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SVB impact: Venture debt firms and investors set up emergency lines of credit for startups

Debt firms and VCs are offering specific credit lines, term loans, EMI and revenue-based financing model fusion for helping startups complete their working capital and payroll commitments.

March 17, 2023 / 02:54 PM IST
With around 80 percent of business in the US, several Software-as-Service (SaaS) businesses had deposited millions of dollars with the Silicon Valley Bank (SVB) as deposits.

With around 80 percent of business in the US, several Software-as-Service (SaaS) businesses had deposited millions of dollars with the Silicon Valley Bank (SVB) as deposits.

Indian venture capital firms and venture debt firms are setting up an emergency line of credit and debt options to help startups with immediate capital, especially for the working capital needs amid the Silicon Valley Bank (SVB) collapse.

"We got many calls from startups to provide emergency funding. We have also created a small $50, 000-emergency venture debt fund to help Y Combinator companies with emergency debt," said Ravi Chachra, founder of 8vdx, a YCombinator startup-focussed venture debt firm.

Founded in 2021 by Ravi Chachra and Vijay Lavhale, 8vdx is a digital venture debt marketplace. The firm 8vdx is part of Y Combinator's winter batch of 2022, and it claims to have an AUM of $5 million presently and is growing at the rate of 25 percent per week.

Silicon Valley Bank’s parent SVB Financial Group informed the market late on March 8 that it sold about $21 billion of securities from its portfolio, due to which it will have an after-tax loss of $1.8 billion in the first quarter. This triggered a massive sell-off of its shares on Wall Street, triggering panic.

After multiple deposits worth millions of dollars were pulled from the bank in fear of a major financial crisis, California regulators closed down the tech lender late last night and put it under the control of the US Federal Deposit Insurance Corporation (FDIC) as receiver for later disposal of its assets.

However, on March 13, the Biden administration announced that depositors of SVB will have full access to their money even as some startups said that a small portion of their money is in the process to withdraw and it will take time.

With around 80 percent of business in the US, several Software-as-Service (SaaS) businesses had deposited millions of dollars with the SVB as deposits.

“We are not at risk of our deposits. However, around 30 percent of our money is in the process of transfer to another bank. This will take some time as per our understanding,” said a mid-size startup founder on the condition of anonymity.

Chachra of 8vdx said that startups need to get the money back at the earliest to be able to run payroll by the month's end as well as fulfill other short-term commitments which will create a huge problem.

“There are many short-term and immediate payments that the startups won’t be able to pay, this may unfortunately even be the demise of many small startups,” Chachra said.

Sequoia Capital-backed revenue-based financing platform Klub is offering specific credit lines, term loans, EMI, and revenue-based financing model fusion.

“We do not have a capital pool but can issue starting $6K to $400K which we can provide in 48 hours. We also have multiple partners on the supply side who are happy to extend the capital to the startups during this hour of crisis,” said Anurakt Jain, cofounder, and chief executive officer at Klub.

There are different use cases that Klub is providing credit including inventory financing.

“We offer financing solutions for all use cases, including working capital, inventory financing, and payroll. Whether startups require short-term working capital loans or credit lines, we are here to assist them in the best way possible,” Jain said.

Neobank Truly Financial, which has offices in the US and India, is also setting up an emergency line of credit.

“Since the SVB crisis came to light, we have been working closely with founders impacted by SVB to help them open US bank accounts on Truly Financial to keep their operations going. We have opened hundreds of accounts in the past 65 hours,” said Kanchan Kumar, cofounder of Truly Financial.

Truly Financial is starting to offer an emergency line of credit based on the balance in the customer's SVB accounts and their cash needs for 30 to 60 days, he said.

While the $250,000 is insured by FDIC and is fully made available for startups, more than 60 percent of Indian YCombinator startups had $250,000 plus in SVB, as per sources.

“In case any of the startups have over $250K balances in SVB, we might be able to help them tide over the cash crunch. The application should be made online,” Kumar said.

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