How does the SEC define the difference between a public and a private offering? I wonder if there might be some way to get around that.

Ever since the 1930s, if you want to sell shares (or any other investment opportunity) to the public, you have to file a document with the Securities and Exchange Commission describing what it is you do (and/or plan to do) and all of the risks that a reasonable investor would want to know about, and THEN the SEC, after reading this document, has to give you the thumbs-up that they agree you have done an adequate job of describing the risks. After that said document will become publicly available on the SEC’s website for the public to read.

This is a fairly simple principle, really, but the mechanics are rather a pain. It would certainly be a significant obstacle to your average indy developer. In part this is because describing everything that can go wrong with your idea is just inherently difficult; in part it’s because you have to convince the SEC staff (who may or may not understand your idea) that you have described everything that can go wrong; in part it’s because once this document is out there, investors can sue you on the basis that it contains a material omission or misstatement of fact that, had said investor known upfront, would have changed his or her decision to invest.

So … yeah, it’s the paperwork. But the effect of the paperwork is not to make small investments not-worthwhile directly. Because it is inherently difficult to describe everything that can go wrong with an idea when it IS just an idea, people who are looking for investors in ideas tend to get around this disclosure requirement by simply NOT offering shares to the public. If you’re only offering shares to a small, non-public group of people, you don’t have to tell them anything (the theory being that they will simply withhold their money until they feel you’ve told them enough). But of course, by definition, if you are only talking to a small group of people, each individual in that group will have to put up a sizable amount of cash.