James Labe; Chairman of the Board, Chief Executive Officer; Triplepoint Venture Growth BDC Corp
Sajal Srivastava; President, Chief Investment Officer, Treasurer, Secretary, Director; Triplepoint Venture Growth BDC Corp
Matthew Galiani; Interim Chief Financial Officer; Triplepoint Venture Growth BDC Corp
Crispin Love; Analyst; Piper Sandler & Co.
Christopher Nolan; Analyst; Ladenburg Thalmann & Co., Inc.
Paul Johnson; Analyst; Keefe, Bruyette & Woods, Inc.
Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. third-quarter 2024 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 third quarter of 2024.
Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Matthew Galiani, Interim 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 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 welcome to TPVG's third quarter earnings call. During the quarter, we made further progress on the core priorities we have been focused on as we executed on our playbook of managing both the portfolio and positioning TPVG for the future. I'd like to share some of the highlights for the quarter. We increased our NAV by 3% to $9.10 per share.
We over-earned our dividend generating $13.8 million in NII or net investment income equaling $0.35 per share. We maintained our strong portfolio yield, achieving a 15.7% weighted average portfolio yield for this quarter, and our core yield increased 1% over the previous quarter. We improved our weighted average credit score with three upgrades for companies on the watch list and one downgrade from clear to white. We maintained our target leverage range of 1.1 times.
We renewed our credit facility to $300 million during the quarter, with an accordion feature to increase it up to $400 million. We enhanced our financial strength and liquidity, ending the quarter with $340 million in total liquidity. We had a reduction in the number of companies on nonaccrual status. We had $70 million of additional signed term sheets for venture growth stage companies come in at TriplePoint Capital post the quarter's end.
And finally, we reported $8.8 million in net realized and unrealized gains, including continued increases in fair value in our warrant and equity investment positions. Our warrant and equity positions now constitute warrant positions in 95 portfolio companies and equity investment positions in 48. We believe these positions bode well for our ability to improve NAV over the long term. Underscoring this point, we realized an increase in fair value on our Revolut warrant and equity positions which contributed to the quarterly NAV increase.
Moving to credit quality, we're encouraged by the strengthening performance of a number of our portfolio companies which is reflected in the positive credit migration we experienced during the quarter as well as the continued success of TPVG's debt portfolio companies that raise capital. For the third quarter, 8 debt portfolio companies raised $656 million. And for the nine-month period of 2024, first 9 months of this year, 23 debt portfolio companies raised $1.7 billion. That's a 285% increase over the first 9 months of 2023. In addition, several other companies have raised rounds post this quarter.
Going forward, the team will continue to closely manage and monitor the portfolio while at the same time concentrating on further diversifying the portfolio and investing in today's attractive sectors, which are those in which our select venture capital investors are active. The focus will remain on companies that have recently raised capital, have ample cash runways, have backing from these select venture investors, have prudent management teams and whose business models have attractive unit economics and high retention rates. We continue to actively seek companies which have tailwinds in spaces such as verticalized software, aerospace and defense, health tech and AI. These industries offer some exciting investment opportunities driven by a variety of macroeconomic, technological and geopolitical trends.
Portfolio companies such as Cresta Intelligence, Panorama Education and Loft Orbital are some of the many examples. While investment activity is continuing, it's important to note that the venture capital markets have not yet recovered and the road to recovery remains uneven. We believe in the widely shared view that it will continue to take time for market conditions to improve. Despite PitchBook citing venture deal value being on track to reach more than $175 billion and surpass 2020, they point out that a meaningful market rebound has not yet occurred, and the market has just started on its journey on the long road to recovery.
Venture capitalists have to balance the need to generate returns for their LP investors while at the same time, taking advantage of new investment opportunities and stay patient. The lack of IPOs and M&A exit opportunities for many venture growth stage companies remains a major obstacle. And venture-backed companies are staying private longer as they wait for a better environment. Our select venture investors are opting for quality over quantity, increasing their time on due diligence, and carefully structuring deal terms.
Likewise, as a venture lender, this is the same prudent approach that we're also employing at TPVG and believe is the right one to follow. Based on many years of experience and throughout numerous venture capital cycles, we don't believe this is the time to open the valves and to grow for the sake of growth or to expand markets. Caution remains a guiding principle in our playbook given this market. In summary, this quarter was one of progress and execution.
We're pleased with the progress made this quarter and continue to focus on executing on our plans, given the underlying market conditions. We're well positioned from a liquidity standpoint to take advantage of increased activity as the markets improve. While we'll continue to maintain our careful discipline, we're seeing some signs of gradual improvement in the venture capital markets, in TPVG's portfolio and in new business investment opportunities, and eagerly looking forward to what we expect will be increased investment opportunities in 2025 and the years ahead. With that, I'll turn the call over to Sajal.
