SVB Damage ‘Definitely Wasn’t Zero’ for Maritime Startups
SAINT JOHN — The failure of California financial institution Silicon Valley Bank is making waves all the way across the continent and lapping at the shores of Atlantic Canada.
“We’ve done some direct outreach to the founders and our community over the weekend, just to basically assess that impact specifically,” says Matthew Cooper, the CEO of Halifax-based innovation hub, Volta.
“We didn’t have a ton that were directly affected but it definitely wasn’t zero.”
That sentiment supports what has been trickling out of the international media in the past few days: that the collapse of Silicon Valley Bank (SVB), the 16th largest in the United States at the time of its failure, had a far-reaching impact on the technology world beyond the borders of the United States.
For Atlantic Canadian startups that have dealings with SVB, navigating around this new reality will be a challenge.
“We’ve been working with them directly just to understand what their needs are, to connect them to the available resources here that we’re researching as well,” says Cooper.
The details of which companies have been affected and to what extent are confidential, but Cooper says Volta was happy to hear the news the US federal government will back up the full deposits of SVB.
“It’s really great to hear. It could have been a lot worse.”
New Brunswick-based tech startup accelerator, Propel is also supporting members of its ecosystem that have been affected.
Propel CEO Kathryn Lockhart describes it as a “ripple effect in terms of confidence.”
“If an Atlantic Canadian company was looking to raise capital from an American investor …there is a chance that SVB could have been their bank that they were using. That means that is going to get put on pause,” she says.
“We’re going to anticipate a slowing in American transactions happening.”
“Canada is overly dependent on the import of foreign venture capital, mainly from the U.S.,” writes Ottawa-based consultant Richard Rémillard in Private Capital Journal’s commentary. The publication notes that between 45 and 50 percent of all venture investments in Canada come from U.S. venture capitalists, and that 50 percent of U.S. VC-backed firms had dealings with SVB.
That being said, 2021 was a banner year for Canadian VC investment activity with over $14 billion invested, according to BDC. This was significantly higher than previous years; $4 billion was invested in 2020 and the previous high of $6 billion was in 2019. While 2022 saw lending tighten somewhat due to increased interest rates , Lockhart says it was still a great year for VC investment in Atlantic Canada.
“What I’m hopeful for, is that Canadians will recognize this as an opportunity,” says Lockhart. “So Canadian banks are incredibly stable. They’re some of the most profitable in the world.”
She says the banking system here is much more balanced and tightly regulated to ensure the liquidity is there for these types of circumstances.
“If I’m a Canadian VC, I’m going to go ‘wait a minute, some of these U.S. deals aren’t going to be able to close, so maybe I’m going to be able to step in and support this founder in a bigger way’.”
She says she wouldn’t be surprised if some ongoing deal parameters shift in the days and weeks ahead, presenting opportunities for Canadian founders and Canadian venture capitalists to take advantage of.
“I think there’s going to be a lot of cold feet in the U.S.”
She adds that investors no longer have the “growth at all costs” mentality willing to risk it all on a great idea and compelling founders. Instead they’re looking for traction and metrics proving there’s a marketable product with a solid game plan.
“The founders in Atlantic Canada are strong and healthy,” she says. “We are still seeing incredible founders, and they are striving to solve real problems, not manufactured problems, real problems within their industry and they know they can fix them through innovation.”
She says the number of founders entering Propel continues to grow, with 127 admissions in 2023, up from 92 in 2022.
“We are so excited to get up every day and support these founders because they are shaping the future of this region,” she says.
For Volta’s part, Cooper acknowledges that even though the SVB impact on Atlantic Canada isn’t as great as in the U.S., like Lockhart noted, “it’s a ripple effect” that impacts the ecosystem all the way over here in Atlantic Canada.
“We’re definitely here to support any of the startups that are impacted in our community. I would encourage them to reach out and get in contact with Volta.”
Alex Graham is a Huddle reporter in Saint John. Send her your feedback and story ideas: [email protected].