Canaan Partners, the venture capital firm that focuses on the US, India and Israel, has closed its ninth fund at $600 million. The new fund has been backed by both new and existing LPs and it takes the firm’s total assets under management to $3.5 billion.
About two-thirds of the fund corpus will be put toward digital media, consumer internet, mobile and communications companies, with the rest earmarked for biopharma, medical device and healthcare infrastructure investments.
“We’ve had the privilege of working with outstanding entrepreneurs – often over a long haul because it takes time to build a valuable company, and it’s rarely a straight line to get there,” John Balen, general partner at Canaan Partners.
Canaan’s current Indian portfolio companies include BharatMatrimony, which claims to be the world’s largest consumer internet site for matrimonial services, business support services provider iYogi, shopping portal Naaptol and legal process outsourcing firm UnitedLex. Recently Canaan Partners has led $45M investment along with Intel Capital at Happiest Minds, an IT services firm founded by former Mindtree Chairman Ashok Soota. Canaan funded web company – Chakpak was acquired by Flipkart.
Off late i have come across couple of instances where VCs have not invested after signing the term sheets and really put startup and entrepreneur in back foot by their ‘No Shop‘ clause in the term sheet. Signing a term sheet with a no shop agreement is likely to send you back a month or more if the VC doesn’t end up funding the company. I can see the insistence of no shop language in larger M&A deals but see no place for them in early stage rounds.
So what is a No Shop Clause?
In simple words ‘No shop’ clause, prohibits the entrepreneur from speaking to other investors while the VC completes his due diligence.
No Shop/Confidentiality provision is one of the two provisions in the term sheet that is usually “binding” on the company and the investors – meaning it is enforceable even if the rest of the contemplated financing is never completed.
The implications of the No Shop provision are very straightforward. The “No Shop” portion requires the company to refrain from actively pursuing any other investment or any sale of the company for a set period of time after the term sheet is signed. Most of the time the only point of negotiation is the length of the No Shop period. This ranges from 30 to 90 days, but is typically 45 or 60 days. Once the term sheet is signed, both sides are usually anxious to get the transaction closed as quickly as possible.
This is an important issue because if your VC walks away after you sign the term sheet (which happens from time to time), your company may be considered damaged goods and it will be difficult for you to find another investor. Accordingly, if you get any indication that your VC is getting cold feet, you want to be able to move quickly to re-kindle discussions with other investors, if possible.
If you believe in your startup and aiming at large market and have a lot of leverage (such as many VCs interested in your company), you may be able to knock this provision out entirely. Remember: every clause in a termsheet is negotiable.