Silicon Valley Bank collapse hits startups as far away as China
Silicon Valley Bank has a 50% stake in its joint venture with Shanghai Pudong Development Bank.
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The Silicon Valley Bank fallout has had far-reaching implications for Chinese startups, particularly those backed by US dollar-denominated funds.
US regulators shut down the bank on Friday in what has become the second-biggest banking meltdown in the country. Silicon Valley Bank had built its business on backing tech startups, including those from China.
The online system for opening an account with the SVB allowed using a Chinese mobile phone number for verification, according to a Chinese startup founder, who requested anonymity due to the delicate situation. The source pointed out that they once had tens of millions of dollars dollar at the SVB.
He’s withdrawn the most funds since then, but he said he still has more than $250,000 at SVB.
Along with the backing of an established venture capitalist, a startup could open an account with SVB within a week, the source said, according to a Mandarin translation of CNBC. “Traditional mainstream banks like Standard Chartered, HSBC and Citi are very compliant and take a long time to open a bank account with. It can take up to 3-6 months,” he said.
The source, who founded a fintech company and two other tech companies, said venture capitalists were happy to work with SVB because the bank allowed investors to see and approve how the startups were using their funds.
“If there is no SVB, it will hurt the tech industry because there is no other bank that offers both of these features,” the source said, citing the quick account opening for startups and the visibility for venture capitalists.
A bank account with SVB has enabled China-based startups to seek funding from US investors in view of a public offering in the US US IPO pipeline over the past two years.
It wasn’t immediately clear how many China-based startups had SVB accounts. However, the CNBC source noted that many China-based startups with US VC funding tended to start out with bank accounts at SVB.
Biotech company from Shanghai Zai Laboratory said about 2.3% of its approximately $1.01 billion in cash and cash equivalents was held at SVB at the end of December. Most are at JPMorgan Chase, Citigroup and Bank of China (Hong Kong), Zai Lab said in an official statement.
Another biotech called Everest drugs said it has less than 1% of its cash in the SVB and expects to recover most of its deposits in the bank through the US Federal Deposit Insurance Corporation.
The FDIC said insured depositors will be able to access their deposits no later than Monday morning local time. Standard insurance covers up to $250,000 per depositor, per bank, and for each category of account holder.
However, most SVB deposits were uninsured. The FDIC said uninsured depositors will receive bankruptcy certificates for their balances.
Joint venture in China claims independence
SVB’s joint venture in China — held 50-50 with Shanghai Pudong Development Bank — said in a statement that it has an independent balance sheet.
The joint venture, called SPD Silicon Valley Bank, had a registered capital of 2 billion Chinese yuan ($290 million), according to the Tianyancha company database.
That is about 6.8% of the Shanghai Pu Dong Development Bank Registered capital of 29.35 billion yuan, the data showed.
As of the end of December, SVB had total assets of approximately $209 billion and total deposits of $175.4 billion, according to a press release.
– CNBC’s Hugh Son, Rohan Goswami, Jonathan Vanian and Jesse Pound contributed to this report.
https://www.cnbc.com/2023/03/13/silicon-valley-bank-collapse-hits-startups-as-far-away-as-china.html Silicon Valley Bank collapse hits startups as far away as China