Silicon Valley Bank (SVB), the US’s 16th largest lender which is facing a collapse, has sent out apprehensions across the world due to its possible financial impact globally. The collapse is being termed as the biggest bank failure after the global financial crisis in 2008-09. As the SVB was a go-to bank for tech startups, the fact caused worries in India about its possible impact on startups here. Experts, however, said SVB has a small presence in India. But, Indian software-as-a-services (SAAS) startups with operations in the US will get affected.
Which Startups Have Exposure To Silicon Valley Bank?
Many Indian start-ups funded by venture capitalists, including Accel, Sequoia India, Y Combinator and SoftBank, have used SVB as their banking partner. Among the Indian businesses receiving money from S V Bank are Loyalty Rewardz, Bluestone, and Carwale.
Y Combinator, which is the one having major impact, also has investment in venture capital firm 9Unicorns. Y Combinator has also incubated startups such as Khatabook, Zepto and OkCredit.
Other startups may also have indirect investment or deposit exposure of SVB.
Expertspeak: How Much Is The Risk of SVB Crisis For Startups In India?
Shashank Randev, co-founder of 100X.VC, said, “For startups having Indian holding structures — it should not have any effect, as most of their capital lies in Indian banks. Also, the US Department of treasury, Federal reserve and FDIC made a statement that depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Though depositors will have access to their money from Monday, March 13, Girish Bhise, founder and CEO of ValueAdd Research and Analytics, said that as 96 per cent of deposits are not protected by the FDIC’s reimbursement guarantee, the collapse of Silicon Valley Bank has a significant impact on international VCs and businesses that receive funding.
He said the SVB crisis is unlikely to have any major impact on the funding sentiments. “Also, the overall US banking system remains liquid and strong.”
Stating that startups in India are unlikely to be directly impacted by the SVB crisis, Prerna Kalra, CEO and co-founder of Daalchini Technologies, said SVB has a small presence in India and focuses mostly on offering banking services to technology and life science enterprises there.
“However, the Indian software-as-a-services startups with operations in the US will get affected,” she said, adding that SVB’s crisis could indirectly affect Indian startups in a few ways including investor confidence, increased scrutiny, and increased competition among banks.
HSBC-Silicon Valley Bank UK Deal: Is It Helpful for Startups?
The UK government and HSBC has announced that the UK arm of failed US lender Silicon Valley Bank has been sold to HSBC for a nominal £1 in a rescue deal.
As a number of startups have reliance on Silicon Valley funding, Lallit Tripathi, chairman and managing director of Vedant Asset, said, “This (the deal) will be a big positive for the tech start-up community. The move would also be positive for the Indian start-up ecosystem.”
Is There Any Futher Opportunities for Similar Rescue Deals?
ValueAdd Research’s Bhise said there is a good chance that established banks could offer to buyout SVB.
HSBC UK Bank plc has bought Silicon Valley Bank UK Limited for £1. It had loans of around £5.5 billion and deposits of around £6.7 billion as on March 10, 2023. The assets and liabilities of the parent companies of S V Bank UK are excluded from the transaction.
Bhise said talks between banks like Bank of London Group Ltd. and Royal Group of Abu Dhabi are already underway. Elon Musk has also indicated interest in buying the bank.
“We don’t think it can be completely ruled out that the affected VCs with relationship with S V Bank would come to its rescue, as they have a strong vested interest. The buyer must, however, provide prompt liquidity to meet depositors’ requests and safeguard the interests of its creditors and shareholders. To ensure that there aren’t any more banks sitting on the verge of failure like SVB and Signature Bank, the US government has a lot of work to do,” he said.
The collapse of Silicon Valley Bank, also know as SVB, is being termed as the biggest bank failure since the crisis at Washington Mutual in 2008 or the global financial crisis. This was the 16th biggest lender in the US and was the go-to bank for several startups across the world.
The bank failed after clients — many of them venture capital firms and VC-backed companies that the bank had cultivated over time — began pulling out their deposits, creating a run on the bank. The SVB collapse led investors to speculate that the Fed would now hesitate to hike interest rates by a super-sized 50 basis points this month.
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