Silicon Valley Bank crisis: What Indian start-ups exposed to SVB are doing to get their money back

Since the closure of the Silicon Valley Bank (SVB) on Friday last week, there have been concerns about how start-ups based in India will recover from the collapse. SVB, which was a key lender for start-ups at a global level since the 1980s, was closed by US regulators after the medium-sized bank reported a huge loss in the market on its holdings of US bonds on the back of hawkish monetary tightening cycle by the Federal Reserve in around four decades.

Several start-ups and SaaS companies based in India have said they have their money stuck in the US-based start-up-focused bank. Mobile gaming company nazara-technologies-shares-plunge-7-after-svb-update-373141-2023-03-13?utm_source=topic&utm_medium=topic&utm_campaign=topic">Nazara Technologies said two of its subsidiaries together have more than $7.75 million in balances at the failed bank.

Nazara said its step-down subsidiaries — Kiddopia Inc. and Mediawrkz Inc. — hold cash balances worth Rs 64 crore in SVB. Kiddopia Inc. is a 100 per cent subsidiary of Paper Boat Apps, where Nazara owns 51.5 per cent stake. Similarly, Mediawrkz Inc. is a 100 per cent subsidiary of Datawrkz Business Solutions, where Nazara has 33 per cent.

Similarly, Harvesting Farmer Network, which is an initiative focused on providing market linkages to 120 million smallholder farmers in India, has been banking with Silicon Valley Bank for nearly a decade.

Harvesting Farmer Network's CEO Ruchit G Garg said it has placed a withdrawal request with the new bridge bank, Silicon Valley Bank N.A. that has replaced the old SVB after its collapse. A bridge bank is a chartered national bank that operates under a board appointed by the FDIC. It assumes the deposits and certain other liabilities and purchases certain assets of a failed bank.

In an interview with NDTV, Garg said that he has already applied for the withdrawal and is waiting for his money to come back. "We will know if it worked on not tomorrow because it does take some time to move money," Garg said.

Similarly, Nazara Technologies is waiting for its transfer request to get accepted by the new bank management.

"We had initiated transfers prior to the closure of the bank that was not processed. We are waiting and watching whether these transfers get automatically processed or we need to make new transfers," said Nitish Mittersain, CEO of Nazara Technologies.

Nazara, in a statement on Monday, said that the US regulator Federal Deposit Insurance Corporation (FIDC) has stated that it would issue an advance dividend to depositors within the next week with future payments coming as asset sales occurred.

“Regardless of the ultimate outcome and its timing, both subsidiaries continue to be well capitalised and are generating positive cash flows along with profitability. Therefore, we expect no impact on their day-to-day operations, business performance and growth plans due to the SVB event," it said.

Nazara said it continues to maintain healthy reserves of cash and cash equivalents in excess of Rs 600 crore, excluding the SVB-impacted funds. "The situation with SVB remains fluid and the company shall keep all the stakeholders and public at large updated on further developments," Nazara said.

"FDIC’s communication yesterday saying all depositors will get access to their funds is a relief to the startup community,” said Prabhu Ramachandran, CEO & Co-founder at Facilio, a property operations software provider.

Facilio has significant exposure, as a “major portion” of the company’s funds is with SVB.

"But we expect the crisis to be resolved this week and we should get access to our funds. We have money outside SVB to cover 4-5 months of our operations. This gives us more than sufficient time for the crisis to be resolved, and for us to access our funds at SVB," Ramachandran told PTI.

Also read: Jefferies does an SVB test on Indian banks. Here’s the result

Also read: 'Banks like SBI, Kotak should open a facility…’: Mohandas Pai on how to protect Indian start-ups from SVB crisis

FDIC’s bailout plan

On Sunday, FDIC said that it had transferred all deposits of start-up-focused SVB to a newly created bridge bank and all depositors would have access to their money beginning Monday morning.

On Tuesday, Silicon Valley Bank N.A.'s new CEO Tim Mayopoulos on Monday said that the lender is open to conducting business as usual. The bank is all set to conduct business as usual within the US and is expected to resume cross-border transactions in the coming days. The bank's UK arm was acquired by HSBC Holdings Plc on Monday.

According to a petition filed by the venture capital firm Y Combinator to the US government on Sunday, around 10,000 small businesses that had deposits in SVB will fail to make payroll in the next 30 days. Around 100,000 jobs are expected to be impacted due to the collapse. A big chunk of Y Combinator firms even in India use only SVB.

“The US government is bailing out depositors, and that ensures continued faith in the US banking system for the start-up and VC ecosystem. We were also part of a petition from Y Combinator which requested the government to intervene. For me, personally, the support received from the entire ecosystem, existing investors, and other fellow founders was pivotal; it also showed the power of the community we belong to,” Sourabh Deorah, co-founder and CEO, Advantage Club told Business Standard.

Even though there are promises of revamp and revival, SVB’s collapse could obstruct the day-to-day business activities of start-ups. The concern is not just about paying salaries and dealing with daily expenses, it is also about how long startups could sustain the crisis and trim their workforce.

"This incident is a critical reminder for every entrepreneur to re-evaluate their treasury management practices. As a result, we will advise our portfolio startups to diversify their banking receipts and split their treasury across multiple options for better security, liquidity, and returns. Furthermore, the swift collapse of a 40-year-old institution emphasizes the fragility of even the most established institutions and underlines that no one is bulletproof. Therefore, staying humble, working hard, studying hard, and being teachable regardless of where one is in the venture journey is crucial," said Anirudh A Damani, Managing Partner, Artha Venture Fund.

Early on Tuesday, Y Combinator said it will scale down its late-stage investments and lay off around 20 per cent of its workforce.

“In recent years, we have done some late-stage investing. But late-stage investing turned out to be so different from the early stage that we found it to be a distraction from our core mission. So we’re going to decrease the amount of late-stage investing we do,” President and CEO Garry Tan wrote in a blog post on Tuesday.

“Unfortunately, this means we will no longer need some of the roles on the late-stage investing team. Seventeen of our teammates are impacted today. As we make this change in strategy, we want to acknowledge and express our appreciation for their substantial contributions,” he added.