TriplePoint Venture Growth (NYSE:TPVG) Q4 2020 Earnings Conference Call March 3, 2021 5:00 PM ET
Jim Labe - Chairman and CEO
Sajal Srivastava - President and CIO
Chris Mathieu - CFO
Conference Call Participants
Devin Ryan - JMP Securities
Finn O'Shea - Wells Fargo Securities
Casey Alexander - Compass Point
Christopher Nolan - Ladenburg Thalmann
Ryan Lynch - KBW
Good afternoon ladies and gentlemen and welcome to the TriplePoint Venture Growth BDC Fourth Quarter 2020 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers’ prepared remarks, there will be an opportunity to ask questions and instructions will follow at that time.
This conference call is being recorded and a replay of the call will be available and an audio webcast on the TriplePoint Venture Growth BDC website. Company management is pleased to share with you the company’s results for the fourth quarter and full fiscal year 2020.
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 would like to direct your attention to the customary Safe Harbor disclosure in the company’s release regarding forward-looking statements and remind you that during this call, management may 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 law.
You’re asked to refer to the company’s most recent filing 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 would like to turn the call over to Mr. Labe.
Thank you, operator. Good afternoon and thanks for joining us for our fourth quarter and year end 2020 earnings call.
2020 was clearly an unprecedented year and we would like to acknowledge our dedicated professionals for their unrelenting commitment last year, as well as take this opportunity to thank our venture capital partners and entrepreneurs for their ongoing support and collaboration, which remains a core differentiator for us and also a critical driver in our success.
Before we review the quarter and talk about 2020, I'd like to mention that the TriplePoint team is off to the races in a big way in 2021 already. This past Monday, we closed $200 million in our private notes offering; in January, we upsize our revolving credit facilities and we continue to see liquidity events in the portfolio this year. The pipeline and deals under evaluation are also continuing to grow significantly and our strategic financing expansion plans are underway. This is the power of the TriplePoint platform at work and we are demonstrating our experience in leadership in the venture lending market bar none.
The great start to this year is all part of the continuing story coming off a very successful 2020. The strong results in 2020, in fact, amid the global pandemic, highlights further our unique TriplePoint Venture lending platform, the quality and resilience of our portfolio, and our long standing relationships with our select venture capital investors.
We're pleased with the performance of the portfolio and the significant progress we have made advancing our playbook quarter-by-quarter for all of last year, including deploying capital strategically and taking steps to position TPVG for growth.
While Chris and Sajal will go into greater detail in the quarter and years end result, I wanted to share just a few of the key 2020 performance highlights. We realized almost $30 million of gross capital gains last year, not only offsetting our credit losses, but more importantly, it served as a basis of making another special distribution to our shareholders, while also allowing for significant spillover income generating into this year.
This was the third time in fact that we have made a special distribution to shareholders over the last six years. We also over earned our dividend for the year and the amount over earned increased each successive quarter as the year unfolded. This was a fourth year in a row that TPVG has over earned its distributions for the year. Cumulatively, in fact, we have also over earned our distribution since the date of our IPO and achieved this important objective.
During the year, our portfolio continued to generate strong yield and we continued our focus to diversify it and further strengthen its credit quality. Finally, we enhanced our liquidity position markedly through a number of capital financing transactions during the year, which Chris and Sajal will get a lot more into.
The significant progress we made last year has now set the stage as I mentioned for 2021 and beyond. Given the power of our differentiated platform, our long standing relationships and reputation with our select venture capital investors and the most experienced and best-in-class management team in venture lending, we are well-positioned to capitalize on the strong demand we're seeing from the venture growth stage companies for all of our debt financing solutions.
Today's market conditions, as folks probably know, remain highly favorable as well. The venture capital market is coming off its strongest year ever on record. New investment activity is robust. According to the NVCA, Or National Venture Capital Association, venture capital investment in the United States broke another record in 2020, topping $150 billion for the first time.
Further venture capital firms raised approximately $74 billion last year, which includes several of our select venture capital investors, whose funds collectively raised more than $20 billion of that.
For our venture growth stage companies, which operate in the late stage venture capital market segment, the total deal count was estimated at more than 3400 deals covering more than $100 billion that was invested last year.
And the spike in exit and liquidity events for VC-backed companies in the last half, particularly of 2020, including the emergence of SPACs as IPO exits, have further fueled the favorable venture market conditions.
The market strength from 2020 has continued so far unabated here into 2021. We expect demand for venture lending to remain strong. Most companies have adapted to the new environment and 2020 is behind them. Our companies remain bullish on their plans and the opportunities this year and what soon may seem to be the emerging post-COVID stages.
As we survey the landscape, we are identifying new investment opportunities that have risen over the last year due to changes in how people live, work, and use technology.
As highlighted throughout the pandemic, the technology sector is extremely resilient and we expect to benefit from the continued investment in this space. As we provide loans and invest primarily in technology-driven companies and industries.
Many of our companies are in direct-to-consumer goods and services, virtual collaboration businesses, cloud-based enterprise solutions, internet security, real estate technology, and several other sectors experienced outside growth in this environment.
We believe that these will continue to be major drivers for us going forward and when combined with our sponsors' exceptional reputation, our experienced team, and the power of the TriplePoint platform, all of these factors translate into exciting new opportunities.
I'd like to wrap up with some closing comments and observations. We are proud of the steps we took during the past year that enabled us to post strong results in these uncertain times and also to advance important objectives that will drive our future success.
