Investing in Women is an Economic Imperative

February 22, 2024

Despite research showing that female founders outperform their male peers, startups with a solo female founder or an all-female founding team raised a mere 2% of all the funding in Africa last year. There is a huge gender funding gap. How do we close it?

This episode is the third of a five-episode series on gender lens investing, co-hosted by Eloho Omame, Founding Partner of First Check Africa, an early-stage fund backing female-led startups. Each episode of this series will explore a different level of the fundraising value chain.

In this episode, we're joined by the investors. Tokunboh Ishmael is the Co-founder and Managing Partner of Alithea Capital, a $100 million gender lens private equity fund. Andreata Muforo is a Partner at TLcom Capital, an early-stage venture capital fund with a 60% female partnership.

00:00 - Investing in women is an economic imperative
02:12 - Introducing Tokunboh
04:04 - An Alitheia-led thesis
05:36 - What does gender-lens investing look like in practice?
11:49 - What about the financial returns?
13:35 - Impact targets
17:24 - Are there enough women founders in the pipeline?
19:54 - Women are over-mentored and under-funded
23:48 - Is a female investor backing a female founder a negative signal?
26:53 - What does success look like?
29:47 - Introducing Andreata
31:15 - Why is a traditional VC fund like TLcom trying so hard to invest in more female founders?
33:03 - How VCs make investment decisions
36:18 - Only 25% of the pipeline has a female co-founder
40:44 - Is there a fundamental mismatch with VC and gender-lens investing?
42:31 - What does success look like? Part two
46:47 - A retrospective conversation with Eloho & Justin

This series is created under the ScaleX project: Co-designing Solutions to close the early stage gender-financing gap in Africa, an initiative of Make-IT in Africa. Make-IT in Africa promotes entrepreneurship and innovation ecosystems across Africa for green and inclusive development. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH implements this project on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ).

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Tokunboh Ishmael: This is not just a moral obligation, it's an economic imperative.

Andreata Muforo: 50% of the global population is women. How can we take advantage of half of the population?

Justin Norman: That's Tokunboh Ishmael, managing partner of Alitheia Capital and Andreata Muforo, partner of TLcom Capital.

Justin Norman: So your thesis is, there's a lot of bankable opportunities that are being missed because women are being overlooked?

Andreata Muforo: Fundamentally, it's an untapped opportunity. It's potential and opportunity we're leaving on the table.

Tokunboh Ishmael: We do need to shift more capital towards female founders intentionally.

Eloho Omame: But there's also then misperception that, that can sometimes be a negative signal to the rest of the ecosystem.

Tokunboh Ishmael: People that are saying because a female founder is raised from a female-led fund, it's less commercial. Am I allowed to swear? Bulls**t.

Justin Norman: Despite research showing that female founders outperform their male peers, startups with a solo female founder or an all-female founding team raised a mere 2% of all the funding in Africa last year. There is a huge gender funding gap. How do we close it? This episode is the third of a five-episode series on gender-lens investing, co-hosted by Eloho Omame, founding partner of FirstCheck Africa, an early stage fund backing female-led startups. Each episode of this series will explore a different level of the fundraising value chain. In this episode, we're joined by the investors: Tokunboh Ishmael, co-founder and managing partner of Alitheia Capital, a $100 million gender lens investing private equity fund. And Andreata Muforo, a partner at TLcom Capital, an early stage fund managing $300 million with a 60% female partnership.

Justin Norman: This series is created under the ScaleX Project, co-designing solutions to close the early stage gender financing gap in Africa. An initiative of Make-IT in Africa. Make-IT in Africa promotes entrepreneurship and innovation ecosystems across Africa for green and inclusive development. The program is implemented by the German Development Agency, GIZ, on behalf of the German Federal Ministry for Economic Cooperation and Development.

Justin Norman: Before we start, we have one small favor to ask. If you enjoy the show and want to support the content that we create, please hit that Subscribe button. It only takes a second, but it will mean a lot to us if you do.

Tokunboh Ishmael: We've been investing in opportunities that have driven inclusion, financial inclusion, energy inclusion, and most recently driving for gender inclusion and diversity in investments to address the financing challenges of female founders on the one hand, but also to drive for dividends of diversity through companies that are serving women or where overwhelmingly women are part of the value chain. So that's our most recent fund, which is the Alitheia IDF fund, which we run in partnership with IDF out of South Africa. It's a $100 million fund, which is focused on gender lens investing, being gender smart, looking at how the gender consciousness from the ownership through boardroom, through employee, through consumption can play a role in driving for better governance, better innovation, and more effective decision-making, and really taking money that's been left on the table by investors that are not being gender smart.

Tokunboh Ishmael: When we think about purchasing power of women across the globe, it's over $15 trillion, and not being conscious about the role that women play in our economies when leaving money on the table. So we're addressing that and we're also addressing the funding gap where we see over 50% of businesses in Africa, in particular, owned by women, but less than 5% of funding being driven towards such founders.

Justin Norman: So your thesis is, in the first place, there's lot of bankable opportunities that are being missed because women are being overlooked. And was that the pitch to LPs? There is this huge opportunity that you guys are overlooking and we're raising this fund for that? Or how much of it was also the LPs saying, we have this like impact or gender lens mandate and we're looking for a fund manager to support that?

