TriplePoint Venture Growth BDC Corp. - Quarter Report: 2020 June (Form 10-Q)

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Item 1.	Financial Statements

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(1)	Investment is a non-qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). As of June 30, 2020 non-qualifying assets represented 22.4% of the Company’s total assets, at fair value.

(2)	As of June 30, 2020, this investment was not pledged as collateral as part of the Company’s revolving credit facility.

(3)	Entity is not domiciled in the United States and does not have its principal place of business in the United States.

(4)	Investment is owned by TPVG Investment LLC, a wholly owned taxable subsidiary of the Company.

(5)	Investment is a cash success fee or a cash exit fee payable on the consummation of certain trigger events.

(6)	Gross unrealized gains, gross unrealized losses, and net unrealized losses for federal income tax purposes totaled $15.8 million, $31.5 million, and $15.7 million, respectively, for the June 30, 2020 investment portfolio. The tax cost of investments is $708.5 million.

(7)	Debt is on non-accrual status at June 30, 2020 and is therefore considered non-income producing. Non-accrual investments at June 30, 2020 had a total cost and fair value of $31.8 million and $16.5 million, respectively.

(8)	Non-income producing investments.

(9)	Except for equity in three public companies, all investments were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board”).

(10)	Investment is publicly traded and listed on New York Stock Exchange or NASDAQ.

(11)	The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

(12)	Acquisition date represents the date of the investment in the portfolio investment.

*	Value as a percentage of net assets.

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(1)	Investment is a non-qualifying asset under Section 55(a) of the 1940 Act. As of December 31, 2019 non-qualifying assets represented 21.9% of the Company’s total assets, at fair value.

(2)	As of December 31, 2019, this investment was not pledged as collateral as part of the Company’s revolving credit facility.

(3)	Entity is not domiciled in the United States and does not have its principal place of business in the United States.

(4)	Investment is owned by TPVG Investment LLC, a wholly owned taxable subsidiary of the Company.

(5)	Investment is a cash success fee or a cash exit fee payable on the consummation of certain trigger events.

(6)	Gross unrealized gains, gross unrealized losses, and net unrealized losses for federal income tax purposes totaled $24.0 million, $31.5 million, and $7.5 million, respectively, for the December 31, 2019 investment portfolio. The tax cost of investments is $660.7 million.

(7)	Debt is on non-accrual status at December 31, 2019 and is therefore considered non-income producing. Non-accrual investments at December 31, 2019 had a total cost and fair value of $49.5 million and $26.5 million, respectively.

(8)	Non-income producing investments.

(9)	Except for equity in two public companies, all investments were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Board.

(10)	Entity is publicly traded and listed on New York Stock Exchange or NASDAQ.

(11)	The Company generally acquires its investments in private transactions exempt from registration under the Securities Act. These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

(12)	Acquisition date represents the date of the investment in the portfolio investment.

*	Value as a percentage of net assets.

•	No investment represents a 5% or greater interest in any outstanding class of voting security of the portfolio company.

•	Interest rate is the annual interest rate on the debt investment and does not include any original issue discount (“OID”), end-of-term (“EOT”) payment, or any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees.

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For each debt investment tied to the U.S. Prime rate (“Prime Rate”) as of June 30, 2020, Prime was 3.25%. As of June 30, 2020, a majority of the debt investments (approximately 69.7% or $469.6 million in principal balance) in the Company’s portfolio bore interest at floating rates, which generally are Prime-based, all of which have interest rate floors of 3.25% or higher and some of which have interest rate caps for a limited period.

•	The EOT payments are contractual and fixed interest payments due in cash at the maturity date of the loan, including upon prepayment, and are a fixed percentage of the original principal balance of the loan unless otherwise noted. The EOT payment is amortized and recognized as non-cash income over the loan or lease prior to its payment.

•	Some of the terms noted in the foregoing tables are subject to change based on certain events such as prepayments.

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•	determines the composition of the Company’s portfolio, the nature and timing of changes to the Company’s portfolio and the manner of implementing such changes;

•	identifies, evaluates and negotiates the structure of investments;

•	executes, closes, services and monitors investments;

•	determines the securities and other assets purchased, retained or sold;

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•	performs due diligence on prospective investments; and

•	provides the Company with such other investment advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its funds.

