SVB's debacle is causing panic in China's startup industry
The panic sparked by the collapse of Silicon Valley Bank is spreading to China, the world's second-largest venture capital market. Across social media platforms, investors and startups are rushing to share news articles on the fiasco and thoughts on how to prevent such a catastrophic moment. For some companies, however, the impact is tangible.
When China was still new to venture capital in the late 1990s, SVB was among the first financial institutions to start serving the country's startups, while traditional, risk-averse banks avoided them. Over time, the bank has become a popular option for China-based startups fundraising in USD as well as some China-focused USD venture capital firms.
In the U.S., VCs have been urging their portfolio companies to withdraw money from SVB as soon as the bank announced that it intended to sell shares in pursuit of more capital. Investors are advising the same to Chinese startups exposed to the bank, according to three founders and two investors TechCrunch talked to.
"People realized that things weren't right after seeing SVB's shares were down 30% in premarket trading," said one of the Chinese founders, whose app targets North American users. "I immediately told other Chinese peers after my American investors told me [to withdraw money from SVB]."
A widely circulated report from the due diligence company Castle Hall shows a list of investment firms banking with SVB, including major funding vehicle for Chinese startups Sequoia Capital China, and prominent investment bank China Renaissance.
SVB's localized effort in China appears unaffected, for now. According to its website, SVB first began operating in China in 1999. In 2012, it formed a joint venture with Shanghai Pudong Development Bank, the first Sino-U.S. joint venture bank to obtain a license since 1997.
Bloomberg reported earlier that the JV is urging its clients to stay calm, saying it "isn’t affected by the turmoil surrounding the U.S. lender." The bank said later in a statement that it has "a sound corporate structure and an independently operated balance sheet."
Since its inception, the JV has since carved out a list of services, including onshore banking financial products and services in China, including liquidity solutions, trade financing, local and foreign currency deposits, wealth management, and foreign exchange settlement and sales services.
For a more detailed account of what triggered SVB's fall, read my colleague Alex Wilhelm's explainer.
This is a developing story...