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Heavyweight investors launch new hybrid fund for fintech startups

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A new investment fund with big-name backers is on the hunt for entrepreneurs and startups that can shake up the financial services industry.

The investment group, called Portag3 Ventures, has Paul Desmarais III in its corner as executive chairman, and former CEO of Horizons ETF Management (Canada) Inc. Adam Felesky running daily operations. Capital comes from three firms controlled by the Desmarais family: Power Financial Corp., asset-manager IGM Financial Inc. and insurer Great-West Lifeco Inc.

The fund aims to set itself apart through a hybrid investment model that straddles typical venture-capital funding and a corporate-investment platform that would later absorb the businesses it invests in.

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Portag3's push to attract the country's best entrepreneurs in insurance, personal finance and wealth and asset management comes as more financial services firms delve into fintech investing, both internally and through acquiring and investing in startups. Banks and insurers in particular have been adding staff and innovation labs to prevent so-called disruptors from shaking up their operations.

Mr. Felesky believes he can do some of that shaking up as president of the Portag3, and plans to take an active role in developing portfolio companies. Investments may be as small as $250,000, with no upper limit on how much the firm would invest in a business. While the fund has recently closed, the corporate backers could also contribute more capital.

"Most corporate funds are looking for technology that will solve a problem for their needs," Mr. Felesky said. "We're looking for next-generation financial technology companies regardless if they've got an immediate application to our core business."

Portag3 has no defined investment period, allowing it to provide longer-term capital to its investments than traditional VCs, if needed. At the same time, the fund isn't fully embedded in Power's companies so it might take stakes in startups that directly compete with other Power businesses. Still, it's close enough to Great-West and IGM to potentially offer its startups access to customer networks and distribution channels.

This differentiation is important as more corporate funds enter the market. And Mr. Felesky has charted an increase in U.S. venture funds looking for opportunities north of the border.

"Yes, it's competition to us," Mr. Felesky said. "But I also think that it makes it more attractive for Canadian entrepreneurs to potentially stay here because they don't have to go down to the Valley to find those funds."

Portag3 plans to focus on businesses that are consumer facing, rather than on back-office technology. And ideally, the businesses will grow to have international reach. "We want them to potentially become portable businesses globally," Mr. Felesky said.

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The fund is not yet large enough to qualify as material for any of its backers, but tens of millions of dollars have already been invested. Portag3 will wrap in Power's previous investments in the financial services industry, including health-insurance startup League Inc., robo-adviser Wealthsimple and online lender Borrowell Inc.

Mr. Felesky had been making his own investments in startups after leaving Horizons in January of 2015, and got to know Mr. Desmarais better through the process. Both took stakes in companies such as Koho Financial Inc., which is developing a mobile app that would let consumers pay for purchases and automate bill payments and savings.

While Portag3 sees some of its mission as building stronger Canadian companies, it may also invest in other jurisdictions. Already, the fund has made an investment in a U.S. fintech fund to keep an eye on trends and potentially access deals. It also made an investment in a French health-insurance tech company called Alan.

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About the Author
Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More

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