Earnings Call Transcript - TPVG Q2 2020

Operator, Operator

Good afternoon, everyone, and welcome to the TriplePoint Conference Call. Please be aware that this event is being recorded. I will now hand it over to James Labe. Jim, please proceed.

James Labe, CEO

Thanks, operator, and good afternoon, everyone. I’d like to start by mentioning that some of us are in remote locations affected by the tropical storm which has made its way and continues to make its way up the East Coast. I apologize in advance for any technical issues now or that may arise during the call. On behalf of TPVG, we hope that our shareholders and their families are healthy and continue to stay that way. Our first priority is protecting the health of our employees and supporting our portfolio companies during this global pandemic. As a global firm, we continue to work closely with our venture capital partners, entrepreneurs, and investors within the venture ecosystem. For this past quarter, we continue to follow the playbook that we outlined in the first quarter. Although this was a light quarter by volume, it reflected our cautious approach and our goal of maintaining stability in this market. We believe this was the right approach given uncertain times. Our business, as you can see, held up well during the quarter as we continue to weather through this economic environment. For the quarter, our net investment income, or NII, was more than $11.5 million or $0.38 per share, which more than covered our dividend. We also achieved the weighted average annualized portfolio yield of 13.7% for the quarter. Most significantly, we benefited during the quarter from a powerful component of our returns. One that is part of our differentiated venture lending business model and attests to the quality of the select venture capital-backed companies in which we invest. This is the equity component of our lending transactions. Sajal likes to call it the secret sauce. These are typically stock warrant positions, equity investments, or even a combination of both that we negotiate as part of our venture lending transactions. During the quarter, we recognized almost $20 million in unrealized gains alone through the sales of the publicly held stock that we received in CrowdStrike. As a result, to date, we've already generated an 86% internal rate of return since our initial debt investment in CrowdStrike. And that's not including that there's still more to follow as we continue to hold shares in the company. This equity component is another benefit related to our venture lending business, and CrowdStrike is not a one-trick pony. Joining a long list of other successful portfolio company equity exits, we’ve had companies such as Nutanix, Wring, Dollar Shave Club, Topec, and others. We'll get into there are many more companies in the portfolio in the works. Sajal and Chris will also get into more detail but overall our portfolio maintained its resiliency and we are pleased with the outlook for the last half of the year. Many companies in our portfolio are stronger. Most have significantly extended their runway through cost reductions and capital inflows, whether equity or debt, as a result of implementing strategies and plans in response to this pandemic. Quite a few of our companies are now beating these plans, in fact implying that the situation is not as bad as they had forecasted a few months ago. This has already led to a healthier TPVG portfolio of companies with lower burn rates, stronger liquidity positions, and extended operating cash runways. In fact, more than two-thirds of our portfolio companies have raised capital since the start of this year and through this COVID period for an impressive total of more than $1.6 billion of proceeds to date. In the quarter, 72% of our companies had more than 12 months of cash on hand or were in the process of closing additional capital. While we will continue to assess the market, it continues to be active and more and more deals are getting done and we are now busy at work handling an uptick in originations demand and foresee actively deploying increased amounts of capital in the second half. Many of our select leading venture capital funds, those with which we’ve had long-standing profitable relationships, are telling me that they’ve worked through what many