Africa needs to embrace risk to fulfil its potential, Alitheia founder Tokunboh Ishmael says

Africa needs a repricing of risk around founder-led businesses to unleash the potential of female leaders, according to Tokunboh Ishmael, co-founder and managing partner of Alitheia Capital.

Ishmael, whose firm manages the largest gender lens fund on the continent, says investors routinely write off smaller transactions and women-led businesses as too risky, when in fact the risk they are pricing in is a misperception.

"Usually the funding that is available is focused on larger transactions, they're safer from their perception," she said. "And therefore the smaller transactions, smaller businesses are deemed riskier and lack the appropriate structure for them to receive funding. From our view as Alitheia, that's a misperception. The risk that is being priced in is wrong, and we believe that people are leaving opportunity on the table."

The scale of the gap is stark: The African Development Bank points to a financing shortfall of almost $50 billion for women-led small and medium enterprises across Africa, while less than two per cent of funding goes to female founders or women-led businesses. The cause, she argues, lies partly in who sits at the allocation table: "Bias often happens when allies invest in people that look like them." A broader diversity of allocators, in gender, race and perspective, is already beginning to change that.

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Nor does she believe the answer lies in quotas. "I shy away from saying that there needs to be specific policy that says X per cent has to go to a particular group of founders. What I want to see is more visibility on both sides, more diversity on both sides."

Instead, she wants investors to widen their aperture and look beyond what they already find comfortable. "Once you're in Africa, don't just invest in that which is straight up in your face and you know is zero risk. Look beyond that, because you are leaving opportunities on the table."

African money for African businesses

One of the most striking shifts Ishmael has witnessed is the changing face of her own investor base. Alitheia's first funds had no domestic investors at all. The firm's flagship gender lens fund, which closed in 2019, had three out of ten investors from within Africa. The next fund, she says, could be split roughly evenly.

She credits African pension funds in particular for stepping beyond the easy transactions. "In the last twelve to twenty-four months, we've seen more domestic funders come to the table, particularly with the pension funds realising that they need more products to invest in, and they've been a bit too focused on the easier transactions, so to speak, and now many of the domestic investors are stepping out to look at these overlooked opportunities."

The case for green energy

While the US and European nations backtrack on their climate goals, Ishmael insists that investing in renewable energy represents economic wisdom as well as social good.

"If you have ever had the opportunity to come to Lagos, you see generators everywhere and you see a lot of black smoke. And it isn't just about the pollution that's coming out of that black smoke, but it's the cost, not just to lives, but to businesses. Energy is the largest cost bucket for businesses in Africa."

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The transition, she says, pays for itself. "There's an abundance of sunshine, just in case anyone's forgetting that, in Africa. Making that transition is cutting costs in our businesses by 50 per cent." Beyond cheaper operating costs, reliable clean energy delivers something the grid cannot: stable production. "Apart from reducing the OPEX, our factories are also able to have stable production time. Whereas relying on the grid or the dirty fuel has resulted in many factories having very choppy uptime."

New ways of powering the economy can also help overcome Africa's relative lack of grid infrastructure, she notes, as electricity can be produced cheaply almost anywhere on the continent.

AI adoption vs enablement

"AI is enabling smaller companies to wield greater output and productivity that's equivalent to maybe three, five times the teams that would have been required to do that for them in the past," Ishmael observes.

Agriculture, Africa's largest employer, is where the biggest short-term gains may be unlocked as weather prediction tools enable farmers to plan harvests and sowing based on hyper-local conditions.

But Ishmael recognises challenges even in being able to implement the technology when electricity and network connections are unreliable. Then there is the need to build data sets relevant to African SMEs rather than importing tools trained elsewhere. And finally comes the question of skills.

Alitheia recently ran a workshop with Google for 300 women-led businesses in Lagos, precisely to bridge that gap. "AI adoption is not the same as AI enablement," Ismael said. "We need to move businesses away from just thinking downloading AI is what's going to drive that productivity and efficiency."

Where the opportunity is

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Asked which sectors excite her most, Ishmael points first to financial services, where technology is removing the friction from transactions and widening access. Agribusiness comes next, particularly companies that process African produce for export. "We like agribusinesses in the real economy who are taking agro produce and creating products that can be consumed locally in Africa, but more importantly or as importantly, exported."

Manufacturing follows, with a green and digital overlay. "What I would layer on to that is the ability to green and digitise the real economy. Put money into this essential infrastructure: energy infrastructure and digital infrastructure."

Her portfolio illustrates the thesis. OmniRetail, hailed as one of the fastest growing companies on the 2024 FT Africa list, connects micro retailers to multinationals with digital payments and stock-taking tools. Complete Farmer links smallholder farmers in Ghana to global buyers while helping them improve yields, collect payments and build digital identities. Psaltry and ReelFruit turn cassava, fruit and nut crops into manufactured products for local consumption and export.