Where's The Funding? Episode 4: Partnerships, Alternative Sources & Pathways

Where's The Funding? Episode 4: Partnerships, Alternative Sources & Pathways Banner Image

Apr 19, 2023


Our special guest

Brian Vo serves as Connect Humanity’s Chief Investment Officer in leading our investment efforts to structure the right type of financing solution that meets the needs of organizations advancing digital equity. He collaborates with Connect Humanity’s partners, communities and social enterprises alike, to understand connectivity barriers, local context and needs, and the implications on the appropriate blend of impact finance.

Previously, Brian was the Vice President of Social Investment and Innovative Finance at Pact, Inc., a global development NGO. He led the Pact Ventures team to deploy impact capital that accelerated Pact’s theory of change through creative financing vehicles, like market-based incentive structures, early-stage investments, and structured project-based financing that enabled evidence-based interventions. Prior to Pact, Brian was a director at Quantified Ventures, where he designed outcomes-based transactions for nonprofit and for-profit social enterprises. 

Previously with McKinsey & Company’s Strategy/Corporate Finance and Public/Social Sector Practices, Brian advised clients on a range of topics including economic development, growth strategies, capital allocation, operational turnarounds, and transaction structuring. He also worked with Macquarie’s Private Equity Group and Jefferies & Company Investment Bank. Brian holds an MBA and BS from the Wharton School, University of Pennsylvania.

Event Transcript

Benjamin Kahn: And we're live.

Gary Bolton: Well, good morning, everyone. I'm Gary Bolton, and welcome to, Where's The Funding? It's hosted by the Fiber Broadband Association and sponsored by I'm Gary Bolton, the president and CEO of the Fire Broadband Association. This is our fourth episode of 2023, and this is a 12-part series designed to help you understand, navigate and obtain matching funds for Broadband grants. The NTIB program requires Broadband grant applicants to come with the table with a minimum 25% matching funds and a letter of credit upfront with the application. For many smaller 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 and know why meeting these requirements can be straightforward. So, last month we had a great session where we discussed the capital stack with David Hartin, the president of ITC Holdings.

Gary: And during this session, David discussed that not all grants are good grants and what to look for. He also outlined some return on investment targets and provided guidance on parameters for the cost of fiber and home passings. So if you missed it, you can go to the Fiber Broadband Association website under events and find a replay, or you can go to and watch the replay. So, today's fiber are aware of the funding program. We're gonna be focused on partnerships, alternative sources and pathways with our guest, Vo, Chief Investments Officer from Connect Humanity.

Gary: Brian is gonna share with you the many different sources of private equity that can be used to expand your business. And if you're asking yourself what options you have when it comes to private sources of capital, this is the session for you. So Brian Vo serves as the Connect Humanity's Chief Investment Officer in leading the investment efforts to structure the right type of financing solutions that meets the needs of organizations advancing digital equity. Previously, Brian was the Vice President of Social Investment and Innovative Finance at Pact Inc., a global development NGO. And prior to Pact, Brian was the director of Quantified Ventures, where he designed outcome-based transactions for nonprofits and for profits, social enterprises. Previously he was with McKinsey $ Company Strategy and Corporate Finance and Public Social Sector Practices. And Brian advised clients on a range of topics including economic development, growth strategies, capital allocations, operational turnarounds, transactions structuring.

Gary: He's also worked with Macquarie Private Equity Group and Jefferies Company Investment Bank. Brian holds an MBernie and a BS from the Wharton School of Business at the University of Pennsylvania. So, welcome Brian and for our audience, please type in any questions you have in the chat and we'll work them into our discussion. So again, Brian, really happy to have you here today, and I really wanted to start off with, you have a really interesting career, Brian. Can you tell us a little bit how a Wharton private equity and strategic consultant from a top tier firm ends up in social investing in nonprofits and social enterprises? 

