CASE STUDY

Silicon Valley Bank (SVB), a major depository to tech companies and startups, went
bankrupt on Friday March 10, 2023, leaving depositors scrambling for their money. SVB is a
California (USA) based bank running since 1983 that lends to early stage technology and bio-
tech start ups, and manages funds of venture capitalists. The era of easy monetary policy has
enabled tech companies of all sizes to raise and deploy funds, and VSB also benefitted from
this boom. But the Ukraine war has fueled global inflation levels and that led to central banks
to tighten monetary policy aggressively. Since a major portion of the SVB loans were long
term, during the period of stress, the bank could not call back their long term loans easily
where as their short-term deposits have to be paid on demand. Days earlier, the bank had
announced that it was facing a cash crunch, and failed to raise money by either selling shares-
or itself- spooking investors and leading to a run on the bank. While hearing the news, a large
number of depositors came up for withdrawing their deposits, which finally dried-up the
balance of SVB. It is known that at least 21 start-ups in India have exposure to SVB, which
have approximately $209 billion in assets and about $175.4 billion in total deposits as of
December 31, 2022 and these star-ups collectively have about $1 billion of their funds
deposited in SVB. On Wednesday, March 8, one of the funds run by a leading VC, Peter
Thiel had asked to withdraw deposits from SVB. On the same day, the bank clarified that it
had sold government bonds to shore up its capital base. By Friday, March 10, the bank was
declared bankrupt. Later, the Federal Deposit Insurance Corporation, which deals with failed
banks in the US, placed SVB under receivership and also the Joe Biden Administration
stepped into provide the depositors with a bailout.
1. Analyze the real cause behind the failure of SVB
2. What impact does create on startups which have good exposure to SVB?
3. How does the SVB crisis affect Indian startup ecosystem?
4. What about the significance of operational diversification on the part of FIs
and diversified investments on the part of investors in the context of SVB
crisis?
5. Can you say that SVB disaster is a wake-up call for the start-up ecosystem to
reassess risk management strategies?