Tokunboh Ishmael: Actually it started from us as a fund manager looking at the opportunity, looking at money that was left on the table. And also, there was a lot of research around how there was a financial gap to female-led businesses, but also, there were also the conversations around the purchasing power of the woman as a decision maker. And then one that I like to talk about is the fact that if you do have 50% of the population of one gender and you are not bringing them to the table and being involved fully in economic activity, how can a continent like Africa reach its full potential? And so there were those various strands that made us think about, how do we address the gap? We already had the impact consciousness and then for us it was like, okay, what's the next thesis for inclusion? How can Africa reach its full potential?

Eloho Omame: I want to talk a little bit or understand a little bit on the investment sort of decision side and the portfolio side as well, the implications therefore of how you all make investments at Alitheia. So a couple of questions in this area: Perhaps you could give us examples then within the portfolio of when you talk about, on the one hand, thinking about the gender lens across your sort of investment strategy, as, I think you referred to, first of all, you said female-led businesses, but then you started to talk about inclusion, and gender inclusion across effectively the entire, call it value chain of a business. Maybe you could sort of illustrate that for us.

Tokunboh Ishmael: Absolutely. So, I can, let me take Jetstream as an obviously female-led business. Jetstream is a logistics tech business and it's put in, injecting tech into the logistics value chain, particularly for imports and exports. So it's providing a tech platform for freight forwarders, so it's techifying that platform. So that's a business that was started by a female founder who had difficulty raising funding and also was looking for a partner that could help her articulate what she was trying to do in a typically male-dominated environment, such that she could scale and bring her skills to bear and tell stories.

Tokunboh Ishmael: I'll tell you another female-led one. A food snack company, Chika's, which was started in Europe, which was contract manufacturing to supply West African inspired snacks into supermarkets in Europe, UK, and the Middle East. So she didn't come to us proactively herself. We reached out and said, we see what you're doing. Looks like you need funding. If you really want to scale the business to reach the ambition I hear you're talking about. And she's like, yeah, I just need a million dollars to increase my contract volume.

Tokunboh Ishmael: And I said, okay, but what about if you become a manufacturer? Let's help you raise your aspirations. Okay, let's help you think bigger than just contract manufacturing. And by the way, if you backward-integrate and set up a factory in West Africa, where you're talking about the West African-inspired snacks, you can also get the local imports' manufacturer and be an exporter. And suddenly, we went from $1 million to $6 million. So helping that female founder raise their aspirations, even though they already had the articulation about raising funding, by helping them think a bit bigger about that.

Justin Norman: Laying out the variety of different case studies that you just provided to us, I think there's a question inside of there around, gender lens is the thread that is weaved through all of those companies, but as a private equity investor, there's quite a considerable range of the types of companies that you're investing in. And I'm curious how you think about, from an investment decisioning perspective, operating across a range of different businesses, what does that mean then in terms of how you make decisions and how you work with your portfolio companies accordingly?

Tokunboh Ishmael: We were founded in 2007, and we were founded as an impact investor driving for inclusion. Now, some of our first investments were about, okay, we're in microfinance or financial services, but then we realized that if we're going to have broad impact and access, technology has to play a role. And so that led us to making literally one of the first FinTech investments in Nigeria. And one thing I always say is that tech is a tool. At some point, tech became the dog and tech should remain the tail and not be wagging the dog. Tech is the tool. So, to answer your question, even as we do have a number of industries, we have some opportunities that are VC and tech-focused that are changing, transforming traditional industries. But I always say to the team, they are still traditional industries.

Tokunboh Ishmael: The difference now is the stage of entry in which we've come into that business. We've made a number of tech investments. We're not a pure tech company, but we see the leverage for tech to help us drive on our inclusion mandates, on our mandates to make it possible for ordinary folk to have access to essential goods and services, tech will play a role. And then we work in agro services, agro-processing. It's the largest employer on the continent. There's significant opportunity. There's food insecurity, which plays into our mandate of affordable and accessible goods. Food and job creation is where we can have the largest bang for our buck in that area. So we, of course, we are in that sector. And being the largest employer, that's also where you see a preponderance of female producers.

Tokunboh Ishmael: And then manufacturing. Again, we need to begin to drive for import substitution in our market. We see the leverage of manufacturing companies and particularly where their products and services have a direct impact for the female population. And it's a large job creator. So it's addressing the impact there. So yes, we look at different sectors and we also look at different stages, especially where we can help develop an industry that's important.

Eloho Omame: So, the third piece then, as we think about portfolio investment strategy, approach to investments, et cetera, is the returns piece, via returns. Financially, you have an impact and a social dimension as well. How do you sort of think about those things at Alitheia? How do you think about what your benchmarks are? How do you think about what matters and how specifically do you measure your success?

Tokunboh Ishmael: Yeah. So what we promise our investors, minimum 2X return and actually internally, we track for 3X on our returns. And so we don't do charitable investments. And we are very clear on that in the firm, but we are driving for return and we are driving to have societal developmental impact in what we're doing. When we started out, it wasn't something that many firms were focused on. Now it's more broadly known that we can't just make investments for money's sake, there needs to be an impact on people's lives and livelihoods. And so we do drive for that, but we don't say, oh, because of that, we're just gonna do 1X. So we do have unrealized returns in our current portfolio that are tracking on above what we've promised. We are constantly sort of driving for that. At the same time, as we begin to screen an investment, even if it's going to make us 10X, if we do not see that it can drive for the impact targets that we have, we're not gonna do that; make that investment.

Eloho Omame: So as you think about those impact metrics, are you setting impact metrics across the portfolio? Do you have the same impact metrics that everybody must meet or are you potentially setting different impact targets and metrics on a deal by deal basis depending on the nature of the company, the sector, that kind of thing?

