Much of the conversation about African venture capital in the last three years has been about what it lacks. Funding is down from its 2021-2022 peak. Exits are scarce. Small cheques that grow companies have thinned out, and startups with strong teams and revenue have shut down.
But Eloho Omame, a partner at TLcom Capital, an Africa-focused venture capital (VC) firm managing over $250 million, has been making a different argument.
In a recent essay, she wrote that African venture is compounding, arguing that the building blocks needed to build and scale companies on the continent are more solidly in place today than they were a decade ago and that this changes what investors can reasonably underwrite.
Her claim is not that the market is easy but that the market now has a decade of accumulated evidence about what works and that this evidence is itself an asset.
Omame’s argument is well-founded. Across its two funds, TLcom has deployed around $100 million, led 80% of its deals, and has invested actively at the early stage. Its portfolio includes Pula, the agricultural insurance business in its first fund, and FairMoney, one of the largest companies in its second.
Omame also co-founded FirstCheck Africa and sits on the boards of HUB2, Illa, Talstack, and Zone. Before venture capital, she spent years in banking and as a founder herself.
In this conversation, Eloho Omame explains what a decade of “school fees” bought the ecosystem, how TLcom assesses AI in a business model when every founder claims to be using it, and why her firm will not approve an investment without first naming who is likely to buy the company. Daisy Liech, TLcom’s director of portfolio and strategy, also adds how the firm supports companies outside of capital.
This interview has been edited for length and clarity.
Your essay argues that African venture is compounding. What did the original underwriting assume, and what has changed since?
Eloho Omame: Venture is a very particular asset class. The way the venture world functions today, whether in Nigeria, Kenya, Ghana, or the United States, is that you raise a blind pool of capital on a particular timeline, and you need to return that capital to your LPs, hopefully in multiples, within that timeline. That has not changed.
When you say the timeline is different, that is not quite what I intended to convey. What we have found at TLcom is that the starting point on that timeline matters. Think of it as a venture inflection point.
There are pieces that need to be in place for the timeline to work—the company-building elements around access to capital and access to talent. Those things need to be in place for an ecosystem to underwrite scaling and exiting large companies, the kinds that justify the pools of capital being raised for African venture funds.
Take company-building talent. Not just smart people, but engineers—an abundance of engineering talent, so you can find them and afford them; and an abundance of operating talent, so that, as a chief executive, I can hire a head of operations who has run not a $500,000 revenue business but a $5 million or $50 million one. The experience of taking a business from $500,000 to $10 million in revenue has massive value in terms of its compounding effect and its ability to help a business scale.
Those things are more true today than they were a decade ago, when there were fewer companies, fewer founders, smaller ecosystems, and certainly less experience of having taken companies from zero to one and one to ten. The essay was not saying the timeline you underwrite as a venture investor is different. It was saying the pieces of the puzzle needed to underwrite a venture timeline are much more in place today.
What does that actually change for you when you are evaluating a company?
Eloho Omame: The implications run in two directions. In both scenarios, you have to make certain assumptions as an investor, and frankly as a founder, about what exists, what you can rely on, and what you need to build.
Two things happened differently a decade ago. You can call them two failure modes. One is that you assume certain things are in place and discover along the way that they are not. The other is that you recognise they are not in place and understand you need to build them, but then find the task takes much longer than you anticipated and costs much more.
Today, because of the experience the ecosystem has accumulated over the last ten years—which is school fees you simply have to pay—it is much clearer which of those assumptions are true.
I like to use distribution and marketing as an example. Five years ago there was a lot of conversation about the value of partnerships for distribution: small companies partnering with large telcos as channels to reach and market to customers. Then it was a theory. What is true today is that those partnerships have mostly been actualised. Companies have attempted it, and now we know what it takes to execute on a partnership like that in order to actually sell the product.
We now know which things get done by one partner versus the other and what the costs are on each side. We know how the load gets shared. We know how the customer behaves when the marketing hits their phone in a way we did not before. It is not a good or bad judgment. It is that we now have the facts.
