Triplepoint Venture Growth BDC Corp (TPVG) 2021 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Second Quarter 2021 Earnings Conference Call. (Operator Instructions) This conference is being recorded, and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth BDC website.

Company management is pleased to share with you the company's results for the second quarter of 2021. 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 the future events or the company's future performance or financial condition, which are considered forward-looking statements under federal securities laws.

You were 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.

Thank you, operator. Good afternoon, and thank you all for joining the TPVG second quarter earnings call. We made strong progress during this past quarter from exceeding our funding target to maintaining high credit quality and to increasing our portfolio yield, return on average equity and net asset value, or NAV. The most notable progress is the continued rise we are seeing in signed term sheets, which was one of the highest quarterly totals in TPVG's history.

Additionally, our pipeline increased 50% over last quarter and has more than doubled since a year ago. We have substantial liquidity to meet this increased demand, and we're on course to achieve the growth targets we outlined for the second half of the year and drive consistent long-term growth of investment income and net asset value.

The venture capital operating environment is remarkably strong right now. In the first half of 2021, the totals for venture capital investments, exits and fundraising neared or exceeded the totals for all of 2020. Deals of larger sizes continue to get announced. And we're witnessing more investments specifically in late-stage companies, which is a market where TPVG operates. A total of $109 billion has been committed in the first half of the year to this stage, already matching the total for all of 2020. A total of 123 U.S. venture capital-backed companies IPO-ed in the first half. 33 of them were SPACs.

The market factors are in our favor. And as you will hear, our warrant and equity portfolio stands to continue to benefit, along with our expectation of increased portfolio company exit events.

As we focus on capitalizing on this robust environment, it's critically important to maintain a disciplined approach to portfolio growth, and we don't ever want to compromise on credit quality. For that reason, we focus on high-quality companies that will enable us to generate strong returns from our debt investments as well as from our equity and warrant positions.

In the second quarter, we took important steps to meet this critical objective. While we underearned our distribution for the quarter, the trends in our portfolio remains strong in terms of signed term sheets, increased fundings and high credit quality. We expect to continue to generate NII in excess of our distribution over the long term as we have cumulatively done so since our IPO.

We're particularly excited about TPVG's promising and deep portfolio, all created by our model of working with a select group of leading venture capital investors and having a targeted focus on venture growth stage companies.

This has provided a solid foundation for us to execute against our plan. Our portfolio companies enable major changes in how people live, work and use technology. Large-scale, technology-driven transformations, I think everyone sees, are well underway in software, health and wellness or as I think of it, health tech, robotics, e-commerce, fintech and other sectors.

The particular set of circumstances produced by COVID have accelerated significant market disruptions through technology and digital transformation. We've witnessed wholesale changes in enterprise and consumer behavior. These all promised to speed market acceptance of new products and services going forward, all good news for our portfolio companies.

We believe the tailwinds associated with these changes will persist well past the continued rollout of vaccines. It will continue to drive outsized growth across many of our portfolio companies. TPVG will continue to benefit from investments in many of these tailwinds sectors such as health tech. Curology, Nurx, Medly and Hydrow are some of the companies in this sector where consumer demand, combined with regulatory actions, are driving massive disruptions in telemedicine, on-demand pharmaceutical delivery and connected fitness.

Last quarter alone, for example, hims completed its $1.6 billion SPAC. Capsule raised $300 million. And Tempo closed to $220 million equity round. GreyOrange, Enjoy and Transfix are all examples of our companies benefiting from the supercharged robotics and automation sector.

COVID exposed the fragility of the world supply chain. There's great need for continued investment in robotics and logistics to support the ever-growing shift to online procurement. In this sector, Enjoy announced a $1.2 billion SPAC merger last quarter. And GreyOrange and Transfix have each raised over $125 million. Savage X, Grove, Minted and Rent the Runway are examples of many of our e-commerce companies which have been boosted by the pandemic-driven change on the retail landscape.

It impacted consumer purchasing behavior forever. Brands are now able to build relationships with their customers directly through digital marketing. E-commerce companies, Imperfect Foods and Savage X, both announced closing equity rounds greater than $100 million this year. Upgrade, Digit and Activehours are just a few of our companies that are fintech recipients of the huge disruption underway in the core monetary infrastructure of the economy and the capital markets.

