'Extinction level event': Y Combinator-backed Indian startups in crisis after Silicon Valley Bank collapses

An overwhelming majority of technology investor Y Combinator’s (YC) Indian portfolio firms have some level of exposure to troubled bank Silicon Valley Bank (SVB), which was the default banking partner for many Delaware-incorporated tech businesses, several people in the know said. “One or two out of 10 YC-backed companies would have more than $1 million parked with SVB. As per the interactions on YC India founder groups, there are very few who say they have zero dollars parked in SVB. The majority of people had at least $150,000 if not more in their SVB account,” a YC portfolio founder told Business Today.

As per YC founders, the investor strongly prefers companies to domicile in Delaware, though a few choose Singapore for incorporation. Another founder said many YC start-ups keep the bulk of the funds they raise from investors in their treasury accounts with SVB, making them particularly vulnerable to the bank's troubles.

“The simple reason for this (SVB exposure) is that if you are a new founder in the ecosystem, you always listen to what other people are saying. And everyone is always telling you to open an SVB account when you incorporate in Delaware. So for most companies, it becomes your primary or your only bank account,” Rahul Mathur, Founder and CEO at insure-tech firm Verak which was part of YC’s 2021 winter batch.

YC has backed more than 200 start-ups from India.

Earliest today, Garry Tan, president of Y Combinator, said the collapse of SVB is an “extinction-level event” for start-ups and this will set start-ups and innovation back by 10 years or more. He said 30 per cent of YC companies, exposed through SVB, can’t make payroll in the next 30 days.

Mathur says several YC start-ups in the India portfolio also face a similar challenge.

“Given the fact that YC has backed so many start-ups in India and many of them have raised so much money and employed so many people, it probably constitutes about 20 per cent of the ecosystem, it is a significant chunk of our ecosystem. To be honest, many, including us, continue to burn capital to grow. For those that have not remitted a good chunk of their raised capital to Indian banks and are now unable to access capital from SVB, their ability to meet payroll is not going to last longer. So it all depends on how long it would take to effect the liquidation of SVB,” Mathur said.

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