[vsl2]

The key here is the "accredited" investor restriction for funds that invest in anything other than the most vanilla of securities (i.e. stocks and bonds). This is also why most of us cannot invest in hedge funds or private equity funds.

In protecting people from themselves, the government is limiting participation in a potentially very lucrative area of investment to only those with money (the rich get richer). I don't believe that everyone is equipped with the financial knowledge to deal with the risk associated with participating in alternative investment funds, but I'd much rather that everyone have the opportunities to take the risks that they choose. Casinos are legal in many areas, strip clubs are legal in even more areas, and shopping malls are everywhere - all of these cause people to take arguably unnecessary risks with their financial health (and some would say even greater than investing). Particularly with the plethora of financial information available on the Internet, the everyday Joe has more resources than ever.

I'd love to see Congress eliminate the "accredited investor" requirement for investing in alternative funds so that everyone can have the same access to investing in startups, private companies, etc. I'm sure more than enough funds will spring up to meet investor demand, this being a capitalistic sociey and all.

Finally, startups can choose to avoid the problem of many small direct investments by ordinary investors (i.e. too many people to report to). by accepting money only from the investment funds or from few large investors, if such sources are available and willing. If such sources are not available to a startup, then you have to go with the options you have, (e.g. many small direct investors, self-funding, fail), as has always been the case.