On the heels of the collapse of Silicon Valley Bank (SVB), Rajeev Chandrashekhar, Union Minister of State for Electronics and Information Technology, met with startup founders to understand the impact SVB collapse has had on the Indian startup ecosystem.
More than 100 Indian startups have their money parked in SVB, which has been the original banking partner for a lot of Y Combinator-backed Indian startups. Indian entrepreneurs who have services and offices in the US are worried about transferring their US dollars from SVB to an Indian bank.
“We will share the list of suggestions with Finance Minister Smt Nirmala Sitharaman and explore how best your concerns can be addressed. We will also explore how smoothly we can facilitate the transfer of your US dollar deposits to Indian banks, IFSC centred foreign banks or any other Indian bank, which has presence in the United States,” Rajeev Chandrashekhar told the startup delegation.
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According to media reports, more than 22 Indian startups have over $1 million in SVB. While 40 startups have deposits of anywhere between $250,000 to $1 million in SVB, 33 companies have deposits of less than $250,000 in America’s 16th largest bank, which is now seeing its last days.
While a large number of entrepreneurs withdrew their money from SVB as soon as they realised the bank might be going under, Indian entrepreneurs couldn’t do so due to the lack of a US bank account.
What Led to the Collapse of Silicon Valley Bank?
Usually weekends are dull for banks globally. However, last weekend Silicon Valley Bank saw unusual activity and interest from startup founders, venture capitalists, and the US government.
A series of decisions taken by SVB created a domino effect that led to its sad demise, which happened almost overnight.
The sudden shuttering of SVB has unfortunately created a ripple effect in the US market as regulators had to shut yet another bank on March 13. New York based Signature Bank became the second bank to be shut down by the US regulators, following SVB.
Following the mass withdrawals made by SVB account holders, customers of Signature Bank got spooked and did the same. They withdrew more than $10 billion in a matter of days. Signature Bank was one of the largest crypto lenders in the US.
The fall of SVB started with the bank selling a bunch of government securities and bonds at a loss of a whopping $1.8 billion to raise capital. When the market learned that SVB was ready to bear such a huge loss to raise capital, its shares tanked by 60% on March 10.
In the meantime, founders and VCs who had their money in SVB started wondering whether the bank has enough liquidity. This led to mass panic among founders who started withdrawing their money from SVB.
SVB CEO Greg Becker said the bank has ample liquidity, which will get impacted if everyone starts withdrawing money at once. And this is exactly what happened.
At last, the US government had to step in and take extraordinary measures to ensure people get to withdraw their money from SVB.
Further, the US rating’s agency Moody’s has placed six banks under review for downgrade. These banks include First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp, and Intrust Financial Corporation.
Conclusion
For two decades, the Silicon Valley Bank (SVB) had been the saviour of startups around the world as it took a chance in entrepreneurs at a time when no one did. Currently, it has been taken over by the US government, while its UK branch is bought by HSBC Bank.
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The fall of SVB and Signature Bank has certainly caused temporary fluctuations in the market – both in the US and India – but it will be wrong to assume that it could lead to another “Lehman Brothers” incident of 2008.
Frequently Asked Questions
Question 1: What is Silicon Valley Bank?
Answer: Silicon Valley Bank was the 16th largest commercial bank in the US. It was founded in 1983 by Wells Fargo. It was largely known for backing tech startup founders in the US and in other countries including India.
Question 2: Is there a Silicon Valley Bank India?
Answer: No, there is no branch of Silicon Valley Bank in India. However, a lot of startup founders have raised money from SVB and had their accounts in the bank’s US branches.