Brian Vo: Yeah, absolutely. Well, thank you Gary for having me. I've really been enjoying the series so far. So I, what's that Steve Jobs quote? You can connect the dots looking backwards. But I would say the general through line has been second generation immigrant family. So my parents came over during the Vietnam War. And so growing up there very much was a sense of community service. I think I was starting to get interested in what makes people make certain decisions. Why decide X versus Y or invest in A versus B? That's what really led me to Wharton undergrad. And I think it was jarring to see just two very different worlds. One of community service and then really being in kind of the training ground for capitalism.

Brian: But really started seeing interesting concepts around, what could happen if the public and social sector could speak the language of private sector and what could happen if the private sector really started speaking language and could provide product solution services to the public and social sector? I think the language is a lot more sophisticated now. But that led me into finance first. And really was core to my development in learning, just seeing financial engineering in practice, saw before, during and after the financial crisis and for me, that really colored how I saw it as a, not necessarily a sustainable way of creating value. That's what led me to strategy consulting.

Brian: And I think one of the things I really enjoyed most there was the increasing work that I was doing between the strategy and corporate finance practice with the public and social sector practice, and using a lot of corporate finance tools and approaches for federal, state, local governments for development, finance institutions etcetera. So really it's been at that intersection I've tried to stay at, looked at it from impact bonds and outcomes based financing through to kind of to now Connect Humanity. And I think the undercurrent has been how can we get markets and especially capital markets working in parallel and alongside what the social sector might call theory of change or certainly, how we can work in concert with nonprofit programs and initiatives.

Gary: Thanks, Brian. So tell us a little bit about Connect Humanity. It's a nonprofit impact fund advancing digital equity. So how did digital, advancing digital equity become the mission? I mean, that's the mission of the Fiber Broadband Association. Tell us a little bit about that.

Brian: Yeah, absolutely. So, I would say, when our founders really got together to think about when in the spirit of building back better, what does that even mean? Plus the pandemic experience. It just really shone a light on the lack of digital equity, the magnitude of the digital divide. But as I'm sure a lot of listeners will recognize, it's not just a question about infrastructure. Yeah, that's often a gating step. But just because it's there doesn't necessarily mean people will come, right? Field dreams type thing. So, what are all the other preconditions or wraparound services that are needed in and around that infrastructure to get meaningful adoption? And I think what's been interesting for me coming into digital equity and Broadband infrastructure with an impact investing hat has been, it really looks like the convergence of what nonprofits will advocate in terms of affordability, device access and just general access. But also what the business case is from an infrastructure and investment perspective, right? And really seeing digital literacy in programs like digital stewards and navigators really supporting the investment case or at least that's how we weave it into our underwriting. So we were pretty intentional saying it has to be digital equity, not just Broadband and infrastructure, because it's often the other stuff in and around infrastructure especially for low-income communities that'll make, help make the math work on the investment side.

Gary: So Brian, so the target communities that you're focused on, they're not usually able to get funding. So how does this work? 

Brian: Yeah, it's interesting because it's the intersection of two big problems, right? One is financial redlining and then the other is the digital redlining. And I think what we've tried to grapple with over the last couple years is, I mean, the broad theme is it, if we're trying to save the same problem in the same way, it is not gonna work, so how do we think about it differently? And that's really challenged us to rethink or at least take our underwriting principles and practices really back to the basics first principles of it. So when we talk about risk, what is it that we really mean? And we've had challenging conversations in our investment committee to say the risk profile feels high here.

Brian: But what does that really mean? Right? So can we disaggregate then unpack that? We wanna be cautious that we're not paving over broad swaths of "low-income communities" and just attributing "high risk" to it. Are we talking about take rate? Are we talking about the pricing elements of it? Are we talking about churn once they're on? Are we talking about the different packages that they might be signing up for? So what is it really that we mean by risk? Because with kind of that infrastructure hat on, it's digital infrastructure but it's still infrastructure. And if the common phrase that we all say, like infrastructure is increasingly a utility, infrastructure and utility really spark certain return profiles and risk profiles in my mind. But then some reason when you introduce low income there or rural there, risk is just a word that's said more. And we're trying to disaggregate why.

