Will Asia's start-ups feel the heat of Silicon Valley Bank collapse?

As soon as he had an inkling that a crisis was brewing at the US-based Silicon Valley Bank (SVB), Indian businessman Ruchit G Garg tried to pull out the bulk of his deposits - but found he was unable to transfer the funds.

"I did not panic, and told my wife that there might be some concerns, but we don't have to worry as we have a good business in India," said Garg, founder and CEO of the Harvesting Farmer Network, an agriculture technology platform that helps smallholder farmers in India sell their crops.

US regulators have since closed the bank, took control of its deposits and sought to reassure account holders that their money is safe. Two days later, they also shut down the New-York based Signature Bank, which like SVB had a large percentage of uninsured deposits, to prevent a spreading crisis.

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The closures have raised the spectre of financial contagion in the global economy and created uncertainty for tech start-ups, as SVB was such a substantial lender to the sector.

Garg's ties with SVB began when he quit his job at Microsoft in 2011 to launch a start-up called 9Slides Inc out of a garage in the United States. He later moved back to India in 2019 to start the Harvesting Farmer Network, but maintained his SVB account.

Over the last three years, the company's clientele has swollen to 3.7 million farmers and it has developed strong ties with local partners. "Things may be anxious for a few months, but it will all come back," Garg said.

Most Asian start-ups are unlikely to be badly hurt by the current turmoil in US financial markets, analysts say, but it will affect their ability to access the cheap global capital that had helped them to expand in recent years.

As central banks around the world turned on the money taps to stave off a pandemic-induced downturn and provide economic stimulus, tech start-ups across India and Southeast Asia witnessed an inward rush of funds - especially amid China's crackdown on the sector.

However, over the past year this flow of money has been replaced by interest-rate increases, led by the US Federal Reserve, to fight rampant inflation as the war in Ukraine drove up the price of essentials.

These rate increases undermined the value of long-term bonds held by SVB, setting in motion an old-fashioned run on the bank as panicked investors rushed to withdraw their money, ultimately resulting in its closure.

Fears of a global banking crisis intensified this week as Asian bank stocks on Thursday resumed an overnight slide amid worries over the health of Swiss bank Credit Suisse, which was beset by problems long before the US banks collapsed. Investor confidence was somewhat restored, however, after Switzerland's central bank said it would lend up to US$54 billion to shore up Credit Suisse's finances.

Salvatore Cantale, a finance professor at the International Institute for Management Development in Switzerland, said that the recent bank failures would result in "higher volatility for some time", but he did not think that this represented "financial contagion".

The larger concern for all start-ups, he said, was the unavailability of cheap money.

De'Angello Harris, Singapore partner at Australian executive search and consultancy firm Think & Grow, said most start-ups had reduced their outlays over the past year as funding had dried up, adding "at the moment we are not expecting credit conditions to tighten as a result [of the US bank collapses]".

But the looming uncertainty over which direction interest rates will head next, and fears of a wider financial crisis, have put many business owners on edge, including those in Asia.

Vinayak Sharma, founder and CEO of Hyderabad-based software services firm Byteridge that has clients in the US, said he'd spent several hours anxiously trying to move money out of SVB following its collapse, to no avail.

The US regulator's intervention had reassured him that his firm's money will be protected, but he said he was bracing for other consequences. "We do anticipate an impact because this may affect some of our [US] customers," he said. "In case they [US regulator] had not intervened, then it would have been disastrous."

Byteridge is better insulated than most start-ups from the economic shocks, he added, as it is well capitalised and its business is diversified.

Moody's Investors Service said that the closure of the US banks is likely to result in a tightening of liquidity in global debt markets as investors grow wary, but the impact will be limited for Asia's larger financial institutions as most are not exposed to the failed US banks.

However, the crisis is likely to have affected at least some of the region's start-ups, said Stephen Richardson, Asia-Pacific head at digital asset platform Fireblocks.

"There's a possibility that start-ups in Southeast Asia were affected by the SVB collapse, given that a significant number were holding their funds at SVB, and some may have had the support of US investors or were backed by US-dollar denominated funds," he said.

The failed bank provided "significant infrastructure for companies in the digital assets space globally", he said, adding that some start-ups would be better placed than others to weather the storm.

For Evabot - a US-based start-up developing an AI-powered corporate gifting platform with a workforce spanning India, Canada and the US - its global footprint caused it some problems as the SVB crisis unfolded.

Rabi Gupta, founder and CEO, said company executives were left on tenterhooks for days before US regulators stepped in, as the company had taken on debt from SVB that it would have defaulted on if it moved its money out of the bank.

"Most of our business happens here [in the US], but the impact is global," Gupta said. "SVB was also one of our largest customers and that has also created a huge issue because we don't know what will happen to the bank."

This article originally appeared on the South China Morning Post (SCMP).

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