Founders of Brazilian startups drew hundreds of millions of dollars from Silicon Valley Bank (SVB) on Thursday (9) after the bank launched a US$2.25 billion stock sale to bolster its balance sheet and mitigate the effects of falling deposits from startups struggling for cash at a time of scarcer capital for venture and technology assets.
SVB shares plummeted about 60% on Thursday on the Nasdaq; and retreated more than 20% in after-hours trading.
A bank focused on serving early-stage startups, SVB is a reference for technology companies from Brazil that receive money from venture capital funds worldwide.
With deposit levels falling, SVB CEO Greg Becker said that cash burn by client companies increased in February.
The funds from the stock sale will be reinvested in short-term debt and increase the bank’s lending.
Investors and founders of Latin American startups, heard by Bloomberg Línea, said “everyone” is drawing money from the bank “crazily.”
Others believe SVB should put the brakes on withdrawals soon.
“It seems that the consensus among Brazilians to take the money out is stronger, perhaps because of our experience with this kind of situation in Brazil,” said a founder heard by Bloomberg Línea on condition of anonymity.
SVB had representation for Latin America through Julia Figueiredo, who was the director for the startup banking region.
The executive left the bank almost a year ago, in April 2022, to take on the Latin America directorate at Partners for Growth.
A founder heard by Bloomberg Línea said Figueiredo was SVB’s primary point of contact in the region and that without her, “the staff’s hands were tied in terms of support.”
OPPORTUNITIES IN THE FACE OF THE CRISIS
In the face of the SVB crisis, the Brazilian startup Trace Finance, which operates with foreign exchange for startups, anticipated launching what intends to be an alternative to bank companies.
Latin American startups usually need a legal structure with a company in the Cayman Islands and another in Delaware, in the United States, to receive investments from foreign funds.
Trace, which already operated these transactions by bringing the money to Brazil, will now offer a bank but said it would not work with credit to avoid problems like SVB’s.
According to the CEO and co-founder of Trace Finance, Bernardo Brites, the company will serve as a banking partner for startups in the United States.
On this soft launch Thursday alone, startups with more than US$3 billion entered the waiting list for Trace’s US bank.
“We understand that the market is in risk mode and that caution is the most important thing today. We will not have a fractional reserve; all users will always have 100% of their balance sheet.”
“And we will not get into a credit product because we will never lend our users money. We understand that the founder may want to withdraw the money whenever he wants,” Brites said.
Trace Finance’s bank will focus on a no-fee checking account with international transfer and is expected to launch a debit card.
In addition to Trace Finance, large banks like Itaú BBA and management companies like Genial Investimentos also had SVB as a benchmark with the proposal of access to capital, foreign exchange, and banking for startups.
“We used SVB as a client because there was no alternative to bank the company in the Cayman Islands and Delaware,” Brites said.
“The entire ecosystem of startups and funds in Latin America was in SVB.”
Brites plans to bring that money and the customers at SVB to his new bank.
With information from Bloomberg