I'm a Canadian Founder. What Does SVB Mean for Me?
Unless you’ve been living under a rock for the last 48 hours, you woke up this morning to the shocking news that Silicon Valley Bank had collapsed.
For anyone unfamiliar with SVB, it’s a commercial bank that, for the past 40 years, has been laser-focused on the tech industry. It’s the 14th-largest bank in the United States and the preferred bank of VCs and VC-backed companies across the country (my last startup, DataHero, originally banked with SVB). It’s also one of the main providers of venture debt to tech startups, an offering it recently brought to Canada.
I’m not going to write about why we’re in this situation. Nor do I intend to posit on what the future may bring for SVB. There are people far smarter than I to educate you about the former, and thousands of instant experts on Twitter to spread rumours and mansplain to you the latter.
Instead, I want to focus on one simple question: what does this mean for Canadian founders who don’t have a banking relationship with SVB?
And what, if anything, should they do about it?
What Does this Mean for Canadian Founders?
Since SVB was taken over by regulators this morning, I’ve seen the full range of instant reactions about what this means for Canada, from “this could be catastrophic” to “nothing has changed and this won’t impact us”. My perspective is things are likely to land in the middle.
In general, I’m a “hope for the best, plan for the worst” kind of guy. I don’t think that the sky is falling just yet, but I also believe that it would be naive for Canadian founders to put their heads in the sand and assume this won’t impact them in any way.
There are a few key facts to understand:
As of this morning, all withdrawals from SVB accounts have been halted. That means any company whose money is deposited at SVB is unable to access it for any reason.
The FDIC (the US government organization that insures bank deposits) only insures up to $250K in deposits for a given customer. For an individual, this is a big amount. But for a startup that’s raised millions (or tens of millions) of dollars, it’s a drop-in-the-bucket.
The FDIC has indicated that SVB customers will have access to $250K of their deposits on Monday.
Looming overhead is next Wednesday, March 15th. For most companies, that’s their next payroll date (in fact, most companies would have had their payroll withdrawn today in order to pay on the 15th).
Put all of these together and it means that there is a real risk that a significant number of U.S. tech companies — particularly those with large head counts — will not be able to make their next payroll. It also means that any wire payments (to vendors, partners, conferences, etc.) may not be processed in time.
There are at least three areas where Canadian startups may experience short-term impact as a result of this:
1. Customers
For companies with U.S. customers, there may be a short-term impact on cash flow:
B2B customers that bank at SVB may not be able to pay you.
Even if they do have the cash, they may choose to delay payment in order to preserve that cash for payroll and more urgent services.
If your customers are individuals who work at impacted companies, they may proactively downgrade or withhold payment until they get clarity on their payroll situation.
2. Vendors / Partners
For companies who leverage U.S.-based vendors, partners, etc., there may be an interruption of service. For example, several major payroll processors use SVB to process transactions. Until they’re able to transfer their services to a new bank, those vendors aren’t able to run payroll (even for companies who themselves don’t bank with SVB).
3. Prospects / Pipeline
If you’re trying to sell to any companies that banks with SVB, expect a slowdown in that part of your pipeline. Even if your prospects have their short-term cash positions figured out, employees are likely to be distracted and whatever you’re selling them isn’t likely to be top of mind in the short-term.
What Should Canadian Founders Do?
If you have exposure to US tech companies through any of these categories, you should spend a few minutes to understand the magnitude of your risk:
If you have a large U.S. customer base (particularly tech startups), take a look at your cash flow and understand what the worst case scenario is. If a meaningful percentage of those customers miss or delay a payment, will it cause problems for you?
If you rely on U.S. vendors / partners who are likely to bank with SVB, are there any potential risks?
What happens if prospects you’re aiming to close by the end of Q1 (i.e. the end of this month) slip into the next quarter or off of your pipeline entirely as a result of this?
To be clear, I’m not saying that you should panic over any of these. It’s entirely possible that by Monday, a resolution will have taken place and/or we may have significant clarity into the road ahead, but it’s good hygiene as a founder to go through the thought exercise.
Be Canadian
Above all else, this is a time to be Canadian. And what’s more Canadian than showing empathy?
If you have U.S. customers that are likely to bank with SVB, consider sending them a note offering to delay payment if they need it.
If you have founder friends in the U.S., send them a message to check in with them and ask if you can help.
If you’re working with sales prospects that are likely to bank with SVB, offer to reschedule any meetings next week.
This is an incredibly stressful time for a lot of startup founders and their employees. And it could have happened to any of us.
