Michael Fey, founder and CEO of Dallas-based Island, at the company’s new office in Coppell, Texas. In 2022, Georgian backed Island with a $60-million bet. The company has since grown revenue from US$1-million to $100-million.Jeffrey McWhorter/The Globe and Mail
It was the kind of deal that had been common during the COVID-19 pandemic technology bubble: In March, 2022, Island Technology Inc. raised US$115-million, valuing the Dallas startup at US$1.3-billion. Island was generating US$1-million in annual revenue selling an enterprise-grade browser with enhanced controls and security.
The valuation, at 1,300-times revenue, looked high, particularly since the bubble was quickly deflating from its 2021 peak. Not to Georgian, the Toronto venture capital (VC) firm. As the tech slide continued, Georgian approached Island offering to lead a US$60-million financing at the same valuation as the previous round. The deal closed in October, 2022.
“Others were slow to write cheques,” recalled Island chief executive officer Michael Fey. Revenue had quickly expanded to US$10-million by fall but Georgian was still paying 130 times sales. “It felt aggressive. But they showed up with conviction and believed we would be a great return.” Four years on, Island’s revenues exceed US$100-million; last March, it was valued at US$4.8-billion in a Coatue Management-led financing.
Georgian made its name with a similarly bold bet on Shopify Inc. from its first fund 15 years ago. The deal generated huge returns and gave the firm bragging rights.
Georgian expanded rapidly from 2013 through 2022, raising five growth funds that targeted private, revenue-generating startups plus two “alignment” funds that doubled down on portfolio companies. It is now Canada’s largest independent VC firm, with US$5.7-billion in assets under management.
But the pullback in tech valuations hit Georgian hard. It shed staff and posted weak returns in funds that had invested when markets were hot. Some investors, or limited partners (LPs), worried Georgian had grown too big, too fast and were unhappy with its performance.
Now, Georgian faces a test as it sets out to raise its first growth fund since 2023: Can it convince LPs those setbacks are behind it?
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The firm is telling an upbeat story to LPs: That its innovative approach to VC is working, its bets in artificial intelligence and cybersecurity are paying off, and returns in its later funds are better.
Georgian has told LPs it has learned from its mistakes and honed its strategy to avoid pitfalls that hurt performance in earlier funds, it maintains. The firm now highlights the Island deal and others as evidence of its investing prowess.
In its third-quarter report to LPs, Georgian called 2025 “a year that has been marked by significant learnings and increased conviction and optimism about our business.” The private capital firm declined to comment for this story, saying in an e-mail that performance and portfolio details “are highly confidential.”
Four LPs told The Globe and Mail they are encouraged by what they see, including Toronto tech entrepreneur and investor Michael Hyatt. “They’re getting a lot more disciplined about their investments,” he said.
All agreed that Georgian has acted on LP feedback; at least two plan to back the new fund, which aims to raise US$1-billion. The Globe is not identifying the sources as they are not authorized to discuss the matter publicly.
Georgian is coming to market at a time of extreme uncertainty. Canadian VCs had one of their worst fundraising years in nearly a decade in 2025, according to a Royal Bank of Canada survey. Ten-year VC returns have lagged the U.S. stock benchmark S&P 500 Index, though an improving market for initial public offerings and takeovers could mean VCs are able to sell assets they’ve held for years and return capital to LPs.
There’s another hazard: Software valuations have sunk due to the perceived threat from AI, which is transforming how digital products are built, deployed and used. How Georgian fares in its capital pursuit will depend on its ability to convince LPs it has not only changed for the better but can keep picking winners as AI upends the economy.
Georgian’s results, contained in confidential reports sent to LPs and obtained by The Globe, indicate the performance of the private capital financier’s most recent funds have improved from two years ago.
Relative returns for Georgian’s Funds IV and V (which raised US$550-million and $850-million in 2018 and 2020, respectively), have improved since mid-2024 thanks to some strong performers. They include fast-growing New York-based exchange operator IEX Group Inc., led by Canadian Brad Katsuyama, who was featured in the 2014 Michael Lewis book Flash Boys. It handles more volumes than the Toronto or London Stock Exchanges and got U.S. regulatory approval last year to operate an options exchange.
