The Idea Fund
Kentucky Enterprise Fund
Kentucky Growth Capital Fund
Commonwealth Seed Capital
Kentucky Angel Investment Tax Credit
Kentucky Investment Fund Act
About
The Commonwealth of Kentucky sponsors a number of investment initiatives and venture programs designed to increase the availability of equity investment capital for fast growth and scalable young businesses in Kentucky.
This funding includes:
The Idea Fund provides pre-seed and seed stage funding and venture capital-type investments to high-growth startups and entrepreneurs through entrepreneur support organizations like accelerators, boot camps, and pitch competitions. These partnerships allow us the Kentucky Enterprise Fund to further reach and support Kentucky startups.
NEXT STEPS
If you are a Kentucky based entrepreneur support organization seeking a co-investor for the startups you support, please get in touch with Keyhorse Capital to learn more about the The Idea Fund.
The Idea Fund is an initiative sourced through Kentucky Enterprise Fund investments which are managed through Kentucky Science and Technology Corporation’s (KSTC) venture arm, Keyhorse Capital in partnership with the Kentucky Cabinet for Economic Development and the #KYInnovation program as part of the Kentucky Innovation Act (KRS § 164.6011-6023).
The Kentucky Enterprise Fund (KEF) provides pre-seed and seed stage venture capital-type investments to high-growth startups and entrepreneurs based in or interested in relocating to Kentucky.
Companies should 1) be building an innovative, technology-enabled product, process, or service, 2) have developed a prototype, be seeking product-market fit, or entering early growth stage of development, and 3) present a well-articulated market opportunity with some level of customer validation and a strong founding team.
You might qualify for investment if your business:
Kentucky Enterprise Fund investments are managed through Kentucky Science and Technology Corporation’s (KSTC) venture arm, Keyhorse Capital in partnership with the Kentucky Cabinet for Economic Development and the #KYInnovation program as part of the Kentucky Innovation Act (KRS § 164.6011-6023).
The Kentucky Growth Capital Fund makes direct equity investments in early to growth-stage Kentucky technology-based companies seeking private funding from angel and venture capital investors.
The following are general guidelines for a Kentucky-based company to apply for investment from the Kentucky Growth Capital Fund (the "Fund").
1. Eligible Companies: Technology-based partnerships, corporations, and limited liability companies, based in or relocating to Kentucky with 500 or fewer employees.
2. Individual Investment Offerings (Capital Raise) must be no more than $20 million.
3. Maximum Total Investment Amount per Company: $2,500,000.
4. Maximum Investment per Capital Raise: Fifty percent (50%) of the investment offering, or 100% of the Maximum Total Investment Amount, whichever is less.
5. Investment Commitment: Prior to completing an investment from the Fund, the applying company must have received investment commitments from private investors of at least one hundred percent (100%) of the Fund's total commitment.
6. Terms of Investment: An investment from the Fund shall be based on the same terms and conditions provided to other private investors participating in the specific investment offering; specifically, the Fund shall be senior to or in pari-passu to private investors.
7. Restrictions: There are restrictions on eligible use of investment funds (e.g., certain cash-in refinancing, debt repayments, consolidations, repayments of taxes, reimbursements to owners) and types of companies, based on certain primary business activities, such as:
a. Passive real estate is defined as investment in real estate acquired and held primarily for sale, lease, or future investment. It includes most real estate development (including construction) in which the developer does not intend to occupy or actively use the resulting real property.
b. A business engaged in speculative activities that develops profits from fluctuations in price rather than through normal course of trade, such as wildcatting for oil or dealing in commodities futures, unless those activities are incidental to the regular activities of the business and part of a legitimate risk management strategy to guard against price fluctuations related to the regular activities of the business.
c. A business that earns more than half of its annual net revenue from lending activities unless the business is a non-bank, non-bank holding company, or Community Development Financial Institution.
d. A business engaged in pyramid sales, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants.
e. A business engaged in activities that are prohibited by federal law or applicable law in the jurisdiction where the business is located or conducted (includes businesses that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the business’s intended market). This category of businesses also includes direct and indirect marijuana businesses, as defined in SBA Standard Operating Procedure 50 10 6;
f. A business engaged in illegal gambling enterprises or business deriving more than one-third of gross annual revenue from legal gambling activities.