Sajal Srivastava
Thank you, Jim, and good afternoon. During the third quarter, TriplePoint Capital signed $94 million of term sheets with venture growth stage companies, down from $188 million in Q2, this reflects our continued selectivity given market conditions as well as an element of seasonality as signed term sheet so far in Q4 are already at $70 million. With regards to new investment allocation to TPVG during the quarter, TriplePoint Capital allocated $41 million in new commitments to 4 companies to TPVG, including 2 new portfolio companies compared to $52 million in new commitments and two new portfolio companies in Q2.
Commitments to new portfolio companies during Q3 included Panorama Education, an education software platform backed by General Atlantic, Emerson Collective, Chan Zuckerberg Initiative and other investors as well as Ocrolus, a fintech infrastructure company backed by Oak, Bullpen Capital, Mubadala Capital and other investors. During the quarter, we also had follow-on investments in one recent portfolio company as well as refinancing of another existing portfolio company in conjunction with an upsize. During the quarter, TPVG funded $33 million in debt investments to 4 portfolio companies which is slightly down from $38.7 million in debt investments to 5 portfolio companies in Q2, as fundings were primarily related to transactions closed during the quarter. Year-to-date, we have funded $85.2 million to 10 portfolio companies.
The debt investments funded this quarter carried a weighted average annualized portfolio yield of 13.4% at origination, down from 15.5% in Q2 given the combination of lower base rates, lower yields associated with asset-based financings as well as more robust enterprises we are lending to. Our quarterly gross funding target continues to be in the $25 million to $50 million range for Q4 and as we head into 2025. As a reminder, new fundings don't materially contribute to income in the quarter in which they fund given they typically occur at the end of the quarter. During Q3, we had $36 million of loan prepayments, down from $51 million in Q2, representing $117.8 million of prepayments year-to-date.
Prepayment-related income this quarter contributed to an overall weighted average portfolio yield of 15.7%, in line with last quarter's portfolio. Excluding prepayments, core portfolio yield was 14.9%, up from 13.9% in Q2 primarily due to the reduction in nonaccruals. We expect at least one prepay here in Q4 and believe that prepayment activity in 2025 will depend on improving market conditions, continued equity fundraising activity as well as other factors related to seasoning of our vintages. We do expect the pace of contractual principal amortization and repayments to increase in 2025 given contractual amortization requirements, and we, therefore, continue to focus on ensuring that we sufficiently grow the portfolio over time in addition to replacing prepaid and repaid loans.
With regards to fundraising activity, 8 portfolio companies with debt outstanding as of quarter's end, raised $656 million during the quarter compared to 9 portfolio companies with debt outstanding raising $443 million in Q2. We are pleased to see not only the level of activity and round sizes increase, but also the expanding number of sub-industries of technology, including consumer attracting capital despite market conditions, all of which reflects the quality of these portfolio companies. We expect to continue to see capital raising activity within our portfolio. We believe this fundraising activity should bode well for the outlook for our obligors, their credit quality as well as from the value of our warrant and equity investments in these companies.
As of September 30, we held warrants in 95 companies and equity investments in 48 companies with a total fair value of $116 million. Our warrant and equity portfolio experienced a $9.4 million net unrealized gain in fair value or $0.23 per share for the quarter primarily driven by an increase in the fair value of Revolut as a result of its announced secondary transaction of shares at a $45 billion valuation. Revolut is now reportedly Europe's most valuable private tech company and our total warrant and equity holdings in Revolut currently valued at $37 million. So a substantial appreciation on our investment since our initial loan commitment to them in 2018.
Europe continues to be an important market for the TriplePoint Capital platform as we've been active in that market and have served as a key financing source in that ecosystem since 2008. In other portfolio activity during the quarter, Good Eggs was acquired by GrubMarket, a privately held company with substantial scale, revenues and EBITDA for public sources. We received equity in GrubMarket for consideration for our loans and Good Eggs was removed from category four on our credit watch list. As Jim mentioned, credit improved within the portfolio during the quarter with three upgrades and one downgrade.
Flink with a principal balance of $27 million was upgraded from category 4 to category 3 as a result of closing a round and positive performance. One portfolio company with a principal balance of $6 million was upgraded from category 3 to category 2. Another portfolio company with a principal balance of $20 million was upgraded from category 2 to category 1. And 1 company with a principal balance of $10 million was downgraded from category 1 to category 2.
