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The Domino Effect: How the Collapse of Silicon Valley Bank is Hitting Indian Startups
Indian investors and SaaS startups are rattled by the developments in the US
11 March 2023
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Jayashri Ghorpade
Startup-focused lender SVB Financial Group (SIVB.O) became the largest bank failure since the financial crisis on Friday.
In a sudden collapse that roiled global markets and stranded billions of dollars belonging to companies and investors.
Startups in India are closely monitoring the situation and considering withdrawing their funds from SVB, as they fear that the venture funding pipeline could dry up in a subdued market.
The Indian startup world is concerned by the crisis at Silicon Valley Bank (SVB), which has not only spooked global stock markets. SVB started investing in India in 2003 and has exposure to over 20 startups in the country, including Paytm, InMobi, Carwale, Bluestone, Shaadi and Sarva, according to startup research advisory Tracxn. SVB had invested $150 million in contract intelligence company Icertis in October last year.
SVB India Finance, the company that provides debt capital to domestic, venture-backed, early and midstage, high-growth companies in the country, started SVB's venture lending operations in India. In 2004, SVB opened offices in Bengaluru, and in 2007, in Mumbai. It has also established a global tech center in Bengaluru, which employs about 800 people, offering services in engineering, analytics, and testing.
Startups in India are closely monitoring the situation and considering withdrawing their funds from SVB, as they fear that the venture funding pipeline could dry up in a subdued market. Although none of the startup founders have publicly announced their next course of action, they are apprehensive about the potential impact.
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Shrishti Sahu, a seed investor, tweeted that most VCs are advising Indian startups that bank with SVB (roughly 80% of startups that have US entities) to withdraw their funds to avoid depleting their deposits and prevent the freezing of their funds until a rescue plan is created.
Founder and CEO of Capitalmind, Deepak Shenoy, attributed the troubles faced by SVB to a strange combination of investing short-term money, announcing a capital raise when another bank failed, and advising against panic, rather than bad lending practices. This prompted some on Twitter to compare it to the "Lehman moment for startups."
Former CTO of Coinbase, Balaji Srinivasan, tweeted sympathies for Silvergate and SVB, both of which served customers through good and bad times. Srinivasan expressed his hope that SVB pulls through and that a banking system can be built that isn't subject to the fluctuations of fractional reserve banking.
On Friday, the California Department of Financial Protection and Innovation closed SVB, prompting the US Federal Deposit Insurance Corporation (FDIC) to create the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors. The FDIC will sell SVB’s assets, and DINB will continue its normal business operations. Insured depositors will receive their insured deposits, while the uninsured depositors will be paid dividends from the asset sale.
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