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It is a rare privilege to have the opportunity to recognize a work of substantial merit and value, as I do in writing this foreword to Equity Crowdfunding for Investors. For over three years now, even before the JOBS Act was enacted into law in our country, I have been an ardent supporter of and an enthusiastic participant in the crowdfunding movement.

Although crowdfunding is a diverse collection of strategies and mechanisms for supporting fund-raising by innovative and entrepreneurial projects and ventures, my primary enthusiasm for the crowdfunding arena is that of an investor interested in the securities-based forms, as opposed to the entrepreneurial fund-raiser or a service-providing member of the supporting industry. Indeed, I have been for several decades an active individual angel investor, and am now a professional fund manager for others. As few would dispute, the manifold social and economic benefits of crowdfunding are dependent on the willingness and ability of individuals to write the all-important checks. However, most of the public discussion of crowdfunding focuses on the benefits to entrepreneurs and society as a whole. This book represents a major step in filling this gap, by providing a primer to the newly enfranchised crowdfunding investor on both early-stage entrepreneurial finance in general, and by explaining practically how recent legal and regulatory changes allow everyone – not just the wealthy few – to participate in this attractive and beneficial asset class. The book is well written and enjoyably readable, and has background and other information of interest even for the experienced and already involved participant.

The benefits of crowdfunding, in all its multiple forms, are essentially fourfold. Indeed, two are implied by the name of the significant recent enabling legislation, the aptly named JOBS Act. Employment as well as other economic benefits result when projects and enterprises are better able to obtain the necessary start-up and growth funding. Crowdfunding has already proven its foundational promise of being able to provide important additional financial resources to the high growth and often high tech enterprises that are of greatest interest to professional investors and public markets, and that make such an important contribution to any nation's economic advancement and well-being. Crowdfunding also provides new and valuable mechanisms for helping support the Main Street, lifestyle businesses that employ large numbers of citizens and form the essential fabric of everyday life in our communities. Such businesses previously had only the financial resources of their owners and of community banks to call upon, and were often strapped for sufficient funding.

The third major benefit of crowdfunding, and a major reason for my personal support of the movement, is that it broadens and democratizes access to an asset class previously accessible primarily to a minority of wealthy and well-connected individuals and institutions. The majority of this book is directed at illuminating JOBS Act Title III crowdfunding, including its relationships to and distinctions from other forms of securities-based crowdfunding. For the inexperienced but financially motivated investor, numerous issues and aspects are common to all forms of securities-based crowdfunding, and are well-introduced and explained in this book. Title III of the JOBS Act, and securities-based crowdfunding in general, provide an historic opportunity to expand the community of angel investors (those who write checks with their own funds to support and participate in early and growth-stage businesses) from a small subset of the wealthy elite to virtually everyone.

The last major benefit of the crowdfunding movement, which must be mentioned for completeness but which will not be discussed extensively here, is that it provides a new, and potentially disruptive in a good sense, alternative mechanism for civic decision-making and practical progress. Thus, sufficient groups of citizen donors can now come together and collectively enable and support projects and activities that cannot gain the required consensus from our all-too-frequent politically deadlocked current government. This aspect flows equally from all forms of crowdfunding, including the securities-based and specifically the equity forms to which this book is devoted.

As this book rightly and frequently points out, both the foundational JOBS Act legislation and its lengthy rule-making implementation are presently incomplete, imperfect in many eyes, and will almost certainly be further amended and improved. Given these uncertainties, what might the future hold for equity and other forms of securities-based crowdfunding, and what issues merit further attention and effort?

The fact remains that most knowledgeable and experienced early-stage investors firmly expect that the great majority of individuals participating in equity-based crowdfunding will lose money overall. This does not deny the likelihood that a minority can and will achieve net positive returns (if they are diligent, disciplined, and follow the recommendations contained in this book and elsewhere), but like their wealthier individual accredited angel colleagues, most equity crowdfunding investors can only be realistically expected to sustain overall loss from their participation in this endeavor. Indeed, the frequent public pronouncements by politicians and some industry leaders to the contrary represent for some a form of misguidance bordering on systemic fraud. This misrepresentation is far more worrisome in practice than the occasional possibility of issuer fraud (as opposed to failure) that has been given such public scrutiny but has in fact been almost totally absent in the more advanced crowdfunding experiences of several other countries for many years now.

