Progress Plan: 2006
Prepared for the Synapse Board of Directors
November 2005
The Synapse Fund was officially “launched” at the
Clinton Global Initiative, a high-level international
gathering in New York City in September 2005
“There
is a dramatic amount of untapped agricultural
income in Africa and other poor countries right now to be
earned by increasing productivity and sales within
countries and across national lines within the continents
where the developing countries are...I want to thank the
Synapse Market Access Fund for helping to build [this]
strength and [the] capacity of grassroots producers in
rural communities…”
William Jefferson Clinton, September 17 2005, New York City
The Synapse Fund Vision
MISSION AND VISION
The Synapse Fund aims to alleviate poverty by addressing a critical issue in developing
economies and emerging markets – the lack of affordable financing to small businesses. By
providing SME financing, as well as the accompanying market access development, Synapse
helps build the individual firm and the surrounding community, ultimately contributing to overall
economic development in emerging markets. Further, by working with local intermediary
financial institutions (IFIs), Synapse contributes to the institutional development of the financial
sector.
Synapse operates on the cutting edge of philanthropy by applying investment strategies to
charitable giving. It identifies businesses and organizations with viable business models and
innovative approaches to opening new markets and cultivating opportunities for grassroots
producer products. Candidates for funding in this new model of venture philanthropy are
measured by three fundamental criteria:
o
o
o
Scalability
Sustainability
Impact
With these pillars in place, modest initiatives grow into robust and far-reaching market access
solutions. And once funded, investments are carefully monitored, guided and supported by
Synapse in order to achieve long term success and self-sufficiency.
The Synapse Fund Vision
BUILDING MARKET ACCESS
Creating new partnerships
Breaking exploitative relationships
Creating institutions for market development
FILLING THE FUNDING GAP
Providing funding for small businesses too large for traditional Microfinance, but
too small, or too marginal for commercial loan products
FOCUS ON SCALABILITY
Focusing on mainstream products and services provided by poor producers,
working to diminish market barriers, develop new channels to exiting markets,
and promote sales for increased livelihoods
The Synapse Fund – How it Works
INVESTMENT PHILOSOPHY
The Synapse Fund’s model of venture philanthropy uses market concepts as a driver
for designing effective social products and services, and is based on the following key
elements:
•
A knowledge-based partnership: The Synapse Fund takes an active role in recipient organizations by
providing expertise and closely monitoring progress.
•
Investment in long-term business plans: The Synapse Fund makes long-term investments in its portfolio
businesses to ensure growth and sell-sufficiency.
•
Accountability for results process: The Synapse Fund actively monitors and evaluates its portfolio of social
investments using internal benchmarks
•
Provision of both cash and expertise: The Synapse Fund provide both financial resources and professional
services to its investment recipients
•
Low-interest loans: The Synapse Fund will provide low-interest loans, deliver capacity-building and market
linkages via partners, thereby creating incentives for strong performance
•
Reinvestment: The Synapse Fund will reinvest capital to create a virtuous cycle of capacity enhancement and
market leverage
•
Exit Strategy: The Synapse Fund will identify investment opportunities that are able to use The Synapse Fund
to achieve the goal of future self-reliance.
The Synapse Fund – How it Works
EVALUATION
The Synapse Fund will actively monitor and evaluate its portfolio of social investments
using internal benchmarks. These benchmarks will be tailored to the specifics of each
project, and will include compliance requirements for the investment organization’s
management team. Further, they will distinguish clearly between outputs and outcomes,
focusing on long-term, systemic capacity enhancement for all investment partners.
The Synapse Fund will provide oversight and technical assistance to ensure the
success, and eventual self-sufficiency of its portfolio investments.
In setting its performance goals, The Synapse Fund will focus on the following core
metrics:
•
•
•
•
•
loan performance
market expansion
job creation
innovation*
mission adherence
* Though innovation is difficult, GTN will seek to create metrics that capture a business’ innovation capacity per benchmarks established in
loan agreements
The Synapse Fund – How it Works
Synapse Fund
Build partnership
& fund capacity
Synapse
Contributor
(e.g. Citi)
Provide tech assist
& market access
Intermediary
Financial
Institution
Develop financial
structures & biz
relations
Meet goals to
alleviate poverty &
develop markets
Community
Development
Small Business
Create jobs
& econ dev
By providing financing and market access, Synapse is building individual companies, the
surrounding community and contributing to overall economic development in emerging
economies. Further, by working with local entrepreneurs and financial institutions, Synapse helps
to create an environment that enables sustainable growth and market development.