Georgian made its name with an early, bold backing of Shopify.Sean Kilpatrick/The Canadian Press
Georgian’s Fund IV is an investor in Xanadu Quantum Technologies Inc., a front-runner in the global race to develop a commercial-scale quantum computer. Toronto-based Xanadu is set to go public in March at a valuation of US$3-billion-plus. Georgian’s Xanadu stake is worth US$300-million, five times its invested capital – one of its best results to date.
Georgian will get about US$400-million for its stake in Armis Security Ltd. after the cybersecurity company agreed to a US$7.8-billion takeover by ServiceNow Inc. in December. That will return more capital to Georgian than it received in its peak exit year of 2021 by selling seven positions for US$354-million combined.
Fund IV is averaging a 10-per-cent annual return as of Sept. 30, up from 9 per cent at mid-2024. Fund V’s return slipped to 7 per cent from 8 per cent over that period – but it is doing relatively better than its peers, ranking in the second quartile of comparable VCs by performance, up from third. The Armis deal should boost that.
Georgian’s sixth, US$892-million growth fund, launched in 2022, meanwhile, is one of the better performers of its vintage, posting an average annual return of 14 per cent at Sept. 30.
Fund VI has backed some of the world’s faster-growing AI startups, including Island, vibe coding leader Replit Inc. and You.com, an AI agentic search company led by renowned researcher Richard Socher. Several Fund VI portfolio companies are worth billions of dollars. New York-based data security platform provider Cyera Ltd. was valued at US$9-billion in a Blackstone-led deal last month, more than six times its worth when Georgian invested in 2024.
IEX CEO and co-Founder Brad Katsuyama says he chose Georgian as an IEX investor in 2019 because he valued their 'thesis around trust' and long-term approach.Supplied
But Georgian is also dealing with a hangover from Fund II, which raised US$200-million in 2013, and Fund III (US$375-million) from 2016. Both rank in the bottom quartile of their peer groups with 6-per-cent and 1-per-cent annual returns, respectively. Neither is likely to deliver investment profits to Georgian after LPs get paid.
Georgian’s first alignment fund has also disappointed. The US$900-million fund’s returns are flat, five years after Georgian doubled down on five companies it had previously backed. Three of those stakes are worth less than what the fund invested; portfolio company WorkFusion, Inc., recently sold for US$191-million, below the US$310-million Georgian invested from three funds for a 50.3 per cent combined stake.
Georgian was co-founded by firm head Justin LaFayette, a towering, confident but low-key ex-professional hockey player, who had built Toronto customer data management company DWL Inc. and sold it to IBM Corp. in 2005. He left IBM in 2008 to start Georgian with fellow DWL-IBM sales executive Simon Chong and John Berton, another tech entrepreneur with finance experience. All three remain involved in investment decisions.
Like many VCs, they were drawn to the opportunities unlocked by the proliferation of smartphones, data science and cloud software. Most of their deals were in the United States.
After Fund I, Georgian set out to finance software companies that generated at least US$10-million revenue in such areas as cybersecurity and digital automation, funding about six companies a year and establishing an “impact team” of experienced executives to help them. Georgian was keen to back companies that applied data analysis to grow their businesses. That positioned Georgian to be one of the earlier VCs to lean heavily into AI; Georgian later worked with large language models, before ChatGPT’s launch.
In the late 2010s, as Georgian funded companies that applied AI to business problems, it realized many needed help persuading clients to share sensitive data to train their algorithms. So, Georgian hired technologists to develop software its companies could use for free to build that trust.
Georgian adopted startup lingo to describe its business, calling itself a “fintech.” Other VC firms didn’t do that. But the novel approach and in-house tech expertise helped it win lead roles on deals against Silicon Valley VCs.
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Anurag Goel, founder of San Francisco-based Render, got a cold e-mail from a Georgian techie in May, 2024, that offered feedback on his cloud platform for developers. Mr. Goel wasn’t fundraising at the time, but was impressed by the engineer’s informed views. “Render is the type of company you only understand if you deeply understand how developers operate and how products get built,” he said in an interview. “It became clear Georgian would help us, given their technical depth, in ways perhaps other investors wouldn’t.”
Georgian led Render’s US$80-million financing that fall. It was signing up 70,000 users a month at the time; that rate has more than tripled. Georgian led a $100-million deal this month valuing Render at US$1.5-billion.