The pandemic accelerated changes in legacy banking systems and payment platforms. New lending platforms are underwriting risk and taking advantage of big data to address segments of the population that are currently underserved. Revolut, as an example, recently announced the closing of an $800 million equity round at a $33 billion valuation.

The positive trends and our excitement in these technology sectors, if you can't tell, continues. We foresee substantial equity fundraising activity in the venture capital industry as a whole and within our portfolio, in particular. It's a testament to our portfolio's quality.

We believe future venture lending opportunities are large and plentiful given today's environment. This robust industry-wide equity financing activity continues to create demand for debt to complement or top off an equity raise in some cases. For many companies planning to raise equity, in today's environment, debt enables them to accelerate growth in order to achieve higher valuations when they raise. In fact, we're now seeing demand is back again from those companies that raised large equity rounds last year, some of whom actually paid off their loans with us when they close a round, and now they're seeking debt again.

The volatility in the pipe market of recent for SPACs has also created a number of situations where companies are now expecting the process to take longer, and they're raising more equity and debt with us to continue to remain private.

Today's market is ripe for TriplePoint's venture lending strategy, and our portfolio is poised to continue to reap these rewards. As we've highlighted in the past, the fundamental strength is our differentiated platform. TriplePoint Capital will continue to benefit from these sustainable tailwinds of the innovation economy. This is led by our deep relationships with founders and entrepreneurs as well as leading venture capital firms.

We'll continue to stick to our disciplined approach, the investment process, based on identifying promising deal flow and standing at the ready with our deep liquidity to deliver attractive returns from our portfolio of debt, warrants and equity investments.

I'll now turn the call over to Sajal.

Thank you, Jim, and good afternoon. As Jim mentioned, the venture capital markets and the demand for venture lending continue to be particularly robust, and we are making disciplined progress as we execute on our playbook for 2021.

With regards to investment activity, during the second quarter, TriplePoint Capital signed $250.8 million of term sheets with venture growth stage companies, our fourth highest quarterly level for venture growth stage signed term sheets since TPVG's IPO 7 years ago. And we closed $102.5 million of debt commitments to 6 companies at TPVG. Signed term sheets and closed commitments were both up from last quarter.

We continue to invest in high-quality companies in attractive and growing sectors. The sectors of our investments closely resemble the investment activity of the top venture capital funds. And as Jim mentioned, the sectors we continue to be most excited and focused on are software, fintech, e-commerce and health tech, which are all quite active from a private markets and public markets perspective. Of the new portfolio companies this quarter, 2 are Software as a Service or SaaS companies, 2 are direct-to-consumer subscription businesses, 1 is an online marketplace, and the last one is in the business of acquiring and rolling up profitable small businesses that sell on Amazon and other marketplaces.

During the second quarter, we also received the warrants valued at $2.2 million in 7 portfolio companies in conjunction with our debt commitments as compared to receiving warrants valued at $1.6 million in 13 companies last quarter. This increase demonstrates that we are capturing more equity upside potential from our portfolio companies while still raising the bar on yield. We also made 3 direct equity investments valued at $200,000 during the quarter, of which one has more than doubled during the same quarter, again, reflecting the access we have to high-quality investment opportunities and the robust equity environment. This brings our total to $2.5 million of direct equity investments to 6 companies year-to-date.

During the second quarter, we funded $76 million in debt investments to 7 companies, which exceeded the high end of the $50 million to $75 million range we guided for quarterly gross fundings for Q2. Approximately 95% of our fundings came from new debt commitments that we closed in Q2, so a real healthy statistic and demonstration of our efforts to drive utilization of our commitments more effectively.

So far, we have funded over $18 million of new loans here in the third quarter. Consistent with prior guidance, we expect gross fundings for Q3 and Q4 to come in between $100 million and $150 million per quarter, which is supported by our pipeline, our backlog of signed term sheets, higher utilization rates of new commitments at close, sizable unfunded commitments as well as the pattern of our portfolio companies drawing on existing unfunded commitments towards the second half of the year.

We also continue to build a high-yielding portfolio with the debt investments we funded during the quarter, carrying a weighted average annualized portfolio yield of 13.2% at origination, which is up from 12.6% last quarter for new investments.

During the quarter, we had loan prepayments of $46 million, and as a result, we achieved an overall weighted average annualized portfolio yield on total debt investments of 13.9% for the quarter. Excluding prepayments, core portfolio yield was 12%, slightly up from 11.9% last quarter. Here in the third quarter, we've had $18 million of loan prepayments, generating $400,000 of accelerated income.

