[mlapeter]

If you take PG's essay one step further, it would seem there might also be a need for micro-investing in the same style that Kiva does micro-loans. Something that lets small fish invest in startups that need less than, say, $250k. Investments could have a lower limit of $5k for example, and most software startups might only need 10 or 20 investors at $5k a piece.

Diaspora received a great deal of funding on Kickstart, but Kickstart specifically says it is not meant for investing. I think there might be a niche between well-connected, wealthy angels and simply asking family and friends for seed money. This would also alleviate the choice between risking your relationships with all your friends and family just to generate seed money. If you have a business idea, there should be an option to raise money in an open market at any scale.

[philwelch]

I think that's illegal--offering equity investment in small amounts to members of the public is legally a public offering of stock, which falls under the jurisdiction of lots of ugly federal regulations.

Angels exist because there's a big legal distinction between offering stock to ordinary people and offering stock to millionaires.

[mlapeter]

Thanks for pointing that out Phil. I'm not a lawyer, but I wouldn't call it illegal outright, as you say it may just require a fair amount of upfront legwork to arrange the structure of the service in a legal way. There do seem to be some exceptions the SEC offers, such as the below from their site. I agree it may be impossible to make it work after jumping through all the hoops, but if you succeeded all that red tape would make a decent barrier to entry for others.

From http://www.sec.gov/info/smallbus/qasbsec.htm#eod6

"Section 3(b) of the Securities Act authorizes the SEC to exempt from registration small securities offerings. By this authority, we created Regulation A, an exemption for public offerings not exceeding $5 million in any 12-month period. If you choose to rely on this exemption, your company must file an offering statement, consisting of a notification, offering circular, and exhibits, with the SEC for review. Regulation A offerings share many characteristics with registered offerings. For example, you must provide purchasers with an offering circular that is similar in content to a prospectus. Like registered offerings, the securities can be offered publicly and are not "restricted," meaning they are freely tradeable in the secondary market after the offering."

Also: http://www.sec.gov/answers/regd.htm

[thenbrent]

Any idea how Sprowtt was planning to get around the law if it is illegal?

http://www.crunchbase.com/company/sprowtt-marketplace