This interview is part of Next Up: CDFI Leaders Thinking Ahead and Acting Now, an 8-part series exploring the Community Development Financial Institution industry.
Tim Ferguson: There is a perception that CDFIs have become too bank-like to fulfill their mission to provide capital and resources to underserved communities. Do you agree?
Betsy Biemann: CEI was founded on the coast of Maine forty years ago, as fishing, manufacturing and other traditional industries that had provided good jobs for Maine people were being buffeted by larger economic forces. Our mission has always been about building an economy that works for everyone. For us, transactions were never the end game; we’ve seen them as a means to an end. From that perspective, our own CDFI has never really been bank-like, we’ve always believed rural regions need more: capital along with business coaching, workforce brokering, industry expertise, and policy advocacy.
TF: So, the answer is no?
BB: Correct, at least for our work, and frankly for all rural regions. We can’t afford to be too bank-like, because we won’t be successful.
TF: CEI is quite unique in that regard. You have your technical assistance program for small enterprises, the policy and advocacy piece, and the financing. So how do you view the interplay between those? And how do you think about financing as a component of that?
BB: In a way, this builds on my last answer. CDFIs in metropolitan areas can be more specialized because there’s so much more capacity around them. Whereas in rural regions, there are more gaps – there is less economic activity and less robust support for rejuvenating rural economies. So, we see all of those ingredients as critical to our success, and the challenge is how does one organize and pay for those ingredients in a way that is both impactful and financially sustainable.
TF: How do you think about the capital that you have available? In the case of many CDFIs, it’s just loans of one prescription or another. You’re a bit different from your peers in the industry.
BB: We have, over time, added new types of capital and in fact grown different financing subsidiaries in order to provide a continuum of capital that allows us to make a variety of investments, from microloans to startup immigrant enterprises to NMTC transactions of $50 million or more for major manufacturing companies. And this is important because there is demand from businesses and social enterprises for capital that spans that continuum. We see situations where there are obvious capital gaps; we also see situations where there is capital, but the kinds of companies we’re financing can’t secure that capital. Over time, we have sometimes strategically, sometimes opportunistically based on funding opportunities, built a robust continuum of capital.
Organizationally, the challenge is having a team with the expertise and capacity to deploy that capital in a way that is both financially sustainable and has the mission impact that we’re seeking. As well as, alongside that, having resources to support the business coaching, partnership development around skills training and other support services that ensure that our financing is multiplying, not just adding to, the mission impact that we’re seeking.
TF: Let me pull on that thread. I want talk about how you view impact, particularly as you became the CEO 18 months ago. Listening to what you just said around different types of capital you have (equity, different types of debt, tax credits, etc.), how do you think about what impact you’re looking for from each of these activities and how do you measure it?
BB: In order to understand your impact, you have to know what you’re trying to achieve. Over the last five years, we have progressively become more specific in articulating and detailing our impact. For example, with our small business lending we look at its financial self-sustainability as a loan fund and at the social and environmental outcomes we’re looking for. We have gotten better at managing the risk of the loans that we’re making as well as looking at the portfolio as a whole to ensure that it is covering its own cost and contributing net revenue to the organization as a whole. That, while it is meeting our mission goals of financing small businesses that frequently can’t get capital elsewhere, and making sure that investment is going to underserved entrepreneurs, including women, immigrants and refugees, rural businesses–ultimately creating good jobs that can help people earn decent livelihoods.
TF: How do you perceive the industry overall, in terms of how you think about this balance – being financing/transaction oriented, versus trying to achieve a higher purpose or mission? While you’ve been adjacent to the CDFI industry for a while, you’re relatively new to it, so I’m curious about your perception of the industry as a whole.
BB: Yes, I’ve recently returned to the CDFI industry. I had exposure to it early on when more of the capital for the CDFI industry was coming from religious institutions and foundations. With CRA driving much more bank financing into the field over time, the CDFI industry has grown dramatically, and far more of the folks working in CDFIs have experience in the banking industry. This has certainly changed the nature of the field. In some ways that’s a good thing; it means that there is a much higher degree of financial and business expertise in the industry. But it has also meant that the focus on transactions and financial metrics has perhaps outstripped, in some cases, the focus on the mission side, which has been so key to CEI’s DNA since the beginning.
