Animal Spirits Podcast - Talk Your Book: Growth Stage Debt Investing

Episode Date: May 27, 2024

On today's show, Ben Carlson and Michael Batnick are joined by Kyle Brown, CEO, President, and CIO of Trinity Capital to discuss how the Trinity Capital structure works, how venture debt investing works, understanding execution risk vs technology risk, Trinity's 5 income-generating businesses, risks involved, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Trinity Capital. Trinity Capital is a private credit, alternative asset manager, focus on growth stage-sponsored-backed direct lending. Learn more at trinitycap.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's wealth management.

This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. We talk a lot about private equity and venture capital. And when people invest in these privately held companies, most of the time, what we hear is equity. They're buying stock in these companies. But as we know, there's two parts of the capital stack. It's not just equity.

There's also debt. These companies, sometimes they don't want to be dilutive, especially if they're successful and further along than their life cycle. It could be cheaper, even with interest rates where they are, it could be cheaper to borrow money than to dilute the company. There was a threat on Twitter a couple weeks ago about a VC investor saying how hard it is to get like a 10x return because you do get diluted so much. So, yeah, you'd think if there's so much money sloshing around venture capital, why would you ever need to borrow money and going to debt?

The reason is so your equity investors don't continue to get a smaller and a smaller piece of the pie. So Trinity Capital is an alternative asset manager. They provide debt to these companies that are. I forget what he said in the show in terms of where they are. I think they're close to cash flow positive. Yes. I think the term, so we talked to Kyle Brown today was a CEO, president, and CIO. And I think he said EBITDA negative or neutral, which I guess neutral means like we're breaking even kind of on everything.

And yeah, these are growth stage companies. They're not like early stage angel investments. They're growth in getting there and I guess probably getting close to that IPO stage. Yeah, these are not companies that are looking for product market fit. These are companies that very much have it. And then there's also, they do other things. There's equipment financing and all sorts of interesting stuff that we've never really spoken about. And the structure of the company, I don't want to step into which material, was really

fascinating. So I think that you're going to enjoy this show. Here is Kyle Brown from Trinity Capital. Kyle, welcome to the show. Hey, thanks for having me, guys. I really appreciate it. We're excited to have you on. I don't think we've ever spoken to a company quite like yours. So let's start high and then we'll drill deep for the audience. Who is Trinity Capital? So Trinity Capital is a diversified asset manager focused on growth stage companies. Think about us as like investing in companies right on the cusp of EBITDA neutral. So we've got venture-backed, late stage, growth stage, you know, 50 to 100 plus percent annual growth rates, who have raised 50 to 100 million of venture capital, backed by top-tier sponsors, Koestlis, Kleiner's, andresens of

the world, into that 3 to 50 million of EBITDA, private equity backed. You know, they've made it to that cost. They've had private equity come in, and we've done, you know, what we call sponsor finance. So we kind of live on that cusp of EBITDA neutral for growth stage companies, pretty diversified in terms of industry. So if they're past that venture stage, what are these companies coming to you for? Is it a different type of financing that they need? Yeah. So prior to EBITDA neutral or EBITDA positive, it's an extension of runway. These guys are all pre-IPO rounds.

They're heading towards some liquidity event. They have raised a significant amount of equity to help prove out of technology, find a product market fit, get to scale, and they're looking for less dilutive capital to continue growing as they head towards that liquidity event, whether it's an IPO, whether it's a PE firm coming in to take a, you know, a ownership stake in the company. But it's an extension of runway with less dilutive capital to complement the equity they've raised to get them another six to 12 months and beef up that balance sheet as they grow. Less dilutive capital. Is that like a winning the Pooam monogram way of saying debt. It's debt. It's senior secured debt. In our world,

on that venture back side, what we get is warrants. So I say less dilutive because we're still getting warrants. So if the company goes Google, you know, they become the next Google. We do get some significant upside potential in the investments we're making. So it's not just a straight, it's not just a straight debt deal, though all, you know, the majority of our income is derived from the debt per pay. All right. Well, we'll come back and double-click, as I say, in the podcast industry, back onto this. But what's your story? You guys have been around for a while. Yeah, we started in 2008 doing equipment financing, so like small to mid-cap companies, kind of EBITDA positive or neutral companies.

