‘Silicon Valley Bank is the SBI for startups,' say Indian founders as they brace for uncertainty

India’s startup founders are working against time to move their money out of Silicon Valley Bank (SVB), which was shut down by US regulators Friday night, in what is being called the largest bank failure since the 2008 Lehman bankruptcy, which sparked off a global financial crisis. The US regulators have also taken control of SVB’s customer deposits. 

SVB has been the most preferred bank for startups and venture capitalists globally. The Indian startup ecosystem too, especially SaaS companies, which have a lot of exposure to the bank, are now scrambling to make sense of the crisis and move their deposits to either neo-banks or traditional banks or other financial assets.

“SVB is the SBI for startups. The best of the wealth managers and VCs put money in there. Even growth-stage founders and HNIs have their personal wealth parked there. If SVB fails, the situation is bad. Quite bad,” Abhishek Patil, Co-founder of GrowthX, told Business Today.

Early-stage startups are said to be the worst hit by the crisis. As soon as they raise from global investors in initial rounds, they put those millions in SVB, which had built a reputation of being a founder-friendly bank. “SVB has been a preferred bank for a lot of Indian SaaS and Y Combinator-backed startups because of its flexibility and maintaining ease in fundraising operations. The news comes as a big shock,” said Gaurav VK Singhvi, Co-Founder at We Founder Circle. 

He further explained, “Many startups have already migrated their accounts to a different bank. 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.” 

SaaS companies, which have tremendous exposure to cross-border clients as well as SVB, are also badly impacted. “These SaaS startups have their subsidiaries either in Delaware or Singapore, and they have to do their payroll globally," said Patil, adding, "It was so sudden, nobody knew it would happen. This [SVB failure] is our Lehman event. The Fed has to step in."

Almost overnight, several Indian startups began opening accounts in US-based neo-banks like Mercury and Brex and migrated their money out of SVB. Some are also transferring the cash to India entities through FDIs, while others are moving to the money markets. For US-based citizens, it is easier to open new accounts in a Bank of America or Chase branch. 

Ankit Parasher, Co-Founder at Salt.pe (a cross-border fintech that is helping Indian founders deal with compliance, invoicing and other regulatory issues), tells Business Today, “They started moving funds when the news of bank stock plummeting came out. SVB honoured the transactions till last to last night, post which Indian founders could initiate transactions, which hopefully FDIC will honour depending on cut-off time."

"A lot of our customers are also opening Foreign Currency Accounts in GIFT City based on the new offshore regulations. Companies can also move their money to traditional bank accounts but that would take up to 10 days. Plus, it's an RBI holiday today and tomorrow,” Parasher added.  

Despite the crisis, most founders continue to speak of the goodwill and support offered by SVB to the startup and VC community over the years. However, the lesson learnt in this saga is that companies need to park their cash in not just one asset, but in diversified destinations. “Founders: Now is the time to diversify not panic. SVB is a huge loss for our community.  If everyone had moved 3-6-month cash out of SVB vs. taking all out, SVB might still be standing,” Hemant Taneja, CEO at General Catalyst, wrote in a tweet.