No “immediate exposure risks” to portfolio after Silicon Valley bank collapse, says Mistral Venture Partners – Ottawa Business Journal
One of Ottawa’s largest venture capital firms said Monday it had “managed to resolve all immediate exposure risks” for the eight companies in its portfolio that have ties to Silicon Valley Bank, the California-based financial institution that collapsed last week.
In a memo to its limited partners, Mistral Venture Partners said eight of the 30 active startups in its portfolio were affected by the bank’s failure “in one way or another.”
Mistral said it has been working closely with those companies since last Friday, when the Federal Deposit Insurance Company close the bank.
The fall of the SVB marks the second largest bank failure in US history, after the collapse of Washington Mutual in 2008.
US regulators shut down the California-based bank after a bank run in which anxious depositors worried about its solvency withdrew billions of dollars at a time. SVB was worth more than $200 billion.
Over the weekend, US regulators announced measures to protect the financial system, including a guarantee that all deposits with the bank would be returned, even those over $250,000, which were the insured limit. They promised the same for Signature Bank, which regulators were forced to close on Sunday.
Many of Silicon Valley’s start-up tech clients and venture capitalists had well over $250,000 in the bank. As a result, up to 90 percent of Silicon Valley deposits were uninsured.
Canada’s banking regulator announced late Sunday that it had temporarily seized Silicon Valley Bank’s Canadian assets, while emphasizing the limited nature of the crisis and the fact that the bank does not hold any commercial or individual deposits in Canada.
“This situation is a result of special circumstances at Silicon Valley Bank in the United States,” Superintendent of Financial Institutions Peter Routledge said in a statement.
Routledge also announced its intention to seek permanent control of the assets of the Canadian branch and is asking the Attorney General of Canada to seek a winding-up order.
Mistral said early Monday that only one company in its portfolio still had “questionable funds” in the struggling bank.
The Ottawa-based VC said he expects those funds to be transferred to an account with the Royal Bank of Canada “within the next 24 to 48 hours,” adding that he had “no other short-term exposure across the portfolio.” .
In the memo, Mistral said it expects “a lot of strategic discussions” about where funds previously deposited with SVB will end up.
“Like several of our portfolio companies, many SVB clients were in the process of negotiating lines of credit and these need to be shifted to other banks,” the memo said. “We are currently working with our portfolio companies to replace these relationships in the near term.”
A number of other Ottawa-based companies also have relationships with SVB.
For example, the bank participated in one $24 million Series A funding round in 2021 for Fellow, a local startup developing meeting management software. Fellow executives did not immediately respond to requests for comment Monday.
Another Ottawa software developer, FigBytes, raised $14.5 million in funding late last year This included a $4.5 million credit facility from the bank. In an email to OBJ on Monday, the company’s senior public relations manager, Dwayne Weppler, said the company “would prefer not to comment on SVB at this time.”
The Business Development Bank of Canada, one of the country’s largest investors in technology companies, said it stands “standby” for business owners who could be impacted by the SVB collapse.
“Members of the BDC team are currently reaching out to our direct and indirect clients with potential exposure, including fund managers, to better understand the impact of this news on them,” BDC said in a statement. “We will continue to monitor the situation closely and assess what additional support we can offer our customers.”
As regulators tackle the bank’s stunning collapse, analysts say the risk of the fallout for Canada’s financial sector is limited.
“Not only should the failure of Silicon Valley Bank not have a significant negative impact on our banks, but this crisis should actually be viewed as further validation of Canada’s banking model,” Scotiabank analyst Meny Grauman said in a note to clients on Monday, highlighting the stability of Canada’s major diversified banks.
SVB has had a heavy lending focus on emerging technology and biotech companies, which saw massive growth in the first two years of the pandemic before the sector declined. Amid the downturn, tens of thousands of tech workers have been laid off from both large and small companies in recent months.
In addition, the bank’s investment portfolio was overly dependent on long-dated fixed income bonds, which fell in value as interest rates rose. That scenario doesn’t really pose a problem for Canadian banks, Grauman said.
“The reality is that both the largest U.S. banks and the Canadian and Latin American banks that we cover have much less significant security holdings, relatively speaking.”
Canadian banks also have much less exposure to the technology sector, said National Bank analyst Gabriel Dechaine, noting that banks that disaggregate the sector in their reporting account for between one and three percent of their loan books’ financial disclosures.
Mistral also emphasized that the Canadian banking sector remains solid.
“Regulated and well-funded Canadian banks are not as fragmented into regional banks and employ more conservative lending practices,” the firm said. “This stability, combined with strong balance sheets, will continue to benefit startup companies, and by extension investors like Mistral building the innovation ecosystem in Canada.”
However, Dechaine said any broader fallout in SVB’s home market of California could put Bank of Montreal at greater risk through its recent acquisition of Bank of the West. The Royal Bank of Canada has also had a presence in the state since acquiring City National in 2015.
It’s unclear how the crisis will affect TD Bank Group’s upcoming acquisition of US bank First Horizon, but it could allow TD to negotiate better terms, Dechaine said.
The collapse of the SVB also pushed down the share prices of numerous other financial institutions.
These include Charles Schwab Corp., which is down over 30 percent since last Wednesday, in which TD owns a 12 percent stake. Dechaine found that every 10 percent decrease in Schwab’s stock price results in a $1.8 billion decrease in TD’s stake in the company.
Meanwhile, the Bank of England and the UK Treasury announced early on Monday that they were facilitating the sale of the bank’s London-based subsidiary to HSBC, Europe’s largest bank, and would release £6.7 billion (8, 1 billion US dollars) would have guaranteed.
– With additional coverage from the Canadian press