Healthcare Deal Flow at Canaan

Last week our global team gathered in San Francisco for our annual meeting with our Limited Partners.  We were fortunate to have some great accomplishments to highlight, including the $750M acquisition of Advanced Biohealing and our IT colleagues’ recently announced acquisition of Sandforce for $400M.  We ran footage of our bell ringing ceremony at the NASDAQ and had the privilege of hearing Sal Kahn discuss his vision for education over dinner at the Westin St. Francis.

One of the sessions that I helped put some material together for was a chance to pull back the curtain and shine the light on some of the “numbers” regarding deal flow.  This provided the backdrop for a longer conversation with Brent, Steve, and Tim (moderated by Wende) regarding the strategies that we use in building successful companies.  We consider ourselves lucky to be in business at a time when so many other venture firms are struggling to raise funds or are being forced to slowly wind down their operations.  As a result, there are more healthcare companies than ever that are competing for a limited pool of capital.

In an average week, we are following over 50 healthcare deals across biopharmaceuticals, medical devices, diagnostics, and IT/services.  We estimate that of the NVCA/MoneyTree healthcare deals completed through the third quarter of 2011 that we’ve had access to nearly two-thirds of them.

I did some surveying of calendars and other e-mail records and determined that in a recent four-week period we received 46 new deals in our California office, and 58 in our Connecticut office.  Our west coast team hosted 4 introductory calls (meaning we set up a conference call with a management team to let them pitch us over the phone), attended 3 conferences, participated in 14 networking events (lunches, and other invited events we hosted or attended as guests), and listened to 11 presentations in our office.  Our east coast team clocked in with similar metrics: 12 introductory calls (slightly higher due to the strong scientific and technical talent that do more early screens), 1 conference, 8 networking events, and 12 office presentations.

To extrapolate from these numbers, we estimate that we see 1,000+ deals a year.  By, “see” I mean have access to, via an unsolicited e-mail, a conference we attend, a personal intro or connection, or a referral from someone in the ecosystem (like a VC, banker, lawyer, accountant, consultant, PR firm, etc.).  Of the five deals we’ve completed so far in 2011, three were personal connections, one was from a conference at Stanford, and one was a referral from another VC firm that we’ve co-invested with.  I suppose it sounds bad to say “personal connection” so I ought to clarify.  One team was a group of repeat execs that we’ve invested in (and made money with) on three previous occasions.  The other was through a former connection of one of our healthcare team members in Connecticut and the other was an introduction from one of our IT partners on the east coast.

As for what all of this means?  The bar is obviously very high.  If you’re an entrepreneur, your odds of having your cold call or e-mail make it through our screening and diligence process are slim.  The statistics would suggest that your odds improve if we connect at a conference (we’re very active on the conference circuit) but it’s probably best to find someone who can introduce you to any of us (even if it’s someone on our tech team; the deals eventually make it to the right place!).