The implication is that when you underwrite investments today, there is much more clarity about what works, what does not, and what remains an assumption because the ecosystem has not yet had a chance to test it. That will come over time as more companies get built and more founders try different things, and we build the roadmap around what works for distribution in Nigeria versus what does not work in Kenya versus what works really well in South Africa. That clarity is much more legible to both founders and investors today in a way it cannot be when you are starting from ground zero.
Your argument depends on new companies entering the funnel. But deals below $500,000 have collapsed, from around half of all deals in 2021 to a fraction of that. If nobody is writing those cheques, where does the next generation of compounding companies come from?
Eloho Omame: I really like this question, not because I have the answer at my fingertips but because it is a genuinely interesting insight.
The data we have on the ecosystem is not clean. It is a reasonable proxy that if the amount of capital being raised is relatively small, you are more likely dealing with an earlier-stage company. So it is roughly true that if there are fewer deals under $1 million, there are probably fewer new early-stage companies being funded. But it is not necessarily the case, because in principle you could have a seed-stage company raising a $5 million round, and the way we capture our data as an ecosystem makes certain assumptions based on round size.
My hypothesis is that something else is playing out because the inputs are better and higher quality; you are seeing better propositions even at the early stage. The quality mix is improving, such that for some really good, more experienced founders with higher-quality teams, what would have been an early-stage round is now a chunkier round. Call it a $5 million round at seed.
I like those, because the signals around those companies are generally stronger, and I think that is the most exciting pipeline. There is still value in the smaller propositions—the ones that are frankly more likely to fail anyway, because the founders tend to be younger and less experienced—and there is value in the capital that goes into them, because they feed the multiplier effect.
But the way we capture data today makes it harder to see the other thing that is happening: a founder has built two or three things; they did not quite work out, but he or she got sharper each time. The talent available to them was stronger each time. The propositions were stronger each time. When they come back with company number three, the first seed round might have been $500,000, but now they are a more confident founder, the team is stronger, the proposition is better, and they want $2 million or $3 million at seed because that is what it takes to get to Series A, and they understand that a lot better. Our data does not capture those pieces. To me, those are the most exciting early-stage propositions.
Some of the companies that shut down this year had teams with real operating experience—people from Jumia and other large companies. How do you square that with the argument that the bench is deeper?
Eloho Omame: The two things are not necessarily at odds. I could give you examples of companies run by people who came out of those same companies and are doing pretty well.
There are many different inputs to company building. Talent is one, and I have used it a lot as an example here, probably because it is the most tangible. Capital is another, and we also talk about intangible infrastructure. Better or deeper talent is not a perfect mitigant. A company may still fail.
Personally, I think we need to be a little more comfortable with the notion of failure. Maybe the word ‘failure’ itself is pejorative. But a high-quality founder with a big vision took a swing at something that would have been really exciting if it worked. It did not work. They learned a lot along the way, which means the next thing they build will be stronger. To me, that is actually a good thing. The loop is exciting. Of course, there are fallouts and implications—people lose jobs—but we have to be careful not to turn failure into an untouchable topic.
Second, people can be talented and still not scale their companies. Both things can be true. Capital is one reason—you might have run out because you underestimated how much it would take to build the company to sustainability. That does not mean your team was not great or that they did not do a lot of things right. It means they did not have enough runway to execute to the point where the business was sustainable.
I still maintain that the talent in our ecosystem is stronger than it has ever been, because the outcomes in the ecosystem are stronger than they have ever been. People are having much stronger experiences. They are seeing companies go from zero to one, one to ten, ten to twenty, and that has value. If I were assembling a team to build my own startup today, I would look for people who had been early joiners at a company like Flutterwave or Paystack. I would look for people who led distribution or partnerships at a big company like MTN. They were there on the journey. They know what does not work. They know what works. They are starting fresh experiments on the back of knowing what the playbook actually looks like.
What outcomes has TLcom seen over the years it has been investing?
