[ad_1]
The failure of Silicon Valley Bank on Friday has Canadian tech companies scrambling to divest assets from the collapsed institution.
The collapse of the California-based bank marked the second-largest bank failure in US history, with collateral effects rippling across the technology and banking sectors over the weekend and into this week as US and Canadian regulators scrambled to contain the damage.
“You’re sitting there pressing refresh throughout the afternoon to see if the money has hit another bank account. Then when it finally does, that’s a big weight off your shoulders,” said Kris Hartvigsen, CEO of Vancouver-based tech. Dooly’s startup, which holds the US account with SVB.
The financial institution has more than $200 billion in assets. It is the preferred banking partner of many Canadian tech startups, because of its versatility and because its ubiquitous use in the sector makes transfers between companies and clients easier to process, according to Hartvigsen.
When Dooly’s cash was successfully transferred to the Royal Bank of Canada – “I feel relief for my business, I feel relief for investors, I feel relief for customers,” Hartvigsen said – the collapse of SVB has shaken the Canadian startup ecosystem.
While the Canadian government and big banks have given assurances that the impact of SVB’s crash will be minimal, some in the startup community are concerned that the incident will hurt technology investment, with lenders playing it safe after this latest setback.
Borrow with caution
Chris Albinson, CEO and president of incubator Communitech in Waterloo, Ontario, said the 16 companies he worked with were unable to pay employees immediately after SVB’s collapse, with the majority of funding coming from south of the border.
“Our company’s ability to make payroll, to keep the lights on, is so intertwined with the financing and banking system in the US,” the executive told CBC News.
WATCH | Canada’s tech sector reeling after bank failure:
Bank failures in the U.S. have sent shock waves up north, rocking Canada’s tech sector. Suppliers have been quick to cash in, but there are fears that this will reduce investment.
North American banking regulators have stepped in to mitigate the effects of the crisis. Canada’s top banking regulator seized control of SVB’s Canadian branch on Wednesday after seizing its assets on Sunday.
On Monday, the US Federal Deposit Insurance Corporation, or FDIC, transferred all bank deposits – including uninsured ones – to a “bridge bank” that will take over SBV’s operations until a suitable buyer arrives. A startlingly high 94 percent of SBV’s assets not insured at the time of collapse because they exceeded the FDIC insurance cover of $250,000 US.
“Let the bank that you use every day go bankrupt. You know, the first thing is, can I get access to cash so that I can buy groceries? I think this problem has been solved,” Albinson said.
But what if you can not use or pay a credit card, and who is talking about mortgage refinancing if there is no one on the other line? It is the situation that many Canadian companies are currently in, according to Albinson, without SVB as a creditor.
“What I’m looking for is the long term, what’s missing [nearly $900 million] What does credit available to entrepreneurs mean for Canada?” said Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association.
SVB’s Canadian branch has $864 million in business debt on its books.
The branch has played an important role in the financial growth of the Canadian technology sector – the second largest technology center in the world – has contested other major banks and lenders in supporting the country’s startups.
Gov reassures, but not everyone is convinced
Finance Minister Chrystia Freeland said Canada’s banking system is sound and resilient, while innovation minister Francois-Philippe Champagne echoed those sentiments. “The message is that our banks are very strong, and Canadians need to be confident,” Champagne said.
“I don’t know what impact this will have on the Canadian economy,” said Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto.
“All I know is what’s happening now, banks are going to be more cautious about lending. And that could lead to some short-term tightening of bank lending standards that could spread to Canada which could slow down the economy,” he said. said.
Funding and investment levels at the start-up had been increasing long before SVB’s collapse, Albinson said.
“There is already a liquidity crunch in the ecosystem. It is directly related to the layoffs that have happened, and I just think this will accelerate, unfortunately,” he added.
The global tech sector is experiencing bruising in 2022, with Canadian companies caught in the crossfire of mass layoffs and investors now pushing for downsizing and efficiency over growth. In the current climate, lenders may be more cautious about financing young startups, compared to non-traditional banks like SVB.
Some will certainly think other banks are at risk, “after the one you thought was safe goes bankrupt,” Albinson added.
“We’re really still seeing a dynamic in the market today. And that effectively stopped investment,” he said. “And we are very concerned that the entire ecosystem is at some meaningful risk and lack of liquidity is being put into the market so quickly.”
[ad_2]
Source link