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Indian Startup ecosystem likely to be hit as Silicon Valley Bank collapses

After the California-based Silicon Valley Bank collapsed, bank stocks all across the globe fell sharply and suddenly on Monday, despite President Joe Biden vowing that the safety of the US banking system will be maintained. As the collapse of the bank posed a threat that could trigger an even bigger economic crisis, the US authorities launched some emergency measures on Sunday to reinstate the confidence of the people in the banking system.

On Sunday itself, the banking regulators had said that the Silicon Valley Bank (SVB) depositors would be able to access their funds on Monday, marking an end to the fear of startups that they would struggle to pay their employees during the week. On Monday morning, the customers who had lined up outside the Santa Clara headquarters of the SVB were told that they would be able to transact business as usual.

On 10th March, the SVB, which is a startup-focused lender financial group, became the largest bank to fail since the 2008 financial crisis. California-based banking regulators closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver for the later disposition of its assets. At the end of 2022, the SVB was ranked the 16th biggest lender in the USA, having assets worth around 209 billion USD.

This sudden collapse of the SVB has not taken place in isolation, as its effects were quickly seen on the global market. Wall Street was dragged lower on Monday with the bank shares falling, leaving investors worried. Shares of other big US banks like JP Morgan Chase & Co, Citigroup, and Wells Fargo, were adversely affected as well.

Others to fall sharply were the Republic Bank, Western Alliance Bancorp, and PacWest Bancorp. Meanwhile, in Britain, the UK branch of the SVB was bought by HSBC for a symbolic 1 pound on Monday itself, rescuing a crucial lender for technology startups in England. Bank shares in Europe and Asia were also affected on Monday as the SVB downfall continued to hamper the markets.

As per executives, the SVB fall could also have an effect on the British biotech sector, as about 40% of the UK’s biotech companies were banking with the SVB’s British branch. On the other hand, Chinese startups and fund managers said that they are still eyeing to move their money out of SVB, which was of high choice in the country for young companies, as it made it easy for startups to open accounts for dollar financing.

With markets all across the globe being sharply affected by the SVB crisis, India cannot remain isolated as the startup ecosystem in the country is most likely to be affected, because it was one of the biggest funders for the startups in the Indian ecosystem. Rajeev Chandrashekhar, Minister of State for Skill, Development, and Entrepreneurship of India, said that the closure is certainly disrupting startups across the world. He further added that he will meet with Indian startups this week to take a stock of the impact laid on them and how the Centre can help.

Ashu Garg, a Venture Capitalist based out of Silicon Valley, said that hopefully the matter will get resolved, but at the same time, he thinks that it is a big hit for Indian startups. Ruchit G Garg, Chief Executive, harvesting Farmer Network, which is among the Indian startups which are likely to feel the heat of the SVB collapse, said that they have been banking with SVB for over the last 10 years, and have deposits currently which are stuck with the bank. “Thankfully for us, the situation is a little bit better as most of our operations are in India”, he added.

The Silicon Valley Bank has been the backbone for Indian startups financially, providing them with banking services. The majority of the Indian startups which are registered in the USA utilize the services of this bank since other banks do not really support Indian startups. The fact is that there are several startups run by Indian-Americans, and according to experts, these founders will be hit in the coming week.

A common practice among Indian startups is to register themselves in the USA, in order to get their hands on funds from global Venture Capital firms, the capital being raised is then deposited in the SVB.

 

 

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