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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 Al Alper - President People Capital 274 Madison Avenue, Suite 1400 New York, NY 10016 [email protected] Mobile: (917) 658-9008 Office: (212) 401 1216 x13 visit us at: www.people2capital.com Office: (212) 401-1216 x13 www.humancapitalscore.com http://educationfinanceblog.com
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Page 1: People Capital Introduction

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 - PresidentAl Alper - PresidentPeople Capital274 Madison Avenue, Suite 1400New York, NY [email protected]: (917) 658-9008Office: (212) 401 1216 x13

visit us at:

www.people2capital.comOffice: (212) 401-1216 x13

p p pwww.humancapitalscore.com

http://educationfinanceblog.com

Page 2: People Capital Introduction

Agenda

• Overview and team

• Market landscape and opportunity

• People Capital solution

• Financials and milestones

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Page 3: People Capital Introduction

Overview: an Industry Desperate for Innovationh i $113 billi d i f di

• People Capital is a web-based education finance company leveraging two technologies that directly

• There is a $113+ billion education funding gap 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 address the student loan market’s two major inefficiencies: Credit risk analysis Loan origination and servicing

Credit Risk Analysis:The Human Capital Score™

Loan Origination and Servicing:Peer Lending Platform

• Issue: Thin-file students aren’t properly profiled • Issue: Limited sources for students, lenders, p p y pfor credit risk, resulting in poor quality loans

• People Capital has built a proprietary credit scoring – Human Capital Score™Predicts 10 year income of students and,

, ,investors

• People Capital leverages peer lending technologythat matches lenders with borrowersProvides a choice of loan productsy ,

therefore, ability to service debtAlgorithm based on metrics such as school,

major, test scores, GPA, etc.

pOffers investor portfolio customizations for

higher risk-adjusted returnsLiquidity 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

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Page 4: People Capital Introduction

The Team: deep financial services experience with education finance, human capital, credit risk and IT

Officer ExperienceThomas Shelton Serial entrepreneur and co-inventor of the Human Capital Score TM

education finance, human capital, credit risk and IT

Founder & CEO Former VP strategy and operations for MyRichUncle – a private student loan provider Founder of consumer-based startups

Al AlperPresident & COO

Seasoned technology operational executive and entrepreneur Built several companies, including the first online ABL consumer debt purchasing platformp , g p g p Raised in excess of $100 million of growth funding

Alan SamuelsChief Product Officer

17 years of financial services experience leading product development, marketing and business development 10 years executive experience at Standard & Poor's and Fitch Ratings

John NerenbergChief Information Officer

CIO at Curomax Corporation, a web 2.0 consumer finance company (sold to Dealer Track) CIO for CIT Commercial Finance

Brendan PryorSVP Student Loans

20 years of student loan operations and finance experience in established and start-up companies Corporate Officer at Sallie Mae including Director of Loan OriginationsSVP – Student Loans Corporate Officer at Sallie Mae, including Director of Loan Originations

Professor Stephen ShoreSenior Developer of HCS

Is a leading academic in the field of insurance and risk management currently conducting research in human capital risk

Ph.D. and A.M., Harvard University; A.B Princeton University

Robert Lavet (of Powers, Pyles, Sutter & Verville)General Counsel

Previously General Counsel to SLM Corporation (Sallie Mae) where he managed the Legal, Corporate Compliance and Student Loan Servicing Policy functions

Currently leads Education Practice Group at PPSV

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Page 5: People Capital Introduction

Large and Persistent market opportunity - Funding Gap Between Education Costs and Government FundingBetween Education Costs and Government Funding

• Federal loan limits have not kept pace with tuition costs

• A dependent undergraduate can borrow up to $31,000 in the F d l F il Ed i L P f

• Private Loans are the means by which families and students fill the gap between federal funding and total cost of higher education Federal Family Education Loan Program over four years

Federal Stafford limit is even lower ($23,000), not even 20% of an average 4 year private education

• Credit cards are increasingly becoming a funding source for education expenses

Student Funding by Source for 2007 4 Year Cost of College (‘08/09 v ‘98/99)Student Funding by Source for 2007

$136,528

$

4 Year Cost of College ( 08/09 v. 98/99)

2008/2009$113 5

Personal/Family Funding/Home Equity

$31,000 $31,000

$57,332

FFELP Limit

Funding Gap$113.5 Billion

Funding Gap

g/ q y

Private Loans

$110,320

Full-Time Private School Full-Time Public SchoolFederal Loans

Source: National Center of Education Statistics and College Board, Trends in $17,125 $17,125

$41,884

i i

1998/1999Funding Gap

Grants

Education Tax Benefits

5

Student Aid 2007, Trends in College Pricing

Full-Time Private School Full-Time Public School

FFELP Limit

Source: College Board, Trends in College Pricing, 2008

Page 6: People Capital Introduction

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.(academic years 1996/97 to 2006/07 – average annual growth)

