In this conversation recorded for our A New Normal series, we caught up with Shez Samji, the Managing Director of Private Equity Services at Silicon Valley Bank Canada.
The discussion covers a range of topics – from how important team work in person is to giving people a sense of purpose to why this point in time may be advantageous to companies who can not only survive but prepare for the long-term.
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[intro music] 0:00
impact of COVID-19 we all knew this was going to be a tough time,
[intro music] 0:05
we need to wrap our minds around a painful truth. We’re in the early stages of what is going to become a series of cascading crises. This is the way it’s been.
[intro music] 0:22
Getting back to extraordinary the successful country and economy that we’ve had, that we built over so many generations. However long it takes
Qasim Virjee 0:41
Welcome back to this the sixth episode of a new normal start Will’s content series featuring entrepreneurs, innovators and institutions all working through post pandemic realities. I’m sorry, it was founder and CEO, Qasim. Virjee. And this time around, I sat down with shez Sanji, who is the managing director of private equity services at the Silicon Valley Bank, here in Toronto, Canada.
Shez Samji 1:09
You know, the question really is going to be our, our company’s going to reevaluate their complete their real estate strategy. Because if you think of,
Qasim Virjee 1:21
okay, we got we got to the juice right away. Right. So
Shez Samji 1:26
my thought people have, I think the consensus right now is, is that there’s gonna be some sort of structural implications to commercial real estate, or particularly often like office, I actually disagree. I think there might be some short term volatility, there might be some in terms of rent negotiations, because every business right now, is rethinking their revenue model, and how vulnerable it is, be it in terms of just general kind of advantage to even who their customers are. And the counterparty risk, right, you had, you’ve had a lot of businesses, who their customers were startups, and they were a startup. So that’s being reevaluated. And then on top of that, everyone’s going through their cost structure and and rent on average is about 18%. And this is, you know, again, service based where, you know, your most of your cost is employees. But dissecting that even further your cost structure 18%, on average, is is read. I don’t get I think in the short term people, they’re gonna work from home. And, you know, once there’s a vaccine, then things should in my opinion, normalize. But it used to be a perk to be able to work from home. Now it’s going to be, but by to some degree forced, potentially. And, but I think, again, we’ve all taken the, the human connection has been taken and taken for granted. I think people want to go back to the office, that’s so you know, the, the broader consensus is there’s going to be structural implications to, to commercial real estate. But when I’m talking to people on a day to day basis, when cares to secure your view, yeah, everyone wants to go back to the office, and no one wants to work from home. You know, everyone, again, is yearning to be with their colleagues to have that, to talk with each other when they’re grabbing a snack or a coffee. I even think from a psychological perspective commuting to work. It allows us to have some sort of, you know, break between, you know, work and home setting, but when you’re constantly working every day from home, your productivity, everyone’s working, on average, three hours more per day. So productivity is shot through the roof. So employers are like, this is great. However, employees, I don’t know if they necessarily feel that way. I think they want to work from home. And I think, you know, offices are going to have to be completely retooled to some degree to position or, you know, or in terms of their real estate strategy if there is another pandemic down the road. But again, we’re dealing with a very right or, actually, I’d say a left tail risk that’s occurred, right in the system that we have, we’ve got a better supply and demand shock that’s driven off of pandemic most of our, you know, economic shocks or financial bubbles. This is completely different. So everyone’s learning as the information comes, but I don’t I don’t think commercial real estate by any means, and a long term perspective is going to be impaired.
