Triplepoint Venture Growth BDC Corp (TPVG) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. First Quarter 2022 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 website. Company management is pleased to share with you the company's results for the first quarter of 2022.

Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer.

Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward-looking statements under federal securities laws. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for the important factors that could cause actual results to differ materially from these statements.

The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com.

Now I'd like to turn the conference over to Mr. Labe. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining TPVG's first quarter 2022 earnings call.

We're pleased with our strong first quarter results. We over-earned our dividend, hit our funding target, increased our portfolio yield and maintained our credit quality. We are on track to carry out our 2022 plans, drawing on TPVG's differentiated platform, our strong earnings generation capabilities and our balance sheet strength.

This includes our $125 million private debt offering during the quarter and DBRS recently reaffirming our investment-grade rating. The venture capital environment has remained active throughout the recent market choppiness, and the demand for venture lending has remained very strong. This has resulted in our largest pipeline globally at our sponsor, TriplePoint Capital, of more than $2.75 billion as of quarter's end.

In the first quarter, here at TPVG, our signed term sheets at venture growth stage companies was more than $650 million, the second highest since our IPO, topped only by the previous quarter. In fact, the level of signed term sheets in each of the last 2 quarters has been running at a rate more than triple that of our quarterly average in all the previous quarters. This level of signed term sheets bodes well for our future debt commitments and increased fundings in 2022.

During a time when demand remains strong, we continue to maintain our proven and disciplined approach. We work with a select group of leading venture capital investors and with what we believe to be the highest quality venture growth stage deals. The strategy hasn't changed since our IPO more than 8 years ago. We believe our time-tested approach has been proven throughout numerous cycles. It positions us well to further deliver strong returns to shareholders as we capitalize on the exciting opportunities ahead in 2022 and beyond.

Regardless of macroeconomic shifts in venture lending, experience makes a difference. Our senior team is the most cycle-tested in the venture lending industry. If there's one point that Sajal and I have learned over what is now more than 23 years of experience working together, alone covering more than $14 billion in venture lending transactions during that period, it's the venture lending business through markets and cycles.

Diving into some of our first quarter highlights. We generated NII per share of $0.44 and exceeded our regular $0.36 dividend. We achieved a weighted average portfolio yield of 15.5%. First quarter funding fell right into the middle of our target range. And based on our current pipeline, we expect fundings to continue increasing throughout the year, in line with the previous ranges we laid out.

As of today, in fact, we've already funded more than $49 million subsequent to quarter's end. As we previously reported, we had several loan prepayments during the first quarter, reflecting the ability of our high-quality portfolio companies to complete additional funding round and achieve attractive exits. Inspirato and Sonder both completed public listings during the quarter.

We also received prepayments from virtual instruments in Casper. In this environment, we believe that this level of prepayment activity actually speaks to the strength and stability of our portfolio companies. They're growing, raising capital and completing successful exits. Prepayments, while they're not always predictable in terms of their timing, remain ongoing contributors to our income and yields and further testimonial to the strength of our companies.

Underpinning our ongoing success in our future prospects is our high credit quality portfolio that I mentioned. This includes a number of companies experiencing tailwinds in this current environment. While in-person activities and return to the office are underway, pandemic-era consumption patterns are here to stay.

Many portfolio companies continue to benefit from both the reopening of the economy and the consumer behavioral shifts to online procurement. There's increased demand for next-generation brands that connect and engage with consumers directly online and an expanding range of e-commerce offerings. Service and delivery at convenient rapid delivery times are becoming an even stronger differentiation factor for companies providing vital products.

Health and wellness-related companies continue to prove their strong value proposition. Other portfolio companies of ours stand to benefit from the current inflationary environment and the low labor availability, which is driving businesses out there to invest more into the efficiency-enhancing products and the services that many of our portfolio companies offer.

Turning back to the venture capital and venture lending environment these days. As I mentioned, the private venture markets have remained highly active, even amid this public equity volatility. Last quarter's VC investment levels were still well above pre-COVID averages for any quarter, measured on both the dollar volume as well as the deal count basis. The pace of VC fundraising activity continued uninterrupted. At $70 billion of funds raised last quarter, VC fundraising hit a record, and nontraditional investors and venture deals also reached a new high.

