private placement memorandum11518 - …€¦ · confidential private placement memorandum syndicap,...

Confidential

PRIVATE PLACEMENT MEMORANDUM

SyndiCap, LLC High Yield Real Estate Investment Fund

Affiliated with

www.CrowdedHouseCapital.com

A Cutting-Edge Investment Platform

_____________________

Offering of

20,000,000 Membership Units

Price: $1.00 per Unit

For Accredited Investors Only

________________________________

Dated: January 15, 2018

SyndiCap,LLC PrivatePlacementMemorandum

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Dear Investor,

We are pleased that you have expressed an interest to invest in SyndiCap, LLC through this offering of securities, referred to as the purchase of membership “Units.” SyndiCap, LLC, a Virginia limited liability company, is also referred to as the “Company,” or the “Fund.”

The offer to invest in the Fund is being made in reliance on the safe harbor exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, 17 CFR §230.506(c), and possibly by other exemptions as well. This offering is being made to Accredited Investors only.

An “accredited investor” means:

¨ A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

¨ A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

¨ A trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person;

¨ A business in which all the equity owners are accredited investors;

¨ An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

¨ A bank, insurance company, registered investment company, business development company, or small business investment company;

¨ A charitable organization, corporation, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets exceeding $5 million; and

¨ A director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that issuer.

With regards to this offering, we are providing you with the following documents:

¨ The Confidential Private Placement Memorandum, ¨ The Limited Liability Company Agreement ¨ The Subscription Agreement

These documents, referred to as “Offering Documents,” are available to accredited investors by clicking the link: https://www.crowdedhousecapital.com/home/syndicap/.


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Or you may request a hard copy from the Company. Each prospective investor is encouraged to carefully read the Offering Documents.

Your fully completed Subscription Agreement, together with any required documentation, should be returned to the Company:

By Mail: 1818 Library St, Suite 500, Reston, VA 20190

or

By Email: [email protected]

If you have questions regarding the Offering, please call (888) 705 – 8834 or email [email protected] to schedule a phone call or a face-to-face meeting.

We look forward to hearing from you.

Sincerely,

Armistead (Ted) C. Leigh Managing Partner


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LEGAL MATTERS

This private placement memorandum (“Memorandum”) contains confidential information and may not be disclosed to anyone other than persons rendering professional advice related to an investment in SyndiCap, LLC, such as accountants, financial planners or attorneys, and may not be reproduced, divulged or used for any other purpose unless written permission is obtained from the Fund’s Manager. This Memorandum does not constitute an offer or solicitation to any person except Accredited Investors.

No person has been authorized to give any information or to make any representations other than the Fund or the Fund’s Manager. Any other information or representations should not be relied upon. Any prospective investor who receives information or representations from any other source about the Fund or the investment, or any other matter relevant to the purchaser’s investment decision, should contact the Fund’s Manager immediately to determine the accuracy of such information.

Prospective investors should not regard the information provided by the Fund as a substitute for careful and independent tax and financial planning. Prospective investors are encouraged to consult with their own independent legal counsel, accountant and other professionals with respect to the legal and tax aspects of this investment, with specific reference to their own tax and financial situation, before subscribing.

The Company intends to be treated for income tax purposes as a partnership which does not pay taxes itself. Any taxable income is deemed passed through to the members of the Company who are then individually responsible for reporting and paying any applicable tax at the federal, state, and local levels.

You should make your own decision whether this offering meets your investment objectives and risk tolerance level. No Federal or State Securities Commission has approved, disapproved, endorsed, or recommended this offering. No independent person has confirmed the accuracy or truthfulness of the information contained in the memorandum, nor whether it is complete. Any representation to the contrary is illegal.

Safe Harbor Exemption

The offer to invest in the Fund is being made in reliance on the safe harbor exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, 17 CFR §230.506(c), and possibly by other exemptions as well.

Excluded from Investment Company Regulation

The Fund’s loans are “qualifying interests” in real estate as defined in the Section 3(c)(5)(C) exclusion from regulation under the Investment Company Act of 1940. Under this exclusion, at least 55% of the issuer’s assets must consist of “mortgages and other liens on and interests in real estate and the remainder shall consist primarily of real estate-type interests.


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Covered Securities Section 18 of the Securities Act

The Securities and Exchange Commission ("Commission") adopted an amendment to a rule under Section 18 of the Securities Act of 1933 ("Securities Act") regarding the definition of “Covered Securities.” Section 18(a)(1) of the Securities Act of 1933 provides that except as otherwise provided in this section, no law, rule, regulation, or order, or other administrative action of any State or any political subdivision thereof requiring, or with respect to, registration or qualification or securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that is a covered security. Covered security includes securities offered under Rule 506 (c), the securities offered by SyndiCap, LLC.

Some states, however, require that all securities are to be sold through licensed brokers. A state law requiring that the sale be conducted through a licensed broker may not be enforceable. But this issue is not clear. For this reason, the Company may be required to engage licensed brokers to sell some of its securities; and if it does, it will incur additional fees and costs.

For Non-United States Investors Only

It is the responsibility of Non-United States Investors to satisfy themselves as to full observance of the laws of any relevant territory outside of the United States, including obtaining any required governmental or other consents, or observing any other applicable formalities. The Fund cannot, and does not, represent or warrant that this offering meets the legal requirements of any jurisdiction outside of the United States. Additionally, Non-United States investors have certain restrictions on resale and hedging under regulations of the Securities Act. Distributions under this offering might result in a tax liability for Non-United States investors. Each prospective investor is urged to consult his, her, or its own tax advisor to determine any potential tax liabilities.


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TABLE OF CONTENTS LETTER TO INVESTORS 2

LEGAL MATTERS 4

TABLE OF CONTENTS 6

OFFERING SUMMARY 7

OVERVIEW OF FUND’S STRATEGY 7

FORWARD LOOKING STATEMENTS 11

THE COMPANY AND AFFILIATES 12

DESCRIPTION OF THE COMPANY’S BUSINESS 13

DISTRIBUTIONS 15

DESCRIPTION OF SECURITIES 16

MANAGEMENT 17

FINANCIAL REPORTING 20

FUND EXPENSES 21

ADDITIONAL LEGAL MATTER 21

RISKS OF INVESTING 21


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SYNDICAP, LLC

PRIVATE PLACEMENT MEMORANDUM Maximum Offering $20,000,000

Price Per Unit $1.00

Minimum Purchase 50,000 Units

January 15, 2018

This Private Placement Memorandum regarding SyndiCap, LLC, a Virginia limited liability company (the “Company” or the “Fund”), is being delivered to prospective investors together with the Company’s Limited Liability Company Agreement and Subscription Agreement.

