Indian startups that have an exposure, or are stuck with deposits in the troubled Silicon Valley Bank (SVB) are tapping alternate options to fund their immediate working capital requirements, especially payroll commitments, industry players said. Revenue financing platforms like Recur said it was seeing a strong demand for its services over the past two days.
While some Indian startups were creating a cash buffer by raising capital that is readily available right now, the others were doing so to meet their expenses that become due over the coming days. However, new-age companies in the United States, especially those backed by Y Combinator, a startup accelerator, are likely to come under more pressure, as opposed to their Indian peers, as their payments become due as early as Monday — primarily because most companies in the US pay their employees on a semi-monthly basis. Within the Y Combinator community, one-third of startups that have an exposure to SVB used SVB as their sole bank account, according to a petition that Y Combinator was running on its website.
Garry Tan, president and CEO, Y Combinator, in a tweet estimated that about 12,000 small business, mainly startups, will fail to make payroll in the next 30 days, leaving approximately 0.12 million people without a job, likely including even some Indian startups. In an interview, Tan said the SVB meltdown was an “extinction-level” event for startups.
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That likely prompted Eklavya Gupta, founder and CEO at Recur to set up an internal pool of $15 million for Indian startups. Albeit small, Gupta believes it would help Indian founders to meet their immediate payroll and working capital needs, until there was more clarity on what happens to the deposits at SVB, likely to be known on Monday.
Gupta added that over the past two days, Recur had inbound queries from over 100 Indian startups, especially SaaS companies that are backed by Y Combinator, to arrange for funds that will ensure their operations were not disrupted. “We have already committed $1 million to five startups and will be agreeing to fund more companies on Monday. These are mostly SaaS companies that are valued between $50-$200 million, across Seed and Series B stages, that are asking for anywhere between $200,000 to $500,000 for now,” Gupta told FE.
Recur was providing these funds at a an interest rate of at least 12% for now and wasn’t asking founders to dilute equity to raise this capital.
Rahul Mathur, founder and CEO, Verak, an insurance provider, which is backed by Y Combinator, said that most Indian startups would already have funds ready to pay out salaries for March. “But, a lot of the startups will now have to prepare to keep payrolls for April ready, because no one knows how long the process will take.”
Even if Indian startups do not face an issue with working capital requirements, some fear that global investor confidence will take a knock.
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“An Indian startup that will have challenges in paying salaries looks like a very rare case because not a lot of them will have a bank account with the SVB. But, because of all the events at SVB, investors in the US and globally, will see their confidence being impacted in the short-term which could result in a further slowdown in funding and that could directly impact Indian startups,” Gaurav VK Singhvi, co-founder, WeFounderCircle, an angel investor network, said.