With the addition of all this new fundraising, there's now a record amount of dry powder looking to be deployed in the near future. This is estimated to be more than $300 billion by the PitchBook NVCA monitor. This should provide the ample support for investment activity and the potential impacts of any corrections in the market.

For quality companies, there's no doubt there couldn't be a stronger pool of capital to access. Having stated this, we can't ignore the recent shifts and the impact in the venture market, most notably private market valuations at these later and growth-stage companies where valuations have been leveling off and venture capital IPOs, at least last quarter, were almost nonexistent.

As we look forward, however, all of these factors serve as positive trends and drivers behind the increased demand for venture lending, and we see that continuing to play out during the remainder of this year. Companies are increasingly evaluating debt financing solutions as a result of these longer time lines for public listings. Following a record year for venture capital activity, many of the companies that raised equity last year at attractive valuations are now looking to add debt.

Other companies are seeking additional runway in the form of debt as they plan out their timetable and future equity rounds. And still other cases, companies are commencing with drawdowns under their existing lines with us as part of augmenting their financing strategy and capitalization plans in this environment. Companies are no longer raising equity rounds every 6 to 12 months necessarily or as quickly as last year, and there's a little more moderation. These are all great trends as many are turning towards debt and layering it in as part of their go-forward plans. We believe all this has a positive effect for future business and for our yields.

Given the increased demand and increased attention towards debt, we're taking advantage of this opportunistically to increase our rates and expect to increase our yields through the year.

To recap all this, we're very pleased with the strong first quarter performance. As we said on our last earnings call, 2022 will be a year of continued execution, growth and performance. We anticipate the second quarter will be a real busy fundings quarter. We expect to build on that momentum throughout the balance of the year given our backlog and our liquidity. Given our strong pipeline, we're excited about the opportunities ahead. In executing against these opportunities, we have a cycle-tested team and we'll remain disciplined and continue to apply our tried and true underwriting standards to select the best deals and deliver strong returns to our shareholders.

With that, let me turn the call over to you, Sajal.

Thank you, Jim, and good afternoon. As we articulated during our last earnings call, in anticipation of the busy year, our playbook for the first quarter was intended to position our business and our team to prepare for and to execute on driving portfolio growth, sustained credit quality and capital efficiency over the course of the year, while generating strong returns for shareholders.

Key objectives for the quarter included increasing funding capacity while diversifying both the type and cost of capital, maintaining our disciplined approach of originating high-quality and high-yielding investments, not just for the quarter but for the entire year and, of course, demonstrating the earnings power and return potential for our core business. We are pleased to have accomplished each of these objectives.

Regarding first quarter investment portfolio activity, TriplePoint Capital signed $657 million of term sheets with venture growth stage companies, and we closed $126 million of debt commitments to 11 companies at TPVG. Signed term sheets and closed commitments were both up from Q1 2020 levels -- 2021 levels of $192 million and $90 million, respectively. We also received warrants valued at 800,000 in 10 portfolio companies and made $2.4 million of direct equity investments in 4 companies.

During the first quarter, we funded $63 million in debt investments to 10 portfolio companies, which was the midpoint of our $50 million to $75 million guidance range for Q1 and an increase from $57 million in debt investments to 7 companies in Q1 2021. The debt investments we funded during the quarter carried a weighted average annualized portfolio yield of 13.3% at origination, which is also up from 12.6% in Q1 2021. Our core portfolio yield during the quarter was 12.7%, up from 11.9% in Q1 2021 and has increased every quarter since then.

In addition, as a result of prepayment activity during the first quarter, our weighted average annualized portfolio yield on total debt investments was 15.5%.

The continued growth of our portfolio and increasing portfolio yield enabled us to generate earnings in excess of our dividend and demonstrate again the return potential of our business, both on an NII and ROE basis at scale. As Jim mentioned, we continue to see equity fundraising activity in the venture capital industry as a whole and within our portfolio, in particular, which is a testament to its quality.

During the quarter, 8 portfolio companies raised over $800 million of equity capital as compared to 10 portfolio companies raising over $700 million of capital in total in Q1 2021. We continue to make strong progress on our goal of diversifying the TPVG portfolio while scaling.

