Investor angels are wealthy individuals who like to invest in new and troubled companies that appear to have a lot of upside potential.

How It Works: You provide your potential investors with a business plan and review it with them. Normally, you state in your plan how much capital you plan to raise and the minimum amount you need to raise before you can touch any new money that has been invested. Private placements can range from $50,000 to millions of dollars.

Investors receive common or preferred stock, or combinations of both, and in some cases warrants for additional shares as well. Preferred stock usually involves some rate of guaranteed interest paid on the invested funds. Warrants allow earlier buyers of the stock a chance to buy additional shares at the same amount should the value of the shares rise.

Before raising private capital, speak to a securities attorney to make sure you are following the laws of the state in which you are located. In addition, there are federal regulations that need to be followed.

Raising private capital can take as little as 30 days or as long as a year. Usually, if companies can raise capital within six months, they either don't need it or they are out of business.

Preparation Expectations: Write a full business plan that shows past financial statements, current cash flow and projected profit and loss for up to five years. Invite investors to the company's offices to meet your management team and the employees.

Advantages: Companies don't have to put up any collateral and can sometimes leverage the money raised in a private offering to get state grants.

Disadvantages: Management can lose a lot of sleep taking other people's money, since most managers feel a personal sense of obligation. Sometimes private investors want a certain amount of control before they invest. They feel the need to protect themselves in case you make bad decisions. This control can come in the form of having board seats and voting control of the company. Conceivably, the owner can be removed without cause.

Make sure you know what the person's business savvy, experience and mental make up before you take his or her money. If the person can't afford to lose their investment or doesn't understand the business, they could be a major thorn in management's side.

How To Keep Them Happy: Make them feel that they are part of the company's extended family. For instance, send them the same reports the company would send to its banker. Find out what contact investors may have that can lead to additional sales. Investors will put in more capital if they see management is making the right decisions, even if the decisions aren't panning out immediately.

Internet Address: abfd.com, along with bank contacts, provides a listing of investor angel groups. Sbaonline.sba.gov/hotlists provides links to investor angel networks in Massachusetts, New Hampshire, Pennsylvania, and Texas.