OFFERING SUMMARY

The Company is offering limited liability company Units (the “Units”) under this Offering at a price of $1.00 per Unit. The offer to invest is being made in reliance on the safe harbor exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, 17 CFR §230.506(c), and possibly by other exemptions as well. A minimum investment of 50,000 Units for $50,000 is required to become a Member of the Company and be entitled to share in the distributions of Net Profit made by the Fund.

Prior to the dissolution of the Company and the liquidation of its assets and the winding up of its affairs, the Fund’s Manager will distribute available Net Profit to the Members of the Company in accordance with their Capital Contributions according to the following priorities:

¨ First, Members (except the Manager) will be entitled to receive twelve percent (12%) simple interest per annum on such Unit Holder’s Unreturned Capital Contribution Amount. The Company intends to pay the Preferred Return monthly but reserves the right to accrue any portion in the Manager’s sole discretion.

¨ Second, at the end of the fiscal year Members will be entitled to receive distributions equal to 50% of any Net Profit remaining after Members have received their Preferred Returns.

OVERVIEW OF FUND’S STRATEGY

The Fund will make short-term mortgage and mezzanine loans to experienced builders and renovators where the proceeds of the loans are used for acquiring, constructing, renovating and selling or fixing, renting and refinancing residential properties for investment purposes. Each loan will be made by a subsidiary limited liability company (LLC). The LLC that will make the loan has no other assets except for the single mortgage or mezzanine loan.


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The Fund will underwrite loans at a maximum loan-to-completed value of 70%; secure first and second mortgages with recorded liens against the property; structure mezzanine loans to be functional equivalents of secured mortgage loans; require borrowers to maintain insurance against the risk of fire, hazard, builders risk and some other casualties, with the Fund named as a loss payee; and maintain the right to seize control of a financed project by exercising a deed in lieu of foreclosure agreement, among other provisions of collateral and security.

The LLC that made the loan posts information about the real estate project and the underlying mortgage loan at CrowdedHouseCapital.com – a cutting edge investment platform - and makes an offer to sell fractional pieces of the underlying loan, as “Sub-Notes,” to investors registered at the Site. The proceeds from the sale of Sub-Notes are returned to the Fund as replenished capital; and this capital is used to make additional mortgage loans.

The Fund earns Net Profit when Sub-Notes are sold relative to a mortgage loan, and Net Profit is realized when the borrower (the builder or renovator) pays the amount owing on the underlying mortgage loan, typically in six to twelve months.

In a unique way, the Fund benefits from the differences in price on the same asset: the underlying mortgage loan secured with the value of the financed property.

Mortgage Loan Rates

The Fund will make first mortgage loans at rates between 10% and 12% annualized, or 0.028% to 0.033% daily (annualized rate divided by 360). Mezzanine and second mortgage loans will typically be made at rates starting at 14% annualized, or 0.039% daily.

Sub-Note Rates

Sub-Notes with respect to first mortgage loans will bear interest starting at 7.5% and increasing to 9.0% annualized, or 0.021% to 0.025% daily. Sub-Note rates with respect to mezzanine or second mortgage loans will typically start at 9% and increase to 12% annualized. Disclosure information about the terms and conditions of Sub-Notes is provided to investors on the Site at CrowdedHouseCapital.com.

Average Net Interest

Each time the Fund sells 100% of the Sub-Notes offered with respect to an underlying mortgage or mezzanine loan, the Fund creates the prospect of earning Net Profit (net interest) on the principal amount of the loan between a high of 4.5% and a low of about 2% annualized.

Near Risk-Free Profit

The Company intends to generate near risk-free profit each time it makes a loan and sells Sub-Notes with respect to that loan; and it intends to generate high yields for Members by replenishing capital rapidly at a high percentage of the principal amount of each loan made.


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Near-risk free profit in this context means that the Fund is borrowing money from investors (selling “Sub-Notes) where repayment is due from money collected on the underlying loan only. This is referred to as limited-recourse borrower dependent debt. Investors that purchase Sub-Notes have a priority claim on money collected from the Borrower of the underlying loan, but they have no other recourse to the Fund’s assets. This is in stark contrast to a traditional real estate fund that borrows full recourse money from a bank to create leverage.

Leverage and Scale

The Company’s strategy to generate high yields for Members also has the advantage of leverage and scale without costly and burdensome regulations imposed by the Investment Company Act of 1940, and without a regulatory constraint on the Company’s ability to rapidly generate and grow its Net Profit. As explained in the “Legal Matters” section on Page 4, the Fund’s loans are “qualifying interests” in real estate and are excluded from regulation as an investment company.

The Investment Company Act also provides that:

¨ A company engaged in the business of selling securities (selling Sub-Notes) is regulated as an investment company;

¨ A subsidiary LLC that sells Sub-Notes is engaged in the business of selling securities; but there is an exception to investment company regulation: if the subsidiary LLC has no more than 100 investors, it is not an investment company.

¨ The Fund’s subsidiary LLCs have only one investor each: SyndiCap, LLC. ¨ The issuer of securities is not an investment company so long as the company

controlling it is not itself an investment company. ¨ SyndiCap, LLC is not an investment company because it will have fewer than 100

investors.

As a Result of the Fund’s Strategy

¨ The Fund is not subject to costly regulations. ¨ The Fund’s ability to scale by selling Sub-Notes on a crowdfunding investment

platform is not constrained by regulation. ¨ The Fund’s assets are not subject to full-recourse borrowings.

The Fund’s Markets are Large and Growing

The Fund will make loans to builders and renovators in one market and borrow money (sell Sub-Notes) from virtually anyone – accredited and non-accredited investors - in another market.

¨ The market for investors that make investments on real estate crowdfunding platforms has rapidly grown over the past four years to $5.5 billion as of year-end 2017.

