Are Startups to be Blamed for SVB Collapse?

The SVB Collapse issue continues to occupy the headlines of various new outlets across the globe as uncertainty looms in the air. Silicon Valley Bank, Santa Clara, California, was recently closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

The official statement from the authorities slams stated that all insured depositors would have full access to their insured deposits no later than 13 March 2023. The FDIC also stated that uninsured depositors would be paid an advance dividend within the next week. “Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” said the statement.

While everyone impacted by the SVB collapse is expected to make a complete recovery, some views state that startups may be at fault for choosing to deposit money in the Silicon Valley Bank. However, Balaji Kridha, Head of Startup launchpad, Deshpande Startups says that blaming startups for SVB collapse was unfair. “It surprised me that people are blaming startups for depositing money with a bank like SVB. In the tech industry and venture capital, SVB has always been the bank of choice, especially with US entities and part of Y-Combinator. To blame startups here was completely wrongheaded,” said Kritha.

“The current situation highlights the importance of Fed & FDIC providing protections to depositors and raises questions about the health of the banking industry, particularly when it comes to potential systemic risks. It serves as a reminder for startups to diversify where their funds are deposited, with even smaller banks needing to be included in that strategy. Investors should also remain vigilant, as there could still be instability in future. This would help mitigate any ripple effects both on a global and local level,” he added.

FDIC has stated that as a receiver the organisation would retain all the assets from Silicon Valley Bank for later disposition, and that the loan customers should continue to make their payments as usual.