Yahoo Finance 'Wartime mode': How Silicon Valley Bank shockwaves made it all the way to Canada
On the day everything fell apart, Darren Anderson woke up at 3:30 a.m. and did not go back to sleep. He got dressed, careful not to wake his wife, and walked downstairs into the living room of their east-end Toronto home. He let the dog out, then opened his laptop and got back to planning for worst-case scenarios if his company couldn’t get its deposits out of Silicon Valley Bank.
“I didn’t know what things were going to look like,” he said.
Anderson’s company — Mississauga, Ont.—based Vive Crop Protection Inc. — sells a new sort of pesticides, so this time of year is his busiest season, Vive’s version of a Christmas shopping blitz, as farmers buy up supplies for spring planting. Anderson’s customers and most of his suppliers are in the United States, so he kept deposits and a line of credit with Santa Clara, Calif.-based SVB, which had created space for itself in America’s crowded banking industry by treating young companies as fellow travellers in the innovation economy, not credit risks.
If the situation with SVB dragged on, Anderson worried he might not have access to enough money to keep production running long-term. “There were just a lot of unknowns,” he said.
It’s been somewhat easy for Canadians to shrug off the SVB collapse as an American catastrophe, since Canada’s startups haven’t been nearly as disrupted by the spectacular run on SVB’s deposits as their U.S. cousins. That’s mostly because SVB’s Canadian wing wasn’t allowed to accept deposits, so its clients here didn’t have the same sort of money tied up in the bank.
But Canadian startups exist in a broader world. Even if they didn’t bank with SVB, they potentially had customers or suppliers in the United States who did. So for days, Canada’s venture capitalists and tech companies scrambled to brace themselves against shockwaves from the collapse.
‘How is this exposing us?’
The day SVB failed, on March 10, Anderson’s main contingency plan was to ask shareholders for some quick cash to help cover costs for the next round of production if the situation ended up taking months to resolve.
That day, one of Anderson’s most significant shareholders was trying to have a brief retreat in the Napa Valley. The executive team at Emmertech, a $60-million fund run by the venture capital arm of the Regina-based Conexus Credit Union, had scheduled a wine-tasting tour ahead of a major conference about agricultural technology in San Francisco.
Agtech has become one of the brightest hopes for growth in Canada’s startup scene. Venture capitalists are betting that the country’s mix of vast farmland, world-class universities and a northern climate that should resist the worst of climate change could make Canada an agricultural power. Investments in Canadian agribusiness ventures hit a record in 2022, at $226 million, despite waning investor enthusiasm in the broader tech sector, according to an annual report from the Canadian Venture Capital and Private Equity Association.
Emmertech, backed by major players such as Viterra Inc., is one of the most prominent Canadian agtech funds, with a portfolio that includes nutrient-sensing soil probes and mushroom-picking robots.
Throughout the day, Emmertech’s managing director Sean O’Connor kept having to excuse himself from tasting wine with his wife and colleagues to calm the heads of the companies the fund has invested in, as well as the fund’s own investors.
“We had to frantically take calls that were coming from all angles,” he said.
Around noon, he was at the famed Napa Valley winery Chateau Montelena. They poured him a glass of 2019 chardonnay. His phone rang. It was one of his “high-net worth” investors. (He wouldn’t say who.) O’Connor left the wine untouched and walked into the parking lot.
The investor on the phone wanted to know what the whole situation meant for the fund’s portfolio. “How is this exposing us?” O’Connor could hear the concern in his voice.
Around that time, news that U.S. regulators had seized control of SVB was out and spreading across social media.
“We were in the early stages of watching the second-largest banking failure in the history of the U.S. unfold,” O’Connor said. “And it happens to be a bank that sits firmly in our direct industry.”
‘Wartime mode’
The Emmertech team cut the wine tour short and spent the rest of the weekend on the phone. “We have to go into wartime mode immediately,” O’Connor remembered thinking. “This is no longer something we can start talking about on Monday morning.”
Two days later, O’Connor sent out an email to the startups in his portfolio.
“Any tech companies that have deposits with SVB should get ready for a bumpy ride,” he wrote. “If you are in jeopardy of missing payroll as a direct consequence of SVB’s issues, please let us know and we will look at wiring you capital right away.”
The cash would be interest-free for 90 days, which he said would be “more than enough time” to get the companies through the debacle.
Next, O’Connor warned companies that didn’t have deposits or loans with SVB to still be on alert. The email included a seven-step plan to prepare for what was coming. Get in touch with your big vendors immediately, he said, to make sure they aren’t going to run into service issues because of the crisis.
“I’d have someone on your team calling them tonight, or first thing tomorrow,” he said in the email on March 12.
Uneasy peace
It turned out that U.S. regulators were also in wartime mode. Around the same time as O’Connor sent his email, Treasury Secretary Janet Yellen and Federal Reserve chair Jerome Powell said SVB depositors would be fully protected, thanks to a series of extraordinary policy measures that reminded some observers of the 2008 financial crisis.
Still, Emmertech warned its companies of longer-term issues, especially around attracting future investments.
“U.S.-based investors are going to slow down over the coming weeks as they scramble to support their portfolio companies. This will likely cause further delays in fundraising efforts,” O’Connor said. “SVB is not failing because of default rates in the tech sector, but rather a mismanagement of its own balance sheet.”
He continued: “That being said, the general public will probably not think this way and will add this to the growing pile of the tech sectors’ recent struggles. If that’s the case, fundraising for both VCs and tech companies could see further headwinds over the course of 2023.”
Before the reassurance from the American regulators, and before the email from Emmertech, Anderson was already feeling better.
His scenario planning in the wee hours on March 10 had reassured him that his inventory for the spring planting season was already manufactured and paid for, and that he had access to cash in Canada — through a U.S.-dollar account at Canadian Imperial Bank of Commerce — that could cover short-term costs such as payroll and vendor bills. And shareholders were promising to float him more money if he needed it.
That morning, he put on his headphones and turned on something easy.
“I felt quite good that we didn’t have a horrible worst-case scenario,” he said.
By this week, almost all his company’s deposits at SVB had been transferred to the account in Canada.
• Email: jedmiston@nationalpost.com | Twitter: jakeedmiston
