More investors get behind women’s startups in Africa

When ‘Tokunboh Ishmael walked through the streets of Lagos, Nigeria’s commercial capital, there were women doing business everywhere she turned. They tended to stalls frying donuts and grilling skewers of meat. They sat behind sewing machines turning out custom-made designs and wove between cars in Nigeria’s infamous traffic jams, hawking air freshener and inflatable pool toys to bored commuters.

But inside the crisp, air-conditioned offices where she worked in banking, and later private equity, the story was different. Although Africa has the highest rates of female entrepreneurship in the world, there is a funding gap of about $42 billion between men and women entrepreneurs on the continent, according to the African Development Bank. In 2018, for instance, African startups received some $725 million in venture capital funding. Of this, just 2% went to businesses owned by women.

Ms. Ishmael is part of a growing group of women investors in Africa trying to rewrite that story by deliberately investing in businesses owned by and serving women. In 2016, she co-founded Alitheia IDF within Alitheia Capital, the private equity firm where she is managing director, to focus on exactly that. So far, the fund has raised about $70 million.

There’s a moral imperative to that work, investors like Ms. Ishmael say, because it brings women into spaces of power, wealth, and decision-making from which they’ve historically been excluded.

But it also just makes good business sense.

Courtesy of Tokunboh Ishmael

'Tokunboh Ishmael co-founded the Alitheia Identity Fund within Alitheia Capital. The fund has raised $70 million and has backed a number of African businesses that are led by and targeted toward women.

“We are operating in an area where money was being left on the table and we saw an opportunity,” Ms. Ishmael says. She knew the stats: businesses owned by women grow faster, use money more efficiently, and generate more profit than those owned by men. Diversity, more generally, makes companies more creative and innovative. “I want Nigeria to reach its full potential and I want Africa to reach its full potential and they’re not going to do that if they don’t fully embrace the potential of women.”

Worldwide gap

The problem reaches beyond Africa. In the United States, all-female teams receive about 2% of venture capital funds. In the United Kingdom, the figure hovers around 1%. And the problem is compounded for women of color. In the U.S., Black female founders received just $6 of every $1 million.

The problem, experts say, is that women have been cut off from participation at every level when it comes to venture capital, private equity, and even more traditional forms of lending and investment like bank loans.

“Funding is not a gender-neutral space,” says Sharron McPherson, a longtime investor in African business and lecturer at the University of Cape Town’s business school. “Women investors and women with companies to be invested in are working in spaces that were never made for them. They are swimming upstream, while men float along with the current.”

There are many hurdles to women’s participation, she says. On the smallest scale, only 37% of African women have a bank account, compared to 48% of men, and that gap is widening, even as access to finance grows. Women are often discouraged from borrowing money, both by lenders and by their own lack of financial education.

On the scale of startups looking for venture capital funds and established companies seeking private equity dollars, women still struggle to be taken seriously for their ideas because of conscious and unconscious gender biases. One 2014 study from Harvard, for instance, showed that a pitch presentation to investors given in a woman’s voice was less likely to be funded than one given in a man’s voice – even when the content was identical.

Another study from 2017 found that women founders were far more likely to be asked “preventative” questions about their businesses – that is, questions focused on their potential losses. Men, on the other hand, were asked more “promotion” questions focusing on the “upsides and potential gains” of their businesses, a line of questioning that resulted in six times as much funding on average.

Many investors also come out of male-dominated fields like technology, mining, and agriculture, and are more inclined to invest in them than businesses built around products or services targeted at women, like maternal health, menstruation products, or makeup. And much of the networking that leads to those deals still happens in informal settings that women either can’t attend or aren’t invited to – like golf games and after-work drinks.

“There are invisible barriers to entry for women that men don’t see or face,” says Nthabiseng Moleko, deputy chairperson of the Commission for Gender Equality in South Africa, and a development economist.

Funding change

That’s where funds like Ms. Ishmael’s Alitheia IDF come in – to direct money deliberately toward companies built around women.

“This is about finding companies with diversity at the top, but also at the bottom,” she says. For example, in recent years, Alitheia Capital, Alitheia IDF’s management firm, has backed a number of African businesses that are both led by and targeted toward women. In Ghana, Alitheia funded Innovative Microfinance, a company providing small loans to rural Ghanaians without bank accounts, most of them women who own small businesses like market stalls.

And in Nigeria, Alitheia backed a woman-owned tomato paste company called Tomato Jos. About 30% of the company’s tomato producers are now women, says founder Mira Mehta, and the company is trying to increase that figure – in part because they’ve found women are a better bet.

“We see our women farmers making bigger investments in their communities” with their profits than the men, she says, such as using their money to pay for children’s schooling and medical care. And when it comes to farming, Ms. Mehta says the women her company works with continually have the best yields.

“Time and time again,” she says, “they just outperform the men.”

Editor’s note: An earlier version of this story misstated the full name of Alitheia IDF, and its relationship to Alitheia Capital.