Outsourcing firm picks up $20M for passage from India

Freeborders, a San Francisco IT outsourcing company, has liberated $20 million in funding from three VC firms with plans to use the cash to grow its financial services business in China.

Freeborders helps clients outsource software application work to China and has clients in retail, high-tech and, as of last year, financial services. Many financial services firms have outsourced call centers and technology work to India, but with costs now rising sharply for operations in that country, Freeborders hopes to grab a chunk of that multibillion-dollar market for its Chinese technology center.

San Francisco-based FTVentures, which itself is backed by 38 financial institutions, is the latest VC firm to plunk its dollars into Freeborders, joining existing investors Internet Capital Group and TAL Ventures in this round.

Brad Bernstein, a partner with FTVentures, said his firm noticed that India's booming financial services outsourcing industry had inflated wages there. The firm identified a need for a cost-effective alternative.

"We started looking for outsourcing firms in China with language and technical skills to serve the U.S. market, and it became clear Freeborders was best positioned to do that," he said.

Freeborders, which employs 90 in the United States and 400 in China, has raised more than $40 million in two rounds since its founding in 2000. The company generated revenue of $15 million to $20 million in 2004. Co-CEO John Cestar said he expects that to double next year.

The company counts Coach, Quicksilver Software and Citigroup among its customers.

The outsourcing outfit will use the new cash infusion to expand its whiz-bang technology center in Shenzhen, China, which Cestar calls the "Silicon Valley of China" with its 150,000 tech workers and advanced technology infrastructure. The company is adding a buffed-up cafeteria, fitness center and, more importantly, enough space to accommodate 1,000 workers, which it expects to employ in China within the next 12 months. Freeborders is hiring 30 people a month there.

"When you start to get bigger-scale work, you have to have the flexibility to expand," Cestar said, adding, "our facility looks like it could be in San Jose; it just happens to be in China and enjoys a sustainable cost advantage."

Freeborders, which has offices in New York and North Carolina, will also use its fresh capital to beef up its sales and delivery services in North America and Europe.