Eloho Omame: A few we are proud of. One is the amount of capital we have deployed into the African ecosystem. Across both of our funds, with some capital still to go, we have deployed around $100 million into four geographies, and we have led about 80% of our deals. At an ecosystem level, we are proud to have been a big driver of some of the capital that created these loops and compounding effects.
Across both portfolios, there are companies doing pretty well and delivering the kinds of outcomes we underwrote for them. Pula, in our first fund, is an insurance tech business we are excited about. In our second fund, FairMoney is one of the biggest companies you will see in that portfolio. We fully expect that when we exit companies like that, the returns will look pretty exciting as well.
On the non-financial side, we have been instrumental in attracting interesting talent into venture capital in this ecosystem. We have a team that is exceptional and pretty varied in background, and over the last four years we have brought people in from other ecosystems into African venture capital.
Cyril came from an operator background at Paystack. Philippe came from Stanford. These are people now contributing to the building of venture capital in the ecosystem rather than only startups. We like to think of ourselves as having multiple levels of outcome — on the venture side, the returns side, and the talent side.
Daisy Liech: On the non-capital side, there is also the ability to help companies expand into different regions through the network we have as a team and as a fund. And there is the exposure we give founders to people who have already exited. We hosted our founders with the founder of Fawry, who walked them through his journey, and that really resonated. Connecting founders deliberately to people like that shows them what an exit can look like and how to think about it. Outside the financial side, it is how we actively support expansion and recruitment but also the mindset of thinking about opportunities beyond what their businesses are today.
You have written about AI lowering the cost to build. As a firm, what does that mean for the kinds of AI companies you want to back?
Eloho Omame: When we look at the use of AI within a business model, we are careful to examine the extent to which the way AI shows up reflects our thesis about how AI will create value in Africa and in our own ecosystem.
Typically we ask whether this drives down the cost of delivering a product in a tangible way, or whether it helps a business improve the quality or the visibility of its revenues—for example, by allowing a product to be sold more frequently or more regularly within the model in an agentic way.
I will give you an example. There is an API infrastructure business we have seen recently. The API plugs into the technology of its customers and delivers a fintech solution. Previously, each time the customer needed to use the product, it would make an API call. Now, because of the agentic use of the technology, they do not need to wait for that. The system prompts on the other side and says, ‘You are about to run out of this resource you are leasing from us.’
It can also estimate how much of the resource that customer has demanded historically and how much they are likely to need on a quarterly basis, so it knows how much to deploy to them, and it can remind them that they need it.
The result is that revenues are higher, and the company also knows its revenues are higher. It has greater visibility, so the quality of its revenues is much stronger. That is on top of delivering the product at a lower cost, because there is an agentic layer on the production side as well.
Many founders will tell you they are using AI or leveraging AI. When I look for where AI shows up in a business model, I want a clear line of sight to how it makes creating the product cheaper and what happens to the margin that is created. Either the founder passes that margin entirely to the customer, or they capture it in the business as a higher margin. As an investor, I want to see it captured in the business. And when you tell me that, on top of that, you can increase revenue at the top line, capturing more volume through the business model as well, that is pretty interesting.
We see AI in Africa as really going to be at the application level, and below that we want to understand where it fits and how it helps create value in very tangible ways.
If AI lowers the cost of entry, how do you think about moats and defensibility?
Eloho Omame: It is not always cheaper to build. AI is not a panacea. The fact that AI exists does not mean every single business is going to be cheaper to build. Some things are cheaper. The cost of testing is cheaper, so you can experiment in a way that is much cheaper and more immediate with LLMs than you could before. Those things are true, but they do not need to be true for every company.
On defensibility—as with any technological innovation historically where a technology drove down the cost of delivering something—what had to happen was that the shape of defensibility changed. You had to find your defensibility in other things. It could no longer be that the cost of entry was high. AI has lowered the cost of entry in the way that mobile technology lowered it across a bunch of things before.
When we look at these models, we ask: if this thing is now commoditised, if testing is commoditised, or if delivering this product is more commoditised than it might have been, how does this company build its own defensibility? There are a number of ways. It might be the brand. It might be network effects or the switching costs that get created.