Gary: So what is the model? I mean, so there's communities sitting here on the call today and they're saying, how do I know when I should go to Connect Humanity? What is the profile that you're looking for? And if that community doesn't fit the model, do you have a program to help people get the right parameters in place to fit your model? 

Brian: Yeah. Absolutely. So might be a good chance to step back and talk about Connect Humanity a bit more holistically. And so we're trying to advance digital equity. The first half of that phrase is nonprofit impact fund. What does that mean? And part of the recognition was that no one particular type of capital will be able to solve it all for all communities. And so as a funder, as an investor, what types of capital do we need to bring to bear to provide the flexibility to create financing packages that meet communities where they're at? And so that nonprofit impact fund ends up in two major verticals. The first one is what we call philanthropic programs. And so that team will work with communities who recognize they have a digital divide problem, but may not know where to go from there.

Brian: Or they're very advanced and just need a little bit more space to write some of the public grant proposals or just specific technical assistance on parts of their plan. That effort tends to be grant backed just to provide that space for the problem solving for finalizing that plan or figuring out the funding strategy for it. But a plan without capital is as good as no plan at all. And that's where the investment team steps in. And so we really think about our investment program in three major verticals. The first one is what we call project finance. Not too dissimilar from how the private sector would think about project financing but it's a network and a geography, and it's gonna live or die on the network economics of that geography. The tool that we've been increasingly seeing as useful is revenue-based financing. So we can mimic the concept of like a construction loan that might then roll over in terms of, into a more structured like debt equity package. But the revenue-based financing element allows us to go with the ebbs and flows of how the network is performing, delays in construction, hiccups that were unforeseen etcetera.

Brian: And that typically goes to smaller ISPs or municipals, where it's like, that network might be the only ISPs source of cashflow or it could be their first one. The second major vertical is what we call enterprise credit. And this usually is for municipals, more likely for municipals or larger ISPs who are operating several networks, have a base or foundation of subscribers. And the products will look similar. Senior term loans, working capital, lines of credit revolvers, especially for grant programs that require the three to four or five month window for reimbursement. While the structures will sound familiar, what's... The way we try to approach it is, how can we bake in terms into the financing that ensure un and underserved communities, communities at risk really get the service this time. That could include putting digital equity covenants into the package alongside financial covenants or putting in construction work plans and maps into the schedules, really to try to have more teeth with the operator. And then the third vertical is innovative finance, bit of a catchall. But it basically is... Tends to happen when somebody says, but for capital, we know how to solve this problem.

Brian: I would say the most exciting idea there, the one we're working on in a few areas is device access. And that's been for, if the infrastructure stack is filled, we don't need to participate. But what's the next problem for digital equity? And a lot of the communities we're working in, that's then access to sufficiently powerful devices. What we're structuring is, can we give upfront capital to the ISP to buy all low-income households free devices? From the household perspective, removes it as a barrier, but by running the capital through the ISP, they're the ones who stand to gain the economic value of new subscribers. From that monthly fee, can they pay us a portion of that until the devices is paid off? If the household churn goes to a competitor who's out of the area, the ISP is not on the hook for the remaining amount of the balance. Really performance based from the ISPs perspective, and with some of the really thought leading ISPs, progressive ISPs we're working with, we're layering in some more content, like could we pre-flash the devices with digital literacy, financial literacy, telehealth apps, etcetera. To make the device as useful as possible right out of the box. That's really how we think about the spectrum of our investment program.

Gary: For those, just kind of turn this conversation towards the NTIB program, one of the big challenges that a lot of our listeners have is that the BEAD Program has a 25% match. How can Connect Humanity fill that gap on these situations? Is there... How would you guys work with providers that are trying to figure out, they're gonna be applying for BEAD but they gotta cover the match and they have to be able to cover the capital one until they get reimbursed as well, if they need capital? 

