Caught in the Middle: Indian Startups and the Silicon Valley Bank Collapse

The collapse of Silicon Valley Bank (SVB) has left several Indian startups in a precarious position. With exposure to at least 21 startups in India, SVB's collapse has raised concerns about the size of the investment in these startups and the raised funds that may now be stuck. The palpitations can be heard among startup founders, who are wondering who to turn to as an alternative to SVB.

SVB was a popular choice among Indian startups due to its focus on startup financing and its willingness to bank a Delaware C Corp with founders who didn't have a Social Security Number (SSN). However, the bank's traditional ill of asset-liability mismatch and imprudent investment in low-yielding bonds led to its collapse.

According to the California Department of Financial Protection and Innovation that shut down the bank, all insured depositors will have full access to their insured deposits no later than Monday, March 13, 2023. However, this has done little to ease the palpitations among startup founders.

While this is a concerning situation for these startups, there are ways to avoid such incidents in the future. Here are some tips for startups to consider:

1. Diversify Your Banking Relationships: Startups should consider having multiple banking relationships to avoid relying on just one bank. This way, if one bank faces any challenges, it can quickly move its funds to a different bank.
2. Conduct Regular Due Diligence: Startups should conduct regular due diligence on their banking partners, including reviewing their financial statements, performance history, and regulatory compliance. This will help to identify any potential risks and make informed decisions.
3. Choose Banks with Strong Capital Adequacy Ratio: A strong capital adequacy ratio indicates that a bank has enough capital to cover any losses that may arise. Startups should choose banks with strong capital adequacy ratios to reduce risk exposure.
4. Consider Banking with Regulated Institutions: Startups should consider banking with regulated institutions, such as national banks or state-chartered banks, as they are subject to regulatory oversight and must comply with strict rules and regulations.
5. Have a Backup Plan: Startups should have a backup plan if their primary banking partner faces any challenges. This could include having access to other sources of funding or having contingency plans in place to manage any disruptions.

In the long term, the collapse of SVB could lead to a shift in the way that Indian startups approach their banking and investment decisions. Startups may become more cautious and take a more measured approach to risk-taking, which could ultimately benefit the ecosystem as a whole.

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