We ended up partnering with Silicon Valley Bank back in 2008 on some deals, kind of discovered venture debt and really started scaling the business that way, providing a complementary piece alongside their receivable line. They do the receivable debt. We do the term debt. And we created this great partnership and really scale the business that way, raise multiple funds as just a private, private lender, private company. And we became a lender of choice for Silicon Valley Bank across the country, started discovering new opportunities as we continue to scale doing equipment financing. A lot of companies that are manufacturing something have CAPEX needs. And so we started building a senior secured kind of term debt business and an equipment finance business parallel

to one another, all the support venture back company. So we started 2008, had multiple funds running, and then in 2018, we decided, hey, you know, this is a massive opportunity. The market just keeps growing. There's no real, you know, significant market share with anyone company. Let's become the best in the world at this. And so, you know, access to capital. You know, we sell, we're, we sell, We're selling money. And so, you know, and our raw material is capital. And as a, and we decided, let's, you know, let's become a BDC, which we talked about this before. It's, it's kind of the REIT equivalent. We distribute out all of our earnings to our investors annually, 90 plus percent. And so that structure, because we generate so much income, was a perfect structure for us. It would give us access to the capital markets. So we consolidated in 2019, all of our funds into one entity. And this is actually important for, for your viewers to understand as an internally managed BDC. So we're very different, even compared to all the other BDCs out there. We're not a management company that's charging fees to a pool of assets like most financial companies. We're just one company. No management fees, no incentive fees. We did that

so that we would trade it a premium to all of our peers so that we could access capital more efficiently. So since 2019, since becoming a BDC and then subsequently listing on the NASDAQ in 2021, we've raised over a billion dollars while increasing earnings. So I think it's working. We've gotten to a nice scale, but we have access to the capital markets now. So if the opportunity to grow is there, we've got access to capital. So what is the incentive there? If these other BDCs are charging management fees and you're not, how are you able to do that?

So most BDCs are a pool of assets. And that pool of assets has a contract with some management company, charging a management fee, usually one and a half to two percent and an incentive fee of 15 to 20 percent. So their costs are just going to be, their costs are always going to be a little bit higher than ours. We do not have a management fee. We do not have an incentive fee. I have the same shares as anybody who buys the stock, as every single person in my company has the same shares. And so when you buy a trend, you're buying a pool of assets, just like all the other BDCs,

but you're also buying into a management company as well. And so inherently we should be valued significantly higher than just the pool of assets. because we have a, you know, 80 employee operating entity with, you know, that's generating a significant amount of income. So we did that intentionally so that we would trade it a, you know, a premium to the other BDCs that are out there. All right. I have a million follow-up questions on the structure of the company, but before we get there, I want to talk about just the process of venture debt. So a company comes into your office and what is a conversation like? What happens? So they've typically

I'll just give you a typical profile of our venture debt business. So, which is, you know, our venture debt business is about 35% of our deployment right now. I can circle back to that. We really operate five different businesses that focus on growth-oriented companies, venture debt, meaning cash-burning companies that are venture-backed, about 35% of our deployment. They've typically raised 50 to 100 million of equity. They're anywhere from 5 to 10 years old business.

