Silicon Valley Bank (SVB) may be a small player in Canada, especially compared to its activities in the United States, its defeat “will leave scars” here, said Jean-François 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 business loans valued at US$349 million (CAN479 million) at the end of 2022.
On the other hand, specifies Mr. Marcoux, certain start-up Canadian customers of SVB had opened an account in the United States with this institution to have cash there. The best known is Toronto-based AcuityAds Holdings, which had US$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 Mr. Marcoux, who does not reveal their name or number. “As fund managers, we too had little cash with Silicon Valley Bank. That’s reassuring. »
Specialized in “risky debt”
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 means you have to find a replacement bank. There is still work to refinance part of these 350 million US. »
The CAN 479 million in loans granted by SVB in Canada, of which at least half were in 2022 and 2023, according to the Office of the Superintendent of Financial Institutions Canada (OSFI), are to be put in 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, the Silicon Valley Bank was a more significant player in what is called “risky debt”, or “venture debt”. SVB was specialized in these “loans designed for young, fast-growing companies supported by investors”, as the financial institution explains on its site.
More diversification
Also according to the 2022 report by Réseau Capital, Canadian start-ups received $664 million in “risky debt”, with more than half of this amount in Ontario. In Quebec, subprime loans granted totaled $70 million.
“In general, it’s an environment that is not easy for investment, and what is happening to Silicon Valley Bank is not going to help, explains Mr. Marcoux. 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 banking assets, he believes, using several institutions instead of just one. “They will also be careful not to comply with the requirements of certain banks such as the SVB, which required the transfer of accounts to them when they lent. It won’t happen anymore. »
Interview requests from The Press with SVB representatives in Canada, both at the main office in Toronto and in Montreal, got no response.