In a rare move for a venture capital (VC) firm, Montréal’s Holt Xchange has decided to raise money for its FinTech seed fund through the equity crowdfunding platform FrontFundr.
Holt Xchange’s FrontFundr page indicates that the early-stage investor is raising capital for the final $2.5 million USD towards its $10-million target for its existing fund. The firm plans to use any capital raised to provide follow-on support to its top portfolio companies.
Holt Xchange plans to use the money raised to double down on its winners.
According to the FrontFundr page, Holt Xchange has secured nearly $7.5 million to date from 86 limited partners (LPs) for Holt Xchange Inaugural Fund I, with 80 days left in the campaign as of press time. Holt Xchange’s FrontFundr does not specify how much of this amount the firm has raised through FrontFundr.
“We have many breakout portfolio companies raising their next larger rounds of financing and we want to capitalize on advantageous terms (i.e. follow-on rights, options, warrants, etc.),” Holt Xchange founding general partner Jan Christopher Arp told BetaKit over email. “Additionally, we’ve proven that obtaining investors in this manner leads to more value for the fund and associated portfolio companies, given the [approximately] 200 deals we’ve now closed with our network.”
Arp declined to disclose how much Holt Xchange had raised for the fund prior to this campaign, how much of the fund’s existing capital had been deployed to date, or how much the firm has raised through FrontFundr relative to other sources.
The move, which was first reported by Global Fintech Insider, comes amid challenging VC fundraising market conditions for the firms that invest directly in Canada’s technology startups.
Arp claimed that the campaign is “not technically a crowdfunding round” because the firm is raising exclusively from accredited investors, with a $20,000 minimum investment required for partnership units. He noted FrontFundr is a licensed exempt market dealer (EMD) and claimed it is “pretty common” for funds to raise capital through licensed dealers.
EMDs can be a helpful means of targeting high-net-worth individuals who are not traditional institutional LPs. Multiple Canadian VCs told BetaKit it is common for VC funds to use EMDs to raise capital, but noted they are often more private about it.
Arp said that approximately half of the fund’s LPs are professional investors like family offices, institutional funds, wealth managers, and power angels. A quarter consists of established entrepreneurs with exits under their belt, and the final quarter is made up of executive-level professionals.
RELATED: CMD Capital halts fundraising amid “tough” VC market
After heavy investment in Canadian VC while the market was hot, LPs have become more cautious and selective. This has led to smaller funds, longer fundraising timelines, and turnover among Canadian VC firms. Earlier this week, fellow early-stage Canadian VC CMD Capital halted fundraising for its first fund and paused its operations indefinitely in light of the ongoing downturn.
Industry leaders BetaKit spoke with last summer predicted more challenges across Canadian VC, especially for emerging managers, as LPs have focused their dollars on established VCs and slowed down or paused commitments to newer firms. That left first-time managers, who tend to concentrate on pre-seed and seed stages, “at the back of the line,” Isaac Souweine, partner with Vancouver’s Pender Ventures, said at the time.
Asked whether Holt Xchange’s decision to raise capital in this way was informed by today’s challenging VC fundraising market conditions, Arp said “not exactly.”
“This particular fund is not appropriate for institutional investors given its size, so retail investors are considered a better fit,” Arp said.
He did indicate, however, that Canada’s lack of risk capital from institutional LPs was a factor. If the country had more, Arp said, the firm might have considered other fundraising strategies.
Asked whether Holt Xchange previously explored fundraising privately from family offices or existing investors before going this route, Arp said, “We believe in diversifying investor acquisition strategies, thus this method is one of several we are pursuing simultaneously.”
Holt Xchange was founded back in 2018 as a FinTech-focused VC fund named after Québec industrialist Sir Herbert Holt, who helped build the Canadian Pacific Railway and create Hydro-Québec. Launched that year, the Holt Xchange Inaugural Fund I had an initial focus on FinTech startups globally at the pre-seed and seed stages, with an eye towards Canada. Today, the fund has five years remaining in its lifespan.
In 2022, Holt Xchange launched its second fund, the IntersXion Fund, which targets companies in Web3, sports media, and entertainment.
Holt Xchange’s FrontFundr page indicates the firm has invested in 30 companies to date across 10 countries, and has $14 million in assets under management (AUM). Holt Xchange’s portfolio currently includes Vancouver-based insurance claims monitoring company Owl.co, which it claims is now valued at $250 million, and Toronto Islamic finance startup Manzil, which Holt Xchange claims has $100 million in AUM.
Arp shared some more insight into the firm’s operations in a LinkedIn post last month, including how it generates additional revenue through corporate partnerships, manages special purpose vehicles on behalf of some portfolio companies, and works with EMDs to obtain assets like warrants for successful efforts raising capital for startups in its portfolio.
Feature image courtesy Holt Xchange via FrontFundr.