Brian: Absolutely. Yeah. A few problems from like the financing part of that embedded in there, on the match side of it, absolutely we can provide that match, depends on the magnitude. And I would say, we are probably best placed not as the... I would say once you've done some homework to understand the financing options available to you, in which case we can then look at it from the one minus X perspective. If you have nobody or nobody that's interested, we can certainly be the preliminary combo. And along with financing, help you think about financing strategy. On the flip side of it, if you have a bunch of folks who are kind of teetering on the edge and nobody wants to be first, that's also... That's a different problem that we could help solve to say, well, do you then need subordinated capital or some type of concessionary capital? And might that help grease the skids for really to bring those other investors along? That's a different way of going about solving that part of the problem. It really depends on your context. I would say, the lines, letters of credit, absolutely, we'll... We're still unpacking what's the best way to underwrite it 'cause one of the barriers for investors on that is, it's... It sounds like... It's worded as an obligation.

Brian: And so an investor, how do I balance the obligation of them setting aside that capital, but not knowing if it's gonna actually be deployed or not. So, it's something we're still wrestling with but hopefully as BEAD makes its way through with added state wording language, it'll help ease that burden.

Gary: So, are most of your products debt or do you do debt equity and convertible notes and things like that or what? 

Brian: We'll do hybrids like debt, like equity-like. We are fairly intentional not doing equity, but out of principle rather than from a risk-return profile. For us because our North Star is digital equity, the way that manifests for us is as often and as much as possible, we believe the community really should own the underlying assets. They don't necessarily need to operate or build their own internal or organic ISP, but at least if we can disaggregate the ownership versus the operating, we feel like that's the best way communities can really take control of their future digital destinies. And so, that's where we avoid equity. Most of our products will be credit and then the revenue-based financing would be our closest to that middle ground of debt/equity-like.

Gary: So, when a community or an operator comes to you, should they be looking at the timing of how quickly they can deploy their capital so they can start servicing their debt with revenue? Or what is the time to revenue that you guys need? Or what is the model that you're looking at? 

Brian: Yeah, good question. We try to... It's gonna depend on each borrower. Depending on how much collateral is available, what the collateral is, we would try to figure out the different products. We're actually quite... We're really transparent with a lot of our smaller ISPs who've maybe never done a financial model. We actually build the projection model with them, layer in the financing with them, they see what we make. And so, it's really that conversation back and forth of what will make this project most successful? For some of the revenue-based financing ones, there's usually some type of 3-6 month grace period, but after that the repayments are linked purely to revenue.

Brian: And so, if you get no subscribers, then there's no revenue, there's no payment back to us. As revenue accelerates, then repayment is just a percentage of that so it ticks up until we're paid out to a cap. So, usually that means something like lower repayments in the first 2-5 years and then more inflated payments in years 5-10. But we've also done term loans to organizations that might have steady cash flow, anywhere from 1000-10,000 subscribers as a foundation across all of their networks.

Brian: So, it's usually a conversation of how do you wanna optimize your cost of capital and what assets do you have available to help optimize that? Some operators with 10,000 subscribers still want to go the project financing route, revenue-based financing. It's higher interest, but then it also carves out the... Or makes small, scopes down the collateral package that goes with it.

Gary: These community providers that are gonna be looking at BEAD, do they typically... Do you set up more of a line of credit or do you just... So they can just draw on it as they hit their project milestones? Or how do you usually set up the capital? 

Ben: Yeah. It depends if they have that grant award. There have been some where if there's no grant award, you might go and it's their first network or it's a new entity or a young one, one or two years old. We're seeing a ton of those, especially coming out of the pandemic, revenue-based financing. And so with that, we would create a disbursement schedule based on the needs, capital needs over time, over the first, usually first year or two. For those that have secured grants, whether philanthropic or public and they really just need to bridge that three month time between reimbursement. As an investor, that position is more secure 'cause it's grant back.

Brian: So, lower cost of capital, whether they want it as a revolver, they can draw down as needed, pay back, then draw down again. Or if it's like each chunk of money as a short-term type of loan for specified uses, open to that as well. It really comes down to, what's the capital problem you're trying to solve for? Some folks have a perspective on that. For those that don't, that's usually just a conversation, a couple of conversations to figure out what's optimal here.

