Will SVB Bankruptcy Shrink Domestic Venture Investment?..."Limited Impact for Now"

Short-term Investment Sentiment Contraction Inevitable but Direct Impact Likely Small
US Korean-American VC Altos Ventures 'Sigh'
Warning of Aftershocks Striking with Time Lag Possible

As Silicon Valley Bank (SVB), a venture loan specialist centered in Silicon Valley, USA, files for bankruptcy, attention is focused on the aftermath. The domestic venture and startup industry is also on high alert for any possible ripple effects.

According to industry sources on the 15th, the damage to domestic startups and venture capital (VC) firms from SVB's bankruptcy is expected to be limited. While a contraction in investment sentiment is inevitable for the time being, the prevailing view is that direct hits will be rare.

[Image source=Reuters Yonhap News]

A venture capital representative said, “Most domestic VCs form funds through domestic limited partners (LPs) and invest in startups,” adding, “Since the primary investment targets are domestic companies on a broad scale, it is safe to say that the SVB impact is virtually nonexistent.”

For domestic startups to deposit funds or receive investments from SVB, they must establish a corporation in the United States. It is rare to find VCs and startups operating with a U.S. corporation. Practically, it is not easy for domestic companies to use SVB.

One example is Riiid, an artificial intelligence (AI) education solution startup once dubbed the “second Coupang,” in which SoftBank Chairman Masayoshi Son invested 200 billion KRW. Riiid had been pushing forward with establishing a new corporation to relocate its headquarters to the U.S., but the plan has been temporarily postponed.

Of course, there are some related cases. A VC investment analyst said, “Some portfolio companies have established U.S. corporations aiming for Nasdaq listing and continue transactions with SVB,” but added, “However, there is no rule that they must use only SVB.” He further noted, “Since the U.S. government has taken measures to protect depositors, the impact of the SVB incident will be limited.”

However, VCs with U.S. corporations are showing signs of tension. Altos Ventures, a Korean-American VC in the U.S., has about 60-80% of its U.S. VC fund portfolio transacting with SVB. Han Kim (Han Kim), CEO of Altos Ventures, said via social media, “We are working to help portfolio companies whose funds are frozen due to this incident,” adding, “It will take several months for startups to recover their funds.”

A contraction in investment sentiment is inevitable. Following abnormal interest rates originating in the U.S., startups have been struggling due to a lack of liquidity, and the SVB incident has added insult to injury. According to Startup Alliance, domestic startup investment amounted to 295.2 billion KRW last month, a 75.2% decrease compared to the same month last year. Even if the SVB bankruptcy does not have a direct impact in this situation, there is significant concern that it could negatively affect investment sentiment. In particular, some point out that even if there is no immediate adverse effect, aftershocks may hit with a time lag. There is also a warning that it would be unwise to ignore this as someone else’s problem.

Meanwhile, while the SVB incident is mainly attributed to the tightening of the investment market due to interest rate hikes, another perspective is raised in the market. SVB has been criticized for being overly focused on DEI (Diversity, Equity, and Inclusion). SVB reportedly prioritized race, sexual minorities, and women over financial expertise when hiring executives. When issuing loans, it is said that DEI was prioritized over the future value or repayment ability of the target companies.

This content was produced with the assistance of AI translation services.