With fintech startups logging some of the steepest valuation cuts of any major sector, now might seem an unusual time to scale up investment.
Portage Ventures, however, is barreling ahead.
The Toronto-headquartered firm announced today that it has closed on $655 million for its third flagship fund, its largest to date. Partners plan to invest in seed through Series C stage fintech in the United States, Europe and Canada.
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So far this year, Portage is on track to exceed its 2021 deal pace, with 15 known rounds since January, compared to 19 in all of last year, per Crunchbase. Partners in the firm said they held back on some dealmaking last year as valuations surged.
“We did deploy in 2021, but I wouldn’t say significantly because it was quite frothy,” said Adam Felesky, the firm’s co-founder and CEO. “2022 is looking a lot more interesting.”
Portage’s largest lead investment this year was a $50 million Series C for TheGuarantors, a New York startup that offers rent guarantees and security deposit alternatives for prospective tenants in competitive rental markets. Most recently, the firm backed early rounds for Orus, a French insurtech startup, and Sanlo,a fintech focused on game and app developers.
As valuations come down from peaks, Portage partners said they will be more focused on adding new names to the portfolio. Last year, by contrast, Felesky said, a core focus was on seeing existing portfolio companies raise capital in the up cycle, with the result that most have at least a couple years’ runway.
Looking at Portage’s existing portfolio, the firm appears to have gone along with bullish calls in some hot areas of the fintech universe. There is a fair amount of insurtech in the portfolio, for instance, as well as a bit of crypto and blockchain, including a January lead round for DeFi startup Conduit.
However, the firm also stayed away from some of the formerly frothiest corners of fintech. In particular, its portfolio doesn’t lean to consumer lending or mortgage finance upstarts. Portage Partner Stephanie Choo said this was a deliberate decision based on the historical risks associated with lending at the top of a market cycle.
Going forward, Choo said the expectation is that Portage will invest close to two-thirds of its new fund in North America and another third in Europe. Given that they are going at relatively early stages, there’s not too much worry for the moment about the lackluster late-stage and pre-IPO funding market, nor the near-term paucity of public market fintech exits.
Even at the later stages of fintech, Felesky observes: “There isn’t panic.” At least not yet.
A high portion of investment-grade companies managed to raise when capital spigots were flowing more freely. Others are seeking to raise what’s needed from existing investors and, when not doable, cutting valuations.
The changed market conditions, he said, have also added pressure on fintechs to preserve capital. They’re cutting burn rates and becoming increasingly serious about charting a path to profitability.
Illustration: Dom Guzman
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