A Weekend Of Terror: How Indian Startup Founders Endured The SVB Collapse

As a CEO when you wake up to a phone call from your chartered accountant (CA), you know that something is amiss somewhere. This is exactly how Pranav Ahuja, the CEO of Delhi-based SaaS startup Xeno, shared his experience after he heard the news of the Silicon Valley Bank (SVB) collapse from his CA on March 10.

Ahuja had high exposure to SVB. More than 60% of his startup’s funds were parked in the US-based startup and tech-focused bank, SVB. Not only this, the amount was more than the Federal Deposit Insurance Corporation’s (FDIC) insured limit of $250,000.

When a business that you have nurtured over the years looks like it is on the brink of shutting down, you can only do what is in your control, Ahuja said.

“Caught in the eye of the SVB storm, I spent the entire weekend making calls to the bank’s customer care executives, who directed me to a link to settle the claims for depositors with more than $250,000 in the bank. But the link wasn’t working. I then thought that the regulator, FDIC, must be working on operational efficiencies to address customer grievances,” Ahuja said.

Daunted by concerns of running the show over the next month, Ahuja said he started making frantic calls to his investors. “I pretty much thought that we may have to wind up,” he added.

Speaking with Inc42, the CEO said that he knew at least five to seven CEOs of Indian startups who, too, had all their funds parked in the bank.

“The situation was worrying and the livelihood of both employers and employees hung in the balance,” he added.

Ahuja’s harrowing experiences of the weekend were almost similar to the cofounder of edtech firm RISE, Mubeen Masudi, who told Inc42 that 100% of his company’s funds were parked in SVB.

“We never felt any need to put our money in any other bank because banking with SVB had always been smooth. The rapport that SVB held with the startup ecosystem and among investors was excellent. So, it never occurred to us that the bank would collapse,” Masudi said.

He added that there were many failed attempts by founders like him to wire the money to other bank accounts on Friday, but by then the FDIC took the reins of SVB and it felt like the game was over.

“In the hope to salvage their funds, some founders got themselves registered on US-based fintech platforms like Mercury and Brex but to no avail. At the first opportunity that emerged from the crisis, these US-based fintechs lept on grabbing new users, however, couldn’t do much as the money remained stuck,” the cofounder added.

It is pertinent to mention here that a few startup founders, even with lesser exposure to SVB, are still facing the issue of wiring their money back to India.

The CEO and cofounder of Indian agritech startup Harvesting, Ruchit Garg, panicked when he heard about the SVB collapse on March 10. Fortunately, he did not have high exposure to the bank.

“Luckily, my company’s exposure to SVB was not 100%, and we only had some deposits in the bank. Incidentally, on Thursday, I transferred the money to my Indian bank accounts, and although the SVB website showed that the money had been wired, I didn’t receive any. But there was nothing we could do but to keep a close watch on the developments panning in the US over the weekend,” Garg told Inc42.

For someone like Vinayak Sharma, the founder of Hyderabad-based Byteridge, although the exposure to SVB may not be high, he has been on his toes for the last eight days to get his money wired back to India.

“We have made many calls to our SVB relationship manager, and while the funds are accessible right now, they can only be transferred within the US and not to India. We have written to the bank authorities seeking clarity on this,” Sharma said.

When Y Combinator Startups Stood On The Verge Of Collapse

According to several industry sources, hundreds of Indian startups backed by Y Combinator have high exposure (at least 60% of their funds) to SVB. The same is true for many Indian SaaS companies and some early and mid-sized organisations.

A veteran VC investor told Inc42 that all reports that suggested a minuscule impact of the SVB collapse on the Indian startup ecosystem were incorrect.

“If the situation wasn’t brought under control, at least 1,000 startups from India would have taken a hit, impacting their cash runways, operations, and employee salaries, or even worse,” the investor, who did not wish to be named, said.

A poll on Y Combinator’s WhatsApp Group, after the SVB collapse, indicated that 40 founders in that group had funds in the range of $5 Mn – 10 Mn each.

Sources added that the challenge was particularly high for Y Combinator-backed startups because of an undertaking signed with the accelerator that they will have their base in the US and deposits in US banks.

“These contracts cannot be executed in India,” a startup founder said. According to our sources, even growth to late-stage startups like Khatabook, Filo, Zepto, and Meesho have high exposure to SVB.

