Because of literally hundreds of years of investment scams that bilk people out of their life savings. Publicly traded companies are subject to various securities regulations that require disclosure of certain pertinent information and protect investors in various ways. Smaller companies can be exempt from many of these regulations (which is a useful thing, as it costs money to comply), but in exchange, they don't get to ask every random person they encounter on the street for investments. The alternative isn't to lift all the restrictions; rather, it is to impose the same regulations on companies big and small alike, which would be particularly harmful to small businesses.

Call it a nanny state restricting your liberty if you'd like (though realistically, there's little enforcement of the investor accreditation rules), but since it's the same nanny state that is supposed to keep you from being destitute if things don't work out, we're going to impose some restrictions to keep the worst abuses from happening first.

It costs society a lot to deal with unsophisticated investors (illegal securities, debt, bankruptcy, family issues, lawsuits, etc), so this regulation, like most laws, are to protect society and driven by historical experience.

Because in the past, people would dupe grandmas with bad investments and "fly by night" companies. At least with Pebble, Reading Rainbow, etc. you know upfront you're not going to get anything personally beyond, possibly, a product worth 50 bucks.

http://en.wikipedia.org/wiki/Blue_sky_law

"just because I'm not rich?"

Yes for your own protection.

Because if you don't have money then the rest of society often becomes the "clean up the mess" of last resort if you make a mistake using one of your last dimes to invest in a potentially risky venture.

"but I'm not allowed to benefit from those investments in certain ways"

The chance of "gambling" is much higher if someone perceives a payout. Not to say there aren't many ways that people throw out their money (QVC, Casinos etc.) but those are grandfathered and part of a different discussion. (And the fact that they are allowed whether the same or different doesn't mean something else should also be allowed).

How do we let you invest in a business venture without preventing hucksters from getting Grandpa's investment in their sure-fire investment?

Preventing you from investing is the unintended consequence of preventing con-men from stealing retirement savings. In this case, I think the regulation is well-worth the cost.

> I've already "invested" money in Pebble, Reading Rainbow, and a few other business ventures I've seen potential in, but I'm not allowed to benefit from those investments in certain ways because, why, exactly? For my own protection?

Yes. The rationale is that when you "invest" in crowdfunded projects, you're really just purchasing a product in advance or making a donation. The law trusts that you can rationally decide what a product is really worth or how much money you should donate.

What the law doesn't trust you (as an unsophisticated investor) to decide is what the expected return on a speculative venture will be. The concern is that as soon as someone promises you a high rate of return, you're not going to think about this rationally -- i.e. you're going to think of this more as gambling than an investment. In the specific case of crowdfunding, there's not too much worry that someone is going to blow large amounts of money on a Kickstarter if all they're getting out of it is a couple of Oculus Rift headsets. But if that Kickstarter could promise 1000x returns, that might be bad news for someone's college fund.

The SEC has decided to use income and net worth as a proxy for ability to properly evaluate risks/benefits of unregistered offerings. Registered offerings require SEC approval and much more disclosure, which protect investors. Income and net worth are a blunt way of getting to adequate sophistication.

Money raised through Kickstarter and Indiegogo aren't covered by these provisions, so you're good on your "investments" in Pebble and RR if they are via those platforms. Good use of air quotes, since you're not really participating on the equity upside.

From a macro view, one can argue that the current limitations perpetuate prosperity for the wealthy, while denying everyone else access to higher-performing alternative investments.

I'm not a fan of accredited investor requirements. At the same time, you're misstating the posture of the regulations somewhat. The accredited investor requirements don't directly prevent you from investing your money in particular ventures. Instead, they create an exception to the general rule that any entity selling securities to the public must register those securities with the SEC and abide by disclosure requirements.[1] The accredited investor exception is just one of several exceptions to the SEC's registration rules.

The purpose of the regulations is deeper than just protecting you, the individual investor. Originally, the regulations were created because of the systematic effects resulting from selling investments to the general public. When a whole bunch of people lose their retirement savings to bad investments, it's something the government ends up having to deal with, and "it's your fault" isn't a politically tenable answer. Not to mention, when these sham investments go under, they create a lot of collateral damage.

In modern times, the securities laws have been rationalized as a response to the information asymmetry that exists between sellers of securities and investors.[2] The nature of this asymmetry is that sellers have a lot more information about the investment than buyers do, and can use this advantage to systematically undermine the market.

Now, and this part is editorializing, the problem with the accredited investor exception is that it misunderstands the nature of what the securities laws exist to correct. The focus on "investor sophistication" is totally misplaced. In economic terms, the relevant asymmetry is not the asymmetry is sophistication between sellers and investors. It is the asymmetry in inside information. While accredited investors are likely to be more financially sophisticated, they are not any more likely to have more inside information than members of the general public. Thus, the rationale behind creating exceptions to the disclosure requirements doesn't hold.

[1] http://www.sec.gov/answers/accred.htm

[2] http://en.wikipedia.org/wiki/Market_failure ("Some markets can fail due to the nature of their exchange. Markets may have significant transaction costs, agency problems, or informational asymmetry. Such incomplete markets may result in economic inefficiency but also a possibility of improving efficiency through market, legal, and regulatory remedies. From contract theory, decisions in transactions where one party has more or better information than the other is an asymmetry. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry. Examples of this problem are adverse selection and moral hazard. Most commonly, information asymmetries are studied in the context of principal–agent problems. George Akerlof, Michael Spence, and Joseph E. Stiglitz developed the idea and shared the 2001 Nobel Prize in Economics")

Because rich people can afford to lose their money, but you presumably cannot.

Or more cynically, because only rich people are allowed to be rich.

Because our laws are increasingly written for the least common denominator. Some citizens might be scammed by these investments; therefore, we all must forgo the ability to spend our own money on them. Its hard not to be cynical and see this as another leg in a race towards mediocrity.

Because 1929.

Because no matter what your age, if you're poor, the SEC treats you like you're five.

If you are not already rich, the SEC feels it must protect you from yourself, as if you were a child reaching for a hot stove. No matter how many degrees or professional-certifications you have, nor how much domain-expertise you have, nor how wisely your wealth is portfolio-balanced, nor how excellent your credit-score, when you don't pass a firm wealth-test, the SEC is still allowed to discriminate against you as a poor person.

On the other hand, if you've inherited a million dollars, you're obviously brilliant and self-reliant! Here, run through Demo Day with these diamond-plated scissors and your checkbook!

Remember, if you're poor, you're still allowed to buy no-money-down houses at cyclical peaks, or public stocks on deep margins, or derivatives that expire worthless. You may donate all your money to projects you like, with no expectation of monetary reward other than a t-shirt or other symbolic trinkets. You may also max your credit cards and buy state lottery tickets! In fact, you've probably already enjoyed our emotional, misleading ad campaigns encouraging you to do that.

Just no private equity with any chance of recouping any value for you. That's for the Lords, not you poor peons.

It's comical that the $ amount requirements to invest haven't been adjusted for 30 years, but the real issue stems from the consequence of a rule created in the 80s. Tell me the last time you checked a stock price in a newspaper?!

Better they manage someone else's money than their own?