I have a lot of experience here because
a) in 2005 I started something called "The Business Experiment" which was an attempt to have a purely crowd sourced business. (
http://www.fastcompany.com/magazine/101/next-essay.html) At the time, I spent a lot of my own money on lawyers trying to figure out how to give equity to people who aren't accredited investors.
b)I have since raised $10.5M in venture capital for Backupify.com, so I have also learned that side of the world.
From my view, allowing anybody to invest a few hundred or a few thousand dollars in a startup is a bad idea for a few reasons. First of all, the startup world is glamorized by the media. Most startups fail. Most capital is erased. No one writes about those companies, unless the failure is spectacular. Studies have shown that on average, entrepreneurs will do better financially in the "real world" of work than in startups. But the media doesn't play this up, and as a result, society has a bias that is a combination of the survivorship bias and recency bias that makes them think startups are a good investment. Many wealthy people that I have dealt with don't really understand the odds and risks of startups, so all the less likely that your average Joe can do it.
Secondly, capital structure matters a lot as your company grows. If you are successful, a bad capital structure can really fuck you over down the road when you need bigger rounds. And some issues require a shareholder vote. Average Joe doesn't know how to deal with these issues, and that scares professional investors. An idea like this will get a lot of companies seed capital, and they won't be able to raise later stage.
Third point - startups are really fucking hard, and will strain all of your relationships in your life, including those with your investors. Hell, Backupify is doing pretty well and it's still hard. Having to manage a bunch of small investors can be a nightmare, and going through difficult times with people you barely know, who don't do this professionally, will just make it worse.
Here is my prediction about how this legislation plays out.
1. It will eventually pass, because it is sexy and cool and part of the American dream.
2. Media will point to examples of companies getting funded that wouldn't normally get VC/Angel funding, to show how great it is. These examples will be thinks like companies outside of major startup hubs, companies that don't put profit/shareholder value / growth first, companies that are highly unusual, weird, or even too risky for VC, and companies that have non-sexy ideas that can't get VC because they aren't mobile/social/sharing/whatever.
3. Many will fail, but there will be at least one massive success, and that success will become the poster child for why this works.
4. But really, it won't work. People will lose money. There will be lawsuits and complaints. There will be a bubble after point #3 happens, and some 60ish dude will invest too much of his retirement in a dozen startups only to see every one of them fail and his whole net worth wiped out.
5. There will be outcry against this, and we will pass laws to regulate it, taking us back to where we began, only in a much worse situation.
Now, all that said, I will say there is probably room for a new investment scenario under two conditions.
1. The amount is so low it doesn't matter. For example, the bar is $100 and you can't invest in more than 5 at any one time. This makes your returns so small, even with homeruns, to be almost irrelevant, but maybe it's fun and cool and people will like it.
2. There is probably room for an "almost accredited investor" clause. I'm a perfect example for this. I'm not quite accredited, but probably will be by this time next year. I understand startups quite well. So maybe a clause saying that if you have worked 2 years in a venture backed startup, you can invest up to $10K, that might be ok.
Anyway, those are my thoughts. It will be interesting to see how this will play out.