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People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
People Capital Introduction
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People Capital Introduction

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  • 1. Strictly private and confidential Innovations in Education Finance This document contains trade secret information. Please be aware that no part of this presentation may be reproduced in any form or by any means, electronic or mechanical, including photocopying and recording, for any purpose without the express written consent of Quest Growth Partners, LLC (doing business as People Capital). In addition, due to the proprietary nature of Quest Growth Partners’ methodologies and other information enclosed herein, this presentation may not be shown to any third party without the prior written consent of Quest Growth Partners, LLC. For further information, contact: Al Alper - President People Capital 274 Madison Avenue, Suite 1400 New York, NY 10016 visit us at: al.alper@people2capital.com Mobile: (917) 658-9008 Office: (212) 401-1216 x13 401 1216 www.people2capital.com p p p www.humancapitalscore.com http://educationfinanceblog.com
  • 2. Agenda • Overview and team • Market landscape and opportunity • People Capital solution • Financials and milestones 2
  • 3. Overview: an Industry Desperate for Innovation • There i a $113+ billi education funding gap h is $113 billion d i f di  Current market environment provides window of opportunity  Student loans have unique benefits such as tax-efficiency and default survival • People Capital is a web based education finance company leveraging two technologies that directly web-based address the student loan market’s two major inefficiencies:  Credit risk analysis  Loan origination and servicing Credit Risk Analysis: Loan Origination and Servicing: The Human Capital Score™ Peer Lending Platform • Issue: Thin-file students aren’t properly profiled p p yp • Issue: Limited sources for students, lenders, , , for credit risk, resulting in poor quality loans investors • People Capital has built a proprietary credit scoring • People Capital leverages peer lending technology – Human Capital Score™ that matches lenders with borrowers  Predicts 10 year income of students and, y ,  Provides a choice of loan products p therefore, ability to service debt  Offers investor portfolio customizations for  Algorithm based on metrics such as school, higher risk-adjusted returns major, test scores, GPA, etc.  Liquidity for students and investors • Opportunity to build leadership company in large, attractive market  $2 million of capital required for post-launch operations: w/c, sales channels, system enhancements  Funding to date of $2.5m - Initial round funded by angels 3
  • 4. The Team: deep financial services experience with education finance, human capital, credit risk and IT Officer Experience Thomas Shelton  Serial entrepreneur and co-inventor of the Human Capital Score TM Founder & CEO  Former VP strategy and operations for MyRichUncle – a private student loan provider  Founder of consumer-based startups Al Alper  Seasoned technology operational executive and entrepreneur President & COO  Built several companies, including the first online ABL consumer debt purchasing p p , g p g platform  Raised in excess of $100 million of growth funding Alan Samuels  17 years of financial services experience leading product development, marketing and business development Chief Product Officer  10 years executive experience at Standard & Poor's and Fitch Ratings John Nerenberg  CIO at Curomax Corporation, a web 2.0 consumer finance company (sold to Dealer Track) Chief Information Officer  CIO for CIT Commercial Finance Brendan Pryor  20 years of student loan operations and finance experience in established and start-up companies SVP – Student Loans  Corporate Officer at Sallie Mae including Director of Loan Originations Mae, Professor Stephen Shore  Is a leading academic in the field of insurance and risk management currently conducting research in human Senior Developer of HCS capital risk  Ph.D. and A.M., Harvard University; A.B Princeton University Robert Lavet (of Powers,  Previously General Counsel to SLM Corporation (Sallie Mae) where he managed the Legal, Corporate Pyles, Sutter & Verville) Compliance and Student Loan Servicing Policy functions General Counsel  Currently leads Education Practice Group at PPSV 4
