So have many of the leading venture capital firms from Silicon Valley. For the longest time, Valley VCs would only invest in their backyard. No more. India, China, Israel are fair game today. This month, Matrix Partners has announced a $150 Million India fund. Sequoia has acquired Westbridge Capital, an India focused fund that has been around for five years. Several other major VCs are playing the space: Kleiner Perkins, NEA, Norwest, Battery, Sierra, Canaan Partners.



Yahoo has started investing in Consumer Internet startups, the first of which was announced recently (Bharatmatrimony), playing the corporate venture capital game.

Together, the committed capital chasing India is abundant.

Business Week writes cover stories on how the new billion dollar companies will emerge from India. Some have, already. Infosys, Wipro, TCS. No doubt, the lure of India for VCs is legitimate. These new darlings of Wall Street were built without their money. They want to make sure the next wave is built with.

In today's India, the commodity in short supply is good entrepreneurs. In VC parlance, fundable deals are few and far between. Why?

Historically, India has been the world's back-office. Consequently, the skill-set that has developed in India is that of engineering management and coding. The specifications are provided by teams elsewhere. Elsewhere, the market studies get done. Indian managers do not understand global technology markets. They have hardly had opportunity to learn this aspect of business. Entrepreneurs try to position products without knowledge of the product marketing discipline.

The natural instinct for Indian entrepreneurs is to build outsourcing services companies. BPO. Software Development. Chip Design. Those ventures take less capital, and become revenue generating fast. None of the Operating Loss period of a pure play product company is necessary, and hence, venture capital is also unnecessary.

VCs typically do not like this business model. It has low entry barrier. But those who have invested in India in the last five years have also invested in this model and made money off it. It was the only thing that was available. It is, however, becoming less appealing, since those markets are also maturing, and behemoths start to rule.

The next stop for VCs, the most recent wave, has been Consumer Internet and Mobile offerings. India's growing mass of connected consumer population is the target wallet. Travel, Matrimonials, Jobs, Games, Mobile Payments are all segments getting substantial capital infusion. This trend is likely to continue for the next 18 months. The engineering required in building these sites is marginal, marketing being the big differentiator.

But it will still not consume the available capital. Those who understand the subtleties of these dynamics have started diversifying their portfolios with Retail, Bio Tech, Real Estate. Sequoia's Royal Orchid Hotels is a case in point. Oak Investment Partners has set up a $200 Million venture fund to focus on the retail boom in India. Veteran retail investor Jerry Gallagher visited India and was astounded by the revenue per square feet in the malls and stores. He came back and convinced his partners to commit capital.

Bio Tech has produced one of the flagship entrepreneurs for India, Kiran Majumdar-Shaw, who is now pulling her weight to drag the entire industry up. India has a better opportunity in this field for the same reason as Retail: domestic producer, domestic consumer. Tests can leverage a gene pool that is perhaps one of the most diverse and universal in the world. If Indian policy-makers can get their act together, then India could even lead a stem cell research effort that is so far faltering in the US. VCs would be delighted to play.

Real Estate, however, is a different animal. For the longest time, the old money in India had only one legitimate investment vehicle. That was buying properties. Indians know a lot more about Real Estate entrepreneurship than any other kind of entrepreneurship. There is a financial eco-system around Real Estate that works, and by and large, venture capital is unnecessary, even unwelcome. Private Equity investors, however, are playing this market.

Conspicuous by its absence in the above discussion is traditional technology venture investing, the game that VCs know best. The reason being, it is almost absent from the technology firmament of India.

Intriguing, but entirely logical. Technology innovation takes intense domain knowledge. Be it in software, hardware, chips or communications, the engineers capable of innovation of this nature are inside the multinationals, harvesting unthinkable salaries, enjoying unbound luxury and lifestyle with servants, chauffeurs, maids, nannies, and cooks coming out of their ears. A $200,000 salary in India effortlessly affords a grand lifestyle that even multi-millionaires in the US cannot dream of.

People become entrepreneurs for two reasons: either they have a chip on their shoulder, and have something to prove to themselves and to the world around them. Or, they want to afford a lifestyle that is substantially above their current means. India is banking on the motivation of the former category alone, to find its technology entrepreneurs.

The onus, I am afraid, comes back to Silicon Valley to come up with technology innovation, which Indian back-offices can then implement and scale.

Venture capitalists will continue to go on their eco-tourism trips to India, then return. In the words of Marcel Proust, The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.