are calling the three-month pause. This was a period of working through their existing investments in the first round of management and stabilization of their portfolios during this COVID period. Nowadays, by and large, their portfolio companies have adapted to the new environment. Our select funds have also raised more than $50 billion since 2018, of which $30 billion was raised last year. Through the first half of this year, we can't ignore this amount of capital—five of these new multibillion-dollar funds were closed in 2020 alone. So as a result, there’s no lack of equity capital. Our select VCs not only continue to support their companies and have capital generally reserved for this purpose (so-called dry powder), but they are now turning towards new investments in the market and beginning to source and actively close new deals. As a result, while we are carefully maintaining a balance here in the second half and continue to follow our playbook, we have already turned up our originations by a notch and foresee a continued increase in these originations right through the end of this year given this notable pickup in investment activity. Given the enormous amount of equity and now a more stabilized portfolio, these venture capital investments are surfacing and increasing numbers in dollars. I don’t want to mislead anyone and let you think we’re all out of the woods yet. But certainly, we have made it through the first phase in the venture ecosystem. Now, there’s many new investment opportunities that are arising in both technology and life sciences, growing out of this unfortunate pandemic. Many of them are aimed at the post-COVID period. These include safe office environments and telemedicine and many new virtual and digital services that address the post-COVID period. While this new investment activity is promising and providing increased future lending opportunities, there also remain other needs for venture lending at venture growth stage companies. These include financing lines for opportunistic acquisitions, pre-IPO lines for planning and timing purposes, and helping in the timing and optimization of balance sheets as companies navigate uncertainty in equity round valuations in their financing strategies. Finally, we're finding specific opportunities out there at select VC-backed companies, which have significant scale, but these days face challenges on top line. Many have been historically profitable, are flush with equity capital, and never previously considered venture lending, but right now they are very worthy candidates. As a final note, as Chris will get into, our liquidity remains strong. Along with the fresh equity and debt capital we raised in the first quarter of this year, we have ample capacity to meet all our unfunded commitments and we did not experience any significant credit deterioration or have any new non-accruals this past quarter. To add to this, we do not foresee the need to utilize the $50 million backstop facility from our manager, which is the one that we announced and established in the previous quarter. Again, more of a precaution in keeping with our conservative investing-class practices as a BDC. To wrap up, safety remains our first priority and our advisor, TriplePoint Capital, has been operating and continues to run 100% remotely. While we're pleased with the portfolio's health in our progress, we will continue to work through the impact of the current economic environment and operate by our playbook. We have the right team to manage our portfolio and maintain its stability as well as the liquidity to manage through this period. We are now responding to the increased demand in the marketplace. With the initial shock of COVID and its impact having been worked through, we’re now getting deals done. We are busy deploying increased amounts of capital and handling this increasing origination activity and look forward to a strong finish for the year. Right now, our 3 Rs—the foundation of our firm—have never been more important: relationships, reputation, and references. These are more important than ever in our venture ecosystem as we continue to work with our venture investors, entrepreneurs, and portfolio companies. We wish all of you continued good health during this period. And let me now turn the call over to Sajal.

