Indian startups have been able to transfer funds worth $250-300 million from Silicon Valley Bank (SVB) after the US allowed depositors to completely withdraw cash from the troubled bank. According to reports, this transfer of funds has happened in the last 24 hours. Several founders and VCs said that early-stage startups have an average cash balance of around $2-3 million in US bank accounts, while large startups have as much as $20-25 million in SVB accounts.
To transfer funds, Indian firms first need to open new business bank accounts in the US as the SVB has still not resumed foreign direct transfers. Reports mention that for Indian startups, where a founder has a US social security number, a new bank account in the US can be opened within 24 hours. But for those who do not have a US Social Security number, it can take five days or more to open a US bank account.
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SVB is currently under receivership of the US Federal Deposit Insurance Corporation (FDIC). On March 13, the SVB said that all deposits had been transferred to the Deposit Insurance National Bank of Santa Clara (DINB). The FDIC created DINB to help SVB depositors access their funds without delay. Many Indian startups affected by the SVB crisis are those that received funding from US accelerators such as Y Combinator and adopted a “flip structure” with a US-registered parent entity, usually in Delaware, to attract foreign investors. The use of this structure has become more common among early stage startups. The act of flipping the holding structure entails the transfer of ownership of a company from an Indian entity to a foreign entity, usually in a jurisdiction that is more welcoming to investors.
frequently Asked question:
What is the function of Deposit Insurance National Bank of Santa Clara (DINB)?
A: DINB was established by the FDIC to enable SVB depositors to access their funds immediately.
Why do Indian startups need to open new business bank accounts in the US?
A: For transfer of funds, Indian firms need to open new business bank accounts in the US as SVB has still not resumed foreign direct transfers.