Indian SaaS companies are pulling out from Silicon Valley Bank amid stock crash

SVB’s stock plunged 60% on Thursday and its bonds posted record declines.

In the wake of the Silicon Valley Bank (SVB) stock crash, Indian Software-as-a-Service (SaaS) companies with US-based operations are withdrawing funds and transferring them to other global banks and neobanks on the advice of venture capital investors.

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.

While SVB still remains a trusted bank for many startup founders and investors, there is panic in the market about funds getting frozen in the near to mid-term.

“While we do not have major exposure, we are just proactively transferring funds to other banks only so it doesn’t become a situation where we won’t be able to make regular working capital payments,” said a business-to-business (B2B) SaaS founder, requesting anonymity.

While the bank still has ample liquidity, the stock market crash has prompted numerous investors to advise startups to withdraw funds.

Since everyone's making a thread about SVB, here's my contribution. Silicon Valley Bank is an old boring conservative bank. It is in trouble not because of bad lending practices, but because of a combination of
- strange way to invest short term money
- announcing a capital raise… https://t.co/KxOjM816oG

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— Deepak Shenoy (@deepakshenoy) March 10, 2023

"All in all, SVB has a massive portfolio that's longterm in nature. Liquid indeed, but at a much much lower price today...Stocks down 60% and VCs are telling their startups to get their money out. Perception, in a banking system, is reality, " Deepak Shenoy, founder and CEO of CapitalMind, tweeted on March 10.

Global banks and neo-banks, such as Truly Financial and Mercury Banks, have witnessed a surge in traction and demand since the afternoon of March 9.

“The SVB bank is still solid. However, the funds are very important for startups, so they don’t want to take any risks. Startups are dependent on funds in SVB for day-to-day payments too, and thus many are shifting their funds,” said Kanchan Kumar, co-founder and chief executive officer of Truly Financial.

Founded in 2016 by Kumar and Sandeep Todi, Truly Financial is a global everyday banking business for small businesses.

“Our team has been working around the clock. Many top Indian startup founders in SaaS and other sectors have called us and we are working on several millions of transfers now,” Kumar said.

VCs are also advising companies to transfer only to trusted banks.

"Whatever alternative you are picking up, be careful. Transfer to India has consequences (for the future as well). Loans to others have consequences too (depending on the type of entity, paperwork, etc.)," multiple VCs wrote in a note to their respective portfolio companies.

Investors and SaaS experts are sending cautionary notes to pull out funds from SVB.

"While there is nothing to panic about, the only risk now is short term. If there is more than $500,000 stuck in the bank, try and transfer to other banks so it is covered for the short term," said a top SaaS and fintech investor in a note to his portfolio companies.

However, many VCs are suggesting companies not panic as the issue is not dire.

"SVB has enough money to service deposits. The real risk comes if too many people withdraw — some of their dollars are locked in for longer periods. In the process of trying to do something, you may end up doing something worse than staying in SVB," said an investor who runs a SaaS accelerator fund.

"FDIC insures up to $250K. So, those of you with less than $250K in SVB are insured by the Fed and most likely, they will announce something in a week which will show that things are fine, " the person quoted above added.

SVB is one of the largest banks in the US and manages a lot of Indian and local clients, according to their website.

Apart from traditional banking services, the company also invests in startups. Netradyne, a Reliance-backed artificial intelligence (AI) software provider, received $65 million in debt financing from SVB in September 2022.

In October 2022, SaaS unicorn Icertis got $150 million in funding in the form of a revolving credit facility and convertible financing from the bank.