Sajal Srivastava, CFO

Thank you, Jim, and good afternoon, everyone. I hope all of our stakeholders and their families are safe and healthy during these challenging times. Just to confirm, I am okay as well. As Jim mentioned, managing our existing portfolio has always been our highest priority and is even more crucial during times of significant volatility. We take pride in the performance and developments within the portfolio, which reflects the uniqueness of our investment strategy, the quality and durability of our portfolio companies, the potential for additional returns, and the experience and efforts of our team. In the second quarter, we signed $93 million of term sheets with venture growth stage companies, an increase from $80 million in the previous quarter. We closed $14 million in debt commitments with four companies. A key advantage of the TriplePoint Capital platform is our continual communication with our select group of venture capital firms, as evidenced by our increased venture growth stage term sheets quarter-over-quarter. With multiple vehicles for investment and our co-invest exemptive relief order, our sponsors can allocate and co-invest dynamically based on strategy and capital availability. Since COVID began, TPVG has benefitted from selective deal flow from our best relationships while acquiring smaller allocations, focusing on maintaining flexibility and liquidity. Looking ahead, due to TPVG's growing liquidity position, we expect TPVG to secure a larger share of new debt commitment co-investments. During the quarter, we funded $21 million in debt investments to seven companies with a 14.4% weighted average yield, while also investing $125,000 of equity in one company and receiving warrants in four companies valued at $200,000. Our funding this quarter was down from $79 million in the first quarter, highlighting the strong cash position at our portfolio companies and their confidence in us as a financing partner. As we move through the year, we anticipate funding to return to a range of $50 million to $100 million per quarter by Q4. In Q2, we received $25 million in portfolio company principal prepayments, leading to a weighted average portfolio yield of 13.7% for the quarter, excluding prepayments. The core portfolio yield was a stable 12.7% despite a 125 basis point drop in the U.S. prime rate in March. So far in Q3, we have experienced $29 million in prepayments, generating about $1 million in accelerated income. Although we anticipated lower prepayment activity, we believe the higher levels reflect the continued resilience of our portfolio companies and the venture lending market. We also received $12 million in scheduled principal amortization during the second quarter, highlighting the short-term and amortizing nature of our loans that adds liquidity for TPVG. As of the end of Q2, 30% of our funded debt investments were fixed-rate while 70% were floating-rate. Of the floating-rate loans, 96% have a prime floor of 4% or higher. All new floating-rate loans are being originated with targeted yields similar to our existing loans but with floors set at the current prime rate, resulting in higher spreads that will benefit when the prime rate increases. We’re happy to report our portfolio companies successfully raised over $250 million in equity capital in private rounds during Q2, in addition to $1.3 billion raised by nine portfolio companies in Q1. In Q3, two portfolio companies have already raised equity, with more anticipated. In terms of credit quality, our debt investment portfolio maintained an average investment ranking of 2.0 during the quarter. Loans are rated from 1 to 5, with 1 being the strongest. During the quarter, one company was upgraded from category 2 to 1, and another was upgraded from 3 to 2, with one downgrade from 2 to 3. Consistent with Q1, no obligors were added to lower categories or placed on non-accrual in Q2. We closed out prior credit situations with Harvest Power and Cambridge Broadband, resulting in recoveries that aligned with our previous quarter assessments. This leaves only one company in category 5, and we expect to finalize the recovery in Q3. There is one company rated in category 4 on our watch list, related to a music technology firm. We further marked down loans on another company due to COVID-related impacts on our recovery expectations. However, we have seen positive progress in Q3 and anticipate favorable trends moving forward. We sold 80% of our holdings in CrowdStrike, generating $19.4 million in realized gains. Initially, we committed $25 million to CrowdStrike in 2016 and later increased our commitment to $40 million as their business grew. Our loans included warrants and the right to invest in their next financing round. They prepaid our loan in 2017, resulting in a 34% IRR. CrowdStrike went public in June 2019 at $34 a share, and during Q2 2020 we sold shares at an average price of $90.80, achieving a total IRR of 86% since our original loan funding. We still hold over 56,000 shares of CrowdStrike. These realized gains were offset by losses from Cambridge and Harvest, leading to net realized gains of $800,000 for the quarter. While credit losses are inherent to our business, venture lending offers additional returns and value-creation opportunities through warrants and equity investments, which typically exceed credit losses over time, in line with our sponsors' history, although such gains usually require a longer timeframe to materialize. From CrowdStrike, we reported net unrealized gains of $8.9 million for the second quarter, resulting from reversals of previously recorded unrealized losses on loans to Cambridge and Harvest and credit-related adjustments, partially offset by reversals of unrealized gains on sold CrowdStrike shares. As of June 30, our top five positions constituted 25.8% of the total debt investment portfolio, relatively consistent with 25.3% in the prior quarter and down from 36.6% in Q2 2019. We continue to focus on expanding TPVG while diversifying our portfolio through growth, prepayments, and co-investment strategies. Since TPVG's IPO in 2014, we have committed $2.5 billion to around 100 portfolio companies, funding $1.5 billion which has generated $345 million in gross investment income and $181 million in net investment income after fees and expenses. Our debt investments have produced quarterly yields ranging from 12.7% to 19.9%. This portfolio has seen $18 million in cumulative net credit losses but still translates to a net loss rate of 0.7% on commitments and 1.2% on fundings. We hold $7 million to $8 million of publicly traded stock in CrowdStrike and Medallia that we have yet to realize. Additionally, we currently own 92 warrant and equity investments with a cost basis of $41 million, which we expect to yield returns exceeding our credit losses and enhance net asset value. We believe this is a powerful source of long-term returns for us and our investors. We are still in the early stages, but as TriplePoint, we strive for success. I will now turn the call over to Chris to discuss some financial metrics from the quarter.

