[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