Calix : How To Secure Rural Broadband Funding in Canada With Private Equity

Canada's digital divide between those with internet access and those without has pained remote municipalities for years. COVID-19, however, has pushed the problem to the forefront of public consciousness. Now that everyone needs reliable broadband to work, learn, and seek healthcare from home, rural broadband is getting more attention than ever. In response, the Canadian government and several provinces are investing billions of dollars in solutions.

Government grants can be a great option for your rural Canadian municipality but may only provide a portion of the capital you need for your business plan. Researching all your funding options, including private equity, will arm you with the knowledge to make your broadband project possible even if one source of funding falls short. In this article we'll:

• Summarize the advantages of private equity in Canadian broadband
• Address common concerns related to private equity
• Share tips on attracting private equity to your municipality
• Explore how to find partners for your broadband project

The Advantage of Private Equity in Canadian Broadband

Infrastructure investments-especially in broadband-are considered relatively safe, highly sought-after investment opportunities. No matter what happens in the market, people will continue to pay for internet services to keep them connected. Just as rural broadband is a wise bet for private investors, private equity is a wise bet for rural Canadian municipalities and service providers. Here are the benefits.

• Additional funding: Government funding is a great way to fund your network, but it will typically only provide a portion of the capital you need for your business plan. Private equity can provide the rest of the upfront capital you need to make your broadband project possible.
• Faster financial deal closing times: You can spend a year on applications and reviews for government dollars before you receive any funds. With a private investor, however, you can have money in your hands in under two months. (In the U.S., we've seen broadband businesses receive funding via private equity in as little as 45 days.) Similarly, government grants have specific application windows, but private equity is an always-available resource. The easier on-ramp makes it possible for you to connect your community with critical high-speed internet much faster.
• Expert support: Many private investors seeking rural broadband opportunities have years or even decades of experience in the telecommunications industry. If they invest in your project, they will likely provide a combination of equity and debt to match the management team's needs and desires. They will also work closely with the leadership, typically from a board seat position. The business and industry expertise they bring can help make your plans and project a success for everyone involved.

Common Concerns Related to Private Equity

With the right investors, you can benefit from additional funding, fast deal close, and expert support. Yet, there is still skepticism surrounding private equity. Maybe you've heard stories about private investors buying businesses just to sell off the assets or flip them for a profit. If so, you may be very hesitant to trust private investors with your community's broadband network.

It's important to understand that infrastructure investments are nothing like those turn-and-burn investment stories. Investors looking for broadband projects understand that infrastructure takes time to build. They don't expect an immediate return and aren't looking for a get-rich-quick scheme. Instead, they're willing to wait patiently and partner strategically to generate a return over several years, not just months.

Why are they willing to play the long game? As we mentioned earlier, infrastructure investments-especially in broadband-are considered relatively safe, highly sought-after investment opportunities. No matter what happens in the market, people will continue to pay for internet services to keep them connected. 

In fact, in our post-pandemic world, people will expect increasingly better broadband experiences at home. Existing cable or wireless networks can't compete with the newer fiber-optic network your municipality will look to build. Fiber networks are widely considered an appealing investment because they are highly likely to remain at the top position for speed, reliability, and low operating cost for broadband networks for decades to come.

How To Attract Private Equity to Your Municipality

So you've decided private equity sounds like an interesting option for you. But how do you attract private equity to your municipality? Let's take a closer look.

From a practical standpoint, there are a number of ways to structure deals with investors. This could involve equity in your current company, but there are also options for combining debt or investing in a side business model or joint venture. This gives you the flexibility to recruit private equity outside of your existing company capital structure.

The primary thing potential investors want to see from you is the potential for growth of revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA). They need to know they can make enough money off of your project for it to be worth their time. They also have expertise in helping management lead a company to meet those goals.

Many municipalities and service providers mistakenly think that investors want to see a conservative approach. They'll say, 'Well, we could start here with this one neighborhood and see how it goes.' Your intention may be to reassure investors that you'll use their dollars wisely, but a conservative plan can actually be a turnoff. Investors want you to bring all of your ideas to the table. They want to know you're committed to growth and your plans and methods can be scaled and repeated.

Long-term thinking is attractive to investors. Share your current plans but also your biggest hopes, even in the earliest stages of planning. Show proof of a repeatable business model, then outline your plans and opportunities to receive additional financing to fuel further growth. This shows the investor a path forward to both the initial project and a scalable model. Investors will be more eager to partner with you to make those hopes a reality and consider additional financing rounds to continue a long-term, mutually beneficial relationship.

Investors also like partnering with service providers that have a track record of consistently deploying competitive broadband solutions and keeping ongoing expenses under control. Investors know that while fiber networks require more upfront capital, they can reliably generate long-term profitability with low risk because of their unmatched capacity and low operating expense model.

Finding Partners for Your Rural Broadband Project

When it comes to attracting private equity to your rural municipality, it comes down to your ability to show a path to continued growth or plans for a scalable expansion. It's also important to assess potential investors' prior communications experience. That's why it really helps to have an introduction to investors who have experience and belief in fiber technology. 

At Calix, we can help introduce you to the ideal investment partners for your project. We have worked carefully to select a small group of these experienced, fiber-savvy investors. These are people who believe in the future of fiber and are already aligned with your goals.

No matter where you are in the process of planning a fiber network, now is a good time to connect with the industry's most experienced investors. The stage you're in is far less important than the opportunities you can demonstrate! Investors are actively looking for leadership teams they can align with and support, mostly irrespective of the current project stage. Start the discussion now, and you can more easily line up expansion capital when you're ready or in stages.

To learn more about private equity opportunities and connect with potential investors, schedule a free Broadband Consult. You can also download our free guide, 'The Five Broadband Partners Your Municipality Needs (And How To Find Them).'