“Silicon Valley Bank is the SBI for startups,” say Indian founders as they brace for uncertainty

Startup founders in India are racing against time to move their money out of Silicon Valley Bank (SVB), which was shut down by US regulators late on Friday in what is being called the biggest bank failure since the Lehman bankruptcy in 2008, which triggered a global crisis. The financial crisis. US regulators also took control of SVB’s customer deposits.

SVB has been the preferred bank for startups and venture capitalists globally. And the Indian startup ecosystem, especially SaaS companies, which have a lot of bank exposure, are now struggling to make sense of the crisis and move their deposits to either neo-banks, traditional banks or other financial assets.

“SVB is SBI for startups. The best of the wealth managers and VCs are putting money there. Even growth stage founders and HNIs have their personal wealth parked there. If SVB fails, the situation is bad. Pretty bad,” said Abhishek Patil, co-founder of GrowthX Business today.

Early stage startups are said to be the most affected by the crisis. As soon as they raise from global investors in seed rounds, they put those millions into SVB, which has built a reputation as a founder-friendly bank. “SVB has been a bank of choice for a lot of Indian SaaS and Y Combinator startups due to its flexibility and maintaining ease in fundraising operations. The news comes as a big shock,” said Gaurav VK Singhvi, co-founder at We Founder Circle.

He further explained, “Many startups have already migrated their accounts to another bank. However, it is still advised not to withdraw deposits from the bank, which makes sense as banks operate with limited reserves. But we have to understand that these startups are operating on a very limited runway and the effects could be detrimental to them if they don’t withdraw their funds in time.”

SaaS companies, which have tremendous exposure to cross-border customers as well as SVB, are also heavily affected. “These SaaS startups have their subsidiaries in either Delaware or Singapore and have to make their payroll globally,” Patil said, adding, “It was so sudden, no one knew it was going to happen. This (SVB failure) is our Lehman event. The Fed must step in.”

Almost overnight, several Indian startups started opening accounts in US neo-banks like Mercury and Brex and migrated their money from SVB. Some also transfer cash to entities in India through FDI, while others move to money markets. For US citizens, it’s easier to open new accounts at a Bank of America or Chase branch.

Ankit Parasher, co-founder at Salt.pe (a cross-border fintech that helps Indian founders deal with compliance, billing and other regulatory issues), says Business today, “They started moving funds when the news of the fall in bank stocks came out. SVB honored trades until last night until last night, after which Indian founders could initiate trades, which we hope the FDIC will honor based on the cutoff time.”

“Many of our clients are also opening foreign currency accounts in GIFT City based on the new offshore regulations. Companies can also move their money into traditional bank accounts, but that would take up to 10 days. Besides, it is RBI holiday today and tomorrow. Parasher added.

Despite the crisis, most founders continue to talk about the goodwill and support SVB has provided to startups and the VC community over the years. However, the lesson learned in this saga is that companies need to park their cash not just in one asset, but in diversified destinations. “Founders: Now is the time to diversify, not panic. SVB is a huge loss to our community. If everyone moved 3-6 months of cash out of SVB vs. pulling it all out, SVB could stay afloat,” Hemant Taneja, CEO at General Catalyst, wrote in a tweet.

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