LAKESIDE PARK, Ky. -- Getting a small business off the ground is a major challenge for an entrepreneur. But when a state makes it easier to get the investments needed, that challenge becomes much less daunting.
That appears to be what Northern Kentucky small businesses are finding out two years after the state implemented an angel tax credit program that creates incentives for qualified investors.
The credit became law in 2014, with Northern Kentucky Tri-County Economic Development Corporation as a driving force in getting the credit approved in Frankfort. Since the credit was adopted by the state, the program has stimulated nearly $15 million in equity investments in early stage Kentucky companies. In 2015, the $3 million pool of tax credits was exhausted in eight months; in 2016, the credit was exhausted in two months.
One local business that has benefited from this program is Lolihops, a Covington-based company which develops the Hello Parent app. Lolihops received $100,00 in investments through this program in 2015. Their app helps parents and caregivers to network, organize schedules and provide information on things such as allergies.
“While the scheduling tool is what our community will use most frequently, it's not even the most important part of our product. It's the messaging tool, the profile page and the event details. It's all the places where parents can share important safety information. It's the places where we provide the questions that parents want to ask but hesitate to do so,” wrote co-founder Amanda Kranias on the company’s website.
Wyzzer, a survey company that is innovating ways to collect information using digital platforms, has received over $600,000 in confirmed investments through this program. The company is located in Covington, as well.
The International Economic Development Council recently presented Northern Kentucky Tri-ED with a Gold Excellence in Economic Development Award for helping to establish the Kentucky Angel Tax Credit. Additionally, the organization won a Silver Excellence in Economic Development Award for the UpTech Accelerator.
“Not only did they work to provide a necessary service to their community, but their participation in the awards program sheds light on their stellar projects which other communities can now use a benchmark,” said Barry Matherly, IEDC 2016 board chairman.
“We set out with the audacious goal of creating the country’s best angel tax credit program and building a community-funded and -supported accelerator program because we knew no region can have a significant high-tech startup sector without investment capital and companies to invest in. These two programs have added over $10 million in equity investment and 39 companies in the Northern Kentucky region,” said Casey Barach, senior vice president at Tri-ED and director of the Northern Kentucky office of the Kentucky Innovation Network.
To be a qualified investor, a person must be accredited through the Security and Exchanges Commission, hold no more than 20 percent in the company in which they are investing, the investor cannot be an employee of the company at the time they invest, and they cannot be the parent, spouse or child of anyone with more than 20 percent ownership. The minimum cash investment for the credit is $10,000.
- A qualified small business is a legal entity registered and in good standing with the Kentucky Secretary of State and has no more than 100 full-time employees.
- The business must be engaged in bioscience, environmental and energy technology, health and human development, information technology and communications, materials science and advanced manufacturing or other new economy knowledge-based activity.
- A qualified investor holds no more than 20 percent ownership in and is not employed by the qualified small business prior to making a qualified investment in that business.
- A qualified investment is a minimum cash investment of $10,000 made by a qualified investor in a qualified small business.
- Tax credits may be transferred to an individual tax payer and can be carried forward for up to 15 years.
For more information on the angel tax credit, click here.