Middle Tech is launching a new platform that seeks to connect founders with funding.
It's called Investor Connect, and it's a new feature of the revamped KY Tech Map, an open-sourced website launched in 2021 that aided in mapping out the state's startup and tech ecosystem.
Evan Knowles, co-founder of the Lexington, Kentucky-based media company, said he and his team recognized the need for such a platform through their regular conversations with founders on Middle Tech's podcast. He also experienced the issue firsthand while fundraising for his other startup company, Symba, earlier this year.
"Early-stage fundraising in Kentucky is difficult for founders because the angel community is very fragmented," Knowles said. "As a result, founders have no way to reach a large number of angels quickly which is critical for building momentum.
"It's funny though because angels complain about wanting access to more deals, so there is clearly a disconnect within our state between supply and demand for capital. There is definitely a need to bring the two sides closer together in a seamless experience that is easy for both sides to participate."
That "disconnect" is illustrated in data on the Angel Investment Tax Credit program, managed by the Kentucky Cabinet of Economic Development, which aims to incentivize angel investing across the commonwealth.
Qualified investors can receive a tax credit of up to 40% of their investment in counties with high unemployment rates, or enhanced counties, and 25% in all other counties. The Kentucky Economic Development Finance Authority (KEDFA) can award a maximum of $3 million in angel tax credits each calendar year.
There are about 60 qualified angel investors in the state, who have invested roughly $2.5 million in 45 deals so far this year. That's about $617,000 in tax credits for investors — nowhere close to KEDFA's $3 million yearly threshold.
Investing is also down significantly from the $5.7 million invested in 129 deals in 2021, according to the data. About $1.5 million was awarded in tax credits last year.
Historically, between 2015 and 2018, more than 80 Kentucky companies received investments through the Angel Investment Tax Credit program. In that four-year time period, a total of $30.6 million was invested in startups, such as Louisville-based Virtual Peaker and Lexington-based Power Tech Water Inc.
Angel investors got nearly $12 million in tax credits, which is close to the $3 million per-year maximum.
So what's the issue?
Knowles said after conversations with the Cabinet for Economic Development, they identified that while many startups are seeking capital, founders are not aware of the Angel Investment Tax Credit program, which in turn, creates a lack of deal flow for angel investors.
That's what Investor Connect looks to solve.
"In order to help the demand meet the supply, you've got to bring [investors] some kind of tool to just drop the opportunity in their inbox, which is where the Tech Map comes in," Knowles said. "It doesn't require any work from the investor — it just comes to their inbox automatically if they just opt in."
Middle Tech, which in addition to Knowles includes Nate Antetomaso and Logan Jones, hired Brad Farley of Growth Stage Operations to build the platform, which attempts to simplify what can be a complex approval process. Investors, companies and the investment itself all have to get approval from the state for the tax credit program to work.
Farley said the goal is to make the pairings of investors and companies much more straightforward and technologically advanced.
"The building of [the platform] wasn't very hard. ... I think the hard part is that there are so many unknowns. People haven't tried this before, so we're wading into uncharted waters," he said.
Here's how it works: Founders get their company listed the KY Tech Map (which is like a Wikipedia of local startups). Then they can select their company from the list of available KY Tech Map organizations, attach their best deck, include a link to an unlisted YouTube or Vimeo elevator pitch and fill out a few more details.
Once a founder submits a pitch, KY Tech Map admins review the submission. They will either approve it to go forward or kick it back for the founder to improve.
Upon approval, interested investors will receive notifications to review the submission. If they are interested, they'll reach out directly.
On the other side, accredited investors can select their preferences and opt-in to receive opportunities that align with those interests via email.
Brad Luttrell, CEO and co-founder of Louisville-based GoWild, said he loves the work he has seen and has been a part of from the Middle Tech crew.
"They're focusing on creating bold content to build a niche audience, and leveraging proprietary tools to then support that audience's needs," he said. "The next phase of Middle Tech's brand, I hope, is community. They are thought leaders bringing us all together, and with tools like their Tech Map, they can help build that network that makes other startup ecosystems so powerful."
To sign up for Investor Connect or learn more, click here.
