Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth BDC Corp. First Quarter 2023 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speaker's remarks, there will be an opportunity to ask questions, and in-instructions will follow at that time. This conference is being recorded, and a replay of this 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 2023. 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 law. 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.
I'd like to turn the conference over to Mr. Labe.
Good afternoon, everyone, thank you for joining TPVG's first quarter earnings call. During the first quarter of 2023, we continued to maintain our selective approach given these markets. We grew the portfolio to nearly $1 billion and generated net investment income, or NII, of $0.53 per share, continuing to demonstrate the earnings power of our portfolio. NII for the quarter exceeded our quarterly distribution of $0.40 per share. Including TPVG's most recent distribution increase in March of this year, we have now increased our quarterly distribution 11% since the third quarter of 2022. Based on our net income during the quarter, we realized a 17.8% ROE, which is the second consecutive quarter we've been above the 17% ROE level.
We also achieved a weighted average portfolio yield for the quarter of 14.7% and our 8th consecutive quarter of increasing core portfolio yield. While credit was impacted this quarter, given the current down cycle and macroeconomic market conditions, our team is working through these events in this cycle as it's part of the multi-decade experience in venture lending and our long-term track record. Given the unprecedented developments at both Silicon Valley Bank and Signature Bank last quarter, and extending right into this quarter at First Republic Bank, there are significant and lasting impacts from these events, and we expect these developments will continue to have a monumental effect on our market. The demise of Silicon Valley Bank was a very unfortunate situation from an institutional and a human perspective.
From a market perspective, it is turning into a major game changer that has significantly and potentially permanently altered the competitive landscape for venture lending, translating into what we believe are increased and growing opportunities for the overall TriplePoint Capital platform to capitalize over the long term, including a very promising long-term outlook for TPVG. While some banks are in the process of stepping in to fill the void created by SVB, their focus has been on traditional bank services, such as depository, credit card, investment management, and other services. In terms of venture lending, given this emerging post-SVB environment, bank appetites have changed, and we have witnessed considerable tightening. As we've discussed in the past, this is a highly specialized business, and venture lending has significant barriers to entry.
To date, we really haven't seen any of these other banks, or for that matter, any other participants enter the venture lending market in a meaningful way. Based on conversations with our venture capital partners, portfolio companies, and active prospects that are in the pipeline, now more than ever, they recognize the importance of separating the commercial bank and the lending relationship, as well as it becoming more conscious of the hidden costs, limitations, and the associated drawbacks of bank lending. This has further demonstrated the value of the TriplePoint financing relationship and the role and importance of our venture lending as part of these companies' overall financing strategies. The departure of SVB has also resulted in increased deal flow and has contributed to our building TriplePoint platform, which also includes providing newer replacement loans previously received from banks.
At the platform level, we have a number of high-quality lending opportunities to companies backed by our select venture partners, where we are or will be replacing a major market participant who's no longer active or as active, and where we're becoming the new source for lending. The pipeline is continuing to build as these are not overnight situations, and will continue to be part of our portfolio growth and build out over the next few quarters and well into the future years. Turning to the current venture markets, during the first quarter, we've continued to see lower venture capital investment activity quarter-over-quarter, driven by no surprise, primarily by the tightening monetary policy and the downturn in public company multiples and valuations. We're in a cycle. We're in a period of valuation resets for venture growth stage companies.
Given this market backdrop, however, based on conversations with some of our venture capital partners, there's already early signs and a very widespread belief that investment momentum will pick up later this year and into 2024, especially given the $300 billion in PitchBook-NVCA's estimated dry powder that venture capital funds still have at their disposal. Although VCs continue to focus on existing companies and tell us they're continuing to wait out this market volatility, there's now a growing and strong sense among them forecasting better times ahead. With that said, across our sponsors platform, we are finding new pockets of venture capital investment activity starting to pop up and witnessing investment appetite starting to increase in tech investing. It's not only in such fields as generative AI, but in several other sectors as well. We continue to find that deals are still getting done.
It's simply been taking longer in a slower pace. Within the pipeline, we also continue to have demand for venture lending from companies planning out their timetables and also encompassing debt in their financing strategies and capitalization plans. Some of these companies are seeking financing for opportunistic acquisitions or previously equity-only companies which are continuing to turn towards debt and layering in as part of their go-forward plans. Venture growth stage companies that raised equity over the last year or so at attractive valuations continue to turn towards venture debt given the valuation-sensitive market. Finally, the longer timelines for public listings and the need for additional runway between equity rounds have been serving as another driver.