Tokunboh Ishmael: So we have portfolio impact metrics and we have company-by-company impact metrics. So yes, so we have targets set at the fund level and we have targets that flow into that from each company. And in some companies, we might add extra targets because it's possible to do that in that particular company. So at the fund level, for example, we have a key target that at least 50% of our portfolio must be female-led businesses. But actually we drive for like 80% on that. And then at the company level, if we're looking at ownership, it can't just be, you say you're female-led, but it is only like 3% that has just been gifted to somebody just to make it seem like you are female-led.

Tokunboh Ishmael: So we'll have a target there, but we'll also have a target on, if a company is male-led, we will introduce a target into that company around ownership for female participation, which may not be just about employing somebody who can come on as say, a third partner, but somebody... But maybe even setting up a specific employee option scheme that will enable women to buy into ownership within the company. And actually, when we do that, we don't exclude male employees from that, but by doing that, sometimes we've found that we've been able to also improve the possibility and potential for male employees to buy into ownership. So we like to think about when we bring that gender consciousness that it primarily, it will seem as though it's primarily for female employees, but what we're ending up doing is raising the bar for all employees and improving work conditions for everybody.

Justin Norman: Yeah, well, I was just thinking, it's almost like when people talk about equality and they think that like equality is unequal for other people, right? It's not that you're being like prejudiced against men. You're just doing something that's good for everybody, I suppose.

Tokunboh Ishmael: Yeah, there's some cases where in some factories, where the lighting is just poor, maybe you find that actually it's affecting the woman more because she's feeling more insecure in certain parts of the plant, and dah, dah, dah. And so you may think you are addressing that insecurity, but actually it's just improving the work condition for everybody. We've been to some factories where there are female workers, but there are no toilets for women in 2020... We're now 4, right? And so when we then say, okay, we need to improve that sanitary condition, we're then also looking at what kind of sanitary condition do you have for the men? And you're lifting all boats. Some people might see that as, oh, that's kind of a CSL thing. No, but if you make the working conditions better for the people who are serving your customers, you're gonna have better products, better service.

Justin Norman: I wanna talk a little bit, maybe just doubling back to deal flow and investment decisioning, there's a narrative also about, well, especially in the venture space, there's not as many female entrepreneurs, not as many female-led businesses, and that's a difficulty when trying to seek venture returns in particular. My sense, and correct me if I'm wrong, is that in your portfolio, obviously having a sort of wider aperture means that your deal flow might look better than a traditional venture capital company from a gender lens perspective. But I'm curious to know what the pipeline looks like and also we've heard other people throughout this sort of exploration of the value chain talk about there are upstream interventions necessary to create investment-ready founders. And for you, especially at the growth stage, what does that look like?

Tokunboh Ishmael: Yeah. So one thing I will say is that we are very intentional and proactive about our portfolio development. So we don't just wait for transactions to come, we go out and create transactions. So like the one that I spoke about earlier on Chika's and snack business, we created an opportunity there, and we helped her to see beyond what she was thinking about, but specifically answering your question towards tech, we have a range of sizes of tech companies that we are now working with actually. And we find that the much larger ones and visible are male-led. And so when we come along, we're saying, okay, how do we bring in women to participate, dah dah dah dah. And then we find that the female-led tech businesses, we are having to search more deliberately for them. And we're also having to help those entrepreneurs raise their aspirations. And because we're not a tech company, people don't necessarily come to us directly for tech businesses, right?

Tokunboh Ishmael: I think Eloho probably sees more of the tech-deliberate founders than we do. But we are intentional about looking out for that cohort. But what we do see is a smaller scale type of tech, female entrepreneur. And so we work behind the scenes. We actually run something called a bootcamp for that kind of investment readiness and saying, this is what we would like you to look like in a few years' time. Come back when you've done X, Y, and Z.

Eloho Omame: I'm gonna change tacks a little bit and I get your perspective on narratives across female founder ecosystem. I don't think necessarily these narratives are specific to Africa, but obviously we're talking about the Africa ecosystem in this instance. So specifically on the one hand, this idea of female founders being over-mentored and underfunded, there is a gap, but there's also, sometimes we're getting this feedback from the people on the other side of the table saying, there's also some work that needs to be done there from an investment-readiness perspective. What do you think, I suppose, about these narratives and how do you sort of approach those things when you think about the broader goal of supporting female entrepreneurs?

Tokunboh Ishmael: Yeah, so first of all, on the aspect of being over-mentored, I think that there are many programs out there that feel they're addressing the gap by just mentoring but not bringing funding. And so I can see where that's coming from. I can, I understand that. So yes, that does exist, but I do feel that we also, as female founders, you need to tell your story and you need to tell it right. And numbers don't lie. Unfortunately, people are looking for evidence from you of what you've done more than when they're speaking to your male counterparts, where that energy of selling the upside really just gets the investor going. And because there is that affinity that the decision maker has with all that energy, and that go, go, go and the role models that are out there, they see that, oh, you're very much like that person, so you must be heading in that direction.

Tokunboh Ishmael: And we have to beat them at that game and also come out to tell that story and bring that energy with the data to back it up, 'cause you know they're going to be asking for your data and your track record. So come prepared. And everything counts towards your data and your track record. But even before you get in front of the investor, you need to be tooting your horn. You need to be visible, you need to be out there. If you want to go beyond a lifestyle business, you need to do things that business people do in terms of getting their brand out there, talking up what they are doing with the right numbers and facts to go with it. And so when people are saying, oh, maybe you're less commercial, show them you're not.

