Tech startups in China have been feeling the effects of the Silicon Valley Bank (SVB) shutdown in mid-March, according to CNBC.
Chinese companies backed by dollar-denominated funds—with one source revealing it had tens of millions of dollars at SVB—are sensing the fallout following the U.S.’s second-largest bank failure. SVB had a history of supporting Chinese startups. A Chinese mobile number was used for verification when a customer would open an account online, according to one such company founder who requested anonymity, CNBC reported.
SVB made it easy for startups to open accounts quickly, sometimes within a week, the source told CNBC through a Mandarin translator. “Mainstream traditional banks, such as Standard Chartered, HSBC, Citi have strict compliance and it takes a long time to start a bank account with them. It can take up to 3-6 months.”
Venture capitalists enjoyed working with SVB because it permitted investors to see and approve of how the companies used their funds, said the source, who founded three tech companies.
With an SVB account, Chinese companies aiming for a public offering in the U.S. could have access to American investment. Regulation in both Beijing and the U.S. has restricted such IPOs in the last two years.
Though the source couldn’t identify how many tech companies had accounts with SVB, he said that those that began with U.S. funding often started with the bank, according to CNBC. Shanghai-based Zai Lab, for instance, reported that about 2.3% of its $1.01 billion in cash and equivalents were held at SVB. Also, Everest Medicines, another biotech startup, had less than 1% of its cash at SVB.
The U.S. Federal Deposit Insurance Corporation’s standard issuance covers up to $250,000 per depositor, per bank, for each account ownership category, the FDIC told CNBC. Most SVB deposits were uninsured, however, so these depositors will receive certificates for their balances.