8. Kentucky Presence: In general, applying companies have either their principal place of business in Kentucky or no less than fifty (50%) of their property and payroll located in Kentucky or will be committed to meeting these requirements within 30 days of the Fund's investment.
9. SEDI/VSB: Preference may be given to applicants that are business enterprises owned and controlled by socially and economically disadvantaged individuals (SEDI-owned businesses) and/or Very Small Businesses (VSB - which is defined as having fewer than 10 employees), as defined and described by the U.S. Department of Treasury.
10. Company Formation: An applying company shall be duly and legally formed under applicable state and federal law and does not have to be formed under Kentucky State law but is required to be in verifiable good standing with the Kentucky Secretary of State’s office.
11. Board of Directors: If an applying company has a duly formed Board of Directors, Keyhorse Capital / KSTC shall not serve as a voting member on the Board of Directors but may request Board of Directors Observation rights.
12. Insurance: D&O and/or Life insurance may be required pursuant to prudent investing practices.
13. Company Financial Statements: At a minimum, companies will be required to submit quarterly and annual financial and activity statements, which can be internally prepared. Keyhorse Capital / KSTC may request, among other documentation, annual audited financial statements on a case-by-case basis at the company’s expense.
14. Employment Information: At a minimum, companies shall respond to requests for the number and projected number of employees and average hourly wages, and Kentucky Employer Identification Number(s).
15. Company Information: A company shall provide any information formally requested by Keyhorse Capital / KSTC, and Keyhorse Capital / KSTC shall make available to the Kentucky Cabinet for Economic Development, the U.S. Department of the Treasury Inspector General and the Government Accountability Office all books and records related to the use of funds from the State Small Business Credit Initiative included in the 2021 American Rescue Plan Act, subject to applicable privacy laws, including but not limited to 12 U.S.C. § 3401 et seq., including detailed investment records, as applicable. At the company’s discretion, the company may mark certain documents confidential and/or proprietary. A company shall provide all information formally provided to the company shareholders and/or the company’s non-executive Board of Directors and the total dollar amount of private financing received after the closing of the investment. For transparency, the Fund program reserves the right to disclose the Company’s participation in the Fund program publicly.
Kentucky Matching Ventures Fund investments are managed through Kentucky Science and Technology Corporation’s (KSTC) venture arm, Keyhorse Capital in partnership with theKentucky Cabinet for Economic Development and the #KYInnovation "KSBCI 2.0" program as part of the United States Treasury State Small Business Credit Initiative (SSBCI).
The Kentucky Strategic Ventures Fund (KSVF) provides matching investment in proven, professionally managed private equity and venture capital funds, located either within or outside the Commonwealth of Kentucky, that commit to aggressive and visible deal prospecting, and direct investment in Kentucky companies along with investment in out of state companies.
The following are general guidelines for a venture capital firm (Fund), located inside or outside Kentucky, to apply for funding from the Kentucky Strategic Ventures Fund (KSVF).
1. Eligible Funds: Seed, Angel, Venture, Growth, Corporate, or similar Funds.
2. Maximum investment amount per fund: $2,500,000.00
3. Maximum investment percentage per fund: Ten percent (10%) per investment offering.
4. Investment commitment: Prior to receiving an investment commitment from the KSVF, an applying fund shall have received investment commitments from private investors of at least twenty percent (20%) of the company’s total capital raise. In no event shall KSVF provide the initial investment commitment, nor participate after the initial close of the fund.
5. Terms of investment: Investments made from KSVF must be on substantially similar terms and conditions as offered to other investors participating in the specific investment offering.
6. Capital at risk: Fund managers/general partners will have a minimum amount of personal capital invested in the fund, as determined by the LP agreement, and in accordance with industry norms.
