Luge Capital’s Gillani: Canada is becoming a test market for fintech founders

Karim GIllani, general partner, Luge Capital

Luge Capital, a fintech venture capital firm based in Toronto and Montreal, serves a growing ecosystem of startups north of the border. This week, it closed a C$85 milion ($65 million) fund for fintech and AI solutions.

“If you’re an early-stage fintech company, the number of investors you have to pick from is very, very slim,” said Karim Gillani, a general partner at Luge. “We thought there was an opportunity there.” Luge is backed by prominent Canadian financial institutions, including Desjardins, Sun Life Financial, and iA Financial Group, who act as limited partners.

According a recent estimate, 831 fintech startups operate in Canada, and a handful of venture capital firms serve the Canadian fintech ecosystem. Luge was established in 2018 to serve early-stage companies, led by Gillani and David Nault, who is also a general partner. Luge makes seed investments of between C$150,000 and C$2 million (between $115,000 and $1.5 million). It’s invested in five portfolio companies so far, including data platform Flinks, insurance tech company Finaeo, KYC company Owl.co and cybersecurity company Flare Systems. According to Gillani, Luge has reserved about half of the fund for follow-on investments for companies that are “performing or outperforming.”

Gillani previously led PayPal’s merger and acquisitions practice in Canada and corporate development for remittance company Xoom, which was acquired by PayPal in 2015. He spoke to Bank Innovation on Luge’s approach to fintech investments. Comments have been edited for clarity.

From Luge Capital’s perspective, what does fintech mean?
We think about fintech in very broad terms — anything that is changing or revolutionizing financial services in some way. It’s categories like payments, wealth management, insurance, identity, financial data management, aggregation, security and regulation technology.

How does that translate to Luge’s approach to portfolio investments?
We look for solutions that can be in one of three broad categories. One is removing complexity from financial services. The second is digitizing or automating what’s traditionally been a manual, pen-and-paper industry. For example, if you look at insurance, it’s traditionally been a manually-driven industry for over 100 years. We look for solutions that help digitize [operations] and bring more automation. The third is regulation technology, companies that can help incumbents or large institutions comply with new and emerging regulations.

You have a large number of incumbents as limited partners. What value do they bring to the table?
We’re backed by large financial institutions, large insurance companies and large pension funds. That’s important is because it allows us to get exposure to what the large incumbents are thinking about in terms of problem solving for their own industries.

Do they work directly with portfolio companies?
Yes. We expose [limited partners] to some of the [startup] companies that we meet on a regular basis. But what’s more important is that our portfolio companies and companies that we’ve seen in our deal flow also get exposure to our investors as strategic collaborators. Our portfolio companies can learn directly from our limited partners in terms of the problems that they’re facing, and can also act on solutions to some of those problems. Of the five companies that we have in our portfolio today, every single one of them is talking to or collaborating with at least one of our limited partners. For example, it could be solving for KYC or AML at a big insurance company, or figuring out data aggregation solutions in the financial world for a bank.

What is your view on the current state of the Canadian fintech industry today, and how fintech founders perceive the Canadian market?
We’re seeing an increase in the absolute number of fintech companies that are being founded in Canada, and we believe that is directly attributed to the new availability of capital at the early stages. We’re seeing founders having ambitions to dominate the world with the solutions that they’re building. They often look at Canada as a first market to prove their solutions, with the U.S. and Europe as fast followers. On the heels of that dynamic, we’re seeing a lot of outside capital — particularly from the U.S. and in some cases from Europe — coming into Canada to fund Canadian companies with ambitions to grow geographically.

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