Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms

Preface: The New Angel Investors

Do you ever wish you could have invested in Apple Computer when it was still operating out of Steve Jobs's parents' garage? Or bought a piece of Facebook when its headquarters were in Mark Zuckerberg's college dorm room?

Few opportunities in life can generate personal wealth as profoundly as being a founder or early investor in a startup that achieves grand success.

Mike Markkula was the first angel investor in Apple. He met the founding Steves—Jobs and Wozniak—in late 1976, after they developed the Apple II prototype and just before they moved their headquarters from the garage in Los Altos, California, to an office in Cupertino. Markkula, who had recently retired from Intel at age 32, helped Jobs and Wozniak write their business plan, and then invested $80,000 in the company in return for one-third of the equity (he also loaned Apple $170,000). That transaction valued the company at far less than $1 million. When Apple went public three years later, the company's value soared to $1.778 billion, and Markkula's share was worth about $200 million. That's way more than a 2,000-times increase in his original investment in the company.

Reid Hoffman was one of Facebook's first two outside investors. As an entrepreneur himself, Hoffman had been a founding board member of PayPal and then founded LinkedIn in 2003. He staked $37,500 on Facebook in 2005, when the social network had just moved out of a Harvard dormitory to its new headquarters in Silicon Valley, ...