Eurindia, an early stage venture capital fund recently raised a Rs 100 crore (Rs 1 billion) Mauritius-based fund to invest in Indian real estate and plans to raise a similar fund later this year. Eurindia's CEO Vinod Gangoor spoke to Gayatri Ramanathan about the company's plans.

You said that Indian real estate is a potential growth market for your company. What makes it so? Why have you moved from funding IT/BPO companies to real estate?
Any sector that requires funding and provides an optimal risk-return balance is attractive for financial investors. Today, the real estate sector is capital constrained, and execution of projects is still constrained by a paucity of quality developers and builders. There is tremendous scope for residential and office space, as well as hospitality units, whether they be 4 or 5 star tourist-oriented hotels or 3 and 4 star hotels targeting the business traveller.
As a private equity investor, we are keen to follow the medium term trends of investment, which was clearly IT/BPO from 1995 to 2005 and will be real estate (among others. Definitely, there are many services and industrial businesses worthy of funding) for the next five to 10 years. We also believe there is too much capital seeking to be deployed in the 'corporate private equity' segment where one invests $ 10-20 million per company/deal, compared to real estate where there are many more deals and fewer private equity funds.

As an early stage VC fund, what would you typically invest in? At what stage would you exit? How does early stage funding in the real estate sector work typically? What kind of returns would you look for?
We would invest in development stage projects in the residential, commercial/IT/BPO, and hospitality spaces and exit through sale of the units or IPO (say, in the case of a hotel or hotel operator). We look for returns in the 25-30 per cent range in terms of returns.

Have you identified any projects for investments so far?
Two projects for investment have been identified. One is a large hotel project in Goa where we have acquired land and have received strong interest from hotel chains that want to manage the property, which we will construct with their inputs. This will be a Rs 140 crore (Rs 1.4 billion) project over time and we expect to close the deal with a hotel chain by November and start construction next year. About 30 crore (Rs 300 million) has been invested so far in this project. The other project is a large, multi-city hotel project where we have tied up with a partner in Chennai. We will construct and operate 8-10 hotels in the 3 and 4 star segment in southern and western India. The project will absorb over Rs 200 crore (Rs 2 billion) of equity capital and we will contribute half of that, so about Rs 100 crore (Rs 1 billion) over the next 2 years.

You said that only a part of your earlier Rs 100 crore Mauritius fund was utilised. How much has been utilised? Any specific projects where you plan to invest the rest?
We have invested Rs 32 crore (Rs 320 million) in the Goa projects on hand. We will initially commit approximately Rs 20 crore (Rs 200 million) to the second (3/4 star hotel) project by November when the deal closes. Another 20 crore has been earmarked for deals that we hope to close before December and the balance will be deployed by June of next year.

What is the size of the fund that you are planning to raise later this year? When will it be raised? Will it be raised in India or in Mauritius?
It will be a large sized fund based out of Mauritius. An announcement will be made in the coming weeks.

Are you looking at investing in any specific sectors?
Hotel and hospitality, residential, commercial, retail/malls, infrastructure, these are the sectors we would be looking at.