At the end of Q1, we had 48 funded obligors as compared to 33 funded obligors as of Q1 2021, up 45%. And our debt investments were up 21% on a fair value basis from $574 million to $696 million. Our top 10 obligors represent approximately 40% of our total debt investments as compared to 53% as of 1 year ago.

Our equity and warrant portfolio continued to grow as well, with 128 warrant and equity investments as of Q1 2022, up 36% from 94 warrant and equity investments 1 year ago and represents $110 million on a fair value basis, almost double from $60 million as of Q1 2021.

Moving on to credit quality. During the quarter, 5 companies were moved from category 1 and category 2 as a result of prepays. I would like to highlight the prepayment from virtual instruments also known as Virtana, which, back in 2015 -- December 2015 was rated 4 on our watch list. And now 6 years later, has paid us off in full, quite an impressive job by our team and the company as well.

In addition, 1 company with $2.5 million of principal balance was downgraded from category 2 to category 3. We see continued progress on the other 2 of our category 3 obligors and expect both to be upgraded over the next 1 to 2 quarters. Our 1 category 4 portfolio company, Luminary Roli, is our only loan on nonaccrual. And during the quarter, they launched the second generation of their innovative Seaboard RISE keyboard, which has been positively received.

During the quarter, 2 portfolio companies completed their SPAC mergers, Inspirato and Sonder. Casper completed its take-private transaction. Fuze was acquired by 8x8, and Nom Nom Now was acquired by Mars Petcare. Both Transfix and Grove continue to make progress on their previously announced SPAC mergers as well.

As noted in today's earnings release, we funded almost $50 million of new loans just 1 month into the second quarter. We previously guided to a $50 million to $100 million range for fundings for Q2 and have line of sight to beat the range for the quarter. For Q3 and Q4, we continue to expect fundings in the range of $100 million to $200 million each quarter on a gross basis.

We are excited for what's in store over the course of the year, and we continue to be heads down focused on growing the portfolio in a disciplined manner, maintaining a strong credit profile, growing NII and NAV and working with some of the most exciting venture growth stage companies, backed by some of the industry's best venture capital funds. It is during periods of volatility where our platform, our team and our investment approach flex their muscles in a very thoughtful and disciplined manner to show our leadership position in the market with innovation, consistency, transparency and scale.

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

Great. Thanks, Sajal. And hello, everybody. During the first quarter, we continued to generate substantial core interest income from our high-quality loan portfolio. We continue to see favorable utilization rates on new debt commitments to our companies. We deployed capital using our attractive sources of leverage while maintaining excellent credit quality and diversity.

I'll take you through an update on the financial results for the first quarter of 2022. Total investment income was $27.3 million as compared to $20 million for the first quarter of 2021. Our portfolio yield was 15.5% on total debt investments as compared to 13.3% for the prior year period. The onboarding yields continue to be strong and stable. Given the loan prepayments in the quarter totaled $115.5 million, we reported an elevated weighted average portfolio yield for the period.

Operating expenses were $13.8 million as compared to $11.1 million for the first quarter of 2021. Operating expenses for the current quarter consisted of $5 million of interest expense; $3.7 million of management fees; $3.4 million of incentive fees; and $1.6 million of G&A expenses. The increase in overall operating expenses is primarily driven by an increase in the portfolio of assets, an increase in the use of attractive leverage and the aggregate growth in pre-incentive fee income.

We earned net investment income of $13.5 million or $0.44 per share compared to just $0.29 per share in the same period last year and $0.42 per share in the prior quarter. While we experienced limited realized and unrealized valuation events in the first quarter, we did realize -- record $3.1 million of net realized losses on investments resulting from Casper Sleep completing its take-private transaction and foreign currency adjustments on prepayments, and net unrealized losses on investments of $4.7 million, resulting primarily from $3.5 million of net unrealized losses from fair value and mark-to-market adjustments as well as the reversal and recognition of $1.2 million of previously recorded unrealized gains associated with investments realized during the period.