Eloho Omame: So what I'm hearing you say on this over-mentored, underfunded piece is yes, there's some truth to the idea that there is quite a lot of mentoring program that doesn't come with capital. The capital piece is critical, but perhaps the mentoring piece also needs to focus on the storytelling and the aspiration raising, is that fair in terms of how you think about the mentoring?

Tokunboh Ishmael: Yes.

Eloho Omame: Not that the female founders need primarily.

Tokunboh Ishmael: Yes. But also, if you're a female founder and you see a program that's all about mentoring and not capital, what I'm saying is that what you need to be doing is the things that a female founder needs to do, not necessarily having to go through a program to be mentored on this, is to tell their story, come with their facts, sell their track record, sell them, and be out there even before they go fundraising. Be visible. And you don't need to go to a mentoring camp that's not going to give you any money to learn to do that. Right? In fact, they're going to chase you. When I say we're proactive about going out there to look for opportunities, if you are visible, I will find you and I will contact you. If you are publicizing the right things about the growth of your business and numbers and et cetera, I will find you because I'm looking for you.

Eloho Omame: The other narrative of this is also research based is this idea that for a female founder, sometimes it can be a little bit of a double-edged sword when you are dealing with gender lens investors or female investors, not even necessarily gender-lens, to the extent that you struggle to raise capital, you have an idea or you have a business that perhaps is more readily appreciated by a female investor or a gender lens fund. You raise your first capital from them. But there's also then this perception that that by in and of itself can sometimes be a negative signal to the rest of the ecosystem who, for whatever reason, view that as some sort of confirmation that perhaps there's a non-commercial reason why that investment was made. So you are sort of caught between a rock and a hard place. How do you think about that? Do you think it's unfortunate but true? How do you address it when you think about the companies that you work with and preparing them for the next fundraising rounds that they have, et cetera?

Tokunboh Ishmael: So when we come on, we're driving them hard on the numbers. We're not treating them with kid gloves 'cause they're women. This is not any pink anything. I'm wearing pink nail polish, by the way. But my nails, my bite is not pink in any way.

Eloho Omame: That's the only pink on you.

Tokunboh Ishmael: I'm fully... I know, my glasses as well, right? But let tell you that is a facade because I'm hard and I know I'm hard. The message still needs to be bottom line, how are we meeting the numbers? How are we growing? What are we going after? By the way, you owe me a coupon and I'm not forgiving the coupon because you told me you can meet your numbers. And so let's work together for you to meet those numbers so that you and I will be happy and my investors will be happy. I can't go out and raise another fund if I'm not delivering now. So you too, you have to deliver. People that are saying because a female founder is raised from a female led fund, it's less commercial... Am I allowed to swear? I won't swear. Bulls**t, because I... Because you know what? I trained on Wall Street. I went to the same business schools. I bring finance disciplines.

Tokunboh Ishmael: Before I became an impact investor, my journey into it was because I was fed up with just making money, but at the same time, stepping from air-conditioned car to office to home and ignoring the fact that we all are living in rich houses in a slum. And I was like, we need to do something about this. And so I didn't come to this from a CSR point of view, I came to it from someone who had worked on Wall Street, who had worked in Silicon Valley, made some money, and wants to continue to make money, but also wants a richer heart. Because if we're in this just for the money, how miserable are we?

Justin Norman: I think that that raises a question in my mind, as maybe a final question. There's perhaps this question about what success looks like from an impact perspective at large, and then certainly, in the gender lens ecosystem as well. Everyone talks about wanting to close the gender financing gap. So is success strictly unlocking more capital for women founders or is it more of the intangible sort of social returns? And I think there's a ecosystem-wide question about, what are the right metrics to use to measure success? So what for you is the goal and how is success measured more broadly?

Tokunboh Ishmael: One thing I do say is that this is not just a moral obligation, it's an economic imperative. And that is we do need to shift more capital towards female founders, intentionally. We said by 2030, we set an ambitious goal, I think at the Africa Sustainable Conference in 2022, by 2030 we wanted to see 50% of funding go to women, which was like a 10X more growth from 5% to 50%. And we're seeing that there's more discussion and more money going into funds. So for me, success is pushing the needle closer to that parity level. And that's, like I said, not just a nice to have, it is a moral obligation, and it is also an economic imperative because you can't ignore 50% of the population. Who's the chief decision maker in purchases in the home?

Tokunboh Ishmael: And the number out there two years ago was like purchasing decisions are over $15 trillion in the hands of the women. I'm sure it's grown since then, right? How can you be creating products and services that do not also cater to that consumer? And on the producer front, how do you think Africa is going to reach its full potential if we're like walking around with one leg and one arm amputated because we're only catering to half of the population? We're just going to keep hobbling and falling over. And like I said earlier, the dividends of diversity do result in better corporate governance, better decision-making, better, more robust innovation. And that's what we need to do, We need to lift the boat for everyone when we address the inequalities and inequities in our society, and on the economic pyramid.

Justin Norman: Closing the gender funding gap requires not only participation from gender-lens investors like Tokunboh, but also from more traditional private equity and venture capital investors, as well. So in this episode, we also spoke to one of those traditional investors: Andreata Muforo, a Partner at TLcom Capital.

Andreata Muforo: I think I can just start from the fact that, at TLcom, we have a fairly balanced, actually even more heavier leaning towards women, a partner team. So 60% of the partners at TLcom are female. And even on our investment committee, the majority are women, which interestingly didn't happen by design. And what we've done over the years is taken advantage of this advantage that we have of having female partners because that means our female network is much larger. So if you think about female founders, we have greater networks to female founders, if you think about other investors and other connections we can make, and then how we can also better connect with the ecosystem. And over the years, we've started to do a number of activities that are focused on building the ecosystem for female founders.