Gary: So Brian, given the current bank situation, it says SCB and so forth, how should borrowers view banks? We're under this inflationary pressures making credit models very difficult. So what should they be looking at? 

Brian: Yeah. So, I would copy that by saying I'm not an economist. And so, just another opinion amongst a sea of many. I think two things to think about there, one is the depositor part of it is less of a concern if I'm the borrower. 'Cause capital is less at risk as long as you get that money out like on a term loan type of thing. I think if you have open facilities and you're worried about the deposit status of that bank, then that would be some good internal conversations around your own liquidity and capitalization.

Brian: For future products it is a bit of a double whammy right now between the inflationary pressures and the recent banking events. And that's just really gonna rise boats on cost of capital. So, I think one of the way we've tried to mitigate that, or at least get comfortable with it is margins will likely get squeezed, can we share that with borrowers? But also it doesn't change the underlying risk profile or risk-return profile of the infrastructure. And so, part of me goes back to really corporate finance 101 where you still will get the same cashflow yield barring lower take rates in the event of an economic crash. But it's still project cash flows.

Brian: And so, depending on your own hurdle rate, it could still be worth it to do, it just might be a little less profitable. But again, I go back to that infrastructure utility part of it where it's still gonna be a need. If this is at or near the bottom, credit will come back. And could you then refinance it as an investor? But also, the flip side of that is generally there's gonna be a flight to quality. And infrastructure utilities tend to be fairly stable.

Gary: So, you guys also do build leasebacks. Can you provide some examples and models that have been successful? 

Brian: Yeah. So, one we're working on now, we've seen some really good models, haven't closed one ourselves but it looks really promising where as part of our effort of enabling communities to own their own infrastructure and own their own kind of digital destiny. One thing we're working on is the sale leaseback model. So, when we provide support to the "community" it's often either the municipal sponsoring of the project or a local civil society. That might be a faith-based nonprofit or a consortium of nonprofits. And so, in this one particular deal that'll have to stay a little high level on is, we've supported the community in thinking about what are the different technologies that make most sense for them? Fiber versus wireless, hybrid, cost benefit of each. We found a design build operate partner that shares a lot of that mission alignments.

Brian: Ian has been working with co-ops to really have them own the infrastructure. I think what's new with this model is we're supporting the community to create a Broadband nonprofit that would essentially be the owner of the asset that the community nonprofit purchases, asset purchase the fiber network from the design build operator, the operator leases it back to provide service. And then we in a consortium of investors, are providing debt financing to the nonprofit, to new entity with the only revenue stream being that lease back payment. And so, we're striking the lease back payment, the lease payment to be equal in plus plus to the debt service requirement. And so, hopefully that then just becomes a pass through payment. And then hopefully over the course of X amount of years, that community foundation then owns it and is able to figure out which ISP works best for them or set of ISPs.

Ben: Hey, Gary, unfortunately you're muted.

Gary: It helps if the mute button is not on. So, one of the questions that came in, Brian, is would Connect Humanity be interested in helping to fund drops and installs and gap funding between, the gap would be between the ACP subsidy and the cost of a moderate priced high speed fiber connection for ACP eligible subscribing households? And looking at that gap being in that $240 per year per household number, is that something that fits in your models and profiles? 

Brian: Absolutely. So, it will depend on a little bit on the details in terms of which bucket it would fit into and some of the other terms. But one early conversation we're having is with a middle mile fiber builder especially in a rural area, how do they finance some of those drops? Really just the last 2040 feet type of thing. And so, can we structure a package that's kind of alongside the primary financing package they have for the middle mile part of it? We're looking that in a couple geographies. They're actually a little bit different, each of them, one is a little bit more risky for us 'cause it's premised on the cash flows coming from the household. And the other one it's more of a kind of senior term loan, 'cause the ISB has already done their own demand analysis and is comfortable with the likely take rate. And so, that then just impacts cost of capital.

