By MARCUS GREEN
magreen@courier-journal.com
The Courier-Journal

For 15 years, Profile Systems Design Group Inc. designed and installed software for merchants to track inventory. When the Madisonville,Ky., company identified wireless technology as its next market, it needed some help.

With $25,000 from the state's Rural Innovation Fund, Profile Systems hired software consultants to help design a hand-held wireless scanner that tracks inventory in real time. 

"If we didn't have these dollars, the product would not be in the position it is in today," said company Vice  President James Love. "So it has moved our timeline up dramatically."

But the funding source that has aided Profile Systems and other technology companies across rural Kentucky narrowly remained in the budget during the recent General Assembly.

Facing a fiscal crisis, House and Senate members were divided over whether to include the Rural Innovation Fund — begun in 2000 to help rural technology companies secure early-stage capital — in the budget.

The Senate plan excluded the fund; the House version spared it. Ultimately, the legislature included the fund in the budget passed last month.

"We're obviously very pleased that that fund remained intact, because for those kinds of companies to grow, you really have to have sustained support and sustained funding," said Kris Kimel, president of the Kentucky Science & Technology Corp.

If the fund had been curtailed or eliminated, companies that had already received capital through Phase One of the investment program stood to lose the most, Kimel said. "Funding wouldn't have been available, so in a sense we might have lost the benefit of the initial investment as well."

To date, the fund has distributed more than $400,000 to 27 Kentucky companies — from software ventures to a company developing a weightlifting device that improves athletes' workouts. The Kentucky Science & Technology Corp., which oversees the program, has an additional $750,000 in reserve, with three grant phases remaining this year.

 The fund is one of three main programs established under the Kentucky Innovation Act of 2000, which divides grant money among companies doing research in cooperation with area universities, faculty members seeking funding to make their ideas marketable, and technology companies in rural areas.

More than $2 million has been awarded from the grant pool through February, and researchers and entrepreneurs have requested an additional $5.5 million.

The act's goal is to propel the commercialization of emerging technology and the growth of new Kentucky companies by providing seed funding. The Rural Innovation Fund specifically targets companies and innovations outside largely urban Jefferson, Fayette, Campbell, Kenton and Boone counties.

"Given today's market conditions and the economy being what it is, this is probably one of the very few sources of early - stage and seed capital available for rural knowledge-driven companies," Kimel said.

Jim Clifton, executive director of The Innovation Group, an arm of the Kentucky Science &  Technology  Corp. , said the fund is the primary tool for the state's six Innovation and Commercialization Centers, which link rural entrepreneurs with sources of capital. "If you look at the success of Murray, Bowling Green and Richmond, one of the key assets and tools they bring to the table is the Rural Innovation Fund," he said.

The fund's survival comes at a time when venture capitalists have tightened their belts, scrutinizing business plans  more closely  after being burned during the dot-com boom.

"The first place they're going to stop looking, if they even start looking, was in rural Kentucky," Clifton said. "So that money went away years ago, when the (Internet) bubble burst."

Some who have received grants from the Rural Innovation Fund say the money has been an integral part of their business models.

The wireless module that Profile Systems developed with the help of a grant will help the company double its market share, Love said.

In Irvine, Ky., inventor and former aerospace engineer Doug Thorpe of Thortek Laboratories is pumping his $38,940 grant from the Rural Innovation Fund into further development of a new internal combustion engine, which he said uses less energy and has a longer life than conventional engines.

The fund is "the only place I know of that I can take an educated guess and get the funding for the educated guess," he said.

Thorpe said the money is helping the company's partners, a team of University of Kentucky researchers, in the race against larger auto manufacturers working to build a similar engine.

"That's what we're competing against," he said. "The big car manufacturers have many engineers involved. They're using the same program. They're using the same computers. It's just that we have one person dedicated toward solving this problem."

Bill Brundage, commissioner of the state's Office for the New Economy, said he was bolstered by legislators' decision to keep the Rural Innovation Fund intact.

"I think it's a pretty important program,  because in our strategic plan for the New Economy, we're not just concentrating on the triangle area of Lexington, Louisville and Northern Kentucky. We're including the rural parts of the state as well," he said. "So any tool that we have that can help us in the rural areas, we do need them."