Andreata Muforo: So every year, we host the Female Founder Summit. We also take strong initiatives to build our pipeline, make sure that it's robust. And we hold ourselves accountable to making sure that we have a good percentage of female founders in our pipeline. And then also we've been working alongside FirstCheck Africa with a co-investment agreement to invest in female founders at the pre-seed stage. So we're working hard. I mean, we probably could do more, but we really wanna see more female founders in the ecosystem.

Justin Norman: What's driving the desire to increase the number of female founders in the ecosystem? Is it a sort of downstream impact of the GP? Is it a bet on sort of differentiated returns? Is it your LPs? Is it all of the above? Why this focus without being, I suppose, also like an explicitly gender lens investor as well?

Andreata Muforo: So the main driver for us is fundamentally that, it's an untapped opportunity. It's potential and opportunity we are leaving on the table. Like if you take it from the top, 50% of the global population is women. So not just VC, if you look across and you see some of the biases and the inequality that women experience in the business world or in other parts of the world, it just means that the world is not benefiting from the value that women can bring to the table. So I think on a global level, it's just that thought that, okay, there's an opportunity here which we're not tapping, how can we take advantage of half of the population that's underrepresented, that's not getting as many opportunities? And then now when it comes down to ourselves in venture capital, we want to see more female founders because that means there are more founders in general because we thrive on a rich, diverse pipeline that we can then look at in order to be able to make investments. So the richer the pipeline, the better the investments we'll make. Also the stronger, also the founders we're able to pick. It also means that there are diverse businesses that we're able to see. So I think fundamentally, it just makes for a richer ecosystem for us.

Eloho Omame: So Andreata, maybe it's useful for us to take a step back and talk a little bit about ultimately how TLcom makes investment decisions. I'm hearing a lot from you. And of course, it's familiar because we're partners at TLcom, but I'm hearing a lot from you around thinking about making that ecosystem richer and effectively expanding the top of the funnel, so that there are more female founders coming into the top of the funnel, more challenges, and more problem idea mazes that they're trying to solve for, et cetera. Maybe you can talk a bit about then what that decision framing looks like.

Andreata Muforo: So the way we think about making investment decisions, starting from the top is there are three main buckets. The fundamental questions are around the market, the company, and then the investment itself. When we see a company, we look at the market and ask ourselves, is this a large enough problem that is being solved here? As a venture capital investor, we always have this question in our head, in our minds as we invest, which is, is this investment potentially a fund returner? If everything else fails, and this is the one investment that was left, can I return the fund with this investment? Just because of the nature of the asset class. So the market is a big piece, and in fact, many investments fail at that, when you're sizing in that criteria. And also for us, technology has to play a role, because what technology is, is the engine for growth and scale within this business.

Andreata Muforo: So the technology has a... There's a role to play. The next piece that we look at is around the company. We look at the company and we say, is this the business model that can capture this opportunity? And then is this the team that can execute on this business model? And then the third bucket of questions we're asking ourselves is about the investment, which is where the valuation piece also comes in. It's one of the things that we look at within the investment, but it's not the only one. So we're looking at, does the valuation make sense for us at the stage that we're investing? So from a risk return stage perspective, the stake that we'll be able to get, the terms that we'll be able to also get, if we are able to check on those three, then you make an investment.

Andreata Muforo: As you can imagine, like it's a lot of questions to be answering, which is why when you now look at the funnel, venture capital funds invest in 1% to 2% of the companies that they see. So in the end, it's actually a few companies that pass through the funnel. We may be wrong in our assessment, but I mean, we do our best, given the information that we have along those verticals to see this indeed is an opportunity investment that we would like to make.

Eloho Omame: I think it'd be interesting just to talk about, you referenced the funnel with the pipeline. Maybe we can also talk a little bit or share a little bit about what the actual pipeline looks like in terms of number of companies that comes in, but also what proportion of those are female-led versus non-female led. Our hypothesis around what the drivers are. I think it's obvious that we'd like to see more female-led companies at the top of our funnel, but it'd be interesting to talk about some of the drivers. So for example, the framework that you just described, market, business, investment, there's a lot of, what's the word? Anecdote, bias, what have you, around where female-led ventures fall down. We find that to be a little bit interesting, but perhaps it's useful just to have that discussion here.

Andreata Muforo: So if we look at our pipeline, at any given moment, 20% to 25% of the companies that we see have a female co-founder. So somewhere within the co-founding team, and about 5% are CEO, 5% to 7% are CEOs, which shows you from the onset that the percentage is low of female founders within the tech ecosystem, which filters into now how many get funded. Because like I was just saying earlier, venture capital funds typically will invest in 1% to 2% of the companies that they see after they've done their assessments and their evaluations.

Andreata Muforo: So if you start with 15%, that means you're going to have a lower number at the end because the pipeline was not large enough. So I think that's one challenge, the fact that they're just not as many. And this is coming also from, I think at TLcom, we go high and low to find female founders and we're quite open and available for them to reach out to us. For the last four years, we've done these summits so we have a very long database of female founders. So it's also not that they're not there, but I think we've kind of canvassed a good amount. But even within that, there are not many. So that's one challenge. If you look in the SME trade businesses, there're actually more women who are running SMEs, but on the tech side, it's a bit less. And I think some of the nuances there around the fact that, I think there's a perception that to be a tech founder, you need to have a technical background, which I think is useful, but I don't think it's a must.

