Indian SaaS and YC-backed startups could feel the heat of SVB’s shutdown

Silicon Valley Bank (SVB), a major US lender and a bank of choice for Indian startups operating in the US, was shut down by the Federal Deposit Insurance Corporation (FDIC) on Friday after its fundraising efforts had failed.

Several ecosystem stakeholders told business line that majority Indian SaaS companies and YCombinator-backed startups have been exposed to SVB and are likely to be affected by its failure.

Nitin Sharma, General Partner and Co-Founder of Antler India, said that while there is no specific data on the number of SaaS companies affected by this event, we do know that the majority of SaaS companies from India have been exposed to SVB.

According to Ankit Parasher, co-founder of YC-backed fintech startup SALT, “SVB has been the standard bank for any international startup expanding into the US. It has been a stable bank and recommended by most venture capitalists, so the impact of SVB’s failure is likely to be even greater than just Indian SaaS companies and YC-backed startups.”

Also Read: Lehman Moment? Trading in First Republic, Signature Bank and other regional banks ceased after the collapse of the SVB

“Our phones have been ringing non-stop for the past 48 hours with start-up founders coming forward about the failure of the SVB. We have supported FDI startups in India by establishing bank accounts in GIFT City and traditional banks. Hopefully the FDIC works quickly to restore and relieve depositors,” added Udita Pal, co-founder of SALT.

Gaurav VK Singhvi, co-founder of investment network We Founder Circle, also said: “SVB is a bank of choice for many Indian SaaS and Y Combinator-backed startups partnering with Silicon Valley Bank, mainly because of its flexibility and maintenance Ease of raising funds. The news comes as a major shock and the shockwaves could have limited direct and indirect impact on Indian startups.”

According to Rahul Mathur, founder and CEO of Y Combinator-backed Verak Insurance, “about 60 percent of YC-backed companies have more than $250,000 in SVB bank accounts.” This could include Indian startups, as India follows the US has the second highest number of startups in YC cohorts.

expect resolution

On the other hand, Nitin Sharma believes that a solution will come in a few days and the receivership will not last too long. “While the majority of Indian SaaS companies may have had some funds with SVB and some Delaware-headquartered VC funds may have capital call lines from SVB, I think the overall impact in India will be limited. We know that some Indian SaaS founders transferred funds to other banks before Friday and some already had accounts with multiple banks,” Sharma added.

Also Read: SVB Boss Sells $3.6M in Stock Days Before Bank Collapse

Siddarth Pai, Founding Partner, CFO and ESG Officer at 3one4 Capital, further commented on the development, saying: “The biggest lesson from the SVB situation is the dangers of a lack of diversification in operations. The SVB emerged as a friendly alternative to the mainstream banks that had these practices and generated loyalty from their customers. This led to the concentration crisis that affects these startups today. Once the issue is resolved, risk management will be at the forefront of startup boardrooms to ensure a situation like this does not occur again.”

wake up call

Pai added that for many Indian startups that are headquartered in the US but have teams, shops and operations in India, this is another wake-up call to the dangers of foreign headquarters when there is no economic or business justification for it.

Similarly, Anirudh A Damani, Managing Partner of Artha Venture Fund said: “As an early-stage investor, I believe the recent closure of SVB has had a significant impact on Indian start-ups operating or based in the US. This incident is a crucial reminder for business owners to re-evaluate their treasury management practices. For this reason, we recommend our portfolio startups to diversify their banking income and spread their finances across multiple options to improve safety, liquidity and returns.” Indian SaaS and YC-backed startups could feel the heat of SVB’s shutdown

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