Lessons learned in our first year investing in digital equity

Our Chief Investment Officer shares his reflections on building a new kind of investor

Lessons learned in our first year investing in digital equity

I joined Connect Humanity a year ago with the mandate to invest in broadband networks that provide fast, affordable internet to underserved communities.

While new to digital equity, I’ve worked at the intersection of thorny social problems and capital markets for many years. After a while, you start seeing a lot of rhyming across issue areas: the economics are always tough; solutions require a holistic, community-centered approach.

We expected a few things coming in: 

  • Community connectivity providers (what we call community-based networks) have limited financing options. ✅ Confirmed.
  • Public grants and philanthropy need to play a bigger role. ✅➕ Yes, but they’re insufficient by themselves.
  • Communities need technical assistance alongside a blend of finance (a mix of grant and return-seeking capital). ✅✅We’ve seen immediate appetite for that type of funding partner.
  • Investing where others haven’t was going to be hard. ✅✅✅ Even more than expected.

The hard thing about doing something for the first time is that you’re doing it for the first time. Finding ways to make the economics work in a capital-intensive, low-revenue environment has meant a year of innovating and iterating. While we’ll continue to fine-tune our approaches, we’re a lot further ahead than we were a year ago.

Here are my biggest observations over the last year:

Digital equity requires a new kind of funder.
Existing capital markets for community connectivity providers are inadequate. It’s no good to try to force fit existing financing square pegs into proverbial round holes. We need a new asset class that can provide $500k-5m checks with flexible — if not bespoke — structures. This needs to come with technical network assistance as well as business strategy advice. To date, funders in digital equity typically bring one or two of these capabilities to the table. You need all three to make this work.

‘Risk’ is a loaded word.
Risk can mean many different things to different people. Are we nervous about the risk of an early-stage company? Subscriber willingness-to-pay? Will the network work? Something else? We need to disaggregate risk and be clear about what we mean. Because too often people say ‘risk’ when the reality is actually a lack of will or understanding. The result can be a slippery slope into continued under-investment in communities that really need it.

Multi-disciplinary collaboration is table stakes.
Like most social problems, the digital divide is multi-faceted. It’s not a problem you can solve by carving off chunks for siloed teams or consultants to block and tackle. To get our investments over the line, we’ve needed deep collaboration between team members with expertise in finance and business models alongside those who have built and run networks. We’re constantly code switching from investment-speak to technical jargon to language that is accessible to the communities we serve.

Investment readiness is a journey, not a destination.
There is no magic online course or set of slides that will make an organization ‘investment ready’. The most important things I’ve seen are (a) are the right people in the room? and (b) do they know the right questions to ask? Even the most sophisticated organizations we’ve due diligenced don’t have it all figured out. And so smaller providers that are similarly figuring it out shouldn’t be penalized. Instead funders should be flexible in how they work with and support them.

Everyone needs technical assistance.
We have not met a single organization that “has it all”. Addressing digital equity means looking at three key areas: network design, community engagement (i.e., barriers to adoption), and business strategy. We need to be ready to support organizations to different degrees on each. While less mature operators often need more help with business strategy, we’ve also supported fiber providers to optimize their build strategies and operations systems. It’s not a question of if an investee needs technical assistance, it’s a question of where.

Not everything has to scale!
The social impact space is in love with scalability. And for good reason; there are lots of problems experienced by lots of people. But this is digital infrastructure. Key word infrastructure. Bridging the digital divide happens one connection, one household at a time. Aiming for scale isn’t always the right way to do it. Instead, we need to support the models, knowledge, and funding that will power more community-focused approaches to expand internet access. This is how we’ll close the digital divide.

As 2022 comes to a close, I’m thankful for all the communities and providers that have engaged with us, whether through due diligence or informal chats about their needs and experiences. We’re fortunate to have grounded the Connect Humanity’s Investment Program in their hard-won experiences and feedback.

We look forward to investing in more communities working to close the digital divide in 2023.

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