Indian startups, VC funds hit the panic button on Silicon Valley bank crisis

At least six fund managers and startups who spoke to Mint said larger concerns over the bank’s health have left them scrambling for options outside SVB. “SVB has been a valuable partner to technology companies and investors; They not only hold deposits, but also give credit to startups considered too risky by traditional banks. Thus, they have been an important pillar of funding for startups, said the first person cited above. According to him, not only businesses but also venture capital funds and their limited partnerships will bank with the firm (during good times).

According to this person, companies with large businesses in the US and those headquartered in the US are the worst affected. But most denied any long-term impact on their businesses or funds.

“Many startups (especially SaaS firms) have credit lines and/or deposits with SVB. Almost all SaaS companies with a US presence will have an SVB account,” said the second person, a US-based investor, above. Quoted, said that SVB has been a great partner for Indian startups and I do not expect a long-term impact on deposits or credit lines. However, it is a good reminder for startup boards to re-evaluate their risk assignments.”

According to these people, companies like Chargebee, Postman, CleverTap, Freshworks are banking with SVB. “Most YCombinator funded companies park their capital with SVB,” said the second person.

Startups that raise capital from global investors generally park these funds with banks till the time they want to deploy it. While most companies diversify funds across FDs, bonds and other instruments, some are parking solely with SVBs, said the third person cited above.

While some global VCs sent SOS emails asking their portfolio firms to move the account from SVB, others are scrambling to recover their money, fearing that the bank will freeze withdrawals, triggering a crisis. And it will increase.

In addition, some funds such as Sequoia Capital, Accel, Ribbit Capital, Index Ventures, and Bessemer Venture Partners have raised capital from SVB-SVB Capital’s investment arm and count the troubled bank as one of their LPs or as an LP. Used SVB Capital for access. “The drawdown becomes difficult in such cases as the bank does not honor capital call requests from funds,” said the fourth person cited above on condition of anonymity. There is a deal or investment opportunity. As of June 30, 2022, SVB Capital had assets under management, or AUM, of approximately $8.8 billion, its website shows.

According to this person, two scenarios could play out during this crisis. One where funds are temporarily frozen until another large US bank bails them out and nobody loses anything. Second, volatility persists where no one is able to hedge the SVB, in which case deposits and credit lines are at risk.

SVB Financial Group’s bonds fell along with its shares after the company shored up capital following losses on its securities portfolio and a funding slowdown. Many experts have compared the current SVB crisis to the liquidity crisis at Lehman Brothers and Evergrande. Moody’s, which has downgraded the Silicon Valley bank’s rating, said rising interest rates, macroeconomic uncertainty, venture capital investment activity, and higher cash consumption among SVB’s clients create challenging conditions for the firm, media reported. said in the reports. News wires said on Friday that SVB’s plunge wiped out more than half the value of the holdings of Elektra – Sweden’s biggest pension fund.