The VC believes companies can cut two-thirds of engineering costs by working out of India Ganapathy Subramanian, Partner/Jumpstartup

Come November, Mumbai and Bangalore will have visitors who'll come all the way from Menlo Park. The Silicon Valley Bank is organising a package tour for big name venture capitalists (VCs). It is a hush-hush affair. Those in the know say there's a "gag" on this one. But the buzz is that Kleiner Perkins (KP), NEA, Sequoia Capital, and other biggies, some 20 in all, are going to be here.

The VCs won't be here on holiday; they are going to be scouting for investments. That, by itself, makes for a 28-point size headline. What is more interesting is that they are going to be looking for opportunities for the companies in which they have invested to move their engineering work offshore to India, something they have already started to insist upon.

Should we make a big deal out of more software work moving offshore? Actually, yes. India, if it plays its cards right, 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. This could well be the next wave in the Indian it story. And it is breaking now.

Just in case you think this is another one of those heart-warming Indian-it-moves-up-the-value-chain piece, some quick numbers: between them, the 20 VC firms in question would have invested in about 1,000 companies. If 50 per cent of them were to move work here, that is 500 new initiatives in the foreseeable future. If that sounds like an exaggeration, get on to the web. The website of Karnataka's Software technology parks of India claims that 79 MNCs have set up Indian operations in the past year in the state. Industry insiders reckon that 50 per cent of these are for product development. That is about 40 software product companies setting up shop in Karnataka alone in the past year. And the wave is just breaking.

At the vanguard of this trend is, typically, a VC-funded US-based start-up with annual sales of $20-30 million (Rs 92-138 crore). Such companies either set up their own development centre in India or work with an Indian partner. And they have a 20-30 member engineering team. "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 of NetDevices. He himself has just closed $15 million of funding. His company, which will build (remote) access equipment for large service providers, will have two-thirds of its business functions here.

More than 60 per cent of his $15-million funded start-up's functions will be based in India Seenu Banda, CEO/NetDevices

Russ Planitzer, CEO of Lazard Technology Partners, a New York-based $300-million (Rs 1,380 crore) fund says, "Splitting development between the US and India can halve the costs." Other VCs echo this. Listen to Amit Shah, a partner at the California-based Artiman Ventures. "After the tech meltdown, VCs are looking for more efficient business plans. An India presence becomes necessary," he says. Even as he speaks, Opsource, a company in which Artiman has invested, is looking to acquire a company in India as a precursor to setting up a development centre.

It isn't just the smaller VCs; even venerable names are hustling their companies to move here. Trawl for jobs on the KP website. Portfolio company Centrata is hiring in Bangalore. Another, SEEC, an enterprise software company-KP partner Vinod Khosla is on its board-is in Hyderabad. Even KP's hot-hot optical networking start-up Infinera-it has raised a whopping $130 million (Rs 703.8 crore) even after the bust-has a team in Bangalore. NEA-funded companies Neoteris, Atheros, Magma Automation and Ensim are in India too. As is Sequoia's Netscaler.

Eastward Ho, But Why?

Slipping valuations and the resultant need to stretch the dollar is the answer. "Recent deals like McData's acquisition of Nishan Systems and the Veritas acquisition (of Jareva Technologies) have earned VCs just about what they invested or two-to-