Paul Desmarais III, chairman of Sagard, Portage and Diagram, at the Wealthsimple office in Toronto on Jan. 7, 2020. The Power Corp. senior vice-president says that mortgage brokering service Nesto 'is probably one of the most exciting fintech plays in Canada.'Christopher Katsarov/The Globe and Mail
Another startup from Power Corp.’s stable of disruptive financial-technology investments has landed a significant venture capital financing.
Montreal-based Nesto Inc., a three-year-old online mortgage brokerage service, has secured $76-million in capital led by Michael Paulus and Michael Rowell, the entrepreneurs behind Assurance IQ Inc., an American online insurance seller purchased by Prudential Financial in 2019 for consideration of up to US$3.5-billion.
The financing was also backed by Portage Ventures, the venture capital arm of Power’s Sagard Holdings alternative asset investment unit, as well as Sagard-backed Diagram Ventures, early Facebook investor Jim Breyer and Montreal investor and entrepreneur Marc Alloul. Sagard owns about 20 per cent of Nesto.
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“Nesto is probably one of the most exciting fintech plays in Canada,” with a new digital offering for the $450-billion a year Canadian mortgage market, said Paul Desmarais III, chairman of Sagard, Portage and Diagram, and a senior vice-president of Power. “It will be one of the better-capitalized fintechs in the country going after a highly specialized space.”
He said U.S. players in the space, including publicly traded Rocket Cos. Inc, and Better.com, which is going public through a merger with a special purpose acquisition company, have achieved valuations into the billions of dollars.
The investment is the latest in a string of financings of Power-backed entities that have helped to validate its push into funding financial service industry disruptors. Toronto-based Wealthsimple, backed by various Power entities, recently raised $750-million, valuing the bank challenger at $5-billion. Mobile banking provider Koho Financial Inc. raised $70-million this year, and Dialogue Health Technologies, created and financed by Diagram (which creates and finances fintech companies), went public in March on the Toronto Stock Exchange.
Nesto “is another example of a repeatable investment process we have built at Diagram and Portage … [to] create winners over and over again” in the fintech space, Mr. Desmarais said.
Nesto has built an online mortgage brokerage service that automates much of the application and underwriting process and claims to offer customers low rates, fast approvals and unbiased advice from human advisers who work for salary and not commission.
The company, which has partnered to date with 11 mortgage providers, including MCAP, Equitable Bank and Toronto-Dominion Bank, is on track to originate $100-million worth of mortgages this month, up fivefold year-over-year, Nesto co-founder and chief executive officer Malik Yacoubi said in an interview. He added that each Nesto broker can handle 10 times the typical industry volume thanks to the platform’s digitized workflow.
Nesto came together as Mr. Yacoubi, a serial technology entrepreneur, and long-time business partner Karim Benabdallah were looking to start their next venture together. The pair had previously built a web development firm in the early 2000s and then built mobile marketing firm Mobilito, which they sold to advertising giant Cossette in 2010, with Mr. Yacoubi subsequently serving as its chief digital officer for eight years.
They began talking to Diagram managing partner Daniel Robichaud, a past investor in their companies. “We wanted to launch a fintech company; we didn’t know exactly what,” Mr. Yacoubi said.
The Diagram team came back and suggested they build a company that would bring more transparency to the Canadian mortgage market. “We fell in love with the idea and decided to go full in,” teaming up with mortgage industry veteran Chase Belair and a fourth partner, Damien Charbonneau, now the chief operating officer, in 2018, Mr. Yacoubi said.
Nesto, which now has 91 employees, had a product in market by early 2019 and last year raised $11.5-million from the Quebec government’s investing arm Investissement Québec, Diagram and individual investors.
Mr. Paulus said in an interview he was drawn to invest earlier this year by the company’s strong customer ratings, including a high “net promoter score” of 76, which measures the likelihood customers will recommend a company.
“I’ve never seen a group of consumers that were so excited” around a financial product, he said. “You just don’t see Reddit boards where people are gushing about their mortgage broker.”
Seattle-based Mr. Paulus, a dual Canadian-American citizen, said he and Mr. Rowel plan to bring “capital and our expertise in a hands-on way.”
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