Christopher Mathieu, CFO

Great. Thank you, Sajal, and hello, everyone. Let me take you through an update on the results for the second quarter. Total investment and other income were $23.8 million for the second quarter of 2020, as compared to $20.8 million for the first quarter. The weighted average annualized portfolio yield was 13.7% on total debt investments for the second quarter. The increase in total investment income was primarily driven by a higher average portfolio size and fees earned from prepayments during the quarter. Total operating expenses were $12.3 million for the second quarter, as compared to $8.6 million for the first quarter. Total operating expenses for the second quarter consisted of $4.3 million of interest expense, $3.2 million of base management fees, $2.9 million of incentive fees, and $1.8 million of general and administrative expenses. The increase in overall operating expenses is primarily driven by an increase in management fees and interest expenses from a larger average investment portfolio and an income incentive fee during the second quarter. Net investment income for the second quarter was $11.5 million or $0.38 per share, compared to $12.2 million or $0.41 per share in the first quarter. As we previously discussed in detail, total net realized gains on investments totaled $801,000, and net unrealized gains on investments for the second quarter were $8.9 million. The net increase in net assets from operations for the quarter was $21.2 million or $0.69 per share, compared to a net decrease of $5.1 million or $0.17 per share in the first quarter. At quarter end, total assets were $719 million, including $693 million of investments at fair value and $23 million in cash. We ended the quarter with total net asset value (NAV) of $405.5 million or $13.17 per share, compared to $395 million or $12.85 per share as of March 31, an increase of 2.5% quarter-over-quarter. We reported on funding commitments totaling $180 million—$151 million or 84% of this total will expire during 2020, and $29 million will expire during 2021. In addition, all of our unfunded commitments have a prime rate floor set at 3.25% or higher. We believe we have a strong liquidity position as of quarter-end. Some of this has been from our proactive efforts, such as our accretive $80 million public equity raise in January, our $70 million private term notes funded in March, and our $50 million advisor-backed credit facility in May. The remaining positive impact of our strong liquidity position has been from our high-quality portfolio, which has generated strong loan prepayments and loan amortization payments during the first half of 2020. This enhanced liquidity and our overall lower leverage profile give us capacity in excess of our existing unfunded commitments to grow the portfolio. As of June 30, the company had total liquidity of $165 million, consisting of $23 million in cash and an additional $142 million of availability under our revolving credit facility. We continue to have the flexibility under an existing accordion feature to expand the current $300 million commitment under our revolving facility by up to an additional $100 million. Aggregate outstanding borrowings as of June 30 were $303 million, consisting of $75 million of the retail fixed-rate baby bonds, which mature in 2022 (which are listed on the New York Stock Exchange), $70 million of private term debt which matures in 2025, and $158 million outstanding under our revolving credit facility. Given our aggregate borrowings as of June 30, we've reported a leverage ratio of just 0.75 times leverage or an asset coverage ratio of 234%. During the second quarter, we distributed $0.36 per share from ordinary income as part of our regular quarterly distribution. We are pleased to announce that for the third quarter of 2020, our Board of Directors has declared a distribution of $0.36 per share on September 15th, to stockholders of record as of August 31. We're also pleased to note that while we covered our distributions for the quarter with ordinary income, we are also continuing to estimate spillover income as of June 30 of approximately $8.9 million or $0.29 per share to support additional distributions in the future. So this completes our prepared remarks, and now at this time, we would be happy to take your questions. Operator, could you please open the line at this time?

Operator, Operator

At this time, we will pause momentarily to assemble a roster.

James Labe, CEO

Operator, before we take our first question, we missed the Safe Harbor language at the beginning of the call. So, I'd like to direct everyone's attention to the customary safe harbor disclosure in our press release regarding forward-looking statements, and remind everyone that during this call management has made and will make certain statements that relate to future events or the Company's future performance or financial condition, which may be considered forward-looking statements under Federal Securities Law. You're asked to refer to the Company's most recent filing with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The Company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflects 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. With that, operator, we'll take our first question.

Finian O'Shea, Analyst

Hi, good afternoon, everybody. First question, Jim I think you mentioned life sciences in your remarks, is that indicative of you looking at opportunities in that arena?

James Labe, CEO

No, I would say generally, we're going to continue with technology as the overwhelming bulk and focus of our portfolio. I was commenting in general how in the overall environment, those are areas that are on the increase but in this environment. Having said that, there are many technologies, medical technologies, healthcare technologies, that we’re actively involved with already and looking at now as new investments. So there's always a fine line. But right now, our game plan is not in the pure, let's say, biosciences in those areas unless there's activity because we're always following our select venture capital investors who are predominantly technology.

Finian O'Shea, Analyst

Sure, thank you for that clarification. And another question, Sajal or Jim, on the second quarter or post-COVID capital raises. Can you give us some high-level color, was that what then would normally be unscheduled or were they more than would normally be unscheduled, more urgent type raises? And the second part to that. Understanding venture capital structures can be very nuanced and bespoke. Are there any instances where a new round would effectively dilute or come ahead of your position?

