The Economics of Hope: African Fintech and Investing for Wider Impact

Oh gosh, you've got all that.

I'm doing well, and it's a pleasure to be here. Thank you for inviting me, I look forward to our conversation.

Yeah, and without going into a full CV, because that can be boring, can't it? But really, looking at the thread: I spent most of my career at the intersection of technology, capital and market failure. I was a software and hardware engineer in the City of London, and that taught me how systems work, systems thinking, and logic, and all of that. Wall Street taught me how capital works, I went there after doing my MBA at London Business School. And while I was on Wall Street was also when the internet boom and bust was taking off, and landing, or crashing, I should say. That found me in Silicon Valley, where I could see how technology could actually reconfigure markets, not just from the micro view I had as an engineer, but really looking at markets and market failures, and how technology is a solution, a tool, and not there for its own sake. So, having looked at those threads, technology, capital and market failure, I found myself in a position where, at the height of the boom and bust, we'd sold an internet company in Silicon Valley, and I became interested in the way market misallocations could be corrected with VC and private equity investment. So I looked to move to the next frontier, which is how I landed in Lagos, Nigeria. It seems quite disparate, but there's a theme: the intersection of technology, capital and market failure, and really leveraging entrepreneurial ingenuity in the markets for opportunity.

Well, it was less about fintech for fintech's sake, again, technology as a tool for solutions, as opposed to technology in and of itself. It was more about what infrastructure is missing, and what the insertion of that infrastructure can do to change markets and make those market failures abate. When you're in the UK, the US, the West, you're in a mature market, and often you're looking to optimise something that already exists with technology. When I found myself in Africa, trying to invest in financial services, I realised there were two parallel streams: there were the people who needed finance, and the people who had finance, but there wasn't really anything connecting them. We'd seen mobile access become more broadened, but we hadn't seen financial access going along the same trend. And it was really about seeing how technology could help that. So it wasn't "let's go and find fintech", it was "we need to solve the problem of financial services access, and how people move money around, and what tools and infrastructure can make that happen." That's why I found myself there, A, because I'd had the experience of technology, and B, because I was trying to solve this financial access issue, in the early 2000s, and saying, actually, we can only scale if we use technology. So it was really more about the infrastructure. And around that time, Paga was being started up, and it was a tool that really fit the bill, which is why we found ourselves looking at how the Paga rails could address the problem of ordinary folk in Nigeria and Africa moving money around and unlocking access to financial services.

Paga started out as a payment company: person-to-person, government-to-people (G2P) payments, money transfers within Nigeria, bill payments. I remember the first time, I think it was 2009 or so, when I made a payment from my sofa on a Saturday afternoon, using my phone, to pay for my DStv. It was like, "whoa, what kind of wizardry is this?" Because even though we'd been able to do electronic payments in the West, in Nigeria that was not something you could do. I remember moving to Nigeria and always forgetting to take cash out at the bank physically for the weekend, and finding myself stuck, and here I was, able to transfer money to a service provider, which was very novel at the time. I'm sure people now will think, "what's the big deal?" It was a big deal in 2010, or whenever that was. And now it's moved to more of an infrastructure, a payments engine, providing payments-as-a-service to other providers. So it's gone from just being a direct provider to providing the rails and the infrastructure.

How to get out of it, yeah. But what I would say is that financial inclusion was kind of like fintech 1.0. Now we're in this era of productive inclusion, where finance is being embedded in everyday tasks, embedded for insurance, embedded for paying workers, embedded for the ability of electronic payments to provide goods and services without people being present. So it's moved from just bringing people into the financial system to enabling them to be productive, to receive payments, to do e-commerce. It's really enabled all of that to flourish.

Alitheia Capital, which is Greek for truth.

Well, it's an aggregation of a number of funds over time that has given us that AUM. Our largest fund today is just over $100 million in a single pot.