Qasim Virjee 4:40
Yeah, I agree. I mean, I think what we’ve seen across the board in the industry of commercial real estate is the first domino in the chain, I think, even on a macro level, assessing kind of economic damage to Canada, particularly here in Toronto from my lens. The first domino was a ground floor retail, particularly on Main Street, or retail, high street traffic, you know, those stores as they were mandated by the province to close, you know, or otherwise, I’d fear for their customer interactions closed. That was the first thing that then affected the rest of kind of commerce, physical commerce, you know, and of course, that bled into very quickly by third fourth week of March blooded to, you know, indoor complexes, shopping malls were, even for April 1, you have people like Cadillac, Fairview, announcing, well, you know, kind of like, pushing in the rumor mill, that, that early, they had something like 40% default rate to 50% default rate on tenants in the Eaton center alone, which is, you know, their Pinnacle property. So, I think that like the retail was the first push how it happened was from, you know, stores facing the public, pedestrian public, then internalize, and then it kind of spread into this office space thing where it took from at least my standpoint, with our member teams, to three weeks for them to figure out what they want to do, to manage the concerns, really the safety concerns and fears of their teams. So they said, Okay, marches off, go home work remotely, let’s figure this out into April. And then what we found was, much like retail landlords, people started defaulting and trying to pull out of their, you know, really their, their contractual obligations to us as a kind of a landlord. And unfortunately, the community kind of stratified it a little bit. So even though we, you know, expressed our kind of intent for most of our members to carry on some form of service for them, and, and have a kind of a return to work plan worked on, which is what I’ve done with some of our tenants already, or our members, I found that the fear factor of this pandemic, and its economic impact and how rapid this is all happened. rapidly, the Zap, it has actually kind of put leaders into shock mode. The shock mode definitely lasted for at least a month, I think in April, people are picking up the mental pieces on figuring out next steps if they can, maybe they have a bit more information, to rationalize their fears and deal with them now. But definitely, it’s I’ve seen this kind of like fear driven decision making, halting, not just, you know, Apex, which rent Yes, as you said, was like, you know, a number two kind of cost for most people or number three costs, certainly not a tertiary cost. But a lot of smaller firms SMBs that we deal with, typically under 200 staff, you know, made the decision early to kind of say, Okay, well everyone go home, let’s test out work from home. They figure it out, work from home kind of makes sense. But you know, a story in the mass media we’re not noticing is or not seeing is this whole thing has kind of blanketed a willingness to shut up X further, and furlough people that might not necessarily have been made redundant, just purely because of the economics of the COVID situation, right? Yeah. So a lot of people have been kind of like laid off through this whole process. And this whole work from home thing has been kind of an excuse for a lot of people to say, well, you couldn’t really do your job at home, and maybe we’ll be back in three months, and let’s stay in touch and shop. So we’ve seen that happen firsthand. And I think I agree with you that like the the compulsion as a social species to interact with each other. And the work the way we look at that struggle, the way we look at what work is, as this manifestation of justified socialization. You know, people need to work to feel fulfilled, that they’re doing something in their lives. And doing it alone in a silo isn’t as fulfilling, which ultimately doesn’t add value in the bottom line of your life satisfaction trajectory, you know, people need to relate to each other, through something unfortunately, societally we’ve embraced commerces that thing, for better or worse, but I think that work is a necessary aspect of society and and to do it properly, you need to do it with other people.
Shez Samji 9:29
I could not agree anymore, I mean, we do define ourselves to met to to a large degree of what we do for a living, it is innate in all of us and that is what creates a self of well being, or, or so. I agree. So, if we’re, you know, in the question comes if for if we’re all working from home, it’s very hard to to, to some degree, achieve That’s awful well being, right? If we’re rotating, you know, to some degree, and then we can become accustomed to that, but then that might, that might, that might change behavior, ultimately. But, you know, I do think, you know, I hope, actually, I should say that two years from now, you know, we’re all going to be in the office and, and, and, and we forgotten about this, this pandemic, but again, this, this shock to our system has has forced every business including the companies at SVP who are our borrowers and the investors that we back and within our own business, as well to where, you know, particularly know, to reevaluate a lot of things and the, the companies that we that we, that we the investors that we that we, you know, that we partner with, everyone is reevaluating certain certain certain things in terms of their, their cost structure and, and how to be more efficient. But we have to be mindful that, you know, the issue is, is every job game that we’ve created, since the financial crisis, has has been wiped out? Right. And so if you’re so you know, and if you think of GDP output for the last three years, 70 to 80% of that has come from consumer growth. But in the States, and particularly, so, which has obviously repercussions to Canada. So now that that part of the, you know, output equation is reduced because of unemployment. And the question is, because, as society because we’re flush with liquidity, it’s forced us actually, to be very much so connected. Financially, you know, if you think of the building that is, you know, every lot of these office buildings are owned by a REIT, that, that that REIT it has mortgages, mortgage obligations from a bank, that bank has, you know, got got, you know, it’s gonna have, obviously, they’re gonna have, they’re gonna have implications of the debt servicing requirements, because, you know, landlords are having issues collecting the rent, so it trickles down, you know, that’s gonna cause liquidity to tighten in the system. But then that building is owned by a REIT. And that REIT has, you know, investors like me and you who are collecting income or whatever, or retirees who are collecting income, they may have to suspend or cut their distribution. So it’s, there’s a massive trickle down effect here, that we have to be very, very sensitive to. And I I applaud, you know, you know, just use federal governments to react as fast as they have relative to other crisis’s. If you think of just general, fiscal, monetary easing, it’s roughly 12% of GDP for both Canada and the United States are just general fiscal stimulus as well. So we’ve protected that kind of contraction, that’s one quarter of contraction that we’ve bridged ourselves roughly. But well, so that’s one thing, right, that the the fiscal stimulus has been is from a headline perspective has been great. The implementation of that is one thing that can be debated. It’s kind of too early to debate that it’s only been one month, even though it feels like a really long time. But for Canadian businesses, I think the two largest and for this conversation, the two largest I think criterias is obviously the wage subsidy. That is that that should hopefully, again, be able to bridge people to get some paychecks, you know. And then in the in the implement in the VA, lat the commercial rent subsidy as well. Should be important. Yeah, I think those are the most effective that we have. And they’re they’re serve as well. That’s, that’s more of a, you know, direct to individual, but from a commercial business perspective, the two fastest I think the biggest and most effective so far are the wage subsidy and the the the rent subsidy.
