Indian Startups To Face SVB Crisis Heat, Short-term Chaos Expected
Indian startups breathed a sigh of relief after the UK government facilitated the acquisition of the now-defunct Silicon Valley Bank’s (SVB’s) British arm by HSBC.
In a bid to allay fears, the US Federal Deposit Insurance Corporation (FIDC) announced on Sunday that it had transferred all deposits of start-up-focused SVB to a newly created bridge bank and all depositors would have access to their money beginning Monday morning. President Joe Biden also sought to reassure jittery depositors that they can have confidence that the US banking system is 'safe'.
"Government is bailing out depositors, and that ensures continued faith in the US banking system for the startups and VC ecosystem. We were also part of a petition from YCombinator which requested the government to intervene. For me personally, the support received from the entire ecosystem, existing investors and other fellow founders was pivotal and also showed the power of the community we belong in", says Sourabh Deorah, Co-Founder and CEO, Advantage Club.
Late Friday night, it was a long wait for several Indian start-up founders who had accounts at the troubled Silicon Valley Bank (SVB). Panic had set in. The tech industry is the biggest customer of SVB with a large number of Indian start-ups, especially in the SaaS (software as a service) sector that services US clients, having accounts at the bank.
Although many of the startups have already migrated their bank accounts to different banks. However, it is still advised to not withdraw deposits from the bank which makes sense as banks operate on limited reserves, but we have to understand that these startups operate on a very limited runway and the effects could be detrimental for them if they do not withdraw their funds on time.
There are some serial investors and angels that believe while the situation for Indian start-ups that have operations in the US is indeed grave, it is not as though all the start-ups will be hit by the SVB collapse.
Gaurav VK Singhvi, Co-Founder at We Founder Circle said, “Over the years Silicon Valley Bank (SVB) has been a reliable and go-to bank for many Indian SaaS and Y Combinator-backed startups owing to its versatility, adaptability and convenience of fundraising activities. While the news of its sudden collapse came as a surprise to many, forcing many startups to transfer their accounts to different banks, however, the jitters of its downfall will have a limited impact on Indian startups both directly and indirectly. While it is recommended not to pull back deposits from the bank which sounds plausible as banks do function on limited reserves."
This ‘ecosystem of supporters’ must necessarily include people who can underscore the need for diversification. Startups have to diversify funds across banks to hedge the risks. If you have USD 100 million sitting in the bank, you don’t need all the money on Day One. Keep some to make the payrolls, and invest in a manner that you have liquidity when you need it. Not putting all eggs in one basket has sure benefits.
"We must also recognise that SVB’s clients have been struggling for cash over the past year and with the restricted runway, the consequences could be hugely damaging if they do not withdraw their cash on time for payroll and other operational purposes," Gaurav Singhvi, We Founder Circle further mentions.
