Silicon Valley Bank collapse shakes Asian startup confidence in US banking
Asia Tech Review: 13 March 2023
Well that was quite a week. Not one but two US banks went through the throws of a death spiral before being bailed out by the US government (though nobody has explicitly used that phrase), including Silicon Valley Bank, which was popular with non-US entities including startups and funds.
I worried that whatever I wrote over the weekend would be outdated come Monday morning Asia time, let alone US time, and it proved to be true. However, the SVB saga and the collateral damage that followed replaces this week’s stories in focus, which is usually the top three highlights.
This week’s newsletter also has details on Hong Kong’s new IPO plans, Sea’s impressive quarter, Shein’s plans to list in the US and much, much more.
See you again next week,
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Silicon Valley Bank collapse shakes Asian startup confidence in US banking
Manic weekend dims Silicon Valley’s once-dazzling shine
So the worst case scenario hasn’t come to be after the US government stepped in to save Silicon Valley Bank (SVB) with a deal that “fully protects all depositors” who can access their money from Monday.
Before this resolution—announced on Sunday US time—things looked hairy for thousands of startups who bank with SVB, a bank that’s known for being startup friendly as the name suggests. That number is not just US-based startups. SVB is a go-to for many Delaware-registered international businesses, it is used by Chinese startups for US banking (Meituan was a customer before going public) and is recommended by major investors including Y Combinator.
Indeed, YC President Garry Tan called the bank’s impending collapse an “extinction event” and suggested that one-third of YC graduated startups that banked with SVB would be unable to make payroll. Beyond the US, that potentially included dozens of India-based YC startups (according to TechCrunch) and likely others in China, Southeast Asia and other regions where YC has made a concerted push in recent years. Asia-based venture capital funds including 500 Startups are also said to have banked with SVB, according to customer lists circulating online.
While Asia-based startups tend to diversify their banking based on the location of customers, staff etc, losing access to any money at an early-stage is a major setback. One founder of a Series A startup, for example, told me that around half of their runway sat with SVB, to the tune of multiple million US Dollars. That’s money you want to keep hold off.
While these businesses look to be saved by the US government’s move, a weekend of extreme stress and disaster planning will live long in the memory and impact confidence in the US banking system.
So what does this mean?
Simply: the US, and Silicon Valley itself, may not shine so alluringly for startups across Asia. That could mean minimising their US-based banking, more actively moving money outside of the US, perhaps deprioritising business in the US and even looking to go public elsewhere.
Silicon Valley may not shine so alluringly for startups across Asia
For some, refocusing on home markets is easier. In China, the government has already made major pushes—both indirectly and directly—to encourage technology companies to list on home soil or in Hong Kong. That included the heavy-handed beating of Didi Chuxing post-US IPO, and pushing the Star Market as a tech listing platform. Just last week, Hong Kong made moves to become a more attractive IPO destination for local and Mainland companies.
International crypto companies have long avoided the US for regulatory uncertainty and banking issues, but now any remaining US-based crypto companies will think twice about their location, particularly with the “crypto-friendly” Signature Bank meeting the same fate as SVB.
The story is still very much playing out. Without further details of what will happen to both banks, the exact impact is unclear. But this weekend’s chaos has certainly removed some of the shine Silicon Valley used to project to startup audiences across the world.
The US remains the aspiration market startups want to crack for prestige and profit—with Silicon Valley the world’s de facto startup hub—though this weekend has laid bare the risks. Covid has accelerated trends that dim Silicon Valley’s dominance, such as remote working, but time will tell what the full impact is.
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