Having stated all these opportunities, however, TPVG is going to continue to remain selective as we concentrate on opportunistically ourselves investing in what we believe to be the highest quality venture growth stage companies. Consistent with our approach, we will focus on companies that have recently raised capital, have meaningful revenue scale, and whose plans in the next one to two years will position them to perform well in this volatile economic environment and under these current challenges. Despite the macroeconomic environment, inflationary concerns in the broader economy, a number of TPVG portfolio companies continue to grow, with some experiencing tailwinds or achieving profitability.
We're pretty optimistic on the outlook for many of these diverse investments that we funded in 2022, and the portfolio benefits from investments in these sectors as diversified as network detection, frontier tech space, enterprise vertical software, fintech, next-generation sports digital media, and others, to name a few. To wrap up, the exit of SVB during the end of March will have significant and lasting impacts on the market over the long term and create multiyear opportunities. We add these opportunities already underway for us in the wake of the SVB development to the widespread belief that investment momentum will pick up later this year and into 2024, and along with our select venture capital partners, forecast better times ahead.
Based on our track record of working with these select venture capital partners and our success in investing approximately $10 billion of venture loans at the TriplePoint platform level, we will continue to draw on our differentiated platform and our experienced team to maintain the quality of our investment portfolio, as well as to capitalize on these developments in a disciplined fashion over the long term to create sustainable shareholder value. With that, I'll turn the call now over to Sajal.
Thank you, Jim, and good afternoon. As Jim discussed, we continue to remain active in the venture lending market at our platform, TriplePoint Capital, and maintain our extremely selective and focused approach with $199 million of signed term sheets with venture growth stage companies in Q1. Given TPVG's leverage position, we are selectively allocating new commitments to TPVG, with the majority going to other vehicles on the TriplePoint Capital platform. As a result, for the first quarter, closed debt commitments at TPVG totaled $4 million. During the first quarter, we funded $57.6 million in debt investments to 11 portfolio companies, landing at the lower end of our guided range for the quarter, which carried an adjusted weighted average annualized portfolio yield of 14.1% at origination.
Of the obligors funded during the quarter, roughly half generate annualized revenues in excess of $100 million, reflecting the increased size and scale of our portfolio companies. Our core weighted average portfolio yield for Q1 was 14.7%, which was up from 14.2% in Q4 and represented our eighth consecutive quarterly increase. Our Q1 portfolio yield does not yet reflect the 225 basis point rate increases announced in February and March, which will more meaningfully impact portfolio yield starting in Q2. As a result, we are optimistic for another quarter of increased portfolio yield and for portfolio yield to continue to stay strong in 2023, given the rate environment.
Although we didn't have any prepayments in Q1, they continue to be a part of the business and we still expect at least one to two c ustomer prepayments per quarter, with one previously announced prepayment expectation of ForgeRock's $30 million loan in conjunction with closing their take-private transaction in addition to others in the works. In terms of our expectations for fundings in Q2, with our reduced allocation of new commitments to TPVG and low utilization of existing unfunded commitments, our forecast for gross investment fundings is in the range of $25 million-$75 million for the 2nd quarter, down from our prior guidance of $50 million-$100 million, with the potential to grow as we increase our allocation of new commitment to TPVG.
During the quarter, we made continued progress on diversifying the TPVG portfolio by increasing the number of funded borrowers to 59 as compared to 48 one year ago. In addition, our top 10 obligors represent 32% of our total debt investments as compared to 40% 1 year ago. While not typical for venture growth stage companies, more than half of our top 10 obligors are either EBITDA positive or are projected to achieve EBITDA. We continue to see equity fundraising activity in our portfolio despite the challenging environment, although at lower levels in Q1, which we believe was also impacted by events associated with the venture banking market during the quarter. In Q1, seven portfolio companies raised approximately $64 million of capital. This brings the total to 32 portfolio companies raising over $1.6 billion of capital in the past year.
We expect to see fundraising activity gradually pick up within our portfolio quarter-over-quarter over the course of the year. Our equity and warrant portfolio grew as well, with 155 warrant and equity investments as of Q1 2023, as compared to 128 investments as of one year ago. As of March 31st, we held warrants in 107 companies, up from 86 companies as of Q1 2022, and held equity investments in 48 companies, up from 42 companies as of Q1 2022, with a total cost and fair value of $71 million and $93 million respectively. During the quarter, we saw a reduction in the fair value of our warrant and equity positions reflecting market conditions as well as down rounds in some cases, despite strong underlying performance from many of our portfolio companies.