Our average kind of ARR annual recurring revenue is going to be around that 30 million mark, 30 to 100 million in growing at some 30 to 100 percent annual growth rate. And so they have, they're spending intentionally. They're spending because they're getting an incredible payback for every dollar they spend. You know, they're getting X amount of subscribers or new customers in revenue growth. And so if they're spending and they're burning, you can do that with equity or if you get to a certain scale, you can actually start doing that with debt. So we're underwriting, what is the inherent value of this company?

you know, what technology do they have that is differentiated? We're looking for a moat around that technology where they're two, three, four years ahead of all their competitors. We want to make sure they've got two plus years of runway, even at the current burn levels, and that they have a plan that they can execute in a management team that's done it before to help them get to either that liquidity event that they're shooting for or another fundraise. And banks don't want to touch these companies yet. Is that the deal? So 10 years ago, banks didn't touch them. Over the last 10 years, banks became our biggest competitor. And as of March of last year, banks have backed off and are no longer lending in the same way

they were before. I wonder why. Yeah. I mean, if you think about it, you know, if we're generating, we're generating 15.5% gross yields on our assets, unlevered returns. You can't generate mid-teen's returns without taking some risk, right? Yeah, no kidding. So to that point, I'm curious, like, what does the normal sort of default rate look like

within your portfolio of companies? Well, this is why banks started doing it because the loss rate, the realized loss rate for us is actually negative. It's inverse. So because as I mentioned it, we get warrants in all of our deals, right? So if you look back over, if you get look back over 15 years, our realized gains offset our realized losses.

So that whole world, the venture debt world, part of the model is you're going to have losses. Companies will go bankrupt at some point. But you're also going to have a bunch of Googles, a bunch of pops, right? I'll give you one example. We had last year, we had a $55 million realized gain on warrants from Lucid when they went public, the electric car company. That was a $30 million loan.

So we got repaid $30 million plus interest and $50 million equity realized gain. That offsets a lot of mistakes. And so the model, that model, you end up, your warrants end up covering all of your losses and then providing a little incremental upside for investors. So when you say we, what does this mean exactly? Do you guys have funds that individuals invest in? Because you guys are a publicly traded company. So when you say we got that, what does that mean? Like Trinity investors, how do they get access to these deals?

So our investors, I'm just, we'll just stick on that same that realized gain. Our investors, anybody who held Trinity shares during that time, we ended up doing supplemental. So extra dividends to distribute out those earnings, which were treated as capital gains, which is kind of nice too. So anytime we do have a big upside like that, our investors. that we distribute all of it, you know, 90 plus percent of it to investors, and that's a capital gain. So we have a couple of unique things going. One, we're an internally managed BDC. We own the same shares as our investors. So inherently, the incentives are aligned, right? I'm not going to just

grow this business and raise a ton of capital because it would be dilutive to me, just as it would our shareholders. But we also, last year, we got SEC approval to manage an RIA. So now Trin, publicly traded company, TRIN, now owns an RIA. And now we're managing raising private money as well. So we needed access to the capital markets to make sure we could grow the business, have access to capital if we could grow. But there are also investors out there, whether they be wealth managers, whether they be insurance companies or just institutional investors that don't want a public stock,

but they want access to our space. We saw that. We said, hey, let's start raising money privately and let's charge management fees and incentive fees, all of which 100% of it flows to our, to trend, our shareholders. So now, we've created this really interesting way to generate income above and beyond just our loans that we issue. We have this vehicle that now can generate substantial new income by simply raising money privately, which we've done.

We started doing that this year. We've raised a few hundred million dollars and deployed it. And over time, I think you'll see our private funds continue to grow and generate great new income for investors. I'm curious about the volatility of the income stream, because, you know, I don't know. High yield corporate bonds are probably yielding 8%ish right now. Are you tied to some sort of benchmark where you're saying we're high yield plus this or we're 10 year treasury plus this or does it not work like that because this is kind of a unique space? It doesn't really

work like that. I mean, if you look at the stock right now, I have checked it today, but I, you know, I imagine our dividend yield is probably 14% based on what we said we're going to distribute out. That's a, I mean, our stock, because it's, again, because we're dividend stock and and we typically trade based on what we're going to dividend out, I think that's incredibly high. You know, that's not a function of us doing risky deals. That's just as simply a function of the price of the stock is relatively low compared to our peers because we're new. We're still, you know, we're four years in as a public company, still relatively new and not known by a lot of retail outlets yet. So we think about it in terms of dividend. So our goal, if you look back at

