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
