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What does the SVB crisis mean for Indian startups

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The collapse of the California-based Silicon Valley Bank last week, which is the the largest bank failure after the 2008 global financial crisis, had sent shockwaves through the Indian startup ecosystem.

The SVB was the go-to bank for many Indian startups when they do business in the United States.

However, with US president Joe Biden announcing that the depositors of the failed bank can access their money from Monday (13) and the Indian government reaching out to startups and venture capitalists on Tuesday (14) to ensure its help in tiding over the crisis, the days of high tension seem to have passed.

How did SVB become so important for Indian startups?

Most Indian startups work in the software as a service (SaaS) industry and United States is one of their primary markets. SVB let these companies, who do not have employees or office in the country, to open accounts without much regulatory questions and partnered with them for venture debt facilities. The bank’s early associations with successful startups, familiarity with the ecosystem and its flexibility in handling recurrent issues made them a preferred choice.

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Which Indian startups are affected?

SVB had also invested in many Indian startups, mostly until 2011, after which it had stopped making significant investments. Paytm, one of India’s successful startups, had got a funding of $ 4,637,862,461 and remains one of the biggest beneficiaries of SVB. However, according to Vijay Shekhar Sharma, the founder of Paytm, the Bank is no more a shareholder. Some of the other major startups who have tied up with SVB are Naaptol, BlueStone, InMobi, TutorVista, CarWale and Shaadi. None of these companies have come out with any statements on the crisis yet.

What are the effects of the crisis for Indian startups?

In the short term, meeting payroll will be one of the first concerns as the end of the month approaches. Though SVB has announced that the depositors can start withdrawing money from the bank, many experts think that it can only be done in instalments of small sums. This can pose some problem for the startups for whom timing of the cashflows are very crucial. The silver lining, experts say, is that no company will lose their money given the assurance by the Biden administration.

 

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