‘Building a company not a 1-year project’

Continued from FP1

“Whether they’re complementary, disruptive, a little bit of both, I think we will see how the business models emerge.”

The Desmarais family is no stranger to disruptive, tech-driven ventures: Some of Power Corp.’s affiliated companies have already made investments in Canadian fintech startups through the investment vehicle Portag3. Those include an initial $10 million investment in robo-adviser Wealthsimple in 2015, which came with an option to increase the investment to $30 million. Other investments have been made in online lender Borrowell, and Koho, a mobile payments and banking startup.

Desmarais says the family’s willingness to embrace tech dates back to at least 2009, when his younger brother Nicolas, now 31, co-founded AppDirect, a cloud-based marketplace based in San Francisco’s Silicon Valley. Six years later, it was valued at $1-billion and counted PayPal founder Peter Thiel, now an adviser to U.S. President Donald Trump, among its investors.

“My brother founding AppDirect and my father kind of being very involved with that, clearly got him convinced that this is the future,” Desmarais told the Financial Post.

He says his father Paul and uncle André, co-chief executives of Power Corp., are among the “greatest champions” of the new fund.

François Lafortune, who made the original pitch for Diagram and now serves as the fund’s CEO, connected with the Desmarais family through Nicolas when both twentysomethings were in California and Lafortune was earning his MBA at Stanford University. Now 34, Lafortune has an entrepreneurial background in Quebec and spent eight years as a consultant at McKinsey & Co., where he advised large banks and insurance companies on technology projects.

In an interview, Lafortune said the Desmarais family’s commitment to leave ultimate control of the startups with the entrepreneurs is crucial, because his experience as a consultant to large players in the financial industry taught him that it is difficult, if not impossible, to François Lafortune, left, and Paul Desmarais III at the offices of Diagram in Toronto. truly disrupt from within.

“You have to have nothing to lose to want to do this, and there’s too much to lose in a big organization,” he said. “Even if everyone agrees that’s what needs to be done, you’re eating somebody else’s lunch, (and) the antibody will kill you in the organization. I’ve seen that.”

Lafortune said his experience also suggests Power Corp. and its affiliates are a better fit for the venture fund than a financial services firm run by professional managers.

“Building a company is not a one-year project,” he said. “So in a place like Power where we have people who are family members, who will be there for the … next 30 years, I can trust that the long-term capital commitment is there.”

Unlike traditional venture capital funds, which provide early-stage funding to dozens of startups in hopes that a few will take off, Diagram plans to make larger capital commitment to just five or six companies over a few years. They will also have access to expertise — and potentially distribution and clients — through Power Financial and its affiliates, as well as connections to angel investors including former Rogers Communications CEO Nadir Mohamed and Facebook’s former chief technology officer Adam D’Angelo.

In addition to funding, Diagram will provide active support to the entrepreneurdriven startups as they scale up, looking after functions including recruiting and accounting.

The first two companies have already been selected: Collage, a Toronto-based company that is building a cloud platform that automates human resources and benefits for Canadian businesses, and Montreal-based Dialogue, which is developing a virtual health and wellness platform for employees.

Mohamed, who has been focusing on entrepreneurs and startups since leaving Rogers, said both the concept of Diagram and the people behind it were draws.

“I am a fan of Paul and he’s got an impressive partner in Francois,” he said. “We have shared views on what’s required to strengthen our Canadian position and I admire his all-in commitment to embrace disruption to transform their industry.”

Mohamed said that his own contributions could include helping the entrepreneurs behind the startups make connections in corporate Canada, and showing them “how to engage with large, established companies.”

Anthony Lacavera, another angel investor and founder of telecom startup WIND Mobile, was intrigued by the Diagram model.

“I haven’t seen anything close anywhere else in the world,” he said. “Diagram is being supported with dollars and resources from a great and diverse list of entrepreneurs and innovators and big company CEOs, and at the same time is anchored by Power and all of its resources, distribution (and) customers.”

Desmarais and Lafortune insist Diagram won’t refuse to back a startup simply because it could ultimately compete for business with Power Financial or its subsidiaries.

If a company were successful, there are mechanisms for the Power and the other family-controlled companies to invest in them once the startups graduate from the Diagram launch pad.

When it comes to fintech, Desmarais says Power Corp. is betting on a threepronged approach: building startups by backing entrepreneurs through Diagram, investing in more typical venture capital plays as was done with online lender Borrowell and participating in third-party venture capital deals.

“Our hope is that these three combined will generate ideas like Wealthsimple that we can bring dollars to, and scale,” Desmarais said.

He views the fintech evolution as a logical step for the family whose empire was built, beginning with his grandfather Paul Sr., from the very humble base of a struggling bus company in northern Ontario.

“We’re excited to be part of this growth of the next generation of entrepreneurs … because that’s been in the DNA of our family for a very long time,” Desmarais said. “By being close to these great success stories, we think a lot of that DNA is going to rub off on our growth.”