SVB Collapse Fallout: Blume Ventures Asks Portfolio Startups To Park Funds In Indian Banks

In what appears to be a fallout of the collapse of Silicon Valley Bank, venture capital (VC) firm Blume Ventures plans to mandate its portfolio companies, headquartered abroad, to maintain accounts in well-capitalised Indian banks.

The VC firm’s partner Ashish Fafadia told Bloomberg that the collapse of SVB left Blume Ventures ‘scrambling’ to raise funds to bail out the impacted portfolio entities.

Noting that he was ready to implement the new mandate rigorously, Fafadia said that the VC firm has also directed its portfolio startups to maintain multiple bank accounts to park their capital. Besides, the portfolio entities have also been told to invest money in ‘term deposits to the extent there is insurance cover’ to diversify their risks.

Blume Ventures also plans to actively discourage startups from investing in money market instruments with duration longer than 3-6 months.

‘Keeping money in long-term bonds is always something I have been against, but somehow chief financial officers and founders of startups look at that bit as extra income,” Fafadia said.

Many of the VC firm’s startups are said to have been impacted by the collapse of SVB, with Fafadia having spent hundreds of hours so far trying to help startups with exposure to Silicon Valley Bank. However, he refused to name the portfolio startups impacted by the collapse of the US-based bank.

This comes more than a week after a crisis unravelled at the Silicon Valley Bank which ultimately led to the demise of the US-based commercial bank. The crisis erupted after the bank sold off its entire $21 Bn worth of ‘Available for Sale’ securities portfolio at a loss of $1.8 Bn.

The move led to a bank run as startups and companies rushed to withdraw their money as bank executives failed to assuage account holders. Subsequently, the bank’s shares crashed and the California Department of Financial Protection and Innovation intervened and shut the bank on March 12.

As per available data, SVB held assets worth $209 Bn and deposits of $175.4 Bn at the end of 2022.

The situation was especially worrying for many Indian startups who had their money parked with the American commercial bank. Speaking with Inc42 earlier, SaaS platform Xeno’s cofounder and CEO Pranav Ahuja said that the livelihood of both employers and employees was hanging in the balance amid the crisis.

The startup breathed a sigh of relief after the US government stepped in and said that all customers of the Silicon Valley Bank would get their money back in full. The situation has also somewhat improved for homegrown gaming unicorn Nazara which was also impacted by the bank’s collapse. The company reportedly transferred INR 60 Cr out of INR 64 Cr of its cash reserves from the beleaguered bank to external bank accounts.

As the crisis unravelled, the Centre also assured VC firms and startups all possible support to tide over the crisis.

Meanwhile, it has now been reported that the Federal Deposit Insurance Corporation (FDIC) plans on breaking up the Silicon Valley Bank and hawking it off for parts.

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