  • 5. Large and Persistent market opportunity - Funding Gap Between Education Costs and Government Funding • Private Loans are the means by which families and students • Federal loan limits have not kept pace with tuition costs fill the gap between federal funding and total cost of higher • A dependent undergraduate can borrow up to $31,000 in the education Federal Family Ed F d l F il Education Loan Program over four years i L P f • Credit cards are increasingly becoming a funding source for  Federal Stafford limit is even lower ($23,000), not even education expenses 20% of an average 4 year private education Student Funding by Source for 2007 4 Year Cost of College (‘08/09 v ‘98/99) ( 08/09 v. 98/99) $136,528 Personal/Family Funding/Home Equity g/ q y 2008/2009 $113.5 $113 5 Funding Gap $57,332 $ Billion Funding Gap $31,000 $31,000 Private Loans FFELP Limit Full-Time Private School Full-Time Public School Federal Loans $110,320 Grants 1998/1999 Funding Gap $41,884 Education Tax Benefits $17,125 $17,125 Source: National Center of Education Statistics and College Board, Trends in Student Aid 2007, Trends in College Pricing FFELP Limit i i Full-Time Private School Full-Time Public School Source: College Board, Trends in College Pricing, 2008 5
  • 6. Market Drivers: Growing Demand for Student Loans • Private student loans are estimated to grow at 25% per year, versus 8% federal loan growth 1 • Growth in private student lending outpaced other sources of aid by over 4x over ten years. This was caused by the demand to fill the large gap created by:  Rapid increase in tuition: 2000-2008 CAGR for private college, 7.0% vs. public 5.0%  Growth in enrollment: 18.4m enrollments in 2009 vs. 14m in 1995, a 31% increase vs. 15% increase in population over same timeframe Growth in Inflation-adjusted Financial Aid in U.S. U.S. Enrollment in Higher Education (millions) (academic years 1996/97 to 2006/07 – average annual growth) 30.0% 26.3% 19.0 25.0% 18.4 18.2 18.0 18.0 17.8 20.0% 17.5 17.3 15.0% 15 0% 16.9 16 9 17.0 10.0% 6.2% 6.5% 6.6% 6.8% 16.0 5.0% 0.0% 15.0 Federal Federal Other Non-federal Private 2003 2004 2005 2006 2007 2008 2009 Grants Loans Federal Aid Grants Loans Source: NCES and College Board, Trends in Student Aid Source: Sallie Mae 1. Institute for Higher Education Policy 6
  • 7. End-to-end solution for Education Finance …. bringing the lenders back to the table How ItHow it Now Works PeoplePeople Capital Capital Differentiators works now differentiators What options do students • Federal Loans - but borrowing • Lending platform – matches limits are very low borrowers with lenders have to finance their • Private Student Loans - but only to  Unique aspects of student education? most creditworthy/co-borrower loans, e.g. deferment, guarantees (if available) consolidation • Consumer Loan - with no tax  Fully compliant Private deductibility Student Loans – tax • Credit cards - with high rates efficiency and legal protections  Verification of student status ifi i f d (reduces risk)  Better rates than credit cards How are lending decisions • Co-borrower (typically parent) • Human Capital Score guarantee  Fundamentally new way of currently made? • FICO score assessing credit risk for young  Based on financial payment adults history  Based on future potential  Young adults/student have  Built by leading academic no credit history – therefore, team poor FICO score 7
  • 8. End-to-end solution, bringing back the lenders How It Works Now People Capital Differentiators Who are providing the • Dedicated industry • Peers:  Large players pulling back  Friends & Family: legal loans to students? compliance for tax efficiency  Medium players exiting the industry  Savvy individual investors: • Credit card companies enhanced returns from  High rates alternative asset class, legal protections • Some nascent p2p lenders • Institutions:  Easy to “hang out a shingle”  Affinity/Philanthropic:  hard to be a true solution support, support rather than donate  Financial institutions: optimize risk-reward tradeoff What are the options for • Student loan ABS • Selection based on financial and • Overcollateralization human capital screeners p those that want to invest in th th t tt i ti  Credit risk data on each • Unattractive to investors student loans? • Lack of faith in the ratings underlying loan  Standing orders to search for • Lack of transparency in underlying assets loans that meet criteria • “One size fits all” • “Build-your-own” portfolio “B ild ” tf li  Adjust for your own unique risk profile • Emotional drivers  Support for emotional lending pp g decisions 8