Specifically, as we look to the year ahead, you've heard we are advantageously positioned to accelerate our growth and continue to provide shareholders with exceptional long-term returns.
Our teams are active and today's venture market, the strong prospects for venture lending business model, our reputation-driven industry leading platform and some new used cases and expanded financing products with our enhanceability to scale the business to take advantage of the strong fundamentals of the venture ecosystem have made us more excited today than we've ever been.
We look forward to continuing to work closely with our portfolio companies and our select venture capital investors and entrepreneurs, many of whom have emerged from a very challenging year and are now in a very strong position and extremely promising 2021 in front of them.
While we are pleased with our progress, we also remain disciplined during these times and will continue to abide by the principles of TriplePoint's good old four R's, reputation, relationships, references, and returns.
I will now turn the call over to Sajal.
Thank you, Jim and good afternoon. As we look back to 2020, we were pleased with our performance during a very challenging period of time. Our outperformance on so many fronts was a direct result of the more than 21-year track record that Jim and I have together. The playbook we put together in response to the pandemic, having been through periods of significant volatility together before, the quality and perseverance of our team and equally important, being sponsored by a well-established highly regarded and proven global investment platform, TriplePoint Capital.
Our playbook for 2020 was to take a quarter-by-quarter approach and in Q1, despite coming off a particularly strong 2019, we took actions to set TPVG up to weather the storm and further sharpened our focus on our team, our portfolio companies, and our venture capital relationships, as well as strategically raised equity and our first investment-grade debt offering to give us significant liquidity.
In Q2, investors really began to see the benefit of our differentiated venture growth stage lending approach, our resilient portfolio, and in particular, the benefit of our sponsor relationship, whereby our platform stepped up with a $50 million backstop facility to provide a supportive TPVG and enhance our financial strength. While TPVG never needed to use the facility, we appreciated the commitment during a volatile period.
Q3 was generally consistent with Q2, but based on feedback from our venture capital partners, activity of our investment team and continued real-time strategic planning, we began to see -- we began to shift to offence again, so to speak. The strategy paid off in Q4 with a strong finish for 2020 that has set us up for success and growth here in 2021.
In every quarter of 2020, we generated income in excess of our distribution and increased our portfolio yield. Even more importantly, throughout the year, we demonstrated the core differentiators of venture growth stage lending related to both credit quality and the realized warning equity gains we generated.
More specifically, during the fourth quarter TriplePoint Capital signed $172 million of term sheets with venture growth stage companies and closed $73 million of debt commitments to six companies at TPVG.
We received warrants valued at $2 million in 11 portfolio companies and made equity investments of half $0.5 million in three portfolio companies. For the full year, TPC sign $490 million of term sheets with venture growth stage companies and we close 277 million of debt commitments with 23 companies at TPVG. We acquired one investments representing $3.8 million in value and made equity investments of $2.3 million
During the fourth quarter refunded $67 million in debt investments to nine companies, representing an increase of 77% from the third quarter. The debt investments funded during the quarter carried a weighted average annualized portfolio yield of 14.3% at origination.
During the year we funded $205 million in debt investments to 24 companies with a weighted average annualized portfolio yield of 13.5% in origination. During Q4, we had loan repayments of $74 million, and as a result, we achieved an overall weighted average portfolio yield of 15.2% for the quarter. Excluding pre-payments, core portfolio yield was 12.2%.
In 2020, we had $203.4 [ph] million in portfolio company pre-payments, resulting in an overall weighted average portfolio yield of 13.8% for the yield. Excluding pre-payments, core portfolio yield was 12.5% for the full year.
At the end of the year, our 69 portfolio companies were spread across 31 sub-sectors, with our largest concentration in business application software, which represents nearly 12% of our portfolio.
As Jim mentioned, we continue to see strong equity fundraising activity in our portfolio, which is a testament to its quality. During the quarter, five portfolio companies raised over $200 million of capital. This brings our total to 27 portfolio companies raising over $3 billion of capital during 2020 with more than 70% of our portfolio companies having 12 months or more of cash runway.
Moving on to credit quality, the weighted average investment ranking of our debt investment portfolio was essentially flat with the prior quarter's rating of 2.1. Under our rating system loans are rated from one to five, with one being the strength -- strongest credit quality and new loans are generally rated two initially.
During the quarter, one portfolio company was upgraded from category two to one; one company was upgraded from category three to two, as a result of closing a financing; and one company was removed from category three as a result of its acquisition and pre-payment of our loan in full.
We downgraded one company from category two to three, given their continued impact from COVID and one company, Knotel was downgraded from category three to five. We downgraded Knotel to category five in the fourth quarter after their unsuccessful attempts to raise -- to both raise an external round of financing and complete a strategic sale.
The company filed for bankruptcy in January of 2021. However, prior to the filing, we sold our loans to a third-party for 50% cash recovery and a potential equity kicker, which will be finalized when the bankruptcy process is completed and the new company merges.
Importantly, the credit situation is now behind us. I would like to highlight that our Q4 mark represents our cash recovery in Q1 from the loan sale only and not the potential future value from the equity kicker when finalized.
Unrealized losses on Knotel during the quarter were offset by unrealized gains from improved performance and upgrades and other watchlist -- other goers, as well as continued strong realized and unrealized gains from our equity and warrant investments.
During the quarter, we sold our remaining positions in CrowdStrike and Medallia, as well as realized gains from the sale of Freshly to Nestlé, generating $4.2 million in total from these three companies.
