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Canaan Partners on Wednesday announced that the venture capital firm has closed its eighth investment fund, raising $650 million. Canaan, which General Electric Co. spun out in 1987, has $3 billion under management. The firm is known for Internet sector investments such as DoubleClick Inc., an online advertising firm acquired last year by Google Inc. for $3.1 billion, and Match.com, now a unit of IAC/InterActiveCorp, as well as life sciences companies including Cerexa Inc., Dexcom Inc. and CombinatoRx Inc. Canaan Partners VIII is significantly larger than its predecessor, which closed with $450 million in 2005. That vehicle was originally targeted at $350 million, but topped out at $450 million among strong demand from LPs. The new fund continues the firm's strategy of focusing on early-stage information technology and life sciences companies. Canaan focuses on digital media companies; communications and mobility startups; cleantech; and providers of open-source and on-demand enterprise software. In life sciences the firm targets investments in biopharmaceuticals, medical devices and diagnostics companies. John Balen, a general partner in Canaan's Menlo Park office, said the firm will allocate roughly 60% of the capital in the new fund to IT investments and 40% to life sciences players. "We appreciate how important it is to diversify in the tech business in whatever sector it is," Balen said. "Even in the heyday of the boom, when IT and Internet companies were at all-time highs, we thought we have to have some balance. "It's not just investing for today, but for the long term, and it's hard to predict how markets will react to different sectors," he added. While Canaan's portfolio includes growth and later-stage companies, the firm concentrates on early-stage and seed deals of $250,000 to $1 million, which account for 60% to 70% of its investments. "The reason we raised the fund size that we did is so we have the ability to place money with seed and early-stage investment, but also have the opportunity to follow-on with our companies as they become successful and play competitively in the late-stage space," Balen said. Canaan has not yet started investing funds from the new vehicle, which is expected to be deployed over the next three to four years. The firm leads most of the rounds it participates in, typically taking a double-digit ownership stake in its portfolio companies. "We like to control our destiny and get really strong ownership positions in our companies, and to do that you need to lead the deal," Balen said. Also driving Canaan's move to raise a sizable was the fund's expansion overseas. Based in Menlo Park, Calif., and Westport, Conn., Canaan also has offices in Gurgaon, India, and Herzliya Pituach, Israel. Balen said a maximum of 25% of the new fund can be directed toward international deals. Existing investors made up the majority of limited partners in Fund VIII, with Performance Equity Management LLC, Pantheon Ventures Inc. and Abbott Capital Management LLC participating. Some new investors are participated. LPs in Canaan's prior funds include Bank of Boston, First Union, General Motors Corp.'s pension funds, HarbourVest Partners LLC and Robert Wood Johnson Foundation. The current vehicle is close in size to the firm's sixth fund, which closed at $700 million in 2001 just as valuations in the technology sector were falling. During the period that Canaan was fundraising for its sixth vehicle there was a 50% drop in Nasdaq market valuations, which made getting commitments more difficult. However, that fund did produce some winners for Canaan, such as Acme Packet Inc., which went public in 2006.  Deal Video
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