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      David M. Freedman

      Equity Crowdfunding for Investors

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      Copyright © 2015 by David M. Freedman and Matthew R. Nutting. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data Is Available

      ISBN 9781118853566 (Hardcover)

      ISBN 9781118857847 (ePDF)

      ISBN 9781118857809 (ePub)

      Disclaimer

      The information in this book is intended for educational purposes only, not to be construed as specific investment advice for particular individuals. The authors are not investment advisers. Readers should consult qualified tax, legal, and other appropriate advisers prior to engaging in any business or financial transactions. Because the laws and regulations underpinning this book are new and ever-changing, please refer to updated information at www.wiley.com/go/equitycf.

      Foreword

      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

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