MONTREAL — Portage Ventures is looking to deepen its involvement in cryptocurrencies with its latest fund, which could invest in tokens directly as part of a greater focus on digital assets.

The broader scope for its third fund marks a shift for the Toronto-based venture capital firm. The company—founded in 2016, with the Power Corporation of Canada’s alternative-investment wing as its key backer—has so far focused on holding equity in fintechs that have exposure to cryptocurrency, or has invested in the tokens indirectly by backing other funds that buy them.

“Because we’ve made the determination that in Fund III we want to be able to do more crypto, it was just a natural extension that we would have to adapt and evolve our model to also be able to potentially hold tokens,” said Portage general partner Stephanie Choo in an interview with The Logic.

Portage is particularly interested in investments in decentralized finance—which refers to blockchain-based financial services that run without the need for any central party—and companies at the intersection of crypto and wealth management, Choo said. 

It has already made two crypto investments in 2021 that it has yet to announce, she added.

“There’s no question that there will be generational change and convergence between fintech and DeFi, and fintech and crypto,” Choo said. “I think the only question for me is, what is the time horizon in which that happens?”

The shift comes as many other venture funds are altering their structures to capitalize on digital assets and other investments outside of the traditional VC model. Major firms like Andreessen Horowitz (a16z) and Sequoia Capital, for example, have become registered investment advisors, a move they said would give them greater flexibility with the types of investments they pursue.

The past few years have also seen the rise of hybrid funds like Tiger Global Management that invest in both private and public companies.

The changes to Portage’s fund structure don’t go nearly as far as a16z or Sequoia. “[Portage] made some very minor clarifications to ensure that they can potentially invest in and hold tokens when they are used in an equity-like structure,” said Adam Daifallah, a spokesperson for Power Corp. subsidiary Sagard Holdings.

Through its previous funds, Portage has backed Electric Capital and Multicoin Capital, two U.S.-based investment firms focused on digital assets. It is also an investor in Toronto-based fintech Wealthsimple, which has a substantial cryptocurrency business, and Alpaca, which makes software for companies to provide stock- and crypto-trading to their clients.

But investing directly in cryptocurrencies comes with a whole new set of logistical issues. One key difference: most of the assets already trade on public exchanges, raising questions about when to sell. That is a new consideration for a venture fund, which would typically hold equity for years before being able to cash out in an IPO or acquisition.

Another challenge for investors holding cryptocurrencies is figuring out a way to store the assets securely, a hurdle that initially held back some institutions from investing. However, much of the stigma seems to have subsided: crypto fund Paradigm recently announced a new US$2.5-billion fund from a group of limited partners that reportedly included Harvard and Yale universities.

Investors in Portage’s new fund include a variety of corporate and institutional LPs, though a spokesperson for Sagard Holdings declined to identify them. Contributors to its last venture fund included Alterna Savings and Credit Union, BDC Capital, the Caisse de dépôt and placement du Québec and CNP Assurances.

Portage’s new fund—its largest yet, with roughly $600 million under management as of its latest close—will give it a substantial warchest with which to pursue new opportunities. It expects to write bigger checks out of Fund III, with most investments ranging from $5 million to $20 million, Choo said. 

The company will look to lead fundraising rounds ranging from seed to Series C, she said, adding that Portage is also searching aggressively for opportunities in Latin America, which has experienced a fintech boom in recent years. Brazilian fintech Nubank, for example, is the largest neobank in the world, with nearly 50 million users as of September.

Portage isn’t the only member of Power Corp.’s fintech-investment ecosystem to have highlighted crypto as a growing area of focus in recent months. At the Canada Fintech Forum conference in October, Francois Lafortune, managing partner of Sagard Holdings and the CEO of Diagram Ventures, said crypto was the sector’s most compelling trend. 

Diagram recently backed Conduit, a Boston-based startup that seeks to help fintechs launch crypto-backed financial products for their customers.

Update: Following publication of this article, Sagard Holdings spokesperson, Adam Daifallah, sent an emailed statement to The Logic: “We wish to clarify comments relating to cryptocurrencies in this article. The core mandate of Portage Ventures has not changed, and its focus continues to be investing in promising fintech businesses in banking, insurance and wealth management. The advent of cryptocurrencies has led to a blurring between various technologies, and Portage is closely watching new trends and developments. Portage evaluates investment opportunities in infrastructure technology associated with cryptocurrencies such as blockchain, but has no intent to invest directly in cryptocurrencies or to buy tokens, and has not done so.”