As of quarter end, the company's total net assets were $429.5 million or $13.84 per share compared to $434 million or $14.01 per share as of December 31, 2021, and further $401.8 million or $13 per share as of a year ago, March 31, 2021. NAV this quarter was primarily impacted by volatility in our public equity and warrant portfolio and foreign currency exposures, but NAV was up on a year-over-year basis.

I'm pleased to announce that on April 28, our Board of Directors declared a distribution of $0.36 per share from ordinary income to stockholders of record as of June 16, to be paid on June 30. In addition to over-earning the dividend again this quarter, we were again -- we again increased spillover income, which remains significant and totaled approximately $12.8 million or $0.41 per share at the end of the quarter, supporting additional regular and special supplemental distributions in the future.

As we continue to experience strong portfolio activity over time and further record loan prepayments, we expect to maintain net investment income at levels that cover current regular quarterly distributions consistent with our long-term track record. I'd also note that NII to dividend coverage was 122% for the first quarter.

As Sajal discussed, and for modeling purposes, we now expect to come in around $100 million to $125 million of gross fundings for Q2. We continue to expect gross fundings for Q3 and Q4 to be in the range of $100 million to $200 million each quarter, and that results in an overall forecast for the full year in the range of $400 million to $600 million on a gross basis.

Now let's move to our unfunded investment commitments. We continued to experience high utilization on new commitments during the first quarter. Given the robust pipeline that we mentioned earlier, we ended the quarter with $232 million of unfunded investment commitments to 25 companies. Of the $232 million, $140 million of this total will expire during 2022, and $92 million will expire during '23 and beyond. 77% of these unfunded investment commitments have contractual floating interest rates, all of which have a prime rate floor set to 3.25% or higher. This compares to the outstanding loan portfolio at quarter end, which had 52% contractual floating interest rates.

Now just a quick update on our term notes, our credit facility and overall liquidity. In February, we completed $125 million private institutional notes offering. These notes are unsecured and bear interest at a fixed rate of 5% per year and mature in 2027. DBRS issued an investment-grade credit rating in connection with this transaction and recently reaffirmed our investment-grade issuer rating of BBB. We are pleased to have completed this, our third investment grade notes offering to date, further enhancing the flexibility and diversification of our balance sheet. The proceeds from this offering position us well to support our continued portfolio growth, and we appreciate the strong interest and support from our growing group of investors.

And with the proceeds of this offering, we fully paid down our revolving credit facility, which we expect to draw again upon when needed to further grow the portfolio with accretive leverage, which will benefit our shareholders. With the completion of the financing and against the backdrop of a rising rate environment, our fixed rate borrowings account for 94% of our outstanding leverage as of quarter end, while 52% of our debt investments are at floating rates and stand to benefit from increasing interest rates.

With our latest debt offering now complete, we have 3 layers of term debt maturities with the earliest occurring in 2025. As of March 31, there was an aggregate of $420 million of debt outstanding, of which $395 million represented these fixed rate investment-grade notes, and we ended the quarter with an additional $25 million outstanding on the floating rate credit facility after paying down the balance mid-quarter. We ended the quarter with a 0.98x leverage ratio compared to 1.08x leverage ratio as of year-end. We continue to have an overall long-term target leverage range of 1.0 to 1.2x leverage ratio.

As of quarter end, the company had total liquidity of $376 million, consisting of $51 million in cash and $325 million available under our credit facility, subject to existing advance rates, terms and covenants. In addition to the strong liquidity, the existing seasoned and diversified portfolio provides stable cash flows, which bodes well for the sustained liquidity throughout 2022.

So this completes our prepared remarks, and we'd be happy to take questions from you at this time. So operator, would you please open the line for questions at this time.

(Operator Instructions) And our first question will come from Finian O'Shea of Wells Fargo Securities.

Jim, I appreciate your comments in the beginning on being able to raise your core lending rates. Can you add a little color there as to how the pipeline is developing for -- and what the newer issue yields could look like?

So the pipeline, as we mentioned, now this is at the platform level, is moving more and more -- it's at record levels, and it's continuing to increase. And on an opportunistic basis only, there's opportunities here, risk-reward to move our yield up a little bit during the course of the year.

This is independent of anything that may be going on with interest rate increases such as today because when demand is strong, at the right opportunities, we want to continue to work to increase yield.