Qasim Virjee 14:19
I think yeah, definitely. I agree with you that like politicians should be applauded in this country for, you know, whoever was able to rally to support these initiatives by the leaders in the government to to help, you know, stimulate the economy and keep Canadians somewhat positive, even though they’re, you know, forced out of jobs and, and, and stuck at home kind of thing. I think they’ve moved relatively fast for a government and I think they’re, they’re kind of like announcing perhaps faster than they can follow through on some things. However, the intent is certainly positive and appreciated across the board. On The note of what they’ve done and how it’s helped, or how it will help. I think you’re right, there’s a lot of information and data that will come out in the coming months. What I’m seeing immediately is particularly coming back to this idea of assessing kind of commercial real estate damage as a sector. What we’re seeing is the landlord reimbursement kind of scheme, I forget what the acronym is, but essentially commercial rent relief, is the topic has been a bit cumbersome and how it’s been rolled out. Because what they’ve done is they’ve, as I understand it, said to landlords discount the rent, that your tenants are you by 25%, in order to qualify for a forgivable 50% loan on that rent that the tenant would owe you, so long as they can give you 25% of it. So essentially, cut the rent by 25%, the government will back half of what the tenant would owe you that eases the burden on the tenant hopefully keeps them active as a tenant. And that’s for the period of April, May, June, nothing’s been released post that. And at the same time, how this all gets, you know, financed, and how money gets into pockets hasn’t really been kind of laid out yet. I think they’re still figuring out the pieces to see between the federal, provincial and municipal governments how they all coordinate. So for us, it’s been interesting, because I as well, I think, organizationally saw this was coming down the pipe in February, and made movements to reach out, you know, to the BDC, who we’ve had a little bit of history with as a company to actually talk about what products they’re anticipating rolling out asides from what the government then announced in March. So we were ahead of the curve, or what what most people in the BDC are referring to as this tsunami of incoming leads, for businesses that were looking for some form of financing, to stay afloat through this tough period. And it was really interesting, because luckily, our financials have been strong 2019 was a great year for us. And that enabled us to raise a whole lack of debt that floated us for a number of months, or will. And, of course, it being in the landlording business when you’re renting property. And we’ve gotten out well, you know, 20, over 20,000 square feet under management that goes from this kind of like, you know, second third level expense to a number one expense, that’s extremely expensive for us. So debts really expensive, no matter what the interest rate, when it’s being raised to finance all of your, you know, op x for the most part.