like the dividend chart for Trinity over the last four years since become a public company, I think it's 13 or 14, it's 13 straight quarters of increasing the dividend. We can do that because A, we're not to scale yet, meaning we still, every time we grow, trend grows, we actually, our costs go down, right? So there's efficiencies of scale there. But then we're also generating new income that flows to trend so we can keep increasing the dividend if we're successful doing that. So it's almost like a closed end fund in a way. It's not, but in terms of how the investors are treating you. Yeah. They're like proved to us first. Be around for a while and then we'll the price will go up and then dividend you'll go down. Yeah, we've got peers trading at 100 to 60 to

almost 200 times their nav. We're trading in like 115% of our nav. Those companies have been around for five to 10 years longer than us. So I think there's just a prove it, you know, kind of mentality. Now we've been around for a long time, but in the public sphere, we've only been around for four years. So I know you guys do things other than venture debt. We'll get to that. I'm curious to learn about equipment finance. But on the venture debt side, I'm curious, like, so you guys, this is not just traditional investment bank underwriting where you're, like, show me the financials. I mean, at some point, you have to also be a bit of a futurist or real business people to understand the sustainability of these companies. So with that in mind, how do you, like, win these deals?

Like, obviously you want to offer an attractive rate, one that will get the deal done versus your competitors, but not, you don't want to win by overpaying, meaning that, like, the rate that you're charging is too low for the risks that you're bearing. Yeah. So I think about it like this. In the venture world, it's venture debt world, it's two-thirds, actually what you just said, which is the science behind it. It's the financials. We're getting three years of financials, historic. We're looking at forward-looking financials.

The KPIs have to make sense. So a lot of it is your traditional kind of underwriting. And then one, but one third of it is more art, right? You know, you have to be able to understand technology to granular level. So we, on staff, we have, you know, multiple, you know, electrical engineers, engineers on staff to make sure we can dive in and understand a technology in a way that what we don't want to do, we don't want to take technology risk. So we want the technology risk to be taken by equity players. We want to take execution risk. So part of the underwriting, yeah, it's not, it's not

numbers on a spreadsheet. It is truly getting into the business, understanding that technology with people who know how and who have built technology. You know, one of my chief technology officers internally built the Samsung fingerprint technology. Like these guys know how to get in and understand whether or not technology still needs to be proved out or if we're at the execution stage of the business. So we get deep on the tech. We get deep on the management. You know, the success rate of repeat entrepreneurs is significantly higher than first-time

entrepreneurs. So we're getting in there. That's one of our underwriting metrics. So we, every deal goes through the exact same process. We're making sure that the plan that they've put in front of us. is achievable. We're taking execution risk. We're not taking technology risk. That's the biggest difference. On the one hand, investors love higher yields. And of course, a lot of that is a function of the benchmark being so much higher than it was in the past. On the other hand, is there a level at

which you're like, well, shit, I love 15% yields, but like how is this company to be able to pay me back? How do you think about that? Now, I mean, any company we lend money to, they have to be able to service our debt, right? Even the companies that are burning cash, if things don't go exactly in plan and they need to dial back spend and get to where they can just service the debt. These are things we're underwriting, right? So if we need to make sure they have levers in place to be able to pay us back if they don't continue to hit, you know, hit the mark. So in a lot of ways, it's, it is similar to traditional financing in that sense. You know, they need to be able to pay us back. But they are spending because they're, they're able to grow so efficiently.

So you mentioned that this is a publicly traded BDC. Anyone can go buy it on their brokerage or whatever. Do you have a sense of who your investors are in the actual fund? So we've got a significant amount of institutional support, actually. I'd say, I think last reported it was 30 to 35 percent institutional investors, notable names you'd know. A good portion of that, I'd say 10 to 20 percent because they're shareholders we've had for over a decade. These are high net worth. family office type investors. And then the rest of it's going to be retail that's been added in over the last four years. So kind of a healthy mix. I think we're seeing more and more retail activity as the name gets out there. But our institutional investors have been a strong hold and then buy since becoming a public company. So there's a nice stable base in there. So you said that venture debt is, forgive me, what's that, what percentage of your business? It's not 35% of our deployments, but is venture debt. Yeah. So what's that?