We continue to see substantial equity fundraising activity in the venture capital industry and within our portfolio, in particular, which is, again, a testament to our portfolio's quality. During the quarter, 5 portfolio companies raised over $600 million of capital in total, in addition to 10 portfolio companies raising over $700 million of capital in total in Q1.

Moving on to credit quality. The credit outlook for our portfolio remains strong with 90% of our debt investments in our top 2 categories. Consistent with Q1, no obligors were added to categories 3, 4 and 5, and no obligors were placed on nonaccrual during the second quarter. In fact, the weighted average investment ranking of our debt investment portfolio improved to 2.06 compared to 2.11 as of the end of Q1.

During the quarter, one company was upgraded from category 3 to category 2 as a result of completing a financing, leaving only 1 company in category 3, which is Prodigy Finance, an international graduate student lending company.

During Q2, Prodigy paid down $5 million on outstanding loans to us. And we're pleased to report that here in Q3, Prodigy completed its first securitization, issuing $228 million of investment-grade asset-backed securities. And our remaining loans will now switch from PIK interest to cash pay interest. Based on these and other developments at Prodigy, we expect to upgrade them to category 2 here in Q3.

Our 1 category 4 portfolio company, Roli, continues to be our only loan on nonaccrual, and our mark was flat with last quarter prior to currency fluctuations.

During the quarter, Talkspace completed their SPAC merger. And as of the end of the quarter, we have a total unrealized gain of $600,000 based on our warranted equity positions in the company even though the company never drew on their debt line and their unfunded commitment expired unused. This brings TPVG's total to 3 successfully completed SPAC mergers.

We also have 5 portfolio companies with announced SPAC mergers and process. Bird Rides, Enjoy, Inspirato and Sonder all announced their SPACs in Q2. And Live Learning Technologies announced its SPAC during the first quarter.

Our cost basis in equity and warrants in these 5 companies totals $1.7 million with a fair value of $3 million as of Q2. Generally, we do not mark up our investments in these type of situations until merger exchange ratios are announced, and then we further discount the fair values given the uncertainty associated with their completion.

As you can see, there hasn't been a slowdown in exit activity within our portfolio. In fact, we continue to have more than a dozen TPVG portfolio companies actively exploring IPOs, SPAC mergers, or M&A, which, if consummated, could unlock substantial additional value for our shareholders from our equity and warrant portfolio. In addition, the private equity raising activity for our portfolio companies continues to result in significant enterprise value accretion, particularly in the fintech and software sectors.

One portfolio company that I would like to highlight is Revolut, a company that the TriplePoint platform has supported since their Series A equity round in 2016 and TPVG has been involved with since their Series C equity round as both a lender and an investor in the company. The Revolut team has built a global leader in the fintech space and announced in Q3 an equity raise at a $33 billion valuation. Although we have not completed our fair value process for Q3, we estimate TPVG's equity and warrant investments to be valued between $10 million and $20 million, up from $1.8 million as of Q2 or an increase between $0.25 and $0.60 per share to net asset value. While still unrealized gains, this is another great development in the TPVG portfolio, but more importantly, not the only one that we believe would deliver meaningful gains as we have many portfolio companies that are heads down and doing great things.

Clearly, we are excited by the outlook for both unrealized and realized gains on the equity and warrant portfolio, which position us to provide shareholders with capital gains and to grow net asset value, but we're also pleased with the solid credit outlook and the strong yield portfolio -- sorry, strong yield profile for the portfolio. And as Jim mentioned, we will not compromise our highly selective investment strategy and our thoughtful portfolio construction for growth's sake.

We have a track record of covering our distribution since inception and have plenty of spillover income to cover the recent shortfall compared to NII. Our large pipeline of strong levels of signed term sheets, increasing commitment growth, higher utilization rates and meaningful levels of unfunded commitments are great indicators for near-term portfolio growth, which we believe will enable us to cover the distribution on a quarterly basis this year. But we're not going to force portfolio growth naturally.

Jim and I are now starting our 23rd year of working together, and our track record is unmatched. We've been through several market cycles together and have consistently delivered exceptional performance throughout by being thoughtful and focused. And we're quite excited for what's in store for TPVG.

