be more down realms in the future. As a lender, servicing our debt in companies having capital in the bank is key, as we’re indifferent as to the equity round pricing itself. While we expect these trends to continue in the first half of 2023, one bright spot in the venture market has been venture capital fundraising. Although the investing pace was down, venture capital fundraising was exceptionally strong in 2022, and this bodes well for the venture lending business.

According to PitchBook, $163 billion closed across 769 funds in 2022, setting an annual record for capital raised. There continues to be a record amount of dry powder estimated more than $300 billion, which is now sitting on the sidelines and for quality companies, there couldn’t be a stronger pool of capital to access. Based on some recent conversations I’ve had with several of our select funds, there are already early signs and a widespread belief that investment momentum will pick up in the second half of this year and into 2024, especially given this large amount of dry powder. Although they’re still focusing on existing companies, there is somewhat of a general waiting game sentiment out there. These investors tell us to wait out market volatility but forecast better times ahead.

With that said, we are finding pockets of new investments starting to pop up and witnessing appetite starting to increase in technology investing. In our portfolio, we’re finding that deals are still getting done. It’s simply taking a little longer and a little slower pace. Turning to the investment portfolio. It continues to be about the long-term. While we can’t ignore the present down cycle, tech investing has always been about one, three, five years out, the long-term. Despite current market volatility, it was notable that 56% of our portfolio companies that are active credits raised capital last year, representing almost $2.5 billion raised to 36 companies, of which more than $300 million came in the last quarter alone. At quarter’s end, our investment portfolio reached nearly $1 billion, a record increase for the full year.

In addition to those companies where we have active debt outstanding, our diverse portfolio also spans across a number of companies where we have warrants and equity investments even when there is no outstanding debt. Collectively, years in, in fact, we have investments in more than 121 portfolio companies. Sajal will comment more about the warrant and equity portfolio. Despite the macroeconomic environment, inflationary concerns, and the broader economy potentially headed into a recession, a number of TPVG portfolio companies continue to grow. Some are experiencing tailwinds we are achieving profitability these days. We’re optimistic on the outlook for many of the diverse investments we funded in the class of 2022, in particular, it includes such sectors as robotics, cybersecurity in companies such as Core Lite, space in companies such as Loft Orbital, vertical software such as Metropolis and Hover, Fintech companies such as Synapse and Earnin, and next-generation sports digital media such as Overtime Sports and others, to name a few.

Turning to our pipeline, we continue to see demand in this market and a growing pipeline of growth-stage companies as some further plan out their timetable, encompass debt into their financing and capitalization plans or utilize venture lending for financing opportunistic acquisitions. Consistent with our long-standing approach, we continue to focus on companies that have recently raised capital, have significant revenue scale, and whose plans in the next one to two years should perform well in this volatile economic environment and currently challenging times. TPVG will continue its establish approach of investing in attractive growth-stage companies, generally backed by our select venture capital investors and in companies that we believe have compelling long-term prospects.

Sajal and I have now worked together for more than 23 years and we’re poised to further draw on our track record of operating through diverse market environment, along with TriplePoint’s experience cycle-tested team to best position the company to create long-term shareholder value. Based on our experience managing through multiple cycles, we have learned that if you have the experience and the know-how dynamic markets can be some of the most productive and advantageous times for capitalizing on venture lending opportunities. The key is knowing how to navigate through these choppy seas to the calmer ones that inevitably lay ahead. We believe today’s market may have a positive effect on the venture-lending business and future yields over the long-term.

We’ve now been through multiple cycles together, and some of the best opportunities historically have been debt investment transactions we’ve written in downturns. We’ve also learned that in working through these cycles, however, this is not the time to run up the business for the sake of growth, but to continue to capture the quality business in the pipeline. I’d like to provide a short footnote on former portfolio company, Medly, which is now behind us and with last year’s event. While all venture lenders deal with credit challenges and market downturns, it’s a hardwired part of the business and not a question as to if but when. It should be noted that this sudden unpredictable development was characterized by very extraordinary and extenuating circumstances, which we’ve never experienced before in my 40 years of being in the venture-lending business.

As stated in the bankruptcy filings, this was precipitated by the loss of anticipated financing and the discovery of certain operational, financial and accounting irregularities and improper activities conducted by former employees, including the original founders. Including the full write-off of Medly last year, since TPV’s inception almost nine years ago, our cumulative net loss rate remains under 2% of cumulative commitments and 3% of fundings, slightly above 30 basis points or so per year. And lower, if you include the value of the unsold publicly held stock we currently hold. Further, really is an illustrative exercise only, if one were to remove Medly as a outlier, the cumulative net loss rate works out to be more around 1.6% of fundings.