My concern about the industry is whether it has been at times too inward focused, at the expense of reaching outwards to forge partnerships with other streams of capital. There’s been an explosion of interest in impact investing, in particular, as well as interest on the part of entrepreneurs and investors to become involved. Just yesterday, Steve Case’s new Rise of the Rest initiative announced its intention to raise equity capital and invest it in rural regions and other places that have gotten far less of the equity investment in the country over last several decades. Sometimes we’ve gotten so focused on those four letters “CDFI” that we may have been missing opportunities to partner with and connect with capital in other parts of our economy. That’s an area that we at CEI are interested in exploring, and seeing whether there’s a role that we can play, both as an organization and as part of our field – to continue to think about this, to explore, and to innovate.
TF: I want to drill down a bit more on the impact investing comment. But, first, on the Steve Case initiative – why don’t you think CDFIs haven’t taken that initiative?
BB: Well I’m not sure we’re moving in the same circles as the investors who are stepping up. It’s very different for the head of a CDFI to approach some of our country’s leading entrepreneurs and investors. In the case of Steve Case, he is their peer. But I do believe that the investment of that type of initiative, assuming it comes to fruition in the way that it has been described in this initial announcement, may add traction if it connects to, or integrates with, organizations on the ground in those “fly over” regions that are working to help entrepreneurs who often are not serial entrepreneurs and who are not rubbing shoulders daily with people with venture-backed CEO growth experience. Rural and first-time entrepreneurs can benefit from being connected to CDFIs that can offer business coaching, provide earlier stage seed capital, and influence a policy environment and entrepreneurship support ecosystem that cultivates the growth of those kinds of companies. So, there’s certainly an opportunity for organizations like CEI to partner with an innovative fund like that, either for co-investment, or to work with entrepreneurs to prepare them for new investment.
TF: One observation I would make is that CDFIs are comfortable with debt, and not comfortable with equity at all. I think we would both agree that if we can’t figure out how to help underserved communities build wealth, then we’re not going to succeed in helping them to get out of poverty and create quality jobs. And debt is often not the way to do that. Now, you came from the Maine Technology Institute, so you have an unusual perspective. I imagine they were focused on figuring out how to help technology entrepreneurs both grow their businesses and find the right sort of capital to do that. Do you see the same sort of need for that type of capital amongst the small business enterprises that CEI serves?
BB: CEI was actually envisioned as a loan and equity fund from the start. Early on, CEI was running into that exact issue – we were finding that some of the companies we were working with needed early stage or growth equity, and that loans weren’t the most appropriate financing they needed at the time. At that point, CEI was a nonprofit organization, and you couldn’t raise equity investment through a nonprofit because you couldn’t return profits to investors. So that’s when we created our first forprofit venture capital fund. We’ve now created four funds and have invested almost $45 million. There were certainly companies that needed equity, but in advance of that many have needed coaching around appropriate valuation of their company, or understanding what to look for in an equity investor that you’re going to allow to invest in your company. Through our business advisory practice, as well as through our venture fund team, we’ve often provided that kind of advice and counsel to entrepreneurs who were going out for equity investment for the first time.
In Maine, over the years, our ecosystem supporting the equity side has evolved and become richer in terms of that kind of support. Maine has an angel investor network that CEI is a part of. There are several Maine and northern New England equity funds with whom we co-invest, or one of us will take the lead on due diligence and the other will co-invest. Maine has a seed capital tax credit which has been another ingredient in developing that equity ecosystem that supports early stage equity investment. We’ve seen companies we’ve invested in sell to a strategic buyer and the entrepreneur has come back a couple of years later looking for financing for their next company. So we’ve started to see the development of a “serial entrepreneur” community in Maine, and we’ve started to be recognized regionally and nationally as a rural state that has an ecosystem of support for early stage companies.
TF: Let me reframe it in the context of the Case Initiative – you see potentially that CEI or other CDFIs could be linkages into the communities where a number of the entrepreneurs that are seeking that capital exist, in addition to providing business advisory services as well. Is that correct?
BB: Absolutely. We are often an initial business coach and investor at a smaller scale, then larger players provide follow-on investment. So CDFIs like CEI could, in a sense, provide a pipeline of potential companies for them to invest in down the line at a slightly larger scale. We can also co-invest. We can serve as local board members, because the folks who are engaged may or may not have time to sit on the boards of these companies, though I hope that they do, because their expertise and networks can be just as valuable as their investment. I think there a lot of ways that CDFIs like CEI that have a continuum of capital, equity capacity, business coaching capacity, could be complementary partners with new national investment initiatives.
TF: So I want to switch back to sources of funding, and your earlier comments about impact investing in particular. How do you view the future of funding for the CDFI industry? And how do you think about the so-called impact investing trends within that?
