When it comes to raising money these days, many company founders are giving up on venture capital and banks, and are attempting to cut deals with "angels." Hard numbers don't exist, but what evidence there is suggests the flock of angels (private individuals who are willing to weigh investments of $10,000 to $50,000) has multiplied in recent years. Still, people who have raised money through angels say it's risky to move too fast; before raising capital it's a good idea, they advise, to make sure your interests aren't in conflict with your investors'.

"When you're trying to build a company, you really don't want to waste time and energy bickering with outside investors," notes Tom Burke, treasurer of Dark-to-Light, a maker of light controls in Pembroke, Mass. So here are some key areas to check out before finalizing any deals:

How involved do the investors want to be? Sometimes angels want to be a lot more than passive investors. They may think they have something important to add besides money. To avoid problems in that area, it's best to be frank about what the company needs (and doesn't need), says Tom Culver, president of SmartPay, a $2.5-million data-processing company in Council Bluffs, Iowa. To balance the needs of investors and those of the company, Culver worked out a system whereby one of his six angels is more involved than the others and acts as the information conduit for the other five.

How do they feel about dilution of their interest? What happens if the money you raise from angels isn't enough? How would the investors feel if you raised money from other sources and their stake was watered down? Culver asked that question early. "My angels said they wanted the option to put in more money to avoid dilution."

What is their time frame for exit? If you're positioning your company for the long term, the last thing you want is angels whose aim is to cash out next year. "You want people to know what direction the boat is going," says Bob Singer, president of ElectroBionics, an Ankeny, Iowa, company that is developing programmable elbow braces for quadriplegics. He worked out a deal whereby his angel is committed to holding the stock for at least five years. After that, the angel may ask to be bought out at the appraised value -- or, alternatively, the company may offer to buy him out at that price.

-- Bruce G. Posner

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