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Three Pillars of our Platform

The transcript has been added for searchability

Transcript

0:05
and we’re live good afternoon and welcome to another ask me anything i’m drew clark editor
0:12
and publisher of broadband breakfast very excited to welcome brian voe to the broadband.money
0:19
community where we talk about anything anything that you want to ask brian vo
0:25
brian is the chief investment officer at connect humanity which in itself is a very
0:32
interesting organization we’re going to drill into what connect humanity does what brian does with connect humanity
0:40
and all and all manner of aspects of financing when we’re talking about
0:46
broadband projects brian welcome and thank you so much for being with us
0:51
thank you so brian um you know we’ve had we’ve had folks on
0:57
this program from vint cerf to jim baller
1:03
from business folks like the ceos of starry
1:09
and ltd broadband uh so we’re really covering the the the range of folks with
1:16
some particular angle as a provider or policy maker or attorney or in your case
1:23
a finance expert talk a little bit for us about connect humanity what is
1:29
connect humanity what led it to get formed and what what’s your role there at connect humanity
1:35
yeah absolutely so uh connect humanity is a a impact fund advancing digital
1:41
equity and i think what makes what makes up our north star is we really try to frame
1:47
that concept of digital equity uh really holistically right that is our north star um so when we think about
1:55
what would it take to get uh folks underserved folks connected but also
2:00
connected meaningfully what does that mean and that’s where we’ve outlined five
2:05
major parts of our approach um so that’s that’s the infrastructure part of it
2:10
right you do need that connection um we put devices in there as well um
2:16
but it doesn’t stop there right you need affordability you need locally relevant content um you need
2:22
digital skills digital literacy to be able to meaningfully use that infrastructure
2:27
and you need a supportive enabling regulatory right the policies that help set that up and so because
2:34
we’re able to frame our north star uh along those different five dimensions um
2:40
it really helps us think about okay if if that’s what it takes to achieve digital equity each of these components
2:46
um what is needed in the environment to help marshall move things towards that
2:53
and that’s where we’ve really focused on building out a spectrum of capital to
2:59
enable service providers operators communities um all the folks who are doing the work
3:05
on on the ground to provide them the the capital tools that they need to push that forward
3:11
um and so when we think about that spectrum of capital uh it’s it’s on one
3:17
and philanthropic sources all the way through to the other end which is um
3:23
investment funds and so really a lot of our work is thinking
3:28
about what’s the most relevant type of capital to bring into different
3:34
uh uh two different situations to make the thing work
3:39
so internally chief investment officer i lead more of that investment side of it
3:45
a lot of my peers work on the philanthropic side of it
3:50
and we work hand in hand to figure out for this community given their context and what they’re trying to do and what
3:56
their needs are what is that best set of capital uh that that we can provide for them
4:03
let’s let’s take that in two in two topics let’s drill in and two things so one is the the the holistic stack of
4:10
five that i’m going to repeat those in just a second let’s do that first and then the second is like
4:15
who you are you’re a non-profit obviously but like how that applies to the financing so let’s go back to the
4:21
the stack for a moment my my notation was infrastructure
4:27
affordability okay so infrastructure meaning okay the towers the fiber the things in the ground that get what they
4:33
get broadband there that’s infrastructure affordability okay yeah but you don’t want broadband that’s 120
4:40
bucks a month right i mean it needs to be more affordable to really make a difference digital skills okay this is
4:47
like making sure people who aren’t as familiar know what to do when they have
4:52
a broadband connection let’s talk a little bit about that too and content okay and i’d love to get a
4:57
little more on like does digital excuse me does connect humanity do content do you work with other providers and then
5:04
policy and obviously policy is undergirding so much of this right it’s policy that’s driving the infrastructure
5:10
investment and jobs act to do infrastructure investment focused around affordability focused around making sure
5:17
that that digital equity is is is enabled so so just those five things how
5:23
do you view the interrelationship of those infrastructure affordability digital skills content and policy brian
5:31
yeah so because that’s our north star that’s our framework for looking at every problem um it just depends on
5:38
where in the journey uh you know a community is at when we start talking with them um if the community says uh
5:45
you know we don’t have the infrastructure then we need to start there
5:50
as they’re planning for that infrastructure we’re going to ask questions uh around what what are the
5:56
gaps around digital literacy um uh and as part of your build uh
6:02
how what type of digital literacy program do uh might you need to go with
6:08
it right because just because you build it doesn’t mean they will come well uh those two in and of themselves you may
6:14
still not get meaningful connectivity uh if it’s just uh priced too high especially for median
6:21
household income and so that’s where the question then becomes okay well the the next barrier could be affordability how
6:27
are you incorporating that um in into the build are you offering things like acp um do you have a low-cost type of
6:34
package um okay that’s there uh uh but what other barriers could there be
6:41
on the content side of it um uh if there’s if folks and this is tied a
6:46
little bit to the literacy side of it but if folks don’t know what they can access or do online if they don’t have access
6:53
to that content or know that content even is out there that just makes it less likely they’re
6:59
going to materially meaningfully engage um and so what does locally relevant content mean
7:06
in practice i think in a lot of our conversations it’s bringing in uh
7:11
different types of service providers whether that’s healthcare right content could be telehealth
7:17
and being able to uh push that as a service into rural populations especially
7:24
could that be financial literacy and financial uh inclusion being able to get
7:29
banking services uh in for folks it could also be a lot of public services too right instead of
7:35