While an unforeseen and unfortunate development, our path is continuing forward and building upon TPVG’s almost nine-year track record now of generating attractive portfolio yield, attractive net investment income and cumulatively over-earning our dividend, as well as providing returns to our shareholders. To wrap up, we demonstrated the earnings power of our portfolio, grew the portfolio to nearly $1 billion and generated record NII. As mentioned, we expect continued demand for our venture-lending solutions later this year and beyond. And our focus remains on continuing to invest in a highly selective manner, mindful of today’s reduced venture capital investment activity and the current market volatility I’ve been speaking about, as we seek to achieve further portfolio yield and NII growth.

We’re pleased to have once again increased our regular quarterly distribution and believe we are well positioned to continue to provide shareholders with an increasing return over time. With that, I’m going to turn the call over to Sajal.

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Sajal Srivastava: Thank you, Jim, and good afternoon. During 2022, we made progress in growing our portfolio, increasing our portfolio yield and increasing our portfolio and funding diversification, all critical elements for the long term that we believe position us well to create sustainable shareholder value. As we progress through 2023, we will continue to pursue these goals throughout the course of the year, while continuing to be focused and disciplined. So with that background, I will review our performance in Q4 and full year 2022, as well as highlight key expectations for 2023. Regarding investment portfolio activity during Q4, TriplePoint Capital signed $221 million of term sheets with venture growth stage companies, and we closed $105 million of debt commitments to 12 companies at TPVG.

Signed term sheets and closed commitments during Q4, reflected our continued discipline as we seek to select only the highest quality opportunities. Of the 12 companies we committed debt capital to during the quarter, half were new portfolio companies and the other half were existing portfolio companies. We also received warrants valued at $1.1 million in 16 portfolio companies and made $400,000 of direct equity investments in two companies. For the full year, TriplePoint Capital signed a record $2 billion of term sheets with venture growth stage companies, and we closed $594 million of debt commitments with 48 companies at TPVG, of which 34 were new obligors and 14 were existing obligors. We also acquired warrant investments, representing $6 million of value and made $6 million of direct equity investments.

Given current market conditions, as we look to 2023 as a whole, we expect to see our originations activity increase over the course of the year and in particular, in the second half of the year. During the fourth quarter, we funded $95 million in debt investments to 16 portfolio companies, which landed at the lower end of our guided range for Q4. These debt investments carried a weighted average annualized portfolio yield of 15.4% at origination, up from 14.5% in Q3 2022. During the full year, we funded $417 million of debt investments to a record 40 companies with a weighted average portfolio yield of 14.2% at origination. During Q4, we had $34 million in loan repayments, resulting in an overall weighted average portfolio yield of 15.3%. Excluding prepayments, core portfolio yield was 14.2%, up from 13.8% in Q3 and represented our seventh consecutive quarterly increase.

I would like to also point out that our Q4 portfolio does not fully reflect the 50 basis point increase announced on December 14th, which will more meaningfully impact portfolio yield starting in Q1. 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. In 2022, we had $200 million of loan prepayment, resulting in an overall weighted average portfolio yield of 14.7% for the year. Excluding prepayments, core portfolio yield was 13.4% for the full year. In terms of our expectations for portfolio growth in 2023, our range forecast for gross investment fundings for the full year is between $300 million and $500 million with Q1 and Q2, likely in the range of $50 million to $100 million for each quarter and Q3 and Q4 each likely to be in the $100 million to $150 million range.

We believe that the current market volatility creates demand for additional capital, including venture debt, but we will not compromise our focus on quality for portfolio growth’s sake. In particular, we are concentrating on companies that have recently raised equity capital with even more revenue scale and growth. Since such companies will have more existing cash runway on hand at time of origination, we expect they will likely draw on their lines later in 2023 or early 2024. Turning to loan prepayments. They continue to be a part of the business and we appreciate our capital being returned as well as the accelerated income that is generated. We continue to expect one to two customer prepayments per quarter. We also made continued progress in diversifying the TPVG portfolio by increasing the number of funded obligors to 57 as compared to 49, one year ago.

