Silicon Valley Bank Collapse Worst Bank Failure Since 2008

According to TechCrunch, over 60 YC-backed Indian startups have more than $250,000 stuck in accounts with Silicon Valley Bank, and nearly two dozen have more than $1 million tied to the lender, demonstrating how the worst bank failure since the 2008 financial crisis is also affecting firms 8,000 miles away.

Dozens of young Indian startups backed by YC, Accel, Sequoia India, Lightspeed, SoftBank, and Bessemer Venture Partners banked with Silicon Valley Bank, sometimes as their sole banking partner, and were unable to withdraw funds on Thursday, according to multiple people familiar with the situation.

VCs are wary of disclosing the names of the affected startups for fear of jeopardizing the young firms’ ability to raise capital in the future. Silicon Valley Bank, the 16th largest bank in the United States and a lifeline for startups, was shut down by regulators on Friday, citing “inadequate liquidity and insolvency.” The Federal Deposit Insurance Corporation will work to recover “the maximum amount possible from asset disposition,” according to its website.

Many venture capitalists reported that some Indian firms could not withdraw their deposits from Silicon Valley Bank on time because they did not have another US banking account readily available to hold that capital.

Indian startups affected by Silicon Valley Bank Collapse

Many Indian startups incorporate in Delaware to raise capital from US venture firms such as Y Combinator. Some SaaS companies are registered in the United States because, despite operating from India, they want to serve international markets and be perceived as a US companies.

Furthermore, for many firms that “flipped” their home base from India to the United States, Silicon Valley Bank was the preferred choice, according to another person familiar with the matter, citing the fact that SVB sponsored many events in India as the lender’s executives pushed to strengthen ties with Indian firms.

According to a partner at one of the top venture funds, nearly all Indian SaaS startups with a significant presence in the United States banked with SVB. Over a dozen Indian SaaS unicorns and many more “soonicorns” are based in the United States.

Many of these young firms did not diversify their funds across multiple banks because operators prefer to avoid increasing administrative costs in the early days of a business. A US-based investor, who spoke anonymously, said he knew that many Indian firms had $4-10 million in their SVB accounts.

SVB was often the default bank for Indian SaaS startups and others backed by YC, who set up shop in the United States and raised their first round there. Mirae Asset’s India head, Ashish Dave, tweeted. “Uncertainty kills them. Growth stocks are safer because they are more diverse.”

White House and Treasury Department

The failure of SVB has affected more than 1,000 Y Combinator-backed startups, according to Garry Tan, president of Y Combinator. “30% of YC companies exposed through SVB will be unable to pay employees in the next 30 days,” he tweeted.

Meanwhile, California Gov. Gavin Newsom says he’s working with the FDIC and the White House after Silicon Valley Bank was closed down by regulators on Friday.

“I’ve been in contact with the highest levels of leadership at the White House and Treasury in the last 48 hours. Everyone is collaborating with the FDIC to restore order as soon as possible to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has served as a tent pole for our economy, “On Saturday, Newsom stated.

According to a press release issued by the FDIC on Friday, SVP was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver of the bank’s insured deposits.