Latin American tech startups scramble after SVB collapse

By Kylie Madry

MEXICO CITY (Reuters) – Tech startups in Latin America are struggling to search out banking alternate options after the sudden crash of Silicon Valley Financial institution (SVB), one of many few banks that supplied much-needed greenback accounts and catered to the particular wants of the sector.

“This touched (nearly all) venture-backed firms in Latin America,” mentioned Brian Requarth, the Mexico Metropolis-based co-founder of startup platform Latitud.

Native startups now have few alternate options for a banking companion within the wake of SVB’s collapse, Requarth mentioned. Over the weekend, U.S. regulators introduced an emergency plan permitting depositors of Santa Clara, California-based SVB to entry their funds.

In 2022, greater than 1,300 startups in Latin America raked in an estimated $28.17 billion in funding, in line with the Affiliation for Non-public Capital Funding in Latin America.

Vicente Garrido, the co-founder of Mexican rental property startup Roddo, informed Reuters he nonetheless was unsure whether or not the corporate would make payroll this week.

“We had all of our capital there, within the U.S.,” Garrido mentioned. “In Mexico, we held only a fifth of what we spend in a month.”

Startups within the area usually relied on SVB as one of many few banks that supplied them U.S. greenback accounts, a requirement from enterprise companies offering capital in bucks.

Startups would open SVB accounts utilizing what Requarth referred to as a “Cayman sandwich,” utilizing holding firms within the Cayman Islands and restricted legal responsibility firms (LLCs) within the U.S. state of Delaware to keep away from a taxation double whammy if the agency was ever offered.

“That is the usual for the way venture-backed firms function in Latin America,” Requarth mentioned.

Whereas firms have largely been in a position to transfer their cash out of SVB, they’re now left with out a long-term plan, he added.

On Monday, Roddo was in a position to transfer its cash from SVB to quite a lot of money accounts the startup had opened with U.S. monetary tech companies, Garrido mentioned. Nevertheless, it could not are available in time for workers’ mid-month paychecks, he added.

The money accounts are a stopgap measure, Garrido acknowledged, because the startup remains to be seeking to open an account by means of its Cayman holding firm.

“(A financial institution) informed me, ‘Usually we do not open accounts for lower than $5 million,'” Garrido mentioned. “‘However I will make an exception for you, and I will allow you to open an account with $2 million, $2.5 million.'”

Garrido says he’s uncertain how lengthy it would take to open an account as a result of demand and regulatory crimson tape, including he had additionally been in contact with different establishments like Santander (BME:), Financial institution of America Corp (NYSE:) and Citigroup Inc (NYSE:).

In China, one other startup hub, entrepreneurs informed Reuters they have been turning to bigger U.S. banks or Chinese language lenders.

Nevertheless, Latin American startups complain that banks within the area lack the help they want. 

Garrido mentioned in Mexico, banks have been simply starting to launch merchandise that cater to startups, and so they had but to show they’d the information, capital and institutional power to help them.

“My European and American traders most likely would not have felt so comfy investing (in a Mexican account),” Garrido added.