The sudden collapse of the Silicon Valley Bank (SVB) last week could stifle funding for Canada’s tech startups, leaving them in the hands of domestic lenders who may be more selective in funding new ventures, financiers told Reuters.
That would be bad news for a sector that took a hit in 2022, making investors more risk-averse about early-stage investing.
“I would say this is probably the worst possible time (for this) in the last decade as we’ve seen a tech pullback,” said Neil Selfe, CEO of consulting firm INFOR Financial.
SVB’s Canadian arm, which received a license to operate in 2019, competed with other banks and private lenders to fund the growth of Canada’s tech sector before it collapsed on Friday. The company had doubled its secured loans in 2022 from a year earlier to CA$435 million (US$314 million).
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Canada has become known as the world’s second-largest global tech hub after Silicon Valley, Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association, told CBC News on Monday.
Companies like Shopify Inc were examples of Canada’s tech track record that helped attract more investment to the sector.
US regulators stepped in on Sunday following the collapse of SVB, which was on a run after a major drop in its bond portfolio.
CIBC, Royal Bank of Canada and Bank of Montreal are most likely to pick up both SVB’s current book and future clients in Canada, said John Ruffolo, managing partner of Maverix Private Equity, a Toronto-based PE firm.
All three banks have dedicated technology lending groups.
A spokesman for RBC declined to comment, while CIBC and BMO did not respond to requests for comment.
INFOR Financial’s Selfe said that while SVB Canada was a smaller player, “it was a major competitor in this market.”
“I think Canadian banks will continue to lend to earlier-stage tech companies, but without Silicon Valley Bank as a lender, I think they can afford to be much more selective about who they lend to and potentially the price at which.” they bestow, increase.”
Canada’s top six banks already control more than 80% of banking assets, and the industry has come under attack from consumer advocates and politicians for its dominance.
Benjamin Bergen, president of the Council of Canadian Innovators, a lobby group for Canadian technology companies, agreed.
“Prior to the collapse of the SVB, access to capital for Canadians for startups to scale up was becoming increasingly difficult,” he said.
“And what we’re really hearing from the ecosystem is, you know, it’s going to make it even more difficult, so we’re really monitoring that.”
Canadian companies have recorded total venture capital investments of CA$1.3 billion (US$947.38 million) so far this year, compared to CA$4.5 billion in the first three months of 2022 and CA$3.5 billion in the same period in 2021, according to data from Refinitiv.
The financing environment for start-ups has already become difficult due to rising interest rates. Investors also became selective due to the looming recession. In addition to the banks, the federal government also has a Venture Capital Catalyst Initiative program that invests in promising Canadian technology companies.
