Every time an investor backs a new company, they hope the company provides higher returns in the future. Every investor wants this. But some want more.
With their finances, they want to back companies that will make money but will also be able to transform the lives of people who use their products. In the long term, they believe finance controls the world and that it can play a bigger role in uplifting society.
This sort of investment approach is called impact investing.
Tokunboh Ishmael, co-founder and Managing Director of Alitheia Capital, says this is her firm’s investment thesis.
“Finance makes the world go round,” Ishmael says on TechCabal Live, TechCabal’s live interview series with industry leaders and financiers about building in Africa.
“The reason why we invest in these companies is that we are trying to make life easier for people and these small and growing businesses,” she says. “So, supporting that platform that allows them to transact, to save, secure financing for their business is important to us.”
This understanding is at the heart of almost everything Alitheia Capital does and how it invests in Africa.
The name Alitheia, an uncommon name, is an ancient Greek word that means “truth”, indicating the VC firm’s philosophical investment leaning. On its website, the firm manages four funds and has invested in companies including Lidya, Paga, MFS and MAX. Each of these companies play crucial roles in improving finance and transportation in their operating markets.
Alitheia’s commitment to companies goes beyond funding.
Speaking on TechCabal Live, Ishmael explains that her firm provides portfolio companies with access to talent and networks to help them scale and perform better.
“Where Paga was when we invested it, is not where it is today,” she said, underpinning her firm’s support.
Alitheia’s most recent fund is the Alitheia IDF, a high growth small business fund that invests in businesses that are majority-owned or mainly operated by women. In April, Alitheia IDF secured $75 million, its second close after receiving $12.5 million from the African Development Bank (AfDB) in 2015.
“For us, Africa can only reach its full potential when it leverages all of its assets – human assets [and] commodities assets,” Ishmael says.
“What we find is that half of the population who are women are not fully leveraged in terms of their skills and their abilities. Over 50% of small businesses are owned by women, [but] only about 2% of those get formal funding.”
“We believe that’s a hindrance to Africa reaching its potential,” she explains.
Ishmael shares a pragmatic understanding of impact investing. She explains that in most African companies, the decision-makers – boardroom and management – tend to be “overwhelmingly male.”
“When you have a too homogenous board or a management team, you’re not having that company firing on all cylinders,” she says.
Ishmael believes that having more women representation is not only a social good, it also allows businesses to perform better and see new opportunities.
Citing a McKinsey research, she explains that “companies with diverse boards and management teams are able to outperform their peers by 20-1.”
And there are certainly huge opportunities when the gender lens is on. Sectors like informal retail, fashion and the food business are all dominated by women. Technology companies are also emerging to provide health and other products that are tailored to the female gender.