What are the biggest misconceptions about angel investing?

Depending on the parties involved, it's often more accurate to think of them as investing devils. If the first round investors are not close friends or family, assume that their only interest is a quick return on investment and that they will take whatever measures they are allowed to wrest control if they think they're smarter than the entrepreneurs. And since they have the money, assume they'll always think of themselves as smarter. Of course, that does not describe the entire class of angels. But you must protect yourself against the possibility that the friendly faces ready to write a check may be wearing masks.

Make sure you use your own lawyer, one who is well versed in corporate law. That means you must be prepared to spend a fair amount of money up-front to protect your own interests. Make sure you work with your lawyer to go through stockholder rights, employment agreements, board composition, and stock issuance rules and restrictions. Even if the investor is someone you trust completely, don't skimp on the legal.

Identify the list of things that you will not accept from an outside investor. This should include control, succession, board composition, etc. Review the list with counsel and make sure you are not over-specifying.

If you come to a point where the potential investor won't budge on one of your red line issues, be ready to walk away. There's a reason the issue is important to both of you. If you are unable to agree on something that matters so much to each side, the end result of folding and accepting the investment will likely be unhappy.

Keep in mind that most such investments probably work out ok for the entrepreneur. But if you've misread the persons you're dealing with, the formal agreements are where you'll find whether you get to keep your business or not.

Robert provided a nice summary.

A great idea to control angel investors that I have used is to put them all in one LLC. When it then comes to reporting or getting signatures, there is only one place to go. You can take the burden of dealing with dozens of investors and their quirks to only dealing with one.

Robert brings up an important issue, whether you use Angel's, VC, friends, family of the local loan shark.

When you go into a relationship with a "partner" whose access to cash far outweighs your own, you are for all intents and purposes selling your company to them.

Need a fash cash infusion... The bank probably won't give you or can't give you in time frame you need the cash, so you go to the investor. Even if their equity stake doesn't increase, they are now also a major credit holder.

Now take the rest of Robert's sage advice and go forward and find a really good investor (no sarcasm intended).

Actually, many of these comments speak to the actual question - misconceptions of who and what Angels are for. There are a variety of types of angels and each of them have different priorities and strategies. So the first misconception would be; They are all the same. There is an excellent book called "Finding Your Wings: How to Locate Private Investors to Fund Your Venture" http://ow.ly/mbv82 which I highly recommend as it details the motivations of separate types of Angels.

The next critical issue is to determine whether the Angel is a professional investor or just a well off person trying to help out. Only deal with professionals, do your own due diligence, find out who they have invested with, how active they were with the investment etc. The worst thing that can happen is getting involved with a non-professional.

Angels do tend to work in groups. Each putting in small amounts and sharing the due diligence activities. They are seasoned and go about their work in a methodical practiced manner. The entrepreneur will have little or no say on how the Angel group will structure the relationship and attempts to dictate how things go leads me to my next point....

And lastly, the biggest misconception, at least initially, about all forms of investors is that they care about your idea. They don't. They are desperately looking for the first place in the conversation where they can say, "thank you very much and good luck." Investors are fielding tons of calls and invites and the first moment they can turn their attention to something else they will. So like walking a tightrope, stay focused on keeping out of the safety net. It takes the same amount of skill and practice to stay on the wire as it does landing an investor.

That you don't need an exit strategy developed before you start talking to any investor. Better know what you want at the end so that you can find the investors who will agree to use your documents and paper to ensure your attorney is allowed to get the best deal they can for you.

Another misconception is thinking you don't need a well versed attorney related to startups and how to structure the deal.

Be smart, hire smart advisors.