Singapore VCs, startups rethink risk, as some are exposed to SVB fallout

CALIFORNIA-BASED Silicon Valley Bank (SVB) collapsed late last week following a bank run sparked by panic over its financial health. Halfway around the world in Singapore, corporate lawyer Joel Shen’s phone began ringing non-stop.

The South-east Asian tech specialist, who was in the midst of an office dinner and dance, fielded calls from anxious clients who had funds parked with the bank.

“South-east Asia is quite far removed from the action, but there are still a number of parties with banking relationships with SVB, so we’re not totally immune,” said Shen, a partner at Withersworldwide.

Some clients were also worried about the impact on the stablecoin USDC, of which SVB held a large portion. For a “wobbly” 24 hours, USDC’s peg to the dollar was uncertain, impacting transactions denominated in the cryptocurrency, said Shen. Others feared wider contagion risks.

“I think on Saturday, the worst fear was that this will become like the 2008 financial crisis, and the collapse of one bank will lead to a domino effect.”

The tech and venture world calmed down after US regulators on Monday (Mar 13) morning (Singapore time) assured depositors they will get their money back – including uninsured deposits over the US$250,000 threshold.

Still, while tech companies and venture capital (VC) firms in South-east Asia have largely been spared from the impact of SVB’s collapse, the dramatic downfall of one of tech’s biggest lenders has prompted rethinking of compliance and risk controls.

As SVB sank further into distress over the weekend, companies and investors in South-east Asia raced to assure stakeholders of their limited or non-exposure to the fallout. In an email titled “Your funds are safe”, roboadviser StashAway told clients that their monies, and the company’s funds, were not held by SVB.

South-east Asian accelerator Iterative, in an update to investors seen by The Business Times (BT), said its custodian partner AngelList taps multiple banks and has moved all funds out of SVB.

Early-stage investor Vertex Venture Holdings disclosed that about half of its portfolio companies with a US presence have a banking relationship with SVB.

“Most affected portfolio companies proactively moved their cash balances to an alternate financial institution before SVB was put into receivership,” said Vertex in a Mar 13 Singapore bourse filing.

Meanwhile, Singapore-based Vickers Venture Partners saw mild exposure of about 0.5 per cent across its investments, its chairman and founder Finian Tan told BT.

“We are working closely with our portfolio companies to assess if next steps are necessary and keeping a close eye on any further developments,” he said.

For startup founders who are caught in the SVB crisis, the near-term options are to defer paying bills, borrow money for immediate cover, or raise funds from investors, said Hsiang Low, Asia-Pacific head of legaltech platform SeedLegals.

“Sounds scary, but there’s no need to panic. Agile fundraising from new or existing investors could be a safe bet while the full situation unfolds,” Low said, while urging affected founders to be honest with their teams and backers.

Rethinking risk

SVB’s collapse is a lesson to all chief financial officers to monitor exposure to banks that may not have properly managed the risks around rising interest rates, said Mark Jacobsen, partner at TSMP Law Corporation.

“Where a bank acts aggressive in its terms or products, that may be good for you or not, depending on whether you are looking for a good return on assets or a safer depository relationship. Sometimes, you may just want a boring bank,” he said.

The saga brings to mind an age-old saying: don’t put all your eggs in one basket, said Tan Yinglan, founding managing partner of Insignia Ventures Partners. And always have a backup plan when things go south.

“The risk of things like this happening is always non-zero, no matter where your cash is shored up, so it’s important to know and have measures ready should the risk of these (institutions) become untenable to the company,” he said.

Tan expects that demand for legal and compliance functions could go up in the wake of SVB’s collapse, as startups recognise the importance of assessing risks and regulations surrounding the banks that they work with.

Drew & Napier director Chua Tju Liang likewise noted that the SVB crisis “will cause every startup to re-examine its banking strategy, and to not take the solvency of traditional banking institutions for granted”.

The SVB crisis illustrates the types of risks that startups will have to prepare for in this era of expensive capital, said Murli Ravi, co-founder of venture firm Tin Men Capital. The situation reminds him of the post-2008 mood in VC.

“I entered the VC industry just before the global financial crisis of 2008 got underway and remember the sudden change in mood startups were forced to contend with,” said Ravi.

“I learned firsthand that there is only one solution: build up resilience and don’t overextend yourself during the good times.”