Canadian tech calls on feds to inject more liquidity into sector to avoid SVB-caused “full-blown crisis”

Government of Canada buildings
Letter asks Government of Canada to extend bridge financing program, guarantee secured loans on SVB deposits.

As the Canadian tech sector contends with the fallout associated with the collapse of Silicon Valley Bank (SVB), a group of nearly 30 Canadian tech leaders from across the country are calling upon the Government of Canada to step in and nip a potential liquidity crisis in the bud.

“The tech and innovation ecosystem is fragile, and if there is a liquidity crisis, it will quickly turn into a full-blown crisis,” reads a letter shared with BetaKit.

“The failure of SVB and the resulting collapse in investor confidence has created a crisis in liquidity for Canada’s tech sector well beyond SVB.”

The letter’s signatories include tech leaders from across Canada, including CVCA CEO Kim Furlong, Communitech CEO Chris Albinson, BC Tech Association CEO Jill Tipping, Volta CEO Matt Cooper, and 23 others. The group sent the letter to political leaders, namely Deputy Prime Minister of Canada and Minister of Finance Chrystia Freeland.

“The failure of SVB and the resulting collapse in investor confidence has created a crisis in liquidity for Canada’s tech sector well beyond SVB at precisely the time it was already extremely vulnerable,” the letter states.

To address this issue, the letter’s signatories are asking that the federal government lean largely on existing funded programs to inject more liquidity into the ecosystem.

The group is recommending four actions: “immediately extend” a second $300 million CAD Bridge Financing Program through BDC; accelerate deployment of the approximately $200 million fund-of-funds Venture Capital Catalyst Initiative (VCCI); accelerate deployment of the $200 million EDC has allocated towards investments; and for EDC to guarantee secured loans from other Canadian banks bridging SVB deposits or loans companies may have.

According to the letter, this $700 million injection of liquidity “would be felt quickly and provide immediate relief and investor confidence in the Canadian venture landscape, without any net new investments.”

RELATED: As Canadian regulators take over SVB, Canadian companies still have questions about impact

The letter also outlined areas where the group claims the SVB collapse is having the most impact on Canadian tech.

It stated that approximately 10 percent of Canadian companies doing business with SVB are directly impacted, with several that have “significant exposure” and are at risk of being unable to make payroll this week. Meanwhile, the letter noted that firms with SVB loans are not able to refinance them until their ownership is resolved, which it claims leaves “10% of the Canadian tech ecosystem unable to obtain financing.”

The group also argues that what is happening with SVB has the potential to create a liquidity crisis in a sector that is already “fragile.” Though the impact of SVB’s failure has been felt more deeply south of the border, as the letter notes, the Canadian tech sector remains “highly integrated” with the United States (US) market given that approximately 60 percent of direct funding for Canadian tech companies comes from the US.

Given Canada’s proximity to the US and reliance on American investors for financing, the group argues that “the current downturn in the US capital markets will directly affect Canadian companies disproportionately and will put Canadian companies at greater risk of failing.”

RELATED: How the Silicon Valley Bank shutdown might impact Canadian tech

Concern over SVB’s effect on Canadian companies brought together tech interest groups from across the country for this letter. Tech groups from the Yukon to Edmonton to Québec all joined as signatories. The letter, while addressed to Freeland, is being shared with provincial financial leaders and the heads of BDC and EDC.

The signatories argue that while the FDIC has promised to make all depositors with SVB whole, “the systemic risk in the system remains and we do not believe it wise for Canada to rely on the FDIC to ensure the liquidity of the Canadian innovation economy.”

SVB Canada had $959 million CAD in assets and $483 million in outstanding loans as of the end of 2022, per OSFI filings. While these amounts represent more than $1 billion in exposure, the group said it is more concerned about “the multiple spillover effects of this amount that are not fully understood” and impact 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,” states the letter.

Josh Scott

Josh Scott

Josh Scott is a BetaKit reporter focused on telling in-depth Canadian tech stories and breaking news. His coverage is more complete than his moustache.

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