Working with Angel Investors

[WeddedBliss]

Soon, I will be looking for investors for my project but I am fuzzy on the details of how they work. If I end up needing $80,000 from an angel investor to get my project off the ground and running, how does that translate back to them?

Do they own a portion of the company indefinitely/how much?
Do I pay them back plus interest and then their involvement is through?

I do not have any personal funds for this so, if someone else is paying for everything, what are they entitled to?

Also, this project will be done in 3 Phases. Do I search for investors who will commit to all three? If an investor only commits to one, what is their entitlement after I move on to the next phase?

This is all so confusing!

[veikoh]

Angel investors usually want to participate activly managing the company and putting their experience with money money into it as well.
They take part of ownership. In previous busines model, first you got Angel money few hundred thousands, then Venture Capital put their millions in and after that it went to public by IPO so everyone could sell their shares in open market.
As open market doesn't much work anymore, investors would like to have management buyout plan from your cash flow. So practically they lend you money against ownership of the company.
How much and what conditions is fully negotiatible depending on your business nature. But you better check SBA loans or something out first as those will be much cheaper option for you.

[JKansas]

Angel investors can pretty much ask for whatever they want. It can be debt, convertible debt, equity, all of the above... etc. If you are asking those questions I suggest you really do some reading on contracts, angel investors, and partnerships. Educate yourself so that you do not get cheated by an investor.

To answer yoru questions:

1. If they trade capital for equity, then yes. They own it until they sell it. Either back to you or to someone else.
2. This is possible, I think most if doing this will chose convertible debt, where if certain things aren't met their debt is converted to equity. But don't think bank interest rates, think multiples.

[kevinkllewis]

I agree with JKansas. You should really educate yourself about the inner workings of angel investing. They do have the ability to fund your projects fairly easily. However, what it costs you in the long run may or may not be worth it to you. At the risk of discouraging you I will tell you that I have seen angel investors completely restructure a particular company they invested in leaving the owner completely helpless. I have also seen angel investors participate silently. They did not get involved in the operations of the company. They only contracted for a certain percentage of the profits from the business. The best advice I could give is to be careful when you are choosing your investment partners and really research their expected outcomes before you choose them.