Gary: Well, listen Brian, I'm here in Madrid, so I'm just getting ready to go meet with Director General of the ITU. So I'm gonna be heading out but I think Jase Wilson is going to jump in here and keep this open for questions from the audience, and he probably has some of his. But for the audience, thanks you guys for joining, and I look forward to getting back together next month on May 17th for our next episode of Where's The Funding? Where we're gonna be discussing navigating the letter of credit. So, you're not gonna wanna miss that. And again, Brian, I love what you're doing, congratulations on the success of Connect Humanity and look forward to seeing a lot of successful financing for BEAD applicants and those getting digital equity out to all. With that, I'm going to pass it over to Jase to continue on with any questions that the audience might have. Or is that you, Ben? I guess.

Ben: That's me. Unfortunately, I'm not Jase, but I'll do my best to be a Jase substitute.

Gary: Alright. Well, thanks Brian, will talk to you guys soon.

Brian: Thanks, Gary.

Ben: Okay. So Brian, I'm sorry I'm not Jase. But as I said, I will do my best to be a Jase substitute. I'm gonna give folks a couple more minutes to add any questions they may have to the chat. But I had a question for you, that actually has to do with the fact that a lot of the people who now find themselves thrust into a position, 'cause there's a lot more emphasis on this kind of work in the wake of the pandemic and because of the pandemic. And there are a lot of people who are now either they might have Broadband experience, but no finance experience or they have the finance experience and they have no exposure to Broadband or digital equity. So, what would you recommend... This is a two-part question. What would you recommend as some of the first steps and resources that some of these folks can get for themselves to lay the groundwork for a successful venture? But then also, what do you find are some of the most common pitfalls for people who are in this position? 

Brian: Well, so officially reach out to us, would love to have the conversation. It's been fascinating my journey into digital equity and Broadband infrastructure 'cause I came from a background of markets infrastructure investing for parts of it, but not the digital part. And I think one of the things that struck me the most, for the Broadband folks out there talking to investors, is how inaccessible some of the language is or presents itself. But having spent a little bit of time now, not terribly complicated. There are definitely nuances in technical parts of, I will never understand. But I would say there's an element of jargon and don't underestimate the need to really lay the basics or the foundations for the investor.

Brian: This is, I think resulted in a gap of financing or available financing that ISPs and communities need that we're trying to fill because we don't see anybody really or enough people stepping into it. And it's bigger than what a lot of philanthropy certainly can provide or local commercial banks. But it also, it challenges that business model. If you're used to SBernie or small business type of lending and now you're looking at a new operator that's one-year-old, that already doesn't fit your credit profile. But it's a subscriber based, almost telco like business model that's very different than a small local consulting business. And so, don't underestimate that, the kind of capacitation for investors.

Brian: And then on the flip side, I think for investors, challenging our... How we're going about the underwriting. I think a lot of the capital that is available out there, tend to be really large sophisticated institutional investors. Your private equity, private credit funds, mega infrastructure funds, deploying huge cheques. Part of our investment thesis is to really be able to solve the next wave of the digital divide. We really have to work locally. And really local work typically means the cheque sizes disqualify you from a lot of those larger ones. And so, for the investors who are really starting to look at this, and I think for the folks on the line talking to some of your local regional banks that have CRA dollars to deploy, local CDFIs that have historically tried to invest in economic development and small businesses. I think that's a great opportunity to really try to reimagine what underwriting for Broadband infrastructure can look like. I think you're on mute too now.

Ben: Isn't that fun? [chuckle] There are a couple other questions I would love to branch off of that, but we got a couple questions in the chat that I want us to circle over to. So, Joseph Valandra, who leads the Tribal Broadband, Tribal Ready company. And he puts in the chat, he says, "Tribal communities have a great deal of need. What is Connect Humanity doing to address the needs of tribes?" Do you have any exposure to that kind of work? What does that look like for you? 

