Gary Bolton: Good morning everyone, and welcome to Where's The Funding hosted by the Fiber Broadband Association and sponsored by broadband.money. I'm Gary Bolton, the president and CEO of the Fiber Broadband Association, and this is our first episode of 2023. This is a 12-part series designed to help you understand, navigate and obtaining matching funds for Broadband grants. The anti BEAD program requires Broadband grant applicants to come to the table with a minimum of 25% matching funds and a letter of credit upfront with the application. For many small and non-traditional providers and communities, this may sound daunting, but it doesn't have to be. This 12-part series is designed to help you understand how and why meeting these requirements can be straightforward. Each episode will be 30 minutes and every month you'll hear from top industry experts on different aspects of funding.
Gary: We'll dig into the nuances of matching fund contribution requirements to help you navigate the complexity, here are the tips and tricks and meet people who can help you secure your matching funds. You'll learn about subjects like Capital Stack, eligible sources, shopping for matching funds from multiple sources in a single process and more. We'll get an overview of the rules, look at the year ahead and hear the tips from our grant applicants on lining up your matching contributions. You'll be the first to know about the new tools and resources built to help Broadband grant applicants navigate the matching funds marketplace. So with that, let's jump into our first episode with our friends and exclusive sponsors and co-founders of Ready, Jase Wilson and Mike Faloon. Jase, Mike, and the Ready Team built broadband.money tools to help smaller and non-traditional Broadband brand applicants build complete applications, including matching funds from many providers.
Gary: Jase is the co-founder and CEO of Ready, and he's easily recognized in his broadband black money Trucker Hat. On Jase's honor, I thought I would put on my Fibre Broadband hat there. I'm good to go. Prior to Ready, Jase was the CEO of two community development startups and he's a Y Combinator alumni. He has a Bernie from In Urban Planning and Design from the University of Missouri, Kansas City and study Design and Development and MIT. Mike Faloon is the co-founder and COO at Ready. Mike worked with Jase at their previous startup as the Chief Strategy Officer, and he has a long financial management career at Standish Mellon Asset Management Company, culminating as the Chief Operating Officer. Mike has a BS in Finance from the University of Maine, a master's in Finance from Northeastern, and a master's in Financial Engineering from Stevens Institute of Technology. Mike's also a Y Combinator alumni. So welcome Jase and Mike. I'm so excited about this theories and for our first episode, let's set the stage as we kick off with the intro to BEAD Matching Funds. So please put any of your questions into the chat as we go and we'll get to them during the Q&A. With that, I'll turn over to Jase and Mike.
Jase Wilson: Gary, you're amazing, dude. Nice hat. Thank you all for joining us, making time, everything that you're doing to get folks connected, super exciting to get to hang out. Gary, we wanna say thank you to you for the idea of Where's The Funding. When we were talking earlier this year, you said, "What can we do to help these local providers and these Fiber Broadband Association members?" And then you graciously agreed to share all this curriculum of a show that you came up with to the Broadband community. So thank you. And to the Fiber Broadband Association, y'all are amazing, very hardworking. You're one of the most important organizations doing hard work in, at a critical time. So we appreciate you, and then folks that are on the call, we figure you're in Broadband. So in that sense, that makes you really good in our book. You're helping get folks connected. You're in for a really big busy year. So.
Mike Faloon: To say the least.
Jase: I wanna jump right into this stuff, okay? Let's see. Hey, Gary, can you see our screen?
Gary: Perfect. Let's roll.
Jase: Okay. Awesome. Let's do it. So y'all, as Gary mentioned, there's gonna be a bunch of amazing upcoming talks in this series. We'll probably be the least qualified people in the entire series. You're gonna hear from some true industry experts. We thought we would join Gary on this first one and hang out with y'all to get the party started with trucker hats and chocolate coins. But next month tune in, there's gonna be a really great deep dive presentation on the Matching Funds, nuances of BEAD, and then lots and lots of really interesting topics. But today we thought we'd just jump into... Intro to the BEAD Matching Funds to get folks started because... In this case, as you folks know, this program is the largest ever investment in Broadband that America's ever made.
