High-Tech Construction and Investment Pool
Download Fact Sheet on High-Tech Pools
The Department of Commercialization and Innovation (DCI), in the Cabinet for Economic
Development, administers two pools of funds:
- The High-Tech Construction Pool is used for projects with special emphasis on the creation
of high-tech jobs and knowledge-based companies. The commissioner recommends funding of
companies to KEDFA for approval; and
- The High-Tech Investment Pool is used to build and promote technology-driven industries and
research-intensive industries with the goal of creating clusters of innovation-driven
industries in Kentucky. The commissioner recommends funds to be used to support loans and
grants, or secure an equity or related position to KEDFA for approval. (KRS 154.12-278)
Kentucky Enterprise Fund
The goal of the Kentucky Enterprise Fund is to stimulate private investment in Kentucky-based technology companies.
Applicants must demonstrate their ability to develop and lead a commercially successful venture. Companies seeking
capital go through a rigorous due diligence process and are judged in terms of industry fit, return on investment,
and potential for economic development.
Eligibility
Place of business: A company's principal place of business must be in Kentucky or at least 50% of property and payroll
must be in Kentucky.
Registration: Kentucky-based companies must be in "Active" and "Good Standing" with the Kentucky Secretary of State.
Employees: Companies must have 150 or fewer employees.
Industries: Companies must fall within the following industries:
- Biosciences
- Environmental & Energy Technologies
- Human Health & Development
- Information Technology & Communications
- Materials Science & Advanced Manufacturing
Company Legal Structure (Grant): A corporation, limited liability company, partnership, registered limited partnership,
sole proprietorship, business trust, person, group, or other entity engaged in non-retail commerce, agribusiness, trade,
or manufacturing.
Company Legal Structure (Investment): A company must be organized as a C Corporation (C-corp) or as a Limited Liability
Company (LLC).
Guidelines
Grant $30,000
- One grant per company.
- Repayment of the grant will be required only if the company receives further investment from the Kentucky Enterprise Fund
or the Rural Innovation Fund.
- The company must match the grant on a one-to-one basis in cash or through in-kind services.
- Funds are disbursed on a reimbursement basis. All payments are issued directly to the company and the company is responsible
for paying all expenses.
- No funds can be paid to the company for overhead expenses; however, up to $7,500 may be used toward incubator or commercial
rent expense.
- Funds available upon execution of a funding contract for future expenses.
- Funds may not be used to repay debt.
Investment: Up to $250,000, $500,000, and $750,000
- All investments must be repaid.
- Funds are investment via a convertible note or through direct stock purchase.
Convertible Note
The term of the convertible note is thirty months with a ten percent interest rate, compounded annually.
When the note is due, KSTC can choose to convert the repayment amount into equity - at a discount, or stipulate a lump sum cash
repayment.
The note is typically converted to equity when the company raises additional capital.
If funds are invested via convertible note the company is not obligated to provide any cash/in-kind matching.
- Funds invested via convertible note are disbursed according to milestones, typically 70% up front followed by 30%.
- Funds available upon execution of a funding contract for future expenses.
- Funds may not be used to repay debt.
Stock Purchase
-
Funds invested in syndication via a qualified round of financing are invested as a lump sum according to the terms of the
round and a side letter agreement stipulating that the company agrees to conform to the terms of the fund, i.e., is
Kentucky-based, provides a budget, evidences matching funds, agrees to provide reporting, and grants to KSTC board observation
rights.
-
Companies must match the investment one-to-one in new cash investments from private sources. For example, if raising a $1
million round the maximum that can be requested through KEF is $500,000.
- The funds from other investors must be committed no earlier than six (6)months prior to application and no later than six
(6) months after the award is made.
- Funds would be available upon successful negotiation of a contract, for future expenses.
- Funds may not be used to repay debt.
The Company will have one year in order to spend the funds. The maximum amount of funds a company may receive is $780,000. This
total includes all grant and investment funds received through the Kentucky Enterprise Fund and the Rural Innovation Fund.
The Kentucky Science and Technology Corporation manages these funds under contract with the CPE.
For more information on funding guidelines, see
www.startupkentucky.com
Kentucky Innovation and Commercialization Centers
The Kentucky Innovation and Commercialization Centers (ICCs) are public-private partnerships
dedicated to creating and growing high-growth, knowledge driven companies that are primarily
seeking private investments through angels and venture capitalists. Six regional ICCs and 7
local Innovation Centers (ICs) comprise the main network, which is administered by the Kentucky
Science and Technology Corporation (KSTC) under contract with DCI in the Cabinet for Economic
Development. See
www.startupkentucky.com to locate
the offices serving each region.