7. Side-car Funds: A Side-car Fund is permitted to allow KSVF to participate in the investments of a Fund, while enabling KSVF not to participate in certain investments of the main fund that may be prohibited by applicable law or program requirements. A Side-car Fund may qualify to the same extent as an investment in a main fund if the side-car is consistent with the main fund in material respects relevant to program requirements. The Side-car investment must be on substantially similar economic and governance terms as the investments by limited partners in the main fund, except for deviations that are required to address KSVF program requirements or other legal requirements (but not to achieve a more advantageous economic arrangement for the general partner or other limited partners). Except for deviations required to address program requirements or other legal requirements, the main fund and the side-car fund must jointly participate in each portfolio company investment and on substantially similar terms in proportion to their respective amounts of committed capital.
8. Historical Financial Performance: Preference may be given to applying Funds or managers who are able to provide historical evidence of robust management and providing positive return on investment to investors. Specifically, this historical performance should be based on the same or similar investment strategy as being proposed in the application. Evidence of historical financial performance will be requested in the application materials.
9. Kentucky Commitment: An applying Fund will commit to exerting significant effort to produce investment in Kentucky companies (i.e., companies that have either their principal place of business in Kentucky or no less than fifty (50%) of its property and payroll located in Kentucky or will commit to meeting these requirements within 30 days of KSVF investment) in a dollar amount at least equal to the amount of the KSVF investment commitment. An applying Fund that is external to Kentucky, in addition to committing to the minimum required level of investment in Kentucky companies, will also commit to making, at a minimum, two trips per year to Kentucky and supporting the growth of the Kentucky entrepreneurial and technology ecosystem.
10. Point of Contact: The Fund contact person for KSVF shall be the managing partner, or at minimum, a partner in the Fund.
11. Investment Focus: An applying Fund will focus on investment opportunities in Kentucky with the potential to support the goals of the KSVF program.
12. Restrictions: KSVF investments may not be used in an underlying investment in any business larger than 500 employees, and preference may be given to applications that support SEDI demographics related businesses and VSB businesses with less than ten employees (Very Small Businesses). KSVF investments may not be used in a single underlying investment round that exceeds $20,000,000 in principal amount. Additionally, there are restrictions on eligible use of KSVF investments (e.g., certain cash-in refinancing, debt repayments, debt repayments, consolidations, repayments of taxes, reimbursements to owners) and types of companies, based on certain primary business activities such as:
a. Passive real estate which is defined as investment in real estate acquired and held primarily for sale, lease, or future investment. Passive real estate investment includes most real estate development (including construction) in which the developer does not intend to occupy or actively use the resulting real property.
b. A business engaged in speculative activities that develops profits from fluctuations in price rather than through normal course of trade, such as wildcatting for oil or dealing in commodities futures, unless those activities are incidental to the regular activities of the business and part of a legitimate risk management strategy to guard against price fluctuations related to the regular activities of the business.
c. A business that earns more than half of its annual net revenue from lending activities unless the business is a non-bank or non-bank holding company or Community Development Financial Institution.
d. A business engaged in pyramid sales, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants.
e. A business engaged in activities that are prohibited by federal law or applicable law in the jurisdiction where the business is located or conducted (includes businesses that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the business’s intended market). This category of businesses also includes direct and indirect marijuana businesses, as defined in SBA Standard Operating Procedure 50 10 6;
f. A business engaged in illegal gambling enterprises or business deriving more than one-third of gross annual revenue from legal gambling activities.
13. Fund Formation: An applying Fund shall be duly and legally formed under applicable state and federal law but does not have to be formed under Kentucky State law or headquartered in Kentucky. However, the Fund must be legally authorized to conduct business in Kentucky.
14. Board of Advisors: An applying Fund shall have a duly formed Board of Advisors consisting of at least three individuals.
