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Many of the Offerings presented by our partners on our Platform are speculative and involve significant risk, including the risk that you could lose some or all of your money. We will describe two of the factors that make these investments risky:

1. Many Offerings are presented by startup or early-stage companies.
2. There are risks associated with particular kinds of securities (e.g., debt securities or equity securities).

When you review a particular investment Offering, the Issuer will also provide a list of risks specific to that Offering.

GENERAL RISKS COMMON TO ISSUERS

Reliance on Management: Most of the time, the securities you buy through Offerings presented by our partners on our Platform will not give you the right to participate in the company’s management. Further, if the Issuer’s founders or other key personnel were to leave the company or become unable to work, the company (and your investment) could suffer substantially. Thus, you should not invest unless you are comfortable relying on the company’s management team. You will almost never have the right to oust management, no matter what you think of them.

Inability to Sell Your Investment: The law prohibits you from selling your securities (except in certain very limited circumstances) for one year after you acquire them. Even after that one-year period, a host of Federal and State securities laws may limit or restrict your ability to sell your securities. Even if you are permitted to sell, you will likely have difficulty finding a buyer because there will be no established market. Given these factors, you should be prepared to hold your investment for its full term (in the case of debt securities) or indefinitely (in the case of equity securities).

The Issuer Might Need More Capital: A company might need to raise more capital in the future to fund new product development, expand its operations, buy property and equipment, hire new team members, market its products and services, pay overhead and general administrative expenses, or a variety of other reasons. There is no assurance that additional capital will be available when needed, or that it will be available on terms that are not adverse to your interests as an investor. If the company is unable to obtain additional funding when needed, it could be forced to delay its business plan or even cease operations altogether.

Changes in Economic Conditions Could Hurt an Issuer’s Businesses: Factors like global or national economic recessions, changes in interest rates, changes in credit markets, changes in capital market conditions, declining employment, decreases in real estate values, changes in tax policy, changes in political conditions, pandemics, and wars and other crises, among other factors, hurt companies generally and start-up companies in particular. These events are generally unpredictable.

No Registration under Securities Laws: The securities sold through Offerings presented by our partners on our Platform will not be registered with the SEC or the securities regulator of any State. Hence, neither the companies nor their securities will be subject to the same degree of regulation and scrutiny as if they were registered.

Incomplete Offering Information: Title III does not require the Issuer to provide you with all the information that would be required in some other kinds of securities Offerings, such as a public Offering of shares (for example, publicly-traded firms must generally provide investors with quarterly and annual financial statements that have been audited by an independent accounting firm). Although Title III does require extensive information, as described above, it is possible that you would make a different decision if you had more information.

Lack of Ongoing Information: Companies that issue Securities using Title III are required to provide some information to investors for at least one year following the Offering. However, this information is far more limited than the information that would be required of a publicly-reporting company, and the company is allowed to stop providing annual information in certain circumstances.

Breaches of Security: It is possible that our systems would be “hacked,” leading to the theft or disclosure of confidential information you have provided to us. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our vendors may be unable to anticipate these techniques or to implement adequate preventative measures.

Uninsured Losses: A given company might not buy enough insurance to guard against the risks of its business, whether because it does not know enough about insurance, because it cannot afford adequate insurance, or some combination of the two. Also, there are some kinds of risks that are simply impossible to insure against, at least at a reasonable cost. Thus, any company could incur an uninsured loss that could damage its business.

The Owners Could Be Bad People or Do Bad Things: There is no way to know for certain that someone is honest, and even generally honest people sometimes do dishonest things in desperate situations – for example, when their company is on the line, or they are going through a divorce or other stressful life event. It is possible that the management of a company, or an employee, would steal from or otherwise cheat the company, and you.

Unreliable Financial Projections: Issuers might provide financial projections reflecting what they believe are reasonable assumptions concerning their businesses. However, the nature of business is that financial projections are rarely accurate, not because Issuers intend to mislead investors, but because so many things can change, and business is difficult to predict.

Limits on Liability of Company Management: Many companies limit the liability of management, making it difficult or impossible for investors to sue managers successfully if they make mistakes or conduct themselves improperly (not all liability can be waived, however). You should assume that you will never be able to sue the management of any company, even if they make decisions you believe are stupid or incompetent.

Changes in Laws: Changes in laws or regulations, including but not limited to zoning laws, environmental laws, tax laws, consumer protection laws, securities laws, antitrust laws, and health care laws, could adversely affect many companies.

Conflicts of Interest with Us: In most cases, we make money as soon as you invest. You, on the other hand, make money only if your investments turn out to be successful. Or to put it a different way, at least in the short term, it is in our interest to have you invest as much as possible in as many companies as possible, even if they all fail and you lose your money.

