Victoria, BC, March 14, 2023 - Canadian leaders of Canada's Tech Network (“CTN”), 25 hubs from coast to coast to coast including VIATEC, & Canadian Venture Capital Association (“CVCA”)   have come together over the weekend to assess the impact of the collapse of SVB on Canadian founders.   
 

Although the FDIC has made some moves to calm the market on deposits, the systemic risk in the system remains and the members of CTN and CVCA do not believe it wise for Canada to rely on the FDIC to ensure the liquidity of the Canadian innovation economy.  We assert that the UK approach - to ensure the assets and liabilities of the SVB were in UK hands allowing for an orderly transition quickly - will be critical to stabilizing liquidity for the Canadian innovation sector.  

SVB Canada had C$959 million in assets and C$483 million in outstanding loans as of December, according to filings with the Office of the Superintendent of Financial Institutions.  There is over a C$1B in exposure from the SVB collapse, but more concerning is the multiple spillover effects of this amount that are not fully understood, impacting the cross-border Canadian Venture funds and companies. The lack of confidence from potential cross defaults and general liquidity lockup in the innovation economy risks thousands of jobs when the tech sector is already in financial distress.  

The group highlight three risks:

1. Impact on Canadian companies banking with SVB - Approximately 10% of Canadian companies doing business with SVB are directly impacted. Several companies with significant exposure are at risk of being unable to make payroll this week.  Additionally, those with loans with SVB (C$959M) will be unable to finance with other banks until the ownership of these loans is resolved.  Putting 10% of the Canadian tech ecosystem unable to obtain financing.  
   
   
2. Indirect impact of banking, liquidity and risk of delay/stop financing - The tech and innovation ecosystem is fragile, and if there is a liquidity crisis, it will quickly turn into a full-blown crisis. Based on historical data from 2001 and 2008, we anticipate a liquidity crisis would cause between 45,000 and 58,000 job losses in the Canadian tech sector.  This estimate is based on job losses calculated from peak to trough and would include the losses that have already occurred over the past few months.
   
   
3. Cross-border default risk/capital constraints - The Canadian tech market is highly integrated with the US market for capital. About 60% (approx $10B/year) of the direct funding for Canadian tech companies came from the US. The current downturn in the US capital markets will directly affect Canadian companies disproportionately and will put Canadian companies at greater risk of failing.
   
   
   

Monday evening, the leaders of Canada’s tech sector sent a letter to Deputy Prime Minister Chrystia Freeland strongly encouraging and inviting the Government of Canada to address the critical banking and liquidity crisis triggered by the collapse of Silicon Valley Bank (SVB).  The government of Canada is in a powerful position to quickly help restore confidence in Canada's venture landscape by moving forward with existing allocations, relaunching existing successful programmes and providing incremental programming that will go a long way to improving this dynamic situation and help mitigate thousands of jobs at risk.  

The group proposes four actions that the Federal government could quickly act on with targeted measures to mitigate the risk:

1. BDC immediately extend a second C$300M Bridge Financing Program:  This is a proven program, targeted and an effective way to mitigate liquidity into the market swiftly.  The move would also boost confidence, and the matching component will encourage the venture firms not to freeze up their capital.  The program could accelerate quickly using the same proven mechanisms to get liquidity to companies over the next 90 days. Speed will be critical to forestall a bigger liquidity challenge. Ensuring BDC has increased capitalization to support the ecosystem through the next 24 months will be key.
   
   
2. Accelerate the Venture Capital Catalyst Initiative (“VCCI”) program deployment (approx C$200M), getting liquidity into the market over the next twelve months. In order to get capital to companies quickly and responsibly, we recommend that the VCCI program consider relaxing the first close threshold to 30% capital raised instead of the current 50%, and funding directly into the Canadian Venture funds that received capital in the prior VCCI program on the condition the funds be invested evenly over the next 12 months.  The almost two-year delay in this program has put a larger liquidity challenge in the Canadian venture fund market.  This acceleration would get liquidity into the market and do so with a proven pathway.
   
   
3. EDC accelerates the C$200M already allocated by EDC’s board for investments, Canadian venture firms, and tech exporters.  Accelerating existing commitments to companies and venture funds to get C$200M in existing venture and company commitments into the market on the condition the funds be invested evenly over the next 12 months.
   
   
4. EDC guarantee secured loan on SVB deposits: Canadian venture firms, their underlying portfolio companies, or Canadian companies that have US cash deposits/loans that are illiquid at SVB can receive a loan up to 60% of the value of those cash deposits/loans from a Canadian bank secured by SVB cash deposits and guaranteed by EDC.  The loan term would be 12 months at the prime rate.
   
   

This C$700M injection of liquidity announced largely through existing funded programs with targeted and proven stewards of redeployable, scalable and incremental programmes would be felt quickly and provide immediate relief and investor confidence in the Canadian venture landscape, without any net new investments.

You can find a copy of the letter to Deputy Prime Minister Chrystia Freeland here.

About VIATEC:

VIATEC aims to cultivate a tightly knit global tech community by offering resources to address shared opportunities and challenges. Since its establishment in 1989, the organization's tech-focused community has evolved in tandem with the transformation of Victoria's economy and brand. VIATEC works closely with its members, providing a range of events, programs, and services, while also serving as the primary point of contact and representative for the local tech sector.

About CVCA:

As the voice of Canada’s private capital industry, the Canadian Venture Capital and Private Equity Association (CVCA) works with the investors behind some of the biggest innovations fuelling the Canadian economy. 

Representing more than 270 member firms and 1,800 individuals, CVCA is proud to advocate on behalf of the industry and connect private capital professionals with market intelligence, expert insights, and other industry authorities.

About CTN:

Established in 2009, Canada’s Tech Network started as a grassroots effort to do something no one else was – connecting tech ecosystems across the country. Now we connect 28 leading innovation hubs from St. John’s to Vancouver and Whitehorse. Each hub is the backbone organization in its regional ecosystem.

They provide entrepreneurs and small- to mid-sized tech companies with co-working space, mentorship, training, peer learning, exposure to funding/venture capital and more, while accelerating their ability to sell into international markets.