AI And Venture Market Recovery Will Support Long Term Prospects

Catalysts

About TriplePoint Venture Growth BDC

TriplePoint Venture Growth BDC provides non dilutive debt capital and complementary equity exposure to later stage, venture backed technology and innovation companies.

What are the underlying business or industry changes driving this perspective?

• Rising venture equity activity, including a rebound in IPOs, M&A and up rounds, is enlarging the universe of well capitalized growth companies seeking non dilutive financing. This may support sustained portfolio growth and help stabilize or modestly expand investment income and NAV over time.
• The rapid build out of AI infrastructure and AI enabled software, now capturing a majority of venture deal value, aligns directly with TPVG’s focus on capital intensive, high growth borrowers in AI, semiconductors and data center networking. This may underpin strong demand for its loans and support revenue visibility.
• Ongoing rotation toward more mature, revenue scale and often EBITDA positive borrowers with solid cash runways is expected to lower loss severity and credit volatility, which could improve net credit outcomes and support steadier net margins despite slightly lower upfront yields.
• Management’s emphasis on obligor diversification and sector rotation into durable vertical software, fintech, cybersecurity, aerospace and defense, robotics and health tech broadens the addressable market and reduces concentration risk. This may support more resilient earnings and NAV through cycles.
• A growing equity and warrant portfolio in companies positioned for eventual liquidity events, combined with a recovering exit market, offers potential incremental upside from realized gains that can supplement interest income and enhance overall earnings power.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TriplePoint Venture Growth BDC's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.2% today to 35.7% in 3 years time.
• Analysts expect earnings to reach $35.9 million (and earnings per share of $0.87) by about December 2028, up from $33.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $42.5 million in earnings, and the most bearish expecting $26.3 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from 7.9x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.2x.
• Analysts expect the number of shares outstanding to grow by 0.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The rapid recovery in venture markets, with almost $1 billion of signed term sheets year to date at the sponsor and record pipeline levels since 2021, could support sustained portfolio growth and higher investment income, which may drive earnings and the share price meaningfully higher rather than remaining flat, benefiting revenue and net income.
• Exposure to AI, semiconductors, data center infrastructure and other high growth, capital intensive sectors that are described as a massive megatrend with strong tailwinds may translate into durable demand for TPVG’s loans and warrant positions, potentially accelerating NAV growth and pushing earnings beyond current expectations.
• The sizable equity and warrant portfolio, with $134 million of fair value and holdings in multiple companies cited as notable IPO candidates, could benefit disproportionately from an improving exit and IPO environment, leading to realized and unrealized gains that expand NAV per share and compress the implied valuation multiple.
• Ongoing credit improvements, including upgrades of several legacy names, full recoveries on previously stressed loans and fee waivers that are boosting net investment income by an estimated $6.5 million year to date, may structurally raise net margins and earnings power, supporting a higher valuation over time.
• Disciplined sector rotation toward more mature, EBITDA positive borrowers with substantial revenues and strong cash runways, combined with active share repurchases below NAV and a sponsor discretionary share purchase program, could reduce credit volatility and amplify per share value creation, providing a foundation for long term share price appreciation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $6.38 for TriplePoint Venture Growth BDC based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.25, and the most bearish reporting a price target of just $5.5.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $100.7 million, earnings will come to $35.9 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $6.63, the analyst price target of $6.38 is 4.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.