The sudden collapse of Silicon Valley Bank, which served as lifeblood for startups, is also impacting firms 8,000 miles away.
Dozens of young Indian startups backed by the likes of YC, Accel, Sequoia India, Lightspeed, SoftBank and Bessemer Venture Partners banked with Silicon Valley Bank, sometimes as their only banking partner, and couldn’t take out the money on time, multiple people familiar with the situation said.
VCs are cautious about divulging the names of the impacted startups out of fear that it would impact the young firms’ prospects of raising capital in the future. Regulators stepped in Friday to shut down Silicon Valley Bank, the 16th largest in the U.S. and the bank for most startups.
Some Indian firms couldn’t timely move their funds from Silicon Valley Bank because they didn’t have another US banking account readily available, many venture capitalists recounted.
Many Indian startups are incorporated in Delaware to make it easier for them to raise capital from U.S. venture firms such as Y Combinator. Some SaaS firms are registered in the U.S. because even as they operate from India, they want to serve the international markets and want to be seen as a US-firm.
And for many firms that “flipped” their home base from to the U.S. from India, Silicon Valley Bank was the preferred choice, another person familiar with the matter said, pointing to many events sponsored by SVB.
Nearly all Indian SaaS startups with large presence in the U.S. banked with Silicon Valley Bank, a partner at one of the top venture funds said. Over a dozen Indian SaaS unicorns and many more “soonicorns” are headquartered in the U.S.
Many of these young firms did not diversify their funds into multiple banks because in the early days it’s usually not feasible to increase admin and operating costs.
A U.S.-based investor, who requested anonymity speaking candidly, said he knew for a fact that many Indian firms had about $4-10 million parked in their SVB accounts. A group of Indian YC founders polled members about their exposure to SVB and found that more than 60 firms had over $250,000 parked in SVB, according to results seen by TechCrunch.
Indian SaaS startups and otherwise those backed by YC who set up their companies in the U.S. and raised their maiden round there often had SVB as their default bank, Ashish Dave, India head of Mirae Asset, tweeted. “Uncertainty is killing them. Growth ones are relatively safer as they diversified.”
Garry Tan, the president of Y Combinator, said more than a 1,000 YC-backed startups are impacted by the collapse of Silicon Valley Bank. “30% of YC companies exposed through SVB can’t make payroll in the next 30 days,” he tweeted.
This is a CREDIT event & credit events are not to be taken lightly. The ripple effect of this could be that some early stage startups will have to raise quick rounds at lower valuation to survive. This means markdowns or write off’s for funds, layoffs at firms. #SVB
— Ashish Dave | आशीष दवे (@ashishdave) March 11, 2023
The story will be updated as we learn more.