From a track record perspective, since our IPO almost seven years ago, TPVG's net credit losses are $11.4 million, which represents 0.4% of our cumulative commitments and 0.7% of our cumulative fundings, or roughly 10 basis points per year.
As of December 31, 2020, we held warrants in 64 companies and equity investments in 24 companies with a total cost and fair value of $49.1 million and $50.4 million respectively.
2020 was an unprecedented year for realizing gains from our warrant equity portfolio and given the strong market conditions and activity already underway in 2021, we are optimistic for the continued unlocking of substantial value from these assets over time.
In fact, a couple of notable events in Q1 so far include Hims Inc. successful SPAC merger completion, views anticipated completion of their SPAC merger, and Group Internets who's -- who goes by Talkspace announced SPAC merger. Our equity in warrant positions in these three companies are valued at $1.9 million as of 12/31. In addition, several other portfolio companies are an active fundraising and strategic discussions.
We continue to be excited for the near-term monetization of these very special components associated with our high yielding debt investments. And over the long-term, we expect warrant and equity investments to generate realized gains in excess of our realized losses, which is consistent with a track record of TriplePoint Capital, whose platform-wide realized gains are multiples of its platform-wide credit losses, which is unmatched in the industry.
As we look to credit in 2021, we saw last year that venture capital-backed companies in general were extremely resilient to the impact of the pandemic, but there were a few sub sectors in our portfolio, such as travel, real estate, and capital markets-dependent Fintech companies that were negatively impacted.
Monitoring and working with our companies in these sub sectors and their VC investors was a key element of our playbook and as we closed out last year, we feel we resolved or exited many, if not all, those situations, so that we can focus 2021 on new investments.
More broadly as we looked at 2021, we believe our execution in 2020 and year-to-date here in 2021, has provided us with a strong foundation and momentum for advancing our goal of increasing the size of our investment portfolio and the scale and diversification of TPVG, while meeting the needs of our selected venture capital firms and their venture growth stage portfolio companies.
As Jim mentioned, the key tailwinds for us are our sponsors' exceptional reputation, relationships, and collaborative approach, which were only further demonstrated during the volatility of 2020 along with a particularly robust venture capital equity fundraising and investment environment, which is translating into a strong pipeline for us.
In addition, based on our extensive relationships with our select VC investors and the growing needs of their portfolio companies, we've been working on some new use cases and financing structures for some of their Fintech, ecommerce, and software portfolio companies, as well as certain companies with exceptional scale and we'll roll out some of these financings on a broader basis here in 2021.
Our expectation this year for portfolio growth is for quarterly fundings to start in the $50 million to $75 million range per quarter on a gross basis for Q1 and Q2, and then increase to $100 million to $150 million range per quarter on a gross basis for the third and fourth quarters.
With regards to pre-pays, they continue to be a part of the business and we appreciate getting our capital back as well as the accelerated income, but it doesn't help our goal to maintain a scaled and fully diversified portfolio and so we're working on ways to maintain our investments after companies raise large rounds of financing.
On a liquidity front, while closing -- with the closing of TPVG's second investment-grade private notes offering combined with our recent success extending and expanding a revolving credit facility, we've lowered our cost of capital, increased our liquidity position, and diversified and broaden our funding sources.
We are pleased to have had to have had more than 30 investors in the notes offering this week and to now have eight banks in our revolving credit facility. We intend to take advantage of this leverage to fund portfolio growth was for us here in 2021.
We also intend to continue to benefit from our exemptive relief order to co-invest with other entities in the TriplePoint platform and further diversify as we scale as well as take advantage of some of the JV and syndication partnerships among us, our sponsor, and our strategic partners.
With regards to the dividend, we're proud to have declared our third special dividend since our IPO, funded primarily from the realize warrant equity gains and to still have generated net investment income in excess of our distributions during the year like 2020, while operating at such low leverage.
We continue to have significant spillover income, but more importantly, as we reach a more consistent scale of our portfolio and we've seen more frequent realized gains, we expect to review both our regular and special dividend policies.
In closing, we are proud of our performance during 2020 and are excited to pursue our objectives for this year, but we will maintain a deliberate and disciplined approach to growth and we will continue to follow our long-term playbook with a focus on generating strong returns for shareholders, meeting the needs of venture growth stage companies, and further nurturing strong relationships with our select venture capital partners.
With that, I'll turn it over to Chris.
Great. Thanks Sajal and hello everybody. Before I get into the quarterly figures, I'd like to again highlight just a few of the milestones reached for the year 2020 as we ended the year on a strong note.
For the full year 2020, we had a record high total investment income of $91.2 million and a record high NII of $47.9 million. We enhanced our overall liquidity on both sides of the balance sheet, diversified the portfolio, fully covered our quarterly distributions, and increased spillover income even after the declaration of a special dividend.
Let me take you through an update on the financial results for the fourth quarter and full year 2020. Total investment income was $23 million for the fourth quarter of 2020 or increase of 10% as compared to $21 million for the fourth quarter of 2019.
Total investment income was $91 million for the full year 2020 or an increase of 24% as compared to $73 million in 2019. Totaling -- total operating expenses were $11.5 million for the fourth quarter of 2020 as compared to $10 million for the fourth quarter of 2019.
Total operating expenses for the full year 2020 were $43.3 million as compared to $35.1 million for the full year of 2019. The increase here on overall operating expenses is primarily driven by an increase in the asset base.