15. Reporting: At a minimum, Funds will be required to submit quarterly financial statements which can be internally prepared, within forty-five (45) days of the end of the quarter of the fiscal year. Annual financial statements and Kentucky investment activity reports shall be provided within ninety (90) days of the end of the fiscal year. Funds should seek to provide investor updates according to industry-standard best practices and report on any changes in management. The annual financial statements and investment portfolio of the Fund shall be audited by a regional or national accounting firm with experience and capabilities in auditing a venture fund. The monthly Kentucky investment activity reports shall at a minimum include the number of new/existing Kentucky investments, a summary of the performance of each Kentucky investment, and should for at least 10 years, include the number and projected number of employees and average hourly wages and retained benefits, follow-on financing received, the number of Kentucky companies reviewed for potential investment, and any other activity performed in Kentucky.
16. Fund Information: A Fund shall provide any information formally requested by KSVF. At a minimum, a company shall provide all information provided to the investors and/or the Fund Board of Advisors to the KSVF program. For transparency, the KSVF program reserves the right to publicly disclose the Fund’s participation in the KSVF program. A Fund shall make available to the Kentucky Cabinet for Economic Development, the U.S. Department of the Treasury Inspector General and the Government Accountability Office all books and records related to the use of funds from the State Small Business Credit Initiative included in the 2021 American Rescue Plan Act, subject to applicable privacy laws, including but not limited to 12 U.S.C. § 3401 et seq., including detailed investment records, as applicable.
17. Disclosure of Terms: KSVF-supported transactions must include disclosure by the investor to participants of all key terms in an easy-to understand manner. Such disclosures should include, for example, the investment amount; payment obligation and schedule; any terms giving the investor control over the investee’s cash balances, cash flows or ownership; any conversion rights and future rights to purchase equity; and any fees or extra costs. These standards do not supersede disclosure requirements that may apply under other applicable law. All applicable federal and state securities and lending disclosure laws, rules, and regulations continue to apply.
Kentucky Strategic Ventures Fund investments are managed through Kentucky Science and Technology Corporation’s (KSTC) venture arm, Keyhorse Capital in partnership with the Kentucky Cabinet for Economic Development and the #KYInnovation "KSBCI 2.0" program as part of the United States Treasury State Small Business Credit Initiative (SSBCI).
The Commonwealth Seed Capital Fund (CSC) is an independent fund that invests in early-stage Kentucky businesses to facilitate the commercialization of innovative ideas and technologies. CSC invests in companies that have a significant Kentucky presence, the prospect for substantial growth, and the potential to generate an appropriate rate of return.
Investments are typically made in the following areas:
Call 1-859-685-3397 or email president@commonwealthseed.com.
The Kentucky Angel Investment Tax Credit (KAITC) program encourages qualified individual investors to make capital investments in Kentucky small businesses, create additional jobs, and promote the development of new products and technologies. Qualified individual investors making qualified investments in qualified small businesses may be eligible for incentives in this program.
To encourage business growth and job creation KAITC allows angel investors to receive tax credits. Qualified investors can receive a tax credit of up to 40 percent of their investment in counties with high unemployment rates, or enhanced counties, and 25 percent in all other counties.
Explore the Kentucky's Angel Investment Tax Credit program website, including resources and guidelines for instructions on program participation.
The Kentucky Cabinet for Economic Development manages Kentucky's Angel Investment Tax Credit program.
The Kentucky Investment Fund Act (KIFA) offers a 40 percent tax credit to certain personal and corporate investors in approved investment funds. The purpose of KIFA is to encourage capital investment in the Commonwealth of Kentucky, to encourage the establishment of small businesses in Kentucky, to provide additional jobs, and to encourage the development of new products and technologies in the state through capital investments.
The Kentucky Cabinet for Economic Development allocates credits to investment funds through the Kentucky Economic Development Finance Authority (KEDFA).
Kentucky's state-sponsored early-stage venture capital initiatives include the Kentucky Angel Investment Tax Credit (KAITC), Kentucky Investment Fund Act (KIFA), Commonwealth Seed Capital (CSC), the Kentucky Enterprise Fund (KEF), and U.S. Treasury's SSBCI Venture Capital program which includes Kentucky Growth Capital Fund (KGCF) managed through Kentucky Science and Technology Corporation's Keyhorse Capital investment initiative in partnership with the Kentucky Cabinet for Economic Development.
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