The collapse of Silicon Valley Bank, a key lender to US startups since the 1980s, has also affected several startups in India, hitting their daily cash needs and other running expenses. US authorities swooped in and seized the bank’s assets on Friday after a run on deposits made it no longer tenable for the medium-sized bank to stay afloat on its own.
Ruchit G Garg, the chief executive of Harvesting Farmer Network, was among the startup owners in India whose business felt the ripple effect of Silicon Valley Bank’s (SVB) collapse, the biggest since 2008 when Washington Mutual sputtered and died.
“We have been banking with SVB for over 10 years. We have deposits that are right now stuck with them. Thankfully for us, the situation is a little bit better as most of our operations are in India,” Mr Garg told NDTV today.
“Just by sheer planning and luck we have a lot of money already made as FDI (foreign direct investment) in Indian entities. But still a large portion of our money is sitting in SVB,” he said.
Many other startups, however, may be in a much worse situation, Mr Garg said, citing young companies that carry out a bulk of their operations abroad, especially in the US.
“Multiple startups have their money stuck in SVB, the most serious being the ones operating in the US. If they have been working mostly in India, they would have funds parked in Indian banks too. The problem is magnified for startups that have SVB as the only main banking partner,” said Mr Garg, whose startup provides a mobile marketplace for over 120 million farmers in India.
At least 50 per cent of US venture-backed tech and life sciences firms had banking relationships with SVB, according to the bank’s website. Several Indian startups, too, have deposits in SVB and investments from the bank.
Mr Garg makes the distinction between debt and equity-based investments to explain the collapse’s impact on Indian firms. He said companies that got equity-based investments would have already received the investment amount, leaving little to no risk. But the risk is significant for firms with a debt-based investment from SVB.
For investments in the form of debt, the money would have been parked in SVB, leaving it stuck after the bank’s collapse, Mr Garg said.
Little known to the general public, SVB specialised in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
Its demise represents not only the largest bank failure since Washington Mutual in 2008, but also the second largest failure ever for a retail bank in the US.
“The effect of SVB’s collapse on Indian startups could be minimal,” Mr Garg told NDTV. “Having said that, the SVB matter is shaking the market right now… It seems to be snowballing in some ways. Startups with some investments in the US and some in India won’t be affected that badly… The negative impact could be that investments for some startups that are already tight across the globe will get tighter,” Mr Garg said.
The surprisingly rapid implosion of SVB has markets jittery over a potential sign of widespread turmoil, but analysts see only a limited risk of financial contagion.
A note from analysts at Morgan Stanley put it simply, saying, “We want to be very clear here… we do not believe there is a liquidity crunch facing the banking industry, and most banks in our coverage have ample access to liquidity.”
With inputs from AFP