Silicon Valley Bank Collapses, Canadian Startup Companies Have Difficulty In Funding

JAKARTA - Last week's sudden collapse of Silicon Valley Bank (SVB) could hamper funding for Canadian tech startups.

In fact, it could put them in the hands of domestic lenders who may be more selective in financing new ventures. That would be bad news for the battered sector in 2022, leaving investors more risk-averse in early-stage investments.

"I would say this is probably the worst time (for this to happen) in the last decade because of the technology rollback we've been through," said Neil Selfe, CEO at advisory INFORM Financial.

SVB's Canadian division, which received a license to operate in 2019, was competing with other banks and private lenders to help finance the growth of Canada's technology sector, before collapsing on Friday (10/3/2023). SVB Canada has doubled its guaranteed loans to 435 million Canadian dollars (314 million US dollars) in 2022 from the previous year.

Canada is known as the world's second-largest global technology hub after Silicon Valley, Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association told CBC News.

Companies including Shopify Inc are examples of Canadian tech success stories, which are helping to attract more investment into the sector.

US regulators intervened Sunday (12/3/2023) after the collapse of the SVB, which took place after a large portfolio of bonds took a hit.

Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), and Bank of Montreal (BMO) are the most likely to take on SVB's current books, and future customers in Canada, said John Ruffolo, Managing Partner of Maverix Private Equity, a PE (Private Equity) company based in Toronto.

All three banks have dedicated technology lender groups. An RBC spokesman declined to comment while CIBC and BMO did not respond to requests for comment.

INFO Financial's Selfe says that SVB Canada is a smaller player. "SVB is an important competitor in the market," he said.

"I think Canadian banks will continue to lend to early-stage tech companies but without Silicon Valley Bank as a lender, I think they can be more selective in how they lend and potentially increase the rates at which they lend," he said.

Canada's top six banks already control more than 80 percent of banking assets and the industry has come under fire from consumer advocates and politicians for their dominance.

Benjamin Bergen, president of the Canadian Council of Innovators, a lobby group for Canadian tech companies, agrees. "Before SVB went down, access to capital was getting tighter for Canadians for startups to boost growth," he said.

"And with this, what we're hearing from the ecosystem is, you know, it's going to make it even more difficult, so that's what we're monitoring."

Canadian companies saw an overall venture capital investment of 1.3 billion Canadian dollars (947.38 million US) so far this year, compared with 4.5 billion Canadian dollars during the first three months of 2022 and 3.5 billion Canadian dollars during the same 2021, according to Refinitiv data.

The funding environment for start-ups has become increasingly difficult due to rising interest rates. Investors also began to be selective due to the threat of recession. In addition to banks, the federal government also has a Venture Capital Catalyst Initiative program that invests in promising Canadian technology companies.