TriplePoint Venture Growth(TPVG) - 2023 Q4 - Annual Report

Part I Business TPVG is an externally managed BDC focused on providing debt financing with warrants to venture growth stage technology companies backed by leading venture capital investors - TPVG operates as an externally managed, closed-end, non-diversified management investment company, treated as a BDC and a RIC for tax purposes[12] - The company's objective is to maximize total return through current income and capital appreciation by lending to venture growth stage companies, often with warrants, in high-growth sectors[13] - TPVG's investment activities are managed by TriplePoint Advisers LLC, a subsidiary of TPC, with administrative functions provided by TriplePoint Administrator LLC[20][23] Investment Strategy The company's investment strategy emphasizes long-term relationships, targeting venture growth stage companies in high-growth sectors with equity kickers - The company's core investment philosophy, the "Four Rs," emphasizes building long-term partnerships for attractive risk-adjusted returns[24][25] - TPVG targets venture growth stage companies with completed technology development, expected revenue of at least $20 million, and backing from TPC's select venture capital investors[25][26] - The company focuses on technology and other high-growth industries, including artificial intelligence, cloud computing, fintech, and health-tech[30][32] - TPVG generally receives warrant investments with secured loans, typically ranging from 2% to 10% of the committed loan amount, enhancing potential returns through equity appreciation[34] Investment Structure TPVG's investment structure includes various debt financing products, primarily secured loans with warrants, and opportunistic direct equity investments Key Attributes of Debt Financing Products | Financing Product | Size Range | Typical Yield-to-Maturity | Key Features | | :--- | :--- | :--- | :--- | | Growth Capital Loans | $5M - $50M | 10% - 18% | Senior secured lien, 36-60 month terms, equity kickers (warrants) | | Equipment Financings | $5M - $50M | 10% - 15% | Secured by underlying equipment, 36-48 month terms, equity kickers | | Revolving Loans | $1M - $50M | 1% - 10% above prime rate | Secured by specific assets (e.g., accounts receivable), 12-36 month terms, equity kickers | - Warrant investments, typically obtained with secured loans, are a key component of TPVG's strategy, providing potential equity appreciation with coverage generally ranging from 2% to 10% of the committed loan amount[40] - The company may make direct equity investments, typically ranging from $100,000 to $5.0 million, usually as passive investments without board seats[41] Investment Process and Portfolio Management The investment process involves rigorous diligence and committee approval, followed by active portfolio management using a 5-category risk rating scale - The investment process involves sourcing through TPC's relationships, rigorous diligence, and Investment Committee approval by TPC's co-founders[43][46][49] - The Adviser employs active portfolio management using a 5-category risk rating scale (Credit Watch List) to monitor performance, with new loans generally assigned a rating of 2 (White)[50][54] Credit Watch List Categories | Category | Rating | Definition | | :--- | :--- | :--- | | Clear | 1 | Performing above expectations | | White | 2 | Performing at expectations (initial rating for new loans) | | Yellow | 3 | Performing generally below expectations | | Orange | 4 | Needs close attention, materially below expectations | | Red | 5 | Serious concern/trouble, pending or actual default | Management Agreements Management agreements detail advisory fees, including base and incentive fees, and outline administrative reimbursements and staffing arrangements Advisory Fee Structure | Fee Type | Rate/Structure | | :--- | :--- | | Base Management Fee | 1.75% annually on average adjusted gross assets | | Incentive Fee (Income) | 20% of pre-incentive fee net investment income over a 2.0% quarterly hurdle rate (8% annualized), subject to a catch-up and a total return requirement | | Incentive Fee (Capital Gains) | 20% of cumulative realized capital gains, net of cumulative realized and unrealized losses, less previously paid capital gains fees | - The company reimburses the Administrator for allocable overhead, including rent and the costs of the Chief Compliance Officer and Chief Financial Officer and their staffs[76][77] - The Adviser has a Staffing Agreement with TPC, providing access to TPC's investment professionals and deal flow[81] Regulation and Taxation The company operates under RIC and BDC regulations, adhering to income, asset diversification, and leverage requirements, with co-investment flexibility - To qualify as a RIC, the company must derive at least 90% of its gross income from specified sources and meet quarterly asset diversification tests[91][93] - As a BDC, the company must invest at least 70% of its total assets in "qualifying assets," typically securities of private or small public U.S. companies[109] - The company is subject to a minimum asset coverage ratio of 150%, limiting leverage, with the ratio at 157% as of December 31, 2023[114] - The company has an SEC exemptive order allowing co-investment flexibility with TPC and affiliates, subject to independent director approval[131] Risk Factors The company faces risks from adviser dependence, market competition, leverage, illiquid investments, industry concentration, conflicts of interest, and regulatory compliance - Business & Structural Risks: The company is highly dependent on its Adviser, TPC's relationships, and key executives, operating in a competitive market with leverage that magnifies gains and losses[142][143][147] - Investment Risks: The portfolio is concentrated in volatile technology and high-growth industries, with venture growth stage companies facing capital needs, intense competition, and limited operating histories, compounded by illiquid investments[209][214][234] - Conflicts of Interest: The advisory fee structure, valuation of illiquid assets, and arrangements with TPC and the Administrator present potential conflicts of interest[201][202][205] - Market & Economic Risks: Global economic conditions, public health crises, geopolitical conflicts, and inflation could negatively affect portfolio companies and financial results, with limited IPO/M&A opportunities dampening returns[269][273][280] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments[289] Cybersecurity