With that, I'll now turn the call over to Chris.

Thank you, Sajal, and hello, everybody. Let me take you through our financial results for the second quarter of 2021. Total investment income for the quarter was $20.3 million with a portfolio yield of 13.9% on total debt investments for the second quarter as compared to $23.8 million and 13.7% for the prior year period. Total investment income reflects a lower debt balance because of significant loan prepayment activity since the start of the pandemic. We're pleased that the portfolio yields continue to be strong and stable.

Operating expenses were $10.9 million, an 11% reduction as compared to $12.3 million for the prior year period. We recorded lower operating expenses across all major categories, including $4.1 million of interest expense and amortization of fees, $3.1 million of base management fees, $2.4 million of incentive fees, $500,000 of administrative expenses and $800,000 of general and administrative expenses.

Net investment income was $9.4 million or $0.30 per share for the second quarter compared to $8.9 million or $0.29 per share for the first quarter. Net unrealized gains on investments for the second quarter were $3.2 million or $0.10 per share, resulting primarily from favorable fair value adjustments on debt investments of $1.9 million, on warrant and equity investments of $800,000 and favorable changes in foreign exchange rates of $500,000.

During the second quarter, the company recorded a onetime $681,000 or $0.02 per share net realized loss on extinguishment of debt. This was the result of the full redemption on April 5 of our baby bonds. With this redemption complete, we expect a positive effect to earnings as we continue to lower our cost of capital going forward.

Net asset value increased quarter-over-quarter and year-to-date. Net increase in net assets resulting from operations was $12 million or $0.39 per share despite the onetime loss on extinguishment of debt and not covering the regular quarterly distribution. As of quarter end, total net assets were $403.1 million or $13.03 per share compared to $401 million or $13 per share as of March 31 and $400.4 million or $12.97 per share as of year-end.

I'm pleased to announce that our Board of Directors has declared a regular quarterly distribution of $0.36 per share from ordinary income on July 28 to stockholders of record as of August 31, to be paid on September 15.

We continue to retain significant spillover income, which totaled $12.4 million or $0.40 per share at the end of the quarter to support additional distributions in the future. As we continue to experience portfolio growth over time and further record loan prepayment income, we expect to see net investment income grow to a sustained level to cover our current regular quarterly distribution levels.

Now let's move to our commitments. We are pleased to note that we have had high utilization rates of our new commitments during the quarter. We ended the quarter with $164 million of unfunded commitments to 22 portfolio companies. $70 million of this total will expire during 2021, and $85 million will expire during 2022 if not drawn prior to expiration. 57% of these unfunded commitments have contractual floating interest rates. All of these unfunded commitments have a prime rate floor of 3.25% or higher. This compares to the existing loan portfolio outstanding at quarter end, which had 50% contractual floating interest rates.

Now just a quick update on our credit facility, term debt and funding capacity. At the end of the quarter, there were no outstanding balances under our $350 million revolving credit facility. As of quarter end, term notes outstanding totaled $270 million, and we ended the quarter with a 0.67x leverage ratio or an asset coverage ratio of 249%.

In April, given the strength and diversity of our portfolio and the reasonable level of leverage we maintain, DBRS confirmed the company's investment grade BBB long-term issuer rating and upgraded TPVG's trend outlook to stable.

As of quarter end, the company's total liquidity was $383 million compared to $252 million as of December 31. We believe that we have sufficient available capital today to execute on the funding estimates that have been provided during our call. We continue to have a substantial investment funding capacity resulting from successful debt raises over the last 12 months and ongoing healthy cash flows from the current portfolio. We continue to see the ongoing contractual repayments of principal and loan prepayments as a natural and important part of our high-quality and diversified venture lending portfolio. We expect to draw capital under our revolving credit facility when needed to grow the portfolio with accretive debt financing, which will benefit our shareholders.

So this completes our prepared remarks, and we'd be happy to take your questions. And so operator, could you please open the line at this time?

(Operator Instructions) Our first question today comes from Finian O'Shea with Wells Fargo.

First question, Sajal, just to ask, I guess, about the growing venture landscape on both the debt and equity side. I know we talk about new debt entrants often on this call, but seeing more financial investment firms across the board going into venture equity, can you talk about how generally these pockets are in terms of their demand for venture debt in their strategies? Is it generally more or less?

Jim, actually, do you want to talk about the competitive landscape? Or maybe...

