Indian startups, VC funds press panic button on Silicon Valley Bank crisis

  • At least six fund managers and startups that Mint spoke to said that larger worries over the health of the bank have left them scrambling for options outside of SVB

Sneha Shah, Ranjani Raghavan
Published10 Mar 2023, 11:57 PM IST
Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corporation
Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corporation(Getty Images via AFP)

In the wake of the sudden collapse of Silicon Valley Bank (SVB) after a run on the bank by deposit holders, a few Indian startups and venture capital firms that have exposure to the US worry about their funds parked in the tech-business-friendly bank.

At least six fund managers and startups that Mint spoke to said that larger worries over the health of the bank have left them scrambling for options outside of SVB. “SVB has been an important partner to technology companies and investors; they not only hold deposits but also offer credit to startups deemed too-risky by traditional banks. Thus, they have been a crucial pillar of funding for startups,: the first person cited above said. According to him, not just businesses but even Venture Capital funds and their Limited Partnerships would bank with the firm (during the good times).”

According to this person, companies with a sizeable business in the US and those headquartered in the US are the most affected. But most ruled out any long-term effect on their businesses or the funds.

“Many startups (especially SaaS firms) have credit lines and/or deposits with SVB. Almost all SaaS companies with US presence will have an SVB account,” the second person, a US-based investor, cited above said adding that SVB has been a fantastic partner to Indian startups and I do not expect material long term impact on deposits or credit lines. However, this is a good reminder for startup Boards to re-assess their risk functions.”

According to these people, companies such as Chargebee, Postman, Clevertap, Freshworks among others have been banking with SVB. “Most YCombinator funded companies park their capital with SVB,” the second person said. Mint could not independently verify this with any of the portfolio companies or YCombinator.

Startups that raise capital from global investors typically park these funds with banks until the time it wants to deploy it. While most companies diversify the funds across FDs, bonds and other instruments, some have been parking solely with SVB, the third person cited above said.

While some global VCs sent SoS emails asking their portfolio firms to move account out of SVB, others are scrambling to recover their money fearing the bank would put a freeze on withdrawal, exacerbating the crisis further.

Moreover, some of the funds such as Sequoia Capital, Accel, Ribbit Capital, Index Ventures, and Bessemer Venture Partners, among others have raised capital from the investing arm of SVB- SVB Capital and counts the troubled bank as one of its LPs or have used SVB Capital to access LPs. “In such cases drawdowns become difficult with the bank likely not to honour a capital call request from the fund,” said the fourth person cited above on condition of anonymity. A fund receives commitments from its investors but calls for the capital as and when there is a deal or investment opportunity. As on 30, June 2022, SVB Capital had assets under management or AUM of around $8.8 billion, its website shows.

According to this person, two scenarios can play out during this crisis. One where funds are frozen temporarily till another large US bank bails them out and nobody loses anything. Secondly, the instability continues where no one is able to rescue SVB, in which case deposits and credit lines are under threat.

SVB Financial Group bonds plunged alongside its shares after the company moved to shore up capital after losses on its securities portfolio and a slowdown in funding. Several experts have compared the current SVB crisis with Lehman Brothers and Evergrande's liquidity crisis. Moody's, which has downgraded the rating of the Silicon Valley Bank, said that rising interest rates, increased macroeconomic uncertainty, venture capital investment activity, and high cash burn among SVB's clients have created challenging conditions for the firm, media reports said. SVB's plunge wiped out more than half of the value of the holdings that Alecta — Sweden's largest pension fund — had in the bank, news wires said on Friday.

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First Published:10 Mar 2023, 11:57 PM IST
HomeNewsWorldIndian startups, VC funds press panic button on Silicon Valley Bank crisis

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