Financiers warned Reuters that the abrupt failure of Silicon Valley Bank (SVB) last week might stifle funding for Canada’s technology startups and leave them in the hands of local lenders who may be pickier in supporting new enterprises.
It would be terrible news for an industry that took a battering in 2022, causing investors to become more risk-averse in early-stage investments.
Neil Selfe, CEO of consultancy firm INFOR Financial, stated, “I would argue now is probably the worst conceivable moment (for this to occur) in the previous decade because of the tech slump we’ve had.”
Prior to its demise on Friday, SVB’s Canadian business, which acquired a license to operate in 2019, competed with other banks and private lenders to fund the expansion of the Canadian technology sector. In 2022, it had increased its secured loans to $435 million (US 314 million) from the previous year’s total.
Kim Furlong, chief executive officer of the Canadian Venture Capital and Private Equity Association, told CBC News on Monday that Canada has become the world’s second-largest global tech cluster after Silicon Valley.
Businesses such as Shopify Inc (SHOP.TO) were instances of Canada’s success in the technology industry, which helped attract further investments.
US regulators intervened on Sunday following the collapse of SVB, which was precipitated by a large bond portfolio loss.
In Canada, CIBC (CM.TO), Royal Bank of Canada (RY.TO), and Bank of Montréal (BMO.TO) were most likely to acquire SVB’s present book and potential clients. John Ruffolo, the managing partner of the Toronto-based PE company Maverix Private Equity, stated as much.
Each of the three banks has a specialized technology lending group.
RBC refused to comment, while CIBC and BMO did not reply to requests for information.
Selfe from INFOR Financial stated that despite the fact that SVB Canada was a lesser company, “it was a significant competitor in that market.”
“I believe that Canadian banks will continue to lend to early-stage technology startups, but without Silicon Valley Bank as a lender, they will be able to be much more careful about who they lend to and maybe boost their lending rates.”
Canada’s top six banks already hold more than 80% of banking assets, and consumer activists and politicians have attacked the business for its dominance.
Benjamin Bergen, head of the Canadian technology lobby Council of Canadian Innovators, concurred.
“Before SVB failed, access to funding for Canadian startups and scale-ups was getting increasingly difficult,” he added.
And with this, the ecology is telling us that it will get even more challenging, so that’s what we’re monitoring.
Refinitiv data indicates that Canadian firms have received C$1.3 billion ($947.38 million) in venture capital so far this year, compared to C$4.5 billion during the first three months of 2022 and C$3.5 billion during the same time in 2021.
Due to rising interest rates, the funding situation for startups was already becoming increasingly challenging. Due to the possibility of a recession, investors were more choosy. In addition to banks, the federal government also invests in innovative Canadian technology businesses through the Venture Capital Catalyst Program.