Qasim Virjee 17:43
And that’s what we’ve seen here at start. Well, but it’s been interesting, because I was a little surprised to see the government immediately jump to debt. And I think part of it was they said, Okay, well, we have a vehicle for distributing that debt. And that is the BDC. The BDC does this for a living. So that was simple. In a way, it was tough for the people who work there to try and figure out how to deal with the inflow and all their operational mechanics change. But they’ve done well. And from what I’ve heard on the ground across the country is they’ve turned like 60% of their staff across the board into loans officers, just to deal with the the influx of applications. Now, what I’ve also heard, unfortunately, is not many companies have been like start well, in the sense of, you know, SMBs, who are living month to month, leaving aside pre revenue companies, but talking about established firms with revenues and a somewhat of a profit margin. If it’s an owner operated business across the board, the likelihood of their paper looking great, and looking fat is low. So a lot of companies and this has been articulated to me and interviewing entrepreneurs on the street, particularly retail level businesses, and then also talking to the BDC, specifically about this, both sides of the table have been really saddened by the inability for loans for debt to be able to keep businesses afloat, you know, who may not have been able to qualify for loans before the pandemic. So the terms of, you know, essentially, the terms of loaning people money, companies money hasn’t changed through this period. The bank has tried to, you know, adjust its, I guess you call it a risk profile, or risk tolerance profile. But as an organization, they haven’t necessarily been able to do it to a degree that would enable enough retailers to stay alive through the period and we’re starting to see, you know, these sorts of retail turnovers on commercial real estate happened already a month and a half into this or two months into this right. So I think a lot of people defaulted on their rents for me and landlords are foreclosing on commercial properties. And this comes back to that whole commercial rent subsidy thing where the majority of landlords haven’t even been able to recoup 25% of the rent that retailers at least owed them for April and May, in order to qualify for the rent subsidy. So that’s been interesting to watch. Again, we deal with office space, and event space and meeting space. So for us and for our business, it’s not immediately impactful, but to the streetscape. And there’ll be knock on effects, of course, in the larger economy with with retail level being closed across the country for four months, for sure. So I’d love to hear your take on on debt, you know, debt through the crisis, and that as an instrument for companies going forward, no doubt it’s going to be more important. I know you deal with equity, the equity side of the business, so maybe you could give a color on both sides of that store.
Shez Samji 20:56
No debt debt as well.
Qasim Virjee 20:58
Oh, it is okay. Yeah. So yeah, what do you think about the topic of kind of debt? And it’s, it’s changing role in business in Canada over coming months, years? Because of this crisis? Or irrespective of it?
Shez Samji 21:13
Yeah. So let’s actually start with with discussing just generally private capital, there’s, there’s over you know, there’s trillions of dollars and dry powder of private capital that needs to be invested. Can
Qasim Virjee 21:28
we pause for a second Did you just call it dry powder?
Shez Samji 21:31
Yeah.
Qasim Virjee 21:33
I love that phrase. So
Shez Samji 21:34
that’s, that’s a finance term, that essentially means that money that needs to be allocated somewhere. And you know, the thesis of my personal thesis so has been come, whatever the next downturn that occurs, it really would be private capital, that would come in and step in, and kind of put a floor or scoop up asset prices or rescue companies. The issue right now is because of the type of shock that we have, it’s hard to transact, as we kind of said before, but that is going to be ever so more important, because, you know, he you, it’s gonna provide runway for you to, to continue to potentially get through this business, the cycle, sorry. It’s gonna allow, if you have opportunities, ie your business, and you want to acquire a competitor, or, you know, a strategic business, that’s important to you know, amplify your, that your your own value chain, you to get the best price, or to optimize your own capital structure of a company, you’re going to have to pair it with some debt, you’re going to need equity, I think, no doubt, I’m in a situation right now. But you’re gonna have to pair it with debt. So it’s not as diluted, because I think your private asset prices likely, you know, unless you have the ability to show you are very, very defensive in this nature. And I think even defensive companies right now, are showing revenue growth, but again, their cost structures are increasing to the tune of the same magnitude that revenue growth. So the profit margins are right now, not clear. You’re gonna have to, you’re gonna have to pair it with with some sort of debt, for two reasons. One, again, to optimize your capital structure. So from an equity perspective, you’re not as dilutive. So when you’re financing an opportunity, if it’s purely equity, you’re going to give up a lot more pie, or share of your pie. And pairing that with debt is going to lead you to negate some of that. Or just also to allow you to be opportunistic, so increasing your your working capital lines of credit, to to a degree to allow you to give you comfort that you’ve gotten your term liquidity, that you could be opportunistic. So that debt is super important. The good news is is that you know, the market is is flushed with capital right now, in my opinion. So So if deals are good, they will they will transact at some point in time. If the terms make sense, you know, you’ve got banks, particularly SVB, we’ve been