(Yicai Global) March 13 -- The sudden bankruptcy of US lender Silicon Valley Bank, which mainly lends to tech startups, has affected a number of Chinese companies, industry insiders told Yicai Global.
There are Chinese tech firms that have lost hundreds of millions of Chinese yuan, equivalent to tens of millions of US dollars, due to the implosion of the tech lender at the end of last week, an industry insider told Yicai Global.
A Chinese healthcare startup tried to withdraw money on March 10, but the Santa Clara-based bank went bankrupt before the transfer was successful, the head of the company told Yicai Global.
“It all happened too fast,” he said. Most of his firm’s US dollar-denominated assets were held at Silicon Valley Bank, and were used to make payroll in the US office. As far as he knows, there are many other Chinese startups who bank with Silicon Valley Bank, he added.
Silicon Valley Bank went bankrupt on March 10, after a spectacular run on the bank’s deposits after the lender announced that it had sold some securities at a huge loss to boost liquidity, triggering panic among investors. In less than 48 hours the lender had collapsed, becoming the largest US bank to fail since the financial crisis in 2008.
The Federal Deposit Insurance Corp., a US government agency that insures bank deposits and overseas financial institutions, took control of the lender on the same day. Silicon Valley Bank is the 16th largest bank in the US with deposits exceeding USD170 billion as of the end of last year.
And the ripples from the fallout are being felt around the world. Chinese Limited Partners firms, which are external investors in private equity funds and are not involved in the managing of the funds, are urgently enquiring whether their investments are at risk.
Some Limited Partners have posted messages on social media claiming the funds they invested in have sent emails informing their clients that none of their money is in Silicon Valley Bank. But for those who have yet to make an announcement, the odds are they are in trouble.
People are hurrying to move their accounts to larger banks, for fear of smaller lenders going bust, a Silicon Valley market player told Yicai Global.
Chase Bank is incredibly busy as many people opened accounts over the weekend and more are expected to transfer funds to the New York-based lender next week, said another Silicon Valley source, adding that he intends to move his money from Bank of America to Chase Bank.
Many startups at the angel and A-round financing stages are not yet at the phase of asset allocation, and have not even started to make money yet, Internet investor Zhuang Minghao said. They rely heavily on venture capital investments to survive. Such firms, regardless of whether they are in China or the US, will be greatly impacted by the Silicon Valley Bank crisis.
Although the incident has had a huge impact on the technology venture capital sector, tech innovation in Silicon Valley will not be reversed due to the failure of the bank, said Zhang Lu, founder of Fusion Fund.
Editors: Shi Yi, Kim Taylor