Silicon Valley Bank Crisis: Indian startups backed by YCombinator face fund crunch, may shut down

Emerging Indian startups such as Meesho, Razorpay, Khatabook and Zepto are among those backed by YCombinator, which also incubated likes of Reddit, Doordash, Quora and Airbnb globally. But most of the firms launched through the incubator, also opened their accounts with Silicon Valley Bank, as a default lender. Now that the bank has collapsed, a large number of these startups are rushing to find working capital from alternative sources.

Banking too heavily on SVB

According to YCombinator's CEO, a third of startups supported by them won't be able to pay salaries this month. Opening a bank account with SVB wasn't mandatory for all those startups, but most went ahead with it because of reach among investors. About 60 per cent of YCombinator startups in India are eligible for a $250,000 insurance, but won't get it before Monday, as per Money Control's reports.

Small players may crumble

Although a couple of YCombinator-backed Indian Unicorns had reportedly moved their money out of SVB, smaller firms which only have one account are at risk. Companies are looking for short-term loans to survive the turbulence caused by SVB's collapse, and some may even have to slash their workforce. Venture debt investors are getting calls from startup founders for emergency funds, as many smaller players face an imminent shutdown.

The situation is a result of YCombinator's requirement for Indian firms to flip to the US structure for securing funds from it. This has also left several startups scrambling to get their funds back to India from neobanks in the US, as the contagion from the SVB crash may spread across the sector.