By India Today Business DeskThe collapse of Silicon Valley Bank has left a host of Latin American technology startups in a tight spot, as they struggle to find banking alternatives, reported news agency Reuters.
Soon after its collapse, the ripple effect was felt by startups around the globe. For Latin American startups, SVB was among the few banks that offered much-needed dollar accounts and catered to their specific.
Brian Requarth, the Mexico City-based co-founder of startup platform Latitud, told the news agency that SVB’s collapse has impacted almost all venture-backed companies in Latin America.
More than 1,300 startups in Latin America raised funding worth an estimated $28.17 billion in 2022, according to the Association for Private Capital Investment in Latin America.
Payroll hurdles for tech startups
Vicente Garrido, the co-founder of Mexican rental property startup Roddo, told the news agency he still was not sure whether the company would make payroll this week.
“We had all of our capital there, in the US.,” Garrido said. “In Mexico, we held just a fifth of what we spend in a month.”
It may be noted that startups in the region relied on SVB as one of the few banks that offered them US dollar accounts, which is a requirement from venture firms providing capital in greenbacks.
Requarth said startups would open SVB accounts using a “Cayman sandwich”, involving the use of holding companies in the Cayman Islands and limited liability companies (LLCs) in the US state of Delaware to avoid taxation double whammy if the firm was ever sold.
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“That’s the standard for how venture-backed companies operate in Latin America,” Requarth said.
While companies have been mostly successful in moving their money out of SVB, they are now left without a long-term plan. At the beginning of the week, Roddo was able to move its money from SVB to a number of cash accounts the startup had opened with US financial tech firms, Garrido said.
However, it may not come in time for employees’ mid-month paychecks, he added. The cash accounts are a stopgap measure, said Garrido, as the startup looked to open an account through its Cayman holding company.
“(A bank) told me, ‘Normally we don’t open accounts for less than $5 million,'” Garrido said. “‘But I’ll make an exception for you, and I’ll let you open an account with $2 million, $2.5 million.'”
Garrido told Reuters that he is unsure how long it will take to open an account due to demand and regulatory red tape. He has also been in touch with other institutions like Santander, Bank of America Corp and Citigroup.
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(With inputs from Reuters)
Kole Prosacco
Kayleigh Rogahn
Cakra News