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More Silicon Valley start-ups are pushing product development to India



It's not just the US software services companies like EDS, Keane, CSC, Accenture, Cap Gemini-E&Y (apart from "oldies" like IBM) that are making a beeline to set up operations in India. The product companies don't want to get left behind.

Just a glance at the job supplements of the top newspapers in Bangalore will confirm this. Last week's job supplement of Economic Times had a large ad from the Sunnyvale-based telecom equipment start-up Infinera (which has raised $130 million from top Silicon Valley VCs including Kleiner Perkins, Mobius VC, Accel Partners, Benchmark Capital, and Venrock Associates). In fact, Infinera has almost become a regular advertiser in this supplement.

In an article titled "India Inside" , in the latest issue of Business Today, the magazine's Assistant Editor Priya Srinivasan, has elaborated on this trend.

"Oh, it's an absolute fad out here; VCs are practically compelling their companies to go to India," says Krishna Kolluri, CEO of Sunnyvale, CA-based Neoteris, which "has had India on its business plan from day one". "We have interacted with several large VCs and companies they have funded. At least 50 per cent of these companies either have a presence in India or plan to have one soon," says Seenu Banda, CEO of NetDevices. (NetDevices itself has recently raised $15 million in first round funding from leading venture capital firms including Jumpstartup, Comventures, Columbia Capital, and Artiman Ventures. Jumpstartup, an US-India cross border VC firm, is assisting NetDevices in setting up its Indian operations.)

Oak Investment Partners, a large US-based VC fund, has roped in Ranjan Chak--who set up Oracle's development centers in India--to guide its portfolio companies with their India strategies. "Oak investees that want to come to India range from very small companies to those with several tens of millions of dollars in revenue. Around 10 Oak companies already have some presence in India. The most recent entrant is Aventail, a company that specialised in security for virtual private networks," says the BT article.

Why this rush to India among product companies? "After the tech meltdown, VCs are looking for more efficient business plans. An India presence becomes necessary," Amit Shah, a partner at Palo Alto, CA-based Artiman Ventures, says in the BT report. "Start-ups kept spending on product development, proof of concept, customers and marketing. By the time the product hits the market, the outgo can be as high as $50 million (Rs 230 crore). Now they have to compress these costs. You can cut two thirds of the engineering expenses by moving to India," adds Ganapathy Subramanian of Managing Director of Jumpstartup.

The BT article estimates that about 40 software product companies have set up devleopment centers just in Karnataka (read Bangalore) over the past year. Added to these are companies like the Bangalore-based Symphony Services (founded by Romesh Wadhwani, who earlier founded Aspect Development) and Hyderabad-based Pinexe (formerly called Portal Player), which offer product development services for hire.

Putting these trends together, BT concludes that "(India) could well become Taiwan's equivalent in software. Just like all chip manufacturing moved to Taiwan, all software 'manufacturing' could move to India. Products, which are conceived anywhere in the world, could be designed, built, tested, maintained, supported and upgraded out of India."

Mike Moritz chants the "go to India" mantra
In a recent Businessweek cover story on The Rise Of India, Sequoia Capital partner, Michael Moritz, who led the fund's investments in Yahoo and Google, says: "We can barely imagine investing in a company without at least asking what their plans are for India,. India has seeped into the marrow of the Valley."

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