Fellowship Spotlight: The IDEA Fund
Brian Vo, Chief Investment Officer at Connect Humanity, is motivated by a glaring disconnect. “It’s 2023 and you would think internet connectivity shouldn’t be a problem,” he says of the challenge he’s addressing with the IDEA Fund.
“In the U.S. alone,” Vo explains, “there are 42 million people without any internet connectivity.” And another 120 million people in the States – about a third of the country – are without internet speeds good enough for Zoom, and thus unable to work or complete everyday transactions remotely.
The Problem
Like most American problems, the digital divide most adversely impacts low-income, rural, and communities of color. Vo shares, “If you’re low-income and from a community of color and rural, you’re likely living in a broadband desert. I’ve talked to people who are paying $120 a month for dial-up and it takes them 20 minutes to load a web page. Everybody’s talking about Web 3.0, 4.0, AI, VR, and we’re talking about broad swaths of the population who can’t even get Web 1.0.”
While attention and even resources have been dedicated to solutions, inequities persist. The Federal Government recently committed about $40 billion to help close this divide. Vo is concerned, though, that the money isn’t enough, and that it’s not getting to where it’s most needed. “According to estimates acknowledged by the government,” he says, “this will only bridge about 30% of America’s digital divide.”
Further, federal money will favor incumbent operators—all the big brand names we know and recognize. “The way those same incumbents have been building internet over the last 20 years—often with federal money—has created a phenomenon called digital redlining.” Vo relays a story of one company running fiber through a low-income neighborhood, and when a house 30 feet from that fiber asked for internet, the provider wanted to charge $10,000. “At that point,” he says, “it’s a way to just price low-income folks out.”
In describing the limitations of existing funding options to expand broadband, Vo explains that while private equity is there, it serves a certain population - and not those communities where the need is greatest.
“We’ve heard conversations where private equity is forcing some ISPs that were founded to serve low-income rural communities to prioritize only the areas that provide a higher ROI.” This perpetuates historical redlining, says Vo, as areas that cost more to get connected are also those with high concentrations of Black people and other historically marginalized populations.
Meanwhile, community finance currently lacks the underwriting skills to address the challenge. There are some private banks providing smaller loans to internet service providers (ISPs), but there aren’t many and they’re coming at it from the less equitable private sector perspective.
Identifying an Intersectional Solution
Connect Humanity launched the IDEA Fund to get much-needed capital to the underserved subset of small, community-based ISPs in one of the least connected U.S. regions: Appalachia. The $25 million fund, Investing in Digital Equity in Appalachia (IDEA) will make investments to help bridge the digital divide across the region.
Vo provides an example of the organization’s investment work with Wave 7 Communications, a small ISP based in Enfield, North Carolina, a rural, 95% Black community largely without access to broadband. After accessing enough grant funding to build their network to serve 70 of the town’s 500 residents, they approached the bank for capital to complete their work. The bank wanted to collateralize their house—not a desirable option for the husband and wife co-business owners.
Vo and his team provided revenue-based financing for the company. This was ideal for the particular situation because of the ambiguity and unknowns. Unlike a bank loan which effectively requires a monthly mortgage payment, the debt repayment in this case can ebb and flow as the work does, and Connect Humanity can, as Vo says it, “ride that wave with them.” Term loans and revenue-based financing will be IDEA’s two most common investment products. “The reason we don’t do equity,” Vo explains, “is we think the infrastructure should be owned by community.”
Infrastructure Requires Hyperlocal Solutions
Describing a map charting where broadband is and is not available, Vo poses the hypothetical: “Guess where the White people live and guess where the Black people live?” In order to break the decades-long cycle of discrimination, he insists that decision making power needs to shift towards communities themselves.
Vo is clear about what’s needed to begin to solve this entrenched, race- and class-based discrimination: “You need to work through community-centric ISPs. Infrastructure, digital or otherwise,” he reminds, “is hyperlocal.” There are a handful of ISPs whose names we hear regularly, but there are thousands registered across the U.S., and the majority of them serve fewer than 50 census tracts.
The key barrier Vo cites as obstructing these smaller ISPs from serving their communities more effectively is access to capital. He points out that these companies are most often small businesses owned by people of color and women.
Part Investor, Part Advocate
With Wave 7, Vo served as a bridge between the community-based provider and the financing institution. The founders had clear ideas and plans for how to effectively build out their business; they simply didn’t have a slick pitch deck that made this apparent to the people at the bank. To mend this disconnect, Vo sat down with the business owners for several hours, asking a detailed list of questions.
