International expansion pushes Canaan fund to $650M

Canaan Partners raised $650 million for its eighth fund, which the firm closed in early February, pulling in substantially more than its last fund due to its international expansion and the increasing capital requirements of its startups.

The tech and health care investor firm has not set any allocation targets for how much it will invest abroad, but it wanted to be sure it could support the deal flow it sees overseas, says General Partner John Balen.

Canaan, which has offices in Menlo Park, Calif., and Westport, Conn., added on-the-ground operations in India and Israel after it raised $450 million for its seventh fund in 2005. It has invested a little more than $11 million in three deals in India and $667,000 in one deal in Israel, according to Thomson Financial (publisher of VCJ). “We’ve said we’re going to walk before we run,” Balen says. “We were in India a long time ago—vs. just hiring some people to do it fast.”

Canaan’s partners decided to make international investments as part of the firm’s main fund. “Instead of building a separate fund, we’ve comingled our strategies,” Balen says. “Instead of doing the best deals in a sector or a country, we’re trying to do the best deals in this era.”

But internationalization was not the only reason why Canaan increased its fund size. The firm’s partners felt they needed more money to support their early stage investment activity through each stage of company growth.

“We’d rather have [our startup companies] rely on us instead of going outside and diluting our investment and taking away control,” Balen says. “If you’re going to take a leadership position, you should be able to see the rewards from that.”

Canaan plans to invest about 40% of its fund in increasingly capital intensive life science companies, which also drove its decision to raise more money. —Alexander Haislip