Indian start-ups are set to benefit after the US regulator announced that depositors of Silicon Valley Bank (SVB) will have access to all their money from Monday. The move is expected to provide some relief to start-ups, which have been trying to retrieve their deposits stuck with the California-based lender.
Siddarth Pai, founding partner at 3one4 Capital, estimates Indian start-ups' exposure to SVB to be in the range of $2.5-3 billion. "The move has definitely given some comfort to start-ups, but the bigger question is whether founders will be able to transfer all their money out of the bank at one go and if the system will be able to support the withdrawal process. The backend infrastructure of the US banking system is not as robust as that of India's," he told TOI, adding that large withdrawals may take place if no new management steps in.
However, companies are feeling a little relieved. The founder of a local B2B start-up backed by US technology start-up accelerator Y Combinator said the announcement is favourable for start-ups and VCs. "Also, never has any depositor lost money in a bank run or failure. Even companies that had not prepared for such an eventuality would have survived after navigating a brief period of disruption. There are anyway lots of companies providing lines of credit to start-ups now," the founder said.
Minister of State for Electronics and Technology Rajeev Chandrasekhar said in a tweet that with this move of the US government, looming risks to Indian start-ups have passed. "Learning for Indian start-ups from the crisis - trust the Indian banking system more," Chandrasekhar said.
With this US govt action, looming risks to Indian Startups hv passed 🙏🏻
Learning for Indian Startups from this crisis - trust Indian banking system more.
Thank u to PM @narendramodi ji, FM @nsitharaman n @RBI for their continuos leadrship n monitoring durng this 🙏🏻 #NewIndia https://t.co/yF1dnGy1BS
The collapse of America's 16th biggest lender, often relied upon by new-age tech firms to service their banking processes, sent the start-up community into a tizzy. The inability to access funds typically hits start-ups' working capital requirements, disrupting daily operations.
Pai said at least 60 of India's more than 100 unicorns are headquartered outside India. "Almost all the software as a start-up (SaaS) start-ups are based overseas. Y Combinator backs some 250 odd Indian start-ups, 90-95 per cent of which are based outside India," said Pai.
"Several Indian-origin start-ups, including many backed by Y Combinator, have deposits in excess of $250,000 in SVB, which is the maximum protected by deposit insurance. This announcement (lifting of the cap) will come as a welcome relief to these start-ups, who have already been reeling from a financial crunch exacerbated by a drying up of venture capital globally," said Pranav Bhaskar, partner at SKV Law Offices in an ET report.