> 4. But really, it won't work. People will lose money. There will be lawsuits and complaints.

I think this will be a common result. When these investments fail (as most of them will) the investors will cry "fraud" and "scam". The cost of defending against these lawsuits will end up overwhelming many of these fledgling start-ups. In the end, the "cost" of raising this money will be higher than it appears on the surface.