Silicon Valley Bank collapse: Will Indian start-ups feel the ripple effect?

The closure of Silicon Valley Bank (SVB), which mainly invested in start-ups worldwide, has rattled the Indian start-up ecosystem. The closure of SVB is being touted as the largest bank closure since the failure of Lehman Brothers, which led to the 2008 financial crisis. The Friday development has shocked the tech industry worldwide, as tech unicorns and SaaS were the biggest customers for SVB. Silicon Valley Bank in all had $209 billion in total assets and about $175.4 billion in total deposits, as of December 2022.

According to the latest Tracxn data, the US-based bank had exposure in 21 start-ups in India, though the amount of investment is not clearly mentioned.  

One of its significant investments in India is unicorn Icertis, which has secured $150 million in funding, consisting of a revolving credit facility and convertible financing from SVB, according to a report in Business Standard. 

Also read: Silicon Valley Bank shut down! California regulator takes action after stock crashes 85%

Icertis, which provides contract management software to enterprise businesses using a software-as-a-service model, became a unicorn in 2021 and got the investment from SVB in October 2022.  

Other start-ups which had raised funding from SVB include Bluestone, Carewale, InMobi, and Loyalty Rewardz. Among VC players, Accel Partners has a tie-up with SVB. The SVB page stated that the Accel India founders choose SVB to accelerate growth. 

But Tracxn data also highlights that SVB has not made much investment after 2011. 

Investments done by SVB in Indian companies

Company Funding ($ million)
BlueStone 111
Paytm  4,637
One97 Communications 2,787
InMorbi 265
Paytm Mall 808
Naaptol  133
Bharat Financial Inclusion 144

Source: Tracxn

But Indian founders and investors are now worried about the transfer of assets as a limit could be imposed on withdrawals, which could lead to multiple challenges. Startup founders are now weighing alternates for transferring their raised capital overnight even though SVB has assured clients not to worry. 

Also read: Silicon Valley Bank crisis: Uday Kotak says an ‘accident’ was waiting to happen

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Gokul Rajaram, Pinterest and Coinbase board member, said India-based founders don’t know who to turn to as an alternate to SVB. Likely true for founders in other countries too.

SVB is deeply rooted in the US start-up scene and is the only publicly traded bank focused on Silicon Valley and tech start-ups. As per, the bank has been lending to 50 per cent of all venture-backed companies in the US. Venture or private equity funds make up approximately 56 per cent of the bank’s global banking portfolio in 2022. 
It has Pinterest Inc, Shopify Inc., and CrowdStrike Holdings Inc. on its lists, which are some of the big names in the tech industry. 

Trouble began at SVB after the bank said it sold $21 billion of securities and was preparing to sell $1.75 billion worth of shares to bolster its finances.  

Moody’s, which has downgraded SVB’s rating, said that rising interest rates in the US, increased macroeconomic uncertainty, venture capital investment activity, and high cash burn among SVB’s clients have created challenging conditions for the firm. 

The crash in SVB stocks has led many prominent venture capitalists like Peter Thiel’s Founder’s Fund, Coatue Management and Union Square Ventures to instruct portfolio businesses to limit exposure and pull-out cash from the bank, a Bloomberg report said on Friday.