¨ Builders and renovators have a big appetite for capital to acquire and construct residential real estate properties. In 2016, 193,009 single family homes and condos were flipped by 126,256 separate individuals and entities with an aggregate sales


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volume greater than $50 billion; and 116,000 contractors started construction on new houses. According to ATTOM Data Solutions, the share of flipped homes that were purchased by the flipper with financing increased to an eight-year high of 31.5% or $12.2 billion.

The Fund Has a Strategy to Scale Rapidly

Builders and Renovators want access to capital fast; and they want access to 100% financing to minimize their cash requirements. The Fund will implement its underwriting strategy to scale quickly while at the same time protecting its capital (see Page 12 for further information on “Underwriting, Making and Servicing Loans”).

Investors that will purchase our offerings of Sub-Notes will want relatively high returns with relatively low risks; and that is what we will offer on CrowdedHouseCapital.com. Additionally, we believe that investors will purchase our Sub-Note offerings for the following reasons:

¨ Our Sub-Notes can be purchased by virtually any investor, not just Accredited Investors.

¨ The underlying loan will be carefully vetted, underwritten and made by the Fund before Sub-Notes will be offered to investors on the Site.

¨ Investors that purchase Sub-Notes will have a priority claim on money collected on the underlying mortgage loan (i.e. they are paid first).

¨ The Fund will offer Sub-Notes as part of a marketplace of investment offerings on the Site. When fully subscribed at $20,000,000, CrowdedHouseCapital.com may have as many as 20 to 40 open offerings at any one time.

¨ In many cases, particularly for the first 12 to 18 months, the Fund will offer or sell Sub-Notes where the aggregate amount is less than the principal amount of the underlying loan, thereby lowering the effective LTV for the Sub-Note buyer (i.e. increasing the margin of safety).

¨ Sub-Note investments are offered with pictures and a video of the project, project economics, a summary of the project and the underlying loan along with other descriptive information on a cutting-edge investment platform, making it quick and easy for investors to make their investment decisions.

¨ Sub-Notes can be purchased by investors with a minimum investment of about $4,000. ¨ Sub-Notes will be offered bearing interest rates that generally exceed all other short-

term debt instruments and compare favorably to long-term stock return projections, even though our Sub-Notes are short-term debt obligations backed by collateral.

Advertising for Borrowers

The Fund’s Manager will advertise and market to prospective Borrowers online, via social media, on the radio and indirectly through real estate brokers and various other sources. The


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Fund’s Manager has developed relationships with experienced builders and renovators over the past 15 years; some of these prospects are a subset of the 10,000 students who learn how to acquire tax lien certificates from the Fund’s Manager. The Fund’s Manager also has a broad network of developers who are excellent candidates for mortgage and mezzanine loans.

Advertising for Investors

The Fund’s Manager will also advertise online, via social media, on the radio, TV and by email to quickly grow investors at CrowdedHouseCapital.com. The Fund’s strategy involves emailing hundreds of thousands of accredited investors monthly and to reach a much broader universe of non-accredited and accredited investors to scale registered investors on the Site to 5,000.

National Strategy

The Fund will make mortgage loans in select U.S. markets based on underwriting criteria discussed below and market specific factors including (1) market strength for housing; (2) cost of “blue sky state filing” fees; (3) State registration requirements, if any; and (4) strength or demand for Sub-Notes (investment offerings). Initially, the Fund expects to originate loans in the Middle-Atlantic and Southeastern states.

Summary Proforma Results.

(1) (2) (3) (4) (5) Year 1 3% 80% 30 $111,208,052 10.3% Year 2 3% 90% 30 $128,448,724 12.7% Year 3 3% 95% 30 $161,162,711 15.3%

(1) The average difference between the loan rate and the Sub-Note rate annualized.

(2) (3) In year 1 on average 80% of loan originations are returned to the Fund as replenished capital from the sale of Sub-Notes every 30 days; 90% in year 2; and 95% in year 3.

(4) Proforma loan volumes are based on the Fund being fully subscribed at $20,000,000 at the start of year 1.

(5) Members’ Returns are based on the Fund’s Yields of 10.3%, 15.0% and 18.7% for years 1, 2 and 3 respectively; these yields are before consideration of Fund Expenses as defined on Page 21.

FORWARD LOOKING STATEMENTS

This Memorandum and other materials delivered by the Company may contain certain “forward-looking statements,” including or related to the Company’s future results, such as the Proforma Results provided above. These forward-looking statements, which are not historical facts, are based largely on current expectations and assumptions of the Manager and are subject to


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risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. These risks and uncertainties include, among others, the risks and uncertainties described in “Risks of Investing” section below. Assumptions relating to forward-looking statements involve judgments and assumptions with respect to future outcomes, pricing, costs, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control or the Manager’s control. When used in this Memorandum or any offering document, the words “believes,” “estimates,” “projects,” “expects,” “may,” “intends,” “will,” “should,” or “anticipates” and similar expressions are intended to identify forward-looking statements. Although the Company believes that any forward-looking statement is reasonable and sound, any of these statements could prove to be inaccurate and, therefore, there can be no assurance that the results contemplated in this or any offering document will be realized. Actual events at some future date may cause the Fund’s Manager to make decisions that are unknowable as of the writing of this Memorandum.

THE COMPANY AND AFFILIATES

The Company is a real estate investment fund organized by Crowdfunding Enterprises, LLC, a Delaware limited liability company, owned and managed by Armistead (Ted) C. Leigh and Corey Taylor, President of Capstone Investment Corp. The Fund is “Manager-Managed” by SyndiCap Securities and Investment Management, a company owned by Crowdfunding Enterprises, LLC and managed by Ted Leigh and Corey Taylor, referred to as “Managers,” or “Managing Partners.”

Crowdfunding Enterprises, LLC established and organized CrowdedHouseCapital.com and America’s Best Escrow, LLC to support the business affairs of the Company as outlined below.

America’s Best Escrow LLC (ABE”)

ABE is a Virginia limited liability company that prepares loan documents, services loans, collects payments, makes distributions and prepares tax documents. ABE is headed up by a settlement attorney with more than 25 years of experience.

CrowdedHouseCapital.com

CrowdedHouseCapital.com is a cutting-edge investment and automated loan processing platform developed to provide an efficient flow of loan applications and loan processing as well as an Internet-based investment platform where the Fund will post information about underlying mortgage loans and the financed projects and sell Sub-Note offerings to investors to increase the yield of the Fund.


