Early last year, when Bob Iverson and his five cofounders set out to raise start-up capital for Kiwi International Air Lines, they didn't even bother talking to venture capitalists or large institutions. Instead, the founders (most of whom were veteran pilots for the now-defunct Eastern Air Lines) pitched their plan to individuals they thought would be most receptive: their former colleagues, many of whom, they thought, aspired to become not just shareholders but employees.

They weren't disappointed. Within six months the founders of Kiwi, based in Newark, N.J., had sold about $7 million in stock to some 140 ex-colleagues (each of whom bought at least $50,000 worth); and by late September operations had begun.

The idea for Kiwi's financing, notes Iverson, who's been in aviation for 26 years, was born of necessity. Not only did the new carrier want money to obtain aircraft, gain certification, and begin marketing, but its founders also wanted to assemble a team of experienced and dedicated people. What better way to bind future employees to a business, the founders figured, than to invite them to put up cash? Developing a list of good prospects was easy, says Iverson. "We all had names of pilots and managers we had worked with." Given the extent of those contacts -- and the fact that most met the Securities and Exchange Commission's standards for "accredited" investors (generally defined as people with at least $200,000 in income or $1 million in net worth) -- Kiwi opted to do its offering without an underwriter, under Regulation D of the Securities Act of 1933. For Kiwi pilots and managers, investing wasn't an option; it was a requirement. "It's really the first step in our employment screen," Iverson explains. "We want people to take a financial risk, and we tell them about it up front." (Most of the initial investors, he notes, either dipped into their retirement savings or took out personal loans.)

As of last March the company had hired about 90 of its 140 charter investors; more of them are expected to join the staff ranks as the airline expands from 5 to as many as 10 aircraft by year-end. The company, running at an annualized revenue rate of about $45 million, also plans to do a new stock offering later this year to nonmanagement employees, each of whom will be expected to invest a minimum of $5,000.

How will Kiwi's employees be able to liquidate their investments? And what happens if an investor stops working for the company? In the near term, the offering documents point out, there's no mechanism for investors to get their money out. But if the company is successful, Iverson says, "we'll think about going public in a few years."

-- Bruce G. Posner