STRICTLY PRIVATE & CONFIDENTIAL

AUCTION-BASED INVESTMENT CROWDFUNDING

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CROWDFUNDING & JOBS ACT

Definition

Crowdsourcing is the collection of ideas, services, and content from a large group of people. Crowdfunding is an extension of this concept focusing on the aggregate collection of capital with modern crowdfunding heavily relying on the connectivity of the Internet. Crowdfunding leverages the Internet to take small amounts of money from multiple funders, pool them together, and give an aggregate large sum of money to a project, concept, or business.

JOBS Act

The passage of the JOBS Act on April 5, 2012 made it legal for entrepreneurs to solve the obstacle of funding by selling equity to a large number of investors online via the power of the Internet. The two main titles under the JOBS Act that pertain to MassCatalyst are Title II and Title III. Title III is expected to be in full effect by the end of the year.

Targets accredited investors

No individual investment limit

No funding limit (i.e. businesses may ask to receive an unlimited amount of money)

Title II Title III

Targets non-accredited (“ordinary”) investors

Individual investment limit based on income

Businesses are limited to $1.0 million of funding every 12 months.

Platform Structure

MassCatalyst will be structured to help all businesses receive funding regardless of investment limit (i.e. the platform will be legally structured to fund businesses that need more than $1.0 million under Title II and fund businesses that need less than $1.0 million under Title III).

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INTRASTATE CROWDFUNDING EXEMPTIONS

Intrastate Crowdfunding Laws

While the Federal implementation of Title III is to be determined, certain states are enacting legislation designed to allow non-accredited investors to participate in investment crowdfunding for businesses based in their state prior to Title III going into effect. For example, Texas is in the process of passing its own legislation that will allow approximately 20 million people that control over 100 billion dollars to invest in Texas businesses.

In ProgressNo Exemption

Instrastate Crowdfunding Exemptions

TX

NMAZ

NVUT

CA

OR

WA

MT

IDWY

CO

ND

SD

NE

KS

OK

LA

AR

MO

IA

MN

MS

WIMI

IL

AL GA

FL

SCTN NC

KYVA

INOH

PA

WV

AK

HI

ME

NY

VT

NH

MA

RI

CT NJ

DE

MDDC

Exemption

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MASSCATALYST’S PLATFORM

Current Crowdfunding Models

MassCatalyst Model

MassCatalyst is the only investment crowdfunding platform in the United States that combines equity & lending business models into an auction-based system. An auction platform gives businesses the opportunity to raise funding for less equity and better investment terms. Other investment platforms do not allow for negotiations between investors who must accept the investment terms as is or walk away from the deal altogether. MassCatalyst solves this problem by creating an auction system that inherently creates a “negotiation” among potential investors. In turn, this creates a true marketplace for private placement investing. Furthermore, MassCatalyst will implement a secondary market to create liquidity in otherwise illiquid investments.

Crowdfunding Models Source: “Crowdfunding’s Potential for the Developing World” published by the World Bank

Crowdfunding Model

Business Model Features Pros Cons

Donation Donation based Philanthropic: funders donate without expecting monetary compensation.

No risk. Donors do not acquire security interest. Entrepreneurs have difficulty raising substantial capital.

Reward based Funders receive a token gift of appreciation or pre-purchase of a service or product.

Low risk (primarily fulfillment and fraud risk). No real potential for financial return.

Potential return is small. No security is acquired, and there is no accountability mechanism. Most entrepreneurs may have difficulty raising substantial capital without a product with mass appeal to sell.

Investing Equity based Funders receive equity instruments or profit sharing arrangements.

Potential to share in the profitability of the venture. Unlimited potential for financial gain.

Potential loss of investment. Equity holder are subordinate to creditors in the event of bankruptcy. Securities laws related to crowdfund investing may be complex.

Lending based Funders receive a debt instrument that pays a fixed rate of interest and returns principal on a specified schedule.

Pre-determined rate of return agreed upon between the lender and borrower. Debt holder are senior to equity holder in case of bankruptcy.

May be subordinate to senior creditors. Start-ups high failure rate presents similar risk of loss as an equity investment, but with capped potential returns. Requires a business already generating cash flow.

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DIFFERENTIATORSProblem

Crowdfunding is striving to solve the funding gap for startups and businesses in early growth phases. By leveraging the JOBS Act, crowdfunding is democratizing the investment process by allowing non-accredited investors to invest in business startups. However, most crowdfunding platforms are very rigid and do not allow for negotiation between investors and businesses. The investors either accept the terms of the offer set by the business or walk away from the deal altogether. This model does not consider the potential market forces of supply and demand. To this extent, current investment crowdfunding in this country is failing to truly leverage the Internet and the JOBS Act to positively benefit businesses and ordinary investors.

Auction Model

Combine equity & debt models (e.g. auction convertible debt)

Secondary market to create liquidity in an illiquid investment

Solution Benefit

Businesses can get overfunded for less equity; early investing is incentivized

Access to a diverse range of financial products

Investors may have an exit opportunity in the secondary market

Overall Benefit

Creates a true marketplace to facilitate the flow of capital from investors to entrepreneurs. An auction system creates an inherent “negotiation” between investors and businesses through the bidding process. Investors bid the value they believe shares in the business are worth and if their value is high enough they receive equity ownership. Effectively, if bidding is high enough, the business is issuing the same or less equity for more money than compared to traditional crowdfunding. In addition, a secondary market will create liquidity and a potential exit opportunity for existing investors. MassCatalyst’s business model provides an effective solution for the age-old problem of raising capital for a business, in a manner that is superior to all other current competitors.