Andreata Muforo: You don't need to have done programming and all of this stuff. But I think that's something that's limiting and hinders people from starting tech startups. So I think part of it is building that pipeline. And then, yeah, of course, also there's bias. Even we have biases. I think their bias is just around, what makes for a tech founder? And that some people can use that to judge that as competent or not competent, or your ability to scale and build a large organization.

Eloho Omame: Andreata, there's always an interesting question when you start to think about this goal of supporting more female entrepreneurs. And you touched on it when you referenced, for example, if you look outside of tech and you look at the proportion of female entrepreneurs versus their male counterparts, you sort of expand the circle a little bit. So I suppose the question that I often get asked, and I'd be interested in your response as well, is, well, if the goal is to fund more women and women are building outside of the technology sector, why this insistence from an investment strategy perspective on technology businesses.

Eloho Omame: Another way to sort of, I guess, think about it is if we think about within the gender lens ecosystem, I think sometimes you see a little bit of fluidity around the kinds of businesses that they will invest in. So sometimes we see cap tables that have VC investors, tech companies have VC, have gender lens investors, and then that same investor in their portfolio has a manufacturing SME business, et cetera. So I suppose the overarching objective, I guess, would be, I'm funding more female entrepreneurs. So there's also an argument that says, if that's the objective as TLcom, why this insistence on staying in this kind of narrow lane of technology enabled businesses? How do you think about that?

Andreata Muforo: So for us at TLcom, so fundamentally what we are is a commercial venture capital fund in the traditional sense. And of course, we're doing this in Africa, so we care about the impact element. And of course, we want to see more women either as founders or being served by the companies that we invest. So, as a venture capital fund, your degrees of freedom on what to invest in are pretty limited because what you find is, it's a riskier asset class, fundamentally. And the way you win in venture is by investing in companies that have potential for significant scale, because of the nature of the asset class. I mean, we go in knowing at the end of it all, close to a third of the companies are going to not return capital, a third will be okay, and then the other third will return the fund plus the return. So now if you look at more traditional businesses, which are all very valid and we should have them in the ecosystem, but they're just not VC-backable is because they're growing say, 20%-30% year on year, which cannot return a fund, if you think about the VC model.

Eloho Omame: So it sounds like there's a fundamental challenge, right, or a fundamental mismatch, which funds like ours who have if you also acknowledge that fewer women are starting technology-enabled businesses on the one hand and on the other hand, as a venture capital firm, with a very specific mandate that makes a lot of sense. I'm a believer, you kind of need the two things to match up. And to be honest, it's not, this is not so much a question as it is a comment. I think for me, it's something I think about all the time, like what is the highest leverage solution, right, as we try and fix that? Is it kind of encouraging more women into the ecosystem? Is it helping more women shift their mindsets towards venture scale? Is it neither of those things? Is it something else? It's a tension, right? And it's one that I think the very noble objective that we have around supporting more female founders, it's one that I think we constantly have to think about as we think about how we approach that objective, right, and sort of what the solution is.

Andreata Muforo: I think what it is also is about having the right instrument for the right business, the right capital for the right business. So, for the businesses that are more SME private equity-like, we need more private equity SME type of capital, we need banks to actually lend, right? Because that's the other problem. They're not lending and providing debt capital, because sometimes what you... You don't need equity, you actually, what you need is debt, you need working capital, and that's not available in the ecosystem. So I think a more thriving ecosystem is one where you have all these instruments, so you have venture, you have private equity, you have working capital facilities, you have debt, and then the entrepreneurs based on the business profile that they have can then go and see which is the right capital for the business, which is not the case right now on the continent.

Justin Norman: This raises a question in my mind about what is the actual goal, right? And maybe the answer is it depends, right? It depends on if you're a venture investor, it depends on if you are investing in SMEs in more of a traditional private equity sense. But we talk, I think about the goal to close the gender financing gap or to unlock more capital for women founders. And that question sort of resonates in my head when you talked about your pipeline for tech venture is just 25% women, right? You said before the goal is to get it up to 50%, but is that the goal? Should it be the goal? Should the goal instead be to make sure that the 50% or more of traditional SMEs have access to financing? I'm curious to know how you think about that and what you think the answer should be.

Andreata Muforo: I think from my standpoint, I think the end goal is, can we build an ecosystem that encourages women and supports women founders to be able to grow their businesses? The growing their business is everything from capital, its networks. So it's everything that you need to be able to build a thriving business environment for women. And of course, I speak specifically about venture, but also there is even just like the debt capital, the working capital that they need is the private equity capital that they need. So I think most people end up talking about capital is because it's a thing we can measure very easily, right? You don't have to do too much to figure out how much capital was raised. And it's the same in our ecosystem, but that in and of itself is not enough because it's about also, how do you use that capital? Because we're, I think within our ecosystem is going to a phase where we want to get a sense of, what is the value created versus how much capital went in? So now, yes, capital went in, but also how much capital went out? So you need to be able to measure that so that you can see that value has been created.

Justin Norman: So then it raises another question for me about, what does it take to see, at least in the context of what you can control, what does it take to see more women founders in TLcom's portfolio? I think you're doing a lot of work and yet it's still a pretty small percentage of your total portfolio. So how do you think about that in terms of what you can control as TLcom?