Net investment income for the fourth quarter was $11.9 million or $0.39 per share, compared to $11.1 million or $0.45 per share in the fourth quarter of 2019. Net investment income for the full year of 2020 was $47.9 million or $1.57 per share compared to $83 million or $1.54 per share for the full year of 2019.
NII per share for the quarter and for the year was impacted by a higher share count, given the equity offering we completed in January of 2020.
During the fourth quarter, the company recorded $4 million of net unrealized gains on investments, primarily consisting of realized gains from the sale of publicly traded shares held in CrowdStrike and Medallia and realized gains from the acquisition of Freshly Inc. by Nestlé.
During the full year of 2022, the company recorded $28.8 million of gross realized gains on investments and $8.6 million on a net basis. Net unrealized losses on investments for the fourth quarter and for the full year resulted primarily from the reversal and recognition of previously recorded unrealized gains and fair value adjustments on the existing portfolio.
As of year-end, the company's net asset value was $400 million or $12.97 per share as compared to $332 million or $13.34 per share as of a year ago. 2019. The change in the company's net assets per share in 2020 included the $0.10 per share impact of the special dividend as well as the higher share count as a result of our $80 million equity offering back in January of 2020.
During the fourth quarter, we declared our regular quarterly distribution of $0.36 per share from ordinary income and the additional special dividend of $0.10 per share sourced from the net realized capital gains earned and recorded in 2020.
In the fourth quarter, we covered our current regular quarterly distribution by 108% and for the full year, we covered our current regular distribution by 109% before declaring the special dividend.
I'm pleased to announce that for the first quarter of 2021, our Board of Directors has declared another $0.36 per share on February 24th to stockholders of record as of March 15th to be paid on March 31st. After this declaration, we continue to have significant estimated undistributed taxable earnings with spillover income of $16.2 million or $0.53 per share at the end of the year to support additional distributions in the future.
We reported unfunded commitments totaling $132 million, of which 92% or $122 million of this total will expire during 2021, if not drawn prior to expiration. In addition, all of our unfunded commitments have a primary floor set to 3.25% or higher.
Aggregate outstanding borrowings as of year-end were $263 million and consisted of $75 million of fixed rate baby bonds, $70 million of private term debt, and $118 million outstanding under our revolving credit facility. With the aggregate borrowings as of year-end, our leverage ratio is 0.66 times or an asset coverage ratio of 252%.
As of year-end, the company had total liquidity of $252 million, which was almost double our unfunded commitments consisting of $45 million in cash and $207 million of availability under our revolving credit facility.
We successfully amended the revolving credit facility in December by increasing the commitments from $300 million to $325 million and we extended the revolving periods in November of 2022 and extended the maturity date to May of 2024.
We were pleased to announce that we also expanded our lender syndicate just after year end and in January, further increased our total commitments under the revolver by another $25 million, bringing the total commitment to $350 million, while we continue to have the flexibility to increase the line to $400 million under our existing accordion feature.
We have advanced the liquidity of the company and we have enhanced our funding capacity and flexibility to fund investments with the closing of our $200 million private notes offering that Sajal and Jim mentioned earlier. We fully paid down our revolving credit facility this week by $100 million and we plan to use some of the proceeds this week -- from this week's offering to redeem all of our outstanding 5.75% notes due 2022 and these baby bonds, which are listed on the New York Stock Exchange are expected to be extinguished within the next 60 days.
We have again successfully extended the maturity of our borrowing at attractive cost of capital and importantly, we are refinancing our most expensive term debt to baby bonds with 22% cheaper notes. Concurrently, with the private notes offering this week, DBRS maintains its investment-grade rating on TPVG given the strength and diversity of our portfolio and the reasonable level of leverage we maintain,
We continue our journey on the execution of our leverage strategy, where we are migrating from largely a floating rate liability structure to an attractive blend of fixed and floating rate instruments and a more balanced allocation between a revolving credit facility and long-term notes. Our weighted average term to maturity has been extended and the earliest term debt maturity will be now 2025 followed by 2026 for the most recent offering.
So, this completes our prepared remarks and at this time, we'd be happy to take any questions that you have. And so operator, could you please open the lines for questions at this time?
And we will now begin the question-and-answer session. [Operator Instructions]
First question today will come from Devin Ryan with JMP Securities. Please go ahead.
All right, great. Good afternoon, everyone.
So, really appreciate all the outlook commentary, but I want to dig in a little bit more on the portfolio and leverage levels right now is still well below the target of one times. And so you've got a lot of capacity and appreciate some of the commentary on investment expectation. But how are you thinking about kind of overall portfolio growth or the potential for that in 2021 just given some of the commentary kind of on the pre-payment side and maybe a little bit elevated exit activity, kind of, how that all plays through? And then tied into that kind of the impact or how we should be thinking about portfolio yield with that?
Great. I'll start and then Chris and Jim, please jump in. So, Devin, I think we definitely have line of sight on portfolio growth this year. Obviously, we want to be balanced since we're focused on quality and return thresholds and things of that nature. But given the pipeline that we have term sheets outstanding, plus the unfunded commitments that we have or backlog coming into this year, we feel pretty confident in terms of our ability to grow the investment portfolio.
And so we view using both the term debt offering as well as our revolver as the primary sources of portfolio growth and then we'll take it from there as we see portfolio, amortization and pre-pays.
