Silicon Valley bank collapse affects many Indian startups

Image Credit: Tim Desand / TechCrunch

The sudden collapse of a Silicon Valley bank that was a lifeline for startups is also affecting companies 8,000 miles away.

Dozens of young Indian startups backed by the likes of YC, Accel, Sequoia India, Lightspeed, SoftBank and Bessemer Venture Partners are banking on Silicon Valley Bank, sometimes as their only banking partner, as many are unable to withdraw money on time. A person familiar with the situation said.

VCs are wary of disclosing the names of affected startups, fearing it could affect the young company’s chances of raising capital in the future. Regulators moved Friday to shut down Silicon Valley Bank, the 16th largest bank in the U.S. and the largest bank for startups.

Some Indian companies could not move their funds out of Silicon Valley Bank in time because they did not have another US bank account readily available, several venture capitalists recounted.

Many Indian startups have incorporated in Delaware to easily raise capital from US venture capital firms such as Y Combinator. Some SaaS companies are registered in the US because even though they operate from India, they want to serve international markets and want to be seen as a US company.

Silicon Valley Bank was the preferred choice for many companies to “flip” their home base from India to the US, said another person familiar with the matter, adding that several events in India were sponsored by SVPs as executives of the lender. Encouraged to increase ties with Indian companies.

All Indian SaaS startups in the US are working with Silicon Valley Bank. A dozen Indian sauce unicorns and several “sunnicorns” are headquartered in the United States

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Most of these young companies do not diversify their funds with multiple banks because it is not possible to raise the administrative and operational costs in the early days.

A US-based investor, who did not want to be named, said he was aware of around $4-10 million held in the SVB accounts of several Indian companies. A group of Indian YC founders polled members on their exposure to SVB and found that more than 60 companies have more than $250,000 parked in SVB.

Indian SaaS startups and those otherwise backed by YC that set up their companies in the US and raised their first round there often had SVB as their bank of choice, said Ashish Dave, India head of Mirae Asset. He tweeted that. “Uncertainty kills them. Developments are relatively safe because they are diversified.”

Gary Tan, president of Y Combinator, said more than 1,000 YC-backed startups were affected by the collapse of Silicon Valley Bank. “30% of YC companies exposed by SVB will not get paid in next 30 days,” he tweeted.

Story will be updated as we learn more.

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