Silicon Valley Bank Collapse: Government Assures Support To Impacted Startups

Union Minister of State for Electronics and IT Rajeev Chandrasekhar on Tuesday (March 14) interacted with startups and venture capitalists (VCs) impacted by the collapse of the US-based Silicon Valley Bank (SVB) and assured them the government’s support to sail through the crisis.

In a Twitter post, Chandrasekhar said that key issues related to the crisis were discussed during the interaction. “We are laser-focused on making sure that every startup is able to navigate this storm and whatever we need to do to make sure they navigate the storm, we do,” the minister said.

He also said that the government will work with banks and stakeholders to encourage development of innovative credit products. He also proposed deposit-backed credit lines.

In a tweet about the meeting with the minister, Yashraj Akashi, cofounder of TeDX Gateway, said, “The government will work with banks and stakeholders to encourage the development of innovative credit products. This is a welcome step towards providing startups and VCs with more financing options.” 

The crisis at American commercial bank, SVB, which primarily worked with venture-backed tech companies, started last week after the bank sold all of its ‘Available for Sale’ securities portfolio worth $21 Bn at a loss of $1.8 Bn, sending chills in the capital markets. Following this, the bank’s shares crashed. 

The California Department of Financial Protection and Innovation finally shut the bank on March 12, making SVB the largest bank to fail since the collapse of Washington Mutual Bank during the 2008 financial crisis. 

As of December 31, 2022, SVB had total assets of $209 Bn and deposits of approximately $175.4 Bn.

Following the shutdown, startups globally, which had funds in the bank, have come under pressure. At least 30% of Y Combinator-backed startups are exposed to SVB, which could delay salaries for thousands of employees of startups across the world.

In the latest update, Y Combinator is decreasing late-stage investing and is laying off about 20% of its workforce.

Earlier this week, the US government intervened in the matter and said depositors will be able to access their money. “The depositors will have access to all their money starting Monday, March 13. No losses associated with the resolution of the SVB will be borne by the taxpayer,” the FDIC and the Department of Treasury, Federal Reserve, said in a statement.

The announcement came as a major relief for startups whose money was stuck with the bank.

Following the FDIC statement, Chandrasekhar said in a tweet, “With this US govt action, looming risks to Indian Startups have passed. Learning for Indian startups from this crisis – trust Indian banking system more.”

Speaking on the SVB collapse, Balaji Kridha, head of startup launchpad at incubator centre Deshpande Startups said, “It serves as a reminder for startups to diversify where their funds are deposited, with even smaller banks needing to be included in that strategy. Investors should also remain vigilant, as there could still be instability in future. This would help mitigate any ripple effects both on a global and local level.”