Silicon Valley Bank crisis spreads panic among startups; funding drops to $140 million this week
This and more in today’s ETtech Top 5.
Also in this letter:
■ ETtech Deals Digest
■ Tighter scrutiny on the cards for auto PLI disbursals
■ Tata Technologies files IPO papers with Sebi
Silicon Valley Bank asks startups, VCs to stay calm as panic spreads after stock rout
Silicon Valley Bank’s (SVB) announcement that it will be issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio coupled with a massive stock rout of 60% has created panic among the startup ecosystem and investor community.
According to news wire Bloomberg, SVB has business with nearly half of all the US-based venture-backed startups, and about 44% of the US venture-backed tech and healthcare companies that went public last year.
What happened? An environment of aggressive rate hikes leading to a fall in the valuation of bonds issued by the bank led to a massive after-tax loss of $1.8 billion. The funding crunch among startups — which constitutes a majority of the bank’s clients — due to the ongoing tech winter made matters worse for SVB.
So, as SVB announced the issuance of shares, it led to solvency fears with the lender causing a ripple effect in its customers pulling out deposits.
Double whammy: Alongside the troubles at SVB, another bank focussed on the cryptocurrency market Silvergate Capital Corp, said on Wednesday that it was headed for a collapse following the selloff in crypto markets. This led to a run on the bank forcing it to sell billions of dollars worth of assets at huge losses.
Major impact: A WSJ report said the unrealised losses on bond investments were piling up at SVB throughout last year. Further, it said that unlike most other large banks, which serve a variety of companies and a range of assets, SVB as well as Silvergate were focussed on specific segments that increased the risks for them in a downturn.
SVB crisis: startups, founders, investors in a flux
A Bloomberg report said that the tremors from SVB’s ailing financial stability prompted Peter Thiel’s Founders Fund and other prominent venture capitalists to advise portfolio businesses to withdraw their money, even as the bank’s top executive urged calm.
What VCs are telling startups: While Founders Fund asked its portfolio companies to move their funds from SVB, Coatue Management, Union Square Ventures, and Founder Collective also advised their portfolio companies to pull their money. Canaan, another major VC firm, told its portfolio companies to remove their cash on an as-needed basis.
Batting for bailout: US billionaire investor and founder and CEO of hedge fund Pershing Square Capital Management, Bill Ackman said the US government should consider a “highly dilutive” bailout for the lender. He said the “failure of SVB could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash”.
What happens now? Following the fear of a possible insolvency situation among depositors, SVB CEO Greg Becker reportedly held a call on Thursday to inform the bank’s customers of its health, while urging them to not pull their deposits or spread panic about the lender’s situation. What remains to be seen is whether SVB’s $2.25 billion fundraise which is planned through a combination of selling common and preferred stocks is enough to bring it to stable ground.
Read the full explainer from ETtech here
ETtech Deals Digest: startups pick up $140 million this week, funding nosedives 90% YoY
Indian startups received $140 million in funding over the week across 20 rounds, 90% lower compared to the same period last year when $1.43 billion came in as across various companies, according to data from market intelligence firm Tracxn.
Compared to last week, startups saw a dip of 69% in funding, from $450 million raised across 26 rounds.
Here is a list of startups that got funded this week
Tighter scrutiny on the cards for auto PLI disbursals
The Centre is taking a closer look before disbursal of incentives under the Rs 25,938-crore Production Linked Incentive (PLI) scheme for the automobile and auto component sectors amid allegations that the sops have been misused by many electric two-wheeler makers.
Committee constituted: A committee has been formed, comprising representatives of the four central vehicle testing agencies and public sector non-banking financial company IFCI, to vet data submitted by companies in quarterly review reports and annual accounts.
Also read | ETtech Explainer: Why is government’s FAME-II scheme for EV companies likely to be pulled off?
Allegations: The Centre is probing about a dozen electric two-wheeler makers amid allegations that they have not adhered to localisation guidelines by using imported components, mostly from China, despite their assertions to the contrary when claiming subsidies.
ET had earlier reported that government is likely to discontinue the second phase of the Rs 10,000 crore Faster Adoption and Manufacturing of Electric Vehicles in India or FAME II subsidy.
Maruti Suzuki, Hero MotoCorp, Bosch, Lucas-TVS, Mitsubishi Electric, Tata Autocomp, Ola Electric, and Toyota Kirloskar are among the 95 approved under the scheme.
Tweet of the day
Tata Technologies files IPO papers with Sebi
Tata Group has filed papers with the Securities and Exchange Board of India (Sebi) to launch the initial public offering (IPO) of Tata Technologies.
Details: The IPO doesn’t involve any fresh issue of shares. Tata Motors, which holds 74.42% of Tata Technologies, intends to sell 81,133,706 shares of its subsidiary. Two other shareholders – Alpha TC Holdings and Tata Capital Growth Fund I – are also selling shares in the offer.
Alpha TC Holdings Pte Ltd, a Singapore-based investment firm managed by Tata Capital Advisors, owns 8.96%, while Tata Capital Growth Fund owns another 4.48%.
Also read | Tata Technologies IPO: What it means for Tata Motors investors
Catch-up quick: Tata Motors had in December last year received in-principle approval from its internal committee to consider divestment of a partial stake in subsidiary Tata Technologies Ltd through IPO.
In the nine months ending December 2022, Tata Tech reported a revenue of Rs 3,011.8 crore, recording a growth of 15.5% on a year-on-year basis. The company’s profit for the nine months came in at Rs 407.5 crore.
Today’s ETtech Top 5 newsletter was curated by Megha Mishra in Mumbai and Gaurab Dasgupta in New Delhi. Graphics and illustrations by Rahul Awasthi.
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