In addition, our top 10 obligors represent 33% of our total debt investments as compared to 40%, one year ago. As Jim mentioned, we continue to see equity fundraising in our portfolio, which is a testament to our quality. During the quarter, eight portfolio companies raised over $300 million of capital. This brings the total to 36 portfolio companies raising over $2.4 billion of capital during 2022 on top of 33 companies raising over $5.8 billion in 2021. Our equity and warrant portfolio grew as well with 155 warrant and equity investments as of Q4 2022, as compared to 121 investments as of one year ago. As of December 31, we held warrants in 107 companies, up from 81 companies as of Q4 2021 and held equity investments in 48 companies, up from 40 companies as of Q4 2021, with a total cost and fair value of $71 million and $96 million, respectively.

We nevertheless continue to be excited for the monetization of these instruments associated with our high-yielding debt investments over time when they do ultimately exit. In fact, during the quarter, we sold our publicly traded shares in Forgerock, generating $6.5 million of realized gains. In addition, we hold warrant and equity investments in many promising private companies, including industry leaders like Cohesity, Revolut, Monzo, Upgrade, FinancialForce, FlashParking, EarnIn, Marama and several others, which continue to grow and perform well in this economic environment, and we believe will generate substantial realized gains in excess of our current market adjusted marks. More importantly, we expect our cumulative warrant equity investments to generate realized gains in excess of our cumulative realized losses over the long-term.

Moving on to credit quality. Approximately 89% of our portfolio is ranked in our two best credit scores, which means that they are performing at or above expectations. During the quarter, one company, OneSource Virtual, with $3.3 million of principal balance was removed from category one due to prepayment. VanMoof, an e-bike company with a principal balance of $19 million and Health IQ, an insurtech company with a principal balance of $25 million were downgraded from category two to category three. Both were downgraded due to developments in their strategic financing processes. As initially discussed, during the Q3 earnings call and further disclosed with an 8-K filing on December 12, we downgraded Medly Health from yellow to red, in conjunction with its bankruptcy filing in December, realized the loss and removed it from our credit watch list.

Turning to our credit outlook. We believe that the outlook for our portfolio as a whole is stable, given sizable cash position of many of our portfolio companies and the resulting extended operating runway, their continued fundraising efforts and the continued support of our select VC investors. With that said, in a volatile market for venture capital investing and for public technology companies there will be obligors experiencing stress. Our approach is to be proactive in identifying these companies on our watch list as early as possible as we have done and provide them assistance as best as we can, alongside their investors to manage through challenging times. Virtual Instruments, Imperfect Foods,, Hired and Xeris are examples of companies that historically were on our watch list where our teams had tremendous success in managing through stress situations, resulting in payoffs of our loans in full.

In closing, we remain focused on all aspects of our business, and we’ll continue to follow our long-term playbook with a focus on generating strong returns for shareholders, meeting the needs at venture raise-stage companies and further nurturing strong relationships with our select metro capital partners. With that, I’ll now turn the call over to Chris.

Chris Mathieu : Great. Thank you, Sajal, and hello, everybody. During the fourth quarter, we experienced continued growth in core interest income from our loan portfolio and once again saw stable utilization rates on debt commitments. We increased the overall leverage ratio on the portfolio to target levels. We deployed capital using our attractive sources of leverage, which included fixed rate long-term investment-grade notes and our revolving credit facility, while continuing to diversify the portfolio. The total investment portfolio increased 10% year-over-year. Total investment income increased 33% — 37% year-over-year. NII increased 55% year-over-year. Of note, both total investment income and NII reached record levels for both the quarter and for the year.

Quarterly dividends increased by 8% to $0.40 per share from last quarter and 11% from the dividend rate of a year ago. And we entered 2023 with a record portfolio size, a diversified capital structure and ample liquidity at the ready. Let me drill down a bit and share an update on the financial results for the fourth quarter and for the full year of 2022. For the fourth quarter, total investment income was $34.9 million, with a portfolio yield of 15.3% on total debt investments as compared to $25.9 million and 14.9% for the prior year period. Total investment income reflects a higher average debt investment balance, as well as an increased yield on the portfolio. Total investment income reached a record, totaling $119.4 million for the full year, as compared to $87.4 million for the prior year period.

We reported a weighted average portfolio yield of 14.7% for the full year and 13.7% for the prior full year. Prime rate increased 7 times in 2022 to 7.5%, with two of those increases in the fourth quarter and a further increase to 7.75% in the first quarter of 2023. Recall that our floating rate debt investments are indexed to prime rate. So when prime rate increases, so does the interest rate on each of those investments. In 2022, we experienced record revenue expansion within the portfolio and we expect to recognize further revenue expansion from higher yields on our existing floating rate loan portfolio in 2023. We’re pleased that onboarding yields continue to be strong and increased year-over-year, in part due to the increased prime rate during 2022.