Brian: Yeah, absolutely. We have a whole programmatic area dedicated to working with tribes and their unique context. It's called ICI, Indigenous Connectivity Institute. Working very closely with ILSR on events like tribal bootcamps. I forget the exact name, but so I think our first step is to really understand what the tribal community needs. From the financing perspective, we haven't yet done one of financing for tribal community, but I would say the process of the approach wouldn't be particularly different. 'Cause we really see capital financing, like creating the packages, like a co-creation collaborative process in understanding what's the borrower's constraints. What can you collateralize, what can you not? If you cannot, how else might we look at this to create a palatable risk-return profile. And so I think there's still more problem-solving to happen there, but I'm looking forward to the day when we have an opportunity we can really sink our teeth into.

Ben: Yeah, we'd love to have you back at that point when you can talk about that experience. Nancy Cornell put in the chat what the best way to contact you would be. So where would the best place to reach you, Brian? 

Brian: Yeah, absolutely. So my information is on our website I'm on social media too, LinkedIn, if you want to send a message there, but email. I also think there's an investment team ad type of thing that you can get to off of the website as well, so a few different ways.

Ben: Great, thank you. Now, do you just wanna provide a few more minutes, folks, for questions in the chat? We've made this time so we can get to them and now I wanna circle back to a couple other questions I had for you, Brian. These questions pertain mostly to identifying the opportunities that a group may pursue. So, for example, when evaluating which grants and funding opportunities are right for a group, what type of calculations do they need to make? How should they determine which grants are well suited for them, and which grants maybe they shouldn't invest as much time in? 

Brian: Yeah, that's a good question.

Ben: That's a broad question, so I guess what are maybe like the top three things that they should really evaluate, consider before they spend a lot of time on these things? 

Brian: I think two approaches to keep in mind. And this may inadvertently, indirectly answer your question, so feel free to push me on it. But the first thing I would say is, where we've found the hardest conversations in terms of how will we finance this when we're commingled with grant money is when the grant money that's been awarded or secured is really patchy, and there wasn't pre-thought or an initial strategy of like how are we going to plug the gaps? It's led to instances where we'll try to put our money in to plug it, but sometimes depending on the requirements, they can be too constraining and from like an ex post facto type of problem solving. So what we generally encourage folks to do is really try to clean sheet the network design where the anchor institution's gonna be, and really the central nodes and relays, etcetera. And then think about your financing strategy. And so if this grant can cover this part of it, but it's gonna have these restrictions, therefore we need this type of capital here. If that can be a conversation before grants are awarded or before you put certain proposals in, you may end up in the same spot, but there's a bit more intentionality behind it, you won't be caught flat-footed when something might be otherwise a surprise.

Brian: The second thing that I would say is it is an opportunity to think about pools of capital differently. And I think the most frequent sequence of conversations that I get is we're trying to raise this amount of money to use it in this way and this is where repayment is gonna come from. So it's almost like asking a question of these are the sources, these are the uses of funds, and these are the repayment streams. I would jumble that up a little bit, where as an investor, it's more helpful to start with what are your uses of funds? What is the money gonna be spent on? Your bill of materials, digital literacy or stewardship programs, and then you go to the repayment streams. How is this gonna get this quantity of capital? How is that gonna get repaid? It could be, usually, the bulk of it is like subscriber fees. Well, from how much is retail versus a business or large anchor institutions. If that repayment stack is below the uses, you know you already have a problem. And so, that can trigger a few conversations or questions at that point to say can we plug this? Well, are there other folks who might stand to gain economic value? And this goes to our innovative financing bucket, where device access was running through the ISP 'cause they gained the economic value.

Brian: If there's a local hospital that has high patient utilization, might they stand to gain a good amount of patient care savings, cost savings by getting some of their patients on a network and using remote patient monitoring? Could you cost share or rev share with them for a portion of it? 

Brian: So how can you creatively build up the repayment stacks? If you're after that exercise, you're still below the uses, then you know it has to be grant. But at least you kind of have a sense of like the amount of grant you need to plug. Once you understand that, then you go to the sources of funding to say, okay, here's the amount of grant we're gonna need. Here's the amount of return seeking capital this could withstand, etcetera, etcetera. And so that I would say that also helps me understand what's my one minus X position I have to play to get all the the rest of the sources of capital moving. And sometimes some communities or ISPs will come with the first two things a little bit not fully conceptualized.

