Startups With SVB Bridge Debt Are Scrambling, Canadian VC Says

Esteban Duarte, Bloomberg News

A Silicon Valley Bank shut down headline displayed on the News Corp. building in New York, US, on Friday, March 10, 2023. Silicon Valley Bank became the biggest US bank failure in more than a decade, after its long-established customer base of tech startups grew worried and yanked deposits. , Bloomberg

(Bloomberg) -- Startup companies that got temporary bridge funding from Silicon Valley Bank are now scrambling to figure out how they’ll refinance those obligations when they come due, according to an official at a Canadian government-owned venture capital firm.

The debt was meant to help finance companies until they get fresh capital from equity sales, according to Jerome Nycz, executive vice-president at Canada’s BDC Capital in a telephone interview Monday. But now it’s hard for companies to sell equity, with initial public offering volume having plunged.

And questions about how this debt will be resolved could make it even harder to raise capital in the future, Nycz said. It’s unclear who will be buying SVB or its assets, and what their plan will be for the debt, he said.

“Will the people buying those notes be as patient in the market going forward?” Nycz said. “Are they going to be just asking borrowers to repay the notes or will they be extending terms?”

The companies in BDC’s portfolio with this debt have at least four months before it’s due, according to Nycz, so there is some time to figure out new financing. The debt sometimes had initial maturities of between two and three years, and were sometimes convertible into equity. The debt is generally senior in the company’s capital structure.

“BDC is ready to work with the different parties in the market to make it a smooth transition,” Nycz said. The firm has stakes in 124 funds and over 320 companies.

The fate of this debt is one of a series of questions still unresolved after Silicon Valley Bank collapsed on Friday, becoming the biggest US lender to fail since Washington Mutual imploded during the financial crisis. The FDIC held an auction for the bank over the weekend, but no buyer emerged. Instead, the regulator created a bridge bank to house SVB’s deposits and has promised to make all its customers whole.

Now it’s not clear what happens next. The Federal Deposit Insurance Corp. is still considering options for selling the bank, or parts of it.

Of BDC Capital’s direct investing portfolio, 63 companies have some kind of exposure to Silicon Valley Bank, of which 39 have some type of loan, a representative for the government-owned firm said in an emailed reply to questions.