Sajal Srivastava, CFO

Yes. Great question, Fin. Let me start and Jim please jump in. I would say I think going into Q2, an area of concern for many of us was the ability for investors, VCs, and the like to conduct due diligence remotely using Zoom. As we saw in Q1, a number of the rounds closed during Q1 were rounds that had started before sheltering in place. Diligence had been done, and ends had been met in person. I think we were pleased to see the rate of new investment activity in Q2 and here in Q3 with funding processes that started in the midst of COVID where investors have not met management teams in person and are issuing term sheets electronically. I think that's a promising sign. We are nowhere near the same level of activity for new investments that we were a year ago pre-COVID, but nevertheless, it's a promising sign. I would say then regarding the nature of the rounds, we are seeing companies benefiting from COVID tailwinds that have the ability to raise equity capital and follow-on rounds in financing. There are definitely some companies with bumps along the way where existing investors are showing their support and they're putting in more capital. Typically, that's in the form of convertible debt versus traditional equity financing because they don’t want to set valuations. Your next comment in terms of the impact of these financing to us. The period of business right where lenders were secured, we're senior to all the capital from the VCs, whether or not it's equity capital or convertible debt. That capital is, or even if it's convertible debt, junior to us. But I do think given the realities of COVID, valuations are all over the place. The impact to us has not affected our security positions from that incremental capital. Still, the impact on the warrant and equity book, there were a number of companies that closed either flat or lower valuations than the prior rounds where investors had the opportunity to take advantage of market conditions. The warrant and equity book, I talked about that $41 million at cost had some markdowns on the equity basis on an interim basis as a result of flat-to-down rounds, but no change in where we sit in the capital structure as a result of those financings.

James Labe, CEO

Yes. I think Sajal covered that nicely. These are generally not emergency round kind of situations. If anything, they are helping through the new environment kind of plans which generally are, as I said, lower burn rates, much longer cash runways. We have company, some of them, three years plus of cash on hand. More let's say realistic plans aimed towards cash flow breakeven or profitability using existing cash. It's a bit more, I guess I'd say flexibility and saneness in view of the economic environment. And yes, we're not aware of any venture capital equity coming in front of our debt.

Finian O'Shea, Analyst

Very helpful. As always, thank you. And then just the final question before I hand it over, regarding Prodigy Finance, that's a decent-sized maturity at the end of 2020 of now $18.7 million. My understanding is that student loans for international students are pretty challenged. Is there any context or color you can provide on the status of that lender obligation?

Sajal Srivastava, CFO

Yes. I'll take the first cut. Just to clarify, that's a lender to international graduate students. Prodigy lends to those graduate students attending top-tier business schools, engineering schools, and law schools. So, the folks that have a higher likelihood of getting jobs regardless of crisis. The focused approach, they’re not lending to undergrads or just any graduate programs, they're very focused on those degrees, particularly business schools, engineering schools, and then a small percentage of law schools. The good news is they're focused on higher quality companies or obligors versus traditional students.

Finian O'Shea, Analyst

Okay, that's helpful. That's all from me, thank you.

Sajal Srivastava, CFO

Great, thanks, Fin.

Operator, Operator

Our next question comes from George Bahamondes from Deutsche Bank. Please, George, you can make your question.

George Bahamondes, Analyst

Great, thank you. I missed a point in your prepared remarks. You've mentioned some spillover income for the dividend. Can you just quickly flag that for me here, please?

James Labe, CEO

Sure. Chris, you will take that.

Christopher Mathieu, CFO

Sure. Through the quarter end on June 30, we had some 2019 spillover into 2020. As we covered and more so covered our dividend in Q1 and Q2, the spillover income in the aggregate is estimated at $8.9 million, so that’s about $0.29 per share.

George Bahamondes, Analyst

Great. Thank you. And just as you think about the current environment, how has your underwriting diligence process evolved, and also have the terms really shifted meaningfully?