I'll begin by saying it's not just about gender, it's about the mispricing and misallocation of capital. The gender gap: female founders are receiving less from the capital stack than their peers, and it's a case of overlooking certain types of companies, founders and sectors. So what that statement means is that we start with an investment discipline, and then we ask whether conventional sourcing is missing good opportunities because these female founders, or female-impacted businesses, are being overlooked, and the sectors in which they operate are being overlooked too. Are there blind spots? It's about the mispricing. If a strong category of business is repeatedly overlooked, that under-allocation can create pricing inefficiency, and that's where we see opportunity. We're not just going down the road everyone is travelling; we're looking on the road less travelled to find these mispriced opportunities. So gender is broader than founder gender or ownership, it's also leadership, workforce, the supply chain, customers, and the kinds of products that need to come to life and meet demand. For example, we have a couple of companies in our portfolio, ReelFruit and Wemy, and they're local manufacturing concerns. Our money has gone in to enable those companies to scale. In ReelFruit's case, the founder, a woman, was not able to raise funding for a long while, until we came along and saw that there were aspects of this value chain that were being overlooked. We supported her to build world-class manufacturing facilities, and she's now exporting products to the UK, US and Europe, and driving import substitution, whereas before, in Nigeria, we would harvest fruit, export it, and reimport it as dried fruit and nuts. She's now doing that processing in-house and tapping into global health trends of healthy snacks, and has created a whole category in itself. So, local manufacturing, which has also gone on to create quality, inclusive jobs and created value through export. That's what we look at: those overlooked opportunities, and we drive for value.

It is a tough question. In some cases, a lot of capital is looking at larger ticket sizes, or a certain kind of large infrastructure project, or a quick return, the capital is less patient. It's not necessarily looking at sectors like feminine hygiene, or the aggregation of smallholder farmers to create a platform for exports. That takes time. And oftentimes the female founders are not operating in the same spaces as the allocators, so they don't necessarily get the opportunity to present their investment cases, especially when they're much earlier than what people feel safe with. Again, the misperception of risk: where people feel safer putting their money. But we're patient capital, and we're ready to roll up our sleeves and dig in on these kinds of opportunities, also knowing that the opportunity for return is not just about what the company does, but about improving the lives and livelihoods of the tens of thousands of farmers now providing the raw material that goes into these products, and ensuring there are dignified jobs. Because that in itself is a flywheel: it enables people to buy more products themselves, move up the curve, and you begin to have a more inclusive society, where more products are available for the broader population and not just the privileged few.

Just to your point there, gender lens investing isn't about lowering the investment bar. It asks whether the market has put the bar in the right place or the wrong place, and how we correct for that. So it's not charity; we don't do it because it's fair. It's about ensuring we're not mispricing and missing opportunities.

Yeah. At that point, I'd been in investments and working for over two decades, and I thought I was being fair with all my investments. And then I realised that the absence of discrimination is not necessarily the presence of inclusion, or a broadening of opportunity. So it enabled me to see that intentionality is important, to be able to see overlooked opportunities, and that just being on the same hamster wheel, doing the same transactions as everybody, wasn't necessarily opening me up to the broader opportunity. I'd allowed myself to be blindsided in the same way the majority of the market had been. So I began to look outside existing networks, and more broadly at sectors. Agriculture is the largest employer in Africa, so I began to look at that sector, thinking: what would it look like to solve problems here, and therefore solve problems for more people who themselves become consumers? For the longest time, we'd say the Africa story is a consumer story, and then at some point it's like, well, it's not, because if people aren't getting jobs, they can't become good-quality consumers. So it was about that broader perspective, and saying we need to redesign the process, and ultimately think about a thesis around the overlooked and systemically mispriced universe of opportunities. And we were very clear that this is not CSR.

