SVB fallout impact: Govts across globe stepping in to look for solution

Meity may meet advisory group on e-commerce and cyber laws; meanwhile US lawmakers rush to sell SVB assets and make portion of uninsured deposits available to account holders as early as Monday

Silicon Valley Bank’s (SVB’s) collapse is already causing collateral damage that’s sinking markets and delaying paychecks. Not only are start-up founders, chief executive officers, and investors in a huddle to find a solution, but governments  are stepping in.

Minister of State for Electronics and Technology Rajeev Chandrasekhar tweeted: “The SVB closure is certainly disrupting start-ups across the world. Start-ups are an important part of New India’s economy. I will meet with Indian start-ups this week to understand the impact on them and how the government can help during this crisis.”

He assured that the government will not let the SVB crisis affect the growth of Indian start-ups.

The Ministry of Electronics and Information Technology may also meet its advisory group on e-commerce and cyber laws to discuss the matter, Business Standard has learnt. This came in hours after the UK government said it was working to limit the damage to the technology sector.

According to media reports, UK Chancellor of the Exchequer Jeremy Hunt told Sky News, “We will bring forward very soon plans to make sure people can meet their cash flow requirements, and pay their staff.”

The comments follow discussions over the weekend between the Governor of the Bank of England, Prime Minister Rishi Sunak, and the Chancellor, informed reports.

US Treasury Secretary Janet Yellen on Sunday said she was working closely with banking regulators to respond to the collapse and protect depositors, but a bailout was not being considered.

Yellen told the CBS News’ Face the Nation that she had been working with regulators to “design appropriate policies to address the situation”, but declined to give further details.

Meanwhile, US regulators, said media reports, were rushing to sell assets of the bank and make a portion of the uninsured deposits available to account holders as early as Monday (March 13).

Closer home, the voices of anxiety over SVB and its possible impact have snowballed over the weekend. While no single number could be confirmed as to how many Indian start-ups have exposure to SVB, several industry sources pegged the number at no less than 1,000.

Among listed entities, Nazara Technologies, in a regulatory filing, said two of its step-down subsidiaries — Kiddopia and Mediawrkz - hold cash balances at SVB to the tune of $7.75 million (about Rs 64 crore).

“Regardless of the outcome and its timing, both subsidiaries continue to be well-capitalised and are generating positive cash flows, along with profitability. Therefore, we expect no impact on their day-to-day operations, business performance, and growth plans due to the SVB event,” the company said in a statement.

Many Indian start-ups backed by venture capitalists (VCs), such as Accel, Sequoia India, Y Combinator, and SoftBank, banked with SVB, said people familiar with the matter.

Indian software-as-a-service start-ups and those backed by Y Combinator, who set up their US companies and raised initial rounds, had SVB as their default bank.

“Uncertainty is killing them. Growth ones relatively safer as they diversified,” tweeted Ashish Dave, India head, Mirae Asset Venture Investments.

“Almost 15-20 per cent of VC-funded start-ups out of India would have deposits with SVB. These would be Indian start-ups that have flipped out of India or have subsidiaries overseas,” Sanjeev Bikhchandani, founder, Info Edge, told Business Standard.

Bikhchandani added that the solution has to be both at a global and local level.

“All Indian start-ups that have been funded by Y Combinator get their investment in SVB. And then they stay with that banking relationship. There are a few hundred such start-ups and are among our best. Alternative investment funds that have exposure to these start-ups are consequently at risk,” he said.

While larger Y Combinator-backed firms, such as Zepto, Meesho, and Razorpay, claim they have no exposure to SVB, smaller early-stage start-ups have borne most of the brunt, said people in the know.

“Razorpay has a limited amount of funds across multiple banks in the US. In the current situation, we have no exposure to SVB,” said a spokesperson for Razorpay.

As many as 40 Indian start-ups backed by Y Combinator have $250,000 to $1 million deposits with SVB. Furthermore, over 20 such start-ups have deposits of over $1 million, according to data sourced from a WhatsApp group of Y Combinator founders.

Garry Tran, president and CEO of Y Combinator, called the SVB collapse an “extinction-level event” for start-ups.

“Thirty per cent of Y Combinator companies exposed to SVB cannot make payroll in the next 30 days,” he tweeted.

Queries sent to Y Combinator did not elicit an immediate response.

“SVB was the de-facto bank for smaller, early-stage companies, such as those backed by Y Combinator. For such start-ups, SVB was a low-friction option that was very start-up friendly. However, larger Indian firms and unicorns are not very dependent on SVB. Most of them have diversified portfolios with institutions like Citibank and JPMorgan,” said Rahul Khanna, co-founder and managing partner, Trifecta Capital.

“We have not seen much of an impact in our portfolio companies either, as we do not focus on early-stage start-ups,” he added.

Amid this tumultuous time, Indian financial technology firms have come to the aid of home-grown start-ups.

While alternative funding platform Recur Club announced $15 million in funds to all Indian founders affected by the crisis, Razorpay is offering domestic start-ups that use its services to move their money into their Indian current account as a foreign direct investment through the firm’s partner banks.