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| Statement |
|---|
| During the fourth quarter, we continued to generate strong interest income from our diversified loan portfolio |
| We're encouraged by the more than 70% increase in signed term sheets last quarter versus the previous quarter |
| As this year progresses, we will concentrate on delivering strong investment income, over earning our dividend, building our pipeline, managing our portfolio and credit quality, and building on our strong liquidity |
| This fundraising activity should bode well for the long-term credit quality of our portfolio companies, as well as for the potential value of our warrant and equity portfolio |
| Given the ongoing elevated yields and size of the income producing loan portfolio, dividend coverage remains strong throughout all of 2023 |
| For the fourth quarter, TPVG once again maintained a strong weighted average portfolio yield as we generated a 15.6% weighted average annualized yield that was largely driven by continued favorable interest rates and supplemented by additional income from loan prepayments |
| Based on our success over earning the dividend, we have undistributed spillover income of $41.5 million or $1.10 per share as of year-end |
| We remain active in the market and continue to build a pipeline consisting of venture growth companies positioned for strength under the current conditions, which are all critical elements for the long term that we believe position us to build NAV and create sustainable shareholder value |
| And we believe it will result in the potential for additional positive developments, recoveries, and outcomes for our portfolio |
| The convertible investment has the potential for future upside as the company grows in value over time or in an exit event |
| The remaining two Category 4 companies include ROLI, which had a strong 2023, including substantial revenue growth and incremental capital raises, and Project 1920, also known as Cenrv, which continues to pursue its strategic and other fundraising efforts |
| As we look to onboarding new loans, we intend to maintain our strong yield profile, not only by holding spreads, but also by continuing to incorporate fixed rate investments, which along with anticipated portfolio growth will bode well for our ability to continue to cover our dividend |
| So the net interest margin is pretty well protected for at least some period of time in a declining rate environment, so we're pretty comfortable with that |
| And so, again, we're seeing some good data points with the increase in equity raising activity of our existing portfolio companies |
| In closing, we remain focused on all aspects of our business and will continue to follow our long-term playbook of generating strong returns for our shareholders, growing net asset value, and further nurturing strong relationships with our select venture capital partners in order to build a high quality and durable portfolio for what we believe could be a developing peak period for venture capital and venture lending returns |
| Notably, TPVG's liquidity now exceeds our unfunded commitment and provides us with the capacity to capitalize in new investment opportunities, especially when the market begins to recover |
| But again, as conditions improve, we expect both credit profile and fair values to improve as well |
| Company management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 2023 |
| At the same time, we made further progress reducing unfunded commitment levels in the fourth quarter, and as a result, TPVG has significant liquidity at the ready to support our existing portfolio companies, satisfy our unfunded commitments, and make selective new investments |
| Total investment income for the full year of 2023 increased 15% to a record $137 million |
| With regards to our objectives and goals in 2024, as mentioned earlier, we believe that the venture capital market conditions may improve over the course of the year |
| We discussed some of the specifics for some of the companies in each of the credit ratings and signed term sheets and positive developments |
| We will further focus on investing in companies that have recently raised fresh capital, have ample cash runways, have backing from our select venture investors, have prudent management teams, and whose business models have attractive unit economics and high retention rates |
| Given our existing significant liquidity position and our expectations for at least one prepayment per quarter, we believe that by returning to portfolio growth and by focusing on smaller hold sizes, we continue along our goal of increased portfolio diversification and industry sector rebalancing |
| During the quarter, we enhanced our liquidity as we continued to experience repayment activity and modestly utilized our ATM program |
| And so if we see data points of promising activity of capital raises and increasing capital raises that gives us confidence in terms of the overall outlook for the industry, the sector, and the portfolio |
| During this time, we've exceeded our distributions on a cumulative basis and continue to maintain sizable spillover income |
| Regarding investment portfolio activity during Q4, Triplepoint Capital signed $100 million term sheets with venture growth stage companies, compared to $58 million of term sheets in Q3, reflecting the increase in the strength of our pipeline, which we believe will result in higher investment activity in 2024 |
| Generally speaking, although our marks this quarter value these FinTech companies at significant discounts from their last round valuations, we believe they all have the potential for meaningful upside when they ultimately experience an exit event, whereas they potentially raise future rounds of finance |
| Against this backdrop, we remain focused on our established and in-place priorities, which we believe will enable us to navigate through these current market conditions, including maintaining our earnings power and our strong liquidity, managing the portfolio, and positioning TPVG for the future |
| Statement |
|---|
| As expected, venture capital markets continued to be challenging during the fourth quarter |
| Given the challenging capital raising environment for venture growth companies, for some companies we believe we will see continued pressure on valuations and the potential for inside rounds |
| The majority of the companies in Category 3 comprise e-commerce and consumer portfolio companies, which as we explained last quarter, are experiencing continued challenges as they manage through ongoing market inspector-specific issues, as well as difficulty in the fundraising and M&A markets |
| These market challenges, which are impacting venture growth stage companies, especially hard, contributed to our NAV decline |
| In summary, 2023 was a tough year for the venture capital industry |
| And while we expect the venture growth stage will continue to have challenges in the near term, the path to stabilization for many companies continues in this environment |
| Turning to the venture markets, 2023 proved to be a very challenging year |
| And so again, the market is challenging |
| Consistent to what we have seen and been talking about over the last year, the venture industry continues to be affected by macroeconomic uncertainties, restrictive monetary policies, inflationary supply chain issues, public versus private market valuation disconnects, a changing investment landscape, geopolitical and other issues |
| I think the second element of what we talked about is, one of the reasons why we've seen a fair amount of challenge too has been this -- the weak IPO and M&A markets, in particular the M&A markets, and we described a number of scenarios of transactions essentially collapsing because of the dynamics of these acquisitions where [indiscernible] more robust times, these transactions would have closed, it would have closed at higher values |
| Two companies were downgraded to Category 4 during the quarter due to developments in their fundraising and/or strategic events |
| We believe the dramatic drop in deal investment activity and the public-private market evaluation disconnect has affected the growth stages and its investors the most |
| And last quarter saw 50% decline in quarterly deal value for VC company acquisitions |
| In Q4, we realized the loss to include both previously recognized amounts and our remaining $4 million exposure as of Q3, given a failed M&A process and negative developments during the quarter in their subsequent asset sale to a third party and have removed the loan from our watch list |
| And that drove an 11% decline in NAV, bringing the year-over-year decline at 23% |
| In Q4, we reduced our expectation for recovery to $500,000 and realized a loss equal to our remaining exposure of $2.2 million and amounts previously recognized on an unrealized basis, given negative developments during the quarter and their subsequent asset sale to a third party, and have removed the company from our watch list |
| Events now have been concluded at these companies, with approximately two-thirds of the actual losses realized in the fourth quarter having already previously been reflected on an unrealized basis in prior quarters, but given unanticipated developments at a few of these companies during the quarter, additional losses were incurred |
| Non-traditional investors and other investors in the growth market have paused or remain on the sidelines |
| We realized a loss of $17 million, of which $6 million had been previously recognized on an unrealized basis, and an additional $11 million was recognized during the quarter, given the unanticipated rejection, and have removed the company from our watch list |
| Three companies were downgraded from Category 2 to Category 3, primarily due to sector concern or short runway in conjunction with their financing or strategic events, although two of the three have now signed term sheets for those events |
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