It's quite interesting, because I've done a number of tech transactions, fintech, embedded tech, and the interesting point is that the one I look most fondly on is not a tech investment, oddly enough. I'm proudest of an agribusiness company called Psaltry, which is processing raw cassava, industrial processing, and producing starch, sorbitol, and other derivatives of cassava. Now, many people don't know that they've all used sorbitol today, and use it daily, because sorbitol is in your toothpaste. Being able to support a founder who, by her own admission, spoke to over a hundred investors until we came along and funded her, and enable her to take her business, which was in a room in a small house, to a world-class manufacturing facility that's also now producing derivatives like glucose, which it's selling into a large market, and driving import substitution, because these products, sorbitol and so on, always had to be imported. Now you can get them locally. She's supplying local manufacturing concerns, and she's exporting cassava flour to the US and Europe, tapping into the global health trend where people are looking for gluten-free products, of which cassava is one. So it's a whole value chain of products and exports she's been enabled to produce. But also, on the back end, it enables tens of thousands of farmers to move from thatched huts to concrete homes. And because we've been intentional about energy transition and climate adaptation as a lever for value creation, she's able not only to light up her factory and keep the processing and productive capacity stable, but she's lighting up over five communities, and improving lives and livelihoods for all these farmers who previously were wasting their yields, they weren't seeing full acquisition of their farm yields. Now they're part of a value chain that's solving somebody's gluten-free problem in the US. That kind of thing excites me. Now, is there tech in there? Absolutely, because you need the tech to connect to the buyers, to the farmers, to enable the payments. This is again where I'm saying you go beyond inclusion, to productive fintech, not just financial inclusion. It's also putting Nigeria on the map as a producer of this cassava derivative. And there's climate adaptation: a whole solar farm has been put in to stabilise the factory, take away the colicky behaviour of bad grid power, and at the same time light up communities. So it's one I'm proud of, because it touches on so many different points, and Psaltry is now processing over 400 tonnes a day, and has that processing capacity. So that's one that really warms my heart.

For me, the biggest opportunities are around the infrastructure that will enable us to be not just inclusive but to drive for productivity. We're seeing embedded fintech. MAX, which is one of our companies, is a useful bridge, it provides finance and income-generating assets: green two-, three- and four-wheeler vehicles, mobility, jobs and productivity. It's able to do that because it's got an embedded tech platform that not only provides finance but enables connectivity for all these drivers, and tracking. We're also seeing a lot of fintech opportunities in the SME credit space, and cross-border opportunities. One of the portfolio companies in our broader partnership engagement provides cross-border and is driving for financial services to be as easy as making a phone call, a WhatsApp call, making it easier for e-commerce to happen, for mobility to happen, for people to pay their bills more efficiently and move around for business and the exchange of goods, because now you can have that cross-border transaction happening more easily. So we're seeing a lot of embedded finance, and obviously savings, B2B payments, asset finance, all of these are now readily moving as products into the tech space. And we're investing in markets for us, not just across the whole continent, so we're not saying the fintech opportunities are all over Africa, but we're seeing concentrations in those key markets: Lagos, Johannesburg, Nairobi, across Kenya, and crossing into Zambia, where we have an investment in a leading-edge fintech microfinance bank that is purely tech-driven. So we're seeing this spread into everyday life, where the financial infrastructure has matured and the embedded fintechs are enabling people to live their lives and go about their productive work more efficiently and quickly.

We still need an enabling environment and ease of doing business. Fintech runs on tech, tech runs on digital infrastructure, which runs on power infrastructure, so there's a lot to be done with respect to energy and power infrastructure, what drives and ensures reliability and connectivity: that when a transfer is seen as done on one end, it's seen as completed on the other, and not hung somewhere in between, not in the originator's account and not in the destination account. So people are still dealing with reliability of infrastructure. We're still ensuring that regulation keeps up with innovation, that's an area where we need to see more happening. We have been seeing activity, and regulators trying to keep up; we've seen lots of sandboxes, and moves beyond that. But we're still in the early stages of fintech, I'd say, even though our first investment was back in 2011, because we're still putting in the infrastructure, still looking for reliability and the maturation of the regulatory environment. We still need to see a broadening of financial products, with not everybody focused on transfers and payments, but beginning to look at a real insurtech opportunity that can scale and provide protection, for someone, or a company, that's taken advantage of the free trade continental agreement and wants insurance across the 52 countries on the continent. You often want your insurance to travel with you, and a tech-driven insurance platform can help people have that protection, and better take advantage of the continental agreement. And the continental agreement can only really work if we have robust digital infrastructure for the payment of services. Of course, we need to address challenges around FX transfers, and we're beginning to see solutions coming in that enable speed and efficiency around cross-border FX transactions, using the embedded fintechs.

