"I wake up at 4 am as a habit. And yesterday was one such ritual. But yesterday (10 March), it was different," said Ruchit Garg, founder and CEO of Harvesting Farmer Network. "There were a lot of messages circulated around Silicon Valley Bank (SVB) which was good enough to set a cautionary tone among depositors," added Garg.

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He was among the many depositors who tried to withdraw their funds.

"As I tried to transfer my fund – even though it was not a huge amount– it went through. While I have received a message stating transfer successful, I have not received the amount in my Indian account." Last year, the company had raised some funds and some part of that fund was still in Silicon Valley Bank.

He has been banking with SVB for over 10 years. “I had accounts for both my startups in that institution. So, I am shocked at this development.”

But the only relief for Garg was the fresh funds that were not transferred into the SVB account. "I was about to receive some funds from an investor. But I alerted the investor not to make any fresh transfer in the SVB account." Otherwise, it would have been chaotic, added Garg.

ALSO READ | Silicon Valley Bank fallout decimates Sweden's largest pension fund's stake by 54%

Ahead of SVB's collapse, the top executives sold shares worth $4.5 million in the bank’s parent company SVB Financial Group. The bank’s Chief Executive Officer Gregory Becker, Chief Financial Officer Daniel Beck, and Chief Marketing Officer Michelle Draper sold their shares. As per the filings, since May 2021, the company’s top executives have been selling the stocks.

One close associate with an SVB employee said, “While many top officials offloaded their stakes a few days back, no one assumed this was going to happen.”

Suman Bannerjee, CIO of Hedonova, a US-based Hedge Fund investing in alternative assets said, “I think Silicon Valley Bank fell victim to circumstances. They were a strong institution, and I worked with them on several occasions where they provided credit to our portfolio companies.”

SVB crisis: What happened?

Due to the ongoing liquidity crunch, some SVB customers started withdrawing money out to meet their needs. This rising need for money forced SVB to sell a $21 billion bond portfolio, on Wednesday. This transaction led to SVB incurring a $1.8 billion loss, which it needed to fill through a capital raise.

Suman Bannerjee added, “SVB's customer base is concentrated among California tech startups who are already flush with cash and do not need loans. Because of this, SVB invested some $88 billion in mortgage-backed bonds in 2021. As the Fed increased interest rates, the value of these bonds collapsed, eroding SVB's capital base completely.”

To fill the funding gap, the bank decided to sell $2.25 billion in common equity and preferred convertible stock. The stocks crashed and spooked the investors. And a series of events followed thereafter.

As per a Bloomberg report, investors and depositors tried to pull $42 billion from SVB on Thursday. This was after many VC cautioned the startups about the looming situation of the bank. One large VC fund sent out a cautionary message to its over 1,000 portfolio companies, sources told CNBC-TV18.

The regulator sprung into action in California and shut down SVB and handed control over to the US Federal Deposit Insurance Corporation (FDIC). Startup founders’ like Garg have some sense of relief due to FDIC’s insurance limit of $2,50,000. But for startups who have large amounts in SVB, it is a panic mode.

Yesterday, Silicon Valley Bank (SVB) was taken over by the FDIC & we're one of the affected customers...

> 60% of YC backed co's have > $250K in SVB bank accounts (source: YC WhatsApp group). FDIC insurance limit is $250K - some startups could be at risk of losing big money:— Rahul Mathur (@Rahul_J_Mathur) March 11, 2023

SVB crisis: Ripple or wave for Indian startup ecosystem?

Many Indian startups operating in the US or Indian startups with a base in the US raise funds via SVB, and Indian investors often participate in these funding rounds.

Prateek Toshniwal of Ivy Growth Associates and MI Capital said, “The closure of Silicon Valley Bank could lead to a disruption in funding for Indian startups and a delay in the return of investments for Indian investors. This could also impact the valuation of Indian startups, as the bank has been a key player in the startup ecosystem, particularly in the technology and innovation sector.”

Toshniwal added, “We are checking on the exposure and advising startups and founders to make contingency at this stage. Furthermore, we are advising our startups that have operations in the United States to not stop their investment journey, and keep focusing on wealth creation, that should not stop for a minor mishap.”

Industry experts believe this will not impact Indian startups in a short run, but in long-run lay-offs, delays in salary payment and other dues cannot be denied. This is expected to hurt the business. “Monday we will know the larger impact.”

ALSO READ | What happened at the Silicon Valley Bank and why does it matter?

Meanwhile, Vaibhav Lodha, Co-Founder of FTCash said, “As we are an Indian company with no association with SVB, we don’t see any impact from this. Meanwhile, due to the ongoing funding winter, Indian startups and startups around the world have been cutting jobs and costs. So, the impact will not be huge.”

He added the impact will be limited to the US market, mostly SaaS companies. “There will be ripple in India but no waves.”

He added, “In a short-run, cash flow of some VCs and US-based startups or startups with US operations will be hit no doubt about it. But that will not have a major impact in India — mainly as India is a highly-regulated market.”

First Published:Mar 11, 2023 7:13 PM IST