As Silicon Valley Bank crash hits home investors, fintechs help cash-crunched Indian startups

In addition, investors who have backed the affected startups are advising them to open alternate bank accounts on an urgent basis in order to receive customer payments and improve their liquidity positions.

Payments major Razorpay is offering zero transfer charges on its business banking platform for startups looking to swiftly move funds out of the US.

AngelList, a popular US-based platform linking founders with angel investors, has custom-built a product for startups impacted by SVB’s collapse to help access banking and standardised loan agreement documents, called the Lifeline Agreement.

“The ongoing SVB collapse has unfortunately landed a lot of our Indian tech Startups in a soup and kept them on tenterhooks in the last 24+ hours. We have been working round the clock and have created a dedicated desk to help startups urgently move funds from their US banks to India,” a spokesperson for Razorpay told ET.

“For existing RazorpayX users, we’re offering to move their money into their Indian current account as FDI through our partner banks,” the person added.

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Manav Garg, founding partner at Together Fund, a venture capital fund that invests in SaaS companies, told ET, “For startups that have exposure to SVB today, we have suggested that the key is to open alternate bank accounts immediately. Some startups have revenues coming in (to SVB bank accounts), so it’s important to let customers know about these bank accounts.” He also pointed out the importance of communicating with employees.Also read: ETtech Explainer: how rising US interest rates caused a pincer movement on Silicon Valley Bank

Short-term Loans

“Luckily, Indian startups have operations here; there is some money in Indian bank accounts as well,” said Garg of Together Fund.

Freshworks cofounder Girish Mathrubootham is also a founding partner at Together Fund.

Meanwhile, a community of investors and founders is also working to support the affected companies by providing them with short-term loans to meet immediate working capital needs, a top investor told ET. “(I am) in the US looking to get money for payroll, working capital,” said a senior partner at an early-stage Indian venture capital firm that invests in SaaS startups.

Shut Doors

Late on Friday, the US Federal Deposit Insurance Corporation (FDIC) said SVB was closed by the California Department of Financial Protection and Innovation. FDIC will sell the assets of the beleaguered lender while the Deposit Insurance National Bank of Santa Clara (DINB) will maintain its normal business activities, the US regulator said.

Insured depositors of SVB will receive their insured deposits up to $250,000, and uninsured depositors will be paid dividends following sale of the 40-year-old bank’s assets.

“This also means that some (startups) with higher burn would have to raise equity or debt quickly at whatever valuation if their investors are not generous to (help them) survive,” said Ashish Dave, chief executive, Mirae Asset Venture Investments (India).

“The only thing certain at this point is $250,000 is secured for every depositor,” he said. “If you have more money with the bank, then you have to wait for resolution, and no one knows how long it will take and how much will be recovered. So, everyone is working on their plan keeping this amount in mind for the next six to eight weeks.”

For startups that have money frozen in SVB accounts, the action of the US Federal Reserve and other local authorities in the US will be important in being able to access their funds.

Further, the depositors will also be watching out for execution of FDIC’s plan to sell SVB’s assets. According to FDIC, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits, as of December 31, 2022.

Also read: Nearly 60 YC-backed Indian startups have deposits stuck in Silicon Valley Bank

Investor Aid

Over the last 48 hours, investors have been in close contact with founders of companies that have found themselves in the middle of this tumultuous saga. Local startups backed by the Silicon Valley-based Y Combinator are now also affected by the bank’s collapse, as many used the bank to park capital raised by them.

Founders in the know told ET that late-stage startups with multiple accounts in the US had managed to move funds out of SVB “over the last two weeks.”

“Typically, we keep one year of money in Indian banks and the rest of the capital in the US but that’s not the case for small and mid-stage firms,” said one founder cited above.

Several US-based startups who were alerted by investors or those clued into developments were also able to speedily transfer parts of their total deposits to other US banks early on Thursday. But several were late to react. “Quite a few people took time to react, and now they have to see what the FDIC resolution is. Especially for smaller startups, it matters more,” sources pointed out.

Early Movers

After SVB’s Thursday announcement that triggered a panic reaction in the startup industry globally, several large investors — including Coatue Management, Y Combinator, Peter Thiel’s Founders Fund — had instructed their portfolio companies to withdraw deposits from SVB. And while some startups managed to transfer their funds, not all were able to react quickly.

“There is definite panic. Everyone is tense and stressed right now,” the founder of a Bengaluru-based startup, who was able to pull money out of SVB on Thursday, told ET. “Some people fortunately took out the money, whereas some people tried on Friday morning and were not successful.”

Those most affected are early-stage companies, typically those without sufficient resources, connections or access to industry networks, according to founders.

Another entrepreneur affected by the ongoing crisis said, “Early-stage companies have suffered most. Late- and growth-stage startups would definitely have information from bankers working with them. So, I’m not sure if any of them are struggling or not.”

Vivek Khandelwal, founder of iZooto, a bootstrapped marketing SaaS company headquartered in Delhi, said, “We opened an account with SVB back in 2016 and we have been banking with them for more than six years. The experience was amazing. We were able to open an account with just three clicks. There was no issue whatsoever since. But on Thursday, we got a whiff of the liquidity crisis brewing inside and, luckily, we quickly moved our funds.”

“Some of the banks are expected to capitalise on this situation and charge startups more fees because of the influx of funds,” Khandelwal said. iZooto has subsidiaries in the US and the UAE.

Pranav Pai, managing partner, 3one4 Capital, said, “As far as the equity capital is concerned, for our companies, almost all are in India and there is an issue for only a small number of them. They’ve already made arrangements, and are actively handling the situation.”

Also read: US government shuts Silicon Valley Bank; Indian SaaS firms mull options to transfer deposits

Impact & Way Forward

While several startups are struggling to meet payroll transactions, companies with customers in the US are also worried about subscription and billing fees that are routed via SVB, which may not reach them in a timely manner.

For other startups — even without any exposure to SVB — worries of missed payments from vendors having accounts with the beleaguered bank are also rising.

The California-based bank had also invested in a number of marquee Indian startups through debt and equity instruments — some of which it has exited now. These include Paytm, Paytm Mall, BlueStone, InMobi, Naaptol, Shaadi.com, CarWale and others, according to data sourced from data intelligence firm Tracxn.

In a social media post, General Catalyst chief executive Hemant Taneja wrote that several venture capitalist leaders met early on Saturday to discuss the aftermath of SVB’s downfall.

The subsequent joint statement issued by VC firms — Accel, Altimeter Capital, B Capital Group, General Catalyst, Gil Capital, Greylock Partners, Khosla Ventures, Kleiner Perkins, Lightspeed Venture, Partners, Mayfield Fund, Redpoint Ventures, Ribbit Capital, and Upfront Ventures – said that for 40 years, SVB has been an important platform “that played a pivotal role in serving the startup community and supporting the innovation economy in the US.”

The events that unfolded over the past 48 hours have been “deeply disappointing and concerning,” they said, adding that “in the event that SVB were to be purchased and appropriately capitalised, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.