Sure. That's helpful. And can you describe what opportunistic looks like in the TriplePoint realms? It's not something I'm sure we've seen in the past. It's usually a very clean, recently capitalized, high growth, late-stage company. Just curious what perhaps a struggling or sideways company might look like and where you...

Yes. No. Let me jump in. I think opportunistic did not mean with regards to a strategy or -- opportunistic meant as with regards to on our transactions. It's not an across-the-board rate hike, so to speak, from our perspective. I think Jim is saying, opportunistically, as we look to the risk return of transactions or the deal sizes or other characteristics of traditional, I call them the same, the usual venture growth stage investments just because there's so much demand that we actually fundamentally believe we should be charging more given the volatility in the environment.

So I'd say we're not suggesting we've started an opportunistic lending strategy or anything like that. It's the same old, strong demand, high-quality, venture-backed company -- venture growth stage companies that have raised significant amounts of equity capital, but we believe, again, there's -- we're able, at the TriplePoint Capital level, to charge a premium, and we've continued to do that.

Yes, I would just reinforce, it's based on the reputation, the reference relationships we have in the industry and are able to continue to command a premium in these situations. It's not a separate sector or a certain area or reserve for companies that we would never touch.

Okay. And just one more on a high level. It sounds like this is another pretty good buy-the-dip type environment for you where the IPO market slows, but venture capital keeps getting raised and portfolio companies keep performing well and your capital is more on demand, so you do very well into this environment.

But stepping back, this is supposed to be a higher risk asset class. So what level of headwinds, whether they come from interest rates or recession or over capitalization, do you think it would take here to thwart the momentum of venture capital? Do you think there's a certain level of headwind that we could see? Or do you think we're just really in -- still in the early innings of a long run of growth?

Yes. And I'll start and then, Jim, jump in. I mean again, it would be disingenuous to say that there's nothing that could cause headwinds in the venture capital equity or the VC or the tech ecosystem. Again, we're talking more specifically about the tech and the venture ecosystem with regards to technology companies. But I would say, again, we continue to believe that we're in early innings. And we look at factors like investment activity, the dry powder of our funds. And again, remember the sponsors that we're working with, these VCs, are not playing for a quick exit on their portfolio companies, right? They're in, they expect long holding periods for their portfolio companies to exit. And so I think we appreciate and we're glad that they have significant amounts of dry powder and they're deploying it.

And then the outlook on top of that, that our portfolio companies themselves have significant amount of dry powder and are layering -- so they're using our debt in a thoughtful way. We're not bridge financing. We're not here for companies that are unable to raise equity or that had transactions fall apart. Those are not TriplePoint portfolio companies. We're here to help those companies accelerate growth. And the data shows, right, those are the companies that are most attractive, both in good times and in volatile times for M&A, for follow-on equity raise and the cream rises to the top.

And so that's why, again, we think our investment strategy will outperform during volatility because we focus on such high-quality companies that they'll continue to attract -- get more than their lion's share of the capital that flows into the asset class. And so what will -- I think we're mindful of valuation, right? That's an important metric. And if public comp multiples get clobbered even further, then it's hard to argue that a private company, despite their higher growth rates, should get the same or higher multiple. And so we're just cognizant of that. But again, data is showing, and the reality is that our companies are, again, quite durable and performing well from a fundraising and overall financial performance perspective.

Our next question comes from Christopher Nolan of Ladenburg Thalmann.

Just to start out with, Jim, did you mention prepayments to date? I missed it if you did.

I don't think we -- I talked about fundings to date since the quarter, it's been $49 million as of today.

And in today's earnings release, we mentioned that we've had $26 million of prepayments so far in Q2.

Great. Given geographically, how has your investment portfolio changed given there's a strong growth in Texas and Florida and so forth like that? Has the geographic mix of your portfolio changed much? And what does that sort of speak towards your operating expenses going forward?

From a geographic standpoint, there really hasn't been perhaps some small shifts quarter-to-quarter. But overall, the majority of our U.S. business is in the hot beds of Silicon Valley, where we're headquartered as well as out in New York. And actually, New York has been on the increase, and it's the second market now for venture capital. We don't have any targeted geographic approach in terms of cities or dispersions like that. But the overwhelming amount of our business, I think, is going to continue to be New York, Silicon Valley, Boston and SoCal, those kinds of the areas.

