To be perfectly honest, reading this was quite a shock, though. This is (loosely) the idea I have outlined for RailsRumble 08, coming up this weekend. Ours will not (at first) involve exchange of real money, but the concept will be the same: 'Normal' people will be able to choose startups they find promising and invest in them.
Seriously, talk to a lawyer.
There're certain situations where you need to be an "accredited investor" (liquid net worth > $1M) to take money from the public. I know hedge funds are one of these; I think private companies are another. If a private company has more than a certain number of shareholders, they need to file disclosures as if they were a public company; this is why Google went public. These protections were put in place after the crash of 29, when a great many ordinary investors lost their money investing in companies that weren't much more than a piece of paper.
Again, talk to a lawyer. This is one area you don't want to dick around in without good legal advice.
I'm guessing that it has everything to do with a real return not being guaranteed. Same goes for Prosper.com and MicroPledge. Anyone can raise money for anything on the Internet: folks do whip-rounds via Paypal to buy friends a new laptop. But if you want the legal guarantees of stock ownership, etc, you need to file the appropriate disclosures.
</not-legal-advice>
You need to be an accredited investor to put money into a hedge fund.
Anyway, what the world really needs is not a new stock market but rather a new banking system.