It's important to note that we continue to have numerous companies that are growing and expanding and executing according to, in many cases ahead of plan, as well as achieving EBITDA, particularly those companies in the fintech, software, enterprise, and travel segments, which is why we continue to expect our cumulative warrant and equity investments to generate realized gains in excess of our cumulative realized losses over the long term. In terms of outlook for the portfolio and credit quality, given the environment for direct equity fundraising, the playbook for most of our portfolio companies is to continue to grow, but to do so thoughtfully while optimizing their cash burn rates to extend their runway to either achieve profitability or for a future equity raise.
With this background, as of the end of the quarter, approximately 84% of our portfolio is ranked at our two best credit scores, which means that they are performing at or above expectations despite market conditions. We upgraded one company from category 2 to category 1 with a principal balance of $15 million. As Jim mentioned, credit was impacted during the quarter due to conditions in the equity fundraising market, which we believe were also impacted by events in the venture banking market. We downgraded Demain, also known as Luko, an insurtech company with principal balance of $17 million from category 2 to category 3 due to delays in its strategic financing process. We also downgraded RenoRun, a construction technology and logistics company with principal balance of $3 million from category 2 to category 3.
RenoRun has filed for creditor protection in Canada to facilitate a sale or liquidation process. We look to our recovery on our loan, both from their cash on hand and other potential asset sales, including the entire enterprise and IP, sorry. Underground Enterprises, an e-commerce retail with principal balance of $6 million, was downgraded from category 2 to category 3 and has filed for Chapter 7 bankruptcy protection. We provided an inventory-based financing facility to the company and look to recovery on our loan from the underlying inventory as well as other potential asset sales, including the entire enterprise and IP. Hey Favor, also known as The Pill Club, an online pharmacy with a principal balance of $20 million, filed for Chapter 11 bankruptcy protection with the intent to continue operations and potentially reorganize as a standalone enterprise or sell to another company.
This is an ongoing situation and we expect more developments to occur in the near term that could result in substantial or full recovery of our loan. Also during the quarter, VanMoof, an e-bike company with a principal balance of $23 million, and HealthIQ, an insurtech company with a principal balance of $25 million, which were both previously rated three, were downgraded to category four as they continue to navigate through challenges in their sectors and businesses, as well as developments in their strategic financing processes. We are in a challenging period of time for venture capital investing and for public technology companies and expect some obligors to experience stress. As we have demonstrated before, our teams have effectively managed through these situations.
As a reminder, since TPVG's inception now 10 years ago, our cumulative net loss rate remains under 3% of cumulative commitments, or 32 basis points per annum, and 2% of fundings, or 22 basis points per annum. In closing, we remain focused on all aspects of our business and will continue to follow our long-term playbook with a focus on generating strong returns for shareholders, meet the needs of venture growth stage companies, and further nurturing strong relationships with our select venture capital partners. With that, I'll now turn the call over to Chris.
Great. Thank you, Sajal, and hello, everybody. During the first quarter, we grew core income yields from our loan portfolio. We continued to diversify the portfolio, and while we had elevated leverage as of quarter end, we now sit with a record portfolio size, a diversified capital structure, and ample liquidity to meet our targeted funding range. Let me drill down a bit more and share an update on the financial results for the first quarter of 2023. Total investment income was $33 million as compared to $27 million for the first quarter of 2022. Our core portfolio yield, which excludes the impact of loan prepayment income, was 14.7% on total debt investments as compared to 12.7% for the first quarter of 2022. The onboarding yields continue to be strong and stable.
Operating expenses were $15 million as compared to $13.8 million for the first quarter of 2022. These expenses consisted of $9 million of interest expense, $4.3 million of management fees, and $1.6 million of G&A expenses. Due to the shareholder-friendly structure of our total return requirement under the incentive fee structure, our income incentive fee expense was reduced by $3.7 million during the first quarter. We earned net investment income of $18.6 million or $0.53 per share, compared to $0.44 per share in the same period last year.
