Ahh, well in that case you've got all sorts of new problems.

If it's structured so that the fund owns the share and the 100 people own the fund then you have the problem that there's all sorts of regulations saying that only "accredited investors" (ie. very rich people) can invest in venture capital funds.

Or if it's structured so that the 100 people own small shares directly, you're setting the company up for all sorts of troubles in the future. In particular, a lot of later-stage VCs and/or potential acquirers won't like it if there's a hundred tiny shareholders floating around -- too much potential trouble involved.

That said, there might be a way to do it, and I'm not a lawyer, etc.

I've been thinking a lot about this problem and recently had a similar, in-depth discussion with a group of friends. The essential model is a VC firm that pools together the small investments of private individuals, presenting that pooled capital to startup X, and splitting up the equity that's exchanged for the investment among the individuals who invested in it. Those investors, in addition to just money, would offer the Startup X whatever resources they can provide. At first glance, it seems like a great model, and it very well could be viable, if you can think through the following problems and come up with solutions:

- Privacy concerns. Someone has raised the issue on this thread already- private companies are not like public companies; they do not have to disclose their operations, finances, etc. because it is not in their own interest to do so. In this model, what's to keep a competitor from making a small investment in the company and finding out the nitty-gritty details of Startup X's strategy? For this model to work, privacy would have to be granular, meaning only the VC firm that pools together the investments is privy to all of Startup X's private information, while the individual investors do not get total access. Would individual investors still pursue such an investment, when they do not have access to complete information? The answer is uncertain.

- VC resources- As far as Startup X is concerned, if they are a viable business with high potential, why would they accept money from this VC instead of going a traditional route, where they can get access to experienced VC's with resources, connections, and expertise? A discerning entrepreneur would realize that, while these individual investors certainly could have something to contribute by way of resources and could even provide strength in numbers, the fact that they are making small investments might mean that they are small-time investors and are not that successful in the field. That, to me, would indicate that they don't have the kind of resources from a VC that I need for success. If I were in that position, I'd rather even take money in the form of a loan, given the previous privacy concerns I've mentioned.

- As tricky said, "managing the noise". Let's, for the sake of argument, say that Startup X DOES get 100 investors that can each offer some resources that would be of help to the firm. Of course, if you are an individual offering your money, time, and resources to a firm, you have a strong opinion on what the firm should do. As a startup in this situation, I could imagine facing a lot of pressure from a number of opinionated individual investors in a situation where you are not equipped to handle that pressure. An early-stage firm should focus on building a product and positioning itself to users, not on delivering results to its investors. In fact, startups already face enough pressure, in many cases, from VC firms to cash out early-- you think they'd want to take on even more?

These are just some of the problems I came up with. I'm sure there are numerous more, but hopefully one day one of us can think through the equation and figure out a good solution. I'm CERTAIN that this model will succeed one day, if only because early-stage investments are getting smaller and smaller to reflect the lower costs of entry for web-based startups. Let's think away.