Jase: It could be the last, but one thing that was very clear from Alan Davidson and the wonderful team at the NCIA from early on is that the Matching Fund component is a hard line component in most cases. And Alan had a vision for making sure that the matching component wasn't just a 25%, that's a floor and not a ceiling. And we'll hear more from Mike about that later, but this all means that this could be a major impediment for lots of local providers. How's it going? It's good to see you.
Mike: If anyone doesn't know we're doing this live at a conference.
Jase: Yeah. Thanks Mike. Mike wanted to go for something like Antiques Roadshow ambiance in the background. So we're doing it live and hopefully you can hear us okay, but it's at the US Conference of Mayors with a bunch of amazing local leaders who are about to gear up to help make sure that their cities and the partners that they're working with get their share of these resources.
Jase: So the question to you, first of all is, how are you gonna fund your BEAD proposal, knowing that you're gonna have to submit along with your application, proof that you have at least 25% of what you're applying for. In many cases, that can be a huge structural impediment, and of course, on this matching funds, like the difference of it being upfront with the proposal rather than arrears after you're awarded, is new to this program. It's unique to this program, but it's one of many interesting differences so of this program against other programs in the past. And just a quick bit, like why are we doing this? We build tools to help broadband providers connect more families and businesses to better broadband services. And a year and a half ago, we started a process of building out broadband.money to help make sure that folks that are out there, rolling up their sleeves and getting folks connected, are able to participate in these programs, even if they don't have a huge army of grant riders, a huge army of lobbyists and all the resources that are necessary to do the full-time job of getting folks connected, keeping them connected while also applying for these grants.
Jase: So we built this full lifecycle collaboration platform for you to help you make sure that you have the data, the research and development tools that you need and everything in one place. And later in this year, there's gonna be a really awesome opportunity to show you this. But for folks that are interested in matching funds, there's gonna be a matching funds marketplace, it goes live and if you go into Broadband.money, you can schedule a demo, you can go see it in action, there's all kinds of amazing stuff, that it's gonna help you to make sure that you have the research and background and context that you're gonna need in order to make your case to funders, whether or not you go through the matching funds marketplace, or you go and have individual conversations on your own, you're gonna need the letter of credit, you're gonna need... And Mike's gonna go through a bunch of different potential sources. You're gonna have a ton of fun.
Jase: So, but one quick thing that we wanted to share before we get into the mechanics of BEAD is that the matching funds component in many of your cases, it's going to be the hardest part of your grant journey. And the grant journey is no easy task, as you know for folks that have already done this before, it's an extraordinary amount of work but in this case the unique and steep requirements of BEAD in particular to have matching funds upfront to have that proof and everything it's viewed by some as an unfair policy, but our point to you is that it is what you make of it, and while that's true that it could be viewed as an unfair policy in some senses, we also ask that you view it as a clear signal, that your project and proposal is validated by folks that are willing to stake up their reputation, their assets, and get in partnership with you to make sure it gets done right so... And you can say, yeah, it's a local barrier, and that could be true.
Jase: Our job here at Ready and at Broadband.money is to make sure that local providers, small providers, innovative providers, have the tools and resources that they need for going after these things. We ask that they don't think of it as a barrier, we ask that we think of it as an opportunity to align incentives with folks that can help them to grow their network and to get more done. So when you get your matching funds and you get it from the right folks, and you have these new partners, like the right partners, if you get the right partners, they're gonna help you grow your network, get things done. Be in the excuse removal business for you as one of our friends from Carlyle infrastructure used to tell us, Hey, and finally I was like, yeah, it could be a political tool in some of your states, and again some of this is gonna get down to your state and what they end up doing with it above and beyond the BEAD NOFO.