We -- as mentioned in my write-up, we do have some thoughts on how we can keep those high quality assets from those companies that raise huge rounds of financing to not pre-pay us and have some thoughts to help mitigate.
It's a balance situation of wanting to get pre-pays to get your capital back as a lender and get that accelerated income. But at the same time, keeping a large diversified high quality portfolio is also very important. And so I think we'll continue to always have pre-pays, it's the nature of the beast. But our goal this year is to do what we can in a smart way to slow that down a bit. Chris, anything to add?
Yes, I would just say I think you're right. It's a constant challenge between portfolio growth, which is a great thing given the spreads that we have in our business, but also pre-payment income with the fee accelerations and pre-payment fees are also nice kickers for enhancing the NII for the year. So, the pre-pays are hard to project, they are built into the portfolio, and with the mature portfolio that we have here, I would expect those to continue, just not sure of the frequency and velocity of when they come.
Okay, terrific. That's great color. And then just a follow-up, maybe taking a step back, I wanted to -- kind of your overall thoughts on the implications of kind of what we're seeing in the SPAC market, obviously, you have a few portfolio companies that are [indiscernible] -- I think the expectation is that this trend, maybe it's a little bit hot right now, but it's really structurally not going anywhere.
And so I'm curious kind of how you guys view that as whether it's an opportunity, or the changes at all, how you're thinking about underwriting frames, or even kind of the overall investment funnel. Just the bigger picture because it feels like, obviously, we've seen a pretty big acceleration over the past year, and there's going to be a lot to come over this upcoming year and perhaps the SPAC raise isn't necessarily going anywhere?
Yes. Let me start and then Jim, I think you've got some great insights from the sponsor world. So, Devin, great question. I think one of our bankers use the word SPAC factory to refer to our platform since I think we're approaching almost two dozen, both announced and soon to be announced SPAC exit across the global TriplePoint Capital platform. So, I would say, again, it's a testament to the quality of the VC sponsors that we work with, again, focusing on the select group of venture capital investors.
And so I think, keep in mind, we're a lender. So, as a lender, we look to liquidity for portfolio companies as a great thing. So, if they're raising capital in the private markets or the public markets, we're indifferent and we like more cash, and it helps service our debt.
From the other perspective, right, we have -- that we talked about the football field analogy and playing for the end zone or the touchdown, right. And so a SPAC is an exit event. It's liquidity for equity kickers and our warrants. And so, we view that we're appreciative to have an exit event. And if it means that our portfolio companies can go public faster through a SPAC then they can through a traditional IPO.
I think conceptually, we're supportive or we're indifferent. We'll let our select VCs and other Board members determine which exit path they prefer. But I'd say from our perspective, as a lender, we have nothing against them. We're supportive of exit in general, and we're supportive of more liquidity for our portfolio companies. Jim, how about your thoughts?
Yes, I guess what comes to my mind is that, we're not running our business these days on SPAC fever, or the portfolio is not based on all kinds of suppositions, hypothetical cases of when and if there'll be a SPAC, I mean, currently, SPACs are certainly in favor depends on who you talk to whether they're going to last for a month or 10 years. And we're not going to get into running our business based on that kind of speculation.
But when I think -- it's 75 billion plus out there, which is -- out there looking for targets, 250 plus vehicles, a bunch of our select, and other venture funds, themselves have SPAC. And for most of the companies Sajal already mentioned, we have over 20 now, one way or another at the platform level in the process and more even growing.
It's not just for what we call moon shot technology companies, you know, R&D companies, electric batteries, and so forth. But it's also for a number of revenue generating companies, some which are doing extremely well, and cash flow positive, which are also getting out.
And as you go across the board in SPAC land, with the venture funds, for some companies, it's a great way to get out earlier, instead of going through that long year plus cycle and process. And again, these could be good revenue generating companies, while for others it takes away that whole administrative issue and hassle of having to raise that next equity round. So, again, we think it's a good trend right now, but we're not dependent on running our business on it.
Okay. Thank you, guys. Appreciate you taking the questions, and congrats on a nice end of the year.
And our next question will come from Finn O'Shea with Wells Fargo Securities. Please go ahead.
Hi, everyone. Thank you. Just to continue on that interesting dialogue there. With the SPAC markets, apparently taking, digging farther from pre-IPO down to earlier stage. Then you have, as you mentioned, the high level of VC capital raising you have new venture lenders raising funds. Can you just tie all this together and talk about what the competition is like, for a venture growth stage loan right now?
Yes. I'll take a first stab at that, Sajal, feel free to add. But having been in this, in my case, over 30 years, and Sajal and I doing this together for 22 plus, this business is not about rates. It's not about interest terms. It's a very specialized market. Yes, there is some very attractive returns in this and obviously in good times, it's going to attract various names and entrance. But we've been through the cycles.
We've seen folks come and go and at the end of the day, it's about the experience. It's about the expertise. It's about the reputation, the references and relationships about the firm. It's not about, what's the spread, what's the percentage over this or that or for many cases, not even about the name as much as about the party. The reputation, the team, the deal flow and there's a reason that we believe we're the leader in the segment.
Yes. Maybe I could add some. Finn, so I think what we're seeing is particularly coming off, the resiliency of the pandemic, to the venture and the tech ecosystem. And then, signs of, hopefully recovery of the global economy, as you talked about, the capital markets are heating up. So I think what that's causing is a catalyst for companies to grow.
