Silicon Valley Bank’s collapse sends shivers through China startups

Silicon Valley Bank’s swift and sudden collapse made waves far beyond the US as tech firms in China scrambled to park their money with other lenders.

Chinese startups have long relied on SVB, which has forged ties with local government officials in Shanghai, for venture capital funds after traditional US banks turned them away.

The Chinese government exerts strict controls over its currency and imposes restrictions on foreign investments — making SVB one of the few lenders willing to work with China-based startups seeking capital from offshore investors.

“Silicon Valley Bank has played an instrumental role for us,” Guanchun Wang, founder of Laiye, a Beijing-based tech startup, told the Information.

“We opened our first bank account with them when the likes of Citi wouldn’t have anything to do with us.”

SVB’s collapse “could make it harder for Chinese startups to raise money from U.S. investors — at least in the short run,” Wang said.

Since its founding in 2015, Laiye has raised $211 million. The company said that in recent years, it had to shift most of its US dollar holdings to Citi.

In 2012, SVB partnered with Shanghai Pudong Development Bank to form SPD Silicon Valley Bank Co., which provides VC funds to tech startups.

Before SVB was shut down by US regulators on Friday, Shanghai Pudong Development told its clients that the California-based lender’s operations and liquidity remained healthy, according to Bloomberg News.

Michael Wang, co-founder of a Chinese automation software startup in Hangzhou, told the Information that he was urged by venture capital firms to immediately pull his money from SVB accounts — hours before the bank collapsed.

“You cannot wait. Nobody knows how big the risk is,” he said.

Even before the SVB crisis, the Chinese tech sector has had trouble raising capital in the US thanks to heightened geopolitical tensions as well as China’s economic problems.

The bank’s collapse sparked fears in the US of contagion in the banking sector.

SVB’s finances went south at warp speed after it disclosed a $1.8 billion loss on its bond holdings this week. 

Shares of Chinese tech giants including Alibaba and Tencent Holdings were trading lower on Friday.

Shanghai Pudong fell by 1.7% in trading on Friday — its biggest decline since October.