Bloomberg Línea — Founders of Brazilian startups have withdrawn hundreds of millions of dollars from Silicon Valley Bank (SIVB) after it launched a $2.25-billion share sale to bolster its balance sheet and mitigate the effects of falling deposits from startups struggling for cash at a time of scarcer capital for venture and technology assets.
SVB shares plunged about 60% on the Nasdaq index on Thursday.
A bank focused on serving early-stage startups, SVB is a reference for tech companies that receive money from venture capital funds from around the world.
With deposit levels falling, SVB’s CEO Greg Becker said that cash burn by client companies increased in February. Funds raised from the share sale will be reinvested in short-term debt and increase the bank’s lending.
Investors and founders of Latin American startups told Bloomberg Línea that “everyone” is withdrawing money from the bank “madly,” while others believe SVB might put the brakes on withdrawals soon.
“It seems the consensus among Brazilians to take the money out is stronger, perhaps because of our experience with this kind of situation in Brazil,” a founder told Bloomberg Línea on condition of anonymity.
SVB had representation for Latin America through Julia Figueiredo, who was the director for the startup banking region. The executive left the bank in April 2022 to take on the Latin America directorate at Partners for Growth.
A founder told Bloomberg Línea that Figueiredo was SVB’s main point of contact in the region and that without her, “the staff’s hands were tied in terms of support”.
Opportunities in the face of crisis
Amid the SVB crisis, Brazilian startup Trace Finance, which operates with foreign exchange for startups, anticipated the launch of what it intends to be an alternative to banking companies.
Latin American startups usually need a legal structure that includes a company in the Cayman Islands and another in Delaware, in the US, to receive investments from foreign funds.
Trace, which already engaged in such transactions by bringing money to Brazil, will now offer banking services, but said it will not operate with credit, to avoid problems like SVB’s.
According to CEO and co-founder of Trace Finance, Bernardo Brites, the company will serve as a banking partner for startups in the United States, and startups with more than $3 billion have joined the waiting list for Trace’s US banking.
“We understand that the market is in risk mode and that caution is the most important thing today. We are not going to have a fractional reserve, all users are going to have 100% of their balance sheet at all times. And we will not go into credit products because we will never lend our users money. We understand that the founder may want to withdraw the money at whatever time they want,” Brites said.
Trace Finance’s bank will focus on a no-fee current account with an international transfer, and is expected to launch a debit card.
Besides Trace Finance, large banks such as Itaú BBA and management companies such as Genial Investimentos also had SVB as a benchmark. These companies have businesses that provide access to capital, foreign exchange, and banking for startups.
“We used SVB as a client because there was no alternative to bank the company in the Cayman Islands and Delaware,” Brites said. “The entire ecosystem of startups and funds in Latin America was in SVB.”
Brites plans to bring that money and the clients from SVB to his new bank.
In a press note, Genial Investimentos said that it never did any business with SVB or recommended the institution to its clients. “SVB was cited only as an example of what makes a bank aimed at technology companies.”
-- Updated at 11/03/2023 to add Genial’s press statement