Let’s face facts. The warning signs were evident even before the Silicon Valley Bank’s (SVB) collapse. There are key lessons in banking that Indian founders can learn from shrewd players who spotted the ominous trends early and found lifeboats before this startup ‘Titanic’ sank.
Since Friday, Spencer and his team have been operating a 24*7 hotline offering free advisory meetings to help startup founders find a safe haven after the largest banking failure since the 2008 financial crisis.
In this story, Spencer and Team ProdWrks bring you important lessons and insights in banking that Indian founders can learn from the SVB fiasco.
Spotting ominous trends early
The collapse of SVB may have been a shock to many, but it was expected, says Spencer who highly recommends startup founders to read financial newsletters like ‘The Diff’ written by Byrne Hobart – who he says “thinks a few steps ahead” and warned the readers.
Spencer for instance had transferred his accounts and those of his clients to banking alternatives like Mercury – a fintech company providing diversified banking services. He says, “We can proudly say that 100% of our clients were protected and not impacted as a result of spotting trends early and acting proactively.”
Banking in the United States - Still a safe bet for Indian Founders
Despite the lingering doubts about the US banking ecosystem in the minds of Indian founders, Spencer still believes that incorporating Indian startups in the US and banking there offers a better bet.
Safer banking using Sweep Network to diversify funds
However, Indian startups banking with just a single bank in the US tend to have more money in their bank accounts than the $250K insurance that FDIC guarantees.
As of 2022, 89% of SVB’s $175 billion in deposits were uninsured. These deposits include funds from a large number of Indian startups which were in limbo after SVB collapsed.
“The US is supposed to be a good place to do business. And this (the SVB failure) is a major concern regarding the US being a good place to do business. But, I think that the FDIC, the Federal Reserve, and the Treasury Department stepped in to offer some peace of mind to depositors,” says Spenser, radiating hope that not all is gloom and doom in the US startup and banking ecosystem.
The Key to choosing the right banking partners
Until a month ago, Silicon Valley Bank offered a “middle ground for Indian startup founders” evaluating options between larger banks and new-age Neobanks. SVB was considered a reputable, prestigious old-school banking brand, and at the same time, they were forward-thinking and easy enough to deal with for Indian founders.
But Spencer advises that to minimize the risks of conducting business in unstable economic environments, businesses must be more careful while choosing banking partners and must stick to established players.
“If you can spread your funds across a few of these platforms, like Brex and Mercury, you’ll be in better shape. That’s what we’re recommending to our customers, but it’s hard to offer that as broad advice to every business in India without knowing the specifics of their circumstances,” he says.