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Madalin Mihailescu, CTO of Georgian Partners, left, and Jason Brenier, vice president strategy pose in their Toronto office.Chris Donovan/The Globe and Mail

Georgian Partners became Canada’s biggest venture capital firm by investing in companies selling digital automation and artificial-intelligence-driven products. Now it’s trying to become one of those companies itself.

The Toronto financier, which invests in many financial technology companies, or “fintech” enterprises, has dropped the word ‘Partners’ from its brand name and now publicly refers to itself as a fintech and a software company. It’s an unusual move in the private capital world and reflects the fact that Georgian, unlike its peers, builds its own AI and machine learning-driven software, which it gives to companies it backs – and future prospects – to help build their businesses.

Georgian-backed companies have used its software to speed up the review of documents, to predict the best sales leads, to pull insights from consumer data held by their clients without accessing any personal information and to identify acquisition targets. Georgian has also built a social network, or “community platform” used by portfolio company employees.

“Georgian is always trying to innovate and push its own business model,” said Jason Brenier, who heads product and innovation. “The strategy now is to build a technology platform to support all the experts we have at Georgian to continue being on the frontlines of engaging directly with their companies. … By taking this strategy we think we can have a deeper impact on more companies, and for a longer period of time.”

The strategy has helped Georgian win competitive financing mandates against U.S. funding giants.

Tealium Inc. CEO Jeff Lunsford picked Georgian to lead investments in the San Diego-based customer data management company and Alpharetta, Ga.-based cybersecurity provider DefenceStorm, Inc., which he chairs.

“We liked that part of their pitch was that they were going to invest not just in financial professionals but in technological and operational expertise to help portfolio companies,” Mr. Lunsford said.

Tealium has also used Georgian’s resources to assess M&A opportunities and refine its product strategy.

Now, Georgian, which has raised five growth equity funds since its founding by entrepreneurs Justin LaFayette and Simon Chong and financier John Berton in 2008, is embarking on a new investing strategy: doubling down on the winners in its portfolios with a different investment vehicle.

It recently closed its first “alignment fund,” a US$1.02-billion special purpose vehicle with a mandate to invest in four portfolio companies: Tealium, Toronto-based digital textbook publisher Tophatmonocle Corp. (Top Hat), New York workflow automation provider WorkFusion Inc. and stock exchange IEX Group Inc., led by Canadian Brad Katsuyama.

“We noticed many of our companies [selling] to larger funds” and continuing to grow in value, said Emily Walsh, a lead investor at Georgian and member of its steering committee. “We saw an opportunity with companies where we have strong alignment” to stay invested.

Mr. Lafayette added, “There’s no new company we’ve looked at that is as de-risked as a company we’ve lived with for five years. …Why let those great ones go? That was the genesis [of the idea]: Let’s stop selling the best.”

It’s part of a trend for private capital firms to keep backing their winners beyond the mandate of their core funds. Vancouver seed investor Version One Ventures and Montreal’s Diagram Ventures have also recently created similar funds.

Georgian identified its four target companies based on which would be looking to raise money in the first quarter of 2021, agreeing to provide fresh funding and buy out early shareholders. Many existing Georgian funders quickly signed on.

“What we really liked about this opportunity is Georgian had picked the companies they had the highest conviction in,” said Matthew Sparks, managing director with Northleaf Capital, a long-time Georgian backer. “To be in a transaction managed by a partner we trust and know well with assets we know are very strong checks a lot of boxes for us.”

Georgian plans to keep launching alignment funds, starting with another this year. “It’s a permanent strategy to continually invest in our best companies longer,” Mr. LaFayette said.

Georgian is also expected to launch its sixth, core growth fund in 2021, which will be larger than its last, US$850-million fund, raised last year.

As for becoming a fintech, Mr. LaFayette says Georgian’s strategy is to “measure and hold ourselves accountable for how much value [we have] created” for portfolio companies.

“That will force us to only do things that are adding value. ...We resist doing anything that’s 100 per cent manual and deliberately look for a digital and more efficient way to use data and information to drive that outcome.”

Georgian “is the great Canadian venture capital story and one of the few [domestic] players to reach scale and precedence that rivals some of the greatest investors in Silicon Valley,” said Toronto entrepreneur Michael Hyatt, a Georgian adviser.

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