Andreata Muforo: If I think about when we started actually investing, so say in 2016 and now, there's significantly more female founders than ever. So, yes, the percentage sounds small, but the denominator is much higher. So, actually, there has been progress. I think even just the fact that we have been having a conversation about gender lens investing and investing in female founders, that's progress in and of itself, right? This was not happening before. I think the other thing that we're doing at TLcom is also the point of the fact that there's actually a lack of capital also for female founders at the early stages. Like, how do you even get started? If you can't even get started, the pipeline will never grow, right? So at the pre-seed stage. So the work that we're doing with FirstCheck Africa is quite instrumental in helping support founders at the pre-seed stage.

Andreata Muforo: What we've heard also with many female founders on the continent is they say they are over-mentored and underfunded, right? So we do initiatives to support the ecosystem, but we're also putting our money where our mouth is, which is to say, okay, our main fund will look at the female founders or all founders who are at the seed and Series A stage. But why we're collaborating with FirstCheck Africa, it's to also support at the pre-seed stage, so that the deal flow is also coming through. I think also the other thing that's really important is that when you look at the number of Africa-based funds and the female makeup of the fund management team, it's about 45%. They're 45% to 47%, which is pretty diverse, like the world over, right? So they're actually, when you think about the asset allocators and people making decisions, it's actually quite high on the continent. And I think the more we also have asset allocators who have that awareness and who are also women, I think that also helps move the ecosystem forward. We're not going to solve this in a day, but I think we're making progress. We're making progress.

Justin Norman: For each episode of this series, my co-host, Eloho Omame, and I sat down for a retrospective conversation to reflect on the insights shared by our episode guests.

Justin Norman: TLcom is quite interesting and I'm glad that we had an opportunity to speak to Andreata because you're 60% women partners, right? Also to interact with your male partners, right, there is some sort of both like explicit and implicit goal to have a more diverse base of investees. So what does that really look like? If you can take us behind the curtain a little bit from like an investment decisioning perspective, like how explicit is it to take some of these things like gender into consideration when you're making investment decisions as a commercial investor?

Eloho Omame: So I think a couple of things happen by virtue of that diversity. And by the way, the diversity that TLcom is very proud of cuts across, gender is one piece, diversity of backgrounds is another, diversity of nationality is another, experience, perspectives, all of those things, and we think that overall, that just makes us a stronger investing team. I think there's also a heightened level of awareness around the challenge. And you see that then play itself out in things like, for the past five years, TLcom does this massive event that convenes female founders across Africa. And it's something that the entire organization is behind. You see that diversity play itself out in, when we discuss investment opportunities. I remember one instance where we were looking at a company within manufacturing as a service, fashion, that kind of thing.

Eloho Omame: There was a moment where the 60% had to help the 40% understand the scale of the opportunity. So there's also our ability, I would say, from a superpower perspective at TLcom, our ability then to look at a bigger world, right? And say things that other investors might miss as a market opportunity, we have the benefit of having this balance in the investing team that allows us to say, hold on, we need to look at that a little bit closer, it could be potentially pretty interesting. At the same time, I think we are obviously commercial investors, but also hyper-focused on really backing companies that are high quality entrepreneurs, massive levels of ambition, companies that can be really high quality, really interesting. And so the frameworks, to a certain extent, don't change. It's the funnel, maybe, that's a little bit wider by virtue. And I think that's a good thing.

Justin Norman: Do you think that the fact that you have a 60% that has a diversity of perspectives is a competitive advantage for the fund?

Eloho Omame: Absolutely. There is a perspective that it brings to how we sort of think about markets and think about opportunities and think about what's interesting. And people often don't admit that there's a lot of venture investing that can be a little bit instinctive by default or instinctual. So this idea that, I don't know if there's a market there. And I remember early in kind of my investing career, I had a boss who would often say, I don't think there's a market there, but he would always kind of consciously remind himself not to put himself in the place of necessarily the consumer.

Eloho Omame: But I think the counter or the opposite works well here, right? So let's say 50% is the market opportunity that the default or the average fund considers, by virtue of the fact that there's X percent of consumption that is in sort of female-focused, et cetera, et cetera, that not everybody naturally, by virtue of their experience, appreciates. And I think this came through even in our conversation, for example, with Tokunboh, whereby she said there are women controlling X amount of consumption, 80% or something of the consumption decisions of households and things like that. So, something that you're not sort of conscious and thinking about day to day, someone says, this is a problem or a pain point. And a lot of it is instinctive.

Eloho Omame: A lot of it sometimes in the very early conversations is a bit emotional in that you say, do I agree with you that it's a pain point? And sometimes I might disagree with you and you can show me some data that says, actually, it absolutely is a massive pain point, right? But let's also remember that we exist in this world in which there is that element of instinct. So it is a superpower. It is an advantage or competitive advantage to the extent that, let's say, 50% of the world is the one in which we all see by default and this sort of very male-centric worldview that I think the world tends to have. And then there's another 50% that the 60% at TLcom is able to say, slow down, this actually is as big as, you may not instinctively understand that. I do. You trust me, you know me, let me take you on this journey to better understand that. And I think maybe that's a role that is more easily played by the investor as part of the team as opposed to the founder.

Justin Norman: Yeah. And I know that something that Tokunboh said that resonated with you in particular was this notion of like hitting the streets in service of your founders, right? Something that's been sticking with me a little bit is like, well, it feels like it's much harder. Obviously, it is much harder to raise funds as a woman, to raise funds as a woman fund manager. And maybe there's for me an inherent tension, right? The amount of work that is required to go into it, but leaving aside maybe the emotional point of it for a second, it's like, if this is what it is, what are you going to do knowing that it is much harder? And so for her it's, the reason why my portfolio is good is because I make sure that I can help my founders fundraise and find co-investors and hit the streets. What did you think about that?

