The market is slowing down, but that isn’t stopping Canaan, a 35-year-old early-stage venture firm that invests in both tech and healthcare. It just closed on $850 million in capital commitments across two new funds: a $650 million flagship fund – its 13th – and a separate $200 million fund to support its breakaway portfolio companies.
The amount is slightly higher than the $800 million raised by Canaan for its 12th flagship fund in October 2020 and brings the firm’s assets under management to $6.8 billion.
Canaan has closed an opportunity-style fund in the current market with some upside. Some institutional investors privately complain that they do not like later-stage funds hosted by early-stage investors because it complicates their ability to properly diversify their own investments.
A growing number of early-stage investors are also deciding to abandon dedicated late-stage funds in the face of a market where exits are few and IPOs even more rare. Lux Capital, for example, is raising a single fund after previously raising multiple funds at a time; Felicis, another early-stage investor, recently made the same decision.
But Maha Ibrahim, a longtime general partner in Canaan who joined the organization 23 years ago, says there are several reasons for that second fund. First, she points to a subset of the firm’s portfolio companies — on both the tech and healthcare sides — that require more capital. She also says that with many investors “sitting on their hands of late” right now, the new fund gives Canaan “a great way to support companies and get a lot of ownership in them.” Ibrahim further insists that the flagship fund was “oversubscribed” and the team wanted to “make room for subsidiary LPs”.
It’s understandable why its ongoing supporters wanted a resurgence. Over the past five years, Canaan says, the firm has seen ten IPOs, four public listings and eight M&A exits, generating approximately $1.7 billion in returns. Some of those results include the IPO of Day One Biopharmaceuticals in May 2021, TheRealReal in June 2019, and biopharmaceutical company Arvinas in September 2018.
Canaan was also an investor in Kustomer, a customer service software company acquired by Meta for $1 billion in February 2022, though Meta is now reportedly considering different divestiture options for the organization as part of a broader cost-cutting plan. doing. Another portfolio company, Axis Security, was acquired last month by Hewlett Packard Enterprise for undisclosed terms.
Ibrahim also noted that Canaan is “really an early stage focused fund” and wants its main fund to reflect as much. “It’s cleaner for us,” she says.
As far as that capital goes, Ibrahim says, areas that are “having a very strong market pull right now,” include cybersecurity, where Canaan is already active, including at eight-year-old organization Snyk. Early investors include (currently valued at around $7.4 billion) and industrial cybersecurity company Dragos, whose valuation could reach $1.7 billion in 2021.
“It is our intention to return the winners at a reasonable price,” she says. “We are entering a market where there will be rounds for winners, but I don’t think about stratospheric valuations like I used to.”
The firm also has interests in certain areas of healthcare, including immunology, neurobiology and cardio. Canaan also incubates such companies on occasion, including co-founding Day One Biopharmaceuticals.
“We saw opportunities within oncology that we could focus on, so we thought if we can do it why should we let others start it?” Ibrahim says.