Caisse helps Luge Capital raise most of debut fintech fund’s $100 mln target

Luge Capital has launched to invest in early-stage fintech companies with the backing of one of Canada’s largest institutions and the support of one of its top venture firms.

Luge today said it raised an initial $75 million for its inaugural fund. It plans to secure the rest of the $100 million target over the next few months.

The fund raised capital commitments from five limited partners: Caisse de dépôt et placement du Québec, Desjardins Group, Sun Life Financial, Fonds de Solidarité FTQ and La Capitale.

Luge was founded by General Partners David Nault and Karim Gillani. The idea behind the firm originally came from the Caisse, Canada’s second largest pension system, which wants to see Canada “up its game in the global fintech sector,” Nault told PE Hub Canada.

The Caisse and Desjardins, a financial cooperative, got things rolling last October by seeding the Luge fund with $50 million.

They and other LPs, which include two insurers, made commitments to “capture exposure” to emerging fintech companies backed by Luge, Gillani said.

They will be key strategic partners to the firm and its portfolio, including as a source of co-investment resources, he said.

Another Luge strategic partner is iNovia Capital, a 10-year North American tech investor that is reportedly raising a new US$500 million ($640 million) fund.

INovia will provide Luge with back-office support and access to its talent pool and investment pros, as well as co-invest in fintech opportunities of interest, Gillani said.

Luge’s strategy is to invest across the fintech landscape, zeroing in on opportunities that can realize efficiencies for banks and other financial institutions and help improve customer experience, Nault said.

It will do this by focusing on early-stage fintech companies and artificial-intelligence solutions applied to financial services. The firm will make initial seed-stage and Series A investments of $250,000 to $2 million, mostly in Canada but with a “global lens,” Gillani said.

Luge’s emphasis on AI is significant. AI is fast becoming pivotal to fintech innovation, especially in Canada and the United States, in part because of its potential to automate processes.

Luge Capital's team (left to right): Laviva Mazhar, David Nault, Sonia Gasparini and Karim Gillani, photo courtesy of the firm
Luge Capital’s team (left to right): Laviva Mazhar, David Nault, Sonia Gasparini and Karim Gillani, photo courtesy of the firm

Gillani says the firm’s debut deal is “a stone’s throw away.”

Nault, who will be based in Luge’s Montréal office, and Gillani, who will operate from Toronto, bring a history of fintech investment and entrepreneurship to their roles.

Nault is a six-year veteran of Luge’s strategic partner iNovia, where he served as a principal and vice president of investments. His prior career included time spent as an operator, including as an executive at online payments processor Pivotal Payments.

Gillani formerly led strategy and corporate development at Silicon Valley’s Xoom, a cross-border remittance company acquired in 2015 by PayPal for US$890 million. A C100 charter member, he has also co-founded startups and backed others as an angel investor.

Global funding of fintech companies accelerated over the past several years, reaching US$16.5 billion invested in 2017, according to CB Insights. With US$5.4 billion invested in Q1 2018, activity may hit a new high this year.

As a major financial hub with a growing fintech ecosystem, Canada has shared in these trends. However, a March report by the Global Risk Institute found that while Canadian fintech investing is commensurate with GDP, it still lags the United States and other countries.

Nault says under-investment is due to “too few specialized fintech funds” in Canada, something Luge aims to remedy as “a new kind of investor that brings more than money.”

Other Canadian fintech VC firms include Information Venture Partners, which closed its second fund in 2016 at $106 million; Portag3 Ventures, which invests on behalf of Power Financial; Impression Ventures, which closed its second fund last year at $30 million, and; Ferst Capital Partners.