By Greg Paeth
NKyTribune Senior Reporter
Last July, Kentucky Gov. Steve Beshear visited the headquarters of UpTech on Pike Street in Covington for the ceremonial signing of so-called “angel investing” legislation designed to stimulate small business investment.
On Feb. 19, Brad Zapp plans to provide the equivalent of “Angel Investing 101” and show how that piece of legislation works in the real world at a luncheon sponsored by the Covington Business Council. The program will be held at The Madison, which is about a block from UpTech, a business accelerator that emphasizes technology.
Brad Zapp
Based on the number of people who have registered to attend the luncheon, there’s plenty of interest in angel investing, according to Pat Frew, executive director of the business group. He said about 100 people had made early reservations to attend and that he’s expecting at least 150 people.
The monthly luncheons typically attract 100-125 people, Frew said.
Zapp, 37, is one of the founders and the managing partner of Connetic Ventures, a venture capital firm that has raised about $5 million from 50 angel investors who are willing to take a chance on new companies with no proven track record.
The minimum investment is $100,000 and investors have to provide information that demonstrates that they have incomes of at least $200,000 a year and liquid assets, excluding real estate, of at least $1 million, Zapp said.
At this point, Zapp said he and his company are the only game in town for angel investing. When he had been a financial advisor with Legacy Financial on Fourth Street in Covington, a company he co-founded in 2005, he was one of hundreds of financial advisors who were working in Greater Cincinnati.
“But in this early stage venture capital and angel investing, I’m the only one in Northern Kentucky so I have no competition,” Zapp said. “All I have to do is let people know if you want to be an angel investor, if you want to invest directly in local companies, then I am your outlet.”
The biggest challenge for him and his company is educating investors “and convincing them that this is a viable asset class.”
“The comment I hear most often from investors is, ‘Wow — I only know 50 percent of the people in here.’ And when you think about Northern Kentucky, that’s rarely said. It’s normally — you know people make fun of us — we’re all related— there’s one degree of separation. (But) people have caught the buzz (about angel investing),” Zapp said.
Zapp and Frew both said Connetic is unusual in that it has attracted investors who are somewhat younger than the 50-plus age group that typically gets involved in angel investing. Zapp said the average age is probably in the mid-40s and that the age range includes two people in their 20s and two in their 70s.
Before Beshear signed the legislation last year, investment funds could get tax breaks in Kentucky on their investments in start-up companies. But similar advantages were not available to individuals who were willing to assume risk with an entrepreneur.
The bill co-sponsored by State Rep. Arnold Simpson, a Covington Democrat, created some parity between the funds and individuals who wanted to invest on their own.
Investors get a tax credit of 40 percent of what they would normally pay the state in taxes. In some counties where the unemployment rate is higher than average, the tax credit can be as much as 50 percent.
At this point, Connetic has committed to funding two companies that are based in Kentucky and two in Ohio, said Zapp, who declined to reveal anything more about the companies until all of the agreements have been finalized. He said his fund has not yet dispersed any of the investors’ money.
Three companies that will get start-up capital from Connetic appeared before many of the investors Thursday night in a forum that might remind some people of the TV series “Shark Tank,” where a company owner makes a pitch for an investment from one of the four investors – the “sharks” – who are on the panel. But Zapp said the similarities with the TV show end there.
On the TV series, two or more investors sometimes compete with one another so that their offer will be chosen by the owner of the business. Zapp said his investors aren’t competing with one another because they’re all part of the same company, Connetic. Investors who heard pitches from the companies last Thursday could have invested in the company as individuals beyond the investment that Connetic has made.
Zapp said there are a variety of reasons about why angel investing makes sense for people who can afford it.
“Let’s start with the obvious — you can make a ton of money,” Zapp said.
“Number two — it helps your community . . .When you look at your 401-K statement, do you think any of those mutual funds care about you? Local businesses spend their money locally — completely different from a mutual fund based out of Boston or New York.
“The third thing is, it’s fun. I like it because I own it — it’s fun. There’s no fun in owning that mutual fund.”
Genetics just might have something to do with Zapp’s interest in finance and investing. His father is Bob Zapp, president and CEO of The Bank of Kentucky. BB&T, based in North Carolina, is in the process of acquiring the Bank of Kentucky in a deal valued at about $365 million.
Reporter Greg Paeth is a member of the board of the Urban Partnership, which is working with the Covington Business Council on a plan to create a Business Improvement District in downtown Covington.
