Y Combinator companies petitions to safeguard deposits of small businesses
A third of its network companies have had exposure to SVB and stand to shut down or lay off if their money isn’t recovered.
Nearly 1,200 CEOs and founders who have been a part of US-based startup accelerator programme (YC) have signed a petition addressed to US treasury Secretary Janet Yellen, Chairman of the Federal Deposit Insurance Corporation (FDIC) Martin J Gruenberg, and other officials to save small business and startups from the adverse impact of (SVB) shutdown.
President and CEO Garry Tan in the petition said that nearly a third of Y Combinator startups have exposure to SVB and use it as their sole bank account. The shutdown of the bank by California regulators as of March 10, 2023, will impact the working capital at these businesses.
“In the Y Combinator community, one-third of startups with exposure to SVB used SVB as their sole bank account. As a result, they will fail to have the cash to run payroll in the next 30 days. By that measure, we can estimate that payroll-related furlough or shutdown will impact more than 10,000 small businesses and startups,” said the petition.
It added that such a situation will lead to immediate furlough, layoff or shutdowns, affecting over 100,000 jobs. The petition mentions that SVB has over 37,000 small businesses as depositors, with more than $250,000 in deposits.
After the FDIC takeover of SVB, depositors can only withdraw up to $250,000, with no visibility for the businesses on recovering the balance.
“These balances are now unavailable to them, and without further intervention, according to the FDIC website, may be inaccessible for months to years,” said the petition.
The petition has asked for measures to help small businesses recover their money. “Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout,” it said.
It further added that the US Congress should work in the long term to restore stronger regulatory oversight and capital requirements for regional banks. It has also asked for an investigation into any purported mismanagement by SVB executives leading to the current scenario.
To be fair, multiple Indian startups who have been a part of the Y Combinator programme took to social media on Saturday to highlight the imminent liquidity crunch and impact on payroll generation.
“There are some YC companies operating in India (maybe ~10%) with more than $1M in SVB accounts. Common sense: YC's new "basic" deal is for $500K - and you'd raise at least $1M more from other investors. Fortunately, for us - the total liability is limited to $188K. This is under the $250K FDIC insured limit (but, this doesn't mean we're 100% safe - it does impact our liquidity - without risking the business since we have > $300K in our Indian operating subsidiaries) (sic),” Rahul Mathur, Founder and CEO of Verak Insurance, posted on Twitter. He confirmed the same to YourStory.
The FDIC in a statement has indicated that SVB branches will begin functioning on Monday.
Edited by Saheli Sen Gupta