Chinese entrepreneurs and venture funds are on the hunt for alternatives to Silicon Valley Bank (SVB), in the aftermath of the US lender’s shock collapse last week.
Chinese start-ups and fund managers said they are still looking to move their money out of SVB once they can, despite US regulators working to avert a banking crisis by guaranteeing all of the troubled bank’s deposits.
While some start-ups are turning to bigger US banks, a few Chinese lenders such as China Merchants Bank and the Industrial & Commercial Bank of China are also rushing to fill the gap.
Such banks have offered account services similar to those of SVB, but found it hard to crack the US bank’s dominance among early-stage start-ups in China.
SVB has operated for more than two decades in China and even has a local joint venture with Shanghai Pudong Development Bank.
Before its collapse Silicon Valley Bank was one of the few banks that made it easy for start-ups to open bank accounts for dollar financing, making it a foreign bank of choice for young companies in China.
“China Merchants Bank told us they can set up an offshore account for us within a week,” said one start-up founder who gave his surname as Hong.
Hong described how he had been offered a number of proposals by banks, including Zheshang Bank, to solve his issues with SVB.
Wu Yujun, chief executive at Hangzhou-based banking platform start-up QBIT, said in the past three days it had received six times as many queries on creating accounts as usual. Most of those queries were from SVB clients, he said.
CB International Bank, a US-headquartered bank serving mainly Asian small- and medium-sized companies, said it has been contacted by many start-ups and US dollar funds. It said they were seeking to open accounts quickly so they can deposit funds they have withdrawn, or plan to withdraw, from SVB.
The bank’s chairman Sam Su said the firm was also asking companies to consider converting their USD holdings into offshore RMB deposits to diversify risks.
Dual accounts are the future
Some venture funds said they were in a quandary as Silicon Valley Bank had certain advantages and was especially friendly to early-stage start ups.
“We are still searching for a bank which we could safely open an account with,” said an executive at a Chinese venture capital fund with deposits at SVB.
“Not a lot of banks are friendly to venture capital.”
China is home to thousands of start-ups. While funding was battered by the country’s zero-Covid policy, a share market slump and US-China tensions in 2022, venture capital investment is expected to recover gradually this year.
“Withdrawal is the easiest option but no other bankers in the US provide the level of services SVB used to offer,” said an executive at a major Chinese investment bank, which has deposits at SVB via its private equity arm.
The bank’s priority is to have at least “a few accounts” in the United States, the executive added.
Going forward “everyone will need 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 counts Sequoia Capital China and Wu Capital among its investors and banks with SVB.
- Reuters, with additional editing by Vishakha Saxena