Jase: It could be viewed as a political tool. And that's fair and valid in some of your states, but we ask that you just consider that it's also a really interesting market approach. That it is a really interesting expression of capitalism and that it's really interesting to see this component of a program that could otherwise say, "We're just gonna throw all the money into say municipal networks, which, if you're building municipal networks, awesome. You have a bunch of tools at your disposal. If you're doing partnerships with UNIs, if you're doing anything like that, you have a bunch of really awesome options, but we asked that it's in your mind, like it's what you make of it. Okay? [chuckle]
Jase: So I'm gonna shut up. But it was really good to talk to you all, we hope you're excited about this series. We invite you in the comments and afterwards in the follow up on the event page to drop any suggestions, ways that we can improve, like anybody specific that you want to see, we're working to finalize all of the guest speaker schedules. These folks, as you can imagine, are fairly busy folks so. Some of those dates might shuffle just a little bit, but we really want to hear your feedback too. So if you got anything, let us know. All right? Okay. Cool. Mike Fallon.
Mike: Faloon it is.
Mike: Don't let the matching funds knock you out. Don't be like the bull hair, which by the way is not me, the bald head and the goatee knock you out of the process. Get started, get started now. You've gotta start lining up those capital resources. You've gotta know where, you're planning to go despite the state still coming up with their five year programs. And really, Jase said this, I can't emphasize it enough. Unlike RDOF, unlike CAF II, where you could line up those capital resources on the backend, specifically the letter of credit, which is gonna require you to raise equity capital or potentially more debt capital, all the friction with the BEAD program is front loaded as opposed to back loaded. So you've gotta identify those sources of matching funds up front. You've gotta get the letter of credit when you put in your application, you've gotta get an engineer to sign off on your network design. When you submit the grant, not afterwards, you're not awarded the grant and then you're able to do this. It all has to be done upfront prior to submission.
Mike: And here's a term that you're gonna hear ad nauseam. For the, for those of you who may not be familiar, the word capital stack, what is it? Well, generically speaking, it's just the, capital resources you're bringing to bear in order to finance your balance sheet or the project itself. And here's just an illustration of a very general capital stack. 50% of the project, let's say, is gonna be a grant, 25% on loan, and I'm bringing in 25% in equity, from outside sources. Those can be friends and family. I don't know if they're gonna be able to come up with that level, or angel investors or private equity firms, potentially even venture capital you may see in this space, who knows what it's going to look like in three to six months.
Mike: But with that said, there are a multitude of financing tools at your disposal. Obviously, we mentioned private equity, there's also private credit, bank loans, of course, but there's this thing called project finance, which we can get into. And an important got you that we'll go over here momentarily are working capital loans, that are going to be essential in the build out of your networks. You can use other grants, specifically grants, that were part of the coronavirus, programs Cares Act, ARPA funding. Those are eligible. You can also use reconnect loans, as a potential match. And sort of a hidden tool, that you're gonna hear about midway through this program or is, are municipal bonds. And if you're interested in public private partnerships, that may be a financing tool that you're able to leverage.
Mike: So some questions to ask yourself. We talked about raising equity, and we know a number of smaller operators tend to be owned mainly by their founder or a couple founders. You need to ask yourself, if I want to go out and build out these projects, if I'm going to obtain a letter of credit, am I comfortable selling a piece of my business? How much of my business am I comfortable selling off to outside investors in order to bring that equity into my business and unlock these other pieces of the capital stack? How much debt can my business service, now and in the future when this network is built out? What can I actually service? Now, if you answered the first two questions with a no, or I wanna explore other options there are other options.
Mike: One is project finance, where effectively another company is created special purpose vehicle. Typically an LLC, is created. The capital comes into that by outside parties. You sign an agreement with the new entity, you become the operator of that. You don't necessarily own the network. There are things you can do on the backside to own it long term, potentially with the financier, that comes in a hundred different flavors. And then as I had mentioned, should I explore public private partnerships? Obviously you wanna work closely with the community. It's going to be a key element of unlocking these grants, getting community sign off and that pathway can unlock financing vehicles that may not have been available to you. That can also be things like transfer and kind, which can be used as a match for things like right of way or pole attachment agreements.