BB: Stepping into this new leadership position at a time when the policy environment is changing, I’ve become much more aware of how important it is to have diverse sources of capital for our field. First of all, it’s a diverse field, so we’re all financing a variety of enterprises with very different contexts, whether rural or urban. But as organizations, not only are the needs we’re trying to meet very diverse, but we also have very different structures, very different histories, and need a very diverse stable of capital to finance ourselves, as well as to be able to structure the financing that small businesses need, in a way that’s financially sustainable and resilient in the face of economic and policy change over time.
Broadly, the impact investment movement has still spawned more discussion than financing, particularly I think for rural CDFIS. Over the last year, with the most recent presidential election and campaign discussions, it appears that more Americans believe that the economy isn’t working well for everyone, and impact investors are part of that conversation. I’m hopeful that there are opportunities for CDFIS like CEI to continue to craft vehicles and channels for individual and institutional investors to invest in, in order to achieve the financial return they’re looking for alongside the social and environmental impact they’re looking for.
The challenge is always around how to match up that return expectation or requirement, on both the financial side and on the mission side. And to make that investment opportunity really compelling and connect the investor to the impact that they’re having, so that it’s just as front of mind as the financial return they’re receiving. We have a ways to go as a field to be successful in accomplishing that. But I think that there’s growing interest on the part of people and institutions to align their investment with their values, and we in the CDFI field have the opportunity to bring new creativity to developing new programs, partnerships, and financing vehicles to meet that demand.
As an example, CEI recently developed a note product for accredited investors, allowing us to raise almost $9 million, which we’re investing in Maine businesses through our loan portfolio within CEI. We’re excited about the progress we’ve made so far, but we want to take it further. We’ve learned a lot of lessons over last several years – how to do it well, how to organize and structure that vehicle in the way that makes sense for CEI as the investor as well as for the ultimate borrowers of that money. This has opened up the possibility to raise slightly longer-term capital, which is important for our lending in farming, food, and natural resource-based industries; they sometimes need longer term debt that we don’t have access to through most of our institutional investors.
TF: That’s really interesting. Some of the innovation you’re doing on the fund side is particularly interesting, such as Bright Community Capital. Can you talk about that?
BB: We are launching a solar financing company called Bright Community Capital. In addition to financing commercial and industrial scale solar arrays, BCC will raise money from investors and channel that capital to solar projects in communities and municipalities to help them be more financially and environmentally sustainable. We see BCC as a unique opportunity within the CDFI industry to connect with investors interested in a market rate return with deep impact. The jobs that are created through construction and maintenance of solar arrays typically pay livable wages and are accessible to folks without college degrees–there’s a quality jobs element. So in all, BCC brings together good jobs, stronger communities and environmental sustainability, along with the financial benefit for lower energy costs. And the fund itself will be a net revenue generating entity for CEI as it comes online. It’s an exciting new effort that will contribute to our three strategic priorities- good jobs, environmental sustainability, and shared prosperity, all while contributing to financial sustainability of CEI as a whole.
TF: So I understand that your three strategic priorities – good jobs, environmental sustainability, and shared prosperity – are used as a framework to evaluate all of the activities CEI carries out. Is there anything in that that’s particularly important, or carries a heavier weight?
BB: Well, in a way, the first two contribute to the third. We would now like to see not only the growth of jobs but the growth of jobs that provide a living wage, basic benefits, and opportunities for training and advancement. And without jobs like that, you cannot have shared prosperity. Similarly, we’ve been making quite a number of investments in renewable energy, or in companies with an environmental or sustainable dimension to them, but we found they were often not providing jobs for people with low incomes or supporting low-income communities, so we’re looking to steer more of those investments to benefit both environmental sustainability and shared prosperity. The goal is to build a sustainable economy that works for everyone, and particularly for people with lower incomes. We’re working to buck the trend of increasing income inequality in our country, by purposely steering more of our resources, our investment, our human capital, and our policy/advocacy towards boosting economic inclusion in our communities.
TF: You’re one of, if not the largest CDFIs in the country with a rural focus. Can you talk about the linkage to the urban core? Most CDFIs we look at seem to be focused on larger cities.
BB: From our very beginning, our focus has been in our rural communities, but we don’t see rural communities as being cut off from the broader economy. In fact when that happens, that’s when they have some of their greatest challenges. We’ve historically worked with companies in natural resource industries, whether its agriculture, fisheries, food manufacturing, nature-based tourism. Maine can’t grow its food economy by only feeding Mainers; we’re close to 78 million people from the mid-Atlantic through to Eastern Canada, and if our farming and food industries are going to be strong and grow, we have to be looking at how we feed Mainers and also people in greater Boston, New York, and elsewhere where farmland is more expensive, and where there isn’t always as much expertise and infrastructure for growing and manufacturing food and beverages required to feed those more populous regions.