U.S. Enrollment in Higher Education (millions)

30.0%

16 917.3

17.517.8

18.018.2

18.4

18.0

19.026.3%

15 0%

20.0%

25.0%

16.9

16.0

17.0

6.2% 6.5% 6.6% 6.8%

5.0%

10.0%

15.0%

Source: NCES and College Board, Trends in Student Aid Source: Sallie Mae

15.02003 2004 2005 2006 2007 2008 2009

0.0%Federal Grants

Federal Loans

Other Federal Aid

Non-federal Grants

Private Loans

61. Institute for Higher Education Policy

Page 7: People Capital Introduction

End-to-end solution for Education Finance…. bringing the lenders back to the table…. bringing the lenders back to the table

How itworks now

People Capital differentiators

How It Works Now People Capital Differentiatorsworks now differentiators

What options do students have to finance their education?

• Federal Loans - but borrowing limits are very low

• Private Student Loans - but only to most creditworthy/co-borrower guarantees (if available)

• Lending platform – matches borrowers with lenders Unique aspects of student

loans, e.g. deferment, consolidationguarantees (if available)

• Consumer Loan - with no tax deductibility

• Credit cards - with high rates

consolidation Fully compliant Private

Student Loans – tax efficiency and legal protections

ifi i f d Verification of student status (reduces risk)

Better rates than credit cards

How are lending decisions currently made?

• Co-borrower (typically parent) guarantee

• FICO score Based on financial payment

history

• Human Capital Score Fundamentally new way of

assessing credit risk for young adults

Based on future potentialhistory Young adults/student have

no credit history – therefore, poor FICO score

Based on future potential Built by leading academic

team

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Page 8: People Capital Introduction

End-to-end solution, bringing back the lenders

How It Works Now People Capital Differentiators

Who are providing the loans to students?

• Dedicated industry Large players pulling back Medium players exiting the

industry• Credit card companies

• Peers: Friends & Family: legal

compliance for tax efficiency Savvy individual investors:

enhanced returns from• Credit card companies High rates

• Some nascent p2p lenders Easy to “hang out a shingle”

hard to be a true solution

enhanced returns from alternative asset class, legal protections

• Institutions: Affinity/Philanthropic:

support rather than donatehard to be a true solution support, rather than donate Financial institutions: optimize

risk-reward tradeoff

What are the options for th th t t t i t i

• Student loan ABS• Overcollateralization

• Selection based on financial and human capital screenersthose that want to invest in

student loans?Overcollateralization

• Unattractive to investors• Lack of faith in the ratings• Lack of transparency in underlying

assets

p Credit risk data on each

underlying loan Standing orders to search for

loans that meet criteria“B ild ” tf li• “One size fits all” • “Build-your-own” portfolio Adjust for your own unique

risk profile• Emotional drivers

Support for emotional lending

8

pp gdecisions

Page 9: People Capital Introduction

Servicing Entire Lender Spectrumexisting players only service one or two…

Segment Description Why are they currently underserved

Relationship to borrower

driven

existing players only service one or two…

Friends & Family“Grandma”

Personal connection to specific borrower Cannot help “Johnny” in a legally compliant/tax efficient way

driven

Benevolent lender “giving back” to some entity he/she is connected withAffinity

“NYU Alumni Club”

Cannot encourage educational choices without making it a “donation”

Philanthropic“Bill & Melinda Gates Foundation”

Benevolent lender “giving back”/ supporting some “philanthropic” objective

Limited access to options that meet the “philanthropic” objective in such a targeted

manner

Savvy individual investor“e-trade guy”

Highly-skilled, leading-edge individual investor

No access to this asset classNeeds data, tools and analytics to analyze

risk and return to find alpha

Institutional“JPMorganCitiLynch”

Sophisticated best-in-class risk manager Lack of transparency into underlying credit risk of asset class

Cannot “build-their-own” investment poolRisk-

reward driven

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Page 10: People Capital Introduction

People Capital’s Patented Human Capital Scoredramatically improves student loan credit decisioningdramatically improves student loan 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 These attributes provide coefficients that predict future income, and hence their ability to repay loans

• The Human Capital algorithm produces very fine graduations of credit risk, HCS 1.0 provides a simplified 1-9 scale with “+” and “-”p p Identifies true “prime” credit borrowers from large pools of applicants

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Page 11: People Capital Introduction

www.humancapitalscore.com is available to the publicpublic

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Page 12: People Capital Introduction

