RBC combines technology banking unit with venture arm to reach more clients in innovation space

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Royal Bank of Canada RY-T has merged its technology banking unit with its Ventures business that nurtures companies outside traditional banking as it looks to expand support for a tech sector squeezed by a slowing economy.

The combined entity will operate under the RBCx name, led by Sid Paquette, who joined RBC in 2020 after serving as a managing partner with OMERS Ventures. RBCx intends to offer banking services, capital and operational support to its portfolio companies, and the bank plans to be more aggressive about making acquisitions and deploying capital in the space.

Mr. Paquette has spent the past 2½ years positioning RBC’s tech banking operation to reassert itself in a field where it has slipped from a once-dominant position. Canadian Imperial Bank of Commerce and Bank of Nova Scotia have invested heavily to build tech and innovation banking units from scratch while long-time rivals Silicon Valley Bank and National Bank of Canada are pouring capital into the sector.

RBCx formally launched in June, 2021, and Mr. Paquette added responsibility for RBC Ventures last April. With much of the work to create a new internal structure complete, however, RBC is pushing into the sector just as it faces a reckoning. Valuations for tech companies have crashed as inflation and interest rates have soared. It’s a reality check Mr. Paquette said he has long expected.

Despite mounting economic concerns, he said in an interview that RBCx beat its five-year projections in its first year, “and we will likely double this in year two.”

“Capital is still in the system, the organizations that we’re supporting are still there. We’re here for the long haul,“ he said.

One of his first priorities for RBCx was to fill gaps in its product lineup, including offering venture debt to growing companies looking to add capital when they sell equity. So far, RBC has done a handful of venture debt deals since entering the market in 2021, but RBCx is “probably in every venture debt discussion that’s happening in the country now that we have the product,” he said.

RBC has also shifted its focus more to funding venture capital. RBCx has backed 10 funds including recent offerings from Lumira Capital, Golden Ventures and Evok Innovations, and has extended more than $500-million in debt facilities to venture capital firms to help finance their investments. RBCx has also made seven direct investments into startups including Drop and League.

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With tech valuations looking more attractive, RBCx also wants to be more aggressive about buying companies to bolster its Ventures portfolio. Since its launch in 2018, Ventures has built and invested in companies it hopes will help the bank reach potential clients before they look for traditional banking products such as mortgages or loans. Its portfolio includes Mydoh, a money management app for families, and Ownr, an online tool for small businesses to incorporate, create agreements and manage employees.

Until now, Mr. Paquette said the bank’s instinct was to build most of those capabilities in-house or through partnerships and investments. “You’ll see that start to flip a bit: Our natural inclination will be to focus on acquisitions if we can,” he said. Potential investments will focus on areas such as customers’ health and home needs, youth and young adults and climate change.

The bank declined to disclose how much it has deployed to traditional tech and innovation banking clients. But it has added staff and expects to have 100-plus employees by October, in addition to about 400 who work for Ventures and its startups.

Over time, Mr. Paquette expects RBCx “will be meaningful” to RBC’s broader strategy. “This is not going to be a skunkworks ventures studio. That is not what RBCx is.”