The SEC's announcement last week that it is was considering relaxing the rules around private shares was met with strong reaction from the VC community.

New York investor Roger Ehrenberg penned a post this morning for Fortune arguing that the private markets were in need of some rationality. He focused quite a bit on the accredited investor, since only they are allowed to purchase priavte shares.

An accredited investor is defined by the SEC as, among other criteria: a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase.

That's not a  terribly high barrier for entry between two people. And considering the current climate for tech start-ups, Ehrenberg points out, "Weakening the already-broken accredited investor rules would only lead to greater numbers of fools rushing in at precisely the wrong time."

First Mark Capital's Lawrence Lenihan described the problem to Betabeat yesterday. "Just because you can afford to buy a car, doesn't mean you know how to drive one."

A potential solution, put forth by Lenihan and Barry Silbert, CEO of SecondMarket, is a standardized test to determine whether or not an investor is intelligent enough to be "accredited", that is, make sound investments in a private market where there is less information available.

But what kind of test could really determine intelligence when it comes to investing in young tech companies? Take yourself back to 2003. Number two pencils only please.

The social network with the best business model is:

1. Friendster
2. Beebo
3. Myspace
4. Facebook

The notion that we might find a magic formula for a accredited investor, beyond someone who can afford to wager their money in the markets, belies the simple truth experienced VCs learned the hard way. You don't always, or often, pick winners.

UPDATE: As a continuing side note on the world of accredited investors, its worth checking out Dennis Berman's piece of stunt journalism in the Wall Street Journal. Berman managed to sign up his dear old grandma for Sharepost, and since she qualified as an accredited investor, let her jump into the frenzy for buying up shares in Facebook. The catch? She's been dead for twenty years.

Can we all just relax?

News broke this morning that the SEC is thinking about relaxing the limit that keeps private companies from having more than 500 shareholders. It's a move that would reshape the tech world, making it possible for companies to significantly delay their IPOs by relying on a broad pool of wealthy individuals to provide them capital to grow. It's troubling as well, since it would mean more small investors putting money into firms that don't make their financials public.

"Just because you can afford a car, doesn't mean you know how to drive one," quipped Larry Lenihan, CEO of First Mark Capital and a board member at SecondMarket, in a call this morning. "Bitch and moan and call me a socialist, but people do need to be protected from themselves," said Lenihan. "While I think it makes sense to relax the shareholder limit and the general solicitation ban, this has to come with new regulations and increased transparency in the private markets."

Union Square Ventures' Fred Wilson had the opposite reaction to the news. "The best companies will most likely eventually go public and deal with the issues that being a public company presents, but the value creation that occurs pre-IPO has been and will likely to continue to be very significant," he wrote no his blog, A VC. "And it would be a fantastic outcome if the SEC decides to allow the general public to be a more active participant in the value creation that happens while companies are still privately held."

Some in the New York venture community see the focus on private markets as misplaced. "I think the SEC and White House should be focused on helping small companies to go public," Greycroft's Alan Patricof told Betabeat by phone. "That would have a greater benefit for entrepreneurs and our economy than expanding the scope of these private markets."

According to the WSJ story, the average number of IPOs each year has plummeted, from 503 during the 1990s to 130 during the aughts. At the same the transactions in private shares has jumped from $2.4 billion in 2009 to $4.6 billion last year. But has the general public really missed out on an enormous opportunity, as Wilson suggests? Certainly LPs in the nation's top venture funds may have seen great returns, and USV has some big winners in its portfolio of private companies. But as an industry, venture returns over the last decade have been flat to negative.

If the SEC's response to the boom in private markets is to broaden access to them, both by increasing the pool of possible stake holders and relaxing the ban on soliciting buyers, then it needs to put in place new rules as well. That would help to ensure that platforms like SecondMarket and Sharepost become a productive new paradigm for funding young companies, not an artifact of the cyclical boom and bust in tech, with a new class of smaller investors left holding the bag.