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Silicon Valley keeps bets on India despite tension

Silicon Valley entrepreneurs and investors, famous for taking the long view, look at India and see mostly economic opportunity still largely unclouded by the threat of war with neighboring Pakistan.

"It's business as usual," said Danial Faizullabhoy of Walden International, a San Francisco venture firm looking for office space in downtown Mumbai. "I was born in Bombay (Mumbai) and in my lifetime there has always been tension with Pakistan."

"Life goes on," Faizullabhoy said. "You've got to stay cognizant of it. But in venture capital you have to look at the long term."

India and Pakistan have been locked in a military standoff with a million troops massed on both sides of their border since a December attack on the Indian Parliament that New Delhi blamed on Pakistan-based guerrillas.

Tensions eased following international efforts to defuse the crisis and a pledge by Pakistan to stop militants from entering the Indian part of the disputed Himalayan region of Kashmir, but fears of war between the two nuclear-armed powers have not receded completely.

Even so, in the long-term India has many positives for US venture firms since many see it as an emerging powerhouse for outsourced information technology services and manufacturing, and as an exporter of home-grown technology goods.

India reaped the most venture capital invested in Asia-Pacific countries last year, 24 per cent of the total or about $841.5 million, according to Venture Economics, a Thomson Financial private equity research firm.

More money is on the way.

"We're definitely moving engineering resources to India and will continue investing there," said Mark Christensen a vice president and director with Intel Capital Communication Sectors, a strategic venture investing unit of Intel Corp, the world's largest semiconductor maker.

Roughly a third of Intel Capital's 100 investments in Asia have been in India, mostly in software companies.

ACCENTUATE THE POSITIVE

US venture capitalists like that India is moving away from a statist, protectionist past and that English is spoken widely.

Additionally, Indian universities graduate scores of potential employees strong in technology, science and engineering fields.

US venture capitalists also need not look very far for help in negotiating the Indian marketplace.

Technology and venture mecca Silicon Valley is packed with Indian-born entrepreneurs and tech workers who can tap business networks in India.

US companies founded, owned or operated by entrepreneurs of Indian descent raised about $1.7 billion, or 4.5 per cent of all venture capital invested in the United States last year and nearly double the percentage they raised in 2000, according to the Indus Business Journal, which covers Indian- and Pakistani-owned businesses in the United States.

Moreover, Indian Americans are being recruited by US venture firms as associates and partners with the aim of building business networks across the United States and India.

The Indian Venture Capital Association last week unveiled its plan to piggyback that trend. The Indian trade group announced its first chapter outside India -- in Silicon Valley.

The chapter's aim is to foster talks between local venture and private equity investors and Indian entrepreneurs and their companies.

AMID RUMORS OF WAR

Not all US venture capitalists are bullish on India.

David Chao of Doll Capital Management says India has many advantages for technology investing. But he told Reuters the dispute with Pakistan should be of serious concern and that other Asian countries offer more stability.

Chao prefers investing in Asia in low-cost China and mature-market Japan.

Bob Kondamoori of Charter Ventures noted that one of his firm's Texas-based portfolio companies recently scrapped a one-to-three month trip for staff to train new employees in India because of war concerns.

Even some venture capitalists with big hopes for India have given serious thought to short-term consequences should its face-off with Pakistan escalate.

Fortunately, those consequences may be limited by where venture capital has been invested in India, according to Deepak Karma of Canaan Partners.

All bets are off in a nuclear exchange, but a conventional war might not significantly disrupt India's outsourced software industry, Karma said.

Bangalore, the equivalent of India's Silicon Valley, and Hyderabad, where No 2 software maker Oracle Corp plans to hire additional engineers, are far from possible front lines.

"People forget how big the country is," Karma said. "Almost all the tech centers are in southern India, which is out of reach of any military capability Pakistan may have."

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