Ben: Sure. Okay. Scott Woods just put in the chat, "Brian, we received feedback the letter of credit requirement indeed will negatively impact small providers, particularly those led by women and people of color. Any ideas how small ISPs can address this effectively?"

Brian: Million dollar question or I guess $750 billion question. [chuckle] Oh yes, Scott, that is a tough one. There have been a few models we are looking at to try to help small ISPs solve that. I think from our side, part of our underwriting becomes actually evaluating the proposal. And so to try to get a sense of what's the... Is this a good BEAD proposal? What's the likelihood of award? But that only helps a little bit, it doesn't solve the whole thing. I think this is also where there the second approach to this is are there ways to work with those small ISPs as cohorts to really elevate the proposal game or get it to where it's like super competitive? But that's more from like the planning and the TA support side of it, which I think this organization is doing a great job in the first place. The third one from the financing perspective is really building on that cohort model. Is there a way we could start thinking about letters of credit from a cohort perspective? Really looking at how many of these might be awarded, describing kind of a probability to it and then allocating capital or the LOCs in that manner, almost pooling the LOCs in a way. But hard to tell right now if it's gonna work. This is all gonna end up... We first need to see what the real requirements are.

Brian: And I think it's gonna be hyperlocal, it's gonna be state by state. So no easy or quick answer, but I think that also mirrors our underwriting right now which has been very almost the micro transaction. We're deploying one to five mil in each check if not smaller. And so how... That can be replicated but that can't be scaled yet, and I think related to Scott's question here, that's the next big thorny nugget we gotta tackle.

Ben: Sure. And I'll just give one more opportunity for people who wanna put those questions in the chat. And this kind of circles back to the previous question that I... It's in the same vein as the previous question that I asked, Brian. And this has to do with, people are obviously evaluating which opportunities are best for their model, for what they wanna do and where their work is best spent. So can you just from your perspective, why should or why would an operator seek private capital versus going to pursue government funding or subsidies? Or should everyone be kind of diversifying? What's your perspective here? 

Brian: Yeah. There's no one-size-fits-all, it depends what you're optimizing for. If you're an established ISP or one with financing relationships, my North Star on this would be what's the path of lease resistance? Sometimes especially depending on the ISP and the staff that you have, the path of least resistance might be grant, especially if you understand procurement rules and constraints and can really operate, manage that money efficiently and the reporting and compliance part of it. For some who have little to no experience there of private capital, there is some flexibility that grants just can never have, but at the same time, it's a double-edged sword. There are gonna be return expectations, other terms and requirements that investors want, compliance and reporting stuff from a private sector perspective. So it's really kind of pick your poison in a sense, not to frame it that negatively. And there will be what we hypothesize as many operators and communities that need a little bit of both. And so if you can't generate, especially for low income and/or rural communities that can't generate the return level for private equity, what do you need to mix? And and I think that's where we can get very creative, but at the same time it is an unknown bit of it.

Brian: So how much... As an investor I would look at, especially coming in as debt or credit-like, I would see grants as equity if not first loss equity. So from a debt to equity ratio on a Broadband project, that makes my underwriting even easier. And so yeah, I think that's the frontier for us.

Ben: Fantastic. We just spent the last 52 minutes with Brian Vo, the Chief Investment Officer with Connect Humanity. I wanna thank you Brian for joining the Broadband community and taking part in these events. And thank you to our audience. I just wanna take a quick moment to shout out the fact that on April, the Broadband community will be hosting Veneeth Iyengar, who's the Executive Director of Connect Louisiana. We have an Ask Me Anything with him on April 28th. On May 19th, we have an Ask Me Anything with Jim Stritzinger, who's the Director of the South Carolina Broadband Office and we hope to see you guys in attendance then. And just to answer Nancy's question, we will have the recording available on the page shortly after this event concludes. Thank you again Brian, really appreciate you taking the time out of your busy schedule to come talk with us today.

Brian: Thank you everyone.

Ben: Bye.