Korean start-ups sweat the weekend, learn about cashflow

An employee holds the door open at the Silicon Valley Bank branch office in downtown San Francisco, California, on Monday. [REUTERS]

Start-ups remains vigilant about the potential fallout from Silicon Valley Bank’s (SVB) failure and are wary of weakening investment sentiment.

Some start-ups in Silicon Valley led by a Korean CEO and Korean venture capital firms that have money in SVB had a restless weekend after the 16th-largest bank in the United States shuttered last Friday. Direct impacts on local start-ups are limited since their exposure to the SVB is relatively weak, say sources from the industry. But some start-ups did have money at SVB.

The company had deposits at another bank and we were able to make payroll on the 15th, Lee Chang-su, CEO and founder of Allganize, said in a social media post on Sunday, adding that the issue made him realize the importance of cash flow.

Another Korean founder of a California-based start-up said he was only relieved at late hours on Sunday when the U.S. government released a statement and promised that SVB customers will be made whole.

According to Korea Trade-Investment Promotion Agency late last year, 36.7 percent of start-ups that expanded their businesses overseas are based in North America, and half of these companies are in Silicon Valley.

The venture capital firm industry was also busy. A source from the industry who requested anonymity said he had to work over the weekend because some start-ups, that his company invested in, had their money locked up in SVB.

Some fear that the SVB failure may disrupt the investment sentiment in start-up. Local startups raised 6.76 trillion won ($5.18 billion) last year, down one trillion won from the 7.68 trillion raised in 2021, according to the SMEs and Startups Ministry.

“We will not be exempt from the indirect fallout, such as the strained investment market, that are going to hit startups in Silicon Valley,” Lee Ju-hwan, CEO of Swit Technologies, a team collaboration platform developer that moved its headquarters from Seoul to San Francisco last year, said.

The news further slims the chance for start-ups to rake in more funding as it comes during a period of an economic slump where people want to avoid risks and want startups to make efficient use of their money, Lee added.

There are others who think local start-ups will not be significantly impacted by the shutdown. A spokesperson for Korea Startup Forum, which has some 2,000 member start-ups, said local start-ups are likely to avoid the repercussion because many have grown targeting only the domestic market.

Finance regulators also think that though the SVB failure increases uncertainty, the Korean banking system is strong enough to withstand the damage.

“Local financial institutions have different asset and debt structures,” Finance Minister Choo Kyung-ho said during a meeting with finance officials on Tuesday morning. Choo added that banks have strong liquidity and sufficient fundamentals to withhold a temporal shock.

As with SVB, deposits at local banks grew during the pandemic. But unlike the collapsed bank, they raised loan rates to widen the loan-deposit margin rather than investing in stocks and high-risk assets.

According to the Bank of Korea, local banks received 107.4 trillion won more deposits last year than they did the year before. During the same period, household loans dropped by 8.7 trillion won but business loans increased by 104.6 trillion.

BY YOUN SANG-UN, KIM KYUNG-HEE AND SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]