Partnered with Multiple Financial Institutions – Will Also Include Early Stage & Seed Investments
Some major players in Canada’s financial services sector have banded together to finance Canada’s newest venture capital fund. Brought together by General Partners David Nault in Montreal and Karim Gillani in Toronto, Luge Capital is dedicated to investing in statrups focused on fintech and artificial intelligence. The idea for this new fintech fund was initially floated by leadership at the CDPQ, who first went to Desjardins for preliminary discussions. Once they decided to proceed as partners, conversations with Nault and Gillani began.
“Opportunities for funds like this don’t come along every day” according to Nault, a former Vice-President of Investments at iNovia. “I openly discussed it with iNovia, and the opportunity to co-run a fund and doing it in partnership with iNovia was the next logical step in my career”. iNovia is a partner of Luge Capital, providing access to the iNovia team, insights and resources for entrepreneurs, as well as co-investment opportunities.
The Luge fund was initially planned to start off with $50 million in funding coming equally from Desjardins and CDPQ, but launched on June 11 with a war chest of $75 million. This after Sun Life Financial, the Fonds de Solidarité FTQ and La Capitale all decided to participate as well. Luge states in a press release that they may receive additional investment in the coming months, which would then bring the total amount invested in the fund to a full $100 million. “The remaining $25 million allocation would help make sure that we bring in the right partners and the right investors to round out the fund, and add on partners who extend our reach geographically” according to Gillani.
Many of Canada’s financial institutions are quite large, operate in multiple countries and are respected worldwide, making them an important asset to the Canadian economy. Although fintech startups were once perceived as a threat to these giants, nowadays having fintech companies seeded and developed in Canada is increasingly being seen as a way to help our financial institutions innovate, modernize and compete with other financial institutions around the world by providing services such as best in class security and customer experience. And with all the financial partners they have lined up, Luge is definitely well positioned to help increase collaboration between innovative fintechs and the financial sector.
Another unique component of Luge Capital that sets them apart from many fintech funds currently operating in Canada is the fact that they will also be investing at the seed stage. “We’re an early stage fund, which also means it’s a risky asset class. So, we have to really believe in the people we support and find entrepreneurs who we truly believe are on the path to success” Gillani added.
“I see this as a very positive outcome for the ecosystem” says Jérôme Nycz, Executive Vice President at BDC Capital, which is not invested in the fund at this time. “What I like about this initiative is that Luge is addressing the seed aspect and the true needs of these entrepreneurs. They’ll be able to invest in these companies early, nourish them and help them grow and make sure they’re attractive for series A investors. It’s a welcome addition because they are focusing on a stage of development that is not well served right now in Canada”.
When asked about competition for investments from other funds dedicated to fintech or AI in Canada, Nault enthusiastically replied “We’ve got coopetition! We’ve set out to create a partner driven fund that brought more than money to the equation” while Gillani added “In the world of venture capital, I wouldn’t characterize funds that operate in the same space as competitors. I’d characterize them as collaborators because more often than not we’re going to be co-investors on a particular opportunity”.
The timing of the fund being announced is no coincidence. Talks to set up Luge Capital have been in the works for the better part of a year. Current market conditions are driving the growth of the fintech sector, when combined with the ever-widening reach of AI, means that the time is now right in the eyes of many investors and financial institutions, to make significant investments in these emerging technologies. In fact, Nault states “Banks are partnering with us because they now want to access innovation at an early stage”. The General Partners at Luge believe that AI is currently at a stage where there is meaningful talent available in the market, but still at an early enough stage that there are still many innovations ahead of us. AI creates a particularly good opportunity for the financial services sector because it’s an industry that touches everyone’s life in one way or another. Therefore, the opportunity for digital transformation in financial technology is huge because it is instantly applicable to a large-scale audience.
“FinTech is springing up everywhere and we want to make sure Montreal and Quebec are active participants in this emerging global industry” according to Martin Brunelle – VP transformation and project offices at Desjardins, which has a full $25 million invested in this fund.
He believes there needs to be 3 components to the FinTech ecosystem here. First is Forum Fintech which has been running for 5 years already, organized by Finance Montreal. The second is the FinTech specific incubator Finance Montreal has been planning to launch this fall – Station FinTech. And of course, the final component is the funds to invest in FinTech innovators. Brunelle went on to add “Desjardins wants to play a role in the socio-economic development of Quebec, and that was our mindset when we decided to be part of this. FinTech is gaining traction. There used to be a fear among financial institutions of small players who are innovative and agile… now this is perceived as an opportunity for FIs to accelerate their own evolution”.
The team at Luge is made up of 4 people at the moment and they’re not wasting any time. They’re already talking with entrepreneurs and expect deals to start being announced in the coming weeks. Those who are interested in seeking investment from Luge can contact them through their website, https://www.luge.vc/.