That market exists, and it's called pink sheets and penny stocks.

This will attract all sorts of scammy pump-and-dump schemes that will convince the public that FOR LIMITED TIME ONLY they have an UNBELIEVABLE OPPORTUNITY to invest at LOW-LOW PRICES.

Like it or not, but investment banks have access to a cadre of accredited retail and institutional investors, so they serve as a filter between legitimate opportunities and outright scams.

Same filter could be achieved, if you got a bunch of emails from accredited investors and just set up a Google group for them.

As usual, the middleman is not really needed. Or they wouldn't be if a new stock exchange was designed to make this process easier. I guess this is essentially what Second Market is trying to circumvent. If the shares of companies can be traded even in small amounts before going public the companies have a better idea what they are worth on the open market.

No! A thousand times no! Second Market's bid/offer spreads are enormous compared to the public stock market. Second Market is a web facade on a straight-forward over-the-counter trading operation.

While the idea of doing a 'soft launch' IPO by building up from a toe-in-the-water market makes some sense, the reason that Second Market is being looked at hard by the SEC is because it's doing something that should be regulated far more than it is (because they're using accredited investor exemptions to get around the various disclosure/oversight rules).