Yes. Fin, from a competitive standpoint, at least in terms of the market we're serving, and recall, we're only working a group -- with a group of the better select venture capital investors, there's really been no change. There -- it continues to be the aggressive equity environment, and there's some balance to that now, which is the only competition we worry about.

There's certainly folks here and there that try to dabble inventory lending or new entrants and why not? Because look at the attractive yields that we generate in this business. But at the end of the day, the barriers are about reputation, references, relationships. It's not about what's -- just having capital in a business card. And it continues to be about not only the venture ecosystem of a community of networking and deal flow and entrepreneurs that we work with, but it's also about the specialized due diligence in this whole segment that it requires.

So at least from our standpoint, there really hasn't been any kind of change in the venture lending competition arena, if that's what you're referring to.

Yes, sure. Helpful. And another, I guess, sort of high level, but as it relates to your origination portfolio. You saw decent repays this quarter and a decent impact of prepays in the top line, but feels like it's maybe not what it used to be, something we've been thinking here in recent quarters, perhaps a trend. But is that something you observe? And how would you comment on that?

Yes, Fin, this is Sajal here. What I would say is one of the benefits of working with quality sponsors and great companies is they support their companies. And so particularly last year, right, during the uncertainty of COVID, what we saw was our VC investors deployed more capital into their portfolio companies. And so we saw a significant amount of equity raising within the portfolio. And as a result, we saw a particularly robust prepay activity last year. I think now we've seen the mindset or there's more balance in the system, I would say, right? Last year, it was more reactive in terms of the equity raise. Now we're seeing folks are kind of now back to good old growth. And so the capital raises are balanced with regards to equity raising and debt raising.

And so I would say we're seeing -- because of that, I think we're seeing kind of stabilization is what I'd say or more return to normal when it comes to prepay levels and prepay activity. And then I think as Jim mentioned in his remarks, what would be more interesting is we're seeing those companies that were so well funded with equity -- fresh equity last year now coming back to the debt markets because they realize that debt's a critical part of the cap structure and they're looking to top off those raises.

So I'd say, definitely, we're seeing more balance and more thoughtful use of both equity and debt for companies that are raising equity now.

Sure. Makes sense. And I'll go for a third one, if possible. So we've seen -- this is something that happens a little bit over time, but it feels like another increasing trend of your portfolio companies showing up in other BDCs, not only venture ones, but more typical ones. Would you describe that as these companies graduating into more traditional financing or those other BDCs being perhaps more aggressive? And all -- that's all for me.

Yes. Again, I would say, listen, we're supportive of our portfolio companies. We have the full capacity of our platform to meet their needs regardless of size or transaction type. I think though we stick to our knitting when it comes to return structure and, again, that thoughtful balance between debt and equity. And we also have the benefit of insight with the venture investors that we have those long-standing relationships. And then because of our long history and let's call it the farm system of working through the platform, we also have the added insights of track record and performance of the credit.

So I would say our thoughts are we don't lose credits that we want to stay in, assuming the risk return profile and balance is there. And so we hope all of our companies recognize that it's not about the cheapest or the largest. It's about the balance and pedigree. And as Jim talked about, not everyone necessarily see that. So again, we've been doing this 23 years. We know you can't win them all and someone may come in with a dirt cheap term sheet or a ridiculous sized transaction, and we're just not going to play in that market.

And so we just, again, stick to our knitting. And so more power to others if they want to get more aggressive with regards to price or size of where we don't want to.

Our next question comes from Crispin Love with Piper Sandler.

So following up on the previous prepay question, just looking at the third quarter, I see the $18 million of prepayments through August 4. Can you just talk a little bit about how July has compared to the first and second quarter? And then with the third quarter, would you estimate that third quarter prepayment should be similar to 2Q levels?

Chris, I'll start and then maybe if you can do some of the quarter-over-quarter comparison. So Crispin, welcome. I would say the -- our prepay activity is primarily related here in Q3 to equity fundraising activity. So I would say there's no pattern of wealth in July or first of the month or second of the month, third of the month, I think. For these companies, in particular, this quarter, it was a function of when equity rounds closed and large equity rounds. And so the timing of paying us off was related to that.

And I'd say, in general, as I mentioned earlier in the prior questions, that we're definitely seeing more balance with regards to the prepay levels. And not all portfolio companies that raise equity are necessarily prepaying all or some of their debt. So I'd say definitely more balanced.

