The sudden collapse of Silicon Valley Bank in the US may very well choke funding for technology startups in Canada and also place them in the hands of domestic lenders, who may apparently be more selective when it comes to financing new ventures.
That would indeed be very negative news for the sector, which already took a beating last year, making investors more risk-averse when it comes to early-stage investments. As per the CEO of advisory firm INFOR Financial, Neil Selfe, this looks like the worst-ever time for such a thing to take place due to the tech pullback that is being experienced.
The financial division of SVB, which got a license to operate in 2019, went on to compete against foreign banks as well as private lenders to aid the technology sector’s growth in Canada before it collapsed last week on March 10. Apparently, the bank had doubled its secured loans to $314 million last year from the year prior to that.
Canada is known as the second largest global tech hub in the world after Silicon Valley, according to Canadian Venture Capital and Private Equity Association CEO Kim Furlong.
It is well to note that US regulators had to step in after the SVB collapse due to a big bond portfolio hit. Royal Bank of Canada, CIBC, and Bank of Montreal were the major contenders to pick up SVB’s current books as well as future clients across Canada.
All three banks happen to have dedicated technology lending groups. Selfe from INFOR Financial opined that while Silicon Valley Bank Canada happened to be a smaller player, it was indeed a significant competitor in the market. As per him, the Canadian banks shall continue to lend to technology companies that are at an early stage; however, without SVB as a lender, they will be able to be much more selective when it comes to who they lend to and at the same time increase the rate at which they lend.
It is well to be noted that the top six banks across Canada already have control of 80% of the banking assets, and because of this, the industry has already come under severe attack from both consumer advocates and politicians. The president of the Council of Canadian Innovators, Benjamin Bergen, said that before SVB went down, capital accessibility was becoming increasingly tighter for Canadian startups so as to scale up, and from what is being heard, it is indeed going to be much more difficult, and that’s what they are monitoring.
Notably, Canadian companies have seen an overall venture capital investment of C$1.3 billion to date this year, as compared to C$4.5 billion in the first three months of 2022 and C$3.5 billion in the year prior to that, as per Refinitv data.
The funding environment for startups was already challenging because of rising interest rates, and the investors were also being selective because of the recession threat. Besides the banks, even the federal government also happens to have a Venture Capital Catalyst Initiative program, which comes with a reputation for investing in Canadian technology companies that show a lot of promise.