A major US lender and bank of choice for Indian start-ups operating in the US, Silicon Valley Bank (SVB) was shutdown by Federal Deposit Insurance Corporation (FDIC) on Friday after its failed fundraising efforts.
Multiple ecosystem stakeholder told businessline that majority Indian SaaS companies and YCombinator-backed start-ups had exposure to SVB and are expected to be hit by its failure.
Nitin Sharma, General Partner & Co-Founder, Antler India, said that while there is no specific data on the number of SaaS companies impacted by this event, we know that a majority of SaaS companies from India had exposure to SVB.
According to Ankit Parasher, Co-Founder of YC-backed fintech start-up SALT, “SVB was the default bank for any international start-up expanding operations to the US. It was a stable bank and most VCs recommended it, so the impact of SVB failure is expected to be even larger than just Indian SaaS companies and YC-backed start-ups.”
“Our phones have been ringing constantly from past 48 hours with start-up founders reaching out about SVB failure. We have been helping start-up with FDIs in India, in getting bank accounts setup in GIFT city and traditional banks. Hopefully FDIC is working fast on recovery and relief to the depositors,” Udita Pal, co-founder of SALT added.
Gaurav VK Singhvi, Co-Founder at investment network We Founder Circle, also said, “SVB has been a preferred bank for a lot of Indian SaaS and Y Combinator-backed start-ups operating with Silicon Valley Bank largely because of its flexibility and maintaining ease in fundraising operations. The news comes as a big shock and the shockwaves could have a limited impact on Indian start-ups directly and indirectly.”
According to Rahul Mathur, Founder and CEO of Y Combinator-backed Verak Insurance, “About 60 per cent of YC-backed companies have more than $250,000 in SVB bank accounts.” This could include Indian start-ups, given that India makes for the second highest number of startups in YC cohorts after US.
Expecting resolution
On the other hand, Nitin Sharma believes that a resolution will come in a couple of days and the receivership period is not too long. “While a majority of the Indian SaaS companies may have had some funds with SVB, and some VC funds headquartered in Delaware may have capital call lines from SVB, I think the overall fallout in India will be limited. We know that some Indian SaaS founders transferred funds to other banks before Friday and some already had accounts with multiple banks,” Sharma added.
Also read: SVB chief sold $3.6 million in stock days before bank’s failure
Further, commenting on the development, said Siddarth Pai is the Founding Partner, CFO, and ESG Officer of 3one4 Capital said, “The biggest lesson from the SVB situation is the perils of the lack of diversification in operations. SVB emerged as a friendly alternative to the mainstream banks who had these practices, engendering loyalty in their customers. This led to the concentration crisis that’s affecting these start-ups today. As the issue gets resolved, risk management will take front row in boardrooms of startups to ensure such a situation doesn’t arise again.”
Wakeup call
Pai added that for many Indian start-ups who have headquarters in the US but teams, business and operations in India, this is another wakeup call of the perils of foreign HQs when there’s no economic or business rationale for the same.
Similarly, Anirudh A Damani, Artha Venture Fund - Managing Partner, said, “As an early-stage investor, I believe that the recent shutdown of SVB significantly impacted Indian start-ups operating or based in the US. This incident is a crucial reminder for entrepreneurs to re-evaluate their treasury management practices. As a result, we recommend that our portfolio start-ups diversify their banking receipts and split their treasury across multiple options for better security, liquidity and returns.”