Microfinancing early stage startups

Rajesh Jain has a very interesting idea about a stock exchange for early stage companies.

Being an entrepreneur myself I couldn't agree more with the need for investors willing to invest in early stage companies. Micro financing the startups will not only dramatically reduce the barrier to entry for starting up a company fostering more and more innovation but will also bring self confidence to people making them more capable of taking risks. Some of the things that come to my mind:

- Investors should be aware that startups take a comparatively longer time to bring in return on their investments so patience is the key here. Instead of worrying about the short term quarterly profits they need to stay with the team.

- I hate to say this but the fact is "Startups have higher failure rates", thus, anyone investing should be very well aware that its a high risk --> high gain game.

- I would also propose the need such investors to play as mentors/advisor's for the startups they have invested in.. depending on their expertise in the domain. This will keep them more involved with the companies and probably give them a better handle on their investment, something that is not possible while investing in the blue chips. However, the final decision making should always be in the hands of the startup's management team lest small investors might bring in more trouble than good.

Any other thoughts?