And finally, just a follow-up on Fin's question. Are you seeing any improvements or strengthening in the terms and conditions for your loan investments?

Yes, Sajal here. I'd say the good news is we've generally been very consistent. I think that's one of the reasons why our portfolio companies choose us. And so we're thoughtful in terms of how we structured. I would say the good news is we're definitely focusing on companies that have larger equity capital bases and more recent rounds of financing to validate the investor support, to validate the current kind of enterprise value. So I would say, for us, it's more on the credit side than on the structuring side in terms of how we operate during volatile times.

Our next question comes from Kevin Fultz of JMP Securities.

As you mentioned in your prepared remarks, quarter-to-date investment fundings totaled $49 million, which is tracking above the prior forecast of $50 million to $100 million. And as you discussed, are expected to exceed $100 million for the quarter. Just curious if you could talk about the investment environment more broadly and how the investment landscape has improved since the last update in March?

Yes, I would say kind of consistent with what we said last quarter. Again, I mean, a certain element of it, Kevin, is Q1 is always a lighter quarter for us given how busy Q4 is generally. And then we build up pipeline and momentum over the course of the year. So I would say that the targets that we've given of increasing fundings quarter-over-quarter is consistent with our past practices.

I would say, from the increase here in Q2 is a little bit of spillover and timing from investments that could have closed or funded in Q1. It's been from just the overall pipeline growth, and then I think the third bucket is a little bit of utilization by existing portfolio companies as their unfunded commitments come to expiration or closer to expiration.

I would like to point out that we're -- just like we saw in Q1 2020, right, during periods of volatility, our portfolio companies, given their stability and resiliency, you don't see a run on the bank. You don't see this draw on cash and maintaining excess liquidity just to have that liquidity because they're all well capitalized to begin with. In fact, what we saw is the significant amount of prepayment activity in Q1, which again, is again testament to quality.

So I'd say kind of it's just a consistent story we've been telling for the past several quarters of this, again, portfolio growth, the demand in the market, just our discipline in terms of how we're underwriting. We're not doing anything different. If anything, we're, again, being a little tougher, given the overall volatility, but we're pleased with what we're seeing from a market demand and market quality.

Okay. That's really helpful. And then just digging a little more on the prepayments. Just curious what your expectations are for the cadence of prepayments, including visibility in the current quarter.

Chris, do you want to take that one?

Well, I can speak to the quarter-to-date information. So we had 1 obligor prepay already this quarter generating additional accelerated income of a little over $1 million. So as I think Sajal and others have communicated, it's really tough to anticipate prepayments given that we have a mature portfolio with different year of vintages. We know that prepayments occur. It's a natural part of the venture lending model, so it will happen. It's likely we'll have another prepay before the end of this quarter. It's just hard to estimate kind of the quantum or the size of those prepayments. But we've had $26 million -- $26.5 million so far this quarter in principal prepayment.

The next question comes from Crispin Love of Piper Sandler.

So just one on the broader environment and the related volatility that you've been talking about a little bit. So do you think you've been benefiting from the volatility that we've seen in the private and public market valuations where you have companies that raised equity in the past year or so, don't want to raise a down round and instead add debt through you? And do you -- and would this be a tailwind for you over the near term? And how long do you think that tailwind could last?

Yes. Let me start, and then, Jim, jump in, please. So definitely seeing some benefits. I think Jim mentioned this in his prepared remarks. During the more robust periods, we saw companies raising follow-on equity rounds every 6 to 12 months because, in particular, those private market, later-stage investors were significantly valuing and rewarding kind of growth and willing to pay significant premiums sooner. The normal model is to raise an equity around every 12 to 24 months.

And so during more robust times, aggressive times, let's say, from the equity markets, raising more frequently. So what we're seeing now is, again, going back to the more thoughtful approach of raising an equity round every 12 to 18 months, and so the portfolio companies are layering in. So these are companies that have either raised or are raising, are layering in venture debt to complement that capital.

