Exactly. The article is not saying it's insane to allow Kickstarter donations, it's insane that current law makes it just fine to donate to a risky venture but not to invest and get a chance to share in the venture's upside.
An investment is not supposed to be a permanent and total loss of capital. On the contrary, the intent is to get more out than you put in. People depend on their investments for their financial futures. And there is a well-documented history of vast numbers of people losing everything to bad investments, especially investments pushed by scam artists from the small to the very large (like Madoff and Stanford).
This retains most of your words, but what you find insane is less ambiguous now.