Mike: So, Jase had alluded to this, and I can't emphasize this enough. 25% match is the floor. It is reference more than once in the NOFO, from the NTIA. And if you think you'll only need 25%, you're probably not going to win. They outline a specific example in the NOFO where if two projects are identical, the one asking for the least amount of subsidy is going to be chosen, because they're trying to maximize, those government dollars to go further. And they really wanna see private capital come in, in a big way. Here's an important one, again, unlike RDOF, unlike CAF II state are encouraged and we'll know more as the state specific programs come out. In the middle of this year, states are going, are encouraged to release the funds once milestones are achieved. You're not going to receive this grant funding upfront. You're going to receive it on a schedule of milestones that you'll need to unlock as the operator. Which means you're going to need working capital to pull off these projects.
Mike: You're going to have to have detailed planning around your capital needs and your project management. Again, we've said it more than once. The letter of credit, it's gonna be required up front, needs to come from a US, banking institution. And it's modeled, very closely to what you saw in RDOF. It needs to cover 25% of that award. And typically what we've seen in working with some RDOF winners is the bank is typically looking for cash on the balance sheet equity equal to that letter of credit. So that's why it's incumbent on you to start this process with banks. Now you're going to go through an underwriting process with a bank. Also important, we do see a lot of new ISPs coming online, the NTIA has thought this through, after learning from RDOF where some new ISPs who didn't necessarily have the operating history had received some grant funding. You must submit your previous year audited financials, and if you don't have them, you'll need to get them. And you must have at least two consecutive years of operational history as a telco or an electric utility, before you'll be grant eligible.
Jase: Hey. Yo, you got this. It's probably daunting. It sucks but it's like the vegetables you do this and it's gonna actually strengthen your projects So keep that mindset, keep that hope. Let us know how we can help and the main thing that we want to leave with is like get ready. It's time. Even if you're waiting on your states the wait and see attitude is gonna fail you. You need to be researching things like where you're gonna want to grow and if you need help doing that there's free broadband audits that show you existing service provider stuff like that on broadband.money. You need to learn those funding options that's what this series is in. Gary came up with is supposed to do but we also wanna leave with something like you're in the community make sure to check out some of the other events that are coming up. There's all these great ask me things with experts. We have several of the state broadband directors coming on over the year. Upcoming we have Jade from Kansas, we have Ernie from Indiana, we have Dr. Tamara Holmes from Virginia. These are some of the coolest state directors and there's gonna be plenty more.
Jase: And we got folks like Kathryn de Wit, from Pew. She's like the pied piper of broadband directors. She's extremely depth of knowledge is great. This Friday we have Ernesto Falcon from the Electronic Frontier Foundation extremely lively. He's gonna be talking about California and his work at EFF and then there's a bunch of other resources there. I just wanna give a shout out to that, okay? You're not alone, okay? There's a community, the broadband community and that matching funds marketplace is gonna save you a ton of time. You'll be able to do, from a single application, talk to dozens and dozens of different prospective investors sharing what you wanna share, when you wanna share it being on the same page with your collaborators like... All that stuff's great. But none of it matters if you're not willing to get going now. So that's what we wanna say. But yeah... Back to you Gary and thank you again everybody that's joins for making time and Gary for coming up with this wonderful series and all you're doing.
Gary: Well, Chase Mike, let's get into some Q&A tons, tons of questions. So first of all you guys are gonna be able to provide a copy of these slides for our audience, right?
Jase: Absolutely. Yeah.
Gary: And how will they find that slides?
Gary: Send them out, or.
Jase: I don't know, Well, I don't know folks like we're gonna drop them into the event series so that folks can see it on the page.
Gary: We'll send them out to all the registrants. Alright, so let's, yeah. Let's start on the first question. So one of the questions that comes up often is when and when you, when not can you use other government funding, state, local, federal for matching requirements? The answer always seems to be it depends. Is there a interpretation of various states and federal programs on the rules that really is there a rule of thumb? Is there some case by case every time that you can be able to term when I can use a certain state, local, or federal program to Match use my matching funds?
Mike: So the NOFO was pretty clear around the types of other federal programs you can use for a match. It was explicit that you can't use any grant funding from the Universal Service Fund that would include Ardor or CAF II. It does allow for grants from regional commissions like the Northern Border Regional Commission or the Appalachian regional Commission and I'm not sure if I got that perfectly right. And certainly the CARES Act and ARPA are things you can match. And I do believe you can also match the treasury program which was part of the ARPA funding. So you can blend those two grant programs as a match.
