Chinese start-ups are scrambling for alternatives to the SVB
By Samuel Shen, Kane Wu and Roxanne Liu
SHANGHAI/HONG KONG (Reuters) – Stunned by the sudden collapse of Silicon Valley Bank, the main foreign bank for the majority of Chinese start-ups, entrepreneurs and venture funds are looking for alternatives despite US regulators being able to avert a banking crisis by guaranteeing all deposits the ailing bank.
Chinese start-ups and fund managers said they are still trying to get their money out of the SVB as soon as they can. Some of them are turning to larger US banks, while some Chinese lenders like China Merchants Bank and Industrial & Commercial Bank of China are also looking to fill the gap.
Such banks offer similar account services to SVB, but have found it difficult to break the US bank’s dominance among early-stage startups in China, where SVB has operated for more than two decades and has a local joint venture .
Because the SVB was one of the few banks that made it easy for start-ups to open bank accounts for dollar financing, it was the dominant foreign bank of choice for young companies in China, advisers and companies said.
“China Merchants Bank has informed us that they can set up an offshore account for us within a week,” said a start-up founder, who gave his surname Hong, describing how he received a number of proposals from banks, including Zheshang Bank. to solve his problems with the SVB.
CMB, ICBC and Zheshang Bank did not immediately respond to requests for comment.
On Sunday night, US banking regulators quickly rolled back all deposits at the SVB, which closed on Friday, assuaging fears that startups would struggle to pay their employees this week.
Still, Wu Yujun, chief executive of Hangzhou-based banking platform startup QBIT, said it had received six times the usual number of account opening requests in the past three days, mostly from SVB customers.
CB International Bank, a US-based bank that primarily serves small and medium-sized Asian businesses, said it had been contacted by many startups and US-dollar funds wanting to quickly open accounts so they could withdraw or Planned deposit monies can leak from the SVB.
Bank chairman Sam Su said the firm is also asking companies to consider converting their USD holdings into offshore RMB deposits to diversify risks.
Some venture funds said they faced a dilemma as SVB had certain advantages and was particularly open to early-stage startups.
“We are still looking for a bank where we can safely open an account,” said an executive at a Chinese venture capital fund with deposits in the SVB, who declined to be identified because she was not authorized to speak to the media .
“Not many banks are open to venture capital.”
China is home to thousands of startups, and venture capital investment is expected to gradually recover this year after funding in 2022 was cut short by the country’s zero-COVID policy, a stock market slump and inter-state tensions USA and China was affected.
“Withdrawing is the easiest option, but no other banker in the US offers the level of service that SVB used to offer,” said a manager at a major Chinese investment bank that has deposits with SVB through its private equity arm, adding added that the bank’s priority is to have at least “a few accounts” in the United States.
Going forward, “everyone will have to set up two accounts — one for domestic capital and the other for foreign capital,” said Stephen Chen, co-founder of Shanghai-based start-up Lead Digital.
“But the market space left by SVB will be filled by the next bank, which is an opportunity,” said Chen, whose company Sequoia Capital China and Wu Capital count among his investors and banks in SVB.
(Reporting by Samuel Shen and Li Gu in Shanghai, Roxanne Liu in Beijing, Kane Wu and Selena Li in Hong Kong; Writing by Kane Wu and Brenda Goh; Editing by Anshuman Daga and Christina Fincher)