Going back to the API company, when they think about their own defensibility, it is in the fact that by plugging into their API and delivering such great value to the customer on the other side, they create a much higher switching cost. Defensibility shifts into that. It is no longer that I am delivering something nobody else can, because in principle more people now can, since more people have access to the technology that lets them do it as cheaply as I can. But once our software is talking to one another and once I am delivering value to you across thousands of your own end customers, it is much harder for you to unplug from my system.
The potential areas where you might create defensibility remain largely the same. Founders have to figure out where they want to spike and how they want to build their models. But this is not a question unique to AI. It shows up every time there is a new technology that democratises the cost of access.
Can you give an example of where regulation made an investment decision easier at TLcom?
Eloho Omame: I can give you many examples of where regulation made an investment harder, though not in the way you might imagine. Not that there was legible legislation making a space uninvestable, but that the regulation was not legible enough, and we would have liked greater comfort on where regulation was likely to land before making certain investments. The obvious place is fintech, and there are a few examples there.
The way to think about it is that as regulation becomes more legible, it is actually easier to deploy capital in regulated spaces, because you know the posture of the regulator.
There is a philosophy that shows up in venture capital and startups where people say, ‘Ask for forgiveness, not permission.’ As an investor, I am cautious with that, because in a regulated industry, the second you take that approach, the forgiveness may no longer be available to you. You upset the regulator, and it puts you out of business.
The regulatory point is less about regulation meaning we will not pile into a space and more that as regulation becomes clearer—as you understand where the regulator stands on cryptocurrencies, for example—it becomes easier to deploy capital there because you understand the posture. More regulation can be helpful. Clearer regulation, let me put it that way. Not necessarily more, but the legibility of regulation is a great thing from my perspective for investing.
What is TLcom’s early-stage strategy today? What kind of companies are you looking for, and what is absolutely necessary for you to invest?
Eloho Omame: Some things continue to be true about how we approach the early-stage opportunity in Africa. We talk now about our mission of finding and funding great founders and funding great companies led by those founders. We remain broadly sector agnostic, so we will look at most sectors, and we continue to look for a technology angle or a technology advantage in how value is being created.
We are much sharper in our assessment of founders and the quality of leadership and teams. Some of that is because the ecosystem as a whole has more experience and expertise, which goes back to the compounding effects we have been discussing.
Beyond being sharper, we have a lot more clarity about the relative weight of the team in the outcome of a company. You can have an average market and a great founding team, and they can create something really interesting and compelling in that space. But if you have a weak team or a weak founder and a massive market opportunity, you cannot ultimately turn that into a fund-returning proposition. That is much harder to do. A lot of what we underwrite continues to lean on the teams and the quality of the founders.
The challenge of doing that as an early-stage investor is that there is less to lean on in terms of company track record. You are not talking about a Series B or Series C company that has scaled to $10 million or $20 million in revenue. You are talking about an early-stage team with a company below $1 million in revenue, if not pre-revenue, and a proposition that is largely a hypothesis. So we are much clearer that we need to find founders who are high quality and able to lead those propositions, and then we go on the journey with them.
The other side of what we fund at the early stage is propositions where we can build durable value. That means, beyond the usual—that they can scale and are selling into large markets—the margins are not only strong but also durable. There is a lot of focus on the durability of margins in how we assess the companies we are most excited about.
For us, it continues to be great founders, great propositions, technology-driven and technology-compounding, but with a much sharper emphasis on the experience and quality of the teams and the clarity that these are significant proportions of your ability to build a great company and for us to deliver great returns. Then, on the other side, the quality of the business model.
Our ability to support companies on strategy is our beachhead. What has changed is that we deploy that capital, those resources, and that time on inputs that are higher quality today—partly because the ecosystem has compounded, and partly because we have better clarity on what it takes to win. So we pile our resources and attention into a higher-quality founder, a higher-quality proposition, and a much sharper lens on how businesses create value in this ecosystem.
What would encourage pension funds to invest in African venture capital?