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•	The quarterly valuation process begins with each portfolio company or investment being initially valued by the Adviser’s professionals that are responsible for the portfolio investment;

•	Preliminary valuation conclusions are then documented and discussed with the Adviser’s senior investment team and approved by the Adviser’s executive management team;

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Each quarter, certain of the Company's portfolio companies or investments are reviewed by an independent third-party valuation firm. At least once annually, the valuation for each portfolio investment is reviewed by such an independent third-party valuation firm. However, the Board does not have de minimis investments of less than 1.0% of the Company’s gross assets (up to an aggregate of 10% of the Company’s gross assets) independently reviewed, given the expenses involved in connection therewith;

•	The Valuation Committee of the Board then reviews these preliminary valuations and makes fair value recommendations to the Board; and

•	The Board then discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith, based on the input of the Adviser, the respective independent third-party valuation firms and the Valuation Committee.

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Underlying enterprise value of the issuer based on available information, including any information regarding the most recent financing round of borrower. Valuation techniques to determine enterprise value include market multiple approaches, income approaches or the use of recent rounds of financing and the portfolio company’s capital structure. Valuation techniques are also utilized to allocate the enterprise fair value of a portfolio company to the specific class of common or preferred stock exercisable in

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•	Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant investment price, is based on comparable publicly traded companies within indices similar in nature to the underlying company issuing the warrant.

•	The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant investment.

•	Other adjustments, including a marketability discount on private company warrant investments, are estimated based on the Adviser’s judgment about the general industry environment.

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Historical portfolio experience on cancellations and exercises of warrant investments are utilized as the basis for determining the estimated life of the warrant investment in each financial reporting period. Warrant investments may be exercised in the event of acquisitions, mergers or initial public offerings, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrant investment.

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(1)	Transfers out of Level 3 are measured as of the date of the transfer. During the six months ended June 30, 2020 the only transfer relates to an equity investment in a publicly traded company.

(1)	Transfers out of Level 3 are measured as of the date of the transfer. During the six months ended June 30, 2019, these transfers relate to an equity investment in a publicly traded company.

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(1)	Net of debt issuance costs as of June 30, 2020 and December 31, 2019 of $1.0 million and $1.0 million, respectively.

(2)	Net of debt issuance costs as of June 30, 2020 of $1.0 million.

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(1)	Does not include $9.1 million and $15.5 million backlog of potential future commitments as of June 30, 2020 and December 31, 2019, respectively. Refer to the “Backlog of Potential Future Commitments” below.

(1)	Includes backlog of potential future commitments. Refer to the “Backlog of Potential Future Commitments” below.

(2)	Does not include backlog of potential future commitments. Refer to the “Backlog of Potential Future Commitments” below.

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(1)	Does not include backlog of potential future commitments. Refer to the “Backlog of Potential Future Commitments” below.

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(1)	All per share activity is calculated based on the weighted average shares outstanding for the relevant period, except net increase (decrease) in net assets from capital share transactions, which is based on the common shares outstanding as of the relevant balance sheet date.

(2)	Total return based on NAV is the change in ending NAV per share plus distributions per share paid during the period assuming participation in the Company’s dividend reinvestment plan divided by the beginning NAV per share.

(3)	Total return based on stock price is the change in the ending stock price of the Company’s common stock plus distributions paid during the period assuming participation in the Company’s dividend reinvestment plan divided by the beginning stock price of the Company’s common stock. The total return is for the period shown and is not annualized.

(4)	Percentage is presented on an annualized basis.

(1)	Weighted average portfolio yields on total debt investments for periods shown are the annualized rates of interest income recognized during the period divided by the average amortized cost of debt investments in the portfolio during the period.

(2)	The weighted average portfolio yields on total debt investments reflected above do not represent actual investment returns to the Company's stockholders.

(3)	Included as a reference point for coupon income and weighted average portfolio yield.

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(1)	The amount of this initial distribution reflected a quarterly distribution rate of $0.30 per share, prorated for the 27 days for the period from the pricing of the Company’s initial public offering on March 5, 2014 through March 31, 2014.