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DESCRIPTION OF THE COMPANY’S BUSINESS

Mortgage and Mezzanine Loans

The Fund underwrites and makes mortgage and mezzanine loans to experienced builders and renovators for short-term acquisition and construction of for-sale residential properties, and for fix and rent. Property types include single family and condo conversion.

Borrower Applies for Loan

The process starts when a builder or renovator registers at CrowdedHouseCapital.com as a “Borrower” and applies for a project loan. The prospective Borrower is provided with a copy of our general underwriting terms and then asked to fill out requested “fields” of information on the Site, regarding the property, project economics, the proposed use of funds, the value of the completed project, the project schedule, the borrower, among other information. The information provided by the prospective Borrower is carefully reviewed, an initial “quick” preliminary loan determination is made by the Fund Manager.

Loan Rate Considerations

The factors that primarily affect the borrower’s loan rate include the priority of the loan, the loan-to-completed-value (“LTCV”), loan-to-cost (“LTC”), experience of the borrower, type of project, use of funds, personal and/or entity guarantee, and quality of the collateral. The table of

Loan LTV LTC Number of Personal Interest Origination

Amount Projects Guarantee Rate Fee

$350,000 70.00% 90.00% 1+ No 11.50% 3%

$350,000 70.00% 80.00% 1+ No 10.75% 3%

$400,000 70.00% 90.00% 1+ Yes 11.00% 3%

$400,000 70.00% 85.00% 1+ Yes 10.75% 3%

$400,000 70.00% 80.00% 1+ Yes 10.50% 3%

$450,000 70.00% 100.00% 2+ No 12.00% 3%

$500,000 70.00% 95.00% 2+ No 11.50% 3%

$500,000 70.00% 90.00% 2+ No 11.25% 3%

$500,000 70.00% 100.00% 2+ Yes 11.50% 3%

$550,000 70.00% 95.00% 2+ Yes 11.00% 3%

$600,000 70.00% 90.00% 2+ Yes 10.50% 3%

$650,000 70.00% 85.00% 2+ Yes 10.25% 3%

$700,000 70.00% 80.00% 2+ Yes 10.00% 3%


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of loan rate considerations presented above is representative of how first priority loans will be priced. The Fund’s Manager will set the loan rate based on many factors, including market conditions and specific information provided by the Borrower regarding the real estate project and the experience of the Borrower. This table of information illustrates some of the reasons for the variability in first mortgage loan rates.

Meeting of the Minds on Loan Terms

After the Fund’s Manager is clear that there is a meeting of the minds with the prospective Borrower regarding the type of loan financing, the rate and other basic terms; and the Fund’s Manager has a clear understanding of the Borrower’s ability to satisfy the conditions of the loan, including the Borrower’s cash requirements, the Fund’s Manager provides the Borrower with a “preliminary” loan commitment letter; and the Manager order’s a professional valuation of the project. The valuation report is used to prepare the final loan commitment terms and conditions. So long as the Borrower provides all necessary documentation and agrees to the terms of the final loan commitment, America’s Best Escrow will prepare the title binder, the loan documents and coordinate with the Borrower’s closing attorney on matters regarding the final settlement statement, the amount that the Borrower will be required to bring to the closing and all other relevant matters necessary to close the loan.

Subsidiary LLCs

A separate Virginia limited liability company (LLC) is formed to make each loan and subsequently to sell fractional pieces of that loan, or sell notes with respect to that loan, to investors at CrowdedHouseCapital.com. The LLC has no other assets except for the underlying loan.

Maximum LTCV

Loans will only be made when the Fund Manager believes that the principal loan amount and interest will be repaid and further that the collateral securing the loan will be sufficient to recover the principal investment in the case of a default. To achieve this outcome, the maximum loan-to-completed-value is set at 70%.

Collateral

The Borrower will grant the Fund collateral consisting of first deed of trust (mortgage) on the property, first-priority assignment of all leases, rents and profits from the property, first-priority security interest in all contracts, agreements, permits, licenses and rights associated with the property, first-priority security interest in all tangible and intangible personal property located at the property, a right to collect payments, and a right to a deed in lieu of foreclosure.

Additional Loan Terms

The Borrower will pay the loan origination fee at closing. Loan terms specify the amount to be drawn at settlement and the schedule of additional draws; insurance the Borrower will be required to maintain against the risk of fire, hazard, builders risk and some other casualties, with


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the Fund named as a loss payee; the term of the loan; the interest rate, among other terms and conditions.

Construction Draws

Construction Inspection Specialists, under a contract with ABE, will inspect invoices before construction draws are made to Borrowers with respect to a loan made by a subsidiary LLC. ABE and the Fund’s Manager will actively monitor construction draws and the status of all outstanding loans. All loans have a mechanism for the Fund’s Manager to take control of a project prior to the maturity date of an underlying loan to avoid an anticipated default. The Fund’s Manager will assess the efficacy of spending money to complete a seized project and selling it or liquidating the project. The Fund will only spend money to complete a real estate project if it believes such expenditures would be in the best interests of its Members.

Servicing Loans

ABE will collect payments from Borrowers, make payments to Note Holders and replenish capital to the Fund accurately and professionally. All funds collected by ABE will be deposited in the Fund’s escrow or servicing bank account. Amounts due Sub-Note buyers (holders) will be approved by the Fund’s Manager before disbursement. Real-time transactional reports will be generated at the time funds are collected and disbursed. ABE may at the direction of the Manager hire collection agents, attorneys, and other third parties to assist in the collection of a mortgage loan.

Selling Sub-Notes

After a subsidiary LLC makes a mortgage or mezzanine loan, the LLC posts information about the real estate project and the underlying mortgage loan at CrowdedHouseCapital.com and makes an offer to sell fractional pieces of the underlying loan, as “Sub-Notes,” to investors registered at the Site. The proceeds from the sale of Sub-Notes are returned to the Fund as replenished capital; and this capital is used to make additional mortgage loans.

Blended Strategy

If the Manager determines that the Fund can borrow non-recourse debt or debt limited to the value of the financed property from financial institutions at rates appreciably below the rates on Sub-Notes, then the Fund Manager will consider a blended strategy that sells Sub-Notes (borrows money at the Site) and borrows money from one or more financial sources to leverage the Fund’s capital.

