it is exactly that!! He's got confidence in me to get the business running