As we rushed to report on the collapse of SVB, one of the most important banks for global tech startups, it became apparent that certain old assumptions weren’t holding up. Received wisdom has said that Latin America is a far less desirable place to conduct financial transactions than the United States. The region indeed has a reputation for corruption, inefficiency, and ultimately, for having far less cash to invest than the U.S.
A Colombian founder gave us this killer quote that summed it up perfectly: “What is more likely: for a big bank to go down in Mexico or in Silicon Valley?”
The assumption that Latin America is inherently more unstable than the U.S. will continue long past this particular crisis. What has been interesting in the past weeks, though, is that the aftermath of the SVB collapse might be producing some unexpected reactions across the region — namely, the emergence of local endeavors looking to gain some independence from the U.S.’ grand old institutions.
To understand how this is playing out, one first needs to look at what was happening right before the collapse. The last few months of 2022 were particularly fruitful for Latin American startups looking to get large sums from Wall Street, as opposed to any local offerings in exchange for equity. Goldman Sachs was particularly keen to splash the cash, shelling out well over a billion dollars to Latin American tech companies in that period.
Post-SVB, global banking has immediately become more risk-averse, making startups and particularly companies from far-off regions like Latin America less palatable. Meanwhile, Latin American founders and investors are looking around and noticing that the financing and banking options available to them — on both sides of the Río Grande/Bravo — are not that great either.
The result has been the creation of a variety of financial institutions, which cropped up to prop the Latin American startup ecosystem back up.
The Hispanic/Latino Emergency Fund (LEF), for instance, was created by a group of founders who aim to support Latin American, Hispanic, and Latino communities across the U.S. and Latin America that were affected by the collapse of SVB and the subsequent turmoil.
Despite the U.S. government’s guarantee on SVB deposits, “the idea is to go ahead with the establishment of the fund,” Esteban Gorupicz, a Mexico-based Argentine entrepreneur and founding member of LEF, told me. “Because it will be needed later as the crisis continues to unfold. That is our vision: that we are going into a bigger crisis … And this fund will allow us Latinos to weather the storm better and overcome it faster.”
Meanwhile, talks to establish financial institutions modeled on neo-banks to get around as much Latin American red tape as possible are also in the works. The idea seems to be to give startups — who had worried most of their money had been trapped in the sinking ship that was SVB — an alternative not only for funding but for accessing their own funds in their own region.
As panic subsides, we will doubtless see a return to the norm: Money will flood back into Latin America from heady U.S. coffers, and Latin American founders will flock back to the perceived security of the United States. What becomes of these endeavors might be a blip on the radar or the start of a new phase in the region’s tech-financing ecosystem.
