Tuesday evening I was at law firm Fenwick & West on a panel with Ann Winblad, one of Silicon Valley's top VCs, and Barry Kramer, a veteran Silicon Valley lawyer, on the topic of venture capital investment trends. It was organized by Bill Lazar.

As always, Ann Winblad was very impressive. During the evening she mentioned VMware, "As much as we all love Dianne Green (CEO of VMware) we have to figure out a way of stopping VMware from hiring all the engineers in the valley."

This is something I have heard from others too over the past few weeks. VMware's thirst for engineering talent seems to be unlimited as it continues development of its hugely successful virtualization software.

Ms Winblad mentioned that her VC firm, Hummer Winblad recently made an investment in a startup partly because it was based in Philadelphia, where the competition for engineering talent is not quite as severe as it is here.

This brings up the question of prospects for Silicon Valley's startups. If VMware, Google, Yahoo and other big companies are competing for engineers, what's left for everyone else? Startups can offer more favorable stock options than the big players but a generous cash salary is always a popular choice.

It's not just engineers that are in demand, Ms Winblad said:"Competition for all types of skills across the board is intense in Silicon Valley."

Mr Kramer noted that because of the fall in the value of the dollar, "Outsourcing development to India or other countries is not as attractive as it once used to be."

Technorati Tags: Silicon Valley Skills Crisis