“There were rumours that Meesho alone had $300 Mn worth of deposits in SVB, and given that Y Combinator is a major stakeholder in Zepto, the probability of them having hefty deposits in SVB is quite high,” a source with knowledge of the matter said. Inc42 couldn’t independently verify these rumours.

In a response to Inc42, Meesho’s CFO Dhiresh Bansal clarified that the company is not impacted by the SVB closure. “On the day of the SVB closure, we did not have any outstanding deposits or other exposure in SVB,” he said.

Interestingly, Y Combinator changed its model of investing last year. The accelerator now invests a minimum of $500K, which means that most startups in its portfolio likely had deposits of more than $250,000 in SVB.

On Sunday, Y Combinator had nearly 20,000 founders sign a petition seeking urgent relief for small businesses and startups. The plea was addressed to Treasury secretary Janet Yellen, FDIC chairman Martin J. Gruenberg, Senate Banking chairman Sherrod Brown, and chairman of the House Financial Services Committee Patrick McHenry.

Among those who signed the petition were Zepto’s CEO and cofounder Aadit Palicha and many other Indian founders operating in the US, Canada and the UK.

Sources privy to the matter said that a WhatsApp group was constituted overnight by several Y Combinator-backed startup founders who were panicking amid concerns about raising emergency funds to somehow pay the salaries for the month of March.

Some founders in the WhatsApp group were inquiring about the duration of the waiting period to access their deposits of more than $250,000. And there were discussions around how 95% of bank deposits were not even insured, sources said.

“I also know of a self-help group that came into being on Friday where founders were willing to offer emergency funds to those who had their funds stuck in SVB,” Masudi said.

Founders Laud A Prompt Regulatory Intervention

At a time when many founders like Garg were expecting some clarity on Monday (March 13), the US government and the FDIC swung into action and released a statement announcing that the deposits, including those beyond the standard insurance sum of $250,000, were secure and would be made accessible.

Garg says that this came as a pleasant surprise because founders and investors were not expecting 100% of their deposits back that early.

“The regulator’s stance should be appreciated by one and all. The constant communication by the FDIC and the US government did calm the nerves of many as the prompt action followed,” Garg added.

The founder of ByteRidge, Vinayak Sharma, said, over the years, both the US and India have developed strong regulatory bodies to oversee any financial crisis and hence the action by the FDIC was on the expected lines.

Masudi of RISE said, “If you look at the history of US banking collapses, you will find that the government has always come to the rescue of depositors first.”

Diversify, Diversify, Diversify!

If there is one lesson that Indian startup founders and investors should learn from this entire episode, it is all about the diversification of funds – a key teaching that is being preached over and over again by social media abbots on platforms such as Linkedin and Twitter since the SVB saga has unfolded.

In his candid conversation, Ahuja told Inc42 that while networking with other founders, he would often talk about opening alternative accounts in Indian banks and availing tax benefits announced for the GIFT City.

But it is only after the SVB grind that many are realising this. Many were seen opening accounts in Indian banks after the SVB fiasco.

In fact, a fintech investor told Inc42 that one of the largest private banks in India, ICICI, had a waiting list of 200 accounts to be opened on Friday from startup founders.

“A sense has grown that diversification of investments is key in avoiding any major spillovers of a financial crisis that one bank or a country may go through,” the investor added.

“Not just this, founders have suddenly become interested in turning towards the GIFT IFSC and parking their money there. This makes sense since it involves smooth transfers and the regulations have also been eased,” Vikram Chachra, the founding partner of 8i Ventures, said.

For now, as the nightmare has ended for many on the back of the prompt intervention by the US authorities, one thing that stood out the most was many founders and investors came forward to each other’s rescue.

Read More: Will SVB Collapse Accelerate Reverse Flipping Of Startups To India?

Two of the biggest names in the global VC ecosystem, Open AI CEO Sam Altman and venture capitalist Vinod Khosla, offered personal capital to startups that were on the verge of shutting down due to the SVB collapse.

Meanwhile, analysts the Inc42 spoke with have unanimously highlighted the need to build sustainable startups as industries and businesses today are vulnerable to financial crises that can be triggered anywhere in this hyper-connected world.

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Update | 20th March, 18:20 IST

The story has been updated to include Meesho’s statement.