So we see an important connection between rural communities, natural resource-based industries, and the broader Northeast region as well as the rest of the world. There’s been a big increase, for example, in the sale of Maine lobster to China over the last several years, so we are very connected regionally, nationally and internationally. At the same time, we’ve seen consistent lack of investment or disinvestment in our rural regions and small gateway cities. And our communities are really challenged when they lose a major employer that they’ve depended on for 50 or 100 years, to build a new economy that can replace those jobs with decent benefits and career advancement in their region. So how can we help that community? How can we help them once it’s clear that a new company isn’t going to buy that machinery and turn it back on? How can we work with business owners and entrepreneurs in those communities to help them create their own job, since the jobs that used to be down the street aren’t there anymore? And our answer is that we can be one piece of the puzzle that helps to weave together public and private resources, to provide that coaching and capital to folks in those communities.
TF: Among all this talk of impact investment, CDFIs often say that they’ve been doing impact investing from the beginning. Do you agree?
BB: Yes, I agree with that, especially if you believe, as Clara Miller of Heron says, that all investing is impact investing. We’ve been thinking about what the impact of our investing has been from the very start. In fact, it was that impact that motivated CEI to make its first investment. Our first investment was in a cold storage and processing facility in Boothbay Harbor back in 1977, at a time when the fishing industry was in transition. A local business was looking to add more value and remain competitive against better capitalized players. CEI very quickly realized it could generate a financial return and benefit communities by channeling investment to high-potential enterprises along the coast of Maine. As investments were repaid, CEI could reinvest them in other “triple bottom line” companies and multiply our impact. So yes, we put ourselves in that category of being early impact investors.
TF: What would you call yourselves, if you weren’t a CDFI?
BB: We frequently call ourselves a mission-driven investor. I would also say that we are community development innovators or changemakers, because over time we have been part of or led innovation around public policy, financing products, and public private partnerships that advance rural regions, small gateway cities in ways that benefit people with low incomes. Finally, we are operationally a social enterprise, in that we use revenue-generating strategies as we work to advance our mission.
TF: As you embark upon the latest refresh of your strategic plan, what will be critical to your success? What are you hoping to change in the ways you operate, particularly with your belief that there are other funding sources beyond traditional banks and government?
BB: CEI is an extraordinary organization, with a 40-year track record and scale and diversity of activity that is well regarded in our field. If an organization continues to add new activities and go after new opportunities, over time one can become stretched thin. We’ve taken a step back and asked ourselves what the biggest challenges are in Maine and rural regions around the country and determined how we can leverage our strengths to help solve them. And we are embarking on a plan that will enable us to succeed in multiplying our mission impact while growing and becoming more self-sustainable financially.
We will do so by drilling down on three strategic priorities: growing good jobs, environmentally-sustainable enterprises and shared prosperity. We’re moving from creating and sustaining jobs to creating and sustaining quality jobs; we’re focusing more attention and capital towards growing environmentally sustainable enterprises, and then connecting the dots for these jobs and these enterprises to expand shared prosperity. And in order to do that, we will be more strategic in how we measure our results, use that data to attract the right kind of investment to carry out that work, and use the data to continually improve and multiply – not just add – to our impact. We have a very strong and talented team, which is important. But we need to upgrade our legacy data management systems to give them the information and the tools that they need to operate at a world-class level.
TF: How do you think about attracting and retaining talent? There’s a trend that younger generations are more interested in doing well and good- is that important to your efforts to attract talent?
BB: Our team is incredible talented and dedicated to our mission. It’s interesting because I think CEI has a reputation, both within Maine and nationally, of being a pioneering organization and one that many people want to come and work for. So we’re very fortunate that when people think of moving to Maine, or think about where they can have deeply satisfying career while making a difference, they reach out to CEI. We’re also fortunate that because of our structure and the fact that we carry out a diversity of functions, we have a very diverse team in terms of skillset. We are a mix of folks with sophisticated expertise structuring and accounting for complex tax credit transactions, savvy business coaches and people with deep industry expertise, experienced researchers and policy advocates as well as patient and knowledgeable housing and student debt counsellors. We’re all part of the CEI family of enterprises, bound together by excellence and the social mission of our organization. So we’re fortunate that we are able to attract and retain a very experienced set of people who are deeply committed to our collective work and find it personally satisfying to work at an organization that is expanding economic opportunity in Maine and nationally. This extends to “walking the talk” in our new LEED Platinum building in Brunswick, with solar panels generating half of our electricity, ground source heat pumps providing heating and cooling, and use of locally-sourced construction materials.