What's the majority of your business? So the way we think about our company is we've got multiple verticals that all focus on growth-oriented companies. Ventured debt, senior secured loans is a big piece of that. Equipment financing is another big piece of that. That is really kind of traditional equipment financing. We're financing some tractors, trailers, steel, manufacturing lines, testing equipment. This is non-specialized equipment to companies that are manufacturing something and have massive

CAPEX needs. And we're, you know, we actually don't have a lot of competition there. Most of that is us going out and educating companies that, hey, this equipment's worth something. We'll provide an advanced against that. We structured in a way that, you know, it's fully amortizing. So we get off for us pretty quick. Again, we don't want to take technology risk. We want to take execution risk. But in the equipment world, we're actually just financing mission critical equipment, equipment that they cannot survive without. That's about 20, 25 percent of our deployment. That's a differentiator for us. If these companies were EBITDA positive for three years, they would get all their financing from a bank because that's how solid the equipment is. So the underwriting thesis

really there is, hey, this thing is worth off the shelf X. Let's provide in advance of 50 to 70 percent of that. That's probably a good, just metric for you to think about. Are these also like tech firms that are building out cloud warehouses or are these actual like manufacturers? helping here. So a little bit of everything. Yes, to your later point there, like, so AI, it's getting a significant amount of equity right now. But there's a lot of, there's going to be a lot of winners and losers in that space, and it's yet to see who they are. So we're not doing a lot of venture debt in that arena. But we will do equipment financing, right? If NVIDIA servers are two years in back order and we can finance NVIDIA's, you know, H100 or H200 servers, we're doing

that. We're actually doing a fair bit of that. Kyle, when you go on CNBC, you say we're investing in picks and shovels. Yeah. Okay. That's how you sound intelligent right there. Picks and shovels. That's true. I mean, you know what?

It's a nice way for us to kind of dip our toe in that water because there's such massive activity, but not take the risk that everyone's taken, right? At the end of the day, we're getting paid off in two to three years on those NVIDIA servers, and there's a two-year back order, right? So I think we figured out a way to de-risk ourselves doing that. But, you know, to the other point, you know, manufacturing equipment, we're doing stuff for companies like footprints, you know, doing, you know, renewable type technology, impossible foods. That was a big name.

This was many, many years ago. But we provide all the manufacturing equipment for them to roll out the impossible wopper. If you remember that back in the day. So they're just, but that's all, that's all pretty standard equipment for a very specialized type of, you know, new product, right? Axiom space is a big one for us. They've got the contract to build the next space suit, you know, for NASA and the next space station. We've got, you know, they're using our money for tools. tools, right, to do all that, to build all that. So it can be anything for manufacturing equipment

to cranes and steel. But it is pretty special. It's not specialized equipment, but it is mission critical equipment that they need for their products. So that sounds like a less risky investment than venture debt. I would assume that's reflected in the yields or maybe not. What do the, what are the spreads look like between those two? I mean, the business side of it is it's higher, it's going to be a little bit higher yields, but they're shorter duration. So are multiples lower. So you've got to do a lot of business. There's a lot of turnover there. So we've got a nice team, a lot of big pipeline of deals you have to have. And actually historically, loss rates are almost identical. So, you know, inherently you would think it's less risky because you've got this

