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Georgian Partners is in the late stages of raising a US$1-billion-plus fund to back four of its portfolio companies, part of a new strategy for one of Canada’s pre-eminent technology investment firms.

The Toronto private capital financier, which typically provides “growth equity” capital to software companies in Canada and the United States that have scaled up beyond the startup stage, plans to use the funds from what it is calling Georgian Alignment Fund I, to double down on four companies it has previously funded for their next stage of growth, three sources familiar with the information told The Globe and Mail.

The existence of the new special-purpose fund has been reported by BetaKit and the Wall Street Journal, but few other details have been revealed. Georgian has declined requests for comments.

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But the sources shared several details on the fund and strategy, including the names of the companies Georgian is backing. The Globe is not disclosing the identities of the sources because they are not authorized to speak publicly on the matter.

Two of the four companies have announced financings from Georgian that the sources say was set aside for them in the Alignment fund: Toronto digital textbook publisher Tophatmonocle Corp. (Top Hat), raised US$130-million from Georgian in a deal announced last month to help accelerate its merger and acquisition plans. Tealium Inc. a San Diego-based customer data management firm, also announced a US$96-million financing led by Georgian and growth equity firm Silver Lake Waterman in February.

The other two companies that will receive Alignment fund backing are New York-based workflow automation company WorkFusion Inc. which Georgian first backed in 2017, and IEX Group Inc., the stock exchange led by Canadian Brad Katsuyama, the central figure in Michael Lewis’s book Flash Boys about high-frequency trading, which Georgian financed in 2019, the sources said.

Normally, fast-growing technology companies of their scale looking for their next financial infusion – US$100-million plus – would pursue funding from giant private equity or later-stage growth equity firms such as Chicago-based Thoma Bravo LP or Vista Equity Partners of Austin, Texas. In Canada, only Quebec-based private equity firm Novacap plays in that realm.

As private equity firms have expanded globally and Georgian saw more of its portfolio companies sell to other funds, the sources say it saw an opportunity to start its own special-purpose fund to compete for those larger deals so it could continue backing some of the stars in its portfolio beyond where it would normally invest.

The rationale is that such deals carry lower risks for both parties: Georgian already knows the companies and their strategies; and the companies already know and trust Georgian as an investor and board member. Rather than begin a lengthy funding process that could bring unknowns, including how well the company will get along with its new backers, the alignment funds allows Georgian and select companies to extend their good relationships.

Georgian plans to launch further Alignment funds to double down on other winners from its regular flagship growth equity funds. It is expected to launch a second alignment fund within months. Several other North American private capital firms have launched similar extension funds in recent years.

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Georgian is also expected to start raising its sixth growth equity fund later this year, which will be larger than its US$850-million fifth fund that closed last year.

The firm, founded in 2008 by former technology entrepreneurs Justin LaFayette and Simon Chong and financier John Berton, specializes in funding later-stage technology companies that apply artificial intelligence (AI) to solve business problems, as well as those that build technology for corporations to interact with customers through text and digital voice as well as digital security-focused companies.

Georgian has set itself apart by creating software tools to help its companies with a range of technical issues including improving the ability of AI companies to anonymize customer data and explain how their algorithms made decisions. Georgian also employs a team of seasoned corporate executives to advise its portfolio companies on business development strategies. More recently Georgian has started describing itself publicly as a “fintech” – a financial technology firm, like some of the companies it backs.

Georgian closed its first $70-million fund in 2010. It was able to get in on competitive deals led by U.S. funds early on, and invested in Shopify Inc. four years before the Ottawa online commerce software company went public. Georgian raised $200-million for its second fund in 2013, US$375-million for its third in 2016, and US$550-million for its fourth fund in 2018.

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