waiting three five hours at the dmv being able to process a lot of that online right so i think um
7:43
that the content part goes really closely with that literacy part of it of of knowing what can you really do uh by
7:50
by being connected um and then of course policy understanding like you know the
7:55
context in which we’re we’re trying to not only do the build but also you know kind of the wrap around services if you
8:01
will so bright a lot of people who are not experts in finance and i certainly put
8:06
myself in that category may have in their brains a paradigm where okay
8:11
there’s one source of financing public financing government right and we can apply for a government grant or or
8:19
or maybe maybe you know get get a a money from a
8:25
universal service related program right and so so that there’s a paradigm of the government is gonna you know give money
8:31
or grant money and there are obviously conditions on it and match and so forth that’s but that’s one paradigm right and
8:37
the other paradigm of oh then there’s banks there’s the private you know private sector private financing and they’ll land and they’ll either you know
8:43
either do debt lending uh you know for a loan or or equity taking taking a stake
8:49
in the venture why is that framework of public and private financing overly simplistic or like what’s wrong with
8:56
that what is that missing from the financial uh piece that you at connect and connect
9:02
humanity would like to underscore yeah that’s a really good question um i
9:07
think that is uh we know the problem of digital exclusion
9:14
is big right um and to date the the sources of capital that we’ve tried to
9:20
throw against that problem have only moved us so far to where we are today and so when we think about you
9:27
know how can we go about solving the rest of the problem connecting the rest of the world the rest of um
9:34
americans that that aren’t on um oh we know we’re going to need new and or
9:39
different types of tools and so i think just thinking about those two sources of capital public grants especially um uh
9:47
uh in in private capital um or at least commercial commercially oriented capital is too limiting it’s too constraining um
9:55
and and those are well designed uh especially private capital markets are well
10:01
designed for um you know the business models that that we’ve seen deployed to date to get
10:06
people connected when we think about uh underserved folks low-income communities
10:12
rural communities um uh uh redlined communities
10:18
those business models uh you know aren’t serving them and so not
10:23
only do we need to think about different types of business models and and how we think about you know
10:29
really associating what is the real risk return here uh but also for those those
10:34
risk return profiles they’re gonna need different types of uh capital um and
10:40
that’s why we were quite intentional in thinking about uh deploying blended finance against this um
10:46
define that term blended financing what does that mean blended finance uh the general concept would be mixing and
10:53
matching different sources of capital and so a really simple example would be
10:58
um student loans right or paying for for a college or university uh if you enroll
11:04
uh you’re you’re probably putting a little bit of cash in yourself you call that your own equity you might get you
11:10
know a zero interest loan from from mom and dad you might qualify for
11:16
federally subsidized loans um you know that that could be uh a
11:22
concessionary capital um you might need to go to private markets for you know kind of full fully baked
11:29
interest rates types of loans and you need to cover all that together to pay for tuition and room and board that is a
11:36
version of blended finance right you’re mixing and matching all these different costs of capital and sources of capital
11:42
to be able to pay for for college um similar thing on the infrastructure
11:47
side um grants uh especially public grants uh even though you know we’re seeing a huge
11:55
commitment um from from governments to putting money down on this um we know
12:00
it’s still not going to be able to to pay for 100 of everything right um so
12:05
where can we pull in um private markets well we know private markets are going to have certain rates
12:11
of return that uh they may not look at um certain communities um do we need to
12:17
pull in philanthropy uh right and and think about grants from uh private foundations um but we know that capital
12:25
is also very limited uh highly risk seeking but very scarce right and so when we
12:31
think about a build what is the most optimal version of taking x percent of public grant why percent of private uh z
12:39
percent of of philanthropy um to make the network economics work uh
12:44
so that that uh kind of in a nutshell is blended finance no that’s great and that’s a great uh pathway in just a
12:53
moment into the the the non-profit mission and nature and the different types of financing that that connect
12:59
humanity is involved humanity is involved in but first obviously
13:04
we as a community uh are very concerned about the infrastructure investment and jobs act
13:09
we’re very focused on that as well as other broadband funds but but iija is kind of the big kahuna right and so i
13:16
just want to ask brian that the notice of funding opportunity came out seven days ago you know they they
13:23
were required by by law to come out with them you know this this monday and they they beat the clock a few days uh have you
13:30
had a chance to to look at it what’s your initial read on those rules that
13:36
they’ve put in place particularly the the match requirement and what that will
13:42
mean for the mission that you have of making sure there’s digital equity in terms of
13:48
broadband deployment deployment that’s affordable that’s used et cetera et cetera
13:53
yeah yeah really good question it’s still digging through the technicals um as as i’m sure a lot of other folks are
13:59
i think my my big takeaway from a financing perspective uh was
14:05
um i would say uh uh both of validation um knowing that uh you know it isn’t
14:13
going to be enough it is a huge commitment but it’s it’s still not going to be enough and i think everybody knew that going in um into an extent nor nor
14:21
should it be everything right i think that that allows for a lot of other opportunities creative opportunities at
14:26
at the local community level um so i think that that was a big chunk i think the other one was uh very much um
14:33
opportunity right and so i think uh uh seeing um you know
14:40
seeing the opportunity for community voices especially to be centered at uh
14:46
not only the network design but what else might that community need um to to make that
14:52
make those connections and make that network really meaningful for them whether it’s designing around certain community institutions anchor
