SVB’s Collapse Is Causing Chaos in India’s Tech Sector
“In case of India, the number of Indian startups [impacted] is definitely very high compared to other nations, except for US, but the capital would not be as much,” says Smriti Tomar, founder and CEO of Stack, a Y Combinator–backed startup, which had some funds in SVB. “What we can safely assume from that is that most startups have an exposure somewhere between $250,000 up till $1.5 million—this was the bracket where the majority of the startups believe that the money is blocked.”
Over the weekend, after SVB went down, hundreds of WhatsApp groups, communities, and support forums emerged to help people figure out how to react.
Many of them are customers of Krishna’s startup Inkle, which offers an accounting and tax filing product to companies registered in the US with an Indian subsidiary. Krishna says that on Thursday, March 9, most of his clients weren’t worried about their funds, but by Friday everyone started taking it more seriously. The biggest problem, he said, was that many of these founders did not have secondary bank accounts and instead relied heavily on SVB. Since then, founders have had to open dollar accounts across several banks, in GIFT City—India’s answer to Delaware—in Gujarat, which provides offshore accounts to non-residents and offshore entities. This means that once they are able to access funds in their SVB accounts, they will have an account to transfer them to.
Many startups feared for their businesses. Krishna says that one of his customers, whose entire funds were in SVB, told him that he was going to run out of money in his India account within weeks—and that if the US didn’t bail the bank out, he’d have to shut down and lay off his 100-person staff. “Founders were very, very anxious about that,” Krishna says.
Tomar says that she, along with other founders, started looking at where they could cut back to survive. “It was not a good situation to be [in]. We were almost going to push that button of extreme cost-cutting,” she says.
She’s now waiting to see what unfolds. The US government has said that depositors at SVB in the US will have their deposits protected and will be able to access their funds again, although it’s not clear when international wire transfers will resume.
However, the bank’s collapse means that many startups in India are rethinking how they calculate their risks, and will have to diversify their banking relationships in the US and in India—because nearly no one saw this coming.
“I’ve been around for 23 years in Silicon Valley and I’ve seen ups and downs and economic downturns, but for a bank as big and influential to shut down in two days, with no precursor, no signs of faltering, is unprecedented,” said Anil Advani, founder and managing partner at Inventus law, a global technology law firm, which also had some money in SVB. “Nobody, including [the] most senior management of SVB, had any idea. In fact, some of my friends told me [because] the stock had gone down, they were looking to buy more shares as recently as Wednesday of last week.”