Startups in India Face Financial Crisis After Silicon Valley Bank Collapse

Silicon Valley Bank was one of the few banks that lent money to startups, and its sudden collapse is having a large impact on companies 8,000 miles away. Many small businesses in the San Francisco Bay Area depend on Silicon Valley Bank for loans and investment, so the bank’s closure has caused a lot of disruption.

As traditional banks cede market share to digital lenders, Silicon Valley Bank has emerged as an important banking partner for dozens of young Indian startups. However, the bank’s inability to provide quick loans has cost some startups money and left them stranded in the middle of critical deadlines.

The collapse of Silicon Valley Bank has had a drastic effect on startups in the area, as banks are wary of giving them loans in the future. This has led to a number of young companies being forced to seek out alternative ways to fund their operations, such as receiving investment from angels or going public later on.

Because many Indian firms didn’t have another US banking account readily available, venture capitalists recounted that many couldn’t timely move their funds from Silicon Valley Bank. This may have resulted in the collapse of some businesses due to a lack of liquidity.

Delaware has become a popular choice for Indian startups, in part because the state allows companies to be incorporated quickly and easily, and it offers favorable taxation policies. Additionally, many U.S. venture capitalists are familiar with Delaware’s business environment, so it is easier for Indian startups to access funding from U.S.-based firms.

Some Indian companies that “flipped” their home base from India to the United States, turning their technology centers into businesses oriented around the world’s most valuable and competitive market, turned to Silicon Valley Bank for help in making the move. Many events sponsored by SVB made it clear which company executives viewed Silicon Valley as their primary competition.

Silicon Valley Bank is a partner at one of the top venture funds in Silicon Valley. Many Indian SaaS startups with large presence in the U.S. have banked with Silicon Valley Bank, indicating the importance and trust they have in the venture capital firm. This underscores their confidence in the American market, which is likely contributing to their successful businesses here.

Most young firms did not diversify their funds into multiple banks because doing so would have increased administration and operating costs. At the time, it was usually not feasible to do so since it would have required increasing staff and spending more money on rent, software, and other administrative costs. This lack of diversification may have led to later financial struggles since these firms were not well-equipped to handle unexpected emergencies or unforeseen issues.

Many Indian firms have large sums of money parked in their SVB accounts, likely due to the prevalence of the account among high net worth individuals. While most SVB customers are American businesses, the investment platform is also popular among Indians who want access to global capital markets. Because of this popularity, critics have accused SVB of being a “revenge bank” for US companies that face Chinese competition.

Many Indian SaaS startups, especially those backed by YC, set up their companies in the U.S. and raised their maiden round there, often choosing SVB as their default bank. However, this decision is starting to become increasingly risky as uncertainty surrounds the future of the Trump administration and the global economy. Growth-oriented startups are generally safer than those focused on uncertainty due to their wider diversification; however, both types of startups are still at risk should unfavorable conditions persist in the coming months or years.

The collapse of Silicon Valley Bank has had a devastating impact on startups operating out of the area. Roughly 1,000 YC-backed companies are currently in difficulty due to the bank’s closure, with 30% unable to make payroll in the next thirty days. This is a significant blow to fledgling companies who relied on SVB as their only funding source; now they will have to find another way to stay afloat.

In the wake of SVB, some startups may have to raise quick rounds at lower valuation in order to survive. This could mean markdowns or write-offs for funds, layoffs at firms, and a possible loss of early traction.

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Ava Patel

Ava Patel is a cultural critic and commentator with a focus on literature and the arts. She is known for her thought-provoking essays and reviews, and has a talent for bringing new and diverse voices to the forefront of the cultural conversation.

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