During the quarter, we amended our $27.5 million outstanding loan with Moda Operandi, rated category 3 in our watch list and placed the loans back on accrual in conjunction with the company raising new financing. We remain focused on executing on our plan for positioning TPVG for the future. In light of our industry-leading sponsor, TriplePoint Capital, its commitment to TPVG's success as well alignment with TPVG shareholders, we announced earlier today that starting with Q1 2025 and through the end of 2025, if the payment of the quarterly incentive fee prevents the company from covering the quarterly distribution from NII, the adviser will waive that portion of its quarterly income incentive fee for that quarter necessary to cover the distribution up to the full amount of the quarterly income incentive fee.
Although we continue to feel encouraged by the potential for improving market conditions, our pipeline and our ability to increase the pace of new commitments and investment fundings over the course of 2025, we believe that this waiver provides a cushion in the near term, if necessary, despite our considerable spillover while we execute on our longer-term plan to increase TPVG's scale, durability, portfolio diversification and income-generating assets. With that, I'll now turn the call over to Matt.
Matthew Galiani
Thank you, Sajal, and hello, everyone. For the third quarter, total investment income was $26.5 million, with a portfolio yield of 15.7% as compared to $35.7 million and a portfolio yield of 15.1% for the prior year period. The decrease in total investment income was primarily due to a lower weighted average principal amount outstanding on our income bearing debt investment portfolio. For the third quarter, total operating expenses were $12.7 million as compared to $16.6 million for the prior year period. These expenses consisted of $7.1 million of interest expense, $3.4 million of base management fees and $2.2 million of general and administrative expenses of which $150,000 represents an increase to our excise tax accrual from the prior quarter due to an increase in estimated undistributed income or spillover income for the full fiscal year.
The company did not incur an incentive fee this quarter. For the third quarter, net investment income totaled $13.8 million or $0.35 per share as compared to $19.1 million or $0.54 per share for the prior year period, and our net increase in net assets resulting from operations for the third quarter totaled $22.6 million or $0.57 per share compared to $2.1 million or $0.06 per share for the three months ended September 30, 2023. During the quarter, the company recognized net realized losses on investments of $5 million primarily due to the acquisition of one portfolio company, where as a result, we received equity in the acquirer in consideration for our loans.
Net change in unrealized gains on investments for the third quarter was $13.9 million, consisting of $9.4 million of net unrealized gains on the existing warrant and equity portfolio resulting from fair value adjustments, $5.2 million of net unrealized gains from the reversal of previously recorded unrealized losses on investments that were realized during the period, and $700,000 of net unrealized losses from fair value adjustments on the debt investment portfolio. As of quarter end, net asset value was $364.3 million or $9.10 per share. This compares to $346.3 million or $9.21 per share at the end of the year and is up $11.3 million or $0.27 per share from the end of the prior quarter.
Last week, the company's Board declared a regular quarterly distribution of $0.30 per share with the record date of December 13 to be paid on December 27. As of September 30, the company had estimated spillover income of $41.5 million or $1.03 per share. Now just an update on unfunded investment commitments, balance sheet leverage and overall liquidity. Our unfunded commitments decreased from $118 million at year-end to $74 million as of September 30. Of the $74 million of unfunded commitments, $73.2 million will expire during 2025, and $800,000 will expire during 2026. We continue to maintain a diversified capital structure.
And as of the end of the quarter, TPVG had a total of $405 million of debt outstanding consisting of $395 million of fixed rate investment-grade term notes and $10 million outstanding on its credit facility. We continue to improve leverage levels as we ended the quarter with a leverage ratio of 1.11 times. In August, the company renewed and extended its revolving credit facility. The company also elected to reduce total commitments under the credit facility to $300 million to closer align with the anticipated utilization.
As of quarter end, the company had total liquidity of $339 million, consisting of $49 million in cash and $290 million of available capacity under the revolving credit facility. This completes our prepared remarks for today. So operator, could you please open the line for questions at this time.
Operator
(Operator Instructions) Crispin Love, Piper Sandler.
Crispin Love
Just first off, just on the news of the day with Trump winning the presidential election. Can you just discuss some of the potential implications, whether positives or negatives for TriplePoint deal activity and just the venture capital ecosystem as a whole?
Sajal Srivastava
Crispin, it is Sajal. I'll take the question. Listen, I think it's too early for us to opine on the impact to the venture markets or interest rates or inflation. We're far from experts on that. I think what we can opine on is we do think that potentially this new administration, we'll see a more favorable M&A market environment.
And so we think that our portfolio companies and the capital markets will see some benefits. So we think exit activity should improve, which will be potentially positive for capital markets activities, which should -- could theoretically be beneficial for potential IPO activity as well. But too soon to say and we're far from experts on that.
Crispin Love
Absolutely. No, I appreciate all the color there, Sajal, makes sense. And then just on credit quality, I was just scanning the 10-Q during the prepared remarks. But it looks like nonaccruals at costs improved to $29 million from $68 million last quarter. Sajal, can you just discuss some of the major changes driving the decrease there? Apologies if you hit on them in the prepared remarks, but I just don't think I got them all down.