From this conversation, Vo translated the couple’s input into a financial model that he shared back with them along with his investment structure. He provided full transparency in articulating how much he would gain if the company did well, and how much they would lose if not. He also shared the documents developed through this process with the company owners so that they could utilize them in accessing more capital in the future, regardless of whether or not Vo was a part of the conversation.
“That kind of transparency has been helpful for a lot of the smaller organizations,” Vo says, and he shares that he intends to serve as part investor, part advocate. “We’ll design our investment relationship such that their success is our success, rather than the binary zero sum that can come with an investment.”
The Ingredients for Success
“To do this successfully,” Vo underscores, “you need three major things: deep investment experience; technical understanding of what it takes for a network to be successful; and a commitment to community interest as North Star. We don’t see organizations that have all three. That’s what we’ve built at Connect Humanity”
Vo’s life and career trajectory have instilled in him the skills, perspective, and values that uniquely position him to work effectively in this role. His parents came to the States as refugees during the Vietnam War, in what Vo refers to as “more fortunate” ways than their many family members who endured the treacherous experience of fleeing their home country by boat. “Growing up,” he reflects, “there was always a sense of service,” which he connects to his parents’ gratitude for their relative fortune and their commitment to giving back.
Fast forward to Vo landing at Wharton School for undergrad, which he refers to as “the heart of capitalism” (and where he’d return for his MBA over a decade later). Here, he had to reconcile his service-oriented upbringing with his new profit-obsessed context. His reflective nature led him to wonder, “What if you got some of the tools of private sector embedded into public and social sector? And what if public and social sector started speaking the language of private sector, especially around capital markets? What could happen?”
Re-engineering the System for Good
With this orientation and curiosity, Vo started his journey in capital markets in investment banking and private equity in New York. He was amazed by the power of financial engineering to totally mess up the system. “But it wasn’t financial engineering in and of itself,” he says. “The tool is so agnostic. What struck me was the culture and the mindset and the intentions with which people were using that financial engineering.”
In the next phase of his career, Vo worked for McKinsey at the intersection of the Strategy Corporate Finance and the Public and Social Sector Practices. “What really got me jazzed,” he explains, was seeing the intersections he imagined during his time at Wharton being leveraged to improve economic development, job growth, education, and health outcomes. “I’ve seen impact investing through a lot of different angles, which has helped inform Connect Humanity’s approach to blended finance.”
Having seen the destruction and injustices that financial engineering can design into systems, Vo has used his financial career to redesign more for equity. “My biggest fear is that someone uses my capital to further digital redlining,” he shares. “We build in digital equity covenants to cover that.” Once they’ve invested into a company, Vo and his team check in on covenants quarterly and annually, and if they’re not meeting the digital equity covenants, they’re in default of their investment contract. “We’re trying to get teeth to really ensure that what we do is and remains community oriented.”
Three Crucial Capabilities
In order to create the most impact, the IDEA Fund works at the intersection of three capabilities:
Blended Finance – Understanding investing from an impact lens, commingled with public grants, private investment, and/or municipal finance.
Community-Friendly Broadband Networks – Beyond just looking at the technical elements of running fiber, how do you design the network so it will serve community interests?
Accessible Language – It’s crucial to communicate in language that supports community-centric providers to make informed decisions without having investor jargon create barriers.
So far, it seems that their approach is working. To date, Connect Humanity has invested about $3M into community-centric ISPs. That $3M helped to catalyze $47M of additional public and private capital. 100% of dollars have gone into Opportunity Zones, and 75% to small businesses owned by women and/or people of color. They’re on track to connect 100,000 low-income residents and the portfolio is tracking a 9.4% IRR. IDEA Fund will build on what Vo and team have learned with these initial investments for similar impact in communities across Appalachia.
“In the last year and a half,” Vo shares, “most of what we’ve been investing in has come from inbound requests, so people are finding us and the brand is snowballing.”
The Value-Add of the VCI Fellowship
“I’ve done $7B+ investing or advising, but moving it into a fund,” Vo says, “there are so many different points to think about: my known unknowns; and more anxiety-inducing: what are my unknown unknowns?”
The VC Include Fellowship provided answers and a solid grounding for Vo to move forward. “The fellowship has been really helpful in shedding light on all the unknowns, and most importantly, beyond the technical elements it’s given me the confidence to move ahead,” he shares. “It’s been really helpful to hear and see that we already have a lot of the boxes checked.”
As we’ve instilled confidence in him, Vo and the IDEA Fund have also instilled confidence in us. VC Include looks forward to seeing more equity in connectivity resulting from their work.