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BENEFITS FOR INVESTORSBenefits

Our platform wants to privately raise money before the auction goes live.

Auction Model

Combine equity & debt models (e.g. auction convertible debt)

Secondary market to create liquidity in an illiquid investment

Solution Benefit

Businesses can get overfunded for less equity; early investing is incentivized

Access to a diverse range of financial products

Investors may have an exit opportunity in the secondary market

Overall Benefit

Creates a true marketplace to facilitate the flow of capital from investors to entrepreneurs. An auction system creates an inherent “negotiation” between investors and businesses through the bidding process. Investors bid the value they believe shares in the business are worth and if their value is high enough they receive equity ownership. Effectively, if bidding is high enough, the business is issuing the same or less equity for more money than compared to traditional crowdfunding. In addition, a secondary market will create liquidity and a potential exit opportunity for existing investors. MassCatalyst’s business model provides an effective solution for the age-old problem of raising capital for a business, in a manner that is superior to all other current competitors.

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EQUITY AUCTION WALKTHROUGH

Auction vs. Traditional Crowdfunding

Traditional Crowdfunding

Funding Goal: $50,000

Shares Issued: 50,000

Price Per Share: $1.00

Final Price: $1.00

Equity Offered: 50%

Amount Funded: $50,000

Outcome:

The company can only raise $50,000 at $1.00 per share. If the company were to raise additional capital they must issue additional shares which effectively raises the amount of equity offered above 50%.

Auction Crowdfunding Scenario 1

Funding Goal: $50,000

Shares Issued: 50,000

Price Per Share: $1.00

Winning Bid: $1.50

Equity Offered: 50%

Amount Funded: $75,000

Outcome:

The company has issued all of their shares for $1.50 to raise a total amount of $75,000. The company has already raised more money for the same 50% equity as compared to the same scenario in traditional crowdfunding.

Auction Crowdfunding Scenario 2

Funding Goal: $50,000

Shares Issued: 33,333

Price Per Share: $1.00

Winning Bid: $1.50

Equity Offered: 33%

Amount Funded: $50,000

Outcome:

In a final bid of $1.50, the company may be fully funded by only issuing 33% of the equity for $50,000. The remaining 17% equity is returned to the business. In effect, the company raised $50,000 by issuing less equity.

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EQUITY AUCTION WALKTHROUGH (CONTINUED)

Bidding Process

Investors bid on the price per share, and ultimately, the highest per share bids win the auction.

Investor A:

Investor Amount Invested: Bid:

Investor B:

Investor C:

$25,000

$25,000

$30,000

$2.00

$1.71

$1.50

Auction Information

Funding Goal: $50,000

Shares Issued: 50,000

Price Per Share: $1.00

Equity Offered: 50%

Winning Bid: $1.50

Amount Funded: $75,000

Shares Received:

10,000

23,333

16,667

Investor D: $30,000 $1.40 20,000

Bidding Process

The winning bidders are Investors A, B, & C because these investors were the highest bidders for the 50,000 shares issued by the company. The total number of shares received by Investors A, B, & C are equal to the 50,000 shares the company offered. All winning investors will pay the lowest winning price of $1.50. The lowest winning price means that since Investor C was the last investor to win the auction and only paid $1.50, then it is only fair that all other winning investors pay the same amount of $1.50. In this example, the company was able to raise $75,000 for the same 50% equity offering while initially seeking only $50,000.

Winning Price:

$1.50

$1.50

$1.50

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DEBT AUCTION WALKTHROUGH

Bidding Process

Investors bid on the interest rate, and ultimately, the lowest interest rates win the auction.

Investor A:

Investor Amount Invested: Bid:

Investor B:

Investor C:

$25,000

$25,000

$30,000

12%

12.5%

13%

Auction Information

Funding Goal: $50,000

3rd Party Rate: 15%

Winning Bid: 12.5%

Amount Funded: $50,000

Investor D: $30,000 15%

Bidding Process

The winning bidders are Investors A & B because these investors were the highest bidders for the $50,000 debt issuance by the company. All winning investors will pay the highest winning interest rate of 12.5%. The highest winning interest rate means that since Investor C was the last investor to win the auction and received 12.5%, then all other winning investors receive the same interest rate of 12.5%. In this example, the company was able to raise $50,000 for an interest rate of 12.5% instead of the quoted third party valuation of 15% they would have received, for example, from a bank.

Winning Rate:

12.5%

12.5%

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CONTACT US

Management Team

Our executive team brings smart, stable, and trusted guidance to MassCatalyst. With experience ranging from wealth management and hedge funds to healthcare and valuation, our management team brings the talent, vision, and knowledge necessary to ensure MassCatalyst provides unparalleled value for our clients.

Bobby KatoliEmail: Bobbykatoli@masscatalyst.comDirect: 817-308-4319Office: 469-730-6026

Jonathan StartzEmail: Jonathanstartz@masscatalyst.comDirect: 281-687-5112Office: 469-730-6026