And so I think that's kind of the fundamental, most important factor, right? Venture-backed companies, tech companies are growing, they're growing, which means they need capital. And so that capital -- and if anything, because of the environment they're in. They're actually turning up a burn, right.
So, when we saw in the midst of COVID, companies or portfolio companies, other tech and venture backed companies were cutting burn, cutting marketing spent, cutting headcount to preserve runway. Now we're seeing again, signs of growth, acceleration, increase in burn, which is causing the demand for more capital. So as, right, there are two sides of the equation, there's the equity side and the debt side.
So, our thesis has always been to venture backed companies get equity from quality sponsors, right? That's important, that's a critical source of capital for your business. There's strategic value associated with certain venture capital firms and private equity funds, you want them in your cap table. And then the role of venture debt is to minimize the dilution of the total raise and to complement the equity capital.
So, don't over raise equity, raise it from the right parties, the right sponsors, the right valuations, and then layer on venture debt. So that you get to the total capital needs of your business, but you entrepreneur minimize or -- the total dilution that you take. And at the same time for the existing VCs and existing sponsors, right, we help boost their returns as well, by preserving their ownership and also reducing the check size that they necessarily have to write as well.
So, it's going to win-win from the entrepreneur's perspective, from the existing investor's perspective. And again, given the current environment, it's causing the demand for debt. You know, as Jim said, listen, competition, there's always going to be competition. If there wasn't, we'd sort of be scratching our heads. But I think we offer more than just money, which I think is the theme that Jim was coming with, particularly the way that we handled ourselves during not only the last year's volatility, but the cycles before that.
And I think our VC sponsors, recognize and value trusted partnerships, being there in good times and bad long-term track records, in the venture world, in particular, in the tech world, it's about pedigree and reputation. Our portfolio companies don't pick certain VCs or certain sponsors, because they gave them the highest valuation, or they wrote the biggest check, right? It's the track record. It's the value add.
And so we think of our thesis has always been that the entrepreneurs that value reputation, track record and long term partnership are the ones that we want to work with. And that's how we run our business so.
Finn, I guess I can only add as a footnote, and you hit the competitive nerd question here -- competitive nerve question that is. But so as Sajal says, it's definitely a balance on the equity depth spectrum. And in the competition, adventure at the venture growth stage primarily remains equity. It's not others, so called venture lenders, as much as four companies with so much equity out there, and so many alternatives hitting that right spectrum of the amount of triple point debt and the amount of equity
Sure. I think it's all very helpful. And just a follow-up, I guess, I think both Jim and Sajal mentioned new financing products, new products. Can you just give us any color on this platform growth? How it relates to the BDC? And actually, let me throw it in there. I think I also see the term life sciences more in your website, correct me if that's not new, but just to make sure you address that as well. Tell us about the new products.
Yes. Well, Finn, I'll start. So first, we're not going to tell you all of our products so that the -- overall those. So I just generally say as we said, listen, we've given our expertise and track record and the relationships. We've just and the pattern recognition, and the needs of our companies.
We've identified certain sectors, I think we mentioned again, in the consumer, Fintech and software in particular, those companies have growing and unique needs given the asset base, the burn profile, and the exit profile. And so we've -- for many years have been putting together financing products for them and given our large platform have -- multiple vehicles and allocate appropriately.
And so we just see a growing opportunity to help those companies with their growth and really to target our capital for the specific use case that they're focused on. And so I think it's exciting, it's a pretty nifty and we've had some real successes.
And I think the other key is we're definitely seeing our companies again going back to thesis of growth and scale. I mean, our companies are getting bigger, several $100 million worth of reoccurring revenue, and they want to continue to be a triple point portfolio company. And so, the needs of a company like that are very different than a company that's just on the cusp but the $20 million to $25 million venture growth stage limit for us or qualifying the metric and so it's important for us to have the broad products and needs for those earlier growth and those later growth, whatever you want to call them. And so I think that's the exciting thing for us.
And I would only add to the extent Life Sciences is a large word, a big sector and means a lot to different folks. But we're definitely have been active in call it the digital health sector, health and wellness is a number of TPVG portfolio companies in that broader definition. And what we do in that segment is a function of what our select investors do. And that is an area that's starting to grow and certainly platform wide, so not just TPVG. Particularly at the early stages, we're seeing a little bit more activity and continuing to work in that market to an extent as well.
Very well, thank you.
And our next question will come from Casey Alexander with Compass Point. Please go ahead.
Yes. Hi, good afternoon. And Jim, I think your slip of the tongue competitive nerds was an attempt to describe every single person on this call.
Got it. Take it back.
Congratulations on the $200 million financing. I'm not surprised to see and a lot of people are going to be sad to see the baby bonds go by everybody certainly enjoyed those. Do you know what the -- and this is for Chris actually, do you know what the remaining deferred amortization offering costs on the baby bonds is going to be? I assume that'll be a second quarter charge?
That -- yes. So that'll be a charge as a cost from a realized loss from extinguishment of debt, so not part of NII will be below the line about $600,000.
Okay. That'll be below the line $600,000. Great. Thank you. All right. Seeing as you self-described as the SAPC factory, does the preponderance of SAPCs hitting your portfolio companies? Is that going to make it create some difficulty for you to get to the target leverage ratio? Because generally, when a company is bought by a SAPC, there are additional investors brought in who brings substantial capital. And at the end of the day, the lenders to the non-public company get taken out. So is that going to make it difficult to get to the target leverage ratio or create some difficulty?