The company's cybersecurity program, managed by its Adviser with Board oversight, has identified no material threats to its business or financial condition - The company's cybersecurity program is managed by the Adviser, with oversight from the Board of Directors and the Chief Compliance Officer[290][295][296] - The company has not identified any cybersecurity threats reasonably likely to materially affect its business[298] Properties The company does not own real estate; its executive offices are provided by the Administrator - The company does not own any real estate; its principal executive offices are provided by its Administrator[299] Legal Proceedings The company is involved in legal proceedings, including a securities class action and consolidated shareholder derivative complaints - A securities class action complaint was filed against the company and certain directors and officers in June 2023[300] - Two shareholder derivative complaints were filed in December 2023 and January 2024, consolidated in March 2024[301] Mine Safety Disclosures This item is not applicable to the company - Not applicable[302] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section covers the company's common stock market, including trading, distributions, and the absence of equity repurchases 2023 Quarterly Stock Price and NAV Per Share | Quarter | NAV per Share | High Closing Price | Low Closing Price | | :--- | :--- | :--- | :--- | | Q1 2023 | $11.69 | $12.72 | $10.75 | | Q2 2023 | $10.70 | $12.27 | $9.81 | | Q3 2023 | $10.37 | $12.62 | $10.12 | | Q4 2023 | $9.21 | $10.99 | $9.20 | - Total distributions of $1.60 per share were declared and paid for 2023, with a $0.40 per share dividend declared for Q1 2024[308] - The company did not repurchase any equity securities during the fiscal year ended December 31, 2023[318] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, highlighting changes in net assets, investment income, portfolio value, and liquidity Key Financial Results (Year Ended Dec 31) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Investment Income | $137.5 | $119.4 | | Net Investment Income | $73.8 | $63.6 | | Net Realized/Unrealized Losses | $(113.6) | $(83.6) | | Net (Decrease) in Net Assets | $(39.8) | $(20.1) | | Portfolio Fair Value (EOP) | $802.1 | $949.3 | - The increase in total investment income in 2023 was primarily due to a greater weighted average principal amount outstanding and higher investment yields[348] - Net realized losses of $75.8 million in 2023 were primarily from investment write-offs, with a net change in unrealized losses of $37.9 million[355][357] - As of December 31, 2023, the company had $610.0 million in total debt outstanding, an asset coverage ratio of 157%, and unfunded commitments decreased to $118.1 million[389][390][393] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, with a hypothetical 100 basis point increase yielding a $2.2 million NII increase - As of December 31, 2023, 60.1% of the debt investment portfolio bore floating rates, while 35.2% of outstanding debt was floating rate[414][415] Hypothetical Annual Impact of Interest Rate Changes on Net Investment Income | Change in Interest Rates | Net (Decrease) / Increase in NII (in thousands) | | :--- | :--- | | Up 100 basis points | $2,176 | | Down 100 basis points | $(2,038) | Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and notes, with an unqualified audit opinion Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Investments at Fair Value | $802,145 | $949,276 | | Total Assets | $978,825 | $1,014,533 | | Total Liabilities | $632,519 | $594,593 | | Total Net Assets | $346,306 | $419,940 | | Net Asset Value per Share | $9.21 | $11.88 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Investment Income | $137,490 | $119,424 | $87,392 | | Total Operating Expenses | $63,684 | $55,869 | $46,288 | | Net Investment Income | $73,806 | $63,555 | $41,104 | | Net (Decrease)/Increase in Net Assets | $(39,821) | $(20,070) | $76,558 | - The critical audit matter identified was the valuation of Level 3 investments due to significant judgments required for valuation techniques and unobservable inputs[429][430][431] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[466] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the period end[467] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, attested by the independent registered public accounting firm[651][652] Other Information This section provides updated annual expense percentages relative to net assets and a hypothetical investor expense example Annual Expenses (as a percentage of net assets) | Expense Category | Percentage | | :--- | :--- | | Base management fee | 5.17% | | Incentive fee | 4.26% | | Interest payments on borrowed funds | 10.63% | | Other expenses | 2.60% | | Total annual expenses | 22.66% | - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the fourth quarter of 2023[654] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[671] Part III Directors, Executive Officers and Corporate Governance The information required for this item, concerning directors, executive officers, and corporate governance, is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the Registrant's 2024 Proxy Statement[673] Executive Compensation The information required for this item, concerning executive compensation, is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the Registrant's 2024 Proxy Statement[675] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, concerning security ownership, is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the Registrant's 2024 Proxy Statement[676] Certain Relationships and Related Transactions and Director Independence The information required for this item, concerning related party transactions and director independence, is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the Registrant's 2024 Proxy Statement[677] Principal Accountant Fees and Services The information required for this item, concerning principal accountant fees and services, is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the Registrant's 2024 Proxy Statement[678] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements included in Item 8 and provides a list of all exhibits filed as part of the report or incorporated by reference from previous SEC filings - This item lists the financial statements filed with the report and all exhibits, including key organizational and operational agreements[680][681]