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Several Indian startups that hoped to empty their Silicon Valley Bank (SVB) accounts ahead of any potential crash received a body blow after American regulators took over the bank on Friday.

Trouble began at SVB, whose client list includes big names like Pinterest and Shopify, after the storied bank said it sold $21 billion of securities and was preparing to sell $1.75 billion worth of shares to bolster its finances.

Panic spread, and several questions were raised about its solvency, erasing some 60% of market capitalisation. On Friday, the tech-focused lender collapsed into Federal Deposit Insurance Corp. receivership after customers around the world began withdrawing their deposits.

Earlier, several venture capital and private equity firms in India had issued advisories to portfolio companies, asking them to move their money out of their SVB accounts.

Ahead of the closure, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) in order to take control of all insured deposits of SVB. In a statement, it said that insured deposits will be accessible to customers on Monday, March 13.

On the other hand, uninsured depositors will receive a ‘receivership certificate’ for the remaining amount of their uninsured funds. 

Cross-border payment facilitators like neo bank Salt.Pe had a ringside view of the frenzy after being inundated with pleas from numerous Indian startups to move their funds from the US bank to the accounts of their Indian subsidiaries and other entities.

“Some of the startups reached out in panic,” Udita Pal, Co-founder of Salt.Pe, told YourStory.

VC and PEs send advisories

“There is advisory (sic) from our investors to move money from SVB to another bank account while SVB sorts out its position,” the Founder and CEO of a decade-old Bengaluru-based SaaS company had told YourStory before SVB was taken over by the regulators. He did not wish to be named.

Technology companies and venture capital and private equity firms make up the bulk of the bank’s clients, apart from high net-worth individuals. It also offered specialised services to venture-backed companies across stages.

Rebeca Hwang, Professor of Practice at Thunderbird School of Global Management, told YourStory that Peter Thiel-backed Founders Fund was among the first to issue an advisory to its portfolio companies to withdraw their money from SVB.

“For now, most of the companies are hedging and looking for other options…,” said Rebeca, who is also the Co-founder of early-stage Latin America-focused venture capital fund Kalei Ventures.

The founder of a growth-stage fintech company told YourStory on the condition of anonymity that multiple startups in India have an account with SVB. “Multiple Y Combinator startups too bank with SVB,” he said.

“Almost all of our cross-border companies bank with SVB and a lot of them do so exclusively. Hence, it is a concern for the company’s cash liquidity if the bank’s liquidity is a concern,” Siddharth Verma, Partner at early-stage SaaS-focused venture capital firm Grayscale Ventures, told YourStory earlier on Friday. The fund is also working to find a solution for its portfolio company which recently raised a round of funding which was credited to its SVB account.

(With inputs from Thimmaya Poojary and Sindhu Kashyap)