  • 9. Servicing Entire Lender Spectrum existing players only service one or two… Relationship Segment Description Why are they currently to borrower driven underserved Personal connection to specific borrower Cannot help “Johnny” in a legally Friends & Family compliant/tax efficient way “Grandma” Benevolent lender “giving back” to some Cannot encourage educational choices Affinity entity he/she is connected with without making it a “donation” “NYU Alumni Club” Benevolent lender “giving back”/ supporting Limited access to options that meet the Philanthropic some “philanthropic” objective “philanthropic” objective in such a targeted “Bill & Melinda Gates Foundation” manner Highly-skilled, leading-edge individual No access to this asset class Savvy individual investor investor Needs data, tools and analytics to analyze “e-trade guy” risk and return to find alpha Sophisticated best-in-class risk manager Lack of transparency into underlying credit Risk- Institutional risk of asset class “JPMorganCitiLynch” Cannot “build-their-own” investment pool reward driven 9
  • 10. People Capital’s Patented Human Capital Score dramatically improves student loan credit decisioning credit-decisioning • The predominant credit risk metric, the FICO® score, is inappropriate for students  It is based on credit payment history, and students have little such history  As a result, they generally receive low FICO® scores and, thus, look like risky propositions  Alternatively, they may have high FICO scores, but have chosen a field of study which provides historically low income levels • The Human Capital Score™ assesses the relative creditworthiness of students without credit history  The HCS algorithm utilizes a range of data sets and attributes including demographic, geographic, college, major, and merit data such as GPA & standardized test scores  HCS algorithm prototype completed by Wharton Academics based on 10-year back-testing on earnings levels of students across majors and schools post graduation  These attributes provide coefficients that predict future income, and hence their ability to repay loans income • The Human Capital algorithm produces very fine graduations of credit risk, HCS 1.0 p provides a simplified 1-9 scale with “+” and “-” p  Identifies true “prime” credit borrowers from large pools of applicants 10
  • 11. www.humancapitalscore.com is available to the public 11
  • 12. Competition in the $113B market opportunity General Focus Education Focus Pee Lending er g Old School / Bricks & Mortar Friends & Family Student Loan Corp l 12
  • 13. Stage-Gated Approach: Milestones 2010: Growth Stage 2009: Build, Launch & Operate Platform Build version 2.0 of platform GO-TO-MARKET Extend lender value through secondary market capabilities Completed: C l t d In Pipeline: Further reduce manual process Launched and marketed public Implement lending license with Aggressive customer acquisition 2008: Stage Completed our Industrial bank Human Capital Score S-1 filing Patented and launched beta of Pre-launch marketing and PR Build product suite and set-up Expand Human Capital Score Human Capital Score broker dealer Acquired platform peer-2-peer peer 2 peer into additional relationships Recruited team lending technology assets and Secure lending commitments Created extensive operational developed specifications - both Additional protection of IP and technology plans in-house and outsource Launch for 2009 School Year Entered negotiations with Positioned Advisory Board and strategic partners Business Development / p Institutional Sales Team Dual lending license acquisition strategy Drafted Private Placement Memorandum for securitizing Capital Invested During Stage $500,000 $3.0 million $2-3 million * $2.0m already invested Principal cost drivers Talent $1.0 million Most expenses are variable Systems $1.0 million based on loan volume: Legal $400k - Marketing fees R&D $300k - Working capital Marketing $300k - Loan origination costs - Talent l 13
  • 14. Fee-Driven Business Model: generate volume and outsource non-core activities non core • Loan Products:  2 Short-term: 1-5 year interest only with balloon payment, & 3 year fully amortized loan  2 Long-term: 10-20 standard private & consolidation student loans • Assumptions:  Loan origination: 1,600 loans Oct-Dec 2009 – 20,000 loans in 2010  Default rate: 6.5% of outstanding portfolio (above DOE rate of 5%) f l 6 % f di f li ( b O f %)  Average loan size: $9,600 (weighted average of four loan products) • Fee drivers:  Loan origination (1-5% of l L i i ti (1 5% f loan amount) t)  Loan servicing (1-2% of loan payment)  Licensing HCS as a bureau (beginning 2010)  Secondary market for loan resale between lenders (1% commission)  Other fees: late fees, NSF (non-sufficient fund fees), recovery fees, etc. • Expense drivers:  “per Loan”: incurred in o g a o , p ocess g and servicing each loan pe oa : cu ed origination, processing a d se v c g eac oa  Corporate: G&A, legal, compliance/regulatory, business development  Marketing: referral expenses incurred to generate traffic/customer demand 14
