Angel investors are flying high in the Triangle -- they invested an estimated $40 million in local startups last year, according to the Council for Entrepreneurial Development, a support group for entrepreneurs.

Angels tend to be successful business executives or entrepreneurs. They often provide intellectual value, in the form of business counsel and contacts, among with much-needed cash.

And they often tap into their network of contacts to find investment opportunities.

Randy Bye said he has never invested in a startup unless he knew -- and trusted -- someone involved with the company in some way.

"There is so much risk involved and so much uncertainty," he said. "When you have friendships that go back years and years, that's more important than" any business plan or other information the entrepreneur may provide.

Still, he only allocates a small slice of his investment portfolio -- no more than 5 percent -- to startups. "I feel if I lose it all, it's not going to affect my lifestyle," Bye said.

Indeed, Bye, like most angels, is an accredited investor.

Under securities regulations, such investors must have a net worth of $1 million or a $200,000-plus individual annual income each of the two years before he or she invests, plus a reasonable expectation of exceeding $200,000 income in the current year.

The thinking is that, if you're accredited, you can afford to lose your shirt -- because you have a closet full of them.

On the other side of the table, many startups limit their fundraising efforts to accredited investors.

If they don't, they can be subject to greater disclosure requirements that are more expensive to comply with, said Jim Verdonik, a lawyer with Daniels, Daniels &Verdonik in Durham.

Also, companies prefer not to have a lot of small backers, Verdonik said. The reason: Fielding calls from a legion of investors who want status updates can be a drain on management's time.

Verdonik advises his startup clients to solicit money exclusively from accredited investors.

But it's tough for even other entrepreneurs to evaluate the prospects of a startup because there are so many moving parts: The management team. The technology. The distribution channel. The market. The unknown.

Some issues to explore before pulling the trigger on an investment:

* Has the management team been successful in the past? More than anything else, angel investors are investing in people, said Ryan Tyler, who heads RBC Centura's investment banking business.

* Are you comfortable with the management? "I don't care how good the opportunity looks. If the management team isn't right, you walk," said Bill Warner, a veteran angel investor and founder and managing partner of Paladin and Associates, a Triangle business consulting firm.

* Be wary of the accidental entrepreneur. Someone who was just fired or laid off from his or her job is "more apt to cut corners" in launching a startup, Tyler said.

* How much salary is the entrepreneur pulling in? "I want to know there is a willingness to sacrifice," Tyler said. "If someone is starting a business, it shouldn't be extremely lucrative for them at first. They should be willing to work for the long term."

* Does the product or service solve a problem? And is the target audience willing to spend money to solve that problem?

* Is the product clearly differentiated? Is it the best?

* Is it a large, growing market?

* How is the company going to achieve positive cash flow in the next couple of years? "I really want to know how, in the next 12 or 24 months, are they going to make payroll?" Tyler said.

The issues are so complex that many angel investors join forces, either formally or informally.

Lowering their risks

By teaming up, angel investors get the group's collective wisdom. And they get the opportunity to lower their risk through diversification: Rather than investing $50,000 in one startup, group members can invest $5,000 each in 10 startups.

Some groups require an upfront commitment, typically a $50,000 minimum, said Horace Stimson, founder of the Piedmont Angel Network in Greensboro. In these groups, investment decisions are made by the majority.

Other groups, such as the Triangle Accredited Capital Forum, function as informal networks and don't require any commitment up front. Members decide for themselves whether to invest in individual companies, which make presentations to the group.

Triangle Accredited has 95 members who have invested $3 million in 23 companies, said Warner, the group's chairman.

Other angel investors team up with a small group of friends.

That's what Bye has done. He and five friends have collaborated to invest about $200,000 in four startups over the past four years. None of those investments have paid off, but none of the companies have gone belly up, either.

Bye is optimistic and realistic about the companies' prospects and confident that their value has appreciated significantly.

But he said, "The only dollar amount that matters is when we cash out."

And there's no way of knowing when -- or if -- that will happen.