Silicon Valley Bank’s China venture is in doubt as startups struggle to access US funds

The failure of Silicon Valley Bank has left many Chinese funds and tech start-ups stranded, as the collapsed institution served as a key funding bridge for groups operating between China and the United States.

The sudden takeover of SVB by US regulators on Friday also casts doubt on the fate of the Chinese joint venture with Shanghai Pudong Development Bank, which maintains a separate balance sheet and has total assets of 21 billion yuan ($3 billion).

The Silicon Valley lender has played a big role in China’s dollar-based ecosystem for financing young companies, with industry insiders saying funds and start-ups often kept money in the bank before moving it to mainland China.

The flight against SVB happened so quickly — $42 billion left the bank’s coffers in the United States on Thursday — that by the time Chinese policymakers woke up Friday morning local time, attempts to save their money were already in jeopardy.

“We tried on Friday morning, but it was too late. The transfer is still in progress,” said the founder of a Beijing-based technology company, who is worth about $10 million. “It’s really crazy, we didn’t think it could happen.”

The founder, who asked to remain anonymous, hoped that a major American bank would soon take over SVB’s American assets and complete his company. Half of their capital was kept in renminbi on the mainland, in a separate bank, so they did not foresee any immediate payment problems, the founder noted.

Several China-based venture capital firms said some of the start-ups in their portfolios faced similar problems, unable to access funds outside of China that were trapped in the SVB. The bank’s collapse comes at a particularly difficult time for Chinese groups raising foreign capital, as the ecosystem has been hit by Beijing’s tech crackdown, the fight against the Covid-19 pandemic and rising geopolitical tensions with Washington.

Dollar investments in the country’s startups fell by nearly three quarters last year.

SVB was particularly popular among Chinese biotech groups operating between the US and China. More than a dozen technology and life sciences companies trade in Hong Kong and list SVB as their primary bank, potentially jeopardizing millions of dollars earmarked for long-term clinical development programs.

Zai Lab, a developer of cancer treatments with offices in Shanghai and San Francisco, is one such group. The company said on Saturday it had $23 million in exposure to SVB and had about 2.3 percent of its cash and cash equivalents with the bank at the end of 2022.

The Chinese regulatory authorities are urgently looking for a solution to SVB’s local joint venture, in which the American bank has a 50 percent stake. The Shanghai branch of China’s banking watchdog held an emergency meeting over the weekend to discuss the issue, according to a person familiar with the discussions.

SVB’s collapse means it may not be allowed to remain a major shareholder in the business under Chinese commercial banking regulations.

One scenario being discussed is for Shanghai Pudong Development Bank to take over SVB’s stake, “but it depends on how the SPDB thinks about the business’s prospects and whether it can retain another commercial banking license in this regulatory environment,” the person said. . , adding that there was still no firm plan.

The joint venture, founded in 2012, reported a revenue loss of RMB 5.5 million to RMB 195 million in the first half of 2022.

In a statement on Saturday, it said it has a solid management structure and is committed to stable operations in accordance with Chinese laws and regulations.