Net change in unrealized losses on investments for the first quarter was $10.9 million, consisting of $6.6 million of net unrealized losses on the debt portfolio and $4.2 million of net unrealized losses on the warrant and equity portfolio, resulting from fair value adjustments. As of quarter end, total net assets were $414 million or $11.69 per share, compared to $420 million or $11.88 per share as of December 31st, 2022. Our board of directors declared a regular quarterly dividend of $0.40 per share. The dividend is from ordinary income to stockholders of record as of June 15th to be paid on June 30th.
In addition to overearning the first quarter dividend, we continue to retain spillover income, which totaled $27 million or $0.70 per share at the end of the period to support additional regular and supplemental dividends in the future. Let's move to our investment commitments. We ended the quarter with $254 million of unfunded investment commitments, of which an aggregate of $73 million was dependent upon the portfolio company reaching certain milestones. Of this total amount, $152 million or 60% of this total will expire during 2023. Just a quick update on our balance sheet leverage and overall liquidity.
As of March 31st, an aggregate of $395 million was outstanding in fixed rate investment grade term notes, and $220 million was outstanding on the revolving credit facility. In connection with the term notes, DBRS issued an investment grade rating in connection with those transactions and recently reaffirmed our investment grade standing at a BBB. We ended the quarter with a leverage ratio of 1.49x . As of quarter-end, the company had total liquidity of $188 million, consisting of $58 million in cash and $130 million available under the revolving credit facility. In addition to this liquidity, the existing seasoned and diversified portfolio provides predictable cash flows, which bodes well for sustained liquidity throughout 2023.
Specifically, we have more than $130 million of contractual cash flows from the existing portfolio scheduled to flow back to the company in 2023 and more than $400 million throughout 2024. I'd also like to remind you that loan prepayments are a natural part of our venture lending model, and while they vary from quarter to quarter, we expect that they will have one to two customers prepay in any particular quarter over the long term. As an example, as Sajal had mentioned, we have line of sight on companies such as ForgeRock, which is expected to prepay all of its loans in Q2 or Q3 this year in an aggregate amount of $30 million.
In November, we announced the launch of an ATM stock issuance program, and although we have not issued any shares under that program as of today, we do look to issue shares over the coming year. This completes our prepared remarks, and we'd be happy to take questions from you. Operator, could you please open the line at this time?
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star then two. At this time, we will pause just momentarily to assemble our roster. Our first question will come from Finian O'Shea with Wells Fargo. Please go ahead with your question.
Hi, everyone. Good afternoon. A question on leverage. Sajal, I know you gave a couple guideposts on fundings and repays with ForgeRock and such, but where does that overall bring you for, say, next quarter? Where do you want the BDC to be in terms of net leverage right now?
Sure. Chris, do you wanna actually take this question?
Sure. Yeah. We're at 1.49 gross leverage. We do have cash on the balance sheet to essentially fund all of the current expected fundings for the next quarter. Q2, we don't expect to increase leverage, but rather just use the liquidity on balance sheet. We'd look to the prepayments that we mentioned, as well as just normal cash flows from the portfolio in Q3 and into Q4. Really not expecting much movement in overall leverage over the next quarter or two. Depending on the prepayment activity, that will depend on what would look, what we would look like at the end of the year as far as overall leverage.
Sure. Helpful. Thank you. Just a follow-up on the fundings, both this quarter and for the anticipated ones, this coming quarter. How much of that is been from previously underwritten unfunded commitments?
Yeah. Well, I'd say here in Q1 and Q2, it's 90%+ from existing unfunded commitments, given the slower pace of allocation to TPVG.
Is any just final question? Any color you can give us on how much that reflects liquidity at the borrower level?
Yeah, great question. I would say, given what I would say is lower expected utilization than we anticipated, I think it's a function of the work that our portfolio companies are doing to balance this growth versus cash burn rate. You know, I think in this environment, it's not growth at all costs, as I said earlier. I think it's a balance between appropriate levels of growth and having sufficient cash runway plus having line of sight to EBITDA profitability or beyond. I'd say it's lower utilization is just reflection of lower cash burn rates and, you know, more effective use of their existing cash resources and being more disciplined when it comes to their growth outlook.
Great. Thanks so much.
Our next question will come from Crispin Love with Piper Sandler. Please go ahead with your question.
Thanks. Good afternoon, everyone. Just first looking at asset quality, looking at your release, you have zero investments right now in the red category, but as you mentioned, three companies filed for bankruptcy since quarter end. Sajal, you mentioned some comments on recovery for those investments, but can you dig a little deeper into that as to what types of recovery you might expect on those investments on either a percentage or dollar basis, and then your confidence there?