Sajal Srivastava, CFO

Yes. Let me start and Jim please jump in. I’d say George, one of the great things of our approach is we only lend to companies backed by our select group of leading venture capital investors, and there is a reason behind that strategy. Those portfolio companies and loans to companies backed by those top-tier VCs outperform not only during bull markets but more importantly, our data and our track records show that their portfolio companies outperform during more challenging times. So I’d say what hasn’t changed is the fact that we focus on our select VCs, and we think that's a critical element of validation, risk mitigation, and credit support by focusing on higher-quality sponsors and their better portfolio companies. With regards to market dynamics and pricing and structures, I’d say the market conditions haven't materially changed pre-COVID and mid-COVID. Markets continue to be robust from demand for debt also with regards to equity investment activity, as we've articulated. So we haven't seen material changes in spread. We continue to see activity from both bank and non-bank sources, so I think that's what's also holding structures and terms. We haven’t seen rates go lower. We haven’t seen rates generally go higher but again, we're only commenting on companies backed by our sponsors. If we were to push yields up, in my opinion, it would imply that we were taking higher risk or lending to lower quality companies, which is not our approach. If anything, in this environment, we've raised the bar in terms of the profile of companies, new companies that we're lending to where we're particularly focused on only lending to companies that are either seeing tailwinds or having no impact from COVID. If we have a company that's in a sector that’s impacted, that automatically challenges us from lending to them or restricts us from lending to them, plus cash runway. We lend to companies that have cash. If they’re out of cash or soon out of cash, we’re not going to lend to them. So, we're holding the bar, if not raising it with regards to existing cash runway and cash on hand, which is another way we've improved our underwriting targets and metrics in this environment. Jim? Anything to add?

James Labe, CEO

Yes. I can just echo that and also quickly add that investments, to Sajal's point, today are in the COVID period and we take that into account. That's obviously a benefit; absolutely no sacrifice in our investment discipline at all or our due diligence process. It's the same rigorous thing. There is fallout as a result of the current economic environment in investment discipline or quality, and if anything, instead of meetings, we're still conducting them—they happen to be online—but we're not taking any shortcuts or anything different on that front. Finally, in terms of pricing, I would agree. There really isn’t a change. There are continued opportunities here. There hasn’t been any kind of deterioration and there won’t be at TriplePoint because this market is not about pricing. This is a very specialized market. There are very few players that understand and have the track record, and it’s more about the reputation, references, and relationships than it is with someone being 50 basis points lower. These things may be more of a middle-market BDC and middle-market traditional lenders with venture lending; there are very high barriers, and it’s a very specialized due diligence. This is not about pricing and spreads; it’s about quality deals and reputation and running with the best venture capital-backed companies and our select venture investors who we’ve worked with.

George Bahamondes, Analyst

Great. That's helpful. Thank you for those comments. And last question for me in your response just now, you did reference the difference in business model and the dynamics of venture lending relative to kind of traditional BDC lenders. As we think about the current environment and as we've spoken to other folks in this space as they've reported earnings, obviously the dynamics are different but as borrowers have asked for relief, they’ve given us a sense of kind of how these conversations have gone. I was wondering if in a hypothetical scenario, where one of your positions was asking for some form of relief or an amendment to a covenant, how would a conversation like that typically go?

Christopher Mathieu, CFO

Yes, George, great question. I’d only first say we don’t want to reveal all of our secrets, so some of our sponsors may be listening or they see versions of the transcripts. I would say at a high level the TriplePoint approach, in fact, it’s even in our filings. We’re very collaborative. There’s a reason why we choose to work with the sponsors that we do. These are sponsors that we have long-standing existing relationships with, as Jim mentioned we have 130-plus years, and so I think one of the good things is we know how they think, and they know how we think, given we've worked together in a number of scenarios, and we have multiple portfolio companies. It’s not just one-off lending opportunities within their portfolios. We’re very much a trusted collaborative partner for them and their portfolio companies, and so it's just again it’s about being transparent and trying to solve the problem. But it's also not about being a pushover. There is a very different risk return profile for venture lending versus venture equity, and there is a role in place and objectives that we have versus they have. I’d say every situation is case-specific, but I would broadly say that a sponsor putting in more money is a great sign of validation. That’s what all of us as lenders, regardless of whatever middle-market venture segment you are in, seeing a sponsor put in more capital is great and important not only from a cash runway perspective but it shows sponsors don’t have endless supplies of capital, and so the fact they're putting in more money into an existing investment shows support and indicates they believe they're going to make a return. That's a signal in itself. As a lender, we are senior to all their equity capital, and the only way they make a return is if we get paid off. I’d say our approach is collaborative. We’re trying to, we're not trying to kick the can in three or six months and then have the conversation again. I think conceptually, we’re trying to solve longer-term problems. The difference, though, is with venture lending; the expectation is these companies should be raising rounds every 12 to 24 months. What we’re trying to solve for is how do we give this company enough time to achieve additional milestones to validate the next round of financing as kind of plan A? Plan B is how do we give this company enough time for milestones or to complete a strategic process, or option three is how do we give this company enough time to enable ourselves to foreclose on assets and liquidate assets. Those are the scenarios we look for, and I think that's how we play it with our sponsors.

