The institution of the fund, which is expected to be operational in a few months from now, is expected to develop further into a sister-state relationship between the two governments towards larger cooperation in the IT sector, Ken Sagar, director, international development, Tertium International Inc, told The Financial Express.

Tertium, a Canadian venture capital fund, has brought the two governments together and is helping out in identifying IT companies to be financed by the fund but is not participating in the fund, he said.

There are several projects which are being evaluated at present and Tertium receiving on an average two new proposals for funding under the package every week from Hyderabad-based companies.

Elaborating on the "sister-state" relationship, the senior executive said one area for possible cooperation between the two states could be the multimedia industry where both have considerable expertise.

Montreal is already an established player in the multimedia industry with most of the post-production work on Hollywood movies being done by companies in the state while film-making in AP is a big industry. Apart from collaborations between companies in the two states, exchange programmes for experts can also be considered, he felt.

Speaking of Tertium's own plans, Sagar said the fund, which is a big name in infrastructure funding, was looking at the angle seed funding and mezzanine funding of IT companies in India.

It has already locked in the fund for two Hyderabad based companies recently and was on the look out for more IT startups, he said.

While the funding presently is directly from the parent fund in Canada through the FIPB route, Sagar said Tertium was not averse to tying up with an Indian institution on an equity basis to earmark a sizeable fund for Indian IT companies. "Though there is nothing firm on the cards yet we are open to such an option", he said.

Considering the rich pickings in the Indian IT sector in the country the company has also decided to set up offices in Mumbai and Bangalore to expand operations. While the average return expected by venture companies on IT startup investments ranges between 25 per cent to 85 per cent in many cases in the United States it has even crossed 600 per cent, Sagar observed.

Though the failure rates for startups in Indian IT sector is put at between 50 per cent to 60 per cent, venture funds are springing up at a phenomenal rate and the resulting competition between each of them has become a major problem.