Recent changes in Kentucky’s economic development programs – What’s in it for NKY’s entrepreneurs?

Recently, House Bill 3 was passed and its core is the creation of the Kentucky Business Investment Program (KBI).  KBI consolidated four existing incentive programs into a single, more flexible program.  HB3 also tweaked the Kentucky Reinvestment Act (KRA) and the Kentucky Enterprise Initiative Act (KEIA), and added two new programs: a Small Business Development Credit Program; and a Sales Tax Incentive for the purchase of communications systems or computer systems.

Okay, okay so you get that fact that the alphabet soup of economic development programs is new and improved . . . again, you ask . . . What’s in it for NKY’s entrepreneurs?

The only program that seems to have a direct impact for entrepreneurial businesses is the new Small Business Development Credit Program.  The quick skinny goes like this – Small businesses (50 employees or less) that create and fill at least one position and invest at least $5,000 in capital equipment or technology over the course of a year will be able to apply for a tax credit worth as much as $25,000, which may be carried forward up to five years.

As we know, a potential tax credit is great but you need profits to use tax credits and an entrepreneurial company can take a few years to make a profit.  The program’s five year carry forward may solve this problem.

This tax credit program certainly has great potential benefit for entrepreneurial businesses . . . BUT, hold that call to your accountant . . .this program will not go into effect until 2012.  Yes, you heard me . . . 2012.

More on HB3 and NKY Entrepreneurs. . .

There is one “I know you will ask” program and a couple “you should have these on your radar screen” programs.

The “I know you will ask” is the new Sales Tax Incentive for the purchase of communications systems or computer systems.  Sounds good until you get to the requirement that the expenditure must be $100,000,000 or more on qualifying equipment. . . . no typo. . . its $100,000,000.  Clearly not a program directed at entrepreneurs.

Here are the two “you should have these on your radar screen” programs.  First, if you expect to create 7+ new jobs in the next couple of years we should talk.  You might qualify for the revised job creation KBI program (tax credit) or an existing program (forgivable loan, i.e cash). 

Secondly, if you or your clients are doing some major investing ($50,000+) in new electronic processing equipment (computers, networks, etc.) we need to talk about the Kentucky Enterprise Initiative Act.  KEIA might provide for a sales tax refund for the equipment.

In summary, HB3 was clearly not targeted at entrepreneurs. It does have a couple of potentials that you should note.  So the moral of this story for entrepreneurs is that you should keep in mind that the ezone does have grants, forgivable loan, SBIR award matches and equity match programs that are specifcaly directed at entrepreneurs.  These programs existed before HB3 and still exist today . . . our office is ready to review your business and determine if you qualify.  Please keep in mind that Northern Kentucky based ezone assisted companies have received over $70 million in grants, forgivible loans and equity. 

 Casey Barach

cbarach@nkyezone.org

859(292)-7781

Why Be An Entrepreneur in NKY?

I am sure that many of you wonder if Northern Kentucky is a good location to start a business.  As you well know, we love our horses in Kentucky . . . so I will answer the question regarding entrepreneurship in NKY by sending you ”straight to the horse’s mouth” . . . hear two serial entrepreneurs discuss why they started their latest entrepreneurial endeavors in Northern Kentucky.

- Rich Hempel, CEO, SportsNation360

- Aymie Majerski, Owner, Barking Fish Lounge

- John Bostick, CEO, dbaDIRECT

http://www.youtube.com/watch?v=UGiw1uq2u7c

Casey Barach

cbarach@nkyezone.org

Advice to Entrepreneurs During Economic Downturn

Great article that mentions funds that are available through the ezone . . .

Article Date: Friday, June 19, 2009

Entrepreneurs still can add value during economic downturn

Business First of Louisville – by James C. Seiffert

An entrepreneur’s creativity and innovation need not and should not come to a halt during this current economic recession.

Even in the best of times, raising capital is a formidable challenge. But with equity capital all but dried up, today’s entrepreneurs must venture outside of the box and search out nontraditional sources of financing to survive.

In today’s environment, equity capital is very expensive. With friends and families fearful of losing their nest eggs and investors preserving what capital they have left to prop up their existing investments, capital has become scarce.

When capital is scarce, company valuations decline. With declining valuations, entrepreneurs seemingly have no other choice but to give up substantial equity and likely control in exchange for funding.

The result is a significant reduction of the entrepreneur’s ownership which, in the end, increases the company’s overall cost of capital. This detrimental effect can be minimized if nontraditional, nondilutive sources of funding are sought.

Different options for different stages

The type of nontraditional, nondilutive financing available to a company depends, in large part, on where it finds itself on the commercialization continuum.

An early-stage company, in the midst of its research and development, might consider entering into a strategic alliance with a similarly situated company to share efforts and expenses. A later-stage company that receives royalties from licensing its intellectual property or generates revenue from a commercial product or service often can raise needed capital by selling its royalty or revenue stream.

