On Friday, when news broke that Silicon Valley Bank (SVB), the darling bank of most startups and venture capitalists, has crashed abruptly, panic immediately spread among the customers of African startups like Chipper Cash, many of which are headquartered in the US.
Several African startups have funds in the now-defunct bank, which had its doors closed by the Federal Deposit Insurance Corporation (FDIC) following a bank run described as the worst bank failure since the 2008 financial crisis.
As founders and industry watchers scramble for answers on how the SVB’s closure will affect African startups, much of the attention immediately went to Chipper Cash. This Pan-African cross-border payments platform was listed as one of SVB’s customers. In May 2021, Chipper Cash, one of Africa’s most valuable startups, raised $100m Series C in a funding round led by SVB Capital, the investment arm of the embattled SVB.
But in a statement published on the company’s website on Sunday, CEO and Co-founder Ham Serunjogi said the fintech unicorn has “insignificant exposure” to SVB’s closure.
“Given the scale and complexity of our global operations, Chipper Cash maintains multiple banking relationships across the world – including multiple within the United States. As such, we had a very limited amount of money (only about $1M) held in our SVB account at the time the bank was taken over by the California regulator,” he said.
Serunjogi further noted: “SVB made their investment in Chipper in 2021 and we received those funds as soon as that round closed. What is happening now doesn’t change that. Additionally, SVB wasn’t the only investor in that round – we had several other new and existing investors participate in the $100m round – and SVB owns a very small part of Chipper ~2%.”
On fears that SVB’s troubles might spell doom for the startup, Serunjogi clarified that the company is expected to get about half its funds back from the FDIC. In a joint statement, FDIC, the Federal Reserve, and the Treasury said all SVB depositors, insured or not, would have access to all their money from Monday.
Read also: USDC hits all-time low following Silicon Valley Bank collapse
Like FTX, like SVB
The SVB debacle is coming months after the global tech ecosystem was shaken by the shocking collapse of crypto exchange FTX which sent shockwaves worldwide, with billions of investors’ money lost in the process. The ripple effect was felt across the globe, including in African startups.
For instance, Nestcoin, a Nigerian web3 startup, which held assets (cash and stablecoins) in the now-defunct crypto exchange, laid off some employees. Chipper Cash, which raised 150 million dollars at a two billion valuation in a round led by FTX, reportedly laid off what is believed to be a significant portion of its workforce last December. Erin Fusaro, the vice president of engineering at Chipper Cash, said in a LinkedIn post that “a significant amount” of the members of the engineering and IT teams were gutted in the layoff.
Per TechCrunch, Chipper Cash saw its valuation slashed from $2 billion to $1.25 billion before FTX’s bankruptcy, according to documents from the Financial Times on Alameda’s venture capital portfolio.
Hard times ahead for African startups
Chipper Cash said the SVB collapse has “insignificant exposure” on it, allaying fears from customers and industry players. But its relief isn’t shared by most African startups who may be directly affected by the bank crash. The reason isn’t far-fetched.
Yearly, several African fintech startups are admitted into Y Combinator and Techstars — the two US-based accelerators that partner with SVB. “30% of Y Combinator companies exposed through SVB can’t make payroll in the next 30 days,” YC’s president, Garry Tan, tweeted. It’s safe to say hard times are ahead for the affected African startups.
Though African fintechs — like Risevest and Vesti — have told customers that their customers of the safety of their money, there are reports that some of their counterparts have their funds trapped in SVB.
Chika Uwazie, a former CEO at TalentBase, a Silicon Valley-backed startup, tweeted on Sunday night: “The craziest thing from this SVB debacle is African startups remained largely untouched due to SVB making it nearly impossible for founders from Africa to open up an account with them.”
But some tweeps disagreed, insisting that “Some African startups had a huge chunk of their investment in SVB. They are not saying anything so as not to scare or spoof their customers.”
In what may be considered a rescue mission, HSBC acquired the UK subsidiary of SVB, just as the US Federal Reserve announced the establishment of a new Bank Term Funding Program to protect institutions affected by the market instability caused by the SVB failure.
Read also: HSBC acquires SVB UK for £1 as US launches new Bank Funding Program
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