SVB meltdown: These Indian startups to bear brunt: Reports

The collapse of Silicon Valley Bank (SVB) has put the focus on Y Combinator-backed Indian startups. The situation remains fluid, with startups waiting for the US Fed to act. Indian startups that have deposits at SVB might be impacted. Meanwhile, regulators confirmed on Sunday night that all deposits will be returned.

“Depositors will have access to all of their money starting Monday, March 13,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement. “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Impact on YC-backed Indian startups

SVB has invested in around 21 Indian startups, as per Tracxn data, but the exact investment amount is unclear. Other startups that raised funds from SVB include Bluestone, Carwale, and Loyalty Rewardz. Tracxn data also shows that SVB has not made significant investments in Indian startups after 2011. The Tracxn list includes Paytm, Paytm Mall and One97 Communications.

Here are the Indian companies with funding from SVB, as per Tracxn data:

However, according to Paytm founder Vijay Shekhar Sharma, Silicon Valley Bank (SVB) has completely exited its investment in the company and received significant returns, despite investing only $1.7 million. Sharma has confirmed that SVB is no longer a shareholder in Paytm.

Abhay Singhal, the co-founder of InMobi Group – backed by Softbank, expressed that the recent sale of securities at mark-to-market price causing a loss of $1.8 billion had alarmed the market. Singhal shared his view to PTI on the impact of the SVB collapse, stating that it would have a short-term effect on funding for startups. 

Also Read: Silicon Valley Bank not a stakeholder in Paytm, Vijay Shekhar Sharma clarifies

The situation is particularly dire for startups backed by the Silicon Valley accelerator Y Combinator (YC), with at least 40 YC-backed Indian startups having between $250,000 to $1 million each in deposits with SVB, and over 20 of them having deposits of over $1 million each, The Economic Times quoted a YC WhatsApp poll as showing.

Fintech firm Recur Club founder and CEO Eklavya Gupta told PTI that there are some large size non-Y Combinator linked SaaS companies in the west coast with operations in the US and India, who have had significant exposure to SVB.

As per Verak Insurance CEO Rahul Mathur - who’s also sourced his information from the YC WhatsApp group, 60% of YC-backed companies have more than $250,000 in SVB accounts.

“FDIC insurance limit is $250K - some startups could be at risk of losing big money,” he tweeted. There are some YC companies operating in India with more than $1 million in SVB accounts, he added.

Larger YC-backed companies in India such as Razorpay, Meesho and Zepto have no exposure to SVB. However, early stage and mid-stage startups are seeing the impact of the bank's collapse. Some of the larger YC companies from India moved funds over the past two weeks sensing a potential disruption.

FDIC announces SVB closure

Late on March 10, the US Federal Deposit Insurance Corporation (FDIC) said that SVB was closed by the California Department of Financial Protection and Innovation. The FDIC would sell the assets of SVB, and the Deposit Insurance National Bank of Santa Clara will maintain its normal business activities. While the insured depositors of SVB will receive their insured deposits up to $250,000, the uninsured depositors in the bank will be paid dividends following the sale of the 40-year old bank's assets.

The road ahead

The Federal Reserve Board of Governors has scheduled an urgent closed-door meeting on March 13, 2023, using expedited procedures. In a statement issued on March 12, it was announced that the Board would convene to review and set the advance and discount rates to be applied by the Federal Reserve Banks.

Also Read: Fed calls emergency meeting tomorrow

Union Minister Rajeev Chandrasekhar has said that he will meet with Indian startups this week to understand the impact and how the Narendra Modi government can help during this crisis.

(With agency inputs)