Gary: So what's the runway? So right now we're looking at the, each state has... All 56 states and territories are gonna have a program and none of these have announced what those programs are yet, right? So we're a little bit guessing based on the NOFO. But ARPA has been out for a long time. The Coronavirus capital projects fund's been out for a long time. The all the others, what's the runway? I mean, won't those be allocated by the time that these programs issue and you put in your applications?
Mike: Well, think about it as if you plan the right way, if you're coming off of an existing network where you use that funding and you wanna expand that I could see a use case where or you can make an argument where the total project cost is X and I've already put this much in a of private capital as well as federal monies towards that project. So there will be some level of creativity. Now we, the ARPA funding, as you're aware is didn't necessarily go through the state broadband offices. Some states it did, some states it didn't. It was either at the county or the local level where it was deployed. And there needs to be a reconciliation or where the money's actually been spent before we get into allocating any more or any of the bead capital.
Gary: So Mike given that you don't get the funding until after the milestones have been achieved, that's gonna put a lot of pressure on anybody's cashflow. So how should operators think about this and be able to be prepared to be able to cover all that?
Mike: You've really gotta have a great relationship with your banking partner. And if a special guest there. So I've been fortunate enough not in broadband, but with other federal grants where the letter of credit was written by a local banking institution. They also provided the working capital loans which tend to be anywhere from one to two year type revolver instruments where they know you're getting these grants, we're going to extend this money out to 12 months. They also are gonna wanna know your construction timelines and milestones and be closely coordinated on when they're releasing that money to you. And then when they you submit the receipts to the broadband office and you receive the money back you'll pay off those working capital loans.
Jase: So, could I add to that, Gary?
Gary: What's that, Yeah?
Jase: Can I add to that?
Jase: There's also the opportunity to help these state directors as they're finalizing plans to make sure that that's called out as an issue, right? That sort of that's one issue that would uniquely affect... Small, innovative, non-traditional providers, folks that don't have a massive balance sheet sitting around, folks that don't have access to the capital markets, folks that don't have a available credit from a bank. Making sure that they have that as needed is something that the States... The State Director can think about in their policies and making sure that there's coverage for that. Like Mike was saying, that there's... There are tools in their toolkit that they can add and say, we're gonna actually have it set up this way.
Mike: Yeah, there seems to be in everything you hear, a desire for local providers to be involved and...
Mike: Certainly those ones that are engaging the community to be involved. But when you look at the capital rules, a little bit of a crutch, a little bit of a hurdle for them to actually get involved in a big way.
Jase: Yeah. So it's fair that it's like there's a ton of work to do to get it done. Again, it's a clear signal that your project has a lot of people that have a lot of resources, see you and what your project entails as having what it takes as a literal chosen one in that area. That's awesome. But at the same time, this aspect of... Like you said, Gary, keeping that pressure off of the local innovative providers when they actually start to deploy to make sure that they've got what they need is a key point. So, wrote it down as a thing to talk about with all these State Directors. We'll make sure to ask it and they ask me anything too.
Gary: Yeah, I mean the cash flow is king and that's a big challenge 'cause not only do you have to have cash flow to get to your milestone, but you have to until you turn up from your actual customers and...
Gary: You can searching the revenue stream, it's just for your debt service and everything is just a lot of cashflow pressure.
Mike: It is adding an element of risk to the business that wasn't necessarily there with a program like RDOF.
Gary: What about letter credit, It seemed when, that people saw they had to have a letter credit that freaked a lot of potential applicants out. Can you kind of drill down on your strategy, what's the... How can people mitigate this whole concern, over getting a letter credit.
Mike: First you got, you've gotta understand where you're at. I would start conversations with banks in my local area, if you understand how much money it is that you're going after, again, it's 25% of the award. So 100 million dollar project, let's say... I'm gonna do math live. This is never good.
Mike: 50% match 50 million. It's a 10 million dollar letter of credit, I think.
Jase: Fact checkers.
