I'm going to talk about pattern recognition in the field. I'm not going to confess or cry or give crone-like references about how it used to be. I'm going to be more generic. It's hard to learn while you're doing. Because we've been financing organizations for so many years, we've seen things happen again and again and recognize some patterns.

One of the things we've learned is that growth and scale, health depended on profitability which affects both nonprofits and for profits. If you don't have profit when you grow you go out of business, though we stay in nonprofitable businesses because our missions tell us to.

As we're scaling, we don't distinguish in our sector between. Building the enterprise and buying the enterprise through price supports, such as equity, is very difficult for us to get. Our financing system doesn't distinguish between these things.

Services are provided in such a way at a level of quality which makes them hard to scale. For example, a kindergarten class that has 200 students would be very profitable but quality would not be very high.

There are many things that have no measurable return. There are some things that are good for society and are not profit-motivated. This is a conundrum for us. We have to be more effective and grow anyway.

The primary source of equity to build and grow the nonprofits is individuals. Therefore, for low-wealth communities, the resources are severely constrained. In a private school, there are two kinds of capital fund drives: an annual fund, paid by endowment earnings and parents paying. There are periodic capital campaigns. If you go to a charter school there is no such source of income. Most don't even know what that is. The 50 largest foundations give only $150k There are solutions, but we need to understand the underlying problems.

An entity that loses volume when it scales is not going to lead us to health and effectiveness. Here are some of the habits we could change that would help. We have a tendency to fund and seek specialness. A proven model in the for profit world will attract capital. Here it is virtually the opposite.

There is an excess of real estate debt in the market and not enough capital available to organizations with a real estate base model. We don't turn to other kind enterprise finance such as unsecured loans. We focus on real estate but the world is shifting under us and it becomes less and less important.

We have a very strong bunch of rules that limit our fungibility of cash that undermines us in trying to scale. We have very high internal complexity. We've heard we need to diversity our revenue sources, but in looking at the market, you'll see that organizations that have only a couple of these are much more stable when it comes to scale. Part of the difficulty of internal complexity is that we scale all of our expenses as well.

Some of the most scaled nonprofits are cross-subsidizing. It takes awhile and its a slow climb. The most popular example is Harvard University. They probably spend a partial cent to raise a dollar but most nonprofits spend $1.47 for each dollar earned.

It's important for all of us to change the system on the supply side as well as the way we think of our business models. Access to markets are changing and Kirsten and Greg's paper is a great start to changing this.

Some of the questions are related to scale and underlying that is sustainability. We see more and more over the last few years a tendency among funders to ask if the project is sustainable. But we don't think in terms of projects. I usually ask them what their definition of sustainability and they say it's if you can get more money for it in the future.

One of the questions that underlies the challenge of to grow or not is to ask will it move us from transactional to transformational. We could standardize the transactions and hit scale. But so what? More doesn't always get us to the goal.

If we don't hit scale are we risking becoming irrelevant? Is there still a place for us if we don't grow? Will hitting scale make us more reliant on subsidy?

In our small business lending work of people who are unbankable, we realize we want to reach deeper into those communities.

We're 21 years old and capitalized by about 280 private investors. We target women and minorities. We like community building activities. We try to be as loose with that definition as possible.

Why would be want to grow? We have to answer 3 questions for us to pursue growth.

• Would this broaden or deepen our impact?
• Does it preserve our mission?
• Would growth ensure that we sustain ourselves over the long term?

When i retire some day I have the title of my book, "Worst Practices." We are very fluent in this.

We want to know if we're going o achieve growth through scaling. And do we do this through standardization, which will probably drive us to the middle of our market, which scares me. Maybe some of our work needs to be in the middle to support the rest of our work.

What if we did larger transactions? We considered that over the last couple of years. We will need to get some training.

We've also been looking at the idea of a merger. We admire ShoreBank tremendously and the chances they're willing to take. We've been open to consider this option, but this has terrified my board and has even kicked them into thinking of doing a strategic plan (laughter).

John and I put a lot of thought into exploring the idea of a merger, which seems to be the most viable way to reach scale. The expectation would be that 2+2=6. This would be significantly more than just adding our two businesses together. We would offer more than credit and we would becomes more organizationally efficient. I'm not sure about that. Maybe in the back office, but not in much else.

Our investors are looking for more market rate of return even though we're not in the market. The issue of leadership is interesting if we merge. There are people who we care about who may just go away because they will be redundant.

Scale in general is questionable in the issue of culture. I may not be able to control this, but we need to ask the questions.

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In terms of the incentive system, I'm wondering about the potential for deepening and broadening the impact not on transaction but more on the innovation and the impact on policy on people's lives because you become more relevant.

When we were smaller we didn't think about policy. When we started to grow, one of the things we took on was childcare lending. These are our most fragile borrowers. One of the things we discovered was that unintentionally we built a childcare portfolio. We stayed away from self-employment as an option for people leaving welfare. We knew we couldn't affect that but we thought we had an in through childcare. My childcare manager asked me what I thought success would be. I said when childcare conversations could not take place unless Cascadia is at the table.

In the nonprofit sector you're stable if you're small or your large. There is a difficult place to be right in the middle. We need to ask how to link small providers with the larger investment funders. It's tough to support midsize scaling organizations who are too small to be big and too big to be small.

I wonder if there is really a lack of resources for this field or is it being spread too thinly. Is there a value of having smaller organizations or should we think regionally and nationally? Do we need to provide the backoffice work with the talent who really cares about these issues? You can make a lot of small investments and make a small impact or big investments with a big impact?

I think those are really interesting ideas. In some ways, we're not capital constrained but imbalanced. It's not seeking its highest and best use.

When we were trying to map the industry, there are a lot of institutions that provide back office support for all kinds of organizations so they can do more transformational work instead of transactional. We've looked at what kind of organizations that could benefit from this. The challenge is finding the money to do it. I think in some ways money is spread too thin. People see their constituencies as their neighborhood and want each to have its own CDFI.

We need to figure out how to fund that kind of shift. There's got to be someone in this room who has entrepreneurial zeal who can offer this. There will be funders who can prescriptive about this.

Do you measure sustainability? How do you think your measurement might change over the next 3 years?

We like to think we measure it. It's a combination of a lot of factors. We measure our profitability. Sustainability is something we're looking for but it's not the highest and best use of our time. If we don't accomplish what we intend to then we should go out of business. One of the conundrums is that success is that you've move out of markets where mainstream moves in.

Would you recommend that all CDFIs go out of business if they're not profitable?

I don't think sustainability is the highest and best purpose. We could go for the best and biggest deals and then we'd be completely sustainable, but would we be serving our mission. From the point of view of impact, there's a challenge of growing the way you want to have impact. Mission and sustainability have to be tied together.

It would be a tragic loss to not think about the future in terms of 30-50 years. Probably we should think longer.

If certain administrations are willing to walk about from unaccountable or unsustainable organizations, isn't it incumbent upon you to be effective?

It's important to be effective. If you're struggling to stay alive then you're probably not being effective. We have to make sure we have the most effective organizations doing this work and doing it well.

One role of CDFIs is to pioneer new options for new markets. How do you see that?

If you think about a 2x2 matrix, with size and complexity, banks like to be on the big and simple quadrant, and we're on the small and complicated size. We're constantly looking for ways to push our transactions into the mainstream.

How much of your clientele are you graduating?

We have little idea about our borrowers,but they don't tend to be serial borrowers.

Most of the organizations we lend to become bankable. Over time they become desirable bank candidates. We work with banks where we take a subordinated part of a loan to invite them into the market.