Eloho Omame: There is an education process happening broadly within Africa around the venture asset class—what it is, what it is not, what it represents as an opportunity, and what it does not represent. That work is ongoing; it takes time, and over time it converts more pension fund allocators into the asset class.
I also think there is a role for regulation in encouraging the deployment of pension capital into venture capital and in allocating capital across the different asset classes that might return over time. Those two pieces of work need to happen hand in hand.
The education piece is happening, though not necessarily in an organised way. It is happening because more people understand what a venture is, by virtue of venture capital existing in Africa and capital continuing to be deployed in large amounts by firms like TLcom. The other piece is regulatory. There is potentially a role for the regulator in helping pension funds and, frankly, in insisting that they allocate capital to some of these longer-term, less liquid asset classes.
Fundamentally, the challenge in a high inflation environment—and many of Africa’s countries are—is that our asset classes are a lot less liquid, and there is a lot of sensitivity to that illiquidity because of the inflation challenge. That is what makes encouraging pension funds to allocate to us harder.
Given how few exits there are, how do you think about how the companies you are investing in now will eventually exit?
Eloho Omame: We are all hyper-aware of the liquidity and exit environment in our ecosystem, and we have done quite a bit of work on this recently.
The first thing is how we work. It is true for many, if not most, venture funds that we spend a lot of time thinking about exit paths and building an exit thesis, company by company. As a member of our investment team, I will not present an investment to my colleagues at the investment committee that says ‘great company’ but is vague on the exit thesis.
The standard we hold ourselves to is legibility for the most likely buyer for a company like this, even down to naming who those buyers might be. We are not expecting people to have crystal balls or to be perfect predictors of the future. But around 90% of the time, given what the data and the ecosystem tell us, it makes sense that we will underwrite the most likely exit to be an M&A. Then we push ourselves to say who the most likely buyer is. The next layer is why that buyer would be interested in this asset.
That gives us a really useful lens when we go on the company-building journey with the asset, because part of my job when I sit on the board, or when I think about my fiduciary duty to our LPs, is to regularly ask two questions. Are we building a company that delivers on what we think is the likeliest value proposition it will have for a potential buyer? And how, this quarter, this month, can I help that company get closer to realising that?
On the IPO side, African companies have a tough challenge, for a number of reasons. The first is that for many companies there is no obvious or natural capital market. If I take a technology company in Nigeria and want to underwrite an IPO exit path, one of two things has to happen. Either I underwrite an IPO onto the Nigerian Exchange, or I have to ask about the infrastructure that supports that—the liquidity on the exchange, the research support for listing, and the pricing and valuation. Are there other companies the Nigerian capital markets would look at as a reference point so I would feel my asset had been fairly valued? Those pieces are being built over time, so it is quite hard today to say with high confidence that you can list a billion-dollar technology business on the Nigerian Exchange.
The default assumption, then, is that such companies list on international exchanges like Nasdaq. That is also possible, but the bar is much higher, because a billion-dollar IPO on Nasdaq is tiny, and then I have to ask whether I can really underwrite something much bigger than that, because that is effectively the minimum threshold.
So the IPO path is not only fewer companies and fewer points on the board. It is a much harder bar to scale. I continue to think those IPOs will come, and they will come for very big companies coming out of the ecosystem. The obvious company everyone is aware of in the IPO conversation is Flutterwave, whose last valuation was upwards of $3 billion. They have not yet listed. I suspect they are now reaching the scale where an IPO becomes interesting on the markets they would want to list on. At numbers below $3 billion, it is probably possible, but maybe not the most interesting IPO, because the retail investors who might want exposure are sitting in Africa, in Nigeria, while you are listed on Nasdaq.
IPOs are, as a practical matter, quite difficult for African companies. But I think they will come as the scale of outcomes in the ecosystem gets bigger, and then we will see some of these really big companies have no choice but to exit via IPOs on international exchanges.
Editor’s Note: Eloho Omame chairs the board of Big Cabal Media, TechCabal’s parent company.
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