I certainly think it will play a big role in cross-border costs, bringing them down, and not just costs, but efficiency, reliability, and ensuring trust along the way. But for me, I'm more interested in understanding how an SME can leverage it to push hard on the continental agreement, how they can receive and pay for goods and services, and less about whether it's fashionable. One of the key problems I mentioned is foreign exchange access; there's also the treasury management aspect, where I think stablecoins can play a key role, and efficient cross-border settlements. Any investor like me who's looking at the space is thinking: are the customers real? Is the solution economically superior to what's currently out there? Because people will always find different solutions, and the cost of the solution plays a role. Is the regulatory framework ready for it? Is it something we can see underwriting it? That said, Nigeria is one of the largest players, I think about 60% of sub-Saharan African stablecoin flows are happening through Nigeria. So we're seeing more use cases, and suppliers are beginning to tap into that, for remittances and cross-border payments.

You're starting out with the founder: can you work with this founder? But that's not the only thing. Does the founder know the business and the opportunity? Have they done their homework? Do they know the customer from evidence, rather than just placing it in their deck? Does each additional customer make the business stronger, or just bigger, do they understand that? It's a short period of time for you to assess, so you're really starting with the founder, their knowledge, and chemistry, there's got to be some chemistry. And does the founder even understand where they might have some weak spots, founder self-awareness, and how quickly can they learn and adapt in the face of the troubles that will come? Also, understanding whether the founder knows that if their idea isn't the one that works, they need to pivot, and that they're ready for that kind of pivot. You can see that in their ability to take on some of the feedback and interact with the investors on the panel. But for me, I don't confuse a polished pitch, you know, you're coming onto TV, you get a polished pitch, that doesn't necessarily make it a good business. And at the same time, a bad or imperfect pitch is not necessarily a bad business.

No, there's a lot of gut feel. You're listening for cues. And I find one of the most interesting parts of the interaction is when the negotiation is going on, because you can see how they're interacting, how they're declining or accepting, and what's motivating them to move one way or the other. That gives you a good sense. It's not complete, but it's a good start.

Oh gosh, there are so many. First of all, there is hope. We're not just waiting on magical innovations to appear, solutions are being invented, and many already exist. It's a matter of how we scale or replicate them across different regions. There are a couple that really touch me, and I'm going to get myself into trouble with a number of these innovators now. In the clean air category, a simple solution: Mukuru Clean Stoves, which is saving hundreds of thousands of children from dying from polluted air from wood-burning cookstoves, because their mothers are now swapping to clean cookstoves. It's an area we at Alitheia had already been working in, as long ago as 2012, when we created a clean cook facility. It's a simple solution, but one that's saving lives every day. In the interest of time, I'll mention one other that's close to my heart: Lagos Fashion Week, in the circular economy, and these are the African opportunities; there are global ones I haven't mentioned. Lagos Fashion Week is taking a sector where all of us spend money, and a lot of the time waste money, and looking at how we can be more circular with the clothes we wear, how we can repurpose them, and how runways can promote not just "buy, buy, buy" and waste, but "reuse, reuse, reuse," and clean dyes and new sustainable materials. So those are two, but if you'll permit me one last one, it's a company called Matter, which is creating microfilters for washing machines and other large industrial machines, able to pull out the plastics. I'm probably not describing it well enough, it's a simple innovation, though it's patented, that enables the plastics to be removed from the wash cycle, and is now seeing industrial use with large-scale manufacturers. It's taking plastic out of our water, out of the system, out of our homes. There are so many I could mention. But the key thing is that solutions do exist, and our job as investors is to get capital to them at the point where proof can become scale.

I'd love to come back. Thank you so much, Ian, I look forward to our follow-up.