(2)	Represents a special distribution.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

•	our and our portfolio companies’ future operating results and financial condition, including the ability of us and our portfolio companies to achieve our respective objectives;

•	our business prospects and the prospects of our portfolio companies;

•	our relationships with third parties, including but not limited to lenders and venture capital investors, including other investors in our portfolio companies;

•	the impact and timing of our unfunded commitments;

•	the expected market for venture capital investments;

•	the performance of our existing portfolio and other investments we may make in the future;

•	the impact of investments that we expect to make;

•	actual and potential conflicts of interest with TriplePoint Capital LLC (“TPC”), TriplePoint Advisers LLC (“Adviser”) and its senior investment team and Investment Committee;

•	our contractual arrangements and relationships with third parties;

•	the dependence of our future success on the U.S. and global economies, including with respect to the industries in which we invest;

•	our expected financings and investments;

•	the ability of our Adviser to attract, retain and have access to highly talented professionals, including our Adviser’s senior management team;

•	our ability to qualify and maintain our qualification as a RIC and as a BDC;

•	the adequacy of our available liquidity, cash resources and working capital and compliance with covenants under our borrowing arrangements; and

•	the timing of cash flows, if any, from the operations of our portfolio companies.

•	changes in laws and regulations, changes in political, economic or industry conditions, and changes in the interest rate environment or other conditions affecting the financial and capital markets, including with respect to changes resulting from or in response to, or potentially even the absence of changes as a result of, the impact of the Coronavirus (“COVID-19”) pandemic;

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the length and duration of the COVID-19 outbreak in the United States as well as worldwide, and the magnitude of its impact and time required for economic recovery, including with respect to the impact of travel restrictions and other isolation and quarantine measures on the ability of the Adviser’s investment professionals to conduct in-person diligence on, and otherwise monitor, existing and future investments;

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an economic downturn and the time period required for robust economic recovery therefrom, including the current economic downturn as a result of the impact of the COVID-19 pandemic, which has already generally had a material impact on our portfolio companies’ results of operations and financial condition and will likely continue to have a material impact on our portfolio companies’ results of operations and financial condition, for its duration, which could lead to the loss of some or all of our investments in such portfolio companies and have a material adverse effect on our results of operations and financial condition;

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a contraction of available credit, an inability or unwillingness of our lenders to fund their commitments to us and/or an inability to access capital markets or additional sources of liquidity, including as a result of the impact and duration of the COVID-19 pandemic, could have a material adverse effect on our results of operations and financial condition and impair our lending and investment activities;

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•	interest rate volatility could adversely affect our results, particularly given that we use leverage as part of our investment strategy;

•	currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars;

•	risks associated with possible disruption in our or our portfolio companies’ operations due to wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics; and

•	the risks, uncertainties and other factors we identify in “Risk Factors” in our most recent Annual Report on Form 10-K under Part I, Item 1A, in our quarterly reports on Form 10-Q, including this report, and in our other filings with the SEC that we make from time to time.

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*	Amount represents less than 0.05% of the total portfolio investments.

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*	Amount represents less than 0.05% of the total portfolio investments.

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(1)	The yields for periods shown are the annualized rates of interest income or the components of interest income recognized during the period divided by the average amortized cost of debt investments in the portfolio during the period.

(2)	The weighted average portfolio yields on total debt investments reflected above do not represent actual investment returns to our stockholders.

(3)	Included as a reference point for coupon income and weighted average portfolio yield.

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(1)	The average net asset values and the average total assets are computed based on daily balances.

(2)	Percentage is presented on an annualized basis.

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(1)	Does not include backlog of potential future commitments. Refer to “Investment Activity” above.

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(1)	The amount of this initial distribution reflected a quarterly distribution rate of $0.30 per share, prorated for the 27 days for the period from the pricing of our initial public offering on March 5, 2014 (commencement of operations), through March 31, 2014.

(2)	Represents a special distribution.

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Item 3.	Quantitative and Qualitative Disclosures about Market Risk

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Item 4.	Controls and Procedures

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Item 1.	Legal Proceedings

Item 1A.	Risk Factors

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.	Defaults Upon Senior Securities

Item 4.	Mine Safety Disclosures

Item 5.	Other Information

Item 6.	Exhibits

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(1)	Incorporated by reference to Exhibit (a) to the Registrant’s Pre-Effective Amendment No. 1 to TriplePoint Venture Growth BDC Corp.’s registration statement on Form N-2 (File No. 333-191871) filed on January 22, 2014.

(2)	Incorporated by reference to Exhibit (b) to the Registrant’s Pre-Effective Amendment No. 1 to TriplePoint Venture Growth BDC Corp.’s registration statement on Form N-2 (File No. 333-191871) filed on January 22, 2014.

(3)	Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 814-01044) filed on May 6, 2020.

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