DISTRIBUTIONS

Prior to the dissolution of the Company, the liquidation of its assets and the winding up of its business affairs, the Manager shall promptly determine and distribute Net Profit in accordance with the following priorities:


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¨ First, to the Members (except the Manager) in proportion to their respective accrued Preferred Returns equal to twelve percent (12%) per annum (the “Preferred Returns”); and

¨ Second, pro rata 50% to Members and 50% to the Manager.

The Manager shall have the discretion to pay or accrue payment of the Preferred Return monthly. The additional pro rata distribution to Members shall be made annually.

Upon the dissolution of the Company, the Manager will proceed to liquidate the Company’s assets, discharge the Company’s obligations, and wind up the Company’s business affairs as promptly as is consistent with obtaining the fair value thereof. The proceeds of liquidation of the Company’s assets will be applied and distributed as follows:

¨ First, to the payment and discharge of all debts and liabilities of the Company except those owing to Members or to the establishment of any reasonable reserves for contingent or unliquidated debts and liabilities;

¨ Second, to the payment of any debts and liabilities owing to Members, including liquidation and return of Members’ Capital Contributions and payment of Preferred Returns; and

¨ Third, to the extent that any assets remain, the remainder will be split pro rata 50% to Members and 50% to the Manager.

DESCRIPTION OF SECURITIES

The Units consist of limited liability company interests in the Company. The rights of Unit holders are governed by the Company’s Limited Liability Company Agreement, which is attached hereto and should be reviewed in its entirety. The basic provisions of the Company’s securities are as follows:

¨ Members are entitled to receive distributions pro rata from Net Profit on Units held according to the priorities provided in the LLC Agreement (also, as explained above).

¨ No Member shall be required to contribute any capital in addition to the Member’s initial capital contribution.

¨ No Member shall be liable for the debts, obligations or liabilities of the Fund or its affiliates.

¨ No Member shall be required to contribute capital to liquidate another Member’s capital account.

¨ The Units are “restricted securities;” and they may not be conveyed, sold or transferred except as provided in the Company’s LLC Agreement.

¨ A Member should acquire Units with the understanding that the Member will hold the Units for at least 24 months (the “minimum holding period”).

The Company has the right to engage one or more broker-dealers, placement agents and registered finders to effectuate the offer and sale of Units, or the introduction of prospective


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investors. Fees and commissions paid with respect to some or all the Members will be treated as a Fund Expense. The Fund’s Manager will not be paid sales commissions for offering securities for the Company (selling Membership Units), or for selling securities (Sub-Notes or fractional pieces of loans) at CrowdedHouseCapital.com.

MANAGEMENT

The business and affairs of the Company are managed and controlled by a single manager, SyndiCap Investment and Securities Management (the “Manager”), a Virginia company controlled and managed by Armistead (Ted) C. Leigh and Corey Taylor, President of Capstone Investment Corp. These persons are also referred to as the “Managers” or “Managing Partners.”

Manager Unit

Upon the formation of the Company, the Manager was granted a single “Manager Unit” of ownership. This membership Unit provides the Manager with the right to be removed from the management of the Company if, and only if, there is a finding that the Manager engaged in fraud or willful misconduct. The Manager Unit does not share in distributions made to Members of the Company.

Loans Immediately Preceding Formation

During the 12 months preceding the organization of the Company, the Manager made four mortgage loans on behalf of a Family Trust totally $993,100 to real estate professionals in the same manner that such loans will be made by the Fund’s Manager after the Fund has received capital contributions from investors.

Prior Experience of Managing Partners

Ted Leigh successfully developed, managed and financed projects and businesses for more than 25 years in multiple market sectors including real estate, technology, telecom, environmental, oil and gas and power. Ted served as Managing Partner, Neighborhood Realty Solutions, where he negotiated, closed and resold millions of dollars of distressed properties; Managing Director, Pierce Financial, where he secured $23MM for early-stage telecom and Internet companies and provided business and advisory services to senior executives; Project Financing Consultant to wireless telecom companies where he secured $20MM and arranged a $300MM credit facility; Senior Vice President and Chief Financial Officer, DCR Communications, where he secured $140MM and negotiated a contingent $1B credit facility; Managing Director, Florida First Processing, where he developed a business plan for a $100MM industrial facility and secured $4.5MM in development funding; Manager Government Affairs, Combustion Engineering, where he represented this $3 billion dollar multi-national corporation to members of the U.S. Congress on tax, environmental and energy policy; and spearheaded the formation of a new business unit; Economic Analyst to U.S. Representative Bethune, a member of the U.S. House Budget Committee; and Senior Economist, Business Planning, Gulf Oil E&P (9th largest Oil Company in


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1979). Ted graduated from Clemson University with a M.A. in Economics and a B.A. in Management, where he taught economics on a full teaching fellowship.

Corey Taylor is an active Real Estate Entrepreneur, financial counselor, and investment trainer. With his experience as a US Naval Academy graduate and service in the US Marine Corps, he built an investment company that completed hundreds of real estate transactions in new construction, rehabs, wholesales, short sales, lease options, owner financing and notes. Utilizing millions in private money to complete successful projects, Corey understands the nuances of creatively balancing the marketplace demands of borrower flexibility and investor safety.

Investment Advisor

Bryan A. Leigh is the Company’s first Investment Advisor. Bryan has over 10 years of experience in commercial real estate finance. As a Vice President of Commercial Real Estate at EagleBank, Mr. Leigh has underwritten more than $1 billion of commercial credit facilities and consistently produces over $100 million in annual loan origination volume. He specializes in construction, development, bridge, and mezzanine products for a wide variety of project types and assets classes, including: self-storage facilities, data center projects, telecommunication, industrial, mixed use projects, PUDs, multifamily, affordable housing, master planned communities, and residential and commercial subdivisions. Mr. Leigh has extensive experience working with home builders and developers.

Investment Advisory Committee

The Manager intends to create an Investment Advisory Committee. The number of Investment Advisors, and the right of a Member to become an Investment Advisor, shall be in the sole discretion of the Fund Manager. No Member of the Fund shall be required to serve as an Investment Advisor. Each Investment Advisor will be capable of providing sound advice; some or all of the Members may also be capable of identifying experienced borrowers with quality projects, and investors.

Legal Counsel

Crowdfunding Enterprises, LLC (Fund’s Manager) engaged Markley S. Roderick, shareholder/attorney, Flaster Greenberg PC, as the Company’s regulatory and securities attorney. Mark has more than 30 years of experience representing clients in a wide variety of transactions involving capital formation and securities law; and today he is one of the leading Crowdfunding lawyers in the United States.

