Editor’s note: This commentary is by Janice Shade, of Jericho, an entrepreneur and writer with over 25 years experience in strategic planning, brand management and financial strategy. Her current venture is Milk Money L3C, a pioneering “invest local” crowdfunding platform.
As we head into September, the mayor and City Council of Burlington have the chance to make history … or just repeat it. This month marks the anniversary of the sale of yet another Vermont-based company to Unilever. In September 2016, the London-based consumer products giant announced it would acquire Seventh Generation in a move reminiscent of its earlier, and possibly more famous, acquisition of Ben & Jerry’s in 2000. Recent rumors suggest Unilever is moving Seventh Gen’s headquarters out of Vermont to New York City. Whether this is true or not, it could happen at any time; Unilever owes no allegiance to Vermont.
September 2017 now presents the city of Burlington with an opportunity to change that story and secure local ownership of an important member of its business community. At the same time, it would establish the city as a leader in the movement toward democratic ownership and access to capital.
Burlington Telecom (BT), a television, telephone and internet service provider serving Burlington and neighboring communities in Northwest Vermont, has operated as a division of the city government since its inception in the early 2000s. BT is now up for sale. Among the eight bidders who expressed interest this past spring, one in particular would provide permanent local ownership and control of BT, effectively pre-empting its sale, now or in the future, to any outside interest. Its name, fittingly, is Keep BT Local.
Local ownership of BT is a hot button issue. The Burlington Telecom Advisory Board conducted a survey of Burlington residents in 2015 to assess public opinion on a variety of criteria regarding the sale of BT. Local ownership was identified as the No. 1 criterion, a fact which a group of 20 prominent local businesspeople and government officials including Jerry Greenfield and the Office of Sen. Bernie Sanders, reminded the advisory board in a June 30, 2017 letter of support for Keep BT Local. The letter attested that Keep BT Local’s ownership would allow BT to stay true to its original mission while giving the original investors in BT – the local taxpayers – a “very real claim on the returns in terms of ‘community equity.’”
Burlington Telecom, a state-of the-art fiber optic network, was built, and run profitably, in the early 2000s. Due to several factors, including the financial meltdown of 2008-2009, the city defaulted on its financial obligations to a key lender, CitiBank, in 2010. It was also later discovered that a chief administrative officer of the city had secretly used $16.9 million of unauthorized taxpayer funds to try to prop up the struggling utility since 2008. This led to a lawsuit from CitiBank that was settled in 2014 for $10.5 million, but still left BT $16.9 million in arrears to the city. As the new administration of Mayor Miro Weinberger took office in the wake of the BT debacle in 2012, it began to explore new options to help BT out of its financial mess. In 2015, Weinberger and the Burlington City Council negotiated a deal in which the city would receive 50 percent of proceeds if BT were sold by Jan. 1, 2018.
Now they have to find a buyer. This past March, eight potential bidders submitted letters of intent to purchase BT. The eight were winnowed down to four who, on July 31, made their proposals in executive session of Burlington’s City Council. Keep BT Local was one of the final four, and presented its plan for a member-owned cooperative that would essentially transfer ownership from the city of Burlington to the citizens of Burlington. By merely subscribing to the telecom service, Burlington residents would become member-owners, and as such, would have cooperative control over subscription rates, the pace of expansion, election of board members and – significantly – the distribution of profits to member-owners, i.e. themselves. Thus, Keep BT Local’s proposal not only maintains local control, but also keeps wealth circulating throughout the local community, into the hands of many instead of into a few, possibly out-of-state, investors.
There is more to the Keep BT Local story than being a co-op, though. In addition to proposing a democratic and locally centered ownership model, Keep BT Local is harnessing the power of the crowd to raise capital to finance part of its bid. On July 24, Keep BT Local launched a local crowdfunding campaign on www.MilkMoneyVT.com. [Full disclosure: two years ago I cofounded the Milk Money platform to facilitate investments from Main Street Vermonters into local companies under the Vermont Small Business Offering exemption. Milk Money receives its compensation in a fixed fee before campaigns launch, so it will not benefit financially from Keep BT Local’s success as a result of this article. I just think this is such an amazing story I had to share it.]
As of Aug. 31, Keep BT Local has received pledges for $396,000 from 41 investors. These financial votes of confidence have come from accredited and non-accredited investors alike, in increments ranging from tens of thousands to a few hundreds. In addition, supporters are posting yard signs and writing opinion pieces to show the mayor and City Council how important they believe it is to Keep BT Local. A minimum of $500,000 is needed from this crowdfunding effort by Jan. 1, 2018, for Keep BT Local to support its bid. The pace with which pledges have been received so far indicates it should reach this goal very soon.
The crowdfunding goal is, granted, a small fraction of Keep BT Local’s $12 million bid, most of which will come in the form of a loan from Maine Fiber Co., a dark fiber leasing company that serves telecom carriers and service providers around the world. Maine Fiber will also provide strategic guidance to Keep BT Local.
The Burlington Telecom Advisory Board cites this debt financing and lack of operating experience as concerns with the Keep BT Local proposal. The Keep BT Local board is comprised of seasoned business, finance and legal professionals with extensive experience managing and growing successful companies, plus deep ties to the community. It plans to keep the current BT management team in place, a team that resuscitated the customer base from its previous high of 4,500 in 2009, and the subsequent low point of 3,900 during BT’s financial crisis, to over 6,000 subscribers at the end of fiscal year 2016. In FY2016, the company also posted positive net earnings after payment of debt service and taxes. The business and financial acumen of Keep BT Local’s board, paired with BT’s positive business trajectory suggest good prospects for Keep BT Local’s success.
I assert that Keep BT Local will do more than just continue the momentum of BT’s business trends, however. It will augment it by the very nature of its structure and financing choices. The true power of crowdfunding becomes apparent when Keep BT Local investors and member-owners recognize that the company’s best chance for success is in their own hands. This is the beautiful byproduct of both crowdfunding and the cooperative model. Investors and owners become committed customers and enthusiastic brand ambassadors. The current outpouring of community support from well-known Burlingtonians and average citizens alike will transition from writing investment checks into recruiting new members and supporting the retention and growth of local jobs. This will drive business success in a virtuous cycle of support, growth and reinvestment.
Can the same be said for the other BT bidders? The identities and proposal structures of the three remaining bidders have been kept secret, as well as their bid amounts. Some details were provided by David Provost, chairman of the Burlington Telecom Advisory Board, in a recent Burlington Free Press article. According to Provost, two are cash offers from “mature, financially stable companies.” The other, he says, “comes from a private equity investor with valuable local relationships and extensive telecom experience and a vision for aggressive BT regional growth.”
At this time, it is not public knowledge whether any of these bidders are located in Vermont or if they plan to maintain local management. This uncertainty opens the risk of replaying situations we’ve already seen in Vermont with Green Mountain Coffee Roasters, Ben & Jerry’s, IBM, and now possibly Seventh Generation, as out-of-state acquirers move jobs and wealth out of Vermont.
By Sept. 15, the city is expected to announce the final one or two bidders as it heads toward the Jan. 1, 2018, deadline. The city that helped put Bernie Sanders on the political map, now has an extraordinary opportunity to play a leadership role in promoting true community capital and cooperative ownership of its public utility. Come on Burlington, let’s do this!