Since Silicon Valley Bank‘s meltdown on Thursday morning, more than 400 startups in Latin America seeking a new home for their international banking needs have fled to a single Brazilian fintech startup called Trace Finance.
“Throughout Thursday and Friday, we initiated a lot of payments out of SVB,” Trace co-founder Bernardo Brites said. “We were in desperate mode, trying to help as many companies as we could.”
Trace itself is a nascent, seed-stage startup but has added an estimated $1.5 billion in new customer accounts to their waitlist in recent days, according to Brites. Founded in 2021 as a cross-border payments provider, Trace closed a $4.3 million seed round in February 2022 that was led by New York-based HOF Capital.
Last week, seizing on the exodus of SVB depositors, Trace launched a competitor checking account, and many founders have jumped at the opportunity. Startups including Rocket.chat, Mercado Bitcoin and Rentbrella have all signed up for the new banking service, TechCrunch reported.
The scramble for alternatives speaks to the chaos that SVB’s collapse has left behind for clients in emerging-market nations.
Even as the dust settles, several banking platforms are fielding requests from countless startups in Latin America that don’t have a reliable banking partner for international transfers.
Fintech startups like Brex, Ramp and Mercury have grabbed a share of the customers fleeing the lender. Brex has reportedly received billions of dollars from a slew of startups that frantically moved their capital during the past few days.
In the Latin American venture economy, SVB played a leading role as a lender to startups that were raising money from international investors, said Lucas Abreu, a venture capitalist at Sao Paulo-based Astella Investimentos. “SVB was a really important part of the ecosystem,” he added.
Late Monday, SVB’s successor institution, now under federal control, declared that its operations are back online. CEO Tim Mayopoulos began encouraging depositors to return, saying the bank had resumed “business as usual,” but it is far from clear whether a critical mass of customers will actually return.
Latin America isn’t the only market in which SVB was punching above its weight. Chinese startups made up SVB’s second-largest customer base, and they could be facing lengthy obstacles to move their assets, The Information reported Tuesday.
Many larger, growth-stage startups in Latin America have already transferred their money to a large bank, like Morgan Stanley and JP Morgan. “When you have over $20 million in your account, every bank will want you,” Abreu said.
But it’s a much different story for seed and early-stage startups, he said, adding, “It’s not that attractive for the big players to capture the seed-stage companies.”
Many top-tier VC firms require that Latin American startups bank in the Cayman Islands or Delaware, because of their more favorable tax regimes, which presents an additional challenge to early-stage founders in emerging markets.
As fintech startups scramble to capture a share of SVB’s former customers, it remains to be seen where founders will put their money over the long term. Some, especially seed-stage startups, may eventually return to SVB.
“Trace Finance could really be one of the companies to capture this opportunity,” Abreu said. “But it’s still too early to tell.”
This story was updated to clarify that $1.5 billion in new customer accounts have been added to Trace’s waitlist in recent days.
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Featured image of Sao Paulo, Brazil, by Diego Grandi/Shutterstock
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