Powers of Manager

The Manager has full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters, to execute any contracts or other instruments on behalf of the Company, and to perform all other acts or activities customary or incidental to the management of the Company’s business. In addition to managing the Company, the Managers manage and oversee


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CrowdedHouseCapital.com, the cutting-edge investment and automated loan processing platform, the subsidiary LLCs that make loans and issue securities on behalf of the Company, and America’s Best Escrow, a Virginia limited liability company that prepares loan documents, services loans and other investments, collects payments and makes distributions.

Examples of Manager’s Authority

The Manager shall have the power to (i) admit new members on such terms as the Manager may determine; (ii) enter into leases and any other contracts of any kind; (iii) incur indebtedness on behalf of the Company, whether to banks or other lenders; (iv) determine the timing and amount of distributions; (v) determine the information to be provided to members; (vi) grant liens and other encumbrances on the Company’s assets; (vii) file and settle lawsuits on behalf of the Company; (viii) change the Company’s business strategy; (ix) sell or otherwise dispose of all or substantially all of the Company’s business or assets, in the ordinary course of business or otherwise; (x) discontinue the business of the Company; and (xi) dissolve the Company.

Standard of Care

The Manager shall conduct the Company’s business using its business judgment.

Restrictions

Unless authorized by the Manager, no attorney-in-fact, employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose.

Time Commitment

The Manager shall devote such time to the business and affairs of the Company that the Manager may determine in its sole and absolute discretion.

Manager Compensation

¨ A one-time transaction fee in an amount equal to (i) the amount of any origination fees paid by the borrower in association with a deed of trust, mortgage, mezzanine or transactional/bridge loan made by the Fund, up to a maximum of 4.0% of the loan amount, where 3.0% is typical; or (ii) 2.0% of the outstanding loan balance of each existing loan purchased by the Fund, unless the purchase is a “pay-off” in connection with the origination of a new loan and the payment of an origination fee.

¨ 50% of distributions of Net Profit made after Members have received their Preferred Annualized Rate of 12% on Members’ Contributed Capital.

Manager Reimbursement.

¨ The Fund will reimburse Crowdfunding Enterprises, LLC and/or the Manager for payments of third-party costs incurred before and after the date of this offering for expenses associated with the offering of Membership Units.


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¨ The Fund will reimburse the Fund’s Manager an amount equal to any underwriting, site inspection, administration, documentation preparation, or similar fees paid by the Borrower in association with a loan made by the Fund, if such services were performed by the Manager.

¨ The Fund will pay a one-time development fee to the Manager equal to $200,000. The Manager shall be entitled to the development fee at such time as determined by the Manager; however, at no time shall the payment exceed 5% of the Company’s Investment Capital, either from contributions or from sales of Sub-Notes. The balance due shall accrue. Note: When fully subscribed at $20,000,000, the development fee would be equivalent to 1% of the Company’s Contributed Capital. If the Fund “turns” its Capital 5 times in the first year, the development fee would be equivalent to 0.2% of Contributed and Borrowed Capital.

FINANCIAL REPORTING

The Fund will account for its financial transactions using the accrual method of accounting in accordance with the United States Generally Accepted Accounting Principles (GAAP).

The Fund will provide the following financial statements to all Members:

Interim Financials

The Fund will make available to all Members its unaudited, interim financial statements quarterly (consisting of its year-to-date income statement and balance sheet).

Audited Year-End Financials

The Fund will engage a third-party certified public accountant (CPA) to perform an audit of its year-end financial statements and will provide the results of such audit to all Members.

Monthly Reports

The Fund will provide Members with reports detailing their Capital Account balances, monthly distributions (or amounts reinvested); principal amounts of loans made and average annualized rates on those loans; dollar amounts and average annualized interest rates on the sale of Sub-Notes; and the compensation paid to the Manager.

Members and their authorized representatives will have reasonable access to, and may inspect, all books, records, and other materials pertaining to the Fund or its activities. The exercise of such rights will be at the requesting Member’s expense. Additionally, as soon as practical after the close of each Taxable Year, the Fund will prepare and send to the Members such reports and information as are reasonably necessary to (1) inform the Members of the results of the Fund’s operations for the Taxable Year, and (2) enable the Members to completely and accurately reflect their distributive Membership interests of the Funds income, gains, deductions, losses and credits in their federal, state, and local income tax returns for the appropriate year.


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FUND EXPENSES

The operating expenses of the Fund will be split between the Fund and the Fund Manager in accordance with the following:

Expenses Paid by the Fund

The Fund will pay the expenses for third-party audits, financial statement reviews by an independent accountant; legal services; insurance; banking; offering expenses; advertising for capital, assets, investors and borrowers; pass-through fees paid by borrowers; commissions and fees paid to broker-dealers or similar parties for the sale of securities; and fees and expenses payable to the Fund’s Manager and Crowdfunding Enterprises.

Expenses Paid by the Manager

The Fund Manager will pay expenses related to the following matters: salaries of all employees, officers, contractors and consultants who are not described as a “Fund Expense,” travel expenses, loan fulfillment costs covered by underwriting and fulfillment fees paid to the Fund Manager, organization costs not reimbursed by the Fund, office supplies, accounting and servicing software, telecommunications, information technology infrastructure, occupancy expenses related to the Manager’s office (rent, utilities, real estate taxes, etc.), and licensing and insurance that solely covers the Manager that is not covered as an indemnification.

ADDITIONAL LEGAL MATTER

As of the date of this Memorandum, neither the Fund or the Manager are named as a defendant in, or are aware of, any lawsuits that are expected to result in a loss or other liability to the Fund or the Manager.

RISKS OF INVESTING

The list of risk factors listed below may not be comprehensive. Each investor should ask questions and consult with its own advisors regarding the risks inherent in the funds proposed business. Each investor is strongly advised to seek or make an independent evaluation of the risks associated with an investment in the fund.

AN INVESTMENT IN SYNDICAP IS SPECULATIVE AND INVOLVES SIGNIFICANT RISK, INCLUDING THE RISK THAT YOU WILL LOSE SOME OR ALL OF YOUR MONEY. AN INVESTMENT IS THEREFORE SUITABLE ONLY FOR INVESTORS WHO FULLY UNDERSTAND AND ARE CAPABLE OF BEARING RISKS OF SUCH INVESTMENT.

