Silicon Valley Bank Collapse – A Starting of Banking Crisis or A Wake-Up Call? Read to Know

How you like would define the “Silicon Valley Bank Collapse” – Is it a wake-up or an alarming call for start-ups? 

Within the past few days (from 6th March 2023), the crisis of SVB, Silicon Valley Bank has initiated major volatility and come into the spotlight. The reason why the ecosystem of VC (Venture Capital) starts to feel that more start-ups should think of domiciling in India. 

Before we head towards the good and bad of Silicon Valley Bank collapse (SVB), let us have the light on what Silicon Valley Bank was, how it worked, and why it got collapsed. 

2nd Largest Bank Failure in US History


Not a penny of doubt is here that SVB was a go-to option for tech-focused start-ups and companies for financing and banking services. And, it is the 2nd largest bank failure in the history of the United States. It is one of the biggest financial crises in US financial history since 2008 after the Washington Mutual bank failure

Eventually, the sudden collapse of SVB left many question marks for start-ups and compelled them to think of alternative ways to arrange financial help and banking services for upcoming ventures. 

Attention! Indian start-up ecosystem has a higher chance to rise in this present scenario according to the Founder and Managing Partner of IvyCap Ventures, Vikram Gupta.

What Was Silicon Valley Bank?


Silicon Valley Bank was the sixteen largest U.S. bank and it was founded in 1983. The bank set its mark as one of the specialized financing and banking services for start-ups, majorly tech companies. It was one of the best financial houses for Venture capital firms and tech entrepreneurs. 

According to trusted data by FDIC (Federal Deposit Insurance Corporation) in Silicon Valley, SVB had $209 billion in assets in total at the end of 2022. Though, it is history now. 

Importance of SVB to Tech-Sectors

Half of the US venture-backed tech companies and healthcare companies took financial help from SVB for four decades. SVB was one of the preferred banks for tech start-ups as very few banks generally accept the risk of financing start-up companies and SVB was the top among them. 

During a pandemic, SVB was one of the trusted financial houses to hold the cash of tech companies and the cash was used to serve business expenses including payrolls. At that time, the tech market was at the top of business with the raising demand for digital services and electronics by consumers. And eventually, the investment and spending on tech-market by investors were real-time high with the large influx of cash. In connection with the cash flow, SVB invested much of its cash deposits for various purposes, in general, all the banks do.  

What Made SVB Collapse & Shut Down in 2023?


On 10th March 2023, finally, the volcano was explored. Silicon Valley Bank got collapsed and failed after a bank run just following the 5th day of their announcement of a $1.75 billion capital levitation on the 6th of March 2023. Though it is said, the classic bank run was not only the reason behind the SVB collapse; there was more behind it. 

Lack of diversification was one of the major reasons for the failure of Silicon Valley Bank. The bank invested a huge amount of its bank deposits in US treasuries and securities (agency mortgage-backed). But, the sudden increment of interest acted badly upon the values of bonds and treasuries in the US. It made SVB take drastic decisions and they could not hold those bonds and treasuries till their maturity date. 

The bank failed to protect their liabilities to their depositors as they were unable to liquidate their assets as they were engaged in long-term investments. 

By the 7th of March 2023, the stock of SVB dropped by 60% since their announcement of rising capital of $1.75 billion on the 6th of March 2023. 

Within two days of disclosing their sale of assets, the bank got collapsed due to a bank run; depositors and customers withdrew money in waves. 

On 8th March 2023, California regulators shut down Silicon Valley Bank totally and placed it under the dominance of FDIC. 

Current Scenario After SVB Collapse 


Federal Reserve does not bail out SVB and it is said that the SVB remains collapsed and the outstanding assets of SVB will be credited to creditors. 

On 12th March 2023, the government of California guaranteed to cover all the depositors at SVB. Though, the guarantee will not cater to shareholders or any unsecured creditors. As Silicon Valley Bank remains closed for an indefinite time being, FDIC forms a Deposit Insurance National Bank of Santa Clara and it will consolidate the insured as well as uninsured deposits into one singular institute. 

It is also announced that all insured depositors would get access to their funds at the National Bank of Santa Clara from 13th March 2023. Even, uninsured depositors will get back their funds when FDIC will sell the remaining asset of Silicon Valley assets.  

Golden Wake-Up Call for Indian Start-up Ecosystem


When the largest financing backup for tech-start-ups got collapsed completely and made start-ups to get afraid of funding issues in the US, the Indian start-up ecosystem can be a torch bearer for future tech start-ups. 

As asserted by VIKRAM GUPTA, the FOUNDER and MANAGING PARTNER OF IVYCAP VENTURES ADVISORS PRIVATE LIMITED, India has a bright prospect to support start-ups from all over the world as the number of investors, as well as the amount of capital for investment in start-ups, have been growing rapidly in past few years. 

His words are verified adjoining to the current statistic. Sample this; according to existing statistics, India becomes the 3rd largest start-up ecosystem in the world just after the United States and China. 

So, when the Silicon Valley Bank collapse is a warring call for start-ups in the US, it could be taken as an awakening calls for start-ups to abode in India. 

“Another way out to solve the domicile issue is suggested by IvyCap Ventures’ Gupta. According to him, if a company has operations in the US or has the majority of customers there, then it should open a subsidiary in the US market but the ‘holding company’ should be headquartered in India itself. Other areas where work can be done include encouraging more start-ups to list on the Indian stock market and providing greater exit opportunities to investors, among others. “

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