But it is the startup, seeking seed capital to develop its business concept, that should seriously consider federal, state and local government or philanthropic grant programs for help.

And, unlike traditional equity financing, capital received from these programs will not dilute an owner’s equity and, unlike debt financing, there is no obligation to repayment.

Federal and state programs

There are numerous, well-publicized grant programs that fund early-stage technologies through proof of concept and research and development stages.

For example, at the federal level, the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (SBTT) programs provide more than $2 billion of grants annually to early-stage, high-tech, innovative companies.

Spanning some 16 different federal departments, these programs offer as much as $100,000 for technical merit, feasibility and potential of commercialization of the proposed technology or up to $750,000 for full-scale research and development.

Kentucky, on the other hand, has established grant programs for the sole purpose of advancing the commercialization efforts of Kentucky-based technology:

• The new Kentucky New Energy Venture Fund provides Kentucky entrepreneurs a one-time grant of as much as $30,000 to support the advancement of commercially viable alternative fuel and renewable energy products.

• The Kentucky Enterprise Fund offers grants of as much as $30,000 to assist small and mid-size businesses at the earliest stages of project feasibility and concept development.

• The Rural Innovation Fund awards as much as $30,000 of seed funds to small, rural Kentucky-based businesses to undertake research and development in partnership with a Kentucky-based postsecondary institution or independent third party.

• The Kentucky Commercialization Fund offers grants of $75,000 to as much as $150,000 per year to Kentucky university’s faculty members for commercializing products, processes or services developed in five focus areas undertaken at a Kentucky university.

Vogt awards support innovation

Finally, the Vogt Awards offer aid for the development of inventions and innovations within the Louisville Metro area.

Established by the late philanthropist Henry Vogt Heuser, awards of as much as $250,000 are given annually to one or more deserving entrepreneurs to support the commercialization of their products or services.

Grants are awarded to new technologies that ultimately will lead to job creation in the Louisville area. The proceeds from the awards are available for research and development of a specific technology and cannot be used for general research, the production of a concept, or the repayment of debt.

Positioning for better times

Entrepreneurs cannot afford to sit on the sidelines and wait for things to get better. Much can be done now to take a sustainable business concept and turn it into a very good company.

The early-stage company, with little hope at this time of raising equity capital, should take advantage of federal, state and local governmental or philanthropic grant programs to fund those things that need to be done during the downturn.

Focusing on core competencies, building a solid management team and developing and protecting intellectual property will allow the startup to be in a position to accelerate its commercialization when things turn around.

And by accessing nontraditional, nondilutive financing to accomplish these items, entrepreneurs likely can increase their company’s valuation, which, in turn, preserves their equity and allows them to retain control of their destiny for another day.

 James C. Seiffert is a member of Stites & Harbison PLLC law firm. Send comments to cgreer@bizjournals.com.

 Contact Casey Barach at the ezone for more information -   859-292-7781

First blog, why me & money

First blog, why me & money:

When I read a blog, I ask myself  . . . who is the writer and what makes him/her an “expert”.  The reality of the blogosphere is that anyone can write a blog on any subjedt and declare themselves an “expert”. 

With that said, as I write my first blog for the ezone, I think I owe you a brief statement of my qualifications to blog on entreprenurship in Northern Kentucky.  I helped design and implement both Northern Kentucky’s (the ezone) and Kentucky’s (ICC Network) entrepreneur support program back in 2001.  Both programs focus on high potential, equity backed start-up and early stage companies.  Prior to that, I was VP and General Counsel for a dot com that raised (and spent) $13M.  My dot com experience involved many acquisitions, mergers and exits.  Prior to my entrepreneur life, I was a SVP with a Fortune 100 company in new product development . . . and of course, throw in many other jobs including my first as a start-up grass cutting business in the sixth grade. 

The topic of the day is $$$.  Its really quite simple . . . our entrepreneurs need money and investors like to make money.  The typical pattern for an ezone client goes like this.  (I am sorry entrepreneurs but “sweat equity” is mandatory but it never counts (i.e. hits the books)).

Good idea  >  Founder $  >  Government $$  > Angel Groups $$$

Northern Kentucky has a pool of Founders with good ideas Founders, the Commonwealth of Kentucky has funding programs and Cincinnati, Louisville and Lexington have Angel Groups.  So what is missing?  Northern Kentucky does not have an Angel Group . . . Angels are essential to the entrepreneurial eco-system.  Northern Kentucky is launching an Angel Group – NKYAIN  (NKY Angel Investment Network).  Keeping it simple for this blog, here are the two takeaways -

Entrepreneurs – Can I present to the NKYAIN?

Investors – I would like to learn more about angel investing in general or see what angel investments are available in Northern Kentucky.

If either of these ring home for you, email me – cbarach@nkyezone.org.

Casey Barach