When you are raising money, it is tempting to take whatever money that you can get.  However, the SEC strictly regulates the sale of securities - and your raise of private equity counts as a security.  Most private placements are exempt from various registration requirements under so-called "Reg D exemptions".  However, you have to comply with Reg D in order to get the exemption.  This is where a really good securities attorney is really important.

Also important, is the type of investor whose money you accept.  Reg D limits the number of so-called non-accredited investors.  What is an accredited investor?  Your corporate attorney will give you the details, but in effect, an accredited investor is one who has significant annual income (several hundred thousand dollars per year, consistently) OR has significant personal assets (Million + in personal assets).  There are other categories, such as founders of the company, trusts or banks and other institutions.  But if you are raising an angel round of funding, you MUST be in compliance with these regulations.

Generally, your attorney will provide you with a template questionnaire that each investor will fill out that identifes under which criteria they are accredited.  By having each investor certify that they are savvy enough and have enough resources to make a private investment (without the SEC watching over every detail, such as in a public stock), you are protected both in the case of something going south with the company, and in the eyes of the securities agencies. 

It is "possible" to take investment from non-accredited investors, there are limits under Reg D.  However, you also must make EXTRA disclosures to these investors to ensure that they are fully informed of the risks, including the risk of the loss of all of their investment.  My fav. corporate attorneys at Stoel (stoel.com) tell me that the problem is, how can you be sure that you've done "enough" disclosing in case of trouble.  Their advice, don't take non-accredited investors.  And that's my advice too - save yourself time, effort, headache and risk and stick with investors who really are savvy enough with enough resources to survive any potential losses - those who are accredited.