Casey, I think it depends on the profile of the company, if we look at maybe our historical SAPCs, those are been companies that have paid us off some time ago. And so I would say it's a function of the bar that is set for SAPCs. And so, we -- and the platform, we had a portfolio company 11 years ago we lend originally to them. So I would say so far, we have not seen a case where an obligor with existing loans outstanding has pursued the SPAC merger.
It's been some time after our debts paid off. And so we haven't had any near-term impact from existing debt outstanding, but yes, to the extent that they can attract cheaper capital. Although again, I'd say most of the time these pipes are equity, not necessarily debt and so there's an opportunity clearly to -- if you know the credit and if you have a history there to provide capital in a potential de-SPAC company post IPO.
Okay, great. Thank you. I'm curious about Prodigy. In that Prodigy came down to the 11th hour before they were able to pay essentially at maturity. And it was clearly a little bit of a dicey situation and one that you had marked down in the credit bucket. So you then extended a new loan at a lower rate than the last loan and picking. And so I'm just curious as to the code because those are sort of an incongruous combination of facts that would result in a new loan at a lower rate, but picking the interest?
Yes. So good, Casey. So yes, during the quarter, we restructured our loans with Prodigy, which is for those international graduate student lending business. And actually, as you pointed out, it was a -- they raised a significant amount of capital during Q3 and Q4 on the leverage side, as well as other capital for the company.
So a portion -- so we restructured a portion of our loans. Plus we actually did convert a portion of our loans into a preferred equity tranche into the company. And so the -- I think the really impressive thing is that the based on the company's kind of activities in progress, we are actually set up really well for long term success, their portfolio has actually held up pretty well.
And I think more importantly, the securitization markets and have come back and are quite favorable. So I think we're -- we've -- our mark is the same in aggregate, essentially from where we were Q3 to Q4, so reflecting a little bit of the noise and some of the other factors. But more importantly, I think again, the company is set up for long term success in our opinion.
Do you have sort of a timeframe in mind at which you think you might be able to take it off of pick?
It actually has a structure. And so I don't think it's -- but yes, we do expect it too can off pick prior to -- in in the near future.
Okay. Next, I'd like to ask if anything, what you guys think you learned from the Knotel experience? And I asked that in light of the fact that I asked about it over several quarters, it was still marked in the mid to high-90s and ultimately resulted in a 50% payoff. Was there something to be learned? I mean, we all gained from experience and making mistakes, which I certainly make my fair share of them. What possibly could you guys have learned from the Knotel experience?
Yes, let me start and then Jim, please jump in. So I'd say again, Knotel is -- was quite the victim of COVID and sheltering in place, right. This company raised hundreds of millions of dollars of equity from premier venture capital funds, sovereign wealth funds, and large real estate organization.
So, it had the backing of some very sophisticated intelligent equity investors as well as us on the leverage side. And so I think, as we discussed during the write up, the company had attempts and offers or had attempts for extra liquidity and strategic and pursued them and they were unsuccessful.
So, I think our mark during that period of time represented, our assessment of the fact pattern, the facts and circumstances and the likelihood associated with those events. And once those events, the probabilities associated with them reduce then our fair value reflects that. So I would say, listen, I think we had hoped for a recovery sooner.
We had hoped for events to occur, be at equity, be at strategic M&A. And when those didn't, that's when I think the takeaway is we moving fast, right. Things change, things change quickly. And so I think it's interesting scenario here.
If you look, we've had success of working through challenge credits, I'll pick on Mind Candy, I'll pick on some other names, some that we exited in the quarter, in fact, gotten full repayment. And I think the difference here with Knotel was one, hey, we assess the situation, the complexity of it, the near-term and long-term needs of the company. And we determined, listen this isn't one where it makes sense for us to stay in, put more capital in, kind of have our workout teams and our investment teams kind of be engaged. For more, we said, listen, we assessed it, and an opportunity came and we took advantage of it.
So, listen, no, no credit manager is perfect. And we never said we were. I think as we look to the entry point of that credit, we all of our underwriting supported lending to that company and lending the amounts that we did. I don't think any of us could have factored in COVID. I don't think any of us could have factored in the fact pattern of Knotel that not the whole world knows about and it is what it is.
But I think we're proud of how we handled it and how timely we did it and the ultimate recovery. I mean, the company filed for bankruptcy and so we got a 50% return plus we have some upside potential.
So I think it's not a drag on our team. It's not a drag on more capital from us. And so all things being considered it was a -- it's something that's behind us and resolved. And yes, we're not happy about taking a loss. We never should be. But I think we're optimistic of our existing warrant and equity portfolios ability to recover those losses as we've done in the past. Jim, anything you want to add.
All right. Great. Thank you for that. Okay. Jim, I’m sorry.
Well, actually, my comments were pretty much mirror what Sajal said and in terms of what would be different, most likely nothing, because it's a COVID casualty, and no one would have foresaw COVID coming. So and there were certainly multiple -- it's a privately held company. And so there's just so much we can say.
But as Sajal mentioned, there were multiple equity, assigned term sheets, debt term sheets, et cetera, and things just didn't work out and all things considered to you Sajal’s exact words.
So we actually, as credit managers, I think when you look at the larger picture, had not only a very good recovery here, but there's still more to go. And then we'll see where that goes on a portion of it, as well as from any perspective, we avoided what might otherwise have been years of bankruptcy proceedings and costs, and so on and so forth.
