Online investment platform and venture community, AngelList has built a new product, Lifeline Agreement, to help startups impacted by SVB (Silicon Valley Bank) failure get emergency capital.
On Friday, Federal Deposit Insurance Corporation (FDIC) shut down SVB and took control of its deposits, sending global startups and venture capital firms into a state of crisis. In the words of President & CEO of Y Combinator, Garry Tan, “Silicon Valley Bank failure could wipe out a whole generation of startups. There are a lot of thriving businesses that cannot make payroll right now because their cash was all in one bank.”
While the major impact is expected to be on the US-based startups, some Indian SaaS startups and Y Combinator-backed Indian companies also had exposure to SVB. According to Rahul Mathur, Founder and CEO of Y Combinator-backed Verak Insurance, “60 per cent of YC-backed companies have more than $250,000 in SVB bank accounts.” This could include Indian startups, given that India makes for the second highest number of startups in YC cohorts after United States.
AngelList’s new product is designed to help impacted startups to get temporary loans from investors with online signing and funding. Lifeline Agreement will also have built-in banking access (if the company needs it). “Lifeline Agreement will include a promissory note with a standard interest rate (7 per cent) for a short-term loan from your investors lending enough to meet urgent needs. Online signing process with a single link to share and works with AngelList Banking or any bank,” Sumukh Sridhara, Founder Products Lead at AngelList said in a tweet. Lifeline agreement is currently available to startups for free.
Impact of SVB failure
SVB was an investor in almost two dozen Indian startups (including the likes of Icertis, Netradyne and others) along with being a bank of choice for many Indian companies operating in the US market. Gaurav VK Singhvi, Co-Founder at investment network We Founder Circle said, “SVB has been a preferred bank for a lot of Indian SaaS and Y Combinator-backed startups operating with Silicon Valley Bank largely because of its flexibility and maintaining ease in fundraising operations. The news comes as a big shock and the shockwaves could have a limited impact on Indian startups directly and indirectly.”
He added that although many of the Indian startups have already migrated their bank accounts to a different bank, it is still being advised to not withdraw deposits from the bank which makes sense as banks operate on limited reserves. “We have to understand that these startups operate on a very limited runway and the effects could be detrimental for them if they do not withdraw their funds on time. Hoping the Federal Reserve proactively address and solve this, as it could shake investors’ confidence for the short term in the US and global markets,” Singhvi added.
Commenting on the impact of SVB failure, Sridhar Vembu, founder of bootstrapped SaaS major Zoho said in a tweet, “Silicon Valley Bank’s sudden collapse reminds us of the fragile foundation of bubble-fueled prosperity the world saw when valuations and net worth appeared to reach insane heights overnight. They can disappear overnight too. Tough times ahead and we must build to be resilient.”