supporting all our clients throughout this everywhere, every company that where we have a term loan, that’s less than $10 million, which is a lot for us. Yeah, terms of volume. We’ve, we’ve effectively said look for the next like, six months. You don’t have to, we’re giving you an amortization window. You don’t have to pay down below. And this is kind of carte blanche if you’re the best credit if you’re the poorest credit. It’s kind of a window that we’re giving everyone so we’re we are you know, we are a we’re trying to be as much of a solution or an aid to this situation that we’re going through you More than anything and so it’s it’s it’s showing how we are a true financial partner to any to all of our, our clients. You’ve seen a lot easier, there’s been some acquisition financings that we’ve seen right now. Where, you know, it’s not banks that are financing its private market participants, so private debt funds. And they’re certainly been very opportunistic right now where, you know, they can get fairly attractive rates of return on on on their capital right now. So again, you know, as a business owner, you have various if you can, you know, if you can demonstrate that you’re, you have the ability to grow or find growth opportunities for your business right now. But you need capital to facilitate that growth, you’ll be able to find it on the debt side. And yeah, beside
Qasim Virjee 26:00
it’s interesting, because, you know, I think, with the crisis that is this impacting the immediacy of people’s ability to carry on business, there’s also opportunity to kind of sidestep that problem by looking on the meta and saying, okay, in the medium to long term, what are my goals for this business? And how do I want to kind of, like, strengthen it in a longer timeframe? And you’re right, I mean, like, there’s, there’s bound to be a lot of movements and people kind of stabilizing their, their business model by taking on some debt. And, and being able to kind of leverage that. Think of their assets with less about, you know, cash flow and immediate revenue and more about kind of like, the ability to earn in the long term.
Shez Samji 26:48
Yeah, so that’s very important, right? If you are a CFO, and a CEO of business, you got to look at what your terms of your debt are, that your whatever, you know, the reasons you need the money, and you got to ensure that the return the normalized return, you can’t look at it what it is, over the last month, because that this is not normal, right? You got to project out and sale, you got to stress test your business, you got to say, okay, these are my clients. Based on the information I have on my clients, you know, this is these are the companies that are going to likely cut back in terms of the revenue seeds, the ones that get in and disappear. These are the ones that I can upsell. So this is the best case scenario, let’s apply some sort of probability or discount factor to this discount to this, you know, this best case scenario, best case scenario and call it a base case scenario. This is what the margins I can achieve on this base case scenario. This is what my ultimate OPEX is. Now based on that, you know, this is the this is I have the cash burn or the free cash flow that my business is going to generate. Let’s project that going for, what is the, you know, what is the either how, what is the new new milestone that I have to meet to achieve incremental capital? What is effectively that return on my own equity of my business, and you got to just make sure whatever terms that you have on the table, quite frankly, coincide with those return thresholds. Otherwise, there’s no point in taking on capital for the sake of capital, even though right now, it’s important to just have liquidity. But you also have to be cognizant of the fact that, you know, every dollar has to be accretive to your current business. And if that if that right now just means helping you survive. Well, that’s a creative, but you gotta you gotta look at it. Okay, well, this is what I paid today. What is that relative? On to my normalized returns of capital, because, hopefully, you know, at the same time, whoever your financial partner, they’re also doing that for their own underwriting and due diligence as well, because you know, your longevity is equally as important to their own longevity.
Qasim Virjee 29:05
Right. Absolutely. What? So in terms of new deals, in terms of new business, in terms of bringing on new customers, what I know you guys just your team just announced the hiring of a new president here in Canada, right? Yeah, yes. Yeah. So what’s the what does the SV SBBs like kind of footprint in Canada look like for the next? Well, future? You know, the rest of 2020. But otherwise, going forward? Post pandemic, hopefully, from 2021 onwards. What kind of appetite does the bank have here in Canada? And what kind of specific industries if it’s unique to the landscape? Are you looking to support any new types of companies that anyone kind of, you know, through our network or otherwise, you know, should get in touch with you for or?
Shez Samji 29:56
Yeah, for sure. Yeah. I mean, we were very lucky to have Paul Join our team in lead us, you know, he’s got C suite experience. It’s kind of non traditional to what a typical, you know, bank would hire you. And, you know, it’s a, it’s more on the payment side and fintech side. So very, very complimentary to, you know, a lot of the the investment themes of our clients who are venture capital firms are building from a thesis generation perspective. Look for us. The way we think of where we want to pick our spots, again, it’s we are, we’re different from most banks, and that we are solely focused on the innovation economy. We’re not going to go and finance and winegrowers, correct, yes,
Qasim Virjee 30:46
that’s quite funny. When I when I learned that for the first time after knowing you guys for a little while, I didn’t realize that that was there’s some there’s some perhaps historical information there about being in the valley and Napa and supporting the wine.