Sajal Srivastava
Sure, yes. Kind of two obligors associated with the improvement was due to two obligors. One was Good Eggs, which we announced last quarter, had been acquired subsequent to quarter end by GrubMarket. And so that was the removal of them, we did receive equity in GrubMarket as a result. And then the second one was we put Moda Operandi back on accrual as a result of us modifying our loans to them in conjunction with them raising new round of financing.
Operator
Christopher Nolan, Ladenburg Thalmann.
Christopher Nolan
What was the portfolio company that drove the realized loss, please?
Sajal Srivastava
It was Good Eggs. It was as a result of the acquisition and receiving equity for our debt instrument, we took a realized loss.
Christopher Nolan
Good Eggs was nonaccrual last quarter, as I recall.
Sajal Srivastava
Correct.
Christopher Nolan
Okay. Great. And then interest expenses declined, helping drive your net investment income up quarter-over-quarter. What was the catalyst for that decline?
Sajal Srivastava
Yes. I think in particular, lower utilization on the credit facility just given we had lower fundings and prepay activities, so we didn't have to utilize the revolver. And so we benefited from it. And then of course, we have the lower expense of the term loan, I think, under 5%.
Christopher Nolan
Great. And then finally, I appreciate the comments as always in terms of the condition of the venture market. Are you seeing any changes in the industry sectors within the venture capital markets, which are seeing more capital inflows?
Sajal Srivastava
Yes. Jim, do you want to take that one?
James Labe
Yes. We are starting to see signals, slow but gradual signals of I guess, I'd call it continued investor sector rotation, but also increased investment activity and deployment it's now over $300 billion which venture capitalists are sitting on the sideline to deploy here. But in terms of sectors, a little bit more space economy, defense economy, we're seeing robotics, cybersecurity, insurtech, and these are all in addition, of course, to AI. So I guess, I'm starting to hear more and more about disruptive technologies and innovative technologies and investment opportunities for us, it's on the increase.
Operator
Paul Johnson, KBW.
Paul Johnson
Just on your comments around not being as a favorable time to invest, being a little bit more cautious, not time to quite open the spigot for deployment. Can you just kind of expand on that a little bit and just describe, I guess, why you're a little bit more cautious now? Is it holding back and waiting for more M&A activity? Or what's kind of the reasoning there?
Sajal Srivastava
Yes, let me take that question. Sorry, go ahead, Jim.
James Labe
No, that's all right. Go ahead, Sajal.
Sajal Srivastava
I was going to say, I think it's an important thing just to see where the venture capital equity investors are deploying their capital and their pace of investment. So I think, Paul, it's important for us. We want to make sure that we're lending to those companies that are attracting follow-on capital from those investors. And so while we have a strong pipeline and companies reach out, new companies every quarter. In some quarters, there are companies in sectors that can attract capital.
And so that's why they're calling lenders or reaching out. So for us, we don't want to be pressured we're not pressured to put capital out the door. So we want to be very selective to ensure that we're lending to companies, as Jim described, that have recently raised financings, that have validated their last rounds, are in industry sectors that are experiencing growth or businesses that are growing. And so you've got to manage the timing of when they come to market versus when companies that may not have those favorable characteristics come to market and choose not to work with them even though it's low-hanging fruit.
Paul Johnson
Got it. That makes sense. I mean where are we, I mean, at this point in terms of valuations? I mean, are the down rounds and such, is that behind us at this point? I mean, are the companies that are raising doing so higher valuations? Kind of where are we, I guess, relative to where venture valuations were at pre-rate hike of 2022?
Sajal Srivastava
Yes, and again, I know PitchBook has a fair amount of data on this. So I would say there are 2 answers this question. One, very high level, I think for PitchBook, the good or the bad is a number of the unicorns that have raised large rounds of financing during the peak periods, not all of them have come back to market yet. And so I would say we're still in a period generally of recalibration and reality check for certain companies.
I would say, more closer to home as we look to our portfolio, particularly from the activity during Q3, again, record level of activity, record level of amount raised year-to-date, so to speak, or improving that record, but also increasing round sizes, increasing diversification of industry sectors and more importantly, improving valuations. And that's why we saw it in the loan and equity portfolio. Beyond just Revolut, we saw improvement. So we're pleased to see that.
So there's definitely a class of companies that still need that kind of valuation check, but I think more importantly, within our portfolio we are seeing a balance of both flat rounds, down round and up rounds.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks.
James Labe
As always, I'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you all again next quarter. Thanks again, and everyone, have a nice day. Goodbye.
Operator
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