14:59
institutions or other services and and capacity building that might need to go around it so i
15:05
think that it was very um both validating and i think creates a
15:10
good amount of opportunity and really still points us back to our north star of that holistic approach uh because it
15:17
really showed a lot of those um it recognized i think that
15:23
it’s more than just infrastructure that that’s going to be needed absolutely absolutely is is clear in
15:29
fact i had a chance to interview alan davidson the head of national telecommunications and
15:36
information administration last month at our broadband breakfast for lunch
15:41
club i will have the opportunity to interview alan again next tuesday at mountain
15:47
connect and if you if you haven’t registered do so it’s in keystone colorado
15:54
and uh all of those who are watching this will be able to to watch that as well here on the broadband dot money
16:00
platform but but one of the things that alan totally emphasized when when he was was with us last month was that that
16:08
we’re not going to be happy until we have affordable high-speed internet he really emphasized that affordability
16:15
component and i think that’s that’s a key for the administration so so
16:20
i’d love to talk more about affordability and if you’ve got any things to say on that that’d be great but but i want to make sure i’m
16:26
understanding the match component right so how do you all at a non-profit organization that is
16:33
involved in funding broadband digital equity how do you look at those match
16:39
numbers what do you see when you read the nofo and what it says about a 25
16:44
match minimum yeah well let me step back for a second and say uh what are the the major kind
16:50
of verticals of funding we provide please please do that’s that’s great thanks for bringing us back to that uh
16:56
the the the match part i think uh impacts different parts of those those verticals differently and so when when
17:03
we say we’re we’re deploying a spectrum of capital uh to try to advance digital equity holistically um what that means
17:10
in practice is on the philanthropic side um where we’re often engaging
17:15
communities uh and trying to meet them where they’re at in their journey to digital equity uh
17:21
most often that means communities at the beginning of that journey saying we have a problem
17:28
but we have the political will the stakeholders aligned to solve this we just don’t know what the network’s
17:35
going to look like or even how to go about it and so for for those communities we’ll provide a planning
17:40
grant of sorts which gives them the time space resources to work with experts um
17:45
consultants who can really answer three questions for them the first is around the network
17:53
technical design what is what are different options for an optimal network design is it uh you
18:00
know fiber wireless hybrid um
18:05
what could different owner operator models look like um
18:11
what are the different cost cost benefits to each of these different modalities if you will
18:17
the second one is around community engagement and so to what extent has can we include
18:23
community voice in that planning process and it’s not just where uh passings are
18:29
gonna go uh but it’s also that you know the skills assessment where what are literacy gaps uh and
18:35
what are the best community anchors uh whether organizations or places um to be
18:42
able to to provide that content um
18:47
so that’s right and hopefully what what you heard earlier in the way i was talking about community engagement um
18:53
you know from from i think that equity perspective a lot of that is uh
19:00
making sure we’re we’re solving the human side of connectivity right uh because it’s not just um lines and wires
19:09
um at the same time from the investment perspective to me those are the underlying the real underlying drivers
19:16
of take rate right so when i’m thinking about uh you know the the risk return profile of an investment um that
19:24
questions like that and conversations at that level allow me to go a lot deeper than in a kind of a classic uh demand
19:31
survey of like if you if we were to offer you you know xspeed for why dollars would you buy it right being
19:37
able to unpack that down to that level of digital equity i like the underlying drivers and barriers to access
19:44
that allows us to really understand the nature of i would say the business risk as well
19:50
the third component is the business model then uh which is what are these network economics and i think the way we
19:56
think about it is um a a network economic profile isn’t a
20:03
go no go in terms of investment right uh i think um uh especially if one appears
20:10
you know uh uh on the margins of sustainability for us that’s a signal of
20:15
uh what other sources of capital do we need to bring in to make it sustainable to make this
20:21
financing work uh and so if it is uh looking to be unprofitable for the first
20:28
couple years do we need to provide you know an extended no interest period or
20:34
do we need to bring in more grants to subsidize some of the the infrastructure costs so for us that business model and
20:40
just that network economics profile is more of an opportunity to problem solve if you will like what’s the right
20:47
investment structure here as opposed to saying no this is out of the money pass let’s move to the next one um
20:54
so i think it’s very much an opportunity to roll if this leaves there um so that’s that’s a lot of what the
20:59
planning grant covers um through that work that then would go to
21:05
the investment team and we think about our investments in i’d say three major categories um we first started this by
21:13
thinking about a project financing really like a network with a certain set of economics with you
21:20
know within a confined um or defined geographic area fairly
21:26
high risk uh project financings typically are um uh and so in increasing what we were
21:32
seeing and that’s the first vertical increasingly what we were seeing was we were talking to the same operator doing
21:38
like multiple projects and it’s like well rather than do a pretty heavy lift on five different
21:44
projects what if we uh did the investment at the enterprise level uh for the operator
21:50
then they can spread that out across their portfolio uh so that became our second vertical enterprise financing um
21:58
and so that’s uh more recognizable instruments i think to institutional
22:03
investors things like senior term loans working capital lines of credit but i think because digital
22:10
equity is our spin to it uh that’s our north star uh we didn’t just want to
22:15
provide a traditional type of a vehicle um without a some level of assurance that
22:23
it was going to advance digital equity and so what we bake into those investments are instead of financial
