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Silicon Valley Bank treads where few of Canada’s banks dare go: Lending money to our tech startups

Silicon Valley Bank treads where few of Canada’s banks dare go: Lending money to our tech startups

Posted by PanamericanWorld on August 02, 2016

It’s no secret that lending from Canadian banks to scale up a tech startup isn’t an easy feat. But now a new avenue is opening up for companies on the hunt for cash. Silicon Valley Bank, a long-time specialist in lending to startups and technology companies, is looking to increase its business in Canada.

“We’re committed to growing on a global scale and Canada certainly is an important piece of that equation,” said SVB’s Win Bear in an interview. An SVB managing director based in Boston, Bear heads the bank’s Canadian growth effort.

Established in 1983 and based in the heart of Silicon Valley, SVB is focused broadly on the “innovation” sector, as Bear puts it. The bank’s clients range from startups to public companies, and compete in fields such as software, hardware, and life sciences. SVB’s specialities include banking services, debt financing, and connecting clients with investors. “That’s a plus of working with us,” Bear said.

The bulk of SVB’s business involves lending, or “venture debt.” As of the first quarter of this year, the bank had $44 billion in assets and an $18-billion loan portfolio. That portfolio grew by 23 per cent in 2014 and by 28 per cent in 2015.

Bear insists the bank is not an alternative to other forms of tech funding, such as venture capital. “We in no way seek to compete with equity or venture capital,” he said. SVB’s offerings are “complementary” to those funding sources.

Traditional banks, Bear argued, don’t specialize in aiding startups and companies in the tech and life sciences industries. “Yet that is all we do. So we’ve gotten pretty good over the years at recognizing patterns, understanding the tech ecosystem, and knowing what our clients need at different phases of their lifecycle,” he said. “The fundamental mission is to help our clients grow and scale globally.”

SVB first expanded out of Silicon Valley in 1990, and opened its first international office in 2004. In 2012, the bank opened a U.K. branch, and also forged a joint venture with a Shanghai bank to fund Chinese entrepreneurs.

There are no plans for a Canadian office, and Bear declined to provide details about the bank’s presence here, but did confirm SVB wants to boost it’s Canadian business. The bank has so far been most active in the greater Toronto area, Kitchener-Waterloo, Vancouver, and Montreal. “It’s no secret that SVB continues to focus on global growth opportunities. We’re expected to be a growth story ourselves,” he said. “Canada is certainly a compelling market.”

Toronto-based Q4 Inc. is among SVB’s Canadian clients. Q4’s software aims to improve investor relations for publicly traded companies. In 2014, Q4 tacked a SVB operating line of credit on to its Series A round, which totalled $5 million.

“It (gave us) a longer time period to execute on the Series A,” said CEO Darrell Heaps. “It gives you an overall cushion.” It also meant additional cash without further dilution. In May, Q4 secured a $22-million Series B.

Heaps says there’s only one drawback to dealing with SVB: “They don’t do it for free.” Still, his company’s deal with the bank was well structured and included a fair interest rate, he said. “And we found the guys at SVB to be the most entrepreneurially friendly bank that we’ve dealt with. That goes a long way.”

Kirk Simpson, the CEO of Wave, a Toronto-based firm that makes payroll, invoicing, and accounting apps for small businesses, added SVB venture debt to his company’s US$18.2 million Series B round. Wave’s U.S. banking is also run through SVB.

Simpson won’t divulge the size of the loan, but loans from the bank start at a minimum of $1 million. SVB earns interest on those loans and, in some cases, secures a small equity share.

“It’s a good source of capital. It’s non-dilutive. The rates are reasonable. And it gives us an opportunity to scale faster,” Simpson said.

Most startup founders are quick to reveal the amount of venture capital they’ve raised. There’s far less boasting about debt. Yet Simpson insists the negative connotations associated with debt haven’t affected his company.

“It hasn’t hampered us in the least,” he said. “More and more startups have raised venture debt. I think it’s becoming more standard. We haven’t found that there’s any sort of stigma attached to it.”

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