Yeah. Again, obviously these are ongoing situations, and so it's hard to, you know, give full information just because they continue to develop. I would say, as we said in our prepared remarks, I mean, I think we generally are confident for or believe to see a full or complete recovery assuming facts and circumstances as of today, and developments that we expect to occur.
Great. thanks, Sajal. just relatedly, can you speak to kind of your credit quality outlook broadly in the portfolio just in the current environment separate from those investments? just on thoughts if you think we might see additional bankruptcies over the near term just given the environment?
Yeah. Let me start and then I'll ask Jim to jump in. I'd say, listen, I think the critical outlook for venture lending, venture debt is a direct equity investment environment. I would say Q1 is absolutely a challenging environment for direct equity investing. I think as Jim mentioned, due to market conditions and critical factors in the equity world, and I think it was further exacerbated by the developments, as Jim mentioned, in the venture banking environment. If you add that, you know, the month of March was, you know, very much a challenging time for both VCs and venture banks and companies, as they were sort of navigating the volatility and the uncertainty in that environment.
I think what you saw is a lot of financing activity and other strategic events either paused or delayed as just to see kind of things and conditions improve, and then those things either continue or not continue. I'd say again, Q1 in my opinion was probably one of the worst quarters from a direct equity investment environment because of all of those factors. As we look to Q2, Q3 and beyond, as Jim mentioned, I think our select VCs are they're deploying capital, they're being selective how they're deploying capital. We have indicators to see that, listen, we think it's gonna stabilize and then pick up, you know, ideally over the course of this year and into 2024.
As we look to credit outlook, again, I think the really good news is that, you know, our portfolio companies have been preparing and have been cutting burn, managing runway, you know, adding capital to their balance sheets. Again, I think a critical element was the venture banking developments and the volatility and uncertainty in Q1 brought a lot of things to a head. I think we're expecting stability when it comes to the rest of the portfolio. Again, it's all critical on direct equity investment activity stabilizing and picking up over the course of the year for those companies that may not be profitable or have, you know, sufficient runway into 2024 and beyond.
Yeah. I think you covered it nicely. I can't really add much other than, again, there's been a pullback by some of the venture funds, no surprise in this market. There's also at the same time, you know, companies are going through some stressful situations and continue to conserve cash, moderate their burn rates, revise growth plans to more moderate growth plans, and work on the path to profitability. It's also got to be balanced by not only amount of dry powder, but, you know, within the portfolio, as I mentioned, there's a number of companies that are experiencing some tailwinds in this environment.
An example, a company today in the portfolio, not public, but just signed a term sheet at an uptick, which, given this environment, you know, is maybe some signs of where things are headed. It's just working through the situations, and the outlook looks pretty good in terms of the end of the year 2024 for tech investing.
Thank you. I really appreciate the comments, Jim and Sajal.
Our next question will come from Kevin Fultz with JMP Securities. Please go ahead with your question.
Hi, good afternoon. Thank you for taking my question. You know, there's a figure in the PitchBook-NVCA Venture Monitor that highlights the funding gap that has recently accelerated within late stage VC. You know, essentially the figure shows that late stage capital demand to supply ratio reached a decade high in the first quarter of 2023 at just about 3.2x . You know, which compares to 0.9 x in the first quarter of 2022. I'm curious what your view is on the shift in capital availability for late stage companies, both what you're seeing in the market and within your own portfolio, and what that could mean in terms of portfolio company liquidity should the trend in capital demand to supply remain imbalanced or, I guess, even deteriorate further. Thank you.
Yeah, Kevin, that's a, it's a, it's a good question. I would say a couple factors as we look to the later stage companies, right? Those are companies where the valuation methodology is probably more reliant on the public comparables and the public multiples. I think the challenge is, again, as Jim alluded to, there is a mismatch in terms of where prior round valuations were during 2021 and 2022 for a number of these companies and where multiples are today. The playbook for those companies is, you know, you've got to make the decision, you know, will you grow into your current valuation?
If so, then the playbook is, listen, how can we extend runway, you know, add some incremental capital from your existing investors. Then, you know, hope for some multiple recovery. Fundamentally, it's just a function of time, and your valuation is not an obstacle for raising incremental capital. I think for other companies where, listen, they were valued on robust multiples that may not come back or are on growth rates that are not capable in this environment, you know, they have to make the hard decision of, you know, do you do the down round? Do you do other forms of financing flat rounds with pref? I think that, you know, it's a valuation issue for a number of companies.