Mike: Don't check my math. Anyway, it's a 10 million dollar letter of credit. Start to... I'd like to think that all ISPs have a banking relationship. Start with who you know, determine what their appetite's gonna be. Obviously their capital constrained with what they can provide for a letter of credit, 'cause it goes directly against what they're able to lend. It's seen as a loan even though it's physically not. It's a backup in case you fail that the grant... The grantor is going to receive some money back.
Mike: And you've gotta start talking to banking institutions. And then in parallel you need to talk to the private markets. 'Cause most of those banking institutions are gonna say, if you wanna get to the next base or you wanna raise a certain amount of capital, if you want to do a certain size of a project, you're gonna raise... Need to raise a certain amount of equity capital specifically, which we are going to use as the credit for the letter of credit.
Gary: So this morning on fire for breakfast, we were talking about, the UK's a little bit ahead of the US on their national fiber rollout just because of Brexit and they really had to be able to be competitive with Fiber. And so what they're seeing now is a lot of industry consolidation. You have all these providers and at some point for scale you start to see some consolidation of providers. So we have 1200 fiber providers today. I could see at some point we'll start getting into... As we build out all this bid money and depending if that's new providers and so forth, how much should... When people are thinking about their capital stacks, building their capital stacks, how much do they think about, the implications of future consolidation, a future merger?
Mike: I think quite a bit. I think you, you saw it.
Jase: Great question.
Mike: In with Telcos. You saw it in cable. You're gonna have, with the way these grants will probably be.
Mike: Split up, it's gonna be more of a federated approach, which is gonna lead to a scale player coming in and combining entities for economic reasons. So I think it's gonna play a major part 5-10-15 years down the road in the fiber industry.
Jase: It's a awesome question, Gary. It gets back to what do you want outta this, include your vision, what's your long-term strategy, right? If you're out there pulling fiber and getting the job done, right, and you've got maybe some time you wanna go 5-10-15 years from now and do something else, it's important that you do think about this upfront, who's provided that matching funds and how's that structured? Because you're absolutely right. It could help to determine the answers and the range of possibilities that you have at that stage. So I wrote that down as something that we're gonna put into the, upcoming shows too as a topic.
Mike: I know we're out of time.
Mike: And I'm gonna leave with this cheesy little thing on that question, which is, look for those smaller providers, fiber providers, ISPs, who are still founder owned, majority owned, it's inherently personal. They need to ask themselves what they want and where they want to be in that time horizon.
Gary: Hey, well last question. How should people think about broadband.money? I know it's a tool that you guys have developed and I think of it like TurboTax for grant and things like that. But how should people think about that tool and how they should use it?
Jase: I just wrote down TurboTax for broadband grants, Gary, 'cause that's a great framing. Real quick 32nd version, it's a tool kit that's supposed to be an A to Z, Right now you're in the phase of research and development, right? Your proposals are not being submitted any time right now. You need to be able to understand where you want to go, So you need all that data at your fingertips. You need to be able to consume lots and lots of disparate data sets in a single place without having to hire a team of folks, to build out that stuff for you. So that's there everything that you need to answer questions in a great way, All those tools, but then when it comes time to apply, it's also an application system where you can invite your collaborators.
Jase: Including folks that you're gonna be aligned with on your matching funds, Other stakeholders, vendors, Folks that are gonna get involved with your... The high level design that you gotta submit, So it's a platform for all the stages. And once those things are submitted and you win, You have then the fortune of having 10 years worth of reporting requirement, And so it's the Z of it is following that last report, And making it really dead simple to make sure that you're compliant at every level, right from NTIA to your State and your local stakeholders. So it's a One-stop shot, but I think TurboTax for broadband grants is even better. So thanks Gary.
Gary: Well, Jase and Mike, hey, we really appreciate everything you guys are doing at Ready and your work at broadband.money and for being one of our partners on this very important broadband funding series.
Gary: We say hi to all the country's mayors for us while you're sitting there in the mayors conference. And...
Jase: Hey, mayors from the fiber community.
Gary: I wanna thank everyone for joining us today and look back to getting back together next month on February 15th, we are going to be discussing a big matching fund deep dive. You're not gonna wanna miss that. So we'll see you guys again in February. Thank you. Night.
Jase: See y'all.