Silicon Valley Bank (SVB) may be a small player in Canada, especially compared to its operations in the United States, but its rout “will leave scars” here, said Jean-Francois Marcoux, managing partner and co-founder of White Star Capital.
The Montreal fund was described as one of SVB’s Quebec clients when it opened its Montreal office, the third in Canada after Toronto and Vancouver. Unlike the United States, this Canadian subsidiary has no commercial or individual depositors, only corporate loans valued at US$349 million (CAN479 million) at the end of 2022.
On the other hand, specifies Mr. Marcoux, certain Canadian start-up customers of SVB had opened an account in the United States with this institution to have liquidity there. The best known is Toronto-based AcuityAds Holdings, which had $55 million in its US account, or 90% of its cash, Reuters reports.
Other Quebec and Canadian companies, some of which are partners of White Star Capital, have done so, “but it only affected a fraction of their cash,” says Marcoux, who does not reveal their names or numbers. “As fund managers, we too had little cash with Silicon Valley Bank. That’s reassuring. »
That said, even seemingly small sums can be crucial for start-ups, he notes. “If you have $350,000 that’s frozen, every dollar is so important at the venture capital stage. This is a very stressful situation for some companies. »
He believes that a number of young shooters who have been granted a loan by SVB have not necessarily cashed in, adds the co-founder of White Star Capital. “That makes you have to find a replacement bank. There is still work to refinance part of this 350 million US. »
The CAD 479 million in loans made by SVB in Canada, at least half of which were made in 2022 and 2023, according to the Office of the Superintendent of Financial Institutions Canada (OSFI), are to be put into perspective. For 2022 alone, according to the most recent report by Réseau Capital, venture capital investments totaled nearly $10 billion in Canada, including $2.46 billion in Quebec.
On the other hand, Silicon Valley Bank was a more significant player in what is called “risky debt”, or “venture debt”. SVB specialized in these “loans designed for fast-growing, investor-backed start-ups,” as the financial institution explains on its site.
Also according to Réseau Capital’s 2022 report, Canadian start-ups received $664 million in “risky debt”, with more than half of that amount in Ontario. In Quebec, subprime loans issued totaled $70 million.
“Generally, it’s not an easy environment for investment, and what’s happening to Silicon Valley Bank isn’t going to help,” Marcoux said. In the last six months, fundraising is more difficult. It will also become so for bank loans. Banks could become more cautious. »
Tech companies will also have to learn to diversify their bank balance, he believes, using several institutions instead of just one. “They will also be careful not to comply with the requirements of certain banks like the SVB, which required the transfer of accounts to them when they were lending. It won’t happen anymore. »
La Presse’s interview requests with SVB representatives in Canada, both at the main office in Toronto and in Montreal, went unanswered.
