I don't know if I'm right about this, but it seems such an exchange might contribute to something like 2008. Then, it was the common man investing in over-heated real estate; now, it could become the common man investing in over-heated tech.
I feel like those who work in tech often forget that it can fail, have cycles of boom and bust, etc. like any other industry.
Of course, I do think it can serve a useful purpose, but there is reason early-stage, private investment is restricted to qualified investors.
The expected value of early stage investing is certainly higher than lotteries in the US. Every poor Joe can spend thousands on lottery tickets that expire worthless, but cannot invest thousands in real companies that Joe believes will do very well in the future. Shouldn't Joe have access to companies earlier, if he currently can access lottery games?
Two equally skilled investors each looking to invest $10,000 in the same company. Investor A is worth $10,000,000 while Investor B is worth $100,000.
Those two investments look the same on paper but the risk for each investor is wildly different. A test won’t solve for that.
It would be easy to regulate for anyone that makes, or is worth, less than "accredited" levels can only put in X% of their net worth. Doesn't need to have this arbitrary cutoff. I'd wager there are quite a few dumb people making over 200k.
An aside: Income as a method of determining "accredited"-ness is quite arbitrary. Many SWE in the valley easily qualify, where an equivalent SWE in Midwest US would not qualify, just because cost of living/wages are lower.
That’s arguable.
State lotteries are highly regulated and transparent and typically return 50% of their capital to participants.
In principle it’s more about why a poor person can access lotteries but not private investments, not the exact math on E[X]
A Joe Average is legally allowed to play all kinds of lotteries, pretty much guaranteed loss over long term.
A Joe Average is legally allowed to invest his 401k in the riskiest penny stock one can find.
This has nothing to do with risk, it's 100% gate keeping.
Every single time I see democratized access to riskier financial markets actually make it to the public, I can hold my breath and wait for the news reports to come out about the scams and grifters that come out of the woodwork to take advantage of little old grandmas, who wouldn't ever think of pulling the cash out from under the mattress that she's saving for little Penny's college fund and going to Vegas, but can easily be talked into "investing" it in the brand new wave of "tech" sweeping the nation.
It's not Joe Average these laws protect. It's Joe Average's less cognitively-blessed parents. It's so easy to fool old people that if we don't take positive steps to stop it from happening, it becomes an industry.
You can't get rid of all of it, but you can at least push the wolves out to the periphery.
Most 401ks do not allow individual stocks. Some do, but often with only a small % of total account value.
IRAs typically act more like a general equity account, but by that point I would argue a person is already a bit more financially savvy. If they have taken the time to either open an additional retirement account or roll a 401k over from a prior job, then they have some idea about penny stock risk.
However, equity crowdfunding platforms do exist. One example is CrowdCube.