Looking to a future past the COVID-19 crisis, Kentucky startups and other small businesses seek places to find capital and among them are alternative equity opportunities, crowdfunding, specialty partnerships and seed-round options, often with ties outside of their city.
Accredited investors in the Midwest are investing in the future economy and the space is ever-changing, with new players and funding mechanisms practically every quarter. In broad terms, one must have a minimum net worth of $1 million and an annual income of $200,000 (or $300,000 for joint income) to be accredited.
For entrepreneurs seeking funding, the following is a quick list of options that may prove useful:
Small business growth loans
Before the COVID-19 crisis, roughly 80% of small businesses could not access a loan from a bank, and community banking was down 50% over the past decade. For growth companies, the best bet may be a character-based loan of up to $35,000 for small-business owners who cannot access capital through traditional underwriting methods. Loans are verified and decisions can be made in two to three weeks. Historically, these loans have been at or under 6%. For more information about this type of loan, visit growthloan.org/about-growth-loan or contact Vanessa Koenigsmark at Render Capital Growth Loan in Louisville, [email protected]
Regional venture groups and angel clubs
Generally, angel clubs and angel networks pool funds of accredited investors that will look at deal flow from throughout the region.
Elizabethtown – A prime example of a successful angel network includes the Lincoln Trail Venture Group led by Lisa Boone. Founded by Mike Bowers, the group meets monthly in Elizabethtown to review investment opportunities. For information on attending as a possible investor or as a startup venture seeking funding, call Boone at (270) 307-4214.
Ashland – Tri-State Angel Investment Group’s focus is to make the majority of its investments within the Kentucky-Ohio-West Virginia tri-state region, provided a sufficient quality of investment opportunities are available. It defines the tri-state region as: Mason, Lewis, Greenup, Boyd, Lawrence, Fleming, Rowan, Carter and Elliott counties in Kentucky; Adams, Scioto, Lawrence, Gallia, Pike, Jackson, Vinton and Ross counties in Ohio; and Wayne, Cabell, Lincoln, Putnam and Mason counties in West Virginia.
This group has made investments in Annulox, The Winchester and Braidy Industries. The Ashland venture arm tends to specialize in chemical, energy and advanced-materials investments, and is on their second fund, averaging investments from $50,000 to $100,000 in companies typically located in the Midwest. To learn more, visit tristateangelinvestment.com .
Louisville – The Angel Capital Group (ACG) of Knoxville recently merged with the Louisville Sheltowee Angel Network (sheltowee.com), led by Alex Day and ACG’s Eric Dobson, and plans to become active in the fall. ACG’s past investments include companies like 490 Biotech, Pneuma Respiratory, Lirio, Downy Ridge Environmental, and AuxBus. Contact Day at [email protected] if you are an accredited investor interested in participating. Club dues are $1,500 and participants must be accredited investors willing to invest $25,000 each year from those presented. A previous website, theangelcapitalgroup.com/ remains up with many how-to articles for would-be entrepreneurs.
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In addition, the Sheltowee Venture Fund is being put together to look for investments over $50,000. According to Day, it will make early-stage investments in companies developing medical solutions and offering timely products such as technologies that include new ways to video conference. To apply as an entrepreneur, visit sheltowee.com/Resources/Sheltowee-Venture-Fund/Application.
John Willmoth, founder and managing partner of Louisville-based Poplar Ventures LLC, has a $25 million fund. Poplar Ventures is a venture capital firm focused on investing in early- and growth-stage, cloud-based, recurring revenue software technology companies. Visit poplarventures.com or contact [email protected]
Lexington – One of the most active angel groups in the state remains the Bluegrass Angels, led by David Goodnight with 70-plus active members. This group has created a special affiliate in in Somerset for more rural companies, investing $500,000 there. See bluegrassangels.com for more details.
SBIR/STTR programs assist companies seeking Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) federal grants, and Kentucky matches many of those awards dollar-for-dollar. There is support available via the Kentucky Procurement Technical Assistance Center, which is managed by Kentucky Science and Technology Corp., a 501(c)(3) nonprofit.
