Adam Felesky is photographed at the Koho Financial office, in Toronto, on Wednesday, Jan. 8, 2020.Christopher Katsarov/The Globe and Mail
Power Corp.’s POW-T venture capital arm Portage Ventures has closed a sixth round in one of the world’s largest VC funds focused on early-stage fintech companies, raising US$616-million from both institutional and retail investors.
Portage Ventures III LP, which is expected to complete its final close in April, is Portage’s third venture capital fund and boosts the company’s assets under management to more than $3.3-billion, as of Dec. 31.
Together, the three funds have invested in 62 financial technology companies from 13 countries. Also known as fintech, these are typically early startup companies that use modern technology to improve or digitize financial services for clients.
Portage co-founder and chief executive officer Adam Felesky said he didn’t have a specific growth target for the company in mind when he launched the first Portage fund in 2016, but “the secular tailwinds in the fintech industry have definitely surpassed” even his “most aggressive ambitions.”
“The last five years have been pretty remarkable in terms of the amount of capital going into fintech – and continues to go to fintech – and the secular trends are still really present,” Mr. Felesky said in an interview.
Part of the speed at which corporations began to flood dollars toward fintech owes to COVID-19, which pushed many financial services companies to accelerate their plans for modern technology as clients who were stuck at home looked for remote services.
“The phenomenon of what we have seen in fintech is the compression of what people thought was the future in the next five to 10 years – all of a sudden happened in 12 to 24 months,” he said. “As a result, companies matured more quickly, their revenue growth accelerated beyond expectations and they were able to raise more capital, which is a flywheel to further growth and maturity.”
Portage, which is managed by Power’s alternative-asset management arm, Sagard Holdings, is widely known for making early bets on companies that were seen as “disruptors” to Canada’s largest financial institutions.
Its Canadian lineup includes online investment manager Wealthsimple, mobile savings provider Koho Financial Inc., and online lender Borrowell Inc. But some of its largest portfolio investments by market value are outside Canada, such as the German-based insurance robo-adviser Clark and two U.S.-based fintech companies, Albert Corp. and Alpaca.
During the pandemic, Mr. Felesky, who co-founded the company with chairman Paul Desmarais III, realized they needed a bigger fund.
Portage Ventures III is twice the size of the company’s second fund, which closed in December, 2019, but Mr. Felesky said the new fund won’t have two times as many investments. Rather, he expects to only increase the number of investments by about 20 per cent, allowing for bigger individual amounts to be invested.
“Really the difference is going into the reserve that you deploy into your best companies and that’s the secret to venture investing.”
The fund’s most recent round has also expanded the number of backers, which now includes HarbourVest Partners, Kensington Capital Partners and Meridian Credit Union.
The first two funds delivered annualized returns of 57.5 per cent and 54.9 per cent, as of Dec. 31, according to a release by Portage.
Despite public technology stocks experiencing a rocky start in the first three months of 2022, Mr. Felesky said private markets, particularly with earlier-stage and venture companies, are not seeing as much pressure and in some cases are trading at a premium to public markets.
“Some private companies in Asia have started to come under pressure a bit, and we are watching that carefully … but our hypothesis is the type of valuations and activity we have been seeing will continue to be supported for quite a long time,” he added.
Over the past six years, Portage has steadily been investing in Canada, the U.S. and Europe. While the funds do not allocate percentages to each region, Mr. Felesky said the pipeline is “pretty well-balanced.”
The latest fund has already deployed about $110-million, with over half invested in U.S.-based companies, with the rest of the capital backing fintech businesses in Europe, Australia, Canada and Israel.
For strategic growth, Mr. Felesky said, he will be looking at investment opportunities in emerging markets – specifically Africa and Latin America. The new fund will have a “small allocation” to make investments into those areas, and already includes Mexican mobile bank provider Fondeadora.
The majority of Portage’s capital – 98 per cent – is typically allocated toward investments where it is the lead investor, with the remaining 2 per cent used for non-lead early-stage investments. Its focus is in the banking, wealth management and insurance sectors. The company continues to fund various stages of companies, from early-stage investments known as seed funds through to more successful companies doing Series C rounds of fundraising.
While cryptocurrencies are not on the list of investments, Mr. Felesky wants to add into the fund’s portfolio, he said. Blockchain, the technology behind crypto assets, is an area of fintech that could see “a lot of capital” being invested in the near future.
“Blockchain is a revolutionary technology, and it is the foundation of cryptocurrencies but it’s the foundation of so many different solutions that are starting to come to the market,” he added.
“We do not invest in cryptocurrencies, we do not invest in tokens, but we are very much interested in the infrastructure layer that potentially bridges the two worlds of digital assets and incumbent financial services. We think that’s a huge emerging area.”
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Clare O’Hara