This VC Firm Just Gave 2 20-Something Investors $20M To Find The Next Snapchat
In the hunt for high-risk, high-reward consumer tech hits, one of Silicon Valley’s oldest venture capital firms is taking its own gamble by giving the reins to its two youngest investors.
Canaan Partners unveiled a program on Wednesday called Canaan Beta, a semiautonomous fund (the firm calls it a “seed program”) that will allocate $20 million to seed-stage investments in consumer tech. Canaan tapped two of its young investors, Adina Tecklu and Hootan Rashidifard, to lead the experiment, which draws from Canaan’s current $800 million fund.
Canaan Beta will invest $250,000 checks, and in some cases up to $500,000, in startups in areas such as social media and gaming. In an interview, Tecklu and Rashidifard said they hoped their backgrounds—Rashidifard is Iranian-American and from Oklahoma; Tecklu is an African-American woman from Houston—would give them a better understanding of consumer trends that will drive the next Snapchat or Stitch Fix. “Generation Z is the most diverse population in American history,” says Rashidifard. “That perspective will allow us to understand which companies will be more successful.”
At age 27 and 28, respectively, both Tecklu and Rashidifard are younger than Canaan itself, which has operated for 31 years. Neither has startup credentials that would make them obvious choices to lead a consumer investment shop. Rashidifard worked in investment banking before spending three years in a consumer-facing product group at LinkedIn until its acquisition by Microsoft. Tecklu started her career at Oracle before spending two years at Zenefits, the once high-flying insurance brokerage unicorn that turned over its management, laid off employees and shifted focus to HR software last fall. The duo say their time at those companies and work sourcing consumer deals at Canaan, where Tecklu has worked nearly two years and Rashidifard about a year and a half, gave them the track record to successfully pitch Canaan’s partnership on the Beta model.
The name, says Tecklu, reflects the “higher beta,” or risk, that comes with investing in consumer companies. “You need to have more shots on goal,” she says, while backing startups before their traction makes them obvious enough to outsiders that their valuations soar. Canaan Beta has already invested in seven startups, including Tari and several stealth companies, among which are an interactive voice gaming company and a media company for crypto content. The investors point to Tari as indicative of the types of companies they want to back: A ticket-selling service built on the blockchain by one of Ticketfly’s cofounders and the lead maintainer of cryptocurrency Monero, Tari has already raised funds from a mix of VCs and crypto experts.
Canaan Beta isn’t Canaan’s first foray into seed investing, nor is it the first experimental fund to come out of larger VC firms. Such programs have often struggled in the past. Because of relatively small check sizes, investment wins from such vehicles have often failed to move the needle enough for their firms, which as a class are raising larger, sometimes multibillion-dollar funds. And because of firms’ opportunities to double down on emerging winners in later rounds, such vehicles have created “signaling risk” that can create negative perception for seed portfolio companies that a firm declines to continue to aggressively support.
Canaan Beta’s young leaders believe that their model is set up to avoid such concerns. “With a $20 million program and $250,000 checks, that’s about 80 investments,” says Rashidifard. “Canaan can’t lead 80 Series As, so right off the bat we wouldn’t do that.” Canaan Beta’s duo are hopeful, meanwhile, that they will prove active and helpful enough investors that they’ll be welcomed into deals by other firms. They point to Canaan’s consumer portfolio, which includes Instacart, Lending Club, Turo and The RealReal, as evidence that the firm will have expertise to share with new entrepreneurs.
Given Canaan Beta’s check sizes, it’s hard to see how the program could meaningfully impact Canaan’s overall economics without serving as a feeder for Series A deals down the line. A 100x return on a $250,000 check would net $25 million—an impressive sum that would return the Beta unofficial fund size. To return the entire Canaan fund, Beta would need 32 of those.
But if Canaan does find breakout consumer companies through Beta and pours more money into follow-up rounds, the economic upside starts to make more sense. And even if Canaan doesn’t find a fund returner like a Snapchat in the Beta portfolio, the program could still be considered a success if it helps entrepreneurs who might not get capital otherwise, even in a frothy market for VC dollars.
“We think there have been certain types of founders who haven’t been really understood by the traditional investor,” says Tecklu. If Canaan’s nontraditional response in Beta is a success, expect to see other firms following its example.