SBIR/STTR, known as America’s Seed Fund, provides non-dilutive capital for small businesses to conduct research and development on innovations with potential for commercialization. Awarded companies hone technological breakthroughs that meet the R&D needs of federal departments ranging from NASA to the United States Department of Agriculture, while being incentivized to profit from product commercialization.
SBIR Unplugged (formerly SBIR Connect) conducts monthly meetings, generally held in Lexington, that are free and open to the public. These are intended for networking and discussing the latest updates on SBIR/STTR programs and include time for questions and answers. Whether you are new to SBIR/STTR or an experienced awardee, the meetings are intended to help expand your knowledge and improve your chances for success in the program. Meetings are being held monthly via the Zoom conferencing app through the University of Kentucky. Visit sbir.gov for more information on the federal SBIR/STTR program and funding opportunities, or go to kyptac.com/events.
Learn about crowdfunding
For those interested in pursuing crowdfunding resources, Alan Grosheider has put together baseline information of value on Reg. CF (Regulation Crowdfunding) and Reg D 506C approaches to raising capital at Metrostart.org. The Securities and Exchange Commission proposed changes to multiple securities exemptions in early March of this year that will enter a 60-day comment period. Among the proposed changes, the SEC seeks to increase Reg CF from its current $1.07 million funding cap to $5 million. According to crowdfundinsider.com, it will amend the investment limits for investors in Regulation Crowdfunding offerings by: (a) not applying any investment limits to accredited investors; and (b) revising the calculation method for investment limits for non-accredited investors to allow them to rely on the greater of their annual income or net worth when calculating the limit on how much they can invest. An example of a strong equity crowdfunding site used by Kentuckians includes WeFunder, the largest Regulation Crowdfunding portal. (wefunder.com)
Research and state ED dollars
State economic development funds are currently being reviewed for new state planning in supporting startups under the new governor. In Louisville, LEAP (Louisville Entrepreneurship Acceleration Partnership) continues to be a resource under Larry Horn. LEAP holds an office in the 900 East Main St. building in Louisville, known as The Center by SIDIS, which also houses Louisville’s Microsoft At Work Initiative and co-working space under Story Louisville. LEAP, funded by the Kentucky Cabinet for Economic Development, is a public-private partnership between the University of Louisville, the Louisville Healthcare CEO Council and XLerate Health with a mission to accelerate the growth of the region’s entrepreneurial ecosystem.
Underway is a four-year Research Evaluation and Commercialization Hub (REACH) grant from the National Institutes of Health that has funded another public private consortium – the Kentucky Network for Innovation & Commercialization (KYNETIC). This organization will use NIH funding to advance biomedical research innovations from the state’s eight public universities and the Kentucky Community & Technical College System. The founding members of KYNETIC will contribute a $2.56 million direct-cost match and scale resulting startups that commercialize the technologies for public benefit, particularly optimal aging.
For women entrepreneurs
Additional resources active with Kentucky entrepreneurs include Community Ventures’ Women’s Business Center in Louisville (cvky.org/womens-business-center), which includes access to capital, as well as meeting groups such as NEW (Network of Entrepreneurial Women; nentw.com) and GLOW (Greater Louisville Outstanding Women; glowlouisville.com).
Nashville eyes Kentucky deals
Angel Investor Management (AIM) Group is the largest angel network in the Southeast U.S. with eight chapter locations, including Nashville, Pensacola, Birmingham, Huntsville, Mobile, Dothan, Auburn and Montgomery. This group invests in seed and Series A rounds for those entrepreneurs looking for $100,000 to $1 million. Those who apply generally have $500,000 in revenue. About eight deals a year are funded, and a face-to-face pitch in Nashville may be required. Applications can be found on the AIM website (aimgr.com/#funding).
AIM’s former executive director, Lowery Thomas, caught the entrepreneurial fever and now leads business development for the BOS Framework, which assists in the development of software solutions for startups on any device in any language and regularly shows up to work with Louisville startups. Nashville-based BOS Framework Nashville, founded by Sashank Purighalla, garnered $2 million in 2018, mostly from Tennessee investors that included Clint Smith, co-founder of email marketing company Emma (which was sold to a New York investment group) and Andrew Goldner of GrowthX, a San Francisco-based seed investment fund.
Dawn Marie Yankeelov is a correspondent for The Lane Report. She can be reached at [email protected]