Collapse of Silicon Valley Bank rocks China’s tech start-ups, venture capital industry
The SVB failure raised concerns among venture capitalists and start-ups in China, which viewed the bank as an opportunity to access US capital.
The collapse of Silicon Valley Bank (SVB) has created a sense of panic within China’s tech start-up and venture capital (VC) sector, as the lender served as a bridge between US capital and Chinese tech entrepreneurs.
As of Sunday afternoon (Mar 12), topics related to the collapse of the bank, including “SVB bankruptcy has spread to multiple countries” and “SVB bankruptcy affects Chinese entrepreneurs”, were trending on Chinese microblogging site Weibo, with posts receiving hundreds of millions of views.
“Is the 2008 Financial Crisis happening again?” said a Weibo user with the handle MaxC.
While most tech companies and banks in China have avoided commenting publicly on the collapse, it has raised concerns among venture capitalists and start-ups in the country, many of which view the US-based bank as a golden opportunity to access the American capital market.
“Many Chinese companies listed in the US have received investment from Silicon Valley venture capital funds in their early stage,” said Zheng Lei, an adjunct professor at the Shenzhen Finance Institute of the Chinese University of Hong Kong. He added that the collapse would affect the chances of unlisted Chinese start-ups obtaining investment from Silicon Valley VC funds.
“The collapse of SVB has lowered the trust of Chinese companies in foreign banks, so they will be more cautious when considering US dollar funds,” said Fu Jian, director of Henan Zejin Law Firm.
For some start-ups, venture capitalists and private equity companies, SVB was a good choice to access the US capital market as it provided “not only a wealth of business resources, but also more networking opportunities (in the US)”, said Fu.
Garry Tan, CEO of Y Combinator, a well-known start-up incubator in the US, went so far as to call the SVB collapse “an extinction level event” for new companies that will “set start-ups and innovation back by 10 years or more”, according to Tan’s Twitter post on Saturday.
Chinese on-demand local services giant Meituan told its investors by email on Saturday that the company currently has no deposits at SVB, according to a report by Star Market Daily, a publication under Chinese media Jiemian.
The denial came after talks circulated online that Wang Xing, co-founder and chief executive of Meituan, had showcased the company’s US$60 million deposit at SVB at a media briefing years ago, when the company secured a B-round financing in 2011.
On the same day, the China joint venture of SVB said its operations have been independent and stable, seeking to calm local clients amid the collapse of its US parent.
“SPD Silicon Valley Bank Co has always operated in a stable manner in accordance with Chinese laws and regulations, with a standard governance framework and independent balance sheet,” the joint venture between Shanghai Pudong Development Bank and SVB said on its WeChat account on Saturday.
So far, no Chinese tech or VC company has publicly admitted suffering losses from SVB’s bankruptcy.
“Tech start-ups will have a certain need to open accounts at SVB while seeking US dollar financing,” said Zhang Shule, an analyst at CBJ Think Tank. “Such a collapse will inevitably see small domestic tech start-ups with poor risk management abilities have greater concerns about US dollar funds.”
“SVB’s customer base is mainly scientific and technological innovation enterprises, which are very sensitive to liquidity and technology cycles,” said China International Capital Corporation, the state-owned investment bank, in a report published on Sunday. It added that the impact should not be “underestimated” since other banks have “similar risk exposures” as the Fed’s interest rate hikes have not yet ended.
Meanwhile, some analysts said that the impact could be limited in China, given the scope of Chinese tech start-ups.
“The overall size of start-ups in China is limited, and they have multiple choices for US banks. Meanwhile, most of them still put their capital in China,” Zhang said.
“For large companies like Meituan, it is likely that they had turned to SVB in their early stage of entrepreneurship. But when such a company reaches a certain size, it would tend to put funds back in domestic banks for high-speed turnover.”
Zheng from CUHK said US-listed Chinese tech companies would not be directly affected if they did not deposit funds with SVB. “Investors and creditors of SVB still have a chance to recover losses as they have a right to participate in the asset restructuring of SVB,” Zheng said.
This article was first published on SCMP.