Eloho Omame: I agree. I think it's interesting even in the context of FirstCheck Africa. One thing that I'm always very conscious of in general when I think about founder support is that resources are finite, capacity is finite. I can't be all things to all people. I think what makes sense then is to take a step back and say to yourself, at the fund level, and this is something that we did very consciously at FirstCheck Africa, is what is the highest leverage intervention that I can have here? And to be comfortable with the notion that there are certain things that I just don't want to be the best at.

Eloho Omame: It's not helpful to you particularly, and many other people can help you do that. If I think about a founder who has raised a pre-seed round and FirstCheck Africa is one of the, maybe the two, three funds on the cap table, FirstCheck Africa is one of them, when each of us talks about founder support, we're probably talking about broadly the same things. There are some areas where some of us might be more structured than others, but it's probably the same thing. There'll be something around company building, something around resources, something around helping you fundraise. So, we then say to ourselves within that bucket, well, okay, do I want to spend my time, for example, chasing perks and what have you, with notion and what have you, what have you, in my portfolio? I think once as a founder you have a notion discount, I don't think you care that much...

Justin Norman: You can get it a lot of different ways.

Eloho Omame: A lot of different ways. So I'm not going to spend a lot of time doing that. What I will do by virtue of the fact that I am building a female-led portfolio is understand that there is a 2% ceiling. Understand that it probably takes my founders 50% say more time on average to close their realms. Understand that the visibility and the platforming of my founders is valuable in terms of their ability to raise that next round. Understand the cliff that female founders face when they sort of, by the time they get to Series A. And so for us, it's pretty clear that where we want to spend 90% of our time is in helping them fundraise. But as part of that, it's not just about hitting the streets, pounding the table, it is also actually about our positioning and our perception as a fund. I don't think that it serves our founders for us as a fund to be siloed. I want us to be perceived as actually being quite mainstream, to be very commercially driven so that when, I don't know, pick a seed fund, Partech, funds work with how, keep open lines of communication with funds that precede them in the value chain.

Eloho Omame: I want those funds, the large ones: TLcom, Norrsken, Partech, et cetera, to view FirstCheck Africa as a critical source of pipeline. And the way that that'll happen is they view us as being very commercially focused, very data driven, backing the best standards, et cetera, et cetera. So there's pounding the table, but there's also something around how we manage our brand, how we manage our perceptions, how we manage our own networks, so that that signal is valuable as well.

Justin Norman: So there's this idea about how a female founder is received by later stage investors if they raised only from like gender lens investors. And to some extent, I think what I... We just talked about with Tokunboh is her saying like, well, if that is a reality, I'm hitting the streets for my founders to make sure that that doesn't become a reality for my portfolio. But it sounds like that data point is a concern of yours.

Eloho Omame: There was a piece of research last year, which is what I think you're referring to. I think it was a Harvard Business School study. And of course it wasn't Africa-focused or Africa-specific. And my suspicion is that the effect that it described relates to any community or group that is underserved within venture ecosystems. But the point...

Justin Norman: So not just women.

Eloho Omame: Well, it was a female focused study, but I would imagine that if you looked at it, for example, some of these emerging funds, for example, in the US that are focused on Black founders or people of color, et cetera, you'll probably find that also there's that. So there... Let me explain what it was. So it was basically this idea that there's an unfair signaling effect. So this idea that if as a female-led company, your primary investors, your first investors, and interesting, it didn't say gender lens funds, it said female investors. So, to me, that's a nexus of gender lens funds, which tend to be led by female investors, and say, a female partner at a large fund. That perception that if that's where your first capital comes from, then there's almost this assumption that maybe it wasn't only a commercial decision.

Eloho Omame: And so, it could make the journey towards raising the next round of capital even harder. So to your point, or to your question, as much as I was disappointed by that research and by the finding, I wasn't surprised by it. So it comes back to the point that some of these effects really ultimately coming down to bias. So why would you assume that if you looked at a company whose board I was sitting on, that led the deal, et cetera, and it happened to be a female-led company, why would you make the assumption that that was not a commercial decision? Why would that mean that it was potentially harder for my founders to then raise the next round? It shouldn't, but this study suggested that it did. So, it's something that I didn't find surprising. And to your point, it did inform how... It's a bit of a catch 22 because it's damned if you do, damned if you don't.

Eloho Omame: It is a good thing that you have more female partners. Or you have female partners wanting to invest in market opportunities, say, that others might not see so readily. It's a good thing that you have gender lens or gender-focused funds emerging to deploy capital where there are gaps. It's a good thing that there's more opportunity for more entrepreneurs. And so what you have is the emergence of people who are focused on addressing that market need. And then it ends up being a catch 22 potentially for the founders. You can't get around it. It's an effect that's not unique to Africa. It happens everywhere, et cetera. So the way I think about it in a practical way is say, if this is true, and it is true, then again, back to this point around, where is my time best spent, the highest leverage point for my time, from a portfolio support perspective, from a credibility standpoint, how do I let my track record speak for myself? How do I build my platform so that I'm a credible signal as an individual? And the fact that I'm a female investor is a little bit irrelevant. And I think it's important for founders, frankly, to be thoughtful about that when they do go to... Female founders to be thoughtful about that when they raise capital. Because it's an effect that they may not be as aware of as we are as investors.

Justin Norman: Yeah.