Page 140 - 1-Entrepreneurship and Local Economic Development by Norman Walzer (z-lib.org)

Building Communities through Entrepreneurship Development 129

Given the nature of the capital requirements at the idea generation stage
of enterprise development, the public sector may play a role in supporting
the capital needs of rural entrepreneurs. The State of Kentucky has under-
taken a multipart initiative to address the financial and business assistance
needs of entrepreneurs in this stage of development.
The Kentucky Science and Technology Corporation (2006) is a private,
nonprofit organization that manages the Kentucky Enterprise Fund (KEF)—
pre-venture and seed venture funds established through state investment to
address this early capital gap. One of the funds within KEF is the Rural In-
novation Fund, specifically targeted to address the pre-venture capital needs
of businesses in rural Kentucky. At the most basic level, the Rural Innovation
Fund invests up to $25,000 in proof of concept or prototype development
for rural Kentucky-based entrepreneurs. The one-time investment comes
without the expectation of payback. It provides an initial pool of capital that,
when supplemented by the entrepreneur’s own financial and human capital,
can launch a business concept into a marketable business opportunity.
Kentucky combines access to pre-venture capital with access to assistance
for entrepreneurs through a series of Innovation and Commercialization
Centers across the state. These centers provide assistance to entrepreneurs
with growth potential and, through the statewide network, bring more ad-
vanced services to entrepreneurs even in remote rural locations.
Access to capital to support idea generation and testing is an important
constraint for most entrepreneurs but especially for rural entrepreneurs.
Few states or communities have targeted programs to provide grant or “pa-
tient” investment funds for rural entrepreneurs with good ideas; however,
the long-term success of the efforts in Kentucky may provide encourage-
ment and a model for other states to follow. Until then, rural entrepreneurs
will continue to depend on their own resources and those of their personal
networks to develop the ideas that may become the rural businesses of to-
morrow.

Financing Enterprise Start-Up
Once a product has been developed or a service concept proven, the en-
trepreneur begins the process of starting an enterprise. In the early stages of
business development, entrepreneurs often face two challenges. First, they
must gain access to capital at a time when they may have a limited sales his-
tory, be experiencing cash flow problems, have high upfront costs for activ-
ities like marketing, and demonstrate limited or no profitability. Institu-
tional lenders, such as banks, engage in very limited lending to start-up
ventures because of these characteristics. Consequently, entrepreneurs must
turn to alternative types of financial institutions or programs.