Now I'd say, I definitely don't think it's to avoid a down round. I think again, the data points within the companies that we have raised equity here in Q1 were primarily up rounds. And so I think it's again, they're not at the peak multiples and peak valuations that they may have been in the past. And so rather than raise more than they used to, they say, "Great, let's hey, we didn't max out on the multiple, let's raise an appropriate amount. And then instead of raising too much or more than we normal, we will complement it with venture debt." And so I think that's the really healthy, the really exciting, the thing that we're particularly pleased about when we see the current demand from the quality of companies we're looking for.

I think the second thing, too, is we're also seeing companies in sectors that, again, were very attractive to equity investors, let's say, software in particular, where they're coming to the debt markets versus last year. They were running into the equity markets and getting 10 term sheets. And so again, it's just -- we're seeing great companies looking for debt for the right reasons.

Yes, I can't really add much. I think that covers it nicely. But we've done this for decades, and valuation uncertainties and some softening evaluations, which are going on out there, are all continued opportunities here for debt, but we are not out to replace a scenario of a down round or anything like that. These are scenarios where the companies, Sajal mentioned, are well capitalized. They are augmenting and enhancing their financing and strategies by layering in and putting in place debt, not as a replacement because there's a down round around the corner, at least for our company.

Okay. Great. That's helpful color there. And then you've put up 2 consecutive very strong quarters for net investment income. So I'm just curious if you could speak to how the Board might be thinking about the regular distribution level or potential for a special distribution going forward. Just any color there would be great.

Yes. I'd say, listen, again, we're -- we've got a playbook. We've got a strategy. We've been talking for several quarters. And so for us, it's getting to target size and scale, getting the portfolio to consistently stay at a certain level, getting leverage to maintain at a certain consistent leverage level and then you see the ROEs and the NII we can generate.

So I'd say, again, we're very much focused on the full fiscal year, not on a quarter-to-quarter basis. And so I would say, listen, let us continue to deliver and have this conversation with our Board, in particular, after a couple more quarters. But again, if we keep doing what we're doing, it's hard to argue that this business is not going to demonstrate even -- continue to demonstrate such strong return and NII performance.

The next question comes from Casey Alexander of Compass Point.

A lot of my questions have already been asked. But earlier in the presentation, you rattled off a bunch of portfolio companies that have been acquired, and I didn't quite catch that. If you could run through that again. And in what period were they acquired?

Sure, Casey. So again, we had 2 portfolio companies in Q1 that completed their SPAC mergers, so Inspirato and Sonder. Casper in Q1 closed its take-private transaction. Fuze closed its acquisition in Q1 as well. And then finally, so did Nom Nom Now, which was acquired by Mars Petcare. And then the 2 other companies we mentioned, Transfix and Grove, had previously announced their SPAC mergers last year. They have not closed yet, but they continue to make progress.

The next question comes from Ryan Lynch of KBW.

One housekeeping question. Can you provide the total level of prepayment income recorded in Q1 of 2022? I know you had $4.5 million in the fourth quarter when you reported Q4 and then you said you had already generated $3 million in Q1. I just wonder now where that settled out at?

Yes. So kind of in the aggregate prepayment income, and that's a combination of accelerated EOT prepayment fees and whatnot is aggregate, $4.5 million, a little over $4.5 million.

Okay. That's helpful. And then the only other question I had was you mentioned some volatility in kind of the high growth venture markets, maybe some recent valuations creating, and longer potential time line for liquidity events or IPOs presenting an opportunity for venture lenders as a complement to extend the runway.

I'm just wondering, though, on the flip side of that, from a credit standpoint, I mean we have seen certain public equity that are extremely high growth, but are cash flow negative or not profitable businesses today that are still thought of as -- fundamentally are still performing well or how they've been over the last several quarters are down 80% in the last 6 months.

Has that sort of valuation change flow through into these high-growth nonprofitable businesses in the venture space? And what happens if that sort of correction, 50%-plus correction, happens in some of your portfolio companies just broadly in the market, what does that mean for credit quality?

Yes, very thoughtful question there, Ryan. So I'd say first is, again, as we look to -- there's always some element of discrepancy between the multiples paid for private companies versus public companies. And so it's never the same per se. Generally, the private companies have always gotten premiums to the public companies because they've been growing at higher growth rates. And so in an environment where your public comps are getting clobbered or the exit environment may be challenging, I think the key thing is to look at the playbook of our portfolio companies. It's about -- growth is important, but uncontrolled growth or unprofitable growth don't make sense.

