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"Woodside's Passage to India"
March 15, 2005
By Justin Hibbard and Sarah Lacy

 Three VCs at Woodside Fund just got back from a five-day trip to India. This was not one of those delegations of U.S. VCs who trundle around Asia in a tour bus that might as well have a sign saying "Rich White Guys on Board." No, Woodside was keeping it real. The unofficial guide through New Delhi and Bangalore was Ashish Gupta, a Woodside venture partner who has founded two startups in India and has several contacts there. His fellow travelers were John Occhipinti and Tom Shields. Deal Flow spoke with them today to find out what's up on the subcontinent.

First of all, they confirmed a lot what Rahul Bhasin, a VC at Baring Private Equity Partners India in New Delhi, told us last week. Namely, entrepreneurialism still isn't as widespread in India as in the U.S. "The younger talent coming out of the universities are more disposed to work for large multinationals," Occhipinti says. That said, these guys spoke with technologists at some large multinationals in India (e.g. Sun Microsystems and Oracle) who are getting the bug to go out on their own. Entrepreneurial types in India have been encouraged by some recent high-profile acquisitions, such as eBay's $50 million purchase of Indian auction site Baazee.com last year.

The Woodside trio also confirmed what BusinessWeek writers Pete Engardio and Bruce Einhorn wrote in this week's cover story: large multinationals aren't just farming out manufacturing and service jobs to India; they're farming out product development, too. That could stoke India's entrepreneurial fires. "As people in multinationals start doing real innovation, they're going to want to spin out and do that on their own," Shields says.

If so, India may produce more product companies. So far, service companies like Wipro and Infosys have been India's big success stories. But already, a business model that combines products and services is emerging in India. Take business software, for example. In the U.S., companies pay twice for software: first they shell out to a software company for a license fee, and then they pay about ten times that amount to consultants who customize the software. Many Indian consultancies now combine those steps and reduce the software-to-service price ratio from 1:10 to about 1:2. Rather than customizing applications from, say, SAP, they simply tailor their own home-grown software to customers' needs.

Not that India isn't still turning out interesting service companies. Case in point: Gupta hipped us to MeritTrac, a 4.5-year-old Bangalore-based startup that helps companies assess candidates for recruitment. The company is currently in the market to raise some VC. Though it makes only about US$2 million in annual revenue, potential investors are valuing it at up to four times that amount. Seems there's generous money to be had if more cubicle dwellers are willing to take the leap.



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