Collapse of Silicon Valley Bank will have limited impact on Indian startup ecosystem

The collapse of Silicon Valley Bank (SVB) may not have any indelible impact on the Indian startup ecosystem but fear of more such cases could deal a psychological blow. India has more than 25,000 active startups while just about 100 have been directly impacted by the collapse of the bank.

Sources said that the government is also keeping a close tab on the developments.

US Treasury Secretary Janet Yellen on Sunday refused to bailout SVB investors despite the sudden closure of the bank. Yellen’s statement could mean that many startups in India may now refrain from having exposures in US banks though the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. have launched joint efforts to stem spillover effects while assuring that depositors’ money with the collapsed bank will remain safe.

The Indian startups that parked parts of their funds in the beleaguered bank have coffers in other lenders as well including a host of Indian ones, a person with direct knowledge said.

“There will surely be some impact– we cannot deny that but to say that the Indian startup ecosystem will be in a crisis situation is far-fetched. Look at the number of startups in India with direct exposure to the bank. It is not very large when you see the total number of startups in the country,” a top executive of a venture capital fund told India Narrative.

However, this is a wake up call for Indian startups which need to further diversify their exposures and operations.

Meanwhile, Axis Bank, Kotak Mahindra Bank, ICICI Bank and HSBC’s Indian unit have already jumped into the fray, assisting the Indian startups that have direct exposure to the beleaguered bank.

New dollar accounts have been opened. Sources said that there could be more banks coming forth to help the startups.

Startups have been in focus for the Narendra Modi government. In 2016 Prime Minister Modi launched the Startup India Initiative.

According to Inc42, Indian startups raised Rs 25 billion in 2022 despite economic uncertainty — a 40 per cent decrease from the Rs 42 billion raised in 2021.

Also read: World needs to come together to support startup ecosystem: Piyush Goyal