When Miferia, a wholesale online marketplace in Mexico, launched in 2022, its investors conditioned a $7 million seed round on the company setting up a bank account in the United States. Nassar Mohamed, its chief product officer, told Rest of World that for a startup like Miferia, an account at Silicon Valley Bank (SVB) was the obvious choice. The company opened an account with SVB that same year.

On March 9, 2023, when panic surrounding SVB’s capacity to hold deposits spread among investors, Miferia’s team moved swiftly to withdraw money from the bank, but its requests weren’t immediately processed. “We had a really tough 36 hours,” Mohamed said. The company thought a portion of their deposits would inevitably be lost, until the U.S. Federal Reserve announced on Sunday that SVB’s depositors would have access to all of their money starting March 13.

For many founders across Latin America and other global emerging markets, having accounts at SVB wasn’t simply their best choice; to some, it was the only choice. “It was one of the few American banks that opened accounts for Latin American entrepreneurs,” Freddy Vega, co-founder of Platzi, a Colombian edtech platform, told Rest of World.

Ripples of the collapse have been felt worldwide, especially in markets with thriving tech sectors. SVB was a fixture of the Chinese and Indian startup scene — companies often found that it was the only bank willing to let them open an account as they started fundraising or looked to set up shop in the U.S. SVB had six offices in China and one in India. It wasn’t just startups that were impacted — South Korea’s national pension fund had a 0.17% stake in SVB Financial Group as well.

Vega, along with many other entrepreneurs, investors, and legal experts Rest of World spoke to, said that for years, startups from emerging markets have been compelled by venture capital firms (VCs) to open bank accounts in the U.S. as a condition to obtain investor money. SVB was virtually the only bank willing to serve these young, foreign startups with little to no business history. With the demise of SVB, these foreign founders ended up entangled in a bank run reminiscent of the ones investors had feared they’d face in their home countries. 

Considering the recent history of bank runs in Latin America — including Argentina’s ongoing financial crisis, triggered after banks froze access to accounts in December 2001, and the Mexican shadow bank collapse in 2022 — investors saw U.S. banks as relatively more stable. “What is more likely: for a big bank to go down in Mexico or in Silicon Valley?” Daniel Bilbao, CEO and co-founder of Truora, a digital identity provider based in Colombia, said to Rest of World. Despite the bank run on SVB, where his company also holds deposits, Bilbao is confident that “the U.S. remains a safer place.” 

This confidence is shared by other regional startup investors, whose worries regarding Latin America’s structural financial issues continue to outweigh their concerns about what they believe was a one-off run in the U.S. — especially after the Federal Reserve stepped in to guarantee SVB deposits. “VC funds still don’t want to invest in companies constituted in Latin America because they don’t have any legal certainty that their investments will be protected,” Francisco Meré, co-founder of Mexican financial wellbeing startup Uellbee and a fellow at early-stage VC fund Latitud, told Rest of World.

“What is more likely: for a big bank to go down in Mexico or in Silicon Valley?”

Investors like Shu Nyatta, managing partner at Bicycle Capital, had been less confident in SVB all along. “We warned founders … in November that they should think of alternatives, given SVB’s precarious balance sheet,” he told Rest of World. But for many Latin American founders, there was no alternative to SVB, given that many startups were constituted as a “Cayman sandwich,” according to Meré. The term refers to when founders create a holding company established in the Cayman Islands with an intermediary in Delaware, while operating the company in Latin America. SVB was particularly welcoming to these “sandwich” companies. 

Francisco García Osuna, an investment associate at the Mexico City-based VC firm Melek Ventures, told Rest of World the Cayman Sandwich model was so relatively new and specific to the tech startup sector that traditional banks were still wrapping their heads around it. If a Latin American startup tried to open an account at J.P. Morgan and Bank of America, “they’d be reluctant,” he said, given that “for example, the companies didn’t sell in the U.S.”

According to Gerardo Macías, managing partner at Astelaris, a consulting firm for startups based in Monterrey, reservations from U.S.-based banks about young, foreign startups will persist, no matter the fate of SVB. Founders in search of a new place to keep and borrow money within the U.S. will now have to overcome new regulatory hurdles. Nevertheless, García Osuna believes that startups from emerging markets will still “attempt to diversify their bank accounts to stop depending on just one bank.”

Even after the SVB debacle, the bank of choice for many founders in Latin America will still be one in the U.S. — at least in the short run. “It is not easy to move money from the U.S. to Colombia because there are many restrictions,” Felipe Restrepo, CEO of Vecindario, a Colombian proptech startup that also had money in SVB, told Rest of World.

But according to other entrepreneurs, in this case, Latin American banks did actually rise to the occasion. “Several banks in Colombia and Mexico set up quick arrangements to help us get transfers from SVB,” said Truora’s Bilbao, who managed to withdraw his money from SVB at the 11th hour. “We learned that startups need relationships with several well-established banks to operate, both in Latin America and in the U.S.”

The long-term fallout from SVB’s collapse sparks fear in many founders and investors across the world’s emerging tech sectors, according to García Osuna. Without a bank so willing and able to open accounts for foreign startups, few will be able to provide VCs the structure they say they require to make investments outside the U.S. Even after the Fed’s announcement, “VCs will be much more reluctant to invest in Latin America. We’ll probably see less investment in the next two months,” said Macías.