With $655 million to invest, Portage Ventures remains convinced that Fintech is the place to be

With fintech startups logging some of the steepest valuation cuts of any major sector, it may seem like an unusual time to scale up investment.

However, Portage Ventures is moving forward.

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 US, Europe and Canada.

So far this year, Portage is on pace to surpass the deal pace for 2021, with 15 known rounds since January, compared to 19 all of last year, per Crunchbase. Partners at the firm said they held back on some deals last year as valuations rose.

“We implemented in 2021, but I don’t want to say anything in particular because it was pretty frothy,” said Adam Felesky, the company’s co-founder and CEO. “2022 looks much more interesting.”

Portage’s biggest lead investment this year was a $50 million Series C for TheGuarantors, a New York startup that offers rental guarantees and security deposit options 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, however, Felesky said, a core focus was on seeing existing portfolio companies raise capital in the upcycle, with the result that most have at least a couple of years of runway.

Growing portfolio

Looking at Portage’s existing portfolio, the firm appears to have joined bullish conversations in some hot areas of the fintech universe. There’s a good deal of insurtech in the portfolio, for example, as well as some crypto and blockchain, including a January lead round for DeFi startup Conduit.

However, the firm also stayed away from some of the previously frothy corners of fintech. In particular, its portfolio does not lean towards consumer loans or mortgage financing. Portage partner Stephanie Choo said this was a conscious decision based on the historical risks associated with lending at the peak 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 in relatively early stages, there is not too much concern at the moment about the lackluster market for late and pre-IPOs, nor the near-term lack of financial market exits from public markets.

Even in the later stages of fintech, Felesky observes, “There’s no panic.” At least not yet.

A high proportion of the companies with investment grade were able to acquire when the capital grants flowed more freely. Others seek to raise what is needed from existing investors and, when that is not possible, cut valuations.

The changing market conditions, he said, have also put pressure on fintechs to preserve capital. They are cutting burn rates and becoming increasingly serious about charting a path to profitability.

Illustration: Dom Guzman