Canada’s tech start ups face financing hurdles with SVB collapse

Maiya Keidan, Divya Rajagopal

TORONTO (Reuters) – Last week’s sudden collapse of Silicon Valley Bank (SVB) could choke funding for Canada’s technology start-ups and place them in the hands of domestic lenders who may be more selective in financing new ventures, financiers told Reuters.

This would be bad news to a sector that suffered a major setback in 2022. Investors have become more cautious in the early stages of investments.

“I would say this is probably the worst possible time (for this to happen) in the last decade because of the tech pullback we’ve had,” said Neil Selfe, CEO at advisory INFOR Financial.

SVB’s Canadian Division, which was granted a license in 2019, competed with other banks and private lenders to finance the growth of Canada’s technology sector. It collapsed on Friday. From the previous year, it had increased its secured loans by doubling their amount to C$435million ($314 million) in 2022.

Canada was now known as the second-largest global tech hub after Silicon Valley, Kim Furlong of Canadian Venture Capital and Private Equity Association, told CBC News Monday.

Shopify Inc, a Canadian tech success story, was one of the examples. This helped to attract more investments in the sector.

After the SVB collapse, U.S. regulators intervened on Sunday. They were after a large bond portfolio that was being redeemed.

CIBC and Royal Bank of Canada were most likely banks to take SVB’s current books and future clients in Canada. John Ruffolo, Managing partner Maverix Private Equity (a Toronto-based PE firm), said.

Each bank has dedicated technology lending groups.

RBC’s spokesperson declined to comment, while CIBC & BMO didn’t respond to inquiries for comment.

Selfe from INFOR Financial stated that SVB Canada was a smaller competitor. “it was an important competitor in that market.”

“I think Canadian banks will continue to lend to earlier stage technology companies but without Silicon Valley Bank as a lender, I think they can afford to be much more selective in who they lend to and potentially increase the price at which they lend.”

Canada’s top six banks hold more than 80% in banking assets. This industry has been under fire from politicians and advocates for consumers.

Benjamin Bergen, President at Council of Canadian Innovators (a lobby group for Canadian technology firms), agreed.

“Before SVB went down, accessing capital was increasingly becoming tighter and tighter for Canadians for startups for scale ups,” He said.

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

According to Refinitiv data Canadian venture capital investments totalled C$1.3billion ($947.38m) in 2018. This is compared to C$4.5billion over the first three month of 2022, and C$3.5billion over the same period of 2021.

Due to rising interest rates, it was already becoming difficult for start-ups to get funding. Due to the possibility of a recession, investors were also becoming more selective. Apart from the banks, there is also a Venture Capital Catalyst Initiative program by the federal government that invests into promising Canadian technology companies.

($1=1.3722 Canadian dollars)

(Additional reporting by David Ljunggren, Ottawa; Reporting by Maiyakeidan and Divyarajagopal; Editing done by Edward Tobin