Venture capital firm Matrix Partners said Tuesday it closed a $150-million fund to invest in consumer services companies in India.

The fund will fuel multiple stages of investments into Internet, mobile services, financial services, media and entertainment companies, and travel and leisure.

Waltham, Massachusetts-based Matrix had until now only invested in the United States. It joins an increasingly large group of investors in India, both domestic and foreign.

More than 40 new India-specific funds have been raised or are in the process of being raised, including those from Microsoft, Zephyr Peacock Ventures, Amaya Venture, Mentor Partners, Helion Ventures, Inventus, and Argonaut Private Equity (see India: All Aboard!, Argonaut Plans $250M for India).

Private equity firms invested nearly $2.1 billion in the second quarter, up from $407 million in the same period last year, according to Chennai-based Venture Intelligence India. This year, 18 percent of second-quarter investment in India went to IT and IT-enabled services.

In total, India raised $3.5 billion in private equity in the first half of 2006, up from $2.2 billion invested during the whole of 2005.

On the Ground

Matrix India, based in Mumbai, will be led by two new managing directors: Avnish Bajaj, co-founder of Indian online marketplace Baazee, which was acquired by eBay; and Rishi Navani, formerly of WestBridge Capital Partners, which is now known as Sequoia Capital India.

Starting in 2003, Matrix looked to invest in Indian startups, said general partner Shirish Sathaye, who is based in California and will serve as an advisor to Matrix India.

“We realized without people on the ground we would not be able to be active investors,” Mr. Sathaye said. Thus, Mssrs. Bajaj and Navani were recruited.

The interest in India, Mr. Sathaye added, came from Matrix’ 20-year history of investing in U.S. companies led by Indian entrepreneurs, including Cascade Communications, Sycamore Networks, Starent Networks, and Aruba Wireless Networks.

Mr. Sathaye said it was too early to say when the new fund would close its first investment.

US VCs in India

In a global survey of venture capitalists released recently by Deloitte, 53 percent of U.S. venture capitalists said they were interested in expanding their international focus. Of those, 30 percent said the country they are most interested in investing in is China and 25 percent said they were most interested in India (see International VCs Favor US).

However, investors said India came out ahead of China in terms of barriers to entry such as regulations, intellectual property, and political environment.

“U.S.-based venture capitalists are looking at China as a market and India as a place to fund entrepreneurs,” noted Mark Heesen, president of the Arlington, Virginia-based National Venture Capital Association.

Mr. Heesen pointed out that this emphasis makes India much more likely to produce the next Silicon Valley.

However, despite increased interest and willingness from limited partners, U.S. venture capitalists are still investing less than 20 percent of their money abroad, estimated Mr. Heesen. That includes internationally focused funds such as Matrix’.

Draper’s Take

With all the interest in investing in India, there’s concern that investment dollars will overpower the number of viable startups.

Bill Draper, one of the first venture capitalists in India, doesn’t think so.

“India has a lot of people and there are a lot of entrepreneurs among them, so I don’t think at this point that there is too much money chasing too few deals there,” Mr. Draper told RedHerring.com on Tuesday.

Mr. Draper’s Draper International, formed in 1994, was the first India-specific fund. After selling or otherwise distributing all its investments with the exception of Rediff, the fund earned a 16x return.

Mr. Draper said he would still be investing in India if personal reasons didn’t keep him from traveling there as often as investments require. “It’s easier to do business in India today than it was when we were there,” he said.

Contact the writer:LGannes@RedHerring.com