I don't recommend angel investing for anyone who can't afford to lose a fairly substantial amount of money, which pretty much excludes anyone who isn't already an accredited investor. Finding the next Facebook or Google is a lot harder than you might think, and even if you did, they probably don't want your money. You are better off investing in your own self (education and the like).
Eliminating the wealth test would mainly benefit scammers.
I wouldn't 'recommend' it either. But there's a difference between 'not recommending' and 'effectively prohibiting via a wealth test'.
We don't prevent people from spending their entire net worth, and then some via loans, on poker or state lottery tickets. Nor do we include wealth tests against investing in public stocks, derivatives, real-estate, or dubious collectables – all of which can also 'go to zero' quite quickly, especially with easy access to leverage.
Is private investing, especially in things like friends/family/personal-expertise-related startups, so much more treacherous than these other things that it alone needs special protections?
Public stocks and the like are heavily regulated. If we let random people invest in startups, a bunch of people would get scammed out of their money, then there would be calls for more regulation to protect investors, which would only serve to hurt startups. Meanwhile, none of those little investors would make any money because the median startup is a bad investment (vs the median public company, which is an ok investment). Nearly all of the startup returns come from a small number of outliers, and those outliers will most likely continue getting funding from larger investors.
Public stocks and the like are heavily regulated, yes, and they can still drive anyone's bankroll to zero. And via leverage or iteration you can make them as risky and rapid-loss-prone as private investments (or even outright scams). See for example: forex, real-estate, and casino ads in every medium.
So this rule protects fools from losing their money in private investing, but they still have a thousand other ways to lose their money. Meanwhile, this rule also prevents lots of people of moderate means from making wise, moderate investments in areas they know well.
These sorts of from-the-masses, for-the-masses investments wouldn't necessarily follow the valley hit-driven model of "nearly all of the startup returns come from a small number of outliers".
But even if they did, why shouldn't people of all wealth levels be able to take their chances on finding an outlier? The current rule essentially says: the very best investments are only, by legal rule, allowed to the already-wealthy. Everyone else, here, buy a scratch-off.
What is "fairly substantial" here? $10k? $20k? $100k? I certainly know people willing to risk the first two but not the third (primarily early 30s professionals). $20k is plenty to participate in the seed round of a software startup. It seems silly to forbid people to invest an amount smaller than they would spend on a car (a guaranteed-depreciating asset over the next 10 years).
> You are better off investing in your own self (education and the like).
agreed, and wise. my attitude towards eating and exercise changed significantly once I looked at it as a form of investment. Only one that didn't take much money to do, mostly a little time and making different choices. A little life hack.
Eliminating the wealth test would mainly benefit scammers.