The Synapse Fund – Projects
Project: Kenya Smallholder Farmers Investment Company, Ltd. (KESFIC)
Kisumu, Kenya
KESFIC, a co-op of small farmers in western Kenya, has traditionally purchased raw groundnuts
from rural markets at low prices during harvest season and then sold them at a premium in urban
markets when supply is less available and prices are higher. While its gross profits have increased,
KESFIC’s growth has continued to lag. Using Synapse funding, KESFIC will be able to transition
beyond the basic bulking, storage and trading of groundnuts and into value-added production.
Synapse partners for this project are TechnoServe (providing business development services and
marketing support to KESFIC) and Kenya Rural Enterprise Program (KREP) Bank, as the
intermediary financial institution.
Projects: Under Development/Review
Site visits were made in August 2007 to seven small businesses in Brazil. Immediate prospects for
Synapse were in honey processing and Brazil nut production. Meetings are currently scheduled with
General Mills, Nordstrom and other interested companies in Synapse’s network to define how
these small producers could potentially be integrated into their supply chains. Additional proposals
from more than one dozen countries in South Asia, Latin America, and Africa are being reviewed.
Realities and Challenges
CHALLENGES
Over the next 6 months, The Synapse Fund faces three primary
challenges:
Capitalization
It is essential that Synapse raise additional capital to make further investments.
Operations
Synapse needs to build internal capacity to establish Fund operating procedures,
build internal investment capacity, build broad interest in Synapse and trading
networks, and assist in the capitalization process.
Cultivating Relationships with Potential Investees
To become a legitimate and robust social venture fund, Synapse must expand its
network of partners around the world.
Realities and Challenges
CAPITALIZATION
As with any fund—profit-making or social investment—The Synapse Fund will
need to raise a significant body of capital to make investments and establish
lasting operating procedures.
As The Synapse Fund continues to extend loans, much of the investment
capital is cycling through the organization. However, the loan terms will
not foster significant internal capital growth. Accordingly, a successful
round of capitalization is critical to the long-term investment capacity of
the organization.
It is also likely that, like all social venture funds, capitalization and operations
funding will be an ongoing activity for the organization. As noted in the
operations section, we project that Synapse will need to engage a part-time
development officer within the next 2 years.
Realities and Challenges
CAPITALIZATION
The Synapse Fund has committed to raise $3.0 million by December 2007.
Within the next 3 years, The Synapse Fund will amass a body of
investment capital valued at approximately US $10 million.
For this undertaking, we will need the financial and technical support of high net
worth individuals, corporations, venture capitalists, multilateral institutions,
private foundations, and country governments.
Realities and Challenges
OPERATIONS
The Synapse Fund has brought on board a manager and global consultants with
expertise in venture capital and SME development finance. With this team, we
have laid out the vision of the Fund, core values and basic investment critera.
Prior to investment initiation, The Synapse Fund will need develop both
organizational capacity and detailed investment planning tools.
Organization
Investment
Organizational Planning Schematic
Detailed investment criteria
 Seed Round Planning and Execution
Terms of Engagement
Fund Development Beyond Seed Round
Guidelines for Oversight
Staffing
Evaluation Metrics
Strategic Partnership Cultivation
Identification of investment targets
Realities and Challenges
INVESTMENTS
Synapse will need to continue to selectively make decisions among potential
investments. In the short-term, Synapse will look to initiate investments with
comprehensive scope across sectors, and with strategic geographic distribution.
Within this context, there are several possibilities:
1. Synapse could focus on critical sectors where funding gaps exist, and where strategic
intervention could result in market growth.
Agriculture, textiles, tourism and crafts are promising SME sectors.
