There is obvious panic around the sudden collapse of Silicon Valley Bank (SVB), with its assets seized by US regulators on Friday night. Several cross-border Indian startups, which had huge exposure to the bank, could successfully migrate their funds to other banks or neo-banks in the nick of time, after they were issued advisories by their investors. But some others couldn't as well.
“Most companies in the B2B SaaS space have SVB accounts. Lot of us could move a chunk of our funds after Thursday night’s tanking of the stock had triggered enough panic,” Vivek Khandelwal, Founder of iZooto, told Business Today.
Amarpreet Kalkat, Founder & CEO of Humantic AI, took to social media to confirm that his California-headquartered startup could successfully pull out funds from SVB in time. “Our first thought was to support SVB, thinking this will pass. Next [thought] was that I had a bigger responsibility to 20 people whose livelihood is at stake, and the customers and the investors… Next two hours were spent in finding a way to transfer the money out (we didn’t have millions but it was still well above the FDIC limit),” he shared.
“Biggest lesson learnt - Diversify. Spread the risk,” he added.
Startups, which have less than $250,000 in SVB accounts, are insured by the Federal Deposit Insurance Corporation (FDIC) of the US. But those that have higher deposits have to wait for clarity until market hours on Monday. “Some founders could not move the money because of the delayed response. But the US banking system is very strong and mature. And SVB is not a case of fraud [like the recent collapse of crypto exchange FTX], so there’s no need for panic,” Khandelwal explained.
Business Today’s conversations with founders, investors and advisers in the startup ecosystem have yielded that it is primarily the early-stage Indian startups that are most impacted by the SVB crisis. These are typically companies that raise angel or seed rounds ranging between $1 million and $5 million, and park their funds in SVB given the history of the organisation being VC-and-founder-friendly.
“In many cases, it is the VC that insists founders on opening an account with SVB because they are comfortable transacting with the bank,” CA Vivek Shah, who runs a boutique advisory firm and advises startup founders, told Business Today.
But startups need not panic right now, he says, because the US government will bail out SVB. “Or some other large bank will step in because there is a precedent of the 2008 crisis in the US,” Shah added.