After 18 years of operating as a US-based firm, Canaan Partners reached a milestone at the end of last year when it expanded abroad, opening up an investment office in Hertzliya Pituach, Israel. Just last month, the firm announced an office in Gurgaon, India.
For most of its history, Canaan's physical presence was mainly limited to Menlo Park, California in the heart of Silicon Valley, and on the East Coast in Westport, Connecticut. The bi-coastal nature of the firm was inherited when Canaan came into existence through a management buyout organized by four executives of GE Venture Capital Corporation – formerly a VC subsidiary of General Electric – who had all worked together since 1983. Although – as is the case with numerous US venture firms – Canaan's portfolio companies had exposure to markets abroad, all of the firm's own investment professionals were based at one of Canaan's two offices in the US.
?We've had investments in companies that have been international in nature, that started offshore and maybe expanded to North America, or were intended to be co-located from the very outset,? says Eric Young, a co-founder and general partner of Canaan, based in the firm's Menlo Park office. ?This is true in both Israel and India. We've been going to those places for years.?
According to Young, the firm had long contemplated the pros and cons of establishing locations in Israel and India, and of building a broader range of investments in those markets.
?Last year in the process of looking at Israel and India, we saw two very different markets, and we saw an approach we thought we could take in terms of opening an office in each country and organizing our efforts around a lead partner – at least initially,? says Young. He notes that the firm is now contemplating going through a similar process in other parts of the world as well, such as China.
From Israel to India
The person Canaan chose to head its Israel initiative was Izhar Shay, who joined Canaan late last year as a venture partner. Born and raised in Israel, Shay earned a bachelor of science in Electronics Engineering from Technion Institute in Haifa, Israel. With 20-plus years of operating experience under his belt, Shay has helped build companies in the enterprise software and services, technology and network security and Internet technology and healthcare technology space. Immediately prior to his joining Canaan, Shay had guided VSecure Technologies – a New Jersey-based network security solutions provider where he was chairman and chief executive – to an acquisition by Nasdaq-listed integrated application delivery solutions provider Radware Ltd last November. Before his time at VSecure, Shay had been CEO of Canaanbacked Israeli start-up Business Layers, which was acquired by Netegrity in December 2003.
Shay and Canaan first broached the idea of Shay helping Canaan to set up shop in Israel about a year ago, Young says. ?[Shay] contacted us and said he was interested in moving back to Israel, and that he had an interest in working with us,? Young recalls. ?We had investments based out of there for some time, and we had been thinking about the notion of internationalization. This was the great precipitating event – the first step.?
In India, Canaan is aiming to replicate its US Internet-related success stories like DoubleClick, CommerceOne, Match.com and Blue Frog Mobile. To this end, the firm has found that establishing the local presence is essential.
While organizing an office in Israel was a matter of following a path well trodden by other VCs, setting up shop in India was a different story, says Young. Whereas Canaan faces a fairly crowded market in Israel, ?In India, the number of US-based venture firms that have established on-the-ground presence is pretty small at this point,? says Young. ?To date, it has been done more so by India-based entities, and the nature of investing that they have been doing has predominantly been in the lower technology and infrastructure-type sectors, and not so much the emerging, high growth-driven opportunities.?
Leading the firm's efforts to explore the frontier in India was Canaan general partner Deepak Kamra, who joined the firm in 1991 and continues to be based in Menlo Park. Indian by descent, Kamra has travelled often to the country and kept the firm up to date on developments in India's market, says Young.
?We have figured out over the years and worked at the notion of how to communicate effectively amongst a relatively small firm.?
Canaan's new office in India is based in Gurgaon, located less than 20 miles from the Indian capital of New Delhi and considered one of the most rapidly developing cities in the northern part of the country. When announcing the opening of its Gurgaon office, Canaan indicated that its India office might eventually grow to match the size of Canaan's office in Menlo Park, which currently houses nine investment professionals.
In India, having a local presence will allow Canaan to shift its later-stage investment activities in the region toward the early- and mid-stage end of the spectrum. To date, Canaan has invested in only two Indian companies – €€4e and Aztec Software. However, the VC firm's partners see vast potential for the tech space in India.
?Our early-stage Indian strategy requires actively working on behalf of our startups,? Deepak Kamra said in the press release announcing the new Gurgaon office. ?So having a local presence in India is a must.?
Heading up the Gurgaon office is new hire Alok Mittal, who will serve as executive director of Canaan India. Mittal joined Canaan after a one-year stint at Baring Private Equity Partners India, where he was a partner and headed up the firm's tech and BPO services investments. Prior to BPEP India, Mittal colaunched India's largest job posting site Jobsahead.com, which was sold to Monster.com in 2004. Mittal is also one of the founders of Band of Angels India, which backs emerging entrepreneurs in India.
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