Amid downturn, Portage sees chance to fund FinTech firms reluctant to take valuation hit.
Portage Ventures, the VC arm of Power Corp investment firm Sagard, has launched a new fund to provide flexible financing to late-stage firms in the FinTech and financial services sectors.
Fundraising efforts for Portage Capital Solutions (PCS) are already underway. Portage confirmed to BetaKit that it aims to raise between $750 million USD and $1 billion for the structured fund, which will offer companies elements of both equity and debt.
“We planned to launch this strategy more than a year ago because we identified a structural wedge in the market between growth and private equity.”
Portage co-founder and CEO Adam Felesky told BetaKit that PCS will invest in securities that combine debt and equity features and do not require startups to lock in valuations as with traditional equity fundraising. As part of the process, Felesky said Portage will need to lock in a current valuation, but “can price at a later point in time, at a future event or now, at a higher valuation, depending on the downside protections.”
This flexibility is notable given that the launch of PCS comes during a broader market downturn that has seen tech and FinTech valuations in particular take significant hits. Amid current conditions, some startups have been reluctant to raise traditional venture funding since they would be forced to accept lower valuations compared to previous rounds.
With PCS, Portage sees an opportunity to provide financing to growth-stage FinTech companies in need of capital but hesitant to accept a reduced valuation amid the market downturn.
“We planned to launch this strategy more than a year ago because we identified a structural wedge in the market between growth and private equity,” said Felesky. “This wedge has been exacerbated by current market conditions, resulting in this being an optimal time to deploy this strategy.”
According to PCS partner Daniel Ballen, in today’s market environment, the firm has seen “accelerated demand for flexible capital solutions as entrepreneurs and shareholders look to continue the strong growth trajectory of their business.”
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Ballen and fellow partner Devon Kirk will co-lead PCS’ strategy. Kirk and Ballen have both previously spent nearly two decades providing private equity and structured solutions, Ballen at PIMCO, Bain Capital, and Pine Brook Partners, Kirk with CPP Investments.
PCS’ Toronto and New York-based team will target “structured opportunities” in FinTech and financial services companies around the world with investments of over $50 million.
PCS will cater to late-stage FinTech firms in Canada, the United States, and Europe with a valuation of more than $500 million and revenue of $100 to $200 million. It will target companies that are “near or at profitability” and will be seeking a liquidity event within the next three to five years.
Portage believes PCS will be able to meet demand for capital across both public and private markets, be it for organic growth, mergers and acquisitions, or recapitalizations.
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Despite present market conditions, Portage remains bullish on FinTech. Earlier this month, Portage announced the close of its third FinTech fund, sharing that it had secured $655 million USD—an additional $39 million since March—for what it claims is one of the largest early-stage FinTech-focused venture funds in the world.
According to Crunchbase, the firm is on track to exceed its 2021 deal pace this year. Felesky told Crunchbase that the firm sees opportunity to add to its portfolio in this environment given the recent decline in valuations.
Power and Sagard-backed Portage has a variety of different FinTech plays. The firm holds equity stakes in prominent Canadian FinTech firms Wealthsimple and Koho through its early-stage FinTech funds, and is the anchor investor in Sagard-managed Diagram Ventures, which focuses on FinTech and healthtech. Paul Desmarais III co-founded and chairs both organizations. Portage’s FinTech plans also include a SPAC.
As to where PCS fits into this overall strategy, Felesky described the fund as “extremely important.”
“Our aspiration is to be a leading global fintech investor, agnostic of stage,” said Felesky. “This strategy is core to realizing that vision.”
Feature image of Adam Felesky courtesy Portage Ventures.