We’re describing some of the factors that make these investments risky in four ways:

The order in which these factors are discussed, either here on in the Issuer’s materials, is not intended to suggest that some factors are more important than others.

Most small, local 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 baker – 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.

Small companies have very limited access to capital, a situation that Title III Funding Portals hope to improve but cannot fix entirely. 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.

Most small, local businesses sell only one or two products or services, making them vulnerable to changes in technology and/or customer preferences.

Larger companies typically have in place strict accounting controls to prevent theft and embezzlement. Smaller companies typically lack these controls, exposing themselves to additional risk.

Most small, local businesses cannot afford the technology that a larger business would use to create efficiencies and cost savings.

Many small, local businesses experience frequent shortfalls in cash flow. If a business doesn’t have enough money to meet payroll, it might not make payments on obligations to its investors, either.

Small, local businesses may experience sudden changes in circumstances that require them to update or alter their business plans. This may included changes to leasing arrangements, location, vendor products, and/or services offered. These changes may occur during the term of the investment, but not be contemplated during the Offering, and could significantly impact a business' financial status.

A small, local business is likely to be very vulnerable to competition, whether in the form of another small, local business opening across the street or a national chain.

Most of the time, the securities you buy through our Platform will not give you the right to participate in the management of the company. Furthermore, if the founders or other key personnel of the issuer 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.

The law prohibits you from selling your securities (except in certain very limited circumstances) for 12 months 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 (your promissory note) for its full term.

An issuer 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.

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, and wars and other crises, among other factors, hurt businesses generally and small, local businesses in particular. These events are generally unpredictable.

The securities sold 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.

Title III does not require us or 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.

Companies that issue securities using Title III are required to provide some information to investors for at least 12 months 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.

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.

A given company might not buy enough insurance to guard against the risks of its business, whether because it doesn’t know enough about insurance, because it can’t 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. Therefore, any company could incur an uninsured loss that could damage its business.

Before we allow a company on our Platform, we run certain background checks, including criminal background checks. However, 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’re 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.

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 so difficult to predict.

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 plainly wrong.

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.

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.

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:

Because of the limits imposed by law, you might invest only a few hundred or a few thousand dollars in a given company. At that level of investment, you might decide that it’s not worthwhile for you to hire lawyers and other advisors to evaluate the company. Yet if you don’t hire advisors, you are in many respects “flying blind” and more likely to make a poor decision.

We have lawyers who represent us, and most of the companies on the Platform also have lawyers, who represent them. These lawyers have drafted the Terms of Use and Privacy Policy on the Site, 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.

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.

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. Companies listed on our Platform typically will not be required to implement these and other stockholder protections.

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.

Conversely, if the company loses enough value, you could lose some or all of your money.

Typically, when you buy a promissory note 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.

Sometimes when you buy a promissory note on our Platform, it will be secured by property, like an interest in real estate or equity. Other times it will not.

Sometimes when you buy a promissory note on our Platform, it will be guaranteed by the owner of the business, or by someone else. Other times it will not.

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.

Theoretically, the interest rate paid by a company should compensate the creditor for the level of risk the creditor is assuming. That’s 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 a company on the Platform (buying a promissory note is the same as lending money), the interest rate might not compensate you adequately for the level of risk.

Your revenue-sharing note (but not your EaRN Note) will probably include a maximum amount you can receive, like double your investment. You cannot receive more than that even if the company turns into the next Facebook.

Conversely, if the company fails to generate enough revenue, you could lose some or all of your money.

Typically, when you buy a revenue-sharing note or EaRN Note 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.

Because your payments are based on the revenue of the Issuer, and the revenue of the Issuer can go up or down (or even disappear altogether) unpredictably, it is impossible to predict how much you will receive and when. And because the payments are unpredictable, so is your ultimate return.

Sometimes when you buy a revenue-sharing note or EaRN Note on our Platform, it will be secured by property, like an interest in real estate or equity. Other times it will not.

Sometimes when you buy a revenue-sharing note or EaRN Note on our Platform, it will be guaranteed by the owner of the business, or by someone else. Other times it will not.

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.

Theoretically, the return paid by a company should compensate the creditor for the level of risk the creditor is assuming. That’s 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 a company on the Platform (buying a revenue-sharing note or EaRN Notes the same as lending money), the return you receive might not compensate you adequately for the level of risk.

The issuer may not plan to pay dividends to its shareholders in the near future (or ever), and there is no guarantee that the issuer will ever receive any profit from its operations so as to be able to declare and pay dividends to its shareholders.

The securities have numerous transfer restrictions and will likely be highly illiquid. In addition, there is no secondary market on which to sell them.

The company may never receive a future equity financing or, if applicable, elect to convert the securities upon such future financing. In addition, the Company may never undergo a liquidity event such as a sale of the Company or an IPO. If neither the conversion of the securities (if applicable) nor a liquidity event occurs, you could be left holding the securities in perpetuity.

The company has broad discretion on the use of funds from the offering. The company could spend the proceeds in ways that do not necessarily improve the results of its operations or enhance the value of your investment. If the company does not utilize the funds effectively, you could suffer financial losses.

Typically, when you buy an equity security in a company, you will have a lower priority than certain third parties, like banks or leasing companies. In the event of bankruptcy, they would have the right to be paid first, while you would only be paid from the excess, if any.

The securities may modify or omit the rights that a share of common stock in a publicly traded company might contain. For example, the securities may not have voting rights, and may restrict inspection or information rights that you might otherwise receive under state law. Every security is different, so you should review the terms carefully before making an investment decision.

The securities may be subject to the terms of other agreements, such as the company’s certificate of organization, shareholder agreement, or bylaws. These agreements might contain provisions that are detrimental to you and beneficial to others, and it may be possible to amend them without your consent.