Diagram Ventures has announced the close of its second fund, raising $55 million CAD as the firm also brings on Smooch.io co-founder Hamnett Hill as a Partner.
“We’re now more in the scaling phase, trying to make it a replicable recipe of what we’ve done.”
The fund marks Diagram’s second since it launched in January 2017 with $25 million from Portag3 and more than 50 angel investors. Diagram received an additional $5 million in December of that year and has since invested in (and helped build) five companies to date, including Montreal-based Dialogue, and Breathe Life, an insurtech startup.
Fund II saw participation from 75 angel investors and family offices. Diagram told BetaKit that it was doubling-down on its focus on individual investors versus capital from institutional funds. Francois Lafortune, founder and CEO of Diagram, said that despite the demand from corporate and institutional investors interested in Diagram, the firm wanted to stick with its original model.
“We felt what would bring the most value for our founders was to give them access to a broad network of individuals that committed their own dollars [and] that are global,” Lafortune said. “We think it’s [a] really big part of the value proposition that we bring to founders when we invest. We come in with this big network and our founders can tap into this expertise in different stages as they need.”
BetaKit has since confirmed, however, that Power Financial backed Portag3 Ventures led the Fund II round for Diagram, contributing the highest monetary commitment. Diagram, which calls Portag3 its “anchor investor” stated that the early-stage FinTech VC led Diagram to exceed its initial fundraising target of $50 million in just six months. Portag3 also led Diagram’s Fund I round.
“Diagram is a key component in our broader strategy to invest in the next generation of global financial services platforms,” said Paul Desmarais III, chairman of Diagram and senior VP of Power Corporation and Power Financial. “My personal commitment to Diagram is unwavering because I have full confidence in the team and that the model works.”
Lafortune noted that while the majority of Fund I LPs re-invested and increased their investments in Fund II, Diagram also added a number of global LPs. New investors in the second fund include former United States Ambassador to Canada and former Partner at Goldman Sachs, Bruce Heyman, Andrew Chisholm, former head of the Financial Institutions Group at Goldman Sachs, as well as Charles Goldman, the president and CEO of AssetMark.
Fund II is all about Diagram looking to scale the model developed in Fund I, Lafortune told BetaKit. Diagram typically invests between $3-5 million in each of its portfolio companies, a model that Lafortune described as “making fewer bets but betting bigger.” The firm makes an initial investment up front and follow-up investments as its companies meet agreed upon milestones. The quasi-accelerator VC’s strategy is one of either developing an idea internally with its innovation team and finding strong founders to bring on, or bringing in founders with ideas and then developing those from the ground up.
Along with Fund II, the Montreal-based firm is looking to make a few more investments with its remaining capital in Fund I. Lafortune hinted at an announcement coming later this year around a sixth portfolio company, noting that Fund I will likely invest in a total of seven companies overall. He stated that moving forward, Diagram will look to launch four companies per year instead of the two per year it had previously focused on.
“We’re now more in the scaling phase, which is trying to make it a replicable recipe of what we’ve done, formalizing the way that we do things, and adding bigger impact,” Lafortune stated. “We’re not changing our recipe, we’re doing exactly the same company co-creation recipe that we did in our first fund, but we want to do it with more scale and more companies.”
Along with announcing its second fund, Diagram also noted that it is bringing on Hill as a Partner. Hill will work alongside Managing Partner Dan Robichaud, who joined the team in 2017 alongside PasswordBox co-founder Marc-Antoine Ross. Hill is a serial entrepreneur, having founded Smooch.io, which was recently acquired by Zendesk. He is also the founder and principal of Edō Capital, an early stage private equity firm investing in sustainable food systems. Hill had previously invested in Diagram’s Fund I and served as a mentor to its portfolio.
“Hamnett’s decision to help build Diagram is a vote of confidence in our model. He will be a tremendous thought partner to our founders with his outstanding 20-year entrepreneurial track record,” said Robichaud.
Hill is the second of two male partners at Diagram, which notably has a male-dominated team, though Lafortune noted that two of the top four executives on its team are women, including its VP of innovation, Amélie Foz-Couture. Diagram, which reached out to a pool of 100 individuals to build its second fund, also has few women LPs. Lafortune acknowledged to BetaKit that Diagram is “not there yet in terms of diversity,” stating that it is hard to make its group of investors (who also serve as mentors for its portfolio companies) gender equal because there are fewer women in the industry where “everyone [is] competing for talent and its a smaller pool.”
Lafortune did note, however, that as Diagram expands, and looks to add new partners, it hopes to bring women partners onto its team. He also stated that in the coming year, as Diagram focuses on scaling in size, it plans to put more emphasis on investing in the Toronto region.
Image courtesy Diagram Ventures
Update: this story has been updated to reflect that Portag3 Ventures was the lead investor in Diagram’s Fund II and Fund I.