Nikola Mrkšić, CEO of PolyAI Technologies Inc., a U.K. startup that specializes in AI voice agents, was also impressed by Georgian’s engineering know-how “that allows them to know what’s real and what’s not,” he said. Mr. Mrkšić picked Georgian over a big Silicon Valley VC firm to lead a US$40-million financing in 2022.
Mr. Katsuyama, meanwhile, liked Georgian’s “particular thesis around trust” when he chose it to become an IEX investor in 2019. “That was the cornerstone of IEX. Sometimes trust can’t be quickly monetized. IEX needed investors who had that long-term mindset. Georgian understood that.”
And as Georgian courted Island in 2022, it also pushed Mr. Fey to add AI to his browser, months before ChatGPT’s debut. “It was not the obvious conversation to be having,” Mr. Fey said. “Georgian has been an accelerant to our product development and embracing of what is now becoming one of the bigger bets.”
Georgian hasn’t shied away from bidding up to get into deals. While competitive deals are often expensive “in a number of cases, it’s warranted,” Mr. Hyatt said. Island “at first blush would have looked like an overpay, but it has led to an incredible outcome.”
That wasn’t always the case. When several portfolio companies in its earlier funds fell short of expectations, Georgian was left with overpriced holdings it had to devalue after the pandemic bubble burst. Some sold for a loss; three were writeoffs. Georgian could have taken more money off the table when valuations peaked in 2021, but it didn’t. Others did.
For example, Georgian didn’t sell a share in CS Disco Inc. after the Texas legal software company (a Fund IV company) went public in mid-2021. Its shares briefly spiked but they now trade well below the issue price. Fellow investor Bessemer Venture Partners quickly sold part of its stock, locking in solid cash returns. Georgian’s stake is now worth less than it paid.
Georgian also showed its inexperience by investing repeatedly in some companies out of the same fund as their valuations climbed. That diluted returns and contributed to the poor results of Funds II and III.
Success in VC comes from backing good companies, which LPs say Georgian has generally done. But buying and selling at the right price is just as important. By 2024, Georgian had received an earful from LPs that it wasn’t getting the balance right.
Georgian replied that its strategy had shifted. It now only pursued exceptional companies with experienced, visionary founders the firm believed would become undisputed champions in big markets. Georgian said the companies needed a “credible” path to grow annualized recurring revenue (ARR) to US$100-million from US$10-million within three years.
Mr. Fey says Georgian has been an 'accelerant' to Island's product development.Jeffrey McWhorter/The Globe and Mail
Those companies, Georgian told LPs, had continued to grow and raise money at a quickening pace (every 10 to 12 months), and at increasing valuations, even after the bubble burst. It reported to LPs in November that median year-over-year ARR growth for Fund VI companies was 114 per cent – and far higher in more recent deals.
These emerging winners benefitted from the improved economics of using AI to build companies; their valuations more than doubled every 18 months. It was the space to be in, Georgian argued, as AI agents became ubiquitous features in software.
But Georgian has also acted on LP feedback. Instead of doubling down on a company through the same fund, its first cheque now represents 85 per cent of the total that fund will invest. If Georgian makes another big bet on the company, it does so through the alignment fund or a single-asset special-purpose vehicle (SPV) separately financed by LPs.
The firm’s alignment strategy has also evolved. Rather than doubling down on bets from older funds, its US$508-million Alignment II vehicle now backs Fund VI companies. After Fund VI invested $30-million in Cyera in 2024, Alignment II co-led a US$400-million round in 2025 valuing the company at US$6-billion. With the recent Blackstone deal increasing Cyera’s valuation to US$9-billion. Fund VI’s stake is worth more than five-times what it put in.
Another change: Georgian has started methodically selling down positions in Fund VI companies as their values soar. Its goal is to recoup half the cost of its investment while keeping most of its stake. That way it returns cash to LPs - which they have increasingly demanded of all VC funds - reduces risks and still benefits from future gains.
Questions remain about what shakeout awaits established software companies that could be supplanted by AI. But Georgian continues to exude confidence in its recent picks, and investors have ploughed more than US$900-million into its SPVs since it raised the last two funds. It’s too early to know how its recent investments will fare, but that SPV haul is a good sign. If Georgian truly has its groove back, that momentum should show up in its Fund VII fundraising efforts.
Editor’s note: A previous version of this article incorrectly stated that Fund IV's stake is worth more than five times what it put into Cyera. It was Fund VI that invested in Cyera, not Fund IV.