Seventeen years is a long time, and for Tokunboh Ishmael, Managing Director of Alitheia Capital, the African tech ecosystem has come a long way since she co-founded Alitheia Capital in 2007 alongside Jumoke Akinwunmi.

With a professional background that has seen her work at the intersection of finance and technology, Ishmael founded Alitheia Capital to lead impact-driven investments. However, the focus was predominantly on small businesses, with private equity firms driving the majority of investments.

“Startups were not seen as a focus area for startups in my world at the time,” she tells Techpoint Africa.

Having worked with startups across Europe and America, she was convinced that an investment in tech-enabled financial institutions would yield great results. Ultimately, she convinced her team to make a few fintech investments before she left to start Alitheia Capital.

Since then, there’s been an explosion in both investments in startups on the continent and the number of startups being created. Alitheia Capital now has more than $200 million in assets under management and a portfolio that includes Paga, Seamfix, Omnibiz, and Jetstream.

But some things haven’t changed.

Investment capital in the early 2000s was dominated by development finance institutions, and that remains the case today. Much of the capital being invested in African startups comes from foreign investors, a situation she hopes changes gradually.

Ishmael notes that the solutions being developed by African founders are increasingly diverse, moving beyond addressing fundamental needs to tackling complex challenges and unlocking new opportunities.

Diversity is not a nice-to-have    

One in four African women is an entrepreneur, leading to the continent having the highest rate of female entrepreneurs globally. However, this isn’t reflected in their funding, with female founders receiving 7% of venture capital funding in 2023.

While some may push for gender diversity as a way to simply improve female participation, Ishmael stresses that having gender diverse teams improves a startup’s chances of success as it benefits from the best qualities of both genders.

“One thing I always like to remind people is that this is not just because it’s nice to have. It’s because the research has shown time and time again that diverse teams outperform solely male or solely female teams.”

Ishmael identifies two major challenges to boosting funding for female founders: affinity bias and performance bias.

While affinity bias ensures investors back people who look like them, performance bias means investors often assume female founders who may struggle to pitch as aggressively as male founders lack the ability to deliver similar results as their male counterparts.

In addressing these shortfalls, Ishmael argues that being intentional is crucial. While allocating capital to invest in female founders is a step in the right direction, she states that investors must also be intentional about finding female founders.

On the other hand, she stresses the importance of representation. Only a handful of investors in both private equity and venture capital firms in Nigeria are women, and this impacts whether capital gets to women.

Money does not guarantee success  

Access to capital is often cited as a key factor in startup success, but Ishmael contends that excellent leadership is the common denominator of successful startups.

“If you have money and you have poor management, the money will just frit away, but if you have good management and they’re executing and they’re able to show a track record, they will be like honey to bees. They will attract money that will enable them to execute.

“Remember, when you invest in a company and you give them money, it’s not so that they can just be looking at the money and it’s multiplying. It’s so they can go and execute.”

While acknowledging that founders may not always have all it takes to build a business, she insists that being able to take feedback from external parties is invaluable for every founder. For Alitheia Capital, even before investments are made, the team identifies potential knowledge and skill gaps in the startup and helps them hire employees that can plug those gaps.

“A company is not just made by the genius of one person. You need a team.”

A path to $40 billion in venture capital   

After an exciting couple of years, funding for African startups has dropped in line with the global venture capital downturn. While hopes are high for a swift return to normal investment activity, the continent still captures only a small fraction of global venture capital. How can the continent get to $40 billion in annual venture capital investments?

Ishmael explains that the first step is building more successful startups. Despite seeing funding rise, investors have been unable to point to numerous exits, and this hurts the perception of the continent as a viable investment destination. As Bernard Ghartey, Investor at Norrsken22 argued in an earlier conversation, it is unhelpful if a four-year-old acquisition is still being used as an example of success.

She adds that the media’s role is to identify successful startups and tell their stories. In addition to acquisitions, founders and investors must also explore alternative exit strategies. 

“People need to recognise that success is not going to come in the same way for everybody. Not every company is going to be bought by a Silicon Valley company, for example. There are other ways. There need to be more mergers happening to demonstrate some of the success.”

As Africa’s startup ecosystem continues to grow, the need for local investment to supplement foreign capital has become increasingly important. Local investors, particularly pension funds, have a critical role to play in supporting the continent’s startups.

Many pension funds in Africa tend to focus on low-risk investments such as treasuries or short-term securities with guaranteed returns. However, she argues that this approach neglects the potential for higher growth and returns offered by investing in startups.

Africa’s youthful demographic means that pension plan beneficiaries have a long period before they need to access their funds, and Ishmael argues that this provides pension funds with the leverage to invest in high-growth assets that can deliver significant returns over an extended period.

Building blocks for a thriving startup ecosystem  

The proliferation of accelerators in Africa’s startup ecosystem has led to debates about their role.

According to Ishmael, accelerators should be helping startups convert ideas into opportunities, providing guidance on strategy, execution, prototyping, and acting as a meeting point for early-stage capital.

Besides the role that accelerators play, she adds that the media also has a crucial role in telling the stories of startups, highlighting both successes and failures. By providing a balanced view of the ecosystem, the media can help build trust and credibility, attracting more investors and entrepreneurs to the space.