collateral that if they don't pay you, you could go pick it up. But on the venture debt side, they have a real technology there that somebody's going to pay something for or you can pick up and sell it. So, I mean, it's IP versus hard equipment, but both have a very similar collection Right. So I don't know how maybe this is just a labeling thing. It might be semantics, but do you consider yourself part of the private credit side of things? And since you've been around since you said 2008, it was all this kind of borne out of that crisis where independent companies like you were having to help finance some of these other businesses that are growing? Yeah, I know those are big words right now, right? Private credits, all lending, direct lending. I mean, that's what we've been for 15 years, right? So we work directly. We own the pipeline. We're not out there doing big syndicated deals. We work directly with the CEO. CFO. This is going to be a differentiator for us. We're getting referred in by the board members, either the PE firm or the VC firm, and then we own the deal. So we lead it. If for whatever reason, it's a massive opportunity, we need to syndicate it out. We're leading it. So I guess that's a benefit. When you buy Tren, you're working with the firm that's working directly with the company.

That is the definition of direct lending, right? So just circling back to this idea that I asked earlier. For investors in trend, this is, you guys don't have different vehicles. This is really, if you're interested in the business that we're doing, buy our equity. Yeah, we've got, you know, you can buy trend. And when you buy trend, you're buying into five different direct lending platforms, which is venture debt, which we've been talking about equipment financing, sponsor finance, which is simply P.E. Buy out. When our venture debt companies grow up, we're able to keep that relationship longer. And we stay in those deals. So these are EBIT dot positive. What does what does that mean exactly a company goes from being venture backed burning cash to three to 50 million

of ebidah they're heading really towards that next inflection point either a larger IPO or a larger acquisition we were able to come in alongside the PE firm and keep those relationships longer so so you're so you're the one that's providing the capital to the PE firm that's doing the buyout yep we partner with the PE firm to help do a merger or a buyout what are the other two lines life science and health care so we've got a life science and health care business all FDA post approved kind of products, mostly med device. But we've got a, and they do some health care IT as well, but life science and health care. And then a warehouse lending business, which is, I guess the traditional name is just ABL, right? These are financial receivables

that typically a bank would provide all the financing for, but we are coming in to provide advance against those receivables because the company hasn't been cash flow positive for three years. So these are typically enterprise customers on the other side, where the receivable is. Our value prop and what we, it's similar to venture debt is they just haven't been cash flow positive for three years. And so we love that business because you're providing advances against very collectible enterprise type receivables. But those, you know, those five different businesses are separate businesses within Trinity, separate head of, you know, the business, separate head of credit, portfolio, sales, five completely different businesses, different referral

sources. So when you buy a trend, you're tapping into all of those direct lending platforms that we're scaling. All of which, by the way, they're all focused on growth-oriented companies, and they all complement one another, right? They're either different life cycles or different pieces or products that that company, those companies need. Were these separate business lines, where the five different ones, were they all bolt-ons where you just saw an opportunity over the years? And you said, well, why aren't we doing this too? Wait, why aren't we doing this? We have extra space here. How did it come together where you have all these different? Because they seem relatively diversified. Yeah, exactly. So, you know, we would, we would have venture debt to a company and they'd say,

hey, we've got to build out a $30 million equipment facility. Can you help with that? Oh, that's a new, that's a new asset to finance. Or, you know, we're with a fintech company. They say, hey, we've got a hundred million in receivables. We can't, we can't, you know, it's too dilutive to keep raising equity to finance those receivables. You know, can you do something? It's been very organic and complimentary. There was a need for it and such, you know, such volume for the need that we decided to prop up, you know, new verticals. So your business is diversified, but you are a publicly traded company and we know how investors act when things go bad. So it seems to me like how, like how are you treated? Do investors treat you like a levered bed on the U.S. economy? Like, are you, I guess, what are some of the risks involved?

