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May 13, 2004

US VC concerned about escalating costs of SW development in India

"In the long run, given the competitiveness and cost increase of doing business in India, I am sure that many companies will increasingly look to other locales with strong talent and less competition like Belarus, Romania, Argentina, Russia, and China. I am already seeing that happen," says Ed Sim, Managing Director of Dawntreader Ventures (previously SoundView Ventures), in his recent web log posting. "The problem is that offshore development has become so popular that the cost of doing business has increased since wages have been bid up and since employees have many job options," Sim adds.

With $290 million under management, Dawntreader Ventures primarly invests in early stage information technology companies. Sim says he and his partners have also decided that it is best for their portfolio companies to set up their own or "captive" development centers rather than deal with third-party vendors. "While a couple of our companies chose to use consulting partners to begin with due to lower upfront costs and better time to market, we found that over time (the last 2 years) that employee churn is becoming a huge problem in these consulting companies and making us less productive in the long run," he writes.

Click Here to read Ed Sim's full posting.