Companies are now moving to a single-fund structure3 min read . Updated: 23 Nov 2009, 09:35 PM IST
Companies are now moving to a single-fund structure
New Delhi: California-based venture capital (VC) firm Canaan Partners, which has so far focused on early-stage technology deals in India, is now open to early- to mid-stage deals in microfinance, clean technology and healthcare.
Canaan, which raised its eighth fund at $650 million last year (Rs3,029 crore now), plans to invest 20% of it in India.
“A lot of that capital is still left," said Canaan’s Menlo Park-based general partner Deepak Kamra. Kamra who started Canaan’s India practice in 2001, and Alok Mittal, Canaan’s India office head, spoke about the trend towards a single-fund structure. Edited excerpts from an interview:
What is the sentiment about venture investments in Silicon Valley ?
Kamra: The technology industry has recovered faster than most industries at Wall Street. At Sand Hill Road (an area in Menlo Park, California, which has a large concentration of VC firms), you can really see that change.
With regard to financing, anything related to social media, gaming, applications on Facebook, there are signs of recovery. The mood is pretty good and sectors like (the) Internet, digital media and software are still pretty exciting. So if you are a winner, the money is very available.
Is the exit environment improving?
Kamra: That’s what drives our business and you are seeing good exits every day or two. A number of our companies (Canaan’s US portfolio firms) are talking to investment bankers about IPOs (initial public offers). We would like to see the Indian markets kick in for some of these venture-backed IPOs as there have been only a couple like Info Edge (India) Ltd and OnMobile Global Ltd. We invested in e4e Inc. (an outsourcing services firm) and I am still on the board. The companies are still private and we are hoping to get some exits on those soon.
What is your take on early-stage investing in India?
Kamra: You saw people moving from early-stage investing in the US when the downturn started as it is riskier and has a longer time horizon. The average time for exit from start to finish has gone up to nine years in the US. That’s a long time and you can see why people are concerned about doing early stage. But we are continuing to focus on early- to mid-stage. It’s great if other people move into late-stage investing, which means less competition for us.
Also, a lot of firms are moving to a single-fund structure. That’s one of the trends that seem to be happening as opposed to multiple funds.
What do you make of this trend?
Kamra: People have tried multiple funds like early and growth stage, sector or geography-focused funds. They are finding a lot of overheads in terms of fund-raising as they are forced to invest a certain amount either in a sector or stage or a country. In a single fund, there is a lot more flexibility in terms of going where the action is.
And it also depends on what the LPs (limited partners who are the investors) want. If they have a certain India allocation, then you will see VC firms opening India funds. But we haven’t seen a lot of that, at least not with the group of LPs we talk to. So if the LPs don’t care that much, then it is usually about having a global fund and investing out of that.
Do you see any other advantage in this set-up?
Mittal: From an entrepreneur’s standpoint, we are able to bring them our entire network and expertise regardless of where we make the investment. So we are seeing a lot of parallels between what is happening here and in the US, Israel or other parts of the world.
Consumer Internet has held out a lot of promise in India but has not delivered as per expectations. What do you think of it?
Kamra: Things are following the US market. If we look at the number of video views online or people using Facebook and Orkut, there is no reason why there shouldn’t be companies built around those models in India. The advertising money is not big here so we need to think about business models. We think just the numbers will create some good opportunities. It will obviously have to be something unique and not just a US thing lifted over to India.
Mittal: The transaction capability that’s developing is interesting. If you look at online travel, it has been proven that you can scale transaction-based businesses on the Internet. The same philosophy can be applied to multiple businesses.
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