I'd add the, you know, the other element of it is, you know, the participants in that stage of the market included venture funds, PE funds, hedge funds, crossover funds. I'd say again, given the multiple compression, a number of those non-traditional participants, you know, experienced major markdowns on their public book, have markdowns on their private book, and so they're currently not as active as they used to be. That's also what's causing the shortfall or the mismatch in the demand versus supply. What you need is you need time to transpire. You need multiple accretion. You need, you know, good data points. You need good companies to come to market.
I'd say, again, that's why we're expecting to see, you know, this recovery come later this year, not in the next quarter or so, but later this year into 2024 as a number of those factors all improve and come together.
They also tend to be, opportunities for us to look at. well, the key is selectivity and being highly selective, but, these are actually opportunities as well for our venture lending in the pipeline.
Great. I appreciate your insight there, and I'll leave it there. Thank you.
Our next question will come from Ryan Lynch with KBW. Please go ahead with your question.
Hey, good afternoon. My first one just has to do with given your current leverage ratio of 1.49x and around $175 million of unfunded commitments that are reliant on any certain milestones, is it fair to assume that throughout, you know, the majority of 2023, that new fundings will primarily be to existing portfolio companies, and you'll use, you know, repayments and prepayments pretty much to just de-leverage the balance sheet?
Yeah. I think that's-
Right. That's correct. Yes.
I think, yeah, I think that's right.
Okay. The other one that I had, I'd love to just hear, and I get it's, it's sensitive, but, so if you can't comment, you know, whatever you can say, it's fine. You know, I'm curious to hear your thoughts on, you know, an investment like The Pill Club. I mean, there's been articles out there that talk about the bankruptcy and a huge decline in revenue, as well as huge legal fees in that business. I can't see... I don't see its financials, so I don't know if they're sitting on a bunch of cash or something like that, or your loan is over-collateralized by something like that.
I guess, what gives you the confidence to mark that investment, you know, where it is, as well as those other loans in the portfolio that are in bankruptcy or in the process of bankruptcy that you guys have marked pretty close to par? What in either The Pill Club specifically or any other investments that are going through this period gives you the confidence to kind of mark them where you are despite sort of these, you know, these fundamental deterioration?
Yeah. Ryan, let me answer that. I think a great question. I have to remember that, you know, there are easier paths to... You know, if you wanted to shut down a company, you don't necessarily go through the bankruptcy process. From our perspective, in collaboration with the company's investors to select these C funds, you look at when there's value, there's interest in those assets, there's value in those assets, and you look at what's the best path to free up those assets to either reemerge or to sell to other parties. I would say there's a playbook in managing stress credit situations, and it's a function of our assessment of underlying value in our playbooks with our teams. I would say the...
You know, then as you look to the method by which you look to recovery, as you said, right, there are various assets these companies have. In certain cases, when we're doing inventory financing, we're secured not only by, you know, a formula-based financing for that inventory. We're not financing 100%. Generally, it's a discount. We're secured by that underlying inventory. Plus, we have the enterprise too. As you look to recovery, it's great, the underlying asset that we financed then, you know, the value of the business, the intellectual property, whatever it may be. When you look to, as again, another other scenarios, right? There's liquidity, there's cash, again, you look through the benefit of liquidation process is an orderly way to unlock those assets to the senior creditors.
Again, I'd say more broadly, when you look to, you know, acquirers out there in this environment, you know, they generally want things clean and free. Again, I think a bankruptcy process and for companies themselves, right? There's a way when there are strong, solid fundamentals of these businesses, but they may have unsecured claims or creditors, going through the Chapter 11 process in general is a way to again cleanse, clean up, restructure, secure, debt come back and again, give it another shot or sell to other companies. Again, I think that, you know, it's our team's assessment of the playbook, the path, and the underlying assets. In collaboration with our companies, we determine the course of action.
That's how we look to set our fair values based on assessment of the probabilities and the likelihoods, and the values of those assets.
Incredibly detailed. I really appreciate those comments. Just one last one, if I could. You mentioned, you know, you think investment momentum, meaning venture capital investors, you know, that momentum potentially picking up later this year into 2024. I'm just curious, you know, what are the drivers behind that position? Just because it seems like, you know, most of the indicators today seem that things are just going to get tighter sort of throughout the year with probably, you know, continually fairly high rates of slowdown in the economy. There's obviously some stress in the lending system, and then probably some realized losses in some venture capital equity portfolios.