22:30
covenants like interest coverage ratios etc we think about it from a digital equity covenant perspective right so
22:37
what percent of your subscribers are low income what is your low cost package uh as
22:43
indexed to median the aries median household income right different metrics to to try to make sure the money is
22:50
going towards on an underserved communities and then the third vertical
22:55
is is innovative finance uh and so this is one where we’re really actively trying to problem solve
23:02
creating new different types of structures um uh in in
23:07
and this is where uh being a digital equity investor
23:12
rather than just being you know a fiber to the home investor really gives us
23:18
more scope to be creative and and solve some of the underlying barriers so an example there
23:24
is device access you know there have been a couple instances where um
23:30
the communities have had all the investment they needed whether that was private or or public funding for the
23:36
infrastructure uh but we then ask the question well what else could be a barrier to meaningful connectivity um and device
23:44
access came up so we’re we’re structuring a a couple vehicles right
23:49
now where we say what if we gave money to the operator up front to buy all
23:54
low-income households uh free devices so from the household perspective um that barrier is removed
24:03
the operator then pays us back a portion of the monthly fee uh from the
24:08
subscriber only as long as that household is on the network they go to a
24:14
competitor if they stop paying their monthly uh for any other reason like moving out of the
24:19
area um the operator is not on the hook to us for the remaining balance right so the
24:26
conversation then becomes uh us and the operator to what extent does this lower
24:31
your cost of customer acquisition um to what extent does this increase revenues from you know an addressable market that
24:38
otherwise would not have joined the network and that’s risk we’re willing to take in the name of digital equity
24:45
so that’s where we can get really creative we got a lot of good questions digging into some of the details of this and i
24:50
do want to get to them but just let me just step back and make sure i’m understanding the the the breakdowns
24:56
here that you talked about these three verticals of project financing and then enterprise financing and then innovative
25:02
financing but but i was wondering if if you could speak to philanthropy versus
25:08
um i guess it’s structured credit versus equity fund those those are are
25:14
those products talk about those three three things uh brian yeah those all flow through um so it’s
25:21
it’s all just uh grouped into uh different types of groupings so i would say the philanthropy one is where
25:27
primarily where a lot of the planing grants uh are coming out of um uh and
25:33
then well we recognize that okay well after the plan um worst case scenario is the plane just
25:39
sits on a shelf right like i think that would be damaging for all and so how can we create
25:44
uh different types of capital tools uh to take the plan forward and so that that uh structure credit uh that that
25:52
middle bucket really is to uh covers those three verticals i was just talking about the project lineage the the
25:58
enterprise and the innovative finance um and then uh i think so where where the concept of equity was coming from was um
26:06
oh do we need an equity tool in some of these situations in some of these
26:11
communities um given that risk return profile right so uh we don’t have that capability yet um
26:18
uh but i think in in some early conversations uh there’s been some um i
26:24
would say themes we’ve been hearing uh the way we’ve been uh solving for
26:31
equity-like needs right now has been more on the project finance side and so
26:36
historically project finance is some type of debt um uh
26:41
but you know especially if it’s from a commercial uh uh lender uh but often projects require
26:48
a mix of debt and equity right so uh if if if a community can uh it
26:56
isn’t really in a position to take on debt we weren’t really comfortable providing you know direct equity especially for
27:03
infrastructure because we don’t want to be in a position where we’re owning community assets right we actually want to invert
27:10
that right we want to enable community ownership of of those assets uh and so
27:15
that’s where we’ve been able to use kind of hybrid instruments things like revenue based financing that can
27:22
take equity like risk um but with uh kind of capped returns um so it’s not
27:29
excessive uh yeah no i mean and so this will be a digital
27:34
equity equity fund right yeah
27:39
um no that that’s super good so so let me get to some of these questions so so um a question is is your portfolio
27:46
project-based financing only or will you invest in operators so i think you’ve answered that right yes you will
27:53
mix absolutely yeah and so on the operator side a lot of mission aligned
27:59
operators out there i would say the spectrum that that we’ve spoken to is you know on on the one end
28:05
um fairly large regional operators that that could have the whole suite of like design build operate capabilities
28:12
um on the other end of the spectrum uh talking to community networks community-based networks uh that that
28:18
might be solving like a hyper-local need um and everybody in between so it’s been really inspiring i
28:26
would say just uh talking to all the different operators out there um and communities looking at at it from a
28:33
project perspective right and and again another question are you debt only or will you do equity investments you
28:38
you’ve addressed that you you will do equity right and hybrids right and so i think um
28:43
they’re kind of tying this back to your your question around the matching we really see ourselves as the one minus
28:49
x for funding like what is it that you need one minus x just to find that for us yeah what’s the remaining amount of
28:56
capital and type of capital that you need so if you have something that is 75 public funded uh and you need that 25
29:03
match uh we can uh provide that 25 match if that’s too big uh
29:10
or you know you have say a commercial uh investor or a cdfi community development
29:16
finance institution looking to plug that 25 but they might be a little skittish with the economics um we can provide a
29:23
credit enhancement uh to uh or some type of concessionary capital to incentivize them to to come
29:30
along right so we don’t necessarily need to be the uh investor uh we could also uh be a
29:36
credit enhancement like a guarantee or something um or concessionary capital which would be more junior
29:43
in the investment stack uh so i think for for us we see capital as a problem-solving tool
29:49