Factors That May Affect the Performance of a Mortgage Loan

¨ Accuracy of Project Valuation

Mortgage Loans are made at a maximum LTCV of 70%. This limit is intended to provide a margin of safety, where the actual sale could be less than the expected sale


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price and the net proceeds would still be sufficient for the Borrower to repay 100% of the loan and interest due. If future events caused the actual sale price to be below the break-even price, the Borrower’s ability to repay us and our ability to earn interest or to fully recover the loan amount could be in jeopardy.

¨ Borrower’s Ability to Execute the Project on Time and on Budget

The Fund will make a mortgage loan to a Borrower to finance substantial renovation, construction, or other development activities of a real estate project. If a Borrower is unable to successfully complete the project, as expected, a Borrower may be dependent upon either refinancing the Underlying Loan with another lender after the term is up, or selling the underlying real estate. If that’s the case, then the Borrower’s ability to sell or refinance at maturity will have a significant impact on our ability to receive the payments of principal and interest as expected. Additionally, many factors could affect the ability to sell or refinance, including (among many other things) prevailing local and national real estate market conditions, credit availability, and general economic conditions.

¨ Ability to Collect Payments from Borrowers

The Fund Manager, or America’s Best Escrow LLC (ABE), on behalf of the Fund Manager, services loans and collect payments from Borrowers as explained elsewhere in this Memorandum. The Fund Manager’s or ABE’s inability to collect payments or take ownership to liquidate a project could severely affect the performance of a loan.

¨ Ability to Perfect a Security Interest

The Underlying Loan is secured by a lien and, possibly certain other collateral. Laws regarding security interests are very complex, and may vary by State. Thus, the level of protection that a secured mortgage loan provides to the Fund will ultimately depend upon our ability to analyze applicable laws and regulations, and to take appropriate actions to maintain a perfected security interest at all relevant times.

¨ Risks of real estate industry

Our loans will be in the real estate industry, and real estate can be risky and unpredictable. For example, many experienced, informed people lost money when the real estate market declined in 2007-08. Time has shown that the real estate market goes down without warning, sometimes resulting in significant losses. Some of the risks of investing in real estate include changing laws, including environmental laws; floods, fires, and other acts of god, some of which can be uninsurable; changes in national or local economic conditions; changes in government policies, including changes in interest rates established by the federal reserve; and international crises. In the event of a downturn in the real estate market, some borrowers may be unable to repay their loans and, hence, SyndiCap may be forced to liquidate a project at a loss.


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Risk Factors

¨ Real Estate Is an Illiquid Investment

Real estate is much harder to sell than, say, a publicly-traded stock. As a result, the ability of the Borrower to sell assets to repay the Underlying Loan could be relatively limited.

¨ Distributions

Given that certain factors cannot be controlled, and certain future outcomes cannot be anticipated, the Fund cannot guarantee the timing or the amount of distributions, or that there will be interest or profit to distribute to Members.

¨ Return of Capital

No Member shall be entitled to a return of a Member’s contributed capital (Capital Account) prior to a withdrawal or dissociation from the Fund. The Manager shall not be personally liable for the return of Capital Contributions or any portion thereof to the Members (it being understood that any such return shall be made solely from the cash flow and assets of the Fund). Unrepaid Capital Contributions shall not be a liability of the Fund or of any Member. No Member shall be obliged to contribute or lend any cash or property to SyndiCap to enable SyndiCap to return any Member’s Capital Contributions to SyndiCap.

¨ Costs of Collection

In the event of a default by a Borrower, the Fund has the right to add any collection costs, including reasonable attorneys’ fees, to the balance of the Underlying Loan. However, there is no assurance that the Fund will be able to collect the full amount.

¨ Effect of Changing Conditions

There are many causes or factors that could adversely affect the ability of the Borrower to make payments with respect to the Underlying Loan, including changes in general economic conditions, changes in conditions within a given neighborhood, poor health, governmental regulation, competition, political and diplomatic events and trends, the outbreak of war or terrorist acts, changes in tax laws, and other factors. The Fund cannot control any of these.

¨ Our Models for Estimating the Value of Collateral Might be Wrong

Real estate valuation and appraisal is an inherently subjective process. The economic models we use to estimate the value of collateral could be deficient or incomplete. A professional valuation used to make a mortgage loan may be wrong.


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¨ Risks of Construction Loans

The mortgage loan is being made to acquire property or to pay off liens and to construct or renovate real estate. Construction carries its own risks, with delays and cost overruns all too common. Further, the value of our collateral might depend on successful completion of the project.

¨ Property Values Could Decrease

The value of the real estate we hold as collateral with respect to the Underlying Loan could decline, perhaps significantly. Factors that could cause the value of property to decline include, but are not limited to:

o Changes in interest rates o Competition from new construction o Changes in national or local economic conditions o Changes in zoning o Environmental contamination or liabilities o Changes in local market conditions o Fires, floods, and other casualties o Uninsured losses o Undisclosed defects in property o Incomplete or inaccurate due diligence

¨ Uninsured Losses

While the Fund will require the Borrower to carry insurance against certain risks, like fire, there is no assurance that the Borrower will do so or that the insurance maintained will be sufficient to cover a particular-liability event or unanticipated loss. In addition, the Fund will not require the Borrower to carry insurance against the risk of natural disasters like earthquakes or floods, and there might be other risks that cannot be insured, or cannot be insured at affordable premiums. If the property securing an Underlying Loan were damaged or destroyed because of an uninsured or under-insured risk, the Fund’s assets could be adversely affected.

¨ Failure to Perfect Mortgage and Security Interests

If the Fund fails to properly prepare and record a mortgage on real estate, or failed to “perfect” a security interest in other collateral, it could materially impair the ability of the Fund to collect the amount owed with respect to the Underlying Loan.

¨ Incomplete Due Diligence

While the Fund will perform due diligence with respect to the Underlying Loan, not all circumstances affecting the capabilities of the Borrower and value of the collateral can be ascertained through due diligence. If the materials provided to the Fund are


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inaccurate, for example, or if the due diligence process fails to detect material facts that impact the value determination, the Fund could make mistakes in the underwriting process. Due diligence is as much an art as a science and there can be no assurance that the Fund will do it right in a specific instance.