So, I mean, risks involved are because it's still small, small. market cap company, inflows and outflows can vary. And so, you know, you can see a 5% swing in the stock on a no news kind of day, right? Negative or positive. So if you're buying to flip it or you're going to be in it for a short term, I mean, you can, you could experience volatility, right? I guess the income hasn't been volatile, right? We've got assets. We've got some leverage. We haven't went out. Our loss rates for 15 years have been very stable. So if you're buying it for income, that's been very stable and continues to be. But the volatility of the price, you know, that can fluctuate on no news. If you're an investor, that's one, you know,

that's one thing to think about. I mean, if there ever was a recession, I feel like you guys are going to get destroyed. I mean, listen, in a recession, all stocks get killed. But I feel like yours in particular, you are very sensitive to the business cycle. Is that fair? It's a little bit, it's a little bit inverse of what you just said. So these are all private companies and they have private investors, VC and PE, those investors are not investing on some short time frame, right? If it's a VC, they've got a 10-year horizon. If it's a PE firm, it's a three-to-five-year horizon. They're looking for some liquidity event. They can't lose money. You know, if you're a PE firm, you cannot have big losses. That doesn't make, that's not how the model works, right?

And so we saw this, you know, we saw this in COVID. You know, a lot of BDCs, they dropped, you know, some dropped 25 to 50 percent. Now they bounce back really quick, right? Because I think what I'm talking about played out, which is if it's a real business and they have real customers and it's taken five to 10 years to build it to establish those enterprise type customers, you're not just, it doesn't, that doesn't disappear overnight. There's real value there, right? And so we've gone through multiple cycles now. And at the end of the day, they're the investors behind our companies. They're not investing in short-term investments. These are five to 10-year investments, and they'll keep funding the companies, right? And so, and in fact, recessions,

and even the last few years has gotten a lot more interesting for us because there's less liquidity available. And we're a permanent capital source. There is no run on the bank with us. We're a publicly traded company. And so long as we have access to capital and liquidity, we're able to take advantage of the unique opportunity. So I'll give you an example. March of last year when the bank volatility really picked up, we saw some volatility in the stock just like everybody else because they're looking at it going saying what you just said, my God, this must percolate down to these types of investors, right? These types of lenders. And the opposite happened. We saw banks who lacked liquidity back off. And suddenly we're sitting there with

opportunities to finance companies that were bankable for the last 10 years that now need private credit to help support them going forward. So our deal flow has gotten really interesting in what is, I say, a very difficult time because these companies are so much more mature. they were bankable before. Now they're looking for alternative solutions to a typical bank right now. So if you're talking to somebody that doesn't know really a lot about this space, do you say, like, is it fair to say we're like a mini version, a mini version of, I don't know, Apollo or Blackstone or somebody like that?

That's exactly what we are. We are diversified across the country and even internationally a fair bit. We have loans in 30 different states across the country and then broken out between the different businesses and stages. If VC funding is significantly down, that's just a portion of our business. If PE, you know, investments are up, which dry powder is at an all-time high right now and you're starting to see things really starting to move, great. You know, that business is going to, it shouldn't do quite well right now. You know, you see manufacturing starting to come back to the U.S. because of some of the issues with China, with the large bill that was passed

the inflation act to generate and spur manufacturing in the U.S. Well, suddenly that business has a lot of, you know, tailwinds behind it. So I think we've got ourselves set up to really kind of have a buffer against maybe down cycle on one part of the market and then see the upswing and be and have liquidity to take advantage of the, you know, the good stuff going on in the market. If someone did want to be a longer term investor in here and look past the stock swings, how often is that income distributed? Is it monthly, quarterly? How does that work?

Income is distributed quarterly. We stayed in advance what the dividend's going to be, and we distributed it out quarterly. Kyle, if people want to learn more about Trinity Capital, where do we send them? Send them to the site. We've done a great job of laying out the story, kind of what we're doing, where we're going. What we're trying to do different here is not just be a real consistent dividend, but we want to be a growth story. We want to be the best in the world at what we're doing here. and now has just become a very, very interesting time for VC and PE back companies looking for alternatives to banks, and we're really set up nicely to be able to capitalize on that.

All right, Kyle. Appreciate the time. Okay, thanks again to Kyle. Remember, go to trinitycap.com to learn more. Email us, Animal Spears at the compound news.com.