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Indian Rupee Down, But Silicon Valley Upping Investment

While India’s economic downturn has rocked financial markets, it hasn’t scared away some Silicon Valley investors. Even with the Indian currency, the rupee, down 20 percent, local venture capitalists see the chance to make dollars.

“At the macro level, things are very bad,” says Naren Gupta, CEO of Nexus Venture Partners. “But when you look at the technology area, we’re seeing a number of very exciting startups, and people taking the leap from service companies to technology companies.”

Gupta got his start in India. Now, he’s in Menlo Park, running a $300 million fund that invests in a new generation of businesses.

Decades back, Bangalore companies like Wipro and Infosys made a name by cranking out code for American firms. The innovating, the designing, the creative work – that happened in the US.

Now, Gupta says, start-ups are catering to India’s rising middle class – selling products like airline tickets and baby food. And a critical mass is developing new technologies for a global marketplace.

PubMatic is one of Gupta’s investments. The firm helps brands like Martha Stewart with online advertising.

Founder Amar Goel was born in Mountain View and moved to Mumbai as an adult to make his mark on a start-up scene that’s just heating up. Goel says that while some investors have been scared off, the rupee’s dramatic devaluation isn’t bad for his business. “We pay workers in rupees and make money in dollars.”

The connection to Silicon Valley is critical, Gupta explains, not just for fundraising. It’s a place to scout out large companies’ needs, and study startup competition. “You need to understand what those startups might be focused on, because you don’t want to do another start up in India which is emulating what the start up in Silicon Valley might be doing.”

A handful of Bay Area venture capital firms are invested in this Indian startup sector. Accel Partners has a $155 million fund. Khosla Ventures created a fund specifically for Indian firms that turn a profit while serving the poor. Kanwal Rekhi, managing director of Inventus Capital Partners, says he’s raising $100 million – double his first round.

Rekhi shares Gupta’s investment approach, but not his optimism. “Indian politicians are economically illiterate,” Rekhi charges. “They don’t see themselves as a part of the world economy.”

India is considering new taxes on profits reaped by foreign investors. So American investors would have to pay on earnings in the U.S. as well as abroad. And tax-exempt investors – like university endowments – would suddenly have to pay a foreign tax.

Rekhi says that while the economic downturn hasn’t dampened Silicon Valley’s appetite for Indian tech, a change in tax policy very well could.

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