Venture capitalists coming to India are still sold on the outsourcing and services story, but a few brave ones are venturing into the technology products area. At least 20 venture capital firms are currently in Mumbai, looking at investment opportunities in India.

Apart from the tried and tested sectors such as business processing outsourcing and IT-enabled services, VCs have shown great enthusiasm for telecom product companies.

Says Alok Prasad of Beacon Ventures, "In the US, the payback is around three to five years while in India it takes longer-around seven years." Beacon is one of the few VCs, which has taken to working with product companies in the technology sector.

Ashish Bhide of the View Group said his companies' investments are largely in US companies, which are planning to outsource their operations to India.

"This does not mean that we are not investing in India," he said. Bhide however said that going forward investments in outsourcing -- either in services or manufacturing sector -- would take the form of providing funds for the entire value chain, that is both the front-end as well as the back-end of the operations.

This way, he explained, the VC gets the benefit of the outsourcing unit as well as the main entity, which has the bulk of the branding associated with it.

Incidentally, while investments in more mature ventures is left to larger private equity financiers such as Warburg Pincus, there are some VCs who are investing in old economy sectors such as steel and textiles.

But there are pure equity investments and not in the role of a strategic investor. For instance, some of the VCs said that they had invested in some steel companies but through the secondary markets where they had picked up shares in block deals.