Okay, great. Thank you for that. Lastly, just any update on ROLI?
Yes. I mean, we -- if you look at the value accreted quarter-over-quarter for ROLI, so it's not out of the woods, but if you've seen some very favorable product reviews, and some awards that they won for their product in Q4. So we continue to be balanced, but we feel again, conditions continued to improve at ROLI.
All right. Great. Thank you for taking my questions. I really appreciate it.
Thank you, Casey.
And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Hey, guys. Jim, what invest -- as the company is growing, what investments do you see offer the best operating leverage for your company?
Well, by operating leverage, could you elaborate?
Sure. Which ones can grow revenues for the net growth expenses?
Oh, well, I'm not sure, we're at the level where we'd want to, again, these are privately held companies get into individual names. One of the biggest….
I'm not talking about TriplePoint. What investments you will make in your existing business back in systems, people or whatever, that you can actually grow the TriplePoint business?
Yes. So from that standpoint, we're talking about growing and scaling. And so across the platform, and again, TPVG is the focus here. But we are in a staff of mode, hiring mode and originations mode increase subtle talked about how our plans for some financing products, new ones expansions, or I'd say not only underway, but well underway.
And so we are building and continue to build the infrastructure. There's just so much we want to say in terms of the expansion in the European markets. And it's always a trade-off between the cost of growing and growth itself. But I think that's how I do it.
I would just add, Christopher, so as we look to, what's -- it's the sponsor, really, our venture capital fund relationships are so critical, right, because they're investing in their portfolio companies that turn into potential and perspective portfolio companies for us. And so a key element to the platform strategy is lending to all stages of portfolio companies, right, early later in growth. TPVG focuses solely on the Venture Growth stage.
So the leverage and the benefit to TPVG is as our sponsor is active in the early in the later stages, those other segments, those portfolio companies translate -- it's like a farm system, right. So as they grow and develop, they become potential TPVG portfolio companies and so the leverage and scale is not only continuing to foster and build our and deepen our select VC relationships from deal flow for growth stage obligors.
But it's also to continue to foster our early stage and later stage business segments of the platform, because again, those portfolio companies will one day grow up or hopefully grow up to be TPVG portfolio companies.
And so I think that's a critical element to that. And that's why we then elaborated on, so that's one vector or a couple of vectors of growth. And then to quote some of our consumer e-commerce portfolio companies, right, driving up LTV, right, you've got a certain CAC, right, there's a time and there's a credit underwriting, and then driving up lifetime value. And the way you drive up lifetime value is either multiple credit facilities with that portfolio company, or multiple different financing products.
And so that's what we're focused on. And as we talked about some of these new strategies and structures, it's driving up LTV potential with existing portfolio companies, and potential new ones. And so that's what we're excited about.
Okay. That's it for me. Thank you.
And our next question will come from Ryan Lynch with KBW. Please go ahead.
Hey, good afternoon. I just have two questions. The first one is on Prodigy, your preferred shares, I don't believe that they have any yield component to them. Can you confirm that? And then assuming that they don't, I would assume that the structure of that would then allow you to participate on the upside and potentially gain into value in that investment if that company's performance turns out to perform well?
Yes. So Ryan, they do have a yield component associated with them. And they do have a senior ranking in the cap table. So they're not traditional equity. We don't have board seats or anything like that. We're not in a control position. And so I think that's kind of the one of the benefits, it's a very much a hybrid like structure.
What is the yield on the 8-K [ph] and 10-K?
Chris, do you have anything?
Yes. It's 8% pick consistent with the debt.
Okay. And then just the only other one that I had was you talked about quarterly funding going from $50 million to $75 million in Q1 and Q2 to $100 million to $150 million in Q3, and Q4. I guess, what sort of assumptions or changes in the market environment are you making relative to what that market environment looks like today that that gives you the confidence that you'll be able to basically double your fundings in the back half of 2021?
Yes. So Ryan, I'd say if we were to look at the track record of TPVG, let's say, we crossed out 2020. And if you looked at where we were 2019, basically, we're articulating a pattern you've seen before. And so it's -- a couple of factors. So one, it's not some hope or promise of great -- these guys have got to go generate back half the year. And that's where we've gotten a billion plus kind of pipeline as it is.
What it is, is a couple things. One is, generally portfolio companies drawn debt towards the end of the year, right, because they want to use it before it expires. They want to boost their balance sheets for year-end audit purposes, and because if they're going to fundraise in the next year.
So, that's why the second half of the year is generally larger fundings than the first half of the year. And then I think the other part of it is just there's this pent up of fundraising of people that were waiting to see how 2020 panned out before they look to raise more debt or raise more equity capital. And so we're also seeing that right now as we look to kind of the portfolio and the continued increase in demand that we're seeing there.
So, I'd say, no change in methodology, no huge assumptions, no hiring lots of people to go find pipeline, we've got line of sight to it. It's kind of consistent with what we've demonstrated in prior growth years.
Okay, Understood. Thanks for taking my questions.
And this will conclude our question-and-answer session. I'd like to turn the conference back over to Jim Labe for any closing remarks.
Okay. Thank you, operator. I’d like to thank as always our stakeholders and all our TriplePoint friends, I’d like to thank there's quite a few on the line and everyone else for listening or participating in our call. And we hope everyone continues to remain healthy and look forward to talking with you next quarter. Thanks, everyone. Goodbye.
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