2. Synapse could set goals for geographic distribution of investments
With investments slated for Africa and South America, Asia, Synapse could look to other
regions for future investments. Alternatively, Synapse could focus attention on Central Asia,
building a strong investment portfolio before expanding to other regions.
3. Given the widespread distribution of effective SMEs, Synapse could respond to donor
demand in investment development.
During ongoing fundraising operations, the Fund could offer donor “stovepipes,” creating
earmarked investments for regions of interest, or even “named funds” for donor cultivation.
Realities and Challenges
LEGAL STATUS
The Synapse Fund was launched as a project of the Global Fairness Initiative (GFI) As the
Fund’s fiscal sponsor, GFI assumed overall programmatic responsibility for Synapse, and
maintained a relationship with Synapse, akin to a “public education fund,” maintaining
overlapping staff and operations, but with different boards.
As of August 13, 2007, The Synapse Fund was separately incorporated as a independent
501(c) 3 nonprofit corporation. All Synapse donations go directly to the Fund and are fully
tax-deductible. Checks can be made to “The Synapse Fund.”
Pro-Bono Legal Representation
The law firm of Edwards Angell Palmer & Dodge LLP has offered to be the pro-bono legal
council for Synapse. EAPD has helped Synapse pursue its own tax exemption, and will help
draft loan contracts, and will ensure compliance with US laws.
Into the Future …
LONG RANGE PLANNING
As The Synapse Fund matures, many of the operational questions that exist today will begin
to be answered. It is our hope that the growth arc of the organization leads it to focus on
building market access and financial access for SMEs in many parts of the developing world.
Synapse will remain a linked to the Clinton Global Initiative (CGI).
CGI provides Synapse an international platform for donor and investment development, and
currently acts as both an action motivator and an engine for accountability. The Synapse
Fund has made very public commitments to the international community to deliver vital
services to the developing world.
As an independent 501(c)3, The Synapse Fund will remain an operational and
philosophical reflection of the Global Fairness Initiative (GFI).
The search for innovation, and developing scalable enterprises that extend globalization’s
benefit to the world’s marginal populations are GFI’s core operating principles. As an
institution, GFI maintains a very small institutional footprint, with extremely low overhead
costs,* and remains nimble and adaptable to meet emerging needs.
*89% of GFI income is expended on program work
Into the Future …
BOARD OF DIRECTORS
The Synapse Fund has been fortunate to attract the highest caliber of individuals to serve on
the Board of Directors, representing international scope and impressive depth in venture
capital, socially-responsible investment, social philanthropy and informal-sector business
operations.
At this juncture, Synapse personnel envision various potential roles for Board
members:
Assist in capitalization
Identifying and/or cultivating high net worth individuals, outreach to foundations and
corporations, assisting with fundraising events, etc
Assist in the development of organizational operations and loan-making technical
materials
As Synapse will follow many of the basic tenets of venture capital investment, the experience
of Board members in this area will be vital in the operational development of the institution.
Inform Synapse staff on program interests, geographic interests or fundability of
projects and presentation materials
As relative outsiders, Synapse Board members can be vital sounding boards for program
development, and can suggest investment ventures of personal interest.
Board of Directors
Grant Aldonas President, Splitrock International
Steven Bennett Chief of Staff, The Brookings Institution
Eileen Kotecki President, Hawthorne Group
Barbara Krumsiek President and CEO, the Calvert Group
Janet McKinley Chair, Oxfam USA
Sally Painter Vice President, Dutko Global Advisors
Todd Peterson Synapse General Counsel, Edwards Angell Palmer & Dodge LLP
Sonal Shah GlobalDevelopment, Google.org
Karen Tramontano President, Global Fairness Initiative
Ricci Wolman Business Consultant
Progress Plan: 2006
“As global citizens, we all have an inherent responsibility—to each
other and to future generations—to work together toward a more
inclusive and sustainable prosperity.”*
The Synapse Market Access Fund is designed to help realize this
dream by providing critical market access and support to the working
poor throughout the developing world.”
*William Jefferson Clinton, September 2005
The Synapse Market Access Fund
410 First St SE, Suite 300 Washington, DC 20003 1.202.479.7158
Prepared for the Synapse Board of Directors
November 2005
synapsefund.org