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Canaan Partners has just announced the close of its ninth global fund with a $600 million corpus, dubbed the Canaan IX fund. The fund is marginally smaller than the $650 million eighth fund it has raised in 2007. Canaan general partner John Balen is quoted in Fortune as saying that the smaller size is aimed at enabling the Menlo Park, California-based venture capital investor to reduce its investment cycle from four years to three. The fund brings Canaan’s total capital under management to $3.5 billion, said a press release.

In India, the firm has emerged as a significant investor over the past couple of years since it set up direct investment operations here in 2006. It has invested over $150 million here so far, which has come primarily from the $650 million eighth fund. “In Canaan VIII, we have committed about $100 million to companies in India,” Alok Mittal, managing director at Canaan Partners India told StartupCentral via email. Last year, the firm invested approximately $40-50 million, including new and follow-on deals. Its largest deal from the year was a $45 million Series A round in Bangalore-based software services outsourcing firm Happiest Minds, alongside Intel Capital. In all, the firm has invested in 13-odd companies including ecommerce startups Naaptol and MotorExchange and microfinance company Equitas Micro Finance India. With respect to Canaan IX, while the firm does not make specific allocations to any geography, investments in India are expected to continue at its current pace here, says Mittal.

Globally, two-thirds of the new fund will be allocated to investments in digital media, consumer Internet, enterprise, mobile and communications companies in the US, India and Israel. One-third is being earmarked for investments in biopharmaceutical, medical devices and healthcare infrastructure companies, said the release.

Compared to most venture capital investors in India, Canaan’s deal run in India has conformed to a slower pace at 2-3 deals per year. In terms of specific sector themes for investment in the current year, the firm is looking at consumer Internet services, ecommerce, software products and offshore services.

Canaan Partners India teamed up with Intel Capital this week to lead a $45 million Series A round of funding in Happiest Minds, the software services outsourcing startup founded this year by former MindTree chairman Ashok Soota. This is Canaan’s first and somewhat unusual investment in the conventional software services sector. As an early stage venture capital investor, the Menlo Park, California-headquartered firm has largely played in consumer Internet, mobile and niche outsourcing startups so far. Alok Mittal, managing director of Canaan Partners India, spoke to Startupcentral about why the deal makes sense for the firm. Edited excerpts:

A software services outsourcing company is an odd choice for you. How did the deal happen?

The idea of yet another information technology services company appealed to us. We started talking to them a few weeks before the company was set up. We spoke to Ashok (Soota) to understand what he was looking at doing. The founder and senior team is an excellent group and that obviously was a big attraction.

Was a co-investor always on the cards?

Yes, from the beginning. A $45 million cheque is a large cheque to write to a startup at the Series A round.

What do you find interesting about the business model?

The business model draw for us (Canaan) was the outsourcing play. We already have a couple of portfolio companies (iYogi and UnitedLex) in that area. As far as the software services sector is concerned, in the past, significant shifts in information technology spends have created space for new companies. There is a shift taking place now in terms of enterprises in the US and Europe adopting cloud and mobility-based solutions. We think Happiest Minds has the potential to grab a large slice of this market.

Will they work closely with some of your India and global portfolio companies which are in the same area?

Absolutely. In fact, the founders have been very diligent about walking through both our and Intel Capital’s portfolio companies. They’ve picked a dozen that they could partner with. Their core differentiation is going to lie in the solutions that they come up with. Canaan has a number of computers in the cloud computing area. For instance, we have one that is in the area of testing for the cloud. Happiest Minds will look to partner with such companies to create their own solutions.

Ashok Soota has set the company a $100 million revenue target in six years. Do you expect that target to be met given that there’s an economic slowdown looming?

It is always good to put out goal posts. But in an early stage company there is always the element of getting the formula right. The company already has customers. But we’ll take it one step at a time. That said, $100 million is an achievable target. Slowdown don’t really impact startups. Initially, for this company, it will not be about winning $10 million-plus outsourcing contracts, which is where the established players operate. At this stage they will be looking to win very small contracts.

Image Courtesy: Canaan Partners

Canaan Partners hosted a breakfast roundtable with over 30 angel investors on December 22 in Mumbai. The objective was to brainstorm on constructive ways in which the potentially large angel community in India can engage better with young entrepreneurs. Alok Mittal, general partner, Canaan Partners, sums up the roundtable. Also check out his thoughts on a potential investment structure for angels at Venturewoods here. Mittal has been at the head of an initiative to create an informal forum to encourage more angel investing in the country.

Making Angel Investing Work

By Alok Mittal

Canaan Partners hosted a roundtable discussion with over 30 angel investors. This note summarizes the key discussion items.

Individuals & Groups

The participants included members from angel groups (Indian Angel Network and Mumbai Angels, each of which have made 18 investments till date) as well as individual angel investors. Many participants also reported that they invest both individually and through these groups. Read the full story

Disclosed venture capital investments in 2009, by my count, stood at just under $150 million. The total number of deals announced was 59, out of which 28 did not disclose the investment amount.

This is as per numbers collated from deals reported by various media and announced in press releases. Not all these deals are verified and in many cases the announced/ committed money will flow into the respective companies in tranches over an extended period. The actual total investment, therefore, would be much lower.

There are other numbers floating around as well. Venture Intelligence puts investments till November at $332 million across 68 deals, against $839 million and 155 deals for the full year 2008.

Here are our key numbers from 2009: Read the full story

How much does an average Indian startup need to get started up? Mukul Singhal, associate at Canaan Partners, reckons anywhere between Rs 20 lakh and Rs 50 lakh. Small change for most venture capitalists, except that most venture capitalists don’t invest such small change. This is angel investor territory. And there is a big untapped base of angel investors in India, which needs to be organized, says Singhal, whose post at Venturewoods a few days ago asking for suggestions on the best way to achieve that, prompted me to write to him and find out what was going on. A whole lot, I found out this afternoon, after chatting with him.

Singhal is a man on a mission. He wants to set up a platform, under the Canaan umbrella, that will help entrepreneurs to get in touch with angels more effectively. The first step to that is to get a fix on the angel community itself. There are a few organized angel investor networks, such as Mumbai Angels, Indian Angel Network and so on, but clearly, not enough. Singhal thinks that the angel communty is much larger than the already known pool of serial entrepreneurs, big corporate honchos and other high networth individuals. “There are many people in the (corporate) operating environment, at the middle-senior levels who make decent money and wants to invest as angels. They need to be brought into the system,” he says. Most of these folks never get into the system because either they don’t know how to or don’t want to join an angel investor group. Read the full story