Shez Samji 31:01
Yeah, it’s it’s it, that’s okay. That is very much. So a function of a lot of the venture capitalist, that we bank purchased vineyards as their own lifestyle business. And they asked, you know, they wanted us to partner with them. And so that that’s how that business has kind of started. But our core is, you know, again, we’re very ecosystem focused. So if our, if our, some of our clients were VCs, you know, we notice a theme of them buying vineyards, we help them kind of finance those purchases, or give them working capital for those vineyards. But ultimately, our core focus is the innovation economy. It’s the investors in the companies. And that’s predominately technology, and healthcare slash life sciences. So as as much as say before, we’re not going to, you know, bank, a chain of clothing, like bricks and mortar retail, right? We’re not going to bank, a manufacturer of of you no toothbrushes, right, unless there’s some sort of novel technology, that is the primary competitive advantage for that business, which to some degree, could be implemented in scale to other businesses, then that’s a different topic. But for us, we focus on for the most part, providing venture debt or some sort of bespoke type of debt to companies within the innovation economy. And, and particularly with those investors. So venture capital firms that are clients of our long standing qualified clients of ours, we’re investing in those companies. So from a broad perspective, where we know we don’t say, wouldn’t in technology, we’re gonna focus on health tech, or medical and health tech, or, you know, artificial intelligence or, you know, digital education. We don’t we don’t can say, you know, for us, we’re very broad, because, again, we’re the only bank where we’re a sector, broad sector specialist, which is, again, purely, purely innovation economy. And the investors who are also focused on driving capital within that ecosystem.
Qasim Virjee 33:18
Interesting. So sorry, is there so there’s a fund of funds kind of a function to what you
Shez Samji 33:26
guys do. We have a group called es SVB capital, which is a fund to funds platform, but from a debt perspective, will bank the actual investors and their companies. So if you and I go out and raise a fund, right, and we have a management company that’s owned by you, and I, and then we’ve got an underlying fund, you know, the management company, let’s say we, you know, want to hire a bunch of staff, we’ve raised a fee bearing vehicle, that’s going to allow us to, to, to invest. We’ll need working capital, obviously, to hire those, those investment professionals and finance professionals, whatnot. So STV can actually bank, the investors management company. Okay. And we have a fund that we have raised through third party investors. And that fund needs some sort of debt vehicle that allows it to bridge you know, draw down notices from their investors. So sVv will bank that fund as well. So it’s a commercial bank for the actual investment companies. And then we’re also a commercial bank, for the companies that those investors are investing into. So we go raise a fund. We see this really, you know, interesting startup that we want to be a part of in terms of their Series A. So we write an equity check, let’s say for a million dollars, and you know, we want a million dollar equity Our debt debt instrument from SBB. So we call us up and we’ll get into debt financing for that as well.
Qasim Virjee 35:07
So growth in Canada coming back to that that focus that you guys have for innovation? Where do you see the innovation economy as relevant to Canada’s larger economy and positioned in the near future? Going forward?
Shez Samji 35:23
Yeah, I think you’re going to continue to see job creation come out of come out of this sector, it’s going to be the driving force, I think of drop job creation going forward. If you just think of our, you know, the degree of engineering students that are graduating, it’s, it’s, it’s an all time high, you know. And when you look at Investor flows, look at venture capital, fundraising activity in Canada, it is the fastest growing component of alternative asset funding, capital flows. So if you think of just general private equity, you’ve heard it’s over 10 billion in Canada, but it’s been slowing. Every year for the past two years. If you think of venture capital, it’s it’s, it’s, it’s, it’s growing in terms, it’s been about 3 billion in 2019, if not more, but that’s been that’s been making that’s been growing in terms of multiples. So it’s been doubling times, even tripling on a year over year basis. So there’s a lot of capital that needs to be allocated. And in, in, in, call it early stage businesses, but particularly in in technology, right. There’s a lot of accelerators that are being that had been built up in Canada. And when you think about, again, more broadly perspective, from a broad, broad perspective, you know, you think of the largest component of GDP growth globally, it’s coming from a knowledge based economy, and almost every company now has to be a tech business. But right. But you, you have to you’re going to see growth, it’s just no question. Because if you think of what’s going to get us out of what’s going to put us back to full, full employment, usually, it’s technological change that drives that. That’s what creates some sort of new, new wave, right, you’ve had you had the internet before, right, that caused the technological revolution. Yeah, you’re gonna continue to have different sub streams of that happening going forward. And you know, SVD has always been at the forefront of those those events, because, again, it’s has conviction in this in this in this part of the economy sector. And it’s all that we do up or down market, that’s all that we do, right? We were not going to pull out and say, Okay, no, we’re only going to focus on these types of businesses going forward. We’re like, what other banks would do our bread and butter is, again, the innovation or knowledge based, you know, sectors.