What can be done to maximize and make positive the financial outcome for a greater fraction of individual crowdfunding investors? Numerous pearls of wisdom are contained in this book, and are inescapably critical for generating reliable financial success from any form of early-stage equity investing including crowdfunding. Among the most important of these are the essential importance of knowing and operating according to one's own priorities and goals, budgeting for and building towards a portfolio of at least 10–20 early-stage investments, and engaging in, having access to, or at least following others' extensive due diligence on every potential investment as conducted by investors and beyond the legal minimums provided by issuers and intermediaries, who necessarily have motivations different from those of the investor.

Even faithfully following all of this well-founded guidance, however, the deck remains stacked against the financial success of most small-scale equity crowdfunding investors for several reasons. As discussed at length in this book, early-stage investing is inescapably a risk-filled endeavor in which most ventures and commitments do not succeed. This is true even for all investors including angels and venture capitalists. Furthermore, wealthier private investors and investors in public securities can invest through the offices of, and thus benefit from, the consistent diligence and substantial experience of interest-aligned and full-time professionals. They can also thereby aggregate larger sums and thus obtain greater voice in their invested companies.

Finally, and learned only through hard experience and not acknowledged in most public forums, everything leading up to and including writing the initial check does not constitute the full story leading to success in early-stage investing, whether of the equity crowdfunding or traditional angel sorts. That first check is not the end itself, but really only the end of the beginning. As companies grow and prosper, more and larger sums of money are usually required to enable a company to reach the promised lands of independent success, private acquisition or public offering, and the final returns to earlier investors often depend critically on what takes place in these later rounds of fund-raising. These additional and later increments of financial support typically come from professional investors and pooled funds, and the norm rather than the exception is that later and larger money throws its weight around in self-interest and because it can, often to the detriment of earlier investors (the so-called Golden Rule of investing, namely, that [s]he who has the gold makes the rules).

It is by no means certain that successfully growing firms that earlier raised financial support through equity crowdfunding will choose or even be able to garner future and larger rounds through further Title III equity crowdfunding, that initial Title III investors will be allowed to participate again due to the financial limitations built into equity crowdfunding for investors' protection, or lastly, that smaller crowdfunding investors would in general have the greater financial resources necessary to take part even if allowed to do so. Concretely, in the more than 50 private investments that this investor has made personally, each and every company invested in has come back for additional funding, and later funders of the more successful companies have often (legally or otherwise, and in any case requiring often difficult negotiation or even opposition) abused the interests of their earlier co-investors. The ability of equity crowdfunding investors to aggregate as well as employ professional diligence and experience (as discussed above), and potentially partner with larger investors from the get-go, will be critical to their achieving financial success comparable to those of traditional angel and venture investors; these mechanisms are not yet either allowed legally or developed practically, however.

To close, Equity Crowdfunding for Investors performs an invaluable service by introducing the broad endeavor of early-stage investing in general and crowdfunding specifically, and giving much practical guidance on how to understand and approach participating as an investor in securities-based and particularly equity crowdfunding. It is also “a good read,” deserving the attention of anyone interested in understanding an important and growing phenomenon in our modern economic and social world. I remain a committed supporter of crowdfunding despite its multiple uncertainties and complexities, firmly believing that success with this rewarding asset class lies within the reach of anyone willing to devote the diligence and effort required, and I am pleased that the opportunity is becoming available to all. Some participants can, do, and will continue to make lots of money with these investments. The authors deserve our recognition and gratitude for the significant contribution of this book.

Charles Sidman, MBA, PhD

February 19, 2015

Managing Partner, ECS Capital Partners LLC

Founding Member, Angel Capital Association

Past President, Crowdfunding Professional Association