Is Venture Capital Finally in the Deep Freeze?

This is a question that I am being asked often these days. My answer is that Venture financings are clearly down. In the first three months this year, VCs invested just $49.2 million (around Rs.243 crore) in Indian companies (Thomson Reuters data). Compared to the $116 million in the first three months of 2008, this is a decline of 58%. What is causing this slowdown - the bar is definitely higher, some funds have run out of money as they struggle to get a green light from cash-strapped limited partners - the wealthy individuals, corporations and institutional investors whose money the venture firms typically invest. With capital markets stuck in a deep freeze, VCs are also looking at earmarking more dollars as follow-on investments for companies already in their portfolios.

Companies that have received their rounds of funding are still going strong and have made the adjustments required to sail through the current environment. This applies both to potential business impact (in cases where there is slowdown in customers’ purchasing behavior), and to planning for follow-on rounds of investment. Companies are raising only what they need to tide them over in a downturn, rather than for the long term. Unless there are more major shocks in the future, things should be under control here.

Deal flow continues to be strong. The sentiment that downturn might be the best time to start a business continues to flourish. We are still witnessing new companies being started as they were before the recession hit the global business world. What might be interesting to note is that we are seeing a greater push amongst the senior talent to quit and start a company now. What might affect this from a sustainability aspect is the level of financing that is available. If that remains low, it will have an impact on new business being started; especially those that seek venture financing.

My advice to people starting up - “Chaos creates Opportunities”. This is a fantastic time to design our future. Remember some of the well known entrepreneurial legends are made in times like these. General Motors built its first assembly line after the panic of 1907. Under Henry Luce, Fortune magazine debuted in 1930, just as the Great Depression was terrifying the US. Other well-known brands - Hyatt Hotels, Revlon and United Technologies also launched during economic downturns. It may be harder to scare up cash now, but it is a boom time for finding human capital, cheaper rents and downsized, unsteady competitors.

Alok Mittal, General Partner

Portfolio News

BiPar Sciences Inc, a Brisbane-based start-up that develops tumor-selective drugs to treat different types of cancer, recently announced that the company will be taken over by pharmaceutical giant Sanofi-Aventis for up to $500 million. BiPar has an in invested capital of $53 million till date. The deal would therefore generate close to a tenfold return for investors. Canaan Partners is one of the investors in the company and has invested a total of $10.5 million through different rounds. Sanofi-Aventis, among other large pharmaceutical companies with oncology programs, pursued BiPar for its drug, BSI-201, aimed at triple negative breast cancer, ovarian cancer and other malignancies.

BharatMatrimony.com, a leading matrimony portal instituted Matrimony Day on April 14, 2009 to promote the concept of matrimony by spreading awareness about the benefits of it. The aim was to encourage young people to give more thought to the concept and how it serves as the bedrock of society’s cultural fabric. BharatMatrimony also launched a website www.matrimonyday.org to drive the essence of matrimony. The company also organized free exclusive matrimony meet for physically challenged in Delhi and Mumbai as part of the Matrimony celebrations. BIG 92.7 FM also joined hands with BharatMatrimony to celebrate April 14th, 2009 as ‘Matrimony Day’ on-air.  All the shows of BIG 92.7 FM aired content based on matrimony on this day.

Marinus Pharmaceuticals, which is developing drugs to treat neurological and psychiatric disorders, recently secured $20 million in a fresh round of financing. The company had previously raised a $29.5M Series A in 2005. Marinus’ round was led by Canaan Partners along with other investors. Marinus will use the funding to advance development of ganaxolone, an adjunctive agent for the treatment of refractory partial seizures and to explore proof of concept studies in psychiatric indications. The company recently announced positive Phase IIa data for the drug as an adjunctive therapy in adults with partial onset seizures.

Associated Content, the online publishing service, recently raised $6 million from its existing investors including which also includes Canaan Partners. With this latest investment, the company has now raised a total of $21 million since it was started in 2006. The investment would help Associated Content to fund consumer, platform, publisher and advertiser growth. Associated Content pays contributors who produce photos, text or videos on any subject and then makes money by selling ads around it. The company boasts 1 million pieces of content and 250,000 contributors.

Events

Catch team Canaan at Siliconindia Start-up City to be held in Bangalore on June 6, 2009. Startup City will provide a platform to entrepreneurs and VCs to meet, review ideas and learn about the process of venture funding. Discussions will revolve around investment trends, strategies for investing in early stage ventures, strategies on how to find and access capital, what VCs look for in early stage companies, the kinds of companies they find most attractive, and the do’s and don’ts in structuring deals. The event promises the attendance from more than 100 most promising private ventures from across India.