The record level of total investment income was also the result of reaching a record year-end portfolio balance, with a portfolio fair value of $949.3 million at year-end, representing a 10% increase from a year ago. Total operating expenses were $14 million for the fourth quarter, as compared to $13 million for the prior year period. Operating expenses for the fourth quarter of 2022 consisted of $8.4 million of interest expense, $4.2 million of base management fees and $1.8 million of general and administrative expenses. Due to the total return requirement under the income component of our incentive fee structure, our income incentive fee was reduced by $4.1 million during the fourth quarter. Total operating expenses for the full year were $55.9 million as compared to $46 million for the prior year period.

The increase in overall operating expenses was primarily driven by an increase in leverage and growth in the overall assets under management. Again, due to the total return requirement under the income component of our incentive fee, incentive fees were reduced by $7.4 million during the full year of 2022. Net investment income for the fourth quarter was $20.5 million or $0.58 per share, compared to $12.9 million or $0.42 per share for the prior year period. Net investment income was $63.6 million or $1.94 per share for the full year of 2022, compared to $41 million or $1.33 per share for the prior year period. During the fourth quarter, the company recognized net realized losses on investments of $29 million, primarily from $34 million from the disposition of Medly Health and $900, 000 of other realized losses, partially offset by $6.5 million of realized gains recognized from the sale of publicly traded shares held in ForgeRock.

Net change in unrealized losses on investments for the quarter was $3.3 million, consisting of $0.5 million of net unrealized losses on our debt portfolio from reversals of previous unrealized losses and fair market value adjustments, $10 million of net unrealized losses on our warrant and equity portfolio and reversal of previous gains on ForgeRock. $7 million was also recognized as net unrealized gains from foreign currency adjustments. The company’s total net asset value was $420 million or $11.88 per share as of year-end compared to $448 — $448 million or $12.69 per share as of the prior quarter end. Of note, net asset value was impacted in the fourth quarter by the special distribution of $0.10 per share declared and paid in December.

Given the strength of earnings, our Board of Directors declared a regular quarterly distribution of $0.40 per share, an increase of 8% from the prior quarter and an 11% increase compared to a year ago. The dividend is from ordinary income to stockholders of record as of March 15 and to be paid on March 31. In addition to overearning the dividend this quarter, we continue to retain spillover income which totaled $22.5 million or $0.64 per share at the end of the year to support additional regular and supplemental dividends in the future. Now let me turn to our investment commitments. We ended the year with $324 million of unfunded investment commitments, of which $89 million was dependent upon the portfolio companies reaching certain milestones.

Of these amounts, $224 million of this total will expire during 2023. Now just a quick update on the balance sheet, leverage and overall liquidity. As of the end of the year, an aggregate of $570 million of debt was outstanding, $395 million in the form of fixed rate investment-grade term notes and $175 million outstanding on our revolving credit facility. In 2022, we successfully amended our credit facility. The amendment extended the revolving period to May of 2024 and the scheduled maturity date to November of 2025. Total commitments under the line are $350 million and all syndicate lenders continued with this long-term partnership. This facility allows us to efficiently manage our interest expense by reducing our outstanding debt when prepayments occur.

We ended the year with a 1.36 times leverage ratio. Our leverage ratio net of cash on hand was 1.22 times. As of year-end, the company had total liquidity of $234 million, consisting of $59 million in cash and $175 million available under our credit facility. In addition to the strong liquidity, the existing seasoned and diversified portfolio provides cash flows, which bodes well for sustained liquidity throughout 2023. Specifically, we have more than $200 million of contractual cash flows from the existing portfolio scheduled to flow back to the company in 2023. We expect to draw funds under the credit facility when needed to grow the portfolio with accretive leverage. Additionally, in November, we announced the launch of an ATM stock issuance program.

No shares have been issued as of today, but we may look to issue shares over the coming year. This concludes our prepared remarks today. We’d be happy to take questions from you at this time. So operator, could you please open the line?

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Q&A Session

Operator: Yes, of course. Thank you. We will now begin the question-and-answer session. The first question this evening comes from Crispin Love with Piper Sandler. Please go ahead.

Crispin Love: Thanks. Good morning, everyone. First, I’m just curious on your portfolio companies liquidity. So, how are your portfolios company’s runway in terms of liquidity? And are you able to cite what percent of companies have 12-month liquidity on hand and how that compares to historical norms, just given volatility in markets, coupled with some of your common stock companies are focused on limiting cash burn given the environment?

