SVB Bank Failure: A Wake-Up Call for Indian Startups

The recent failure of SVB Bank has reverberated across the Indian startup ecosystem, evoking memories of the 2008 Lehman crisis. This event has particularly impacted startups associated with American accelerator YCombinator, as many had deposited significant sums with the bank.

Reports indicate that over 60% of YCombinator startups had deposits exceeding $250,000, with some entrusting more than $1 million to the bank. The Biden administration’s assurance that depositors will regain access to their funds by March 13 and the provision of additional loans to eligible institutions has provided some relief to the Indian startup community.

Impact on Indian Startups

Union Minister Rajeev Chandrasekhar has assured Indian startups of government measures to mitigate economic uncertainties. Proposed initiatives include facilitating US fund transfers to Indian banks and developing innovative credit products. Aviral Bhatnagar from Venture Highway suggests that while Indian startups may not directly suffer SVB exposure, those incorporated in the US, particularly SaaS and YCombinator companies, could face challenges, especially those pre-Series B.

Startups’ exposure to SVB may vary, ranging from deposits to equity and debt funding. While day-to-day operations of startups with deposits may remain largely unaffected, those reliant on funding from SVB may encounter complications.

Oliver Heinrich from Picus Capital notes that equity-funded startups may see a transfer of shares to acquiring entities, while debt-funded startups could face uncertainties regarding undrawn capital lines.

Lessons for Indian Startups

The SVB Bank incident underscores the importance of risk management for Indian startups. Heinrich advises diversifying bank exposure and maintaining accounts with multiple banks to mitigate risks associated with bank failures.

Sunil Goyal from YourNest Venture Capital emphasizes the strength of the Indian banking system and recommends splitting funds across insured accounts. He suggests keeping funds in India longer, leveraging the robust regulatory framework provided by the RBI.

Rahul Dev Gupta from Kuruvindum highlights the attractiveness of Gift City for banking operations, foreseeing Indian startups exploring this option.

In terms of financial strategy, startups are advised to focus on prudent cash management and strive for profitability. Heinrich suggests ensuring funding can sustain operations for 24-36 months or achieve profitability, especially in challenging economic cycles.

In conclusion, startups with sustainable business models addressing real problems are likely to thrive despite macroeconomic challenges, reflecting the resilience and innovation inherent in the Indian startup ecosystem.