  • 15. Summary Financial Projections 2009 2010 2011 2012 2013 2014 Origination (Loans) i i i ( ) 1,582 20,045 60,344 121,834 206,372 274,155 Cumulative Originated Loans 1,582 21,627 81,971 203,805 410,177 684,332 Originated Amount $ $15,191,366 $192,429,938 $579,300,375 $1,169,610,764 $1,981,169,200 $2,631,884,959 Cumulative Origination $ $15,191,366 $207,621,304 $786,921,679 $1,956,532,443 $3,937,701,644 $6,569,586,603 Loan Portfolio $14,696,971 $191,157,470 $686,845,280 $1,713,497,598 $3,335,774,875 $5,275,040,727 Revenues: Lending Business $766,166 $10,391,868 $35,397,520 $85,905,492 $161,374,161 $245,510,334 Human Capital Score $0 $967,821 $2,528,951 $5,057,902 $10,115,804 $20,231,607 Total Revenue $766,166 $11,359,689 $37,926,471 $90,963,394 $171,489,964 $265,741,941 Cost of Revenue (262,604) (4,518,266) (15,054,880) (32,341,642) (56,295,312) (78,751,973) Net Revenue $503,562 $6,841,422 $22,871,591 $58,621,752 $115,194,653 $186,989,968 Total Operating Expenses (2,429,822) (4,964,711) (8,276,941) (16,115,493) (23,056,028) (29,346,291) EBITDA ($1,926,259) $1,876,711 $14,594,650 $42,506,259 $92,138,625 $157,643,677 EBITDA Margin ‐251.4% 16.5% 38.5% 46.7% 53.7% 59.3% Net Income ($1,954,577) $1,801,188 $8,519,755 $24,685,412 $53,709,092 $92,174,600 Net Income Margin ‐255.1% 15.9% 22.5% 27.1% 31.3% 34.7% Equity Financing 3,000,000 2,000,000 0 0 0 0 Debt Financing 0 0 0 0 0 0 Total Funding $3,000,000 $2,000,000 $0 $0 $0 $0 Cumulative Funding g $ , , $3,000,000 $ , , $5,000,000 $5,000,000 $ , , $5,000,000 $ , , $5,000,000 $ , , $5,000,000 $ , , Cash Balance 543,549 3,582,705 12,244,127 37,033,011 90,771,617 182,946,216 Total Assets $725,355 $3,857,358 $12,377,113 $37,062,525 $90,771,617 $182,946,216 Tech Build: P2P Code Purchased $170,000 $205,000 $0 $0 $0 $0 Information Technology Information Technology $85,500 $85 500 $296,064 $296 064 $863,586 $863 586 $2,097,626 $2 097 626 $3,231,435 $3 231 435 $4,150,486 $4 150 486 Application Development/P2P Build $319,300 $532,450 $727,800 $1,050,180 $1,242,861 $1,479,549 TOTAL TECH BUILD $574,800 $1,033,514 $1,591,386 $3,147,806 $4,474,296 $5,630,035 Cumulative Tech Build $574,800 $1,608,314 $3,199,700 $6,347,505 $10,821,801 $16,451,836 Revenue per originated loan $484 $567 $629 $747 $831 $969 Total OpEx per originated loan l dl $1,535 $ $248 $ $137 $ $132 $ $112 $ $107 $ • Assumes no origination until October 2009 15
  • 16. We continue to make significant progress … • Equity Funding  Closed $1.5 million equity investment in February 09  Closed $500,000 equity investment in June 09  $2.5 million total raised to date  Raising additional $1.0 million that is needed for 2009 post-launch operations • Funding our Lending Platform  Institutional sales team: 2 Business Development Officers, 6 high-profile member Advisory Board  Closing in on several Letter of Intents for funding of up to $15m pre-launch  Have a full marketing effort, targeting various classes of institutional lenders for initial funding launch: Community Banks, Credit Unions, Hedge Funds, Foundations, Endowments, etc. y g • Launching legally compliant lending platform for the 2009-2010 school year  Secured peer lending technology assets at fire-sale/recession prices in April – the p2p platform has over two y years of coding and development work built in it g p  Filing with SEC to register products as securities • Developed Human Capital Score Prototype  Filed provisional patent p p  Live site www.humancapitalscore.com , launched in April 2009 • Full launch team in place 16
  • 17. People Capital changes the face of student lending • The People Capital platform is built to support student loan industry – an industry so void of innovation  Dedicated student loan products: deferred payment profiles, verifications, disbursements directly to schools, profiles verifications schools credit risk tools  Institutional and diversified investors • We W provide student l di based upon a credit risk methodology geared t id t d t lending b d dit i k th d l d towards thi fil d thin-file students  FICO is insufficient for students – very thin file  Human Capital Score™ measures income potential, expands prime pool • Institutions drive substantial volume, liquidity and risk diversification  Philanthropic/Affinity: based on college, major, region, etc.  Financial Institutions: People Capital provides a superior option with transparency 17
  • 18. Additional Materials available upon request: il bl t Al Alper, President mobile: 917 658 9008 email: al.alper@people2capital.com • Overview and Opportunity ~ 55 pages • Student Loan Fact Sheet - 2 pages • Opportunity for Lenders ~ 13 p g pp y pages • Complete Presentation ~150 pages • Financial Model ~28 pages • Technology Brief ~14 pages • Human Capital Score ~24 pages • Marketing Channel (Philanthropic, Affinity, Corporate) ~27 pages

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