Jim Labe: Yeah. Good question, and it’s €“ good afternoon, Crispin, and I think you said, good morning, by the way. But yeah, so TPVG, about 85% of our companies have more than six months of cash runway and more than 60% — a little over 60% more than 12 months. And it is something that we actively follow for sure on a monitoring basis.

Sajal Srivastava: And I would say from our perspective, that doesn’t include the liquidity from capital commitments they have from us. So that’s cash that they have on hand with their equity capital. So cash from our unfunded commitments drive those numbers and percentages up. And then I would say that, generally speaking, we’re seeing burn rates getting lower and lower. So we expect runway to be extended for the majority of the portfolio companies over the course of the year as well.

Crispin Love: Okay. Great. Thank you, Jim and Sajal, very helpful there. And then next question is, Chris, you alluded to it a little bit at the end of your remarks, but your leverage is currently at 1.36 times, which I believe is near the high end of your targeted range. So first, can you just remind me what your target leverage ranges are? And what types of levels might lead you to raise equity capital to bring those levels lower?

Chris Mathieu: Yeah. So the 1.36 is the gross number. We do have about $57 million, $58 million of cash on the balance sheet. So kind of net or the true level is 1.22, which I would describe as in our range. So 1.2 to 1.3, 1.4, those are all within acceptable ranges kind of to continue operating without worrying about pulling the trigger for and overnight.

Sajal Srivastava: Given the liquidity that we have projected, I think Chris said, the portfolio will generate $200 million of cash proceeds plus the pre-payment activity. We sort of have line of sight of a significant amount generated from the portfolio itself this year.

Crispin Love: Perfect. Thank you. And I appreciate you taking my questions.

Operator: The next question comes from Kevin Fultz with JMP Securities. Please go ahead.

Kevin Fultz: Hi. Good afternoon, and thank you for taking my question. Coupon yield increased 20 basis points compared to the September quarter, which is a bit lower than I would have expected given the move in the prime rate. Was the quarter-over-quarter change impacted by Medly Health, I guess, I’m just looking for any insight you can provide there?

Chris Mathieu: Yes. So Sajal mentioned one part, which is one of the primary changes happened late in the quarter. So we’ll see the full benefit of that here in Q1. But yes, we put Medly on non-accrual back to October 1, so there was some impact from that as well.

Kevin Fultz: Okay.

Sajal Srivastava: And then keep in mind, two-thirds of the portfolio is floating rate, one-third is fixed rate. So again, you won’t see a direct 100% point-for-point as rates increase.

Kevin Fultz: Sure. That makes sense. And then just one clerical question on Medly Health. I was scanning the schedule of investments and noticed two, I think, small dip loans outstanding at quarter end. I just wanted to confirm that they were repaid post quarter end and that all Medly Health investments are off the books now.

Chris Mathieu: Yes, we can confirm that. They paid those off last week. The transaction, as Jim described, is behind us, including the full repayment of the bargain we struck for the DIP financing.

Kevin Fultz: Okay. Great. That’s it for me. Thanks for taking my questions.

Operator: The next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan: Hey guys. Back to Medly again. Jim, did I hear you correctly saying that the company sort of imploded following a failed equity raise?

Jim Labe: There was actually a little bit more to it than that. Medly, optionally was a digital pharmacy and delivery business and they did raise significant equity dollars and accretive acquisition and revenue scale, and there were a number of lenders also caught up in this, including Silicon Valley Bank with a healthy exposure. But it’s an ongoing case in legal matters. I’m not able to elaborate much further at this time, but we are moving forward with the portfolio and putting that behind us.

Sajal Srivastava: Yes. And maybe just to clarify, Chris, so it was a filled kind of debt financing, and then there was additional financing that the inside investors as well as us put together to finance a plan to profitability for the company, but it was post that financing from existing investors and us when some of the impropriety activity that Jim had talked about that the bankruptcy financings — filings had mentioned were discovered, and that’s when things imploded.

Christopher Nolan: And I guess as a follow-up related to that, I mean I know in your comments, you’re saying that many of your portfolio companies are raising equity, but are they doing down rounds?

Jim Labe: Yes, I mentioned that a little bit. They’re doing down rounds, but there’s also up rounds by the way, going on. There’s kind of a mixture of both. We do have down round protection in passing in a number of our companies. But we’re more focused on the companies raising the capital and making payments and the debt service. But yes, for sure, and we anticipate there will be, as I mentioned, more down round.

