Canaan, a 35-year-old early-stage venture capital firm, continues to invest in IT and healthcare despite the market slowdown. Capital commitments totaling $850 million have recently been completed, split between a $650 million flagship fund (it’s 13th) and a second $200 million fund to assist its spinoff portfolio firms.
This raises Canaan’s total assets under management to $6.8 billion, considerably more than the $800 million it raised for its 12th flagship fund in October 2020.
Oddly, Canaan would have to liquidate an opportunity-style fund at this time. In private, several large investors complain that early-stage investors’ hosting of later-stage funds makes it more difficult for them to diversify their portfolios.
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The Possibility of A Second Fund
In a market with few exits and even fewer IPOs, an increasing number of early-stage investors are opting out of specialized late-stage funds. For instance, Lux Capital, an early-stage investor, only raises a single fund, although it had previously raised many funds. Felicis, another early-stage investor, recently made a similar move.
General Partner at Canaan Maha Ibrahim has been with the firm for 23 years and thinks several good reasons exist to establish a second fund. She begins by mentioning some of the IT and healthcare firms in the firm’s portfolio that may need an infusion of cash. She also explains that many investors are “sitting on their hands at the late stage,” so the new fund is a “great way to support companies and get a lot more ownership in them” for Canaan. Furthermore, Ibrahim maintains that the flagship fund was “oversubscribed” and that the group only tried to “make room for supportive LPs.”
Canaan’s Success Stories
It’s easy to see why its current donors would have wished to continue supporting it. Canaan claims that the company has made about $1.7 billion in the previous five years through 10 initial public offerings (IPOs), four public listings (PLs), and eight M&A exits. The IPOs of Day One Biopharmaceuticals in 2021, TheRealReal in 2019, and Arvinas, a biopharmaceutical business, in September 2018 are just a few examples.
The customer support software firm Kustomer, in which Canaan also had a stake, was bought by Meta in February 2022 for $1 billion. However, as part of a bigger cost-cutting initiative, Meta examines several disposal possibilities for the firm. Meanwhile, Hewlett Packard Enterprise purchased another portfolio firm, Axis Security, last month for undisclosed sums.
As Ibrahim puts it, Canaan is “really an early-stage focused fund,” and the company’s primary fund should reflect that. She argues that “it’s cleaner for us.”
Canaan’s Field of Interest
Canaan has already been active in cybersecurity, having invested in companies like Snyk, which has been around for eight years and is now valued at about $7.4 billion, and Dragos, an industrial cybersecurity company whose valuation reached $1.7 billion in 2021.
“We aim to invest in winners at equal prices,” she explains. We’re charging into a market with up rounds for the winners, but I expect them to be at a different astronomical value than in the past.
The company’s interest in immunology, neurobiology, and cardiology, among other healthcare subfields, is as strong as ever.
Canaan has even served as an incubator for startups like Day One Biopharmaceuticals.
Ibrahim explains that they “saw possibilities within oncology which we could focus on” and “figured, why should others begin it if we can do it.”
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Feature Image Source: Canaan