James Labe, CEO

Yes, and I would agree. I would second that approach that we’re all in this together as the approach; the investors, lenders, the entrepreneurs, and the companies to work through when things don't go according to plan during this environment.

George Bahamondes, Analyst

Great. That’s all for me this afternoon. Appreciate it, guys. Thanks for answering my questions.

Operator, Operator

Our next question comes from Casey Alexander from Compass Point. Please, Casey, you may proceed.

Casey Alexander, Analyst

Hi, good afternoon. I have a few questions. One is why, in through this pandemic, unlike the last time the stock traded at a significant discount, has the company not chosen to at least put in place a backup share repurchase program and potentially take advantage of the significant discount in the stock?

Sajal Srivastava, CFO

Yes. I think, Casey, as we said last quarter, liquidity is at a premium. We see other sponsors, other platforms doing, I would say non-shareholder friendly things to get access to more capital. From our perspective, given our funding capacity, unfunded commitments, and ensuring we have sufficient liquidity to meet those needs is tantamount and priority number one. As we come out of the crisis and we feel we have reserve capital or excess capital, a shareholder buyback would make sense; but again we’re still in the middle of the pandemic. We don’t know when it’s going to end, and we’re not going to sacrifice the long-term success of the BDC and the precious liquidity that we have.

Casey Alexander, Analyst

Well, that’s a tough answer, Sajal, when you hold on to a highly volatile asset such as CrowdStrike. If liquidity were that precious, then CrowdStrike would have been sold as soon as you saw the dynamics of the pandemic.

Sajal Srivastava, CFO

No, I think again for us maintaining enough liquidity to meet our unfunded obligations is key. We have a significant amount of unfunded commitments that we ran coming out of Q1. That’s why our advisor put a backstop facility in place to ensure that if all the unfunded commitments came in, we had sufficient liquidity to do that. We’ve now crossed over through the end of Q2; here in Q3 we’re now in a position where everything came in with more than excess capacity. It would now make sense to think about and consider it, but not during Q1 or Q2.

Casey Alexander, Analyst

I believe your shareholders would appreciate it. My second question is about a company that reported significant losses in 2019. They faced enormous challenges related to the pandemic, which I don't believe resulted from any fault of their own. They have been attempting to raise more capital, but according to press reports, they have been unsuccessful so far, and you still have that rated at 98. Can you provide insight into where that stands in the credit risk categories and share some information about the situation with Notel?

Sajal Srivastava, CFO

Yes. I can start and then Jim can jump in. Again, we can't comment specifically on portfolio company situations, but they are rated yellow in our credit watch list. The difference for us as a lender, cash runway is always an important metric. Those companies that may be negatively impacted by COVID, there’s no doubt that we take that into account from a fair value perspective, but then we look to cash runway, sponsor support, and their ability to raise incremental capital and service our debt. That’s how we look at our credit and value.

James Labe, CEO

Yes. I can only add that it is yellow. It is not anything lower than that. These are privately held companies. We're not really in a position to talk about the status of these, but I would say we are in close touch with all of our companies in this category, and we'll stick by; we feel for many of these companies it will be their continued support. We are in close touch with investors, and I think we can leave it at that as it's a privately held company.

Casey Alexander, Analyst

Okay. Thank you for taking my questions.

Operator, Operator

Our next question comes from Ryan Lynch from KBW. Please, Mr. Ryan, you may proceed.

Ryan Lynch, Analyst

Hey good afternoon and thanks for taking my questions. I wanted to first just talk about maybe you could use a broader framework or you could specifically talk about CrowdStrike if you'd like but you guys have a general framework or process of how you determine when to sell publicly traded equity investments like that? I mean, you guys sold a portion of that position. It's been a great investment for you guys, but you guys have also held on to a portion of it. So can you talk about what was the decision that went on either there specifically to sell a portion of it but hold on to some of it or just a general broader framework of what is the process or framework you use to determine when to exit a publicly traded equity investment?

