TriplePoint Venture: "Early Stage" Gains
02/10/2017 7:00 am EST
Over the course of 2016, we enjoyed some good success by investing in Business Development Companies (BDCs), which offer small to medium sized private businesses access to working capital in return for interest on loans along with ownership stakes in the companies they serve, explains income expert Bryan Perry, editor of Cash Machine.
I’m now more favorable about raising our risk profile to include late-stage company lending and piggybacking Venture Capital firms that have spotted potential winners and seeded their early growth with proprietary funding.
To this aim, I’m adding a new BDC to our Aggressive High Yield Portfolio — TriplePoint Venture Growth (TPVG), which provides investors access to VC-backed, pre-initial public offering (IPO) companies and currently offers a sustainable dividend yield of 12%.
Also, the company has equity and warrant investments that are benefiting from increased market valuations.
The company’s investment objective is to maximize its total return by primarily lending with warrants to venture growth stage companies focused in technology, life sciences and other high growth industries backed by a select group of leading venture capital investors.
TPVG recently reported realized gains of approximately $1.1 million primarily due to proceeds from warrants and equity in Dollar Shave Club, which was sold to Proctor & Gamble (PG), and warrants in Jet.com, which was acquired by Wal-Mart (WMT).
These are high-profile and lucrative exits that have the company sporting dividend coverage of a healthy 112% ratio.
Its portfolio is 96% debt investments structured as “growth capital loans” or “equipment financing” and mostly backed by a senior position on all assets, typically with warrants that provide upside potential.
The company’s portfolio is currently valued at $309 million with a 15.1% weighted average annualized portfolio yield on debt investments. TPVC has demonstrated it is able to cover its dividend by net interest income for the past three years.
Since it trades at a 22% discount to Net Asset Value, I find this highly specialized BDC to be a real opportunity to capture a fantastic yield and put some capital to work alongside some very smart money.