Chris, I don't know if you want to comment with regards to just prepay activity, where we are today versus Q2 or Q1.

Yes. I would just add that the $18 million that was referenced on the call today is 1 transaction. And much like we've seen in the past, it's really measured onesie-twosie. It's not -- we're not a credit card business where there's a lot of prepayment activity. It's very much specifically identified on short notice. And so that's -- I would say that's consistent for both first quarter, second quarter and then the 1 transaction so far this third quarter.

Okay. That's helpful. And then looking at the funded debt investments in the second quarter, I believe it was the $76 million to the 7 portfolio companies. Can you just break out the mix of those 7 companies? Was it a mix of new and existing portfolio companies out of the 7? And then which -- what are the subsectors you were -- you funded there? And I guess just also just which subsectors are you most excited about right now?

Yes. Maybe I'll work backwards and then give Chris some time to pull in. So I would say clearly, we're particularly excited about fintech, software, e-commerce and health tech. Those are our core sectors that we deploy our capital in. And then I think, Crispin, as we said in the prepared remarks, the good -- the utilization this quarter of fundings -- or of new commitment fundings, so higher percentage of the portfolio companies that closed deals in Q2 actually utilize. I'd say a particularly high percentage were new customers because the transactions this quarter were new customers. And then I do believe there were maybe 1 or 2 companies that were from existing customers that had follow-on fundings on their unfunded commitments. Chris, any more detail you wanted to add?

Yes, there were 5 new customers and 2 existing. So they're very consistent what Sajal had referred to during his prepared remarks as far as existing relationships or existing commitments versus new commitments in the second quarter and actually funding as well.

Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Chris, in your comments, did you say that you expect the quarterly EPS to cover the dividend in the second half?

I didn't say that. What I was -- what -- our trend will be is to originate -- to get to a level where it's sustainable. So we clearly need to get to the $100 million, $150 million in the third and fourth quarter, and then we're on track for doing that.

Great. And I guess, for Jim, strategically, given the discussion in Washington of raising the capital gains tax, what do you think that would be the implications for the venture debt market?

Yes. So in the whole venture lending arena, I think it's mostly due to the nature of the companies and also the nature of the business and the tax losses and those kinds of things that changes in capital gains and the effect on venture lending, at least so far, hasn't come up as any kind of potential issue for companies, for prospects in the venture lending side.

I do know on the equity side, venture capital, there's a lot more debate, a lot more issues, a lot more concerns. But at least right now, we don't see that as a factor in terms of whether or not a company wants to use debt financing with warrants attached to grow their business.

Our next question comes from Casey Alexander with Compass Point.

Just one probably not very important question. But the scheduled principal amortization was a lot higher for this quarter. Did that include like a full payoff at maturity as opposed to regular kind of quarterly DRIP by DRIP amortization?

Yes, Casey, that included the $5 million that Sajal had referred to in his prepared remarks.

From Prodigy?

From Prodigy, yes, a little bit lumpier than you would have otherwise expected.

Yes. So we shouldn't be looking at that level of regular quarterly amortization next quarter.

That's right.

Yes. Okay. And Sajal, you made reference, and forgive me, I didn't quite catch it at the time, about doing something to encourage better utilization of the unfunded commitments that you have. And I'm not -- I didn't quite catch it. If you could go over that again, it would be helpful.

Sure, Casey. So as we look of the $76 million that we funded this quarter, 95% of those were obligors where we closed transactions with them in the quarter. So rather than having a -- entered a loan commitment and then waiting for them 6 to 12 months to potentially draw on their unfunded commitment with us this quarter, we drove higher utilization of the new commitments to actually draw it closed.

Is there something that you're doing to encourage that? Or what is driving that change?

So the yields went up and the warrant value went up. I would say it's an element of use case of how some of the companies were using the debt, just negotiating discussions with them. And I would say, again, kind of where these companies are from a growth perspective, just wanting to accelerate growth and utilize the capital now.

So I'd say it's a little bit of structuring, a little bit of specific to the companies and then a little bit of it is how the capital is actually being used.

Our next question comes from Devin Ryan with JMP Securities.

Great to see the growth of the pipeline. And maybe if you can just dig in a little bit more, if there's any other -- or any additional color you can share just on the makeup and how it's been evolving, whether it's new pricing structure and kind of comparing the first companies in versus the last companies in?

