Funding Broadband by Turning Users Into Investors

Let’s explore a different strategic approach to funding.

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In 2009 I came across National Community Development Services, Inc. (NCDS), which specializes in boosting the economic health of communities through a process they term economic development fundraising. The concept is simple, really, and can be applied to broadband projects where one of the main goals is to use the network to improve economic development. Build a financial sustainability strategy based on a campaign to recruit investors for the network.

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As I find interesting guests to invite to be on my radio show, Gigabit Nation, I’m finding a theme that keeps recurring in slightly different forms, but with the same bottom line – fund a network by convincing local businesses, not-for-profits and other organizations to underwrite the costs. One variation to that are co-ops, such as the Mountain Area Information Network (MAIN) that I’m highlighting on tomorrow’s show.

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We’re not talking investors as a euphemism for “subscribers,” but people who invest more than the price of service in exchange for a piece of the action. This aligns with my position that communities need to treat broadband networks as a business venture.

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The investors in this scenario are community hospitals, large businesses and other organizations I consider institutional customers of the network, but they’re putting a financial stake into the project. “Key funders have a greater sense of ownership in the initiative they are funding,” explains NCDS CEO Tom DiFiore. “An investor expects a return on his or her investment, but here, benefits the community receives are the primary return. Broadband creates economic growth, prosperity, and vibrancy for a city, county, or region. The largest stakeholders in a community’s well-being, therefore, are logical potential investors in that mission, even if they are not customers on the network.”

The premise behind NCDS’s service is that you should view any community project that improves economic development directly and indirectly as a business venture. Some “x” amount of money goes into the venture. When the investment is successful, return on the investment is more revenue, higher profits, more jobs, a more skilled workforce, improved infrastructure, friendlier business climate, etc. If municipal budgets, bond financing and traditional financing are available or practical for supporting the project, then you turn to those in the community with capital and the greatest stake in the project’s success. Since a network offering services to constituents is a revenue-generating business, there is potential for a direct financial return, though as is the case in Fredericton, this revenue is reinvested in the network.

A typical scenario might be to create a co-op or other nonprofit entity. If we use Fredericton, New Brunswick as an example, they created a budget for how much it would cost to build and operate a high-end fiber network. They brought together the heads of 12 of the larger commercial and educational organizations from the community and proposed that each of them and the city invest a fairly proportioned amount into the co-op. The co-op then retained contractors and hired personnel to build and operate the network. The investors received broadband services as a benefit while profits from revenues went back into network services that benefit the community, including free citywide wireless.

Over the next week, you can listen to Gigabit Nation to get a lot of details on how two other communities created effective broadband financing strategies when they weren’t making headway pursuing other avenues for funding. But what follows is a good conceptual framework that the radio interviews will build upon.

Putting the economic development fundraising strategy into play

The business, legal and tax procedures to structure the entity at the center of an economic development fundraising project are just a little complex, so be sure you start out by consulting the appropriate professionals at the outset. DiFiore provides more detail on how the fundraising process itself works.

“Most successful fundraising campaigns for community and economic development initiatives usually adhere to four core principles:

  1. It’s about the community’s needs–not the organization’s needs. So you make the community and the benefits they’ll receive from broadband the focus of the campaign, not the organization.
  2. It’s much easier to raise big money for specific initiatives and projects [digital inclusion, workforce retraining programs, improving healthcare delivery] than it is to fund an “organizational budget.” No one is interested in ensuring an income stream for an organization. They want outcomes in the community–not ‘activity.’
  3. What they help write, they will help underwrite. Key stakeholders and funders must have a sense of ownership in the initiative being funded. The best way to achieve that is to involve them during planning and development.
  4. The initiative must be relevant to the community’s needs and opportunities; there must be measurable goals that define progress and success; and the leaders of the organization/initiative must be accountable to the investors.

Tomorrow be sure to catch the second part of my interview with Tom, and then tune in to Gigabit Nation to listen to my interview with Wally Bowen, founder and Executive Director of MAIN.

Get these and other valuable broadband business strategies and tactics in my book, Fighting the Next Good Fight: Bringing True Broadband to Your Community.

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