FinTech-focused Luge Capital has closed an additional $10 million for its first fund, bringing the total fund size to $85 million.
The new capital comes in the form of strategic investments from BDC and one of Canada’s largest insurance and wealth management groups, iA Financial Group. Luge initially raised $50 million for its fund in October 2017, which jumped to $75 million less than a year later, with its official first close. Luge has LP support from Caisse de dépôt et placement du Québec (CDPQ), Desjardins Group, Sun Life Financial, the Fonds de Solidarité FTQ, and La Capitale.
“We are very bullish on FinTech and financial services more broadly. The industry is hot and growing.”
Luge was co-founded by former iNovia principal David Nault and Karim Gillani, formerly of Xoom and BlackBerry. The Montreal-based fund focuses specifically on early-stage FinTech and AI investments that apply to the financial services space. The two co-founders also serve as Luge’s general partners, leading the small team that consists of three investment analysts and a marketing and operations manager.
Nault and Gillani explained that bringing iA and BDC on as LPs was a strategic move that would allow Luge’s portfolio companies to potentially work and partner with the investors in the future, something that already happens with many of the firm’s other LPs. Gillani told BetaKit that every one of Luge’s five portfolio companies are currently engaged in partnership discussion with at least one of its LPs.
“[We] firmly believe that the future of venture capital is to be able to bring valued customers to the table,” added Nault. “And by having strategic LPs that’s exactly what Luge can bring.”
Gillani noted that Luge works very closely and collaboratively with its LPs, partnering on due diligence for its investments and meeting regularly to help them track what is happening in the early stages of the FinTech ecosystem.
“They can get exposure to these companies or potential partnerships, potentially even co-invest alongside us, or even one day acquire these businesses as they become complementary to [the LPs],” stated Gillani. “We have a great mix of strategic investors and returns-driven LPs, which keeps us disciplined about delivering economic value and also ensures that we stay closely connected to industry trends.”
“There was a true war between technology companies that want to get into financial services and financial service companies that realize they need to innovate.”
BDC and iA fit into that strategic plan in different ways. As a large insurance carrier, iA offers Luge’s portfolio companies the opportunity to work with a provider that currently has $187 billion in assets under management (AUM) and four million customers across Canada and the US. iA is currently working with Luge’s portfolio company Owl.co, which is a data aggregator that allows financial institutions to better understand customers and detect fraud.
BDC, as a Crown corporation owned by the Government of Canada, is a large financial institution in its own right, having handed out $7.2 billion in loans over the past year. Nault stated that BDC’s strategic value comes from its connection to the large number of funds it invests in, with its ability to offer Luge support on operations, best practices, and introductions to other investors. Luge also sees the opportunity for BDC to potentially partner with some of its portfolio companies.
While the firm noted it has several more deals near closing, the reality remains that Luge moves cautiously to ensure it invests in companies with little competitive overlap. Nault said Luge is highly selective because it hopes to work with its companies long term. “We’re not like a fund that does ‘spray and pray’,” he stated.
Having closed five deals to date, with the fifth yet to be announced, Luge is looking to make between 20 to 25 investments with its $85 million. Focusing on early-stage investments, Luge will continue to cut cheques from seed to Series A, with initial investments between $250,000 and $2 million. Half of the fund will be reserved for follow-on investments.
“We are very bullish on FinTech and financial services more broadly. The industry is hot and growing,” said Gillani. “We are seeing a lot more entrepreneurs with big ambitions, not just to solve a tiny little problem siloed in a corner somewhere, but really take a big bite out of a giant problem that is global in nature.”
“There was a true war between technology companies that want to get into financial services and financial service companies that realize they need to innovate a lot more technically,” added Nault. “We’re also seeing financial services really speeding up the way in which they’re trying to innovate and their motivation for working with the early, nimble companies is real. And that opens up a tremendous opportunity for young companies and funds Luge.”