Silicon Valley Bank collapse: the worst is over, but Latin American startups face an obstacle course

“An entrepreneurial friend has just written to me and tells me that she can finally sleep, eat and rest,” says Daniel Bilbao.

The Colombian is the founder of Truora, one of the hundreds of Latin American

, many of which had their resources deposited in Silicon Valley Bank (SVB).

The 16th largest bank in the United States, SVB, was seized by US authorities on Friday after its investment strategy failed.

That the Joe Biden government insured customer deposits (some $175 billion) was a sigh of relief for many company directors in Latin America.

The three largest in the region, the C6 bank of Brazil, the Colombian Rappi and the Mexican Kavak, responded to EL PAÍS that they were not affected by the fall of SVB since they had not deposited their resources there nor were they shareholders.

Beek, a Mexican audiobook company, responded that they only had a portion of their resources in SVB and managed to get them out before the bank went under.

Bilbao also managed to withdraw the funds of his company from SVB and deposit them in another bank since Thursday, but he estimates that dozens of Latin American companies were affected.

This is the third great moment of panic for the generation of entrepreneurs in the technology sector like Bilbao, who is 39 years old.

The 2020 pandemic was the first: "One thought we were all going to break and that turned out to be a boom because digitization was advanced five years," he recalls.

Then came last year's stock market crash, during which

that didn't have a viable business model went bankrupt and many others saw share price losses.

In addition, the investment dried up.

According to a report by the analysis firm CB Insight, financing for technology companies in the financial sector (known as

) based in Latin America and the Caribbean fell 71%, from its peak of $13.9 billion in 2021 to $4 billion in 2022. This was the largest percentage drop in fintech funding for any region in the world in that

.

The fall of SVB is the third major blow to this sector, since SVB was for many companies the only bank that opened accounts for them during its initial stage, says Bilbao.

But if it is a crisis, Latin Americans are cured of fears and that could be a competitive advantage.

“The crisis of 1999 to 2000 in Colombia is the most terrible crisis that I have seen in my life, where one's schoolmates went to another country, the people who had companies closed them and went to another side of the world. , there were many kidnappings”, affirms Bilbao.

“With all due respect, the crises in Latin America are tougher than the gringas, by far.

So, I think that is why the Latin American entrepreneur is more silent”.

This is the same sentiment of Alexander Torrenegra, CEO of Torre, a technology company whose financing was backed by big names like Apple and SpaceX.

Both his personal savings and resources from several of his companies and even his mortgage were with SVB.

On his Twitter account, Torrenegra recounted: “I migrated to the United States from Colombia with almost nothing.

I have friends whose parents lost everything in bank runs in Latin America.

For this reason, when I found out that hours ago a bank run had begun, I did what I considered essential to safeguard the salary of my employees, my family's savings and the future of my company”.

“My thoughts now are with the thousands of hard-working Silicon Valley Bank employees who will soon be out of a job,

their capital will be wiped out due to the misjudgments of their bosses,” he continued.

“It has been a week of extreme anxiety and uncertainty for me and many others.

If you were affected too, stay strong, stick with it, and hug your loved ones.

You will recover."

The winners of this fall will be the big investment banks.

Both Beek and Truora, for example, opened accounts at JPMorgan, the Wall Street giant, where they transferred the resources they had deposited at SVB.

This will imply greater restrictions for small companies that dream of growing on a large scale, since the largest banks require greater strength to do business with companies.

In a report published on Monday, ratings firm Moody's warned that it is contemplating a rating downgrade for six other banks in the US, following the fall of SVB.

This exacerbates tough financial conditions for the technology sector, which is already under pressure from rising global interest rates.

"Entrepreneurship is objectively more difficult now than two years ago," says Bilbao.

“Having a viable

is objectively more difficult now that interest rates are higher, because investors are comparing between buying treasuries and investing in a

and the

is less attractive.

However, businesses that do a very good job solving problems for customers are not only going to survive, they are going to be much bigger.

This year and next year will be about survival and trying to grow the market, because whoever does well will do very well.

But the ground is harder."

My tweet got a lot of traction.

I migrated to the US from Colombia, South America, with almost nothing.

I have friends whose parents lost everything in bank runs in Latin America.

As such, when I learned that a bank run had started hours ago, I did what I considered essential to… https://t.co/8pfk0IvRD9

– Alexander Torrenegra (@torrenegra) March 13, 2023

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