[gbelote]

That certainly was part of the dotcom bubble, but not the cause of it. In addition to a very frothy public market there was an obscene amount of private money getting invested in companies with poor fundamentals. sama wrote a great article recently about bubbles.

There are a few things from the JOBS Act that protects against terrible things. People can't invest more than a certain amount in startups overall - your quota is based on your income or net worth and is either 5% or 10%, depending.

Additionally, these are long term investments - you can't easily flip investments and I think that'll play a big part in people's psychology. You can't buy a share of some hip photo startup (for example) and sell it to someone else in 6 months at a higher price. In many cases you're going to be holding your investments until the company exists. There are exceptions to this, but I think practically we won't see secondary markets for a long time.

Another thing (this is more specific to Title III - the crowdfunding part of the JOBS Act that we're still waiting on) is that companies have to publicly set a goal and meet it through a registered platform. So a shaky startup can't find 10 suckers to give them $1000, they have to set a real goal (e.g. $50k) and convince a crowd of people to give them money. It still will happen, but I think fraud will be much less common than well intentioned startup failure.

The best part (IMO) is that the economics of investing will be dramatically different, so people can invest $100. Startups are super risky, but with $5,000 you can invest in 50 businesses and spread the risk. Because they're startups many will fail, but it's less likely to get conned by 50 founders.