Over $250 Million Stuck with Silicon Valley Bank
The collapse of Silicon Valley Bank (SVB) has sent shockwaves across the globe, impacting startups and venture capitalists in ways previously unimaginable. According to a recent survey among YC-backed Indian startups, over 60 firms have more than $250,000 stuck in accounts with SVB, while nearly two dozen have more than $1 million tied up with the lender. This staggering figure illustrates the devastating impact of the bank’s failure on the startup ecosystem.
Indian Startups Caught Off Guard
Dozens of young Indian startups backed by prominent venture capital firms such as YC, Accel, Sequoia India, Lightspeed, SoftBank, and Bessemer Venture Partners were banking with SVB. Some even relied solely on this lender for their financial needs. However, when the bank shut down due to ‘inadequate liquidity and insolvency,’ these startups found themselves unable to withdraw their funds in a timely manner.
The Consequences of Banking Exclusivity
One reason Indian firms couldn’t access their money was that they didn’t have an alternative US banking account readily available. This lack of diversification has left many founders scrambling to find a new partner, unsure of who to turn to in times of crisis. The scenario highlights the importance of having multiple banking options for startups.
The Rise and Fall of Silicon Valley Bank
Silicon Valley Bank was more than just a lender; it was the ‘lifeblood’ for many startups. Regulators stepped in to shut down the 16th-largest bank in the US, citing insolvency as the reason. The Federal Deposit Insurance Corporation (FDIC) has assured that they will work to recover the maximum amount possible from the disposition of assets.
The India Connection
Many Indian firms had set up their companies in Delaware, making it easier for them to raise capital from US-based venture capital firms like Y Combinator. Some SaaS firms were registered in the US to serve international markets and gain a competitive edge. However, with SVB’s collapse, these founders are left reeling.
Venture Capitalists Weigh In
Garry Tan, president of Y Combinator, revealed that over 1,000 YC-backed startups have been impacted by the bank’s failure. ‘30% of YC companies exposed through SVB can’t make payroll in the next 30 days,’ he tweeted. This crisis has the potential to create a ripple effect throughout the startup ecosystem.
The Impact on Indian Startups
Indian gaming firm Nazara reported that two of its subsidiaries had around $7.75 million stuck in SVB accounts. Ashish Dave, India head of Mirae Asset, noted that ‘uncertainty is killing them.’ He added, ‘Growth ones are relatively safer as they diversified.’
A Black Swan Event
Rahul Chandra described the situation as a ‘black swan event,’ which will have far-reaching consequences for early-stage startups. The collapse of SVB has created a credit crisis, making it harder for startups to raise funds.
The Future of Startups in India
As the startup ecosystem grapples with the aftermath of SVB’s collapse, one thing is clear – Indian founders need to diversify their banking options and be more cautious when choosing lenders. The future of startups in India hangs in the balance, but with resilience and adaptability, the sector will emerge stronger than ever.
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Stay tuned for more updates and analysis on the impact of Silicon Valley Bank’s collapse on Indian startups.