Qasim Virjee 38:17
So primarily, just let’s bring it back just for a second on of this whole kind of Coronavirus, economic impact in the last, you know, through March and April. And we can kind of wrap there, but like, the question I have is around what you’ve seen as the bank here in Canada, what you guys have seen for new applicants and an inflow of potential new customers coming to you looking for options, financial options to, to grow through this period, but or otherwise, just maintain?
Shez Samji 38:50
Yeah. So from a priority perspective, it’s been, it’s been first and foremost on our existing exposure and partners that we have. Okay, that’s been 80 days, to 90% of our time. Over the last month, now that that amount has been now that things are starting to kind of get normal, there’s some sort of pattern recognition, very small, albeit, pattern recognition on you know, what businesses are going to make it through what businesses have enough liquidity or, you know, this is what the next steps are. From a monitoring perspective. It’s probably truncated to 70%. And I’d say the remaining, call it 30% Right now or call it 20%. Right. So we have 10% remaining but the 20% is on an existing deals that we had. Now we’re just working to close out pre COVID. And then 10% of that has been on new opportunities on very, very select opportunities because it’s it’s it’s difficult It is, it is very difficult, in my opinion, to transact on, not meaning the management teams you have not knowing, quite frankly, what the next week is going to look like look like, on complete net new opportunities. Yeah, it, you know, and if you talk to most private equity and venture capital investment professionals, you know, the latest survey out of s&p cap IQ 46% of those investment professionals believe that, you know, they’re going to see new transactions occur over the next six, six months. And I mean, new new, like, I haven’t seen this management team before. I don’t understand their business, I got to get up to speed on a type situation where there’s some existing relationship, either through the actual venture capital investor that SVB, you know, is going to work with you know, those deals, you know, will continue to move forward and will be explored. But, again, this is kind of the scope that we have right now, within this next week, things are gonna change, you know, most definitely, and quite quickly, but this is the vantage point that we have, right now. In terms of very, very new fresh opportunities.
Qasim Virjee 41:27
It sounds interesting sounds actually exciting, that you’re anticipating a kind of, if I assume that this is the underlying kind of impetus for this perspective, is that there will be a rush of innovation coming out of this time period, in the sense of spawning new companies, or groups forming, through pivoting and changing their perspectives on what ideal services they can offer, as existing companies are growing new product lines and all that kind of stuff, there’ll be a lot of change in flux that will result in in net new increases of, of investable opportunities.
Shez Samji 42:08
Yeah, no, for sure. I mean, you know, you every business like a lot, a lot of businesses are having to pivot. And those pivots could start completely new, completely new ways of thinking new business opportunities, the like, the, the, a refined path forward, of what could kind of surpass any business operators, expectations in terms of their own planning perspective. Everyone’s kind of, you know, everyone, you see those blogs and posts that, you know, during that great, great financial crisis, you know, these, these unicorns were created, right? We’re being one of them. So it’s very unique, because, again, as we started off this conversation, what we do for a living into some degree defines of who we are as individuals. It’s innate in us. And during times of uncertainty, we’re all forced to internally pivot and and see what opportunities are in front of us or what opportunities we can organically create. It’s during these times where new partnerships are formed, and relationships, foundational relationships are established as well. You know, it’s unfortunate, we always say that these times are unfortunate. But we also have to try and make the most of the situation as well, because it is a resetting of, of, you know, if the economy and and business plans and cost structures. All together. Right. So, so, the title of this is a new normal Well, it’s, I wouldn’t say it’s the new normal because of Coronavirus. Think that it will be a short, that’ll be hopefully a drop in the bucket in terms of the next wave of, of new output. But it’s really going to be longer term, what new ideas were established out of this general economic crisis that we’re also going through
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