Competition in the $113B market opportunityEducation FocusGeneral Focus

ger

Len

ding

Pee

Mor

tar

Friends & Familyl / B

rick

s &

Student Loan Corp

Old

Sch

ool

12

Page 13: People Capital Introduction

Stage-Gated Approach: Milestones2010: Growth Stage

C l t d

Build version 2.0 of platform

Extend lender value through secondary market capabilities

Further reduce manual process

2009: Build, Launch & Operate Platform

GO-TO-MARKET

In Pipeline:Completed:

Launched and marketed public Human Capital Score

Pre-launch marketing and PR

Acquired platform peer-2-peer

Patented and launched beta of Human Capital Score

2008: Stage Completed

Further reduce manual process

Aggressive customer acquisition

S-1 filing

Expand Human Capital Score into additional relationships

In Pipeline:

Implement lending license with our Industrial bank

Build product suite and set-up broker dealer

Acquired platform peer 2 peer lending technology assets and developed specifications - both in-house and outsource

Positioned Advisory Board and Business Development /

Recruited team

Created extensive operational and technology plans

Entered negotiations with strategic partners

into additional relationshipsSecure lending commitments

Additional protection of IP

Launch for 2009 School Year

p /Institutional Sales Team

Drafted Private Placement Memorandum for securitizing

Capital Invested During Stage

strategic partners

Dual lending license acquisition strategy

Capital Invested During Stage

$3.0 million* $2.0m already invested

$2-3 million

Principal cost drivers

$500,000

Talent $1.0 millionSystems $1.0 millionLegal $400kR&D $300kMarketing $300k

Most expenses are variable based on loan volume:

- Marketing fees - Working capital - Loan origination costs

l

13

- Talent

Page 14: People Capital Introduction

Fee-Driven Business Model:generate volume and outsource non-core activitiesgenerate volume and outsource non core activities

• 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 f l 6 % f di f li ( b O f %) Default rate: 6.5% of outstanding portfolio (above DOE rate of 5%) Average loan size: $9,600 (weighted average of four loan products)

• Fee drivers: L i i ti (1 5% f l t) Loan origination (1-5% of loan amount) Loan servicing (1-2% of loan payment) Licensing HCS as a bureau (beginning 2010) Secondary market for loan resale between lenders (1% commission) 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 origination, processing and servicing each loanpe oa : cu ed o g a o , p ocess g 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

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Page 15: People Capital Introduction

Summary Financial Projections2009 2010 2011 2012 2013 2014

i i i ( )Origination (Loans) 1,582 20,045 60,344 121,834 206,372 274,155Cumulative 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 $2,631,884,959Cumulative 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 $245,510,334Human 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 $265,741,941Cost 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 $186,989,968Total 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 $157,643,677EBITDA 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 $92,174,600Net 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 0Debt Financing 0 0 0 0 0 0

Total Funding $3,000,000 $2,000,000 $0 $0 $0 $0Cumulative Funding $3,000,000 $5,000,000 $5,000,000 $5,000,000 $5,000,000 $5,000,000g $ , , $ , , $ , , $ , , $ , , $ , ,

Cash Balance 543,549 3,582,705 12,244,127 37,033,011 90,771,617 182,946,216Total 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 $0Information Technology $85 500 $296 064 $863 586 $2 097 626 $3 231 435 $4 150 486Information Technology $85,500 $296,064 $863,586 $2,097,626 $3,231,435 $4,150,486Application Development/P2P Build $319,300 $532,450 $727,800 $1,050,180 $1,242,861 $1,479,549TOTAL TECH BUILD $574,800 $1,033,514 $1,591,386 $3,147,806 $4,474,296 $5,630,035Cumulative 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 $969l d l $ $ $ $ $ $

15• Assumes no origination until October 2009

Total OpEx per originated loan $1,535 $248 $137 $132 $112 $107

Page 16: People Capital Introduction

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 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 PlatformFunding 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

years of coding and development work built in ity g p Filing with SEC to register products as securities

• Developed Human Capital Score Prototype Filed provisional patentp p Live site www.humancapitalscore.com , launched in April 2009

• Full launch team in place

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Page 17: People Capital Introduction

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 Dedicated student loan products: deferred payment profiles, verifications, disbursements directly to schools,

credit risk tools Institutional and diversified investors

W id t d t l di b d dit i k th d l d t d thi fil• We provide student lending based upon a credit risk methodology geared towards 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 Financial Institutions: People Capital provides a superior option with transparency

17

Page 18: People Capital Introduction

Additional Materials

il bl tavailable upon request:Al Alper, Presidentmobile: 917 658 9008email: [email protected]

• Overview and Opportunity ~ 55 pages• Student Loan Fact Sheet - 2 pages• Opportunity for Lenders ~ 13 pagespp y p g• Complete Presentation ~150 pages• Financial Model ~28 pages• Technology Brief ~14 pages• Human Capital Score ~24 pages• Marketing Channel (Philanthropic, Affinity, Corporate) ~27 pages