¨ Personal Guaranties

SyndiCap may request that the borrower provide both an entity and personal guarantee of repayment. With respect to an unsuccessful project, SyndiCap, LLC may be unable to enforce the guarantee of the underlying loan; and if that should occur, SyndiCap’s ability to enforce payment of the underlying loan depends entirely on the value of the underlying collateral, i.e., the real estate.

¨ Incomplete or False Information from Borrower

The Borrower has provided or will provide us with a variety of information, which we will used in the underwriting and due diligence process. We try to verify some of this information, but as a practical matter, we cannot verify all of it, which may be incomplete, inaccurate, or intentionally false.

¨ Inability to Foreclose on Collateral

If the Borrower defaults on the underlying mortgage loan, we might be required to foreclose on the collateral that secures the loan. Although we have taken or will take customary steps to perfect a first-priority security interest in the collateral, it is possible that other creditors of the borrower might be able to establish an interest that is superior to ours.

¨ Inability to Foreclose on Entity Ownership

As part of the collateral for the underlying loan, we have taken a security interest in the ownership interests of the entity that holds the underlying real estate. However, the laws of many states limit the rights of creditors with respect to ownership interests in limited liability companies. In general, a creditor who seizes an interest in a limited liability company has only the right to take the distributions that would otherwise be paid to the members. The creditor does not have the right to vote or to force a dissolution of the limited liability company. It is for this reason that the Fund will request that a borrower sign a deed in lieu (“DIL”) of foreclosure agreement in addition to providing personal and/or entity guarantees. The DIL grants the Fund the right to take entity ownership upon the event of a default.

¨ We Depend on the Ability of Our Borrower

The Borrower is 100% responsible for all the business, management, and operational functions that will determine the success of the real estate project. Poor management


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on the part of the borrower could impair his, her, or its ability to repay the underlying loan.

¨ Environmental Risks

Even where we conduct environmental studies of the real estate, these studies do not guaranty that all environmental hazards will be discovered. Under Federal and State laws, moreover, a current or previous owner or operator of real estate may be required to remediate any hazardous conditions without regard to whether the owner knew about or caused the contamination. Similarly, the owner of real estate may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination. The cost of investigating and remediating environmental contamination can be substantial, even catastrophic, and could impair the ability of the borrower to repay the underlying loan. It is even possible that the Fund, as a secured lender, could become liable for remediation costs.

¨ Risks Associated with Foreclosure Laws

Foreclosure laws and methods vary from state to state. Many states require long processing periods or a court decree before a mortgaged property may be sold or otherwise foreclosed upon. Further, statutory rights to redemption and the effects of anti-deficiency and other laws may limit our ability to timely recover the value of its loan if the borrower defaults. The Fund will in most cases require the borrower to agree to a deed in lieu of foreclosure that grants the Fund the right to gain ownership of the property should the borrower default under the terms of a loan. This, of course, is intended to reduce the cost and time associated with a defaulted loan.

¨ The Borrower Might Become Bankrupt

If the borrower files for bankruptcy protection, the Fund could face significant delays and incur significant legal costs in enforcing the terms of the borrower’s underlying loan. Ultimately at least some or all the amount owed could be recovered, depending on the value of the underlying collateral (i.e., the real estate). However, bankruptcy courts have broad powers to permit a sale of a debtor’s assets free of liens, to compel creditors to accept amounts that are less than the balance due under the loan, and to permit the borrower to repay the loan over a term which may be substantially longer than the original term of the loan. All these factors may reduce the Fund’s recovery and ultimately the amount distributed to member investors.

¨ Regulation of Lenders

Lenders are regulated by the Federal government and by the states. In most cases, the Fund believes the loans it makes will not be subject to regulation and that we will not need a license to operate. However, it is possible that laws will change or that the borrower would argue, and a court would agree, that a specific underlying loan or our


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business model in general is subject to one or more regulatory requirements. In that case the Fund could be liable for damages or an underlying loan could be rendered unenforceable.

¨ Broker-Dealer Registration

We are not registered as a broker-dealer under the Securities Exchange Act of 1934 or any other federal or state law. We do not believe we are required to register. If, however, we were required to register as a broker-dealer in a specific state, we could be subject additional costs, and possibly to fines, non-monetary penalties, claims from investors (including, without limitation, claims for rescission of their investments), and possibly other consequences. If we were required to register, it could also impose significant costs on the Fund and limit the way in which we are permitted to operate.

¨ Lender Liability

In some situations, lenders have been found liable for misconduct in dealings with borrowers, making the lender liable for damages and possibly rendering the loan unenforceable. We intend to conduct our business in a manner that does not give rise to “lender liability,” but there is no guaranty we will be successful.

¨ Tax Allocations

Allocations of income and loss for any taxable year will be allocated among the members in such a manner that, as of the end of such taxable year, to the greatest extent possible, to be equal to the respective amount which would be distributed to such member in accordance with the Member’s Capital Account. It is possible, however, that a member could owe tax on income that has not been distributed as of the end of a taxable year.

¨ Tax Returns

The Fund shall cause to be prepared and filed all necessary federal and state income tax returns for SyndiCap. Each Member shall furnish to SyndiCap all pertinent information in its possession relating to SyndiCap operations that is necessary to enable such income tax returns to be prepared and filed. In addition, SyndiCap shall use reasonable efforts to cause Schedule K-1s to be delivered to each Member on or before March 31 of each year for the preceding year. It is possible that the cost of preparing tax returns will negatively impact the Fund’s ability to generate the target rate of return for investor members.

¨ Lack of Ongoing Information

While we will provide Members with periodic statements concerning the computation of a distribution of interest and profit, we may not provide information with respect to the borrower or the underlying loan.


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¨ No Registration Under Securities Laws

This offering will not be registered with the Securities and Exchange Commission or the securities regulator of any State.

¨ No Protection from Banking Laws

The Fund is not subject to the banking regulations of any State or Federal regulatory agency. For example, we are not subject to periodic examinations by regulators. Consequently, our underwriting decisions and processes are not subject to review by any governmental agency.

¨ 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.

¨ Reliance on Management

The Fund Manager shall manage the affairs of and make all decisions on behalf of the Fund. Therefore, investors must be willing to rely on the ability and judgment of management in all respects.