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We caught up with Portage founder and CEO Adam Felesky to see what’s what’s happening in the fintech fundraising market.

• Portage announced last summer it was raising $1 billion to make structured investments in late-stage fintech startups through a fund called Portage Capital Solutions (PCS).

Why it matters: In a difficult fundraising environment, more startups will choose to take structured rounds to get to their next milestones.

This interview has been edited for brevity.

When we talked last summer, you were just announcing PCS as a vehicle for investing in late-stage startups. What’s the latest with the fund?

• I think we did our first close in September after we spoke, and we’ve scaled the team to eight team members.
• We’ve also been active on the origination side. We’ve issued, I believe, over 200 term sheets to prospective companies, which is kind of amazing.
• But our type of paper is a little unique — it’s structured equity or convertible preferred, so it definitely takes a little more explanation.

Of those 200 term sheets, how many deals have you done?

• We’ve now done two transactions, one called ThetaRay out of Israel, which we announced over the summer. It’s in the AML space.
• Then in the spring, we announced an investment in a company called P97, which is in the vertical payments space, focused on gas stations in the United States, which is a very specific niche.
• Both are perfect examples of the type of solutions we can provide companies, where they’re on the verge of being breakeven but just need one more check to really establish themselves in their specific verticals or categories.
• The dynamic was such that we could be a little more aggressive on valuation versus other people because of the contractual protections that our securities provide.

Who would you consider your competition in these deals?

• In general, our competition is actually inside rounds, where insiders are supporting their best companies.
• But what I will tell you — and it really started happening this summer — I think insiders’ GPS are increasingly concerned about their own pacing and having to fundraise.
• I think there’s more willingness for GPs to work with us and sometimes for us to be the pricers of an investment and then they’re participating with us.

That’s surprising, considering the amount of dry powder that seemed to be available, given the slowdown in the funding environment. So are you saying that’s not the case?

• I think that the numbers on the dry powder are a bit deceiving because… we all reserve against our best companies.
• But if those companies require more time to get to the milestones for this big up round, your reserve has to be bigger to protect yourself from future dilution.
• Then there’s the second factor, which is that GPs do not want to fundraise. So you’re trying to stretch your investment capital out over a longer timeline because, if you had your druthers, you probably would want to fundraise in 2025, not 2024.

How do you go from 200 term sheets to two actual transactions? Are companies just not accepting the terms you’ve offered?

• [Our] process is quite different than a venture process. In PCS, we’re trying to show terms as quickly as possible through an indicative term sheet. When I say we’ve done 200 term sheets, I mean we’ve issued 200 term sheets. We haven’t signed 200 term sheets.

• We’re trying to show people the indicative terms in what they could receive from us. Because of the added complexity of what we do, we think it’s really important to have the minutia conversation around what the terms mean for them before doing all the [due diligence] that’s involved because we don’t want to waste their time or our time.

What’s your perspective on what’s happening in the fundraising market for fintech companies right now?

• I think it’s highly bifurcated. Seed, if you can believe it, is at higher valuations than it was back at the previous peaks.
• We’re starting to see that come into [Series] A’s again. A’s definitely have seen their bottom in valuations from our perspective, which would have kind of hit in Q2. So, the front end of the market seems to have recovered.
• But [Series] B and later is still very quiet. There are some indications that it’s at the bottom. But the number of deals in those stages that have been printed is so low it’s really tough to get a good sense of where the market is.

What about at the later stages?

• On the later stage side, I think the best companies are still able to get funding at a relatively attractive valuation — although, again, the [number] is very small.
• I would say if you’re not a top decile company, but you’re still growing at 50% or between 50-75%, the focus is very much on your growth efficiency, gross margins and operating leverage, how much cumulative future cash earn you need.
• If you can check all those boxes, I would suggest that you can get to your post-money [valuation] of two years ago.