Crimson Education

Mar 12, 2023

Share Canva, one of the country’s highest-profile technology groups, has emerged among a raft of Australian firms struggling to recoup money deposited with Silicon Valley Bank, as local venture capital funds reassure investors they can plug funding holes in their portfolio companies. SVB made a concerted push to expand its client base in Australia in the past two years, attracting a number of companies to its services including Crimson Education, an educational platform, Morse Micro, a local semiconductor maker, and the BHP-backed mine sensor firm Plotlogic. Canva’s Cliff Obrecht and Melanie Perkins have had to try and pull “sizable” sums back out of the collapsed Silicon Valley Bank. As well as business banking services, SVB – named one of “America’s Best Banks” by Forbes just last month – offered venture debt and equity to start-ups attempting to fund ambitious expansions, with those firms required to open an account with the bank. Under the terms of the receivership, only $US250,000 in deposits will definitely be returned to depositors via insurance, with the rest reliant on SVB being acquired or a potentially lengthy liquidation process. Most depositors had significantly larger balances than that, including Canva, which well-placed sources said had a “sizable” account with the institution. A Canva spokesman confirmed that the company had an account with SVB, but declined to discuss the size of the balance. He said the company did not have either debt or equity funding from SVB. “We’re in the fortunate position of having the majority of our cash outside their banking system and have safety nets in place to ensure our operations aren’t compromised,” he said. Advertisement Plotlogic has been looking to expand globally after raising $25 million last year in a round led by mining giant BHP and former Google chief executive Eric Schmidt’s Innovation Endeavours. Its founder and chief executive Andrew Job said his company had a venture debt facility with SVB that it had fortunately drawn down when the agreement was signed. However, Plotlogic also used SVB’s deposit facilities. “Fortunately, we’ve got a few months of working capital here in Australia,” Mr Job said. “It’s bought us a few months, but we still need to get the money out, and we’re not sure where that’s at just yet.” ‘Moral hazard’ Despite having been caught up in the panic of a bank run, Crimson Education co-founder and chief executive Jamie Beaton said it would be wrong for the US government to bail out SVB. “Luckily, we saw a news article early on Friday ... we read between the lines and ripped out all our funds 30 minutes before the wires started getting blocked,” he said. “Social media seems to amplify contagion risk and speed of the meltdown.” Kevin Gosschalk, the founder of fraud prevention start-up Arkose Labs, told The Australian Financial Review that he had millions of dollars stuck in SVB, as well as a venture debt facility – which no longer exists. Morse Micro, which raised $170 million last year and is backed by TelstraSuper, HESTA, Hostplus and UniSuper, declined to comment on how much money it had managed to get out of SVB. However, it confirmed the company still had funds at risk, adding the exposure was “limited.” Advertisement VCs try to calm the farm The operators of Australia’s biggest venture funds have sought to calm the immediate fears of portfolio company founders, and their own limited partner backers, by suggesting they could cover funding shortfalls. Industry insiders on Sunday suggested that SVB’s administrators – the Federal Deposit Insurance Corporation – would likely announce an acquirer for the bank within days. Without a deal, insured funds would be available for withdrawal on Monday. Funds that are not insured will be paid out based on assets that are liquidated via a specific order of priority. Under FDIC’s rules, any company with a loan with SVB is still liable for obligations such as principal repayment and interest, but that FDIC will not honour requests to draw on lines of credit. OneVentures managing director Michelle Deaker said local start-ups would be relatively unscathed by SVB’s collapse, and that portfolio companies left exposed to its potential liquidation would be saved by its own funds. Like SVB, OneVentures provides debt and equity funding. One of the risks for companies with debt funding from SVB is that it could be called in by the administrators. Advertisement “I would say many Australian major VCs with tech companies with meaningful US operations may have exposure to SVB venture debt. Start-ups here without meaningful US operations generally couldn’t access SVB venture debt,” Dr Deaker said. “We currently only have one company and with our VC partners are preparing to pay that out if the debt gets called up. In a successful sale ... I would imagine these contracts would be honoured.” Square Peg Capital co-founder Paul Bassat said his fund had no direct relationship with SVB, but that some portfolio companies had exposure. He declined to say which companies these were. “In a number of cases they were able to withdraw all of their funds or reduce their exposure late last week, but a few of our portfolio companies have remaining deposits with SVB,” he said. “Fortunately none of our portfolio have a short-term working capital crisis or any long term existential risk. “SVB has deep roots in the start-up ecosystem [and the] current situation will have broad implications that are likely to vary enormously depending on how things evolve over the next 24 hours. If SVB is acquired, or depositors kept whole by the Fed, then there is a high likelihood of the second and third order implications being contained. “If not, we may see numerous start-ups unable to meet payroll, significant lay-offs and a further crisis in confidence in VC markets.” Advertisement ReGen Ventures, a Byron Bay fund investing in climate technology start-ups, has more pressing exposure to the unfolding crisis due to the nature of its portfolio. In a message to its backers over the weekend, ReGen managing partner Dan Fitzgerald said a number of its overseas portfolio companies had funding agreements and accounts with SVB, but that all would have enough capital to fund short-term operations. “Looking beyond Monday, it is uncertain if these companies will have their deposits made whole and if so, when,” Mr Fitzgerald wrote. “My speculation is that there will be a buyer or deposit-guarantee from a large bank ... This would be similar to Washington Mutual being acquired by JP Morgan. Depositors would likely be made whole under this scenario. “The other scenario is that SVB is allowed to fail and is liquidated. In that case, we can only speculate what percentage of deposited funds will be lost.” Adir Shiffman, the chairman of ASX-listed Catapult Sports and an investor in technology start-ups, said SVB’s push into Australia could mean many other local businesses were waiting to see if the bank was saved this week. This didn’t necessarily mean multiple imminent local company failures, he added, but there could be more pain in the broader start-up scene. Advertisement “Some of those that can’t raise more equity will die very quickly – within days or weeks – because the other pools of venture debt aren’t deep enough to soak this up,” Mr Shiffman said. “What we all dread is watching start-ups who either had money in SVB or promises for debt now being forced to fire staff, rescue raise, or shut down because these funds have evaporated and there is nothing to replace them in today’s world.” Paul Smith edits the technology coverage and has been a leading writer on the sector for 20 years. He covers big tech, business use of tech, the fast-growing Australian tech industry and start-ups, telecommunications and national innovation policy. Connect with Paul on Twitter . Email Paul at psmith@afr.com Jessica Sier writes on technology, internet culture, cryptocurrencies and software from our Sydney newsroom. She has previously covered global capital markets and economics. Connect with Jessica on Twitter . Email Jessica at jessica.sier@afr.com Save