In a petition to the US government on Sunday, Y Combinator stated that around 10,000 small businesses with accounts in Silicon Valley Bank may be unable to pay their employees in the next 30 days, and approximately 1 lakh jobs are anticipated to be affected as a result of the collapse. The petition submitted to US Secretary of the Treasury Janet Yellen noted that one-third of the startups in Y Combinator's community use Silicon Valley Bank as their only account.
"By that measure, we can estimate that payroll-related furlough or shutdown will impact more than 10,000 small businesses and startups. If the average small business or startup employs 10 workers, this will have an immediate effect of furlough, layoff, or shutdown, affecting over 100,000 jobs in the most vibrant sector of innovation in our economy," the petition said.
More than 3,500 co-founders, CEOs, and over 2 lakh employees of startups and small businesses, including Indian companies PayO, SaveIN, and SalaryBook, have agreed to support the petition.
According to the NVCA, Silicon Valley Bank has over 37,000 small businesses with more than USD 250,000 in deposits. These balances are now unavailable to them, and without further intervention, according to the FDIC website, may be inaccessible for months to years," the petition said.
"If we allow this to happen, it will immediately impact the US technology industry and US competitiveness worldwide and ultimately set back US competitiveness by a decade or more, while the rest of the world races forward," the petition said.
According to statistics from the National Venture Capital Association (NVCA), Silicon Valley Bank has almost 37,000 small firms with deposits totalling more than $250,000. “These balances are now unavailable to them, and without further intervention, according to the FDIC website, may be inaccessible for months to years," the petition further added.
“Silicon Valley Bank's failure has a real risk of systemic contagion. Its collapse has already instilled fear among founders and management teams to look for safer havens for their remaining cash, which can trigger a bank run on every other smaller bank," the petition stated.
Earlier this week, Y Combinator’s President and CEO Garry Tan had noted that the ‘real victims’ of the SVB fallout were smaller startups who might be compelled to shut down or furlough next week. The Y Combinator CEO said this saga will set startups and innovation back by 10 years.
"The SVB fallout is an “extinction level event for startups. 30% of YC companies exposed through SVB can’t make payroll in the next 30 days," he opined.
“The real victims of the SVB fallout are the depositors: startups (10 to 100 employees) who cannot make payroll, and will have to shut down or furlough next week. If these startups wait weeks/months for their deposits, we have destroyed a generation of US startups, at random," he had asserted in a tweet thread.
“These depositors will not survive weeks or months without some sort of plan from the govt…I recommend that you reach out to your local congressman to get this on their radar today," Tan had added.
“When people say “oh a startup’s CFO needed to protect the money" and “anything above $250,000 isn’t insured," they are literally thinking this is what you’re supposed to do if you have $12.5M in cash. Can you imagine running a business this way?" Tan tweeted.
There are also likely to be repercussions for the Indian startup sector.
Meanwhile, Canadian advertising-tech company AcuityAds Holdings Inc. also suffered a major setback as a result of SVB Financial Group's insolvency. According to a statement, AcuityAds Holdings Inc. has $55 million in deposits at SVB and only $4.8 million in other banks.
"The government recognises that tech sector companies are often not cashflow positive as they grow, and that they rely on cash on deposits to cover their day-to-day costs," an official statement said.
UK tech startup association Coadec said on Twitter that “panic" is setting in as it is clear SVB’s collapse “could have a significant impact on the UK’s tech startup ecosystem." The group said it has been in engaging with “Treasury and No. 10 about the potential impact" and “work has been going on overnight on policy options."
Deposits up to $250,000 are insured by the federal government, but anything over is regarded as uninsured. As of Monday morning, insured deposits will be available, according to the Federal Deposit Insurance Corporation.