Conflict of Interest with Issuers and their Management: In many ways your interests and the interests of company management will coincide – you both want the company to be as successful as possible. However, your interests might be in conflict in other important areas, including these:

• You might want the company to distribute money, while the company might prefer to reinvest it back into the business.
• You might wish the company would be sold so you can realize a profit from your investment, while management might want to continue operating the business.
• You would like to keep the compensation of managers low, while managers want to make as much as they can.

Lack of Professional Advice: Our Platform allows you to invest only $1,000 to $5,000 in any one Offering presented by one of our partners. At that level of investment, you may decide it is not worthwhile for you to hire lawyers and other advisors to evaluate the company. Yet, if you do not hire advisors, you are in many respects “flying blind” and more likely to make a poor decision.

Your Interests Are Not Represented by Our Lawyers: We have lawyers who represent us, and most of the Issuers on the Platform also have lawyers who represent them. These lawyers have drafted the Terms of Service and Privacy Policy on the Platform, and will draft all the documents you are required to sign. None of these lawyers represents you personally. If you want your interests to be represented, you will have to hire your own lawyer, at your own cost.

Our Issuers May Not Realize Traditional “Exit” Opportunities: Traditionally, one of the key means by which early-stage investors such as venture capital firms make money investing in startups is through an “exit,” such as an initial public Offering (IPO), a sale of the company to a larger competitor, or a subsequent financing round. Title III crowdfunding is a new paradigm and no one knows yet exactly what, if any, exit opportunities will be available to early investors.

Equity Comes Last in the Capital Stack: The holders of the equity interests stand to profit most if the company does well, but stand last in line to be paid when the company dissolves. Everyone – the bank, the holders of debt securities, even ordinary trade creditors – has the right to be paid first.

In Most Cases, You Will Be a Minority Investor: Investors will typically be “minority” owners of Issuers presented by our partners on our Platform, meaning that other parties will have complete voting and managerial control over the company. As a minority stockholder, you typically will not have the right or ability to influence the direction of the company. You will generally be a passive investor. In some cases, this may mean that your securities are treated less preferentially than those of larger security holders.

Possible Tax Cost: Many of the Issuers presented by our partners on the Platform will be limited liability companies. In almost every case, these limited liability companies will be taxed as partnerships, with the result that their taxable income will “flow through” and be reported on the tax returns of the equity owners. It is therefore possible that you would be required to report taxable income of a given company on your personal tax return, and pay tax on it, even if the company does not distribute any money to you. To put it differently, your taxable income from a limited liability company is not limited to the distributions you receive.

Your Interest Might Be Diluted: As an equity owner, your interest will be “diluted” immediately, in the sense that: (1) the “book value” of the company is very likely to be lower than the price you are paying, and (2) the founder of the company, and possibly others, bought their stock at a lower price than you are buying yours. Your interest could be further “diluted” in the future if the company sells stock at a lower price than you paid.

Future Investors Might Have Superior Rights: If the company needs more capital in the future and sells stock to raise that capital, the new investors might have rights superior to yours. For example, they might have the right to be paid before you are, to receive larger distributions, to have a greater voice in management, or otherwise.

Dilution of Voting Rights: Even if you were to have any voting rights to begin with (and many of the Offerings presented by our partners on our Platform will have no voting rights), these rights will be diluted if the company issues additional equity securities. The Issuers will not be subject to the corporate governance requirements of the national securities exchanges. Specifically, any company whose securities are listed on a national stock exchange (for example, the New York Stock Exchange) is subject to a number of rules about corporate governance that are intended to protect investors. For example, the major U.S. stock exchanges require listed companies to have an audit committee made up entirely of independent members of the board of directors (i.e., directors with no material outside relationships with the company or management), which is responsible for monitoring the company’s compliance with the law. Issuers presented by our partners on our Platform typically will not be required to implement these and other stockholder protections.

RISKS ASSOCIATED WITH EARLY STAGE COMPANIES

Early-Stage Companies Face Significant Challenges: Investing in early-stage companies is not like investing in mature, publicly-traded companies with professional management and predictable cash flows. Many of the Issuers presented by our partners on our Platform are still in the design stage and have not even finished creating their product or service. While these Issuers may have talented founders and innovative business plans, like any new business they will face significant challenges in turning those plans into profits, including:

• Understanding the marketplace and accurately identifying opportunities for growth;
• Developing new products and services;
• Developing their brands;
• Responding effectively to the Offerings of existing and future competitors;
• Attracting, retaining, and motivating qualified executives and personnel;
• Implementing business systems and processes, including technology systems;
• Raising capital;
• Controlling costs;
• Managing growth and expansion;
• Implementing adequate accounting and financial systems and controls; and
• Dealing with adverse changes in economic conditions.

