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Business Funding Part 3: When and How to Tap into Angel Investing as an Eastern Kentucky Entrepreneur

Posted on 3 years ago
Business Funding Part 3: When and How to Tap into Angel Investing as an Eastern Kentucky Entrepreneur

If you’re a creative thinker and have a great idea for a new business, we applaud you. 

And you’re in good company. Eastern Kentucky is full of startups and small businesses that originate with people like you. 

One factor that makes all the difference between an idea and a business is cash. 

SOAR Innovation — powered by Kentucky Innovation — is helping Eastern Kentucky entrepreneurs identify the types of funding available to them. From equity investments to bank and CDFI loans, we’re exploring the ins and outs of your options.

We’re taking a deep dive into angel investing for the final post in our business funding series. 

If you don’t know what angel investing is, or have always been curious to learn more, this guide is for you. Current and prospective entrepreneurs may be eligible for this type of funding — but it takes significant preparation to catch the interest of angel investors. 

That said, there are several angel investment firms with a vested interest in supporting economic development and innovation in our region. 

Keep reading to find out what you need to know about equity investments, how to prepare for an investor pitch, and the factors that support a successful partnership with angel investors. 

What is angel investing?

An angel investor is a person of means interested in using their resources to back startups, entrepreneurs, and small businesses. 

Angel investing typically works with early-stage entrepreneurs. It’s a high-risk, high-reward scenario for those putting up the cash. Often, it’s what takes very young startups from the pre-revenue ideation stage to the next level. 

That said, angel investing can be useful for small businesses aiming to grow sustainably.

Often, the focus of angel investors is supporting innovation. In our region, they’re interested in generating new opportunities for economic development, job creation, and small business growth. 

Angel investing can be an excellent option for entrepreneurs that don’t want to incur debt. But, there are trade-offs with equity investments that you should consider — we’ll discuss them later in this post. 

How to find angel investors

Many angel investors in our region operate as groups. 

For example, the Tri-State Angel Investment Group counts on approximately 40 investors to contribute money into one investment fund. This fund supports several businesses at once. This is known as diversification — spreading out the risk of losing their investment by tapping into several qualified opportunities. 

Locating angel investors can seem daunting, and gaining an introduction to one can be even more challenging. SOAR is in contact with a few in the region, including: 

  • Tri-State Angel Investment Group 
  • Appalachian Investors Alliance 
  • Keyhorse Capital 

Some angel investor groups host pitch competitions to invite new entrepreneurs into the startup community — and help locate the best new ideas for investment. Applying to participate in a pitch competition is a great way to get your foot in the door:  

  • KY-270 Pitch Competition 
  • KY Pitch (for college-aged students)

A comprehensive list of angel investor groups in Kentucky is available through the Cabinet for Economic Development. SOAR also keeps an updated list on our website.

Considerations when working with angel investors

If you’re hoping to receive an angel investment in your business, keep three main considerations in mind:

  1. Preparation is your friend. Angel investors field requests for meetings every day. Don’t be hasty with approaching them. Spend considerable time preparing, consulting with partners, and practicing. Just because you believe you have a significant idea doesn’t mean you’re ready to convey it to investors. 
  2. Develop a thorough pitch. While good investor pitch presentations shouldn’t be more than ten slides, don’t be fooled into thinking you develop a brief presentation quickly. Your storyline needs to pack a punch. The pitch needs to sum up your business idea concisely — and in a way that will catch their attention. Investors will also check to see that your business model matches your financial statements. 
  3. Know your terms. Startups with exponential growth potential may be in a position to ask for an equity investment. This means you’ll give away a part of the business ownership in exchange for an influx of cash. Are you ready to share decision-making power with another person or group? Share profits once you start making money? Consider these factors before approaching angel investors. Also, not all angel investments look the same — especially if you expect to grow more modestly. Know your terms and what you can part with in exchange for funds. 
  4. Get ready for due diligence. You’ll need to prepare for due diligence before it takes place because there’s a lot involved. Be 100% transparent about your business plan, financial projections, expected results, and current budget. If you aren’t ready to have your business examined with a fine-tooth comb, you’re not prepared to work with an angel investor.  

Checklist: Is an angel investment right for you? 

  • You’re sitting on an idea with proven potential, and you need cash to keep growing. 
  • You’re interested in partnering with a hands-on investor group that will want to be part of your strategic decision-making processes. 
  • You’re willing to part with partial ownership of your business, issue profit shares, or accept another trade-off in exchange for the investment. 
  • You’re a good team player and can share decision-making power with your investors. 
  • You’ll be a willing participant in the due diligence process.

Kentucky Angel Investor Tax Credit

If you or someone you know is a high-earner — and is interested in supporting innovation and job creation in Eastern Kentucky — take a look at the KY Angel Investor Tax Credit.

The tax credit aims to encourage greater rates of angel investment, help our entrepreneur community get their ideas off the ground, and make a positive economic impact on the region.  

Qualified investors may be eligible for a tax credit of up to 40% of their investments.

To participate, you must invest at least $10,000 into a target industry: bioscience, energy and environmental technology, information technology, and a few others. You also can’t own more than 20% of the company or be employed by it. 

Conclusion: Get funding for your business

When an angel investor funds your business, they’ll bring you into a community of like-minded entrepreneurs who are contributing to the future of our region. Connecting with a network of business owners and advisors can be invaluable as you pursue business growth. 

There is amazing momentum for small businesses and startups in Eastern Kentucky right now. We’re behind you every step of the way. 

Don’t hesitate to contact SOAR Innovation — powered by Kentucky Innovation — if you’d like to request an introduction to angel investors that operate in Eastern Kentucky. 

We can also offer feedback on your presentations, funding applications, and other steps to set you up for productive investor meetings. 

Previous Post
Meet Eastern Kentucky Angel Investors: Appalachian Investors Alliance and the Tri-State Angel Investment Group
Next Post
Finalists selected for Startup Appalachia Pitch Competition

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