And so growing at a slower rate still means growing, but it means that you can extend your runway and you can weather the time for raising your next round to potentially an environment where multiples come back or the environment is different. And I think that's inherent element of what all of our companies are doing. They're not at full growth potential because they know, again, there's volatility. They know there is -- multiples are off in the public markets. And so I think they're all being mindful and wise in terms of cash burn. And that's also, again, another reason why they're looking to our debt and using our debt.

But I think, again, you have to go back to the fundamental value of technology companies and the value they create in our everyday lives and the economy as a whole and the importance that they place, and that makes them attractive. It makes them attractive to follow-on private capital for new investment. It makes them attractive from -- to raise capital from their existing investors where, let's say, the new investors may not find -- may for some reason not be deploying capital. Well then, their existing investors will look to their investments, preserve the runway, give these companies time to weather the storm.

And then the third element is the M&A environment of having those scenarios and these companies pursue exits where we, as a lender, are quite pleased because, again, we get paid back in full. We get prepayment penalties and we get some form of gains. So I'd say, listen, it's volatile -- that's why we use the word volatile. It's not up and to the right, and it's not down to the left. It's up and down. And that's why, again, certain sectors continue to outperform. Certain sectors may be more volatile and certain may be out of favor.

I mean just on that because it's important. I mean in your opinion, and this is maybe not your portfolio specifically, but maybe just the broader venture space. Have valuations, do you think, fully reset in the venture space to the same extent that happened in public markets? Because it feels like it's only a matter of time before that would need to happen, if it hasn't happened.

And again, I'm talking about very strong companies in public markets, they're just not profitable and had a complete sort of reset in valuation, which have to trickle down the private markets because that is eventually going to be their comp. Do you think that, that reset has happened in the private market? If it's happening now or still needs to happen further in the future?

I'll start, and feel free to add, Sajal. But I think reset is a very strong word. I haven't heard that in the venture ecosystem here. I think it's a little bit more -- again, we're focused on just technology, but there are continuing generational moves in technology. It's just completely changing the whole trends here. And I think because there's some public market changes for a quarter or 2 when we're dealing with private markets, gets a little bit extreme. But it comes down to in talking to venture capitalists, the future is likely to have as long as it's good companies, good growth, some reasonable valuations, that things are just going to be -- going just well.

So I think reset is a strong word. There's been -- and particularly early-stage companies. Again, we're a platform here, not just venture growth stage. Last quarter, there were actually increases in valuations. And I think that's going to continue in the Series A, the early stage and the seed. As I mentioned, it's at the venture growth stage or later stage, there's been some softening evaluations. Yes, it was a huge doubling of public market. There was a spike last year over the previous 18 months in private market valuations. Things do need to moderate a little bit. But resetting or dropping 80%, things like that, at least the companies and the venture folks we're running with, there's a softening at those later-stage growth ones.

We're benefiting from it. But I don't think what's happening last quarter in the stock market is now a predictor for the future of the venture private market valuation.

I mean I would only add, I mean, that's why we're a lender, so let's also keep the context. So from our perspective, valuation is nice and is important, but it's not a critical metric for us when we're underwriting our portfolio companies. And the good news is we're on the debt side of the balance sheet. So from our perspective, when we care about valuation, I think to your point, Ryan, is we're somewhat indifferent when it comes to valuation. We just want to make sure that this company can raise incremental capital and/or make sure that there is an exit event potential in a downside scenario.

So I would say, listen, I'm not here to protect valuations. I'm not here to justify valuation. I think we're here more focused on making sure that companies continue to raise capital because as a lender, that's what matters to us most. And so if it's overvalued or undervalued, we're somewhat indifferent because our core return is generated from the debt side of the equation, not from the equity kicker.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Labe for any closing remarks.

Thank you, operator. We're very happy to share our first quarter results with everyone. And as always, I'd like to thank everyone for participating in the call, and we look forward to talking to you all again next quarter. I hope you share our excitement. Thanks again. Goodbye.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.