Christopher Nolan: Great. And then Chris, just a reminder, does the look back reset every year, or is it cumulative to on capital gains going back to the IPO?

Chris Mathieu: It goes back to the IPO. It’s cumulative. There’s no reset.

Christopher Nolan: Okay. So the whole Medly thing should impact incentive fee accruals at least for a couple of quarters, I would think.

Chris Mathieu: Yes. It fully impacted the — there was no incentive fee for Q4, and it’s expected to impact Q1 as we expect some recovery in the overall portfolio, but there’ll be some impact unknown right now, but some impact in Q1 as well.

Christopher Nolan: Understood. Okay. Thanks for taking my questions.

Operator: The next question comes from Ryan Lynch with KBW. Please go ahead.

Ryan Lynch: Hey, good afternoon. Yes, I wanted to first touch on your commentary on expected funding for the year, $300 million to $500 million. I know you said you expect $200 million of scheduled repayments in the year. But given where you guys are from a leverage standpoint, at this point, aren’t your funding basically just going to match your repayment. And so really just the level of prepayments that you get above this $200 million scheduled repayments was probably going to be the number that you guys are going to be looking at for gross — for funded investments throughout the year, or am I missing something with that?

Sajal Srivastava: Yeah. It’s an interesting question, Ryan. So I would say what we’re seeing generally is — it’s somewhat surprising is lower overall utilization of unfunded commitments. And so — and again, I think it’s a testament to the quality of the portfolio companies that they’re focusing on cutting their burn, focusing on raising equity capital, not looking to dip into leverage to fund them necessarily in this environment. So I’d say, overall, we’ve definitely seen a drop in unfunded utilization. And then as we look to new origination, I think it’s a balance, I’d say, as we commented on, the companies that were originating transactions with right now are generally companies that have recently raised equity round. So we’re seeing fresh reset valuations or appropriate valuations vis-à-vis where multiples are, but their company is sitting on significant liquidity.

And so we’re not expecting significant utilization at closing, but utilization over time as they continue to execute, operate grow, so more back half loaded. And so that’s why, as we said, we see funding, although originations will continue at our current pace and growing over the course of the second half. But we see fundings to be light here in the first and second quarter and then pick up as the originations activity pick up.

Ryan Lynch: Okay. Yeah, understood. And then correct me if I’m wrong, I believe you said half of the funding this quarter were to new companies and half were to existing companies. Out of those existing companies, are those fundings that are just already unfunded commitments that were drawn down by those existing portfolio companies, or are those companies that were in your portfolio that you committed brand new, I guess, commitments to those businesses or?

Sajal Srivastava: Yeah, just to clarify the commitment. So of the new commitments made during the quarter, half were to new portfolio companies and half were to existing portfolio companies. So that was not utilization. That was new commitments.

Ryan Lynch: Okay. That makes sense. And then just one last one for me. Reading just some of the stuff on Medly, it sounds like that was a pretty unusual scenario that went on there with some improprieties going on. I’m just curious, understanding the backdrop was a very unusual situation. Were there any lessons that you guys learned from the whole process and what could be done — could have been done different in the future?

Jim Labe: I’d start by saying that had a very unusual set of facts and circumstances. As I mentioned, there are other lenders, SCB, others, were all caught off guard and also exposed. So, I just don’t think there’d be any different.

Sajal Srivastava: Yes. Well, let me take it more holistically. Listen, I think as a lender as a whole, every credit situation is a learning experience. So absolutely, we will have and we’ll continue to learn. And the great news is 24 years of Jim and I learning together, and so I would say, absolutely learning from it. I’d say specific takeaways again, you can learn from debt-to-equity ratios, LTV ratios, things of that, Ryan, but analyzing business plans, but when you talk about impropriety activities, it’s hard to — there’s a reason why people are — things that they’re doing. So, I would say we’re very open-minded and having conversations internally with auditors and accountants and lawyers on techniques. But I would say, there was no smoking gun, so to speak, that as we look back to our originations activities in our credit activities that would have necessarily identified it.

Ryan Lynch: Okay. Understood and totally getable with that kind of unusual nature of the investment. That’s all from me. I appreciate the time this afternoon.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for closing remarks. Please go ahead.

Jim Labe: Thanks. As always, I’d like to thank everyone for listening and participating in our call today. We look forward to talking with you all again in the very next quarter, in another two months or so. So, 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.