Diagram Ventures: The Rising Star That Keeps Rising

October 2023

Founded in 2016 by François Lafortune and Paul Desmarais III, Diagram Ventures is a venture studio based in Montreal that has rapidly emerged as a key player in the fields of Fintech, Web3, and ClimateTech. Diagram stands out due to its deep sector expertise, unique business model, and its position within the Sagard ecosystem. Since its inception, Diagram has launched and invested in 22 startups, such as Dialogue, nesto, Novisto, and Synctera. These successes have been made possible through Diagram’s four investment funds with a combined value of $320 million, including the recently announced closing of a new $115 million Fintech-focused fund. Since 2016, the studio has generated over $1.5 billion in shareholder value and has created more than 1,350 full-time jobs.

Diagram’s model focuses on creating its own companies from scratch. Their process for ideating and validating business opportunities is one of the distinguishing factors that sets the organization apart from other studios. Opportunities and needs are identified internally by their team of experts, who search for opportunities within their areas of expertise and then develop innovative concepts to address specific needs.

Following a thorough internal analysis and validation process, the team recruits one or more founders to bring the concept to life as a startup. In addition to initial funding, startups benefit from Diagram’s expertise and mentorship, as well as privileged access to their network of international partners and investors. The Montreal-based studio has an extensive network of partners and renowned experts, positioning it favorably to accelerate the growth of its companies. Moreover, Diagram provides specialized in-house resources in non-core areas such as finance, law, sales, marketing, partnerships, and cybersecurity, enabling startups to focus fully on the development and sales of their products and services.

Diagram places a strong emphasis on quality rather than quantity, carefully selecting the most promising ideas and teams. On average, 2 to 3 startups are created each year in each of their areas of expertise (i.e., Fintech, Web3, ClimateTech). This selective approach allows the studio to concentrate on high-potential projects and support them throughout their growth.

Diagram provides financial support to startups throughout their growth journey, from pre-seed to exit, by collaborating with their founders and investors. This financial support sets Diagram apart from other studios, which typically accompany their startups only up to Series A.

With already four exits, including an IPO with Dialogue, the future looks promising for Diagram.

 

Interview with Guillaume Marion, Partner and COO at Diagram Ventures.

Guillaume possesses extensive experience in investments and finance. Before joining Diagram in 2017, Guillaume held several significant roles in the financial sector. He notably worked at HSBC’s investment banking division in the UK and served as the CFO of a Rocket Internet portfolio company, a leading global tech startup incubator based in Germany. Before his career in Europe, Guillaume worked as a private equity investor at PSP Investments, one of Canada’s largest pension funds. He holds a bachelor’s in business administration from HEC Montréal and a master’s in finance from the London Business School.

 

1. In your opinion, why is this model currently trending?

This model is gaining popularity due to the attractive value proposition it offers to founders and its differentiated approach to investors. Studios engage right from the start of the startup creation process, taking the time to validate and de-risk an idea. Often, pilot customers and a minimum viable product (MVP) are already in place before founders come on board. This combination of validated ideas, operational support, and access to capital makes it an attractive proposition for founders and a unique approach for investors.

 

2. What sets you apart from other players (VCs, studios, accelerators, etc.)?

We differentiate ourselves from other players such as VCs and accelerators in several ways. Firstly, we create businesses from scratch internally. Rather than seeking existing startups in the market, we bring ideas we strongly believe into life and rigorously work to validate and de-risk these ideas. Secondly, our direct involvement in the business from the start means that we maintain a more concentrated portfolio and are incentivized to work closely with founders. Our position within the Sagard ecosystem also gives us access to a vast global network that accelerates idea validation and customer acquisition, strengthening our conviction about an opportunity.

Recently, we have expanded our scope to invest in startups outside of our studio model. This allows us to capitalize on our expertise and support more high-potential founders and startups beyond the Diagram model. Finally, I must also mention that we benefit from incredible teams that bring significant added value to founders.

 

3. What services are offered to startups?

Beyond the invested capital, we offer comprehensive support through several teams. The Venture Creation team works on validating opportunities and securing initial traction, such as signing the first customers, creating partnerships, or developing MVPs. The Investment team accompanies companies throughout their journey, including fundraising rounds and potential mergers and acquisitions, and by participating on boards. Our Venture Advisory team provides crucial operational support, including establishing financial, legal, HR, IT, and other processes vital for their success. Another important point I’d like to mention is that startups can benefit from Sagard’s expertise through their Value Creation team, which provides specific functional support as well as their Partnerships team, which facilitates business opportunities by connecting portfolio companies with our extensive network.

 

4. In your view, what are the advantages of this concept?

Since we are involved from the very beginning, we can apply our market knowledge directly to the businesses and build companies aligned with our vision of the future. Additionally, due to our rigorous validation approach, our ideas tend to be significantly less risky compared to traditional venture capital approaches. The fact that approximately 70% of our seed-stage companies reach Series A, compared to less than 20% on average, is a good example. Our companies also tend to reach Series A in 1.5-2 years, compared to over 4-5 years for a typical startup.

 

5. What challenges have you faced (Costs, founder flow, etc.)?

The level of conviction we require to launch a new business is extremely high, which means that most of our ideas do not materialize into startups. It’s a demanding approach but also the reason for our success. That said, in recent years, our team has encountered well-established startups during our validation process. Some of these companies are interestingly addressing the problem we’ve identified. In some specific cases, we’ve even considered that it would be wise to invest in these companies and support them directly, rather than creating our own competing business. Historically, we couldn’t invest in companies outside our model. But with our latest funds, we now can invest in these opportunities. This flexibility allows us to capitalize on our experience in developing businesses in our key areas of expertise.

 

6. What are the next steps for your organization?

In the short term, our goal is to increase the number of startups we launch and to increase our investments in early-stage startups. We continue to support the growth of our portfolio companies to help them become industry leaders. In the long term, we are considering the possibility of raising a second opportunity fund to continue supporting our portfolio companies throughout their journey. We also want to focus our efforts on our expanded investment strategy to identify and support external startups and promising entrepreneurs in our key sectors that are still in the early stages of development.

 


To learn more about Diagram, please visit diagram.ca.


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