Unfortunately, the reality is that a significant number of early-stage companies simply never overcome these challenges.

Issuers Often Experience Years of Operating Losses: Most early-stage or start-up businesses can expect to incur substantial operating losses for the foreseeable future, as they develop their products and services and build out their operations. Even if a company is able to operate successfully, it may take several years before the company can generate any return for investors (if at all).

Accurately Assessing the Value of a Private Start-Up Company Is Difficult: Putting a value on a security issued by privately held startup or early-stage company is extremely difficult. In almost all instances, the Offering price and other terms of the Offering presented by our partners on our Platform were determined arbitrarily by company, and bear no relationship to established criteria of value such as the assets, earnings, or book value of the company.

Lack of Professional Management: Most early-stage companies are managed by their founders. Very often the founder of a company is very strong in one area – for example, she might be an extremely effective salesperson or a terrific software engineer – but lacks experience or skills in other critical areas. It might be a long time before (1) a startup can afford to hire professional management, and (2) the founder recognizes the need for professional management. In the meantime, the company and its investors could suffer.

Lack of Access to Capital: Small companies have very limited access to capital. Frequently, these companies cannot qualify for bank loans, leaving the company to live off the credit card debt incurred by the founder. Capital is the oxygen of any business, and without it a business will eventually suffocate and fail.

Limited Products and Services: An early-stage company typically starts off selling only one or two products or services, making it vulnerable to changes in technology and/or customer preferences.

Limited Distribution Channels: An early-stage company can find it very difficult to penetrate established distribution channels. For example, a small company with only one or two products will find it very difficult to get into large retailers like Walmart.

Lack of Accounting Controls: Larger companies typically have in place strict accounting controls to prevent theft and embezzlement. Early-stage companies typically lack these controls, exposing themselves to additional risk.

Unproven Business Models: By definition, many early-stage companies are trying to introduce new products or services, or providing existing products or services in new ways. If they are successful, the rewards can be enormous. But consumer behavior is very difficult to change, and successful business models are very difficult to build. Often, a business model that looks promising on paper does not work out in practice.

No Ongoing Distributions: Typically, early-stage companies do not pay dividends. Any money available is reinvested back into the business, rather than distributed to investors.

RISKS ASSOCIATED WITH REVENUE SHARING INVESTMENTS

Revenue-based financing is essentially a form of debt financing where repayment of the loan is tied to a percentage of the company’s revenue. Instead of repayment being measured in a fixed interest percentage of the loan amount, the return amount is negotiated and that amount is paid through the agreed-upon percentage of revenue. The risks associated with revenue sharing notes include the risk that the security will not produce the anticipated return, such that the Issuer will not receive enough revenue to make payments to investors. Other risks include the risk of loss of principal amount invested, interest rate risk as well as credit and default risk, which is detailed in the Risks Associated with Debt Securities subsection that follows.

RISKS ASSOCIATED WITH DEBT SECURITIES

You Have No Upside: As a creditor of the company, the most you can hope to receive is your money back plus interest. You cannot receive more than that even if the company turns into the next Facebook.

You Do Have a Downside: Conversely, if the company loses enough value, you could lose some or all of your money.

Subordination to Rights of Other Lenders: Typically, when you buy a debt security Offering presented by our partner on our Platform, while you will have a higher priority than holders of the equity securities in the company, you will have a lower priority than some other lenders, like banks or leasing companies. In the event of bankruptcy, they would have the right to be paid first, up to the value of the assets in which they have security interests, while you would only be paid from the excess, if any.

Lack of Security: Sometimes when you buy a debt security Offering presented by our partner on our Platform, it may be secured by property, like an interest in real estate or equity. Other times it will not. Issuers typically will not have third-party credit ratings: Credit rating agencies, notably Moody’s and Standard & Poor’s, assign credit ratings to debt issuers. These ratings are intended to help investors gauge the ability of the issuer to repay the loan. Companies on our Platform generally will not be rated by either Moody’s or Standard & Poor’s, leaving investors with no objective measure by which to judge the company’s creditworthiness.

Interest Rate Might Not Adequately Compensate You for Risk Level: Theoretically, the interest rate paid by a company should compensate the creditor for the level of risk the creditor is assuming. That is why consumers generally pay one interest rate, large corporations pay a lower interest rate, and the Federal government (which can print money if necessary) pays the lowest rate of all. However, the chances are very high that when you lend money to an Issuer presented by our partner on our Platform, the interest rate will not really compensate you for the level of risk.

Credit and Default Risk: These risks are associated with whether the Issuer of the security will continue to be able to pay its debt, including any stated interest rate or return the principal amount invested to the respective investor.