Vancouver tech responds to Silicon Valley Bank collapse

This weekend was a tumultuous one for Vancouver clients of Silicon Valley Bank. The de-facto American startup bank shut down on Friday, which left anyone who held capital with the institution uncertain about what would happen to their funds — especially beyond the $250,000 insured by the U.S. Federal Deposit Insurance Corporation (FDIC).

As of Monday, the treasury announced that depositors would have access to all of their funds, alleviating weekend anxiety for many companies about making their employees’ payroll. But, Vancouver tech entrepreneurs affected by the collapse say there are problems still left unsolved that our innovation ecosystem can’t wait for the U.S to step in and fix.

Shock, frustration, and uncertainty remains

There are at least 17 companies based in Metro Vancouver that were clients of SVB, according to the research platform PitchBook. This includes services such as banking in the United States, or taking on venture debt from the firm’s Vancouver office. Across all of the entrepreneurs interviewed for this article, each company pursued customers in the U.S.

Kenny Hawk, CEO of Mojio, a SaaS company for connected mobility services, told Vancouver Tech Journal that the venture had several U.S. bank accounts with different firms, one of which was with SVB. “We were a long-term client for many years. They were a great bank, a great partner, and like everyone in the world, we were shocked when things unravelled,” he said.

Many are outraged at a series of events that led up to the bank collapse on Friday, including the institution’s CEO selling $3.6 million dollars in stock two weeks prior, and VC funds such as Peter Thiel’s Founders Fund withdrawing all of its cash on Thursday.

“How is it that this just happens out of the blue?” asked Michael Fergusson, founder and CEO of Ayogo Health, a SaaS platform for health-care patients. Fergusson stated that Ayogo first pursued venture debt with SVB in 2015 and used the firm for U.S. banking services up until its failure. “I think we know that some VCs heard about this ahead of time and told their portfolio companies to pull out of SVB, and that run on the bank hurt the rest of us. Well, that shouldn't be possible: SVB should have been better regulated.”

Although Monday’s announcement assures capital for depositors, some are still uncertain about the fate of other assets. Gareth Brown, co-founder and CEO of Clir Renewables, had an active loan through SVB in the form of venture debt, and while Monday’s announcement ensures that loan customers should continue to make payments as usual, the FDIC won’t be managing this for the long-term. “It's more likely that the debt will be taken over by someone else, because it's valuable at the end of the day,” said Brown. “There is the potential there that someone could ask for accelerated debt repayments.”

Why did Vancouver tech companies bank with SVB?

Private venture banking is relatively new to the Canadian financial ecosystem. In 2019, SVB opened its first Canadian branch in Toronto, followed by a Vancouver office in 2020. Meanwhile, Canadian financial institutions such as RBC, CIBC, and Scotiabank only launched their venture-focused arms in 2021.

Despite the recent entry into the Canadian market, SVB had decades of prior experience working in the venture ecosystem in the United States — since 1983, to be exact. In contrast, the limited maturity of the Canadian venture bank institutions led entrepreneurs to opt for SVB, especially when it came to cross-border banking expertise.

“Canadian banks will not do business with us in the way that SVB will,” Fergusson said. “They don't have the expertise. They don't have the will to do it. We didn't really have many other options: we worked with SVB, but we would have loved to work with Canadian venture banks if they existed [in the capacity that SVB did].”

“[SVB] obviously messed up on their structural side on the backend, but on the frontend, their products are so competitive in the marketplace,” Brown pointed out. “We have venture debt with them because they’re just a much better bank than anybody else in the market, and a very high-quality product. If we were going through any financing round, SVB would be the first name on the list of debt providers that you would consider in that financing round.”

SVB’s niche focus on serving the startup industry with a home base in Silicon Valley also meant that financiers not only had the capital know-how, but also relevant relationships in the Bay Area, which was especially vital for Canadian companies entering the American ecosystem. “SVB was the bank that we wanted to do business with, mostly for having a connection with the [San Francisco] biotech ecosystem,” Shauheen Etminan, co-founder and CEO of biotech company VCENNA noted.

Filling in the gaps

While the capital has been recovered, the loss of the bank still translates into a loss of services. “I think it'll be quite valuable and interesting to see who fills the void that SVB had in that market as we go forward,” Brown pondered. “They just had such a great product line and such great people as well, folks who really understand startups and the VC space.”

For Canadians, the newfound gap in the market could pose an opportunity for institutions to build locally. Fergusson, who sits on the board of Innovate BC, anticipates a lot of conversations moving forward around what the collapse means for the local innovation ecosystem. “Let's say that it turns out to have a really significant impact — that in and of itself is evidence of a major failure of our infrastructure here,” he said. “Why did we all have to have our money with SVB? Why did we have to go to them for venture debt? It's because we couldn't get it here.”

Advice for other entrepreneurs

Across the entrepreneurs interviewed for this article, all emphasized the importance of splitting up capital across several banks in both Canada and the U.S. When the collapse took place, Etminan was able to draw on capital from another account for a few transactions that he could no longer make with frozen SVB credit cards, he offered. “My suggestion is just for virtually any company to have a backup for their banking.”

This is a developing story. If you’ve been impacted and want to share your thoughts, please reach out at [email protected].