SVB debacle: How the absence of backup accounts hit many Indian start-ups

The startup community in India has been shaken by the recent closure of Silicon Valley Bank (SVB), which specialised in global start-up investments. Many are calling SVB's demise the largest bank failure since Lehman Brothers' collapse triggered the 2008 financial crisis. With the majority of SVB's clientele consisting of software unicorns and SaaS, Friday's news has sent shockwaves through the industry. As of the end of 2022, Silicon Valley Bank has $209 billion in assets and roughly $175.4 billion in deposits.

Since the news of SVB’s debacle spread, a slew of fintech’s in India have offered their services to assist Indian entrepreneurs in establishing banking relationships with other US financial institutions or in transferring funds from US banks to their Indian counterparts. However, many home-grown start-ups are understood to have been adversely affected by the developments 8000 miles away.

Some venture capitalists (VCs) related how some of these companies were unable to quickly transfer their funds out of Silicon Valley Bank since they lacked an alternative American banking account.

“As it's typically impractical to raise administrative and operating expenditures in the beginning, many of these start-up businesses did not diversify their capital across several banks,” a Mumbai-based investor said. He added that while the growing start-ups were diversified and thus largely safe, the smaller ones were hit by uncertainty.

The most recent data from Tracxn, a platform that tracks innovative companies and sectors shows that the US bank had exposure in 21 Indian startups, albeit the exact amount of investment is not specified. According to Business Standard, one of SVB's major investments in India is unicorn Icertis, which has raised $150 million through a revolving credit line and convertible financing from SVB. Founded in 2009 by Samir Bodas, former CEO of Aztecsoft, and Monish Darda, a former executive at BladeLogic, Icertis is a leading provider of contract lifecycle management software with an engineering office in Pune.

Seed investor Shrishti Sahu took to Twitter to say, “Most VCs are telling Indian companies that bank with #SVB (roughly 80% startups that have US entities), to get their money out. If this goes on, their deposits are going to get depleted rapidly and most likely end in freezing of funds until a rescue plan is chalked out.

Sahu also said that platforms like Mercury and Brex were offering quicker turn around time for Indian start up founders even if they did not have a social security number in the US. Media reports also suggested that fintech’s like TrulyFinancial had opened hundreds of accounts for Indian companies since news of SVB’s closure came in, while RazorPay had set up a dedicated desk to assist fellow businesses in urgently moving funds from US banks to India.

Due to its innovative banking solutions, SVB had become popular among tech entrepreneurs, earning a reputation as a game changer among founders and venture capitalists. According to SVB, 88 per cent of the Forbes 2022 Next Billion Dollar Companies were clients, and over 50 per cent of all US-backed tech and health sciences companies bank with them.  

It is learnt that several Indian start-ups had chosen to incorporate in Delaware so that they could easily get funding from Y Combinator and other U.S. venture capital organisations.

Many SaaS companies that deliver applications over the Internet as a service and are headquartered in India, choose to register in the United States so that they can more easily access international markets and present themselves as legitimate businesses. They are all presently trying to figure out SVB’s future and access to their money while opening new accounts to ensure that the money keeps coming.