um so depending on the existing resources that you already have there and investors lined up um the question
29:56
then becomes like what else do you need yeah well this this refers to um
30:02
i i saw you you speak at a one of our reporters saw and wrote a
30:07
story about you speaking at a a recent event in washington in which you talked about working with community
30:15
development financial institutions cdfis to you know bring about this holistic
30:20
approach just again it’s always useful to start at the base level what is a
30:25
cdfi like is that like a private bank that has some charter or mandate or are
30:31
they specialized financial institution tell us what a cdfi is an example even
30:36
and how connect humanity has or will work with these types of institutions yeah cdfi but community-based investors
30:44
would be the short of it there’s a lot of technical like tax and legal implications um were related to it uh
30:51
but uh i would say that at the heart is you know investments into local regional
30:57
uh communities um and so uh i would say and i think that that event uh
31:04
was with rural um great events and i think you know great thought leaders over there really
31:10
pushing to see uh uh how cdfis can play a leadership role
31:15
in you know where their capital can go um so lisp would be an example of a cdfi
31:21
type of investor um and i would say uh with their capital um
31:29
they can be also many also non-profit i think they can be very flexible with
31:35
the roles that they play um and not necessarily you know kind of your your bulge back bracket bank type
31:41
of uh return expectations uh but very much community partners um and thinking
31:47
about it holistically um so i think there’s a huge role for for cdfis to play
31:52
but i wouldn’t say i wouldn’t necessarily i wouldn’t absolve other sources of capital right
31:59
when when we say spectrum it’s not just public private cdfi um i think there’s
32:05
roles for uh foundations with like tons of different types of capital tools um beyond grant right they can
32:13
provide guarantees pris mris um when i think about uh other philanthropic
32:19
things like daft donor advised funds right uh there’s a role for them to play
32:25
commercial institutions as well i’d also put this back on private sector
32:30
um uh because they have a lot of the the mechanisms to channel a good amount of
32:35
money fairly quickly um and so you know is that their high net worth portfolio
32:42
is that their own infrastructure infrastructure fund um and so i think some of the things we’re hoping to test
32:48
in this is um when when we create a blended finance product can we do it in a way where
32:55
we can show how each of these sources of capital and in their different positions
33:01
their own constraints and requirements and return expectations can we point to different projects and say hey here’s to
33:08
where you could play right and you can do more of this right and it fits your your return expectations uh cdfi here’s
33:14
where you can play but also you know um local credit union this is where you
33:20
could play right kind of translating uh what we see in like you know an investment package
33:27
or a network build package into language that they can understand and is recognizable to them
33:34
ryan when we had a chance to visit a little bit earlier before this this call a few days back we talked about kind of
33:40
the role you can play maybe it’s the goldilocks role right i mean foundations may do smaller grants
33:47
and big grants big loans will come from others but but you kind of conserve
33:53
somewhere in the middle could you speak to the minimum and maximum amount of funding you you will do and
34:01
and not just in a in a particular you know grant or loan but also on a project
34:07
by project basis yeah absolutely so uh one element of our investment thesis was
34:14
uh the the uh size of capital um for for a lot of the
34:22
operators um that i think will be driving at like crucial to driving uh digital equity um
34:31
just wasn’t available right and so you know on on the kind of six figure side of it
34:37
um philanthropy foundations uh we’re really good at kind of the the five figures up to maybe 250 to 500k type of
34:45
thing um on the other end of the spectrum we were that’s the philanthropy side right yeah
34:51
right like a grant at a time on the other end of the spectrum you had
34:57
uh commercial investors uh development finance uh uh institutions um that were saying
35:04
really we we need 30 50 mil plus uh to to get out of bed um
35:10
but then when we spoke to operators so much of the need was in between that
35:15
right uh so much in the need was i i need more than a grant uh i need that 500k or that mill two mil five mil 10
35:23
mil uh and i have nobody i can talk to my my local bank um wants to securitize it
35:31
against you know my house that makes me very nervous uh and they don’t really understand how you know uh
35:38
telecom or you know network infrastructure um i can’t go to private debt or private
35:44
equity because i have limited track record uh and so that’s where we really started to see this uh this opportunity
35:52
really uh to say well what if we could provide um capital in in that that range
35:58
um so i think that was from the capital side of it and embedded in there was uh was this idea that you know um
36:06
different types of capital uh may not recognize as much like how do
36:12
you network build how can you say you know those network economics look uh look
36:18
good um and so i think when when we were thinking about how to um structure and staff connect humanity
36:26
we really saw that as multi-dimensional so we have experts in finance
36:31
but not so deep on the technical we have experts in technical we have experts from philanthropy
36:38
and for us the secret sauce really is that collaboration right being able to
36:44
um speak across um uh you know lines of careers and
36:50
experiences we’ve got a great question from mike fallon here he asks often there is an
36:56
inverse relationship between investment returns and community impact how do you
37:01
balance the two brian yeah that’s a really good question um i think the
37:10
uh part of our structure is helpful by being non-profit um uh where where
37:18
we have stated that our objective isn’t to maximize returns um and i think when uh
37:26
part of our work in our community engagement with different communities is to let them know that there are
37:32
investors out there that aren’t necessarily trying to optimize on the financial return of it
37:39
um and and we’re really looking to balance uh the two uh i think the second thing i would say
37:45
to that is um oh
37:51
a little bit of that it goes back to the business model part
37:57
where i i think if you copy and paste what has worked to date to connect you
38:04
know high income middle income uh communities uh if you copy and paste
38:10