Jim, do you want to take the pipeline question?

Yes. So in terms of pipeline growth and some of the drivers, I'd say it's a little bit more of a balanced environment now. It was one thing during, let's say, the height of the 2020 pandemic where there were huge rounds and entrepreneurs who were grabbing big valuations and $200 million, $300 million at once in rounds. And that was the primary way to finance companies. And now I think with a step back, even with these kinds of valuations in this environment, it's, after all, using debt to complement and enhance the equity raise, using debt to finance acquisitions versus just pure equity dollars.

And some of the other things going on, as I mentioned in prepared remarks about the SPAC environment, some of the, call it, the interest rate increases and inflationary fears out there and everything, it's like -- I would say there's a lot more, I guess I keep using the word balance here, that we're seeing. And the pipeline literally increased 50% over last quarter. And I'm actually expecting that kind of a rate the -- this current quarter. I don't know if I answered your question or not, but the market today is -- despite...

Yes, Jim, what...

Yes. Go ahead.

If I might add, I would say, Devin, it's fundamentally the companies are focused on growth. And so what growth means is they're accelerating spend. And so they need more capital. And as Jim was referring to, it's -- now it's more of a balance between using equity and debt. And I think it goes back to that core theme of right now, investors -- private equity investors for the next round are rewarding companies for top line growth, for achieving those business milestones sooner and faster. And so it's in the alignment for these companies to accelerate growth because they're being rewarded for it because that's what investors are focused on for those next rounds. And so -- and then the value proposition of venture-backed continues to be right where -- less dilutive than raising equity. And so that's why we just continue to see strong demand.

Okay. That's great color. And then maybe a bigger picture question. Just love to get your reaction here. Clearly, you guys have done this a long time. And so as you think about the evolution of the venture space and really the quality of the companies that are in this space today, whether it's fintech or software, e-commerce or some of the areas that are attractive, how has that progressed? Have you seen an environment with as many, call it, quality companies as there are today in those areas, because I know that it's been an evolution here, but in a positive way? And does that at all change your thinking on leverage comfort? Or kind of bigger picture, does that change anything just given that there has been kind of a progression in terms of quality of, I think, the entire universe? But I wanted to just get your thoughts on that.

Yes. I mean let me start, and then, Jim, please feel free to add in. So I would say, again, we've been through a couple of these cycles. What -- we -- again, we can only comment on the universe of the venture capital funds that we were sort of -- so it's an upper echelon, higher tier. But what I would say, what definitely strikes me as different is 20 years ago, during the tech bubble, you would see 6 or 8 companies that did the same thing, and they were funded by premier VCs, but they all kind of did like -- I can tell you, they're probably 3 different pet stores or equivalents. And so there were just a -- there was a lot more money funding, a lot more overlapping companies. And I think what makes us feel really great is despite these strong levels, if not record levels, of VC equity investment activity, we're not seeing the fifth version of whatever the -- getting funded. And so it's -- I think, again, we're just seeing great companies, great subsectors getting funded, great teams. Yes, there is some overlap, but it's not as head to head as we saw or commoditized, which makes us feel really great.

I think interestingly enough, I would say we're not seeing increased levels of leverage within those companies because, again, we're in a robust equity environment. And so we continue to have a playbook. We know what the representative amount of debt a company in each stage of their development vis–à–vis their milestones and enterprise value and investor base should be. So I don't think you'll see us kind of get overly aggressive from that perspective because we've been there, done that.

But I would definitely say we're just feeling great. I mean these are great companies, solid companies and great backing and doing good things and achieving a lot of great things.

Yes, I can only add, I haven't been involved in it that long. The '60s is probably when VC started. But my observation is pretty much along those lines as well as really venture capital, the field itself has progressed. And maybe it's a recency effect, but I would absolutely agree that the quality is probably the highest over this long span of being involved in the business. And I think in large part, some of it is due to venture capital is a lot more developed, has progressed through the years. VC firms are more organized sectors, technologies. Structuring deals is much better understand -- understood now than maybe 10 years ago and 10 years before that. And a lot of it's just learning from the ups and downs, excesses of the past. But it's a much more refined business.

And gee, to see all this money in the market today and the opportunities for debt and the quality of these companies and entrepreneurs, again, in that upper echelon that we deal in is -- I just have to use that word -- overused word, exciting. It's very exciting times and I think some of the best times we've seen in the market over the long span.

