TriplePoint lands $1 billion venture debt fund

Largest amount raised in venture-debt ever; Is it a sign VC investments are drying up?

Venture debt is looking pretty seductive to investors these days.

TriplePoint Capital, a six-year-old Palo Alto, Calif-based debt fund is expected to announce Wednesday that it's raised $1 billion for a new fund. 

The financing is the largest amount raised in the venture debt industry since venture debt financing became a viable source of funding 30 years ago. 

Given the growth in clean tech, information technology and life sciences, there's demand for larger investments, said TriplePoint CEO Jim Labe, in an interview with me.  

Jim also said that TriplePoint, while traditionally a venture-debt firm, is broadening its investment scope by becoming more of an asset manager, like TPG, Blackstone - a $17 billion market cap company on the NYSE, and Carlyle Group. 

"Raising so much and under the asset manager structure allows us to continue to provide the reliability and dependability to our customers today and in the future and grow with them as their debt financing needs grow," he said. 

"There's limitations to specialty funds," Jim added. "This was effective five to 10 years ago. But this [expanding financing options] seems the better way to go to have deep pockets."

Still, 90% of the funds will be earmarked for venture-debt financings, something both Jim and TriplePoint have ample experience in. Over the last six years since Jim founded TriplePoint, the fund has been able to return investors double-digit returns annually, said Jim, who wouldn't provide much more detail.

And, demand for venture debt is on the rise, which is likely one reason TriplePoint was an attractive investment vehicle.

TriplePoint already has plans to spend 40% of the fund this year. Some $400 million of the debt is expected to be allocated to VC-backed startups over the next few months, as it appears raising equity rounds isn't as viable an option as it has been in the past. 

"When it's scarce or harder [for startups] to raise equity, there's an increase in company's raising debt," said Jim, adding that he's speculating a bit but there's some correlation between demand for debt and lack of equity available.

Jim's observation certainly seems to support what appears to be a slowing down of activity in the venture capital industry. in the third quarter, venture capital firms raised $2.2 billion in venture financing, down 24% from the same period a year ago, according to Dow Jones LP Source.  

It may also be the case that investors (limited partners) seeking to put money into venture capital firms are finding it difficult to get into the top 40 firms, said Jim. Rather than put their money into second-tier funds, they'd rather invest in venture debt funds like TriplePoint, which typically loan debt alongside equity investments by the top-tier funds. 

"Investors may have been in some funds that haven't performed and have had dismal returns," said Jim.

A way to get into top-tier names

Since launching, the venture debt outfit has put $2 billion to work in 300 companies, including notable ones like Facebook, which received $135 million in debt financing from TriplePoint, as well as YouTube, Gilt Groupe, One Kings Lane, Square, Chegg and Etsy. 

Of the 300, about two-thirds remain private.

Jim wouldn't get into the details of default rates. But based on the annual returns and his ability to raise $1 billion in new funds, it doesn't sound like default rates are a problem for TriplePoint.

Additionally, TriplePoint doesn't just rely on payback plus interest. It also receives warrants on companies. So, just like the venture funds, some investments pay off a disproportionate amount of the return.

This is a nice option for limited partners looking to put money to work that can generate some venture upside, without all the risk.

Who gets the debt?

TriplePoint has gotten into some nice deals, as mentioned above. And, often they get in early, even at the seed stages.

"We want to get involved as early as possible," said Jim, explaining the company's lifespan approach, which is to build relationships with venture-capital-backed companies as early as possible, typically in conjunction with a startup's first round of venture financing. The idea is to grow with the company, hopefully to an IPO exit. 

So important is the early stage to TriplePoint that the company even has a seed-stage group making direct investments in startups.

TriplePoint's average investment amount is anywhere between $500,000 to $2 million for early-stage investments. The mid- to later-stages get between $2 million to $10 million. 

(image source: iradioblog)