that paradigm of risk return uh uh onto low-income communities
38:16
um uh it’s the math won’t work and uh we’ve seen that because they still
38:21
remain largely uh unserved so i think it’s an opportunity to rethink what uh
38:26
you rethink that business model um and i think there’s a whole broader conversation happening right now of uh
38:33
you know what is that role of of capital markets markets generally businesses um
38:38
in an esg type of context um did you just define the esg
38:44
the term there environmental social uh and uh governmental uh returns um so really thinking more
38:52
holistically about returns rather than just the financial dimension of it um and i think that’s that’s kind of the
38:59
paradigm that we’re challenging as well and so i don’t think
39:04
uh for for for low-income communities and in rural communities that’s been
39:10
historically you know unserved um i don’t think there necessarily needs to be a trade-off between financial return
39:18
and social return but if you put it in the context of you know i’m i’m private equity trying to
39:24
like you know uh 10x my money type of thing um then yet i
39:31
think there there needs to be some guard rails and there there would likely be tradeoffs for that
39:36
but a fair return with a positive social impact in connecting uh unserved communities uh i
39:45
i we haven’t yet really seen that trade-off do you have a targeted investment return
39:51
rate brian no i think each community is going to be a little bit different and that’s where the blend uh really comes into play
39:59
um and so and you know kind of back to mike’s question if uh if a certain
40:05
network economics like if their cash flow profile really looks uh like it’ll
40:10
struggle um that’s one where we may bring in more philanthropy or grants of some sort
40:18
whether that’s from the state or you know the local muni that’s that’s part of the build um to to
40:24
uh just uh uh try to right size the risk return there who who are the investors of connect
40:31
humanity and and what is their mission and purpose yeah uh uh also been a range of i would
40:39
say uh classic philanthropy uh family private foundations um all the way
40:44
through to banks so uh uh tons of sponsors um uh uh in and i point folks to our
40:52
website because i would say incredible thought leaders in themselves um our biggest supporter has been true is
40:58
bank um and uh uh i i think really hats off to them in
41:04
seeing and trying to think about really advanced ways um philanthropy and also banks can be
41:12
supportive um digital equity uh effort and that’s where you know to to this question of
41:19
financial versus social and and is there a trade-off i i think um the truth is
41:25
demonstrating um you know putting putting their money where their mouth is that it doesn’t necessarily need to be
41:32
right from a macro level you know we’re in this situation where interest rates are really uh rising uh because of
41:39
inflation and and other other factors uh you know we now have this again that’s a
41:44
great problem to have is 65 billion in federal funds for broadband investment
41:51
but some extent it’s also kind of you know forcing a little bit of inflation in there too i’m wondering what what
41:57
your kind of thought is on what’s it like to be a banker right now a financial institution right now in this
42:04
broadband space right is is the financial institution basically going to say i’m going to sit this one out because the government’s already
42:10
involved or because entities like connect humanity or do you by contrast see there being great opportunities for
42:17
more traditional financial issues just talk a little bit more about the collaboration and and what role you see
42:22
that the private financial players playing yeah i mean from an investor perspective
42:28
um we would always need to manage our our average weighted average you
42:35
know rate of return with our weighted average cost of capital rate and um that that you know that gap or that spread
42:43
that’s what implies financial sustainability and viability as an investor um i think that that
42:50
means there’s you know on on the return side of it now let me start on the cost side so on the cost side we actively
42:57
think about how do we manage that right and so uh uh are we bringing in you know are we
43:03
capitalizing ourselves with you know kind of private debt um uh on one end uh
43:10
uh but then you know uh grants on the other and how can that blend that cost down so we can manage um you know the
43:16
cost side of it and so i think there’s a huge role philanthropy um can can play there
43:22
that really will also leverage a lot of their capital um uh and kind of multiply
43:27
you know the money multiplier effect on the return side um i i think you know in in
43:34
uh in any type of you know high inflation period or environments where
43:40
you know uh institutional investors are are seeking yield uh if if you will
43:46
um uh i i kind of go back to the fundamentals of what is it that we’re
43:51
actually building here right right and at the end of the day this is still infrastructure right uh and historically
43:58
infrastructure has demonstrated a a certain consistency um in in in
44:07
economics or at least the consistency of the level right you know different different networks might be higher
44:13
economics lower economics but the consistency of it um is is still there and so i think anybody thinking about a
44:20
broader portfolio management where they have uh certain types of utilities in there
44:26
for that yield um i think there’s a role to play for digital infrastructure as well
44:32
um you know when we think about uh infrastructural
44:37
infrastructure in low-income or underserved communities um i think there’s that the the
44:42
stereotype that um it’s it’s uh uh the consistency may not be there uh or you
44:48
know the return may not be there i think a lot of what we’re trying to challenge is uh
44:53
you know fundamentally i’m not sure if that’s the right assumption about risk return profiles for for on an underserved
45:00
communities uh i think we need to think about differently about the the business model
45:05
whether it’s the owner operator side of it um but i don’t know if it’s fair to assume that
45:13
low-income communities are by nature you know of lower return um so i think i’m
45:19
excited to fast forward a few years um uh and see some of the evidence and data uh
45:26
from an evaluation perspective of these early investments so it’s easy to think about the costs
45:31
involved in the infrastructure piece right because it is so expensive can be so expensive to build it what what about
45:37
these other aspects of the the holistic equation that we spoke about
45:42
are there are there a lot of costs associated with quote unquote affordability with you
45:48
know uh content with devices uh what what are those the costs associated with
