Due to the recent collapse of Silicon Valley Bank which acted as life support to so many startups, reports reveal that so many Indian startups have been severely impacted.
This collapse has sent shock waves in the Indian startup sector, which was already facing a funding problem.
Several venture capitalists disclosed that some Indian startups delayed withdrawing their funds from the bank because they do not have another U.S. banking account readily available. Many Indian startups are reported to be incorporated in Delaware to make it easier for them to raise capital from the U.S.
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Several Indian startups such as One97 Communications & Bharat Financial Inclusion, Bluestone, and PayTM, who have exposure to SVB’s investments may now be worried that their raised funds are stuck.
This sudden collapse of SVB would no doubt have a ripple effect on India’s startup ecosystem, which could lead to a cash crunch for many firms, which would lead to delays in executing projects, cutting costs, or mass laying off employees.
SVB has been a major player in the Indian startup ecosystem, providing banking services and funding to many of the country’s most successful startups such as Zomato, Ola, and Flipkart.
The bank has also been instrumental in helping Indian startups expand into the US market, by providing them with the necessary infrastructure and support to set up operations in Silicon Valley. Nearly all Indian SaaS startups with a large presence in the U.S. banked with Silicon Valley Bank.
A US-based investor, who requested anonymity disclosed that he knew for a fact that many Indian firms had about $4-10 million parked in their Silicon Valley bank accounts. A group of Indian YC founders polled members about their exposure to SVB and found that more than 60 firms had over $250,000 stuffed in SVB.
Indian SaaS startups and those backed by YC who set up their companies in the US and raised their maiden round there often had SVB as their default bank. India’s head of Mirae Asset Ashish Dave said, “Uncertainty is killing them. Growth ones are relatively safer as they diversified”.
The collapse of Silicon Valley Bank has had a significant impact on startups’ finances, including a 30% payroll deficiency among Y-Combinator-backed companies exposed through the bank.
Founded in 1983, the bank had since been the go-to bank for startups and entrepreneurs in Silicon Valley and beyond.
SVB’s downfall can be attributed to a bank run, which is when a large number of depositors withdraw their funds from a bank all at once, due to fear of insolvency.
Silicon Valley bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve’s aggressive plan to increase interest rates to combat inflation.
SVB bought billions of dollars worth of bonds over the past couple of years, using customers’ deposits as a typical bank would normally operate.
These investments are typically safe, but the value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued in today’s higher interest rate environment.
The bank’s massive decline began late Wednesday, when it hit investors with news that it needed to raise $2.25 billion to shore up its balance sheet. This spurred customers to move in droves withdrawing a staggering $42 billion of deposits by the end of Thursday.
By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources. Currently, those who still have their funds left with the bank face an uncertain timeline for retrieving their money.