Sajal Srivastava, CFO

Sure. I will start and then Jim and Chris, please jump in. We are subject to lockups, so for the majority if not all of our portfolio companies when they go public, we're subject to the 180-day lock-up as are our other insiders, employees, and other investors. So at a minimum, we're sitting on our positions for at least six months, and any of those folks that are familiar with the venture world post lockups. That's when funds start distributing to their LPs to lock in their returns, and so you naturally see downward pressure on stocks shortly or right after the lockup expires. We're not a hedge fund. Our policy is, as we've said, is to liquidate in an orderly fashion in a reasonable time period after our lockups expired. But we also have the benefit of not being pressured to lock in returns, and we’re not pressured to distribute to LPs immediately like traditional funds are, so we want to time it appropriately so that we don't get disadvantaged by the pressure from funds and other investors in those companies. Our model is to not hold these positions for a material period of time after the lockup expires. Clearly, with Q1 this year, our priority was managing our debt investment book among other things. Staying if you had to in our discussions internally, clearly credit number one, our employees well may be employees number one, portfolio number two, credit portfolio, and the public portfolio obviously a significant amount of volatility. We have conversations with research analysts to get the reports and talk to other folks to get insights. It's a balance but I'd say generally an orderly process and then I think with the larger positions, CrowdStrike was a particularly large position. I think our perspective was we still believe there is some real value in that company, and so we wanted to take the majority of our money off the table, the house money, and $20 million as Jim said was equal to the amount that they had actually drawn from our loan of the $40 million commitment, then leave a little bit left and see how it goes in the next quarter too.

Ryan Lynch, Analyst

Okay, that makes sense. As far as your unfunded commitments go, you guys provided a nice disclosure about $180 million outstanding, but it looks like quite a bit expires at the end of this year. Is your intention to kind of to get that number lower and allow some of those to expire? Or are you comfortable running at this balance, meaning you guys will continually go out there and kind of as you see good opportunities to ramp up that commitments number to hold it static? Just trying to get an indication of how comfortable you guys are with that unfunded commitment level today, given a large amount of runoff is coming towards the end of the year?

Sajal Srivastava, CFO

Yes, that's a great question. I'll begin, and then Chris and Jim can add their thoughts. You're definitely correct. We have valuable insights regarding these companies. A significant amount of $180 million will be reduced by the end of this year. As you look through the list, you'll find several companies, including Cohesity, which raised $300 million in equity financing in the first quarter and has substantial cash reserves. We're using real-time analytics to assess our portfolio companies and their utilization expectations. The positive aspect is that we're part of a larger platform that is constantly active in the market, sourcing new opportunities, and has multiple capital pools to distribute. TriplePoint is continually engaged with our sponsors and their portfolio companies to secure the best deals. With regards to TPVG, we allocate funds for venture growth stage transactions at an appropriate size based on capital availability, portfolio diversification, and concentration targets. In the second quarter, we significantly limited TPVG's investments due to unfunded commitments and liquidity concerns, as well as the need for a backstop. We aimed to maintain maximum flexibility and liquidity. As these unfunded commitments decrease, we're starting to enhance TPVG's activities as we've mentioned in our preliminary remarks and are increasing those unfunded commitments. Nevertheless, we remain cautious, as these commitments could materialize simultaneously, and we have to balance milestones with expectations.

James Labe, CEO

Yes. I would agree. It’s absolutely a balance. It’s always been a balance. We’re not ever managing or running our business according to unfunded. That’s not how we operate; however, having said that especially during the pandemic, we thought it was very mindful and thoughtful particularly to our shareholders to take a close watch on that and be cautious on the cautious side.

Ryan Lynch, Analyst

Okay. Understood. I appreciate the time this afternoon.

James Labe, CEO

Thanks, Ryan.

Operator, Operator

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

James Labe, CEO

Thanks, operator. In short, I'd like to say we will continue to focus on maintaining many of the things we've been talking about in this call; flexibility and liquidity as we continue to work through this pandemic. I want to close again by expressing my appreciation to everyone on the line for your continued interest. We wish you continued good health and look forward to speaking with you again soon. Please take care and thank you. Goodbye.

Operator, Operator

The conference has now been concluded. Thanks for attending today's presentation. You may now disconnect.