45:53
things besides infrastructure brian yeah uh so uh
46:00
i think it’ll depend on who is it like what’s the stakeholder you’re trying to bring to the table so i
46:06
think the broad framework we like to think about um that that’s driven a lot of you know kind of the creativity and
46:12
different structures um it’s been you know often i think you might hear the term
46:17
investments or capital staff right who’s in this um we actually see three different
46:22
stacks with every investment and whereas the the traditional when you hear capital stack that
46:28
typically means sources of capital who uh what is the stack of investors um
46:33
whether that’s you know connect humanity grants um private investor etc
46:39
the two other stacks uh i think are actually more important um and a place
46:44
to start so the first stack is uses of funds um and it’s what is the capital
46:50
going to be used for how much of it is for infrastructure how much of it uh might need to be for digital literacy
46:55
how much of it might need to be for you know the local hospital system to set up a telehealth uh program
47:02
um and similar thing with with a local bank and so for for us that the start is
47:08
to ask about the uses of funds uh stack the second stack is the repayment stack
47:15
um and uh most traditionally you know who’s paying
47:20
the the investment back and you know the biggest sources there have have usually been user fees right whether it’s
47:27
different subscriber anchors residential anchors or residential subscribers or businesses right business
47:34
subscribers when we say traditional business model well that’s what we really mean right so
47:41
network economics really just thinking about that as a way to pay off um the the uses of funds the the infrastructure
47:48
but when infrastructure goes in that creates a lot of uh who else
47:54
benefits from digital infrastructure and folks being online right and that’s a lot more than just the actual user
48:01
itself there what are the externalities that it creates for that that area um
48:08
you know it’s it’s it’s economic development it’s workforce it’s education it’s healthcare uh et cetera
48:14
et cetera right like the list goes on is so it enables so much more and so for the folks who might be enjoying some of
48:20
those externalities are there ways that we can tap into that um
48:25
where we can formalize them paying a little bit their share of the network if you will so an example would be
48:31
telehealth where uh many studies have shown um that
48:38
telehealth demonstrably lowers uh operating costs delivery costs for for
48:44
hospitals and so through that savings um could you
48:50
do almost like a cost share with that hospital uh but outcomes based right if
48:55
the hospital doesn’t experience that savings they don’t need to pay in the network uh but if they do
49:01
if they save a dollar uh say per per patient could they contribute 20 cents
49:06
right and then the the hospital keeps the rest right and so could that help offset um
49:11
the economics to make the investment work and it’s after we really explore those
49:16
two things uses and potential repayment streams that’s when we ask our question of who
49:22
needs to be in the sources of capital um uh and how much grant might we need to take
49:28
off the top so that the rest can be investible um
49:33
so that’s i think yeah that’s great that was extremely useful to think about like
49:38
this the capital stack being uses a fund stack repayment stack but also sources
49:44
of of capital n and so speaking of the capital stack right do you prefer to be
49:50
more senior as a secured creditor or are you comfortable being unsecured you kind of mentioned a little bit about this
49:55
earlier on but but could you just come back to that now that we know a little bit more about what that means yeah one
50:00
minus x uh so if you have grant that can then make the rest investable um if
50:06
you’re able to fill that with you know a commercial investor or cdfi or you know
50:13
your local credit union or the operator right the operator uh often puts a lot of investment into this um then you
50:19
don’t need us um if the operator is a little skittish for you know a small sliver of it we can provide a credit
50:26
enhancement but the capital is already there um if that’s unfilled and you’ve spoken to uh
50:32
those folks and they’re on what right we absolutely can step in and say yeah we’ll provide the senior oh you have a
50:39
senior uh we can provide the sub or the junior oh you have that too we can provide you know uh the
50:45
um the credit enhancement i think where we where we get more and you know throughout that journey right we can be
50:51
that thought partner to think about who might you put in here um and how might our capital help you get them in or can
50:59
we fill it all ourselves yeah so that’s not something we expect communities to solve all by themselves
51:05
um uh uh yeah so it really is that that thought partnership of of uh
51:13
uh what’s the most optimal way to fill this i remember the uh what i was gonna say i
51:19
think where we get skittish is when we fully grant for infrastructure builds
51:25
and our rationale there is we know there are going to be some communities and some builds that where the network
51:31
economics it just requires it um so to me as as uh an impact uh
51:37
investor um a dollar for infrastructure i grant out i know that’s a dollar of
51:46
infrastructure money i can’t give to the next community and so my knee jerk my
51:51
default will always be is there some way we can create some type of recovery mechanism because if i
51:58
give you a dollar uh but you know things don’t go to plan but i’m able to get you know 50 cents
52:03
back on that dollar that’s still 50 cents i can you know bring to the next community and so for us it’s that
52:10
revolving idea of paying it forward if you will are there any particular areas of the
52:16
country that you that you are focusing on or is it equally everywhere
52:22
everywhere uh where there’s a need i should say do you do you do it outside of the
52:28
united states or just in the united states uh right now we’re primarily focused domestically i i think uh when
52:34
we think about digital equity um it is it’s a global problem uh so i think uh
52:40
we’re we’re actively talking about how we can help global communities as well
52:47
well we we’ve got about uh seven minutes left brian and i i don’t want to
52:53
skimp on you and and and your background and as a recovery investment banker what
53:00
what attracted you to connect humanity what’s your journey uh in in this space
53:06
of finance and broadband yeah it’s um
53:11
i wouldn’t have uh connected these dots uh you know well i’m only able to
53:17
connect these dots looking backward as the saying goes um so uh a child of
53:23