It just seems that it's, you know, obviously, I know you'd like that investment activity to pick up, you know, later this year in 2024. I guess what are the factors that you think could reverse and make that the case?
You know, I can grab that.
Yeah.
Yeah, feel free to add, Sajal. you know, venture capital investing is about the long term and it's for the long term, and these are typically 10-year-plus investment funds. They're looking at the future. They're not looking at this quarter or today's interest rate increases. Those are not factors. What are the factors are, one, there's about $300 billion plus of dry powder that is looking to get deployed. Two, we are headed in terms of my rounds, towards more of a, call it a rational or reasonable valuation-type market after the highs of the recent past. There's another momentum for investing. Three is, tech investing's not dead.
If anything, it, you know, as folks look towards efficiencies, particularly if we head more towards a recession and everything else, as artificial AI, which is all-day conversations and kind of the new environment here post the last very high couple of years of valuations is something that's very appealing, because these are investments in 3, 5 years or whatever may be IPOs. There's opportunities. I'll just finish. Feel free to add, Sajal. Some of the best investments we've done historically here at TriplePoint as well as within the venture lending decades have been investing in these down cycle periods. We're in a down cycle, some of the best tech successes of the past were born perhaps 2008, 9 and so forth.
There's a lot of things shaping up ripe for venture capital investing in later this year, next year and in the future.
Yeah, I mean, I'll only add two things. One is, you know, we're also gleaning these insights, Ryan, from conversations with the funders themselves. I'd say what we're seeing is clearly the more experienced funds that have weathered the storm, that have been through cycles, definitely view, you know, this environment as having the potential for opportunity of some of the best deals to get done. It's a question of when do you capitalize? It's not necessarily this second, but it's building, and I think that's what we're talking to, is that momentum is building over time, as quality companies and new entrepreneurs come to market. I'd say the other piece of it is just from the communication to their investors, so to their LPs, you know, venture fundraising.
Given the fundraising that's gone on and the marketing and the messaging, they're also signaling that, you know, they do expect it to pick up and that they expect, you know, 2023 vintages, 2024 vintages really to be some of their better vintages given the environment.
Okay. I appreciate the time this afternoon.
Our next question will come from Casey Alexander with Compass Point. Please go ahead with your question.
Hi, good afternoon. Is it safe to say that RenoRun, Underground and Hey Favor will all go on non-accrual in the second quarter?
Chris can answer that.
Yeah. Unless something happens more immediate, that would be a fair assumption.
Secondly, in relation to Hey Favor and rolling back to Medly Health, in both cases, there were some form of management fraud that contributed to the situation. It looks to me like they came out of the same underwriting pod. I mean, is there a flaw in your underwriting process that you failed to pick up on the situations as they existed in Hey Favor and Medly Health?
Okay. I'll answer. Absolutely not. Again, we stand by our underwriting and our track record. Again, as you look, we've had 170 obligors at, or borrowers at TPVG. We've had credit losses in roughly 10 to 11. Our loss rates are 3% of commitments, 2% of funding. I would say the data speaks for itself that our underwriting and our track record over the long term works. I'd say that's first answer. I would say again, we're not suggesting at both companies where there are fraud. I think Medly, it's again in the filings, not suggesting fraud at Hey Favor. Again, I think all are unique circumstances and situations.
All right. Okay. I'll stop there for now. Thanks.
Our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead with your question. Mr. Nolan, your line is open.
Sorry, guys. Is VanMoof and HiQ the two Canadian companies that you were discussing earlier in terms of going into the bankruptcy process?
No, no. The one Canadian company was RenoRun.
Okay. VanMoof and HiQ, which I believe are both non-accrual this quarter, are completely separate from that?
They're not. They did not file for bankruptcy, correct.
Okay. Any details you could provide on that, or is that something that...
As we mentioned in the prepared remarks, I think they were downgraded due to just challenges in their market environments and some of their performance as well as their financing processes.
Okay. Okay, that's it for me. Thanks, Sajal.
This concludes our question and answer session. I'd like to turn the conference back over to Mr. Jim Labe for any closing remarks. Please go ahead, sir.
Thank you, operator. As always, I'd like to thank everyone for listening and participating in today's call. We look forward to talking with you all again next quarter. Thanks again, and everyone have a nice day. Goodbye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.