Indian SaaS startups’ over $2B safe despite an 'extinction-level event': Industry estimates
A swift resolution by the US authorities has helped save around Rs 20,000 crore (roughly $2.5 billion) of Indian or Indian-origin SaaS firms’ money deposited with the SVB, which was shut down by regulators on March 10, industry insiders have said.
Several software-as-a-service (SaaS) founders and investors are unlikely to forget March 2023. On Saturday (March 11), calls flew back and forth as venture capitalists, tech founders, and regulators raced to contain the aftermath of the Silicon Valley Bank collapse.
Top concerns included payrolls for the next few months, business investments, and who would help the startups out.
Sleep and food were largely shunned. “It was an extinction-level event,” says Manav Garg, CEO and Founder of enterprise cloud platform Solutions.
“A lot of SaaS companies had Silicon Valley Bank (SVB) accounts and there was a question mark on what would happen to all the money that they had raised. Nobody knew what was going to happen,” says Garg, whose firm was founded in 2004. “There was a lot of stress and anxiety. I haven’t seen this amount of stress in the ecosystem before.”
Garg is also the founding partner of Together Fund, an early-stage venture capital (VC) firm, and founding member of India’s first SaaS community, .
The joint statement issued by the US Department of the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) late Sunday night (IST) “approved actions” to fully protect “all depositors” helped a significant percentage of the Indian SaaS ecosystem breathe a sigh of relief.
“Never woken up to a better Monday morning,” Asutosh Upadhyay, Co-founder of FortyTwo.VC, an early-stage fund focused on enterprise tech and SaaS startups, told YourStory via a Whatsapp message.
“Some of the messages I got this morning were: Back to eating idlis and drinking my filter coffee,” says Garg. He mentioned that two groups of founders each went to have breakfast together in Chennai and Bengaluru.
This swift resolution by the US authorities has helped save around Rs 20,000 crore (roughly $2.5 billion) of Indian or Indian-origin SaaS firms’ money deposited with the SVB, which was shut down by regulators on March 10. This is according to a quick estimate done by a group of Indian SaaS founders over the weekend on a Whatsapp group.
Founders were trying to figure out the approximate exposure they had to SVB, which largely partnered with tech and venture-backed companies, some even with unproven business models, which typically the regular, large banks stayed away from.
This was confirmed by both Garg and Suresh Sambandam, Founder and CEO of , a Chennai-based automation workflow SaaS company. Garg said that there are over 3,500 Indian SaaS companies, which are either India-based or headquartered in the US with origins in India, of which over 600 SaaS startups had partial or full exposure to SVB.
“If you take this amount, then potentially it would be deployed to grow the companies 10X (approximately). Then, you are talking about potential value creation of Rs 2 lakh crore (around $25 billion),” says Sambandam. “That was the extent of value that was at stake due to the SVB crisis, which got resolved quickly, thanks to the Federal Reserve, FDIC and the US government.”
According to the private market data platform , there are over 17,000 SaaS startups in India. Given that there are a number of Indian SaaS startups that may not be a part of the larger, prominent communities, the amount exposed to SVB is likely to be much higher.
, the only SaaS firm with roots in India to be listed on the NASDAQ, issued a statement saying that it had been SVB’s customer since its early days but now banks with larger banks including Morgan Stanley, Switzerland-based UBS and JP Morgan.
“The vast majority of our cash and marketable securities today is not held at SVB. We use SVB and several other banks for normal operations (receiving customer payments, processing payroll and payments to our vendors). Our exposure to the current SVB situation is minimal relative to our overall balance sheet,” the company said in a statement.
It further added that it is working with its customers and vendors who were using its SVB account to move to its other bank accounts and that it does not “foresee any disruption” to its employees or customers.
Founders and investors YourStory spoke to suggest that a good number of Indian SaaS startups (difficult to ascertain the exact numbers) banked with the SVB–a significant percentage of them solely relying on it and thus, having all their funds locked in. The panic among such founders was naturally high. Ask Anmol Oberoi, Co-founder and CEO of , a customer interaction and engagement platform, whose sole banker was SVB.
“On Thursday, we heard that something serious was happening (with SVB) and took out around two-thirds of our money–some, to our bank in India and the rest to another bank account we created overnight with Mercury (a fintech firm offering banking to startups),” says Oberoi. “I asked my team to move the remaining third of the money on Friday but by that time it was too late.”
The money his team had transferred to their Indian account has arrived whereas the amount sent to Mercury is still not reflecting in the newly-opened account. Oberoi says they had received the message that it would take three days for it to show up on Mercury and he is waiting for the sun to rise in the US.
But Oberoi was among the minority who was able to pull out some of his firm’s money from SVB. Some of the Indian SaaS companies, even prominent ones, whose names cannot be revealed as they were shared on the condition of anonymity, have either their entire chunk of money lying in SVB accounts or a significant portion tied up at the shuttered bank.
Some of the Indian SaaS startups were considering partnering with SVB as recently as two weeks ago. Rajiv Ramanan, Co-founder and Chief Revenue Officer (CRO) of , said they were exploring a relationship with SVB, mainly to tap into the bank’s erstwhile network of tech companies.
“SVB has always been a strong pillar of support for startups. Though we were not direct customers, they were open to work on GTM (go-to-market) initiatives and work at a deeper level contributing to a startup’s success. We were planning on a few mixers and events with them before the unfortunate event... We had great trust in SVB and strong relationships with them,” said Ramanan.
Sambandam of Kissflow says his firm had a narrow escape. The startup was planning to move its account from New York-headquartered Chase Bank to SVB.
“We created an account with SVB and transferred $25,000 as a test amount. Just this week, we were supposed to transfer the entire amount to SVB,” he says.
The main advice and learning for investors and founders across the board is: don’t put all your eggs in one basket and also, add in controls to assess risks related to finances even when a startup is in its early stages.
“Split your money across 2-3 different places. Keep some reserves in advance at your cost centres. And, move to bigger institutions in terms of banks like Citi, HSBC, BofA (Bank of America) or JPM (JP Morgan),” says Upadhyay of FortyTwo.VC.
He says a learning for investors is to check with their portfolio companies as to where they keep their reserves and if they are maintaining bank statements in one place, besides focusing on metrics such as runway and cash balance.
“So far, most of the playbooks (for SaaS founders) were around go-to–market and how to scale, etc. The learning for the ecosystem is to have a playbook for finance-related aspects of running a business,” says Garg.
He said that SaaSBOOMi has already started working on this playbook and that it would be published in a few weeks’ time.
SaaS Insider, a relatively newer community initiative for SaaS founders, is putting together a document to help Indian SaaS companies learn all the financial aspects of running a business, which will be out in a month or so–in addition to coming up with a “starter kit” to help new founders set up their SaaS companies.
“There is also an opportunity for the Indian government to make the US-account-opening a bit smoother in the GIFT city,” says Garg.
Gandhinagar-based Gujarat International Financial Tech (GIFT) City caters to non-residents and foreign entities and allows them to open dollar accounts and deposits.
Edited by Affirunisa Kankudti