immigrants um my my parents came over during the vietnam war uh and the way
53:28
they came over was more fortunate so i think growing up there’s always this sense of service um uh community service
53:35
uh being service-minded um i started noticing i was getting interested in kind of economics related
53:43
uh questions you know why are why do people buy x versus why
53:48
um what what makes uh you know a better investment versus not
53:53
um and found myself at wharton um uh uh and it was an interesting kind of
54:00
reconciliation because you know uh kind of growing up with that service mind uh uh
54:05
service value values of service uh but then also finding myself in a little bit of the heart of capitalism um
54:13
i started seeing or asking myself like what could happen if you got
54:18
the the public and social sector speaking the language of the private sector especially around capital markets and
54:24
what could happen if you got the private sector speaking the language of public and social sector and this was well
54:30
before i think a lot of the the language we have now around that whole esg language that you you
54:37
ripped on and i wanted to get you defined right uh so back then my first job was to really try
54:43
to understand the capital market side of it and so that was a bit more of a traditional investment banking private equity experience
54:50
i’d say really colored by the financial crisis so i was there before during and after the financial crisis um and saw i
54:58
would say the the potential power of financial engineering um but its inability to create
55:05
sustainable value uh especially by itself right it was it’s just a tool um
55:11
so who is using that tool uh why are they using that tool and what are they using it for
55:16
um so that that i think really really impacted me um early on
55:22
then i spent some time with with mckenzie i joined them in their singapore office
55:30
before transferring to the dc office and i wore two hats with them one was strategy corporate finance practice and
55:36
the other was the public social sector practice and increasingly i was getting excited working at the intersection so
55:42
using corporate finance tools for public and social sector clients um and and
55:48
trying to get public and private capital to incentivize economic development health outcomes and outcomes um so it’s
55:55
been that intersection i’ve tried to to work at since um so i’ve spent some time with outcomes
56:01
based financing social impact bonds um spent some time in global development
56:07
trying to uh kind of marry a different
56:14
capital structures with market-based mechanisms and principles with uh
56:21
philanthropic programs what could happen when when you bring that lens to program design uh in the
56:28
social sector and i think what what really drew me to connect humanity
56:33
was two things i think the the first one was um uh from an issue area perspective and
56:38
then i think the second was the blended finance and so from an issue area perspective i was doing a lot of work in
56:45
health financial inclusion workforce education and uh
56:51
underlying all of those promising solutions and approaches was connectivity right and so it wasn’t too
56:59
hard of a jump to say well if you care about any of these other outcomes you
57:05
have to care about connectivity because without connectivity you have no path forward
57:10
for any of those things um so for me the uh that that jump uh was very natural
57:16
and then on the second one the blended finance uh part of it um i think it was that recognition that
57:22
um there there there are a lot of uh private sector investment financing structures vehicles
57:29
well known um a lot of them have been copy and pasted for social sector purposes um social entrepreneurship
57:37
investing um etc um so a lot of those vehicles are uh exist in a social uh and
57:44
public context what what i think is is uh is the opportunity um and uh you know we’re
57:51
trying to to think about it at connect community is um what are those vehicles
57:58
that you can’t copy and paste from the private sector right what are those needs at the community
58:04
level um that need to be financed and what are the structures and terms that make most sense for them um rather than
58:11
me kind of begging borrowing stealing you know the private sector tools do we actually
58:17
need to create another set of tools that are more oriented around uh you know the
58:23
communities we’re trying to serve so i think it was that opportunity to to um
58:28
really just brainstorm new new ways to finance what what impact
58:34
do you think the great recession had on the evolution of finance again with a particular reference to this blended
58:41
finance world of connectivity that connect humanity is focused on
58:47
yeah oh that’s that’s so existential um
58:52
a few things i i uh a positive thing uh is i think it it
58:59
got a lot of folks who weren’t really thinking about capital markets uh
59:05
to think about capital markets and uh how is it structured what’s it doing for me type of thing and how can it be used
59:11
for things that i care about and so from that perspective i think it was
59:16
really helpful and in you know uh almost mainstreaming in a way um conversations
59:22
around it uh and challenging you know what what should be uh the the financial versus social uh trade-off
59:29
i think the uh the flip side of that coin is um
59:37
it’s a very nuanced conversation but it’s so easy to uh polarize it right you’re you’re either a
59:44
um on the public social sector side where uh it’s for the good greater good
59:49
or your commercial uh investor return maximizing and so i think most of
59:58
the conversation most of the work has been in the nuances in that gray area in between where it’s it really is
1:00:04
a balance um so i think a little bit of of that flip side is you know especially
1:00:10
engaging a lot with community-based organizations and non-profits csos um there is some of that that uh legacy
1:00:17
feeling of um you know uh well are you are you them or are you not uh
1:00:23
and where uh we’re neither if you will right right well that that will have to
1:00:29
be our our last uh word uh before we thank our our guest we want to remind
1:00:35
everyone that uh next tuesday at 10 30 eastern time uh or 8 30 mountain time uh
1:00:45
ntia chief alan davidson will be at mountain connect i’ll have the great
1:00:51
opportunity to be be there with him and have a a a q a much like this one and
1:00:59
the next uh ask me anything in our series will be on june 3rd with elliot
1:01:05
noss the ceo of ting internet very excited for him to be here with us just
1:01:11
as we have been so excited to have you brian vo thank you for being here and on
1:01:16
behalf of the broadband.money community uh have a great weekend and we’ll we’ll
1:01:22
see you next week all right thank you for having