Fintech founders race toward finish line for Luge Capital’s second fund

After distributing a “meaningful amount” back to the investors in its debut fund, Canadian fintech investor Luge Capital is racing toward a final close on C$100 million ($74.3 million) for its sophomore vehicle.

The firm has held a first close at C$71 million for Fund II and plans to raise the rest over the next few months, its founders told Venture Capital Journal.

Many of the investors in Fund I, which closed on C$85 million in 2019, have come back for the sophomore fund, including BDC Capital, Caisse de dépôt et placement du Québec, Desjardins, Fonds de solidarité FTQ, Industrial Alliance Financial Group and Sun Life. Other LPs include iA Financial Group and the Business Development Bank of Canada, according to fund data from affiliate title Buyouts.

Luge’s newest vehicle plans to build on the success of its first fund with slightly larger check sizes and an expanded appetite for earlier and later rounds in Canadian and US fintech start-ups.

“Our primary focus is seed and Series A, but we’re opportunistically going to be looking at pre-seed and a little bit of Series B as well,” said co-founder and general partner Karim Gillani. “[The average check size] is going to be between $500,000 and $5 million, with a sweet spot between $3 million and $5 million. The idea here is we’d like to make slightly bigger bets earlier on when we invest in these companies, take a little bit bigger ownership and partner with these founders and companies for a long time.”

Luge also plans to expand its investment thesis to include vertical fintech platforms and fintech start-ups addressing ESG issues.

“You can call it a broader scope, but really we’re just seeing that there are more opportunities within [a variety of] sectors for fintech than ever before,” said Luge co-founder and general partner David Nault. “Also, the intersection of ESG and fintech, vertical fintech inside a bunch of different industries, it’s just an opportunity that we see as a fund to continue to expand into.”

Luge’s debut fund invested in 21 companies and has already distributed a “meaningful amount” of capital back to its LPs thanks to its sale of financial data aggregation platform Flinks to the National Bank of Canada just three years after its initial investment, Gillani said. The bank paid C$73 million cash for Flinks in September 2021, according to a report by S&P Global.

Gillani declined to reveal specifics about Fund I’s returns.

In terms of dealmaking, Gillani expects Fund II to invest in 20 to 25 companies, about the same number as the debut fund. “We feel like it’s diversified enough for us to have a good mix in the portfolio, but also concentrated enough where if we have some of these companies do exceedingly well the returns on those investments will be meaningful,” he noted.

Gillani and Nault founded Montreal-based Luge in 2018 after lengthy careers in fintech. Prior to Luge, Gillani served as a director of corporate development and investments at PayPal, while Nault worked at multiple early fintech start-ups before joining Montreal-based tech investor Inovia Capital. Gillani says that he and Nault’s experience is invaluable as they invest in “the next generation of fintech founders.”

“David and I come from the fintech world as former operators so we spend the time with founders to help them think through their business strategy and help them deliver on the ambition and creativity that they have to build the next big fintech business.”

As for the firm’s name, Luge pays homage to its location and the journey entrepreneurs embark on when starting a company.

“We look at entrepreneurs like Olympic athletes,” Nault said. “There are very few places on the podium for the winners, and the high performers are the ones that we want to back. We’re also up in the Great White North and it’s a winter sport so it felt right.”

Luge racing “mimics the journey of a founder so well,” Gillani added. “When you’re on a luge you go through twists and turns, zigs and zags, and you have to be a little bit crazy to do it, just like a founder has to be a little bit crazy to jump in and start a business.”