Brazilian startups try to circumvent the effects of the SVB bankruptcy – 03/18/2023 – Market

Brazilian startups try to circumvent the effects of the SVB bankruptcy – 03/18/2023 – Market

Silicon Valley Bank (SVB), an American bank focused on the technology sector that went bankrupt last week, was a common option among Brazilian startups seeking investments in the United States. Venture capital funds and financial advisors recommended SVB as an option for businesses based in the US.

The advice was given by the largest venture investment fund in the world, Sequoia Capital, and also by financial advisors, such as Kamino and Latitud, for companies seeking to make the so-called “Cayman sandwich”.

The operation consists of opening an offshore company in a tax haven (Cayman) and a headquarters in Delaware, USA, transforming the Brazilian unit into a subsidiary. The arrangement, organized to raise investments from venture capital funds, is advised as a means of evading taxes.

From the point of view of investors, this design ensures that their assets operate in a country with known legislation and legal certainty (USA). The model, however, is accepted by few banks — SVB was one of them.

Latin American startup accelerator Latitud recommended the “Cayman sandwich” for startups that would raise more than $500,000 or more than $100,000 with preferred stock (with voting rights). For Gina Gotthilf, co-founder of the company, the best service for these companies, until then, was the SVB.

According to a survey carried out by the startup Trace Finance, which operates in the market for international remittances from the US to Brazil, more than 90% of the national startups that maintained offshore had an account with the SVB.

The survey was based on data from initial public offerings and investment rounds.

Trace itself was an SVB client, says Brazilian Fintech CEO Bernardo Brites, when it received its first round of funding in February 2022.

Seeing the first signs of the crisis appeared in the newspapers on Thursday (9), the startup advanced the launch of its banking service with a waiting list. “On Friday, we held a joint effort to manually register the orders we received”, says Brites.

The startup’s promise is to accept applications from companies with more than US$ 500,000 in cash within three hours.

Trace Finance says it already has 65 clients and manages $1 billion. “Our waiting list has more than one hundred companies with a total balance of US$ 3 billion”, adds the CEO of the startup. The bank still receives leads.

Fintech Brex, founded by Brazilians Henrique Dubugras and Pedro Franceschi, was another destination for startup money. On the 10th, the company announced an emergency credit line for SVB customers to cover their operating expenses.

The alternatives aim to fill a gap in the market, since large banks, such as JPMorgan Chase, ask for US$ 10 million in cash and 60 days to open an account.

Loggi, Gympass, Creditas, QuintoAndar, Wildlife Studios, Stone, Loft, Vtex, Pipefy and Petlove are among the Brazilian startups that had SVB accounts. They claim to the report that they have no exposure to the bank.

According to Junior Borneli, founder of the StartSe business school, Brazilian businessmen started to move as soon as Bloomberg published the first news of atypical movements on SVB on the 9th. entrepreneurs”.

SVB had about $209 billion in assets, making it the 16th largest bank in the US. Most of its account holders were innovative businesses.

In an article published in the Financial Times, the owner of Sequoia Capital, Michael Moritz, says that since 1983, when it opened, the SVB has gained a reputation as one of the pillars of the technology industry.

In the bank’s wallet was $50 million from PayPal founder Peter Thiel, according to the Financial Times.

Although the US government has stated that all bank customers will be able to withdraw their deposits, smaller companies have found it difficult to access their funds, says Benjamin Gleason, partner at Kamino, a company specializing in advising startups with financial bureaucracy.

“A collapse of this proportion happening with an institution as solid as SVB was unthinkable for most of the startup ecosystem, but it is always good to be cautious. We guide startups to diversify their financial institutions”, says Gothlib, from Latitud.

The breakdown of the SVB should affect the global and Brazilian startup ecosystem, according to Junior Borneli. The banking crisis, which also involved Credit Suisse and First Republic Bank, is likely to increase risk aversion among investors around the world. This can increase the willingness to hedge your money with high-interest US government bonds.

For Amure Pinheiro, founder of the startup investment platform,, 2023 will be one of adaptation, after two years with a lot of capital in the venture market. “For those who invest, it’s good, because good assets are cheaper on the market and unsustainable businesses get in the way.”

In Pinho’s evaluation, startups with less than 60 employees will be more likely to merge to strengthen the structure and face times without easy credit. “Some of these small companies have solutions and talent to offer.”

Bornelli, in turn, says that larger startups that planned to enter the capital market with a first initial offering (IPO, its acronym in English) will have to accept lower values.

For fintech Distrito, the lack of funding may maintain the trend of staff cuts in newcomers to streamline the business. Other startups have sought lines of credit to continue operating.

Benjamin Gleason, from Kamino, says that, after the collapse of the SVB, venture investment funds should start to value the company’s treasury strategy as an evaluation criterion. “It won’t do any good to have only profit and talent, it will be important to show that you have more than one bank, insurance, etc.”

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