Indian startups breathe easy when the withdrawal limit for SVB has been lifted

NEW DELHI: US regulator’s move to calm markets by giving ailing Silicon Valley Bank depositors access to all their money starting Monday should provide some relief to startups, which have been scrambling to find ways to recover their blocked deposits with the California-based lender.
Siddarth Pai, founding partner of 3one4 Capital, estimates that Indian startups’ exposure to SVB is between $2.5 billion and $3 billion. “The move has certainly comforted the startups, but the bigger question is whether the founders will be able to move all their money out of the bank in one go and whether the system will be able to support the withdrawal process. L “The back-end infrastructure of the US banking system is not as robust as India’s,” he told TOI, adding that large drawdowns could occur if new management doesn’t step in.
“Now there is a crisis of confidence. They have to find comfort in the process. Until then, there will still be some uncertainty in the market,” Pai said.
For now, companies are feeling a little relieved. The founder of a local B2B startup backed by US tech startup accelerator Y Combinator said the announcement is good for startups and VCs. “Furthermore, no depositor has ever lost money in a bank run or bankruptcy. Even companies that hadn’t prepared for such an eventuality would have survived after going through a short period of disruption. However, there are many companies now providing credit lines to startups,” the founder said.
Electronics and Technology Minister of State Rajeev Chandrasekhar said in a tweet that with this move by the US government, the looming risks for Indian startups have passed. “Learning from the crisis for Indian startups: trust the Indian banking system more,” said Chandrasekhar.
The collapse of America’s 16th-largest lender, often called upon by new-age tech companies to service their banking processes, has sent the startup community into an uproar. Inability to access funds typically affects startups’ working capital requirements, disrupting day-to-day operations.
Pai said that at least 60 of India’s 100+ unicorns are based outside India. “Almost all SaaS startups are based overseas. Y Combinator backs around 250 Indian startups, 90-95% of which are based outside India,” Pai said.
The key development that startups and the broader markets will now follow is the acquisition of SVB by a credible buyer. “No company will return to the SVB unless it is acquired by a large bank,” say the experts. “How quickly a new buyer arrives for the major bank will be critical,” said Atit Danak, partner and CoNXT study head at Zinnov.
“Several Indian-origin startups, including many backed by Y Combinator, have deposits in excess of $250,000 in SVB, which is the maximum protected by deposit insurance. This announcement (cap removal) will be a welcome relief for these startups, which have already been wracked by a financial crisis exacerbated by a global dry-up of venture capital,” said Pranav Bhaskar, partner at SKV Law Offices.


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