Our next question comes from Ryan Lynch with KBW.

The first one, I just wanted to hit on the kind of market activity and the kind of outlook for exits and prepayments. I mean so far, in the first 2 quarters in 2021, it doesn't look like exits or prepayments have really been too elevated relative to the kind of activity that you're seeing in the venture capital space. And so I'm just wondering, do you expect that to change? Because one would think that given the activity in the venture space, that prepayments and exits would actually increase. But again, you haven't seen that. Do you expect that to occur in the second half of 2021? And do you expect your guys' funding to be able to outpace that if that is going to occur?

Yes, Ryan. So I would say the prepayment activity for us has been primarily due to private raises of equity capital, not M&A or IPO financings. We're not banking on a takeout. We don't need that exit event to take us out. So it's primarily equity fundraising because these companies just have so much cash in their banks that they're paying us off.

So when the exit event actually occurs, there's no prepayment because, again, we've been prepaid for some time. We'll take Revolut as an example of a huge equity -- it's not an exit, but huge raise. They had paid us off some time ago. So I would say clearly here and there, we do have some portfolio companies, let's say, the SPAC generation, that may have some debt outstanding. But I would say, historically, it's been the takeout or the prepay has been as a result of an equity raise. And that's why when we see the exit event being in an IPO and M&A or a SPAC merger, we're only seeing the uplift in the equity and warrants because we already saw the debt being prepaid.

Now as we look to second half of this year in terms of prepayment activity from our core equity raises, as I mentioned, we're just seeing a little more balance from portfolio companies that are fundraising or that are closing fundraises that they're either waiting to pay off the debt. They're either not paying off the debt or we're talking with them about creative ways to keep the debt outstanding. So I'd say we -- and again, we're coming off a base of last year where there was just so much equity activity that we saw such unusually high prepay activity. But definitely more balanced this year, and I think we expect more balances we kind of end the year, which we think will then translate into meaningful portfolio growth.

Okay. That's helpful color. Understood. Then the other question I had was you talked a lot about, and this is for the last really several quarters, of the amount of capital coming into the venture capital ecosystem, the level of several portfolio companies engaging in SPAC mergers or raising significant amounts of capital in the private markets. It feels like it's a really robust exit environment/a good environment for capital raising and increasing valuations across the venture space.

Now I understand that you guys do have a big gain likely coming in the third quarter from Revolt (sic) [Revolut]. But are you surprised, because it was a little bit surprising given the level of activity that there is in the marketplace in the venture space, that your guys' book value is only up 40 basis points in the first 2 quarters in total in 2021? I would have expected more gains via the equity and warrant portfolios just given how robust for the backdrop of the environment you're in and kind of what you've talked about as far as capital raisings and deal activity.

Great question. Chris, do you want to take it and comment on private company valuation, warrant and equity valuation?

Yes. It is an interesting question, the public versus private valuation cycle. It's not as simple as just taking the last round times the number of shares we hold. It's much more complicated than that.

On the Revolut situation as an example, there's a range of acceptable private company valuation methodologies that have to be applied, including liquidity discounts and preferences and the like.

And so the other thing that we're experiencing that Sajal talked a little bit about earlier on the call was the impact of our approach to being more conservative on valuations for those portfolio companies impacted by potential upside valuation on the SPAC side. So there's a handful of names that are already in the SPAC process that we expect upside, but you don't price deals today based on future value, but on current fair value.

And so I think there's some hidden gems in there. And so those will come out over time in the SPAC kind of ultimate de-SPACing and going through that process. But again, a lot -- all of our portfolio companies are private. So we have private warrants, preferred stocks, substantially all preferred stocks. So it's a little bit more complicated. And there's a lag between those events compared to having all public listed securities where you see that pop right away. And it's just less volatile in our portfolio. So we didn't have the downside that you might have seen in other portfolios, say, a year from -- a year ago from today.

This concludes our question-and-answer session. I'd like to turn the call back over to Mr. Labe for any closing remarks.

Thank you, operator. As always, I'd like to thank everyone for listening and participating in today's call. We hope everyone enjoys the rest of the summer and have a very healthy August and continuing remaining good health. We look forward to talking with you all again next quarter. Thanks again, everyone. Goodbye.

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