The ICC and IC network is the statewide infrastructure that provides business-building talent
and related services to Kentucky’s entrepreneurs, faculty and scientists using a best practices
model. The centers also link scientists and entrepreneurs with the innovation–related funding
tools created under the Kentucky Innovation Act. See discussion above on Funds.
Commonwealth Seed Capital LLC
The Commonwealth Seed Capital LLC (CSC) provides early-stage seed funds to facilitate the
commercialization of innovative ideas and technologies developed in Kentucky. CSC will invest
state capital in Kentucky technology companies.
Kentucky Science and Engineering Foundation
Small businesses having their principal business located in Kentucky are eligible to apply for
R&D Excellence Program awards under the “emerging technologies” category, with awards ranging
from $20,000 to $50,000 per year. The R&D Excellence Program makes proactive investments in
existing and emerging areas of research leading to innovation and technology development in five
state-identified focus areas through a peer-review system. Emerging technologies are the subject
of research and development activities, which are conducted to help the company further define
and develop a new product or process technology. (KRS 154.12-320)
The Foundation also administers the SBIR/STTR Phase 0 and Phase 00 program. This is a seed
grant program to assist Kentucky’s small companies in developing competitive, high quality Phase
I and Phase II proposals to any of the federal agencies participating in the Small Business
Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Companies
are eligible to apply for up to $4,000 to assist the preparation of a federal proposal. The goal
of the Phase 0 and Phase 00 program is to increase the number of winning proposals funded for
Kentucky companies. Each year the Foundation offers SBIR conferences with panels from
participating federal agencies and workshops on SBIR/STTR proposal writing for interested
companies.
The Foundation also administers the Kentucky Commercialization Fund Program which provides seed
funds to Kentucky university’s faculty members for commercializing products, processes, or
services developed through research and development work undertaken at a Kentucky university,
with a maximum grant of $225,000 over three years. (KRS 164.6035 and 164.6037)
The Foundation is managed by the Kentucky Science and Technology Corporation under a contract
with the Council on Postsecondary Education. For more information go to
http://ksef.kstc.com
Research Facilities State Income Tax Credit
A state income tax credit is provided for investment in facilities used to pursue research. The
income tax credit is equal to 5 percent of the qualified cost for "construction of research
facilities" for “qualified research” as defined in Internal Revenue Code Section 41. The credit
is available to new and existing businesses that construct, remodel, expand, or equip research
facilities, but does not include replacement property. Any unused credit may be carried forward
for 10 years. (KRS Chapter 141.395)
Small Business Innovation Research and Technology Transfer Incentive Program
The Department for Commercialization and Innovation will match all Phase I and Phase II federal
SBIR and STTR awards received by Kentucky Businesses. This would include matching awards of up
to $100,000 to support Phase I exploration of the technical merit or feasibility of an idea or
technology. Starting in July 2007, Phase II federal awards, which support full-scale research
and development, can be up to $750,000, and would be matched by the Commonwealth up to the first
$500,000 in each year of the federal award.
Statewide Business Plan Competition and Awards Program
The program will encourage entrepreneurship and develop new high-growth ventures in the
Commonwealth. The winners will receive cash awards totaling up to $100,000.
Kentucky Investment Fund Act
The Kentucky Investment Fund Act encourages venture capital formation by certifying privately
operated venture funds. Certified funds entitle their investors to tax credits equal to 40
percent of their capital contributions to the fund, not to exceed 50 percent of the initial
approved aggregate credit amount proportionally available to an investor for any one tax year.
Unused credits may be carried forward for up to 15 years. Tax credits may be taken against state
income, corporation license, insurance premiums, bank franchise, and savings and loan association
taxes. Nonprofit entities may transfer tax credits for some or no consideration. Criteria for
certification include an evaluation of the business plan, analysis of the investment strategy,
and past experience of the fund manager. Separate requirements exist for initial fund
capitalization, as well as ceilings on cash contributions and total credits authorized. Total
qualified investments made by each fund in any single small business may not exceed 25 percent
of that fund. Investment funds may be approved by KEDFA allowing investments up to 100 percent
in a single knowledge-based entity. To qualify a small business must have:
-
a net worth of less than $5 million ($10 million for knowledge-based businesses) or its net
income in each of the prior two years is less than $3 million; and
-
100 or fewer employees; and
-
more than 50 percent of its assets, operations, and employees must be located in Kentucky.
(KRS 154.20-250 to 154.20-284)
Any investment not in a qualified small business may be made by a fund, but shall not be eligible
for the tax credits. www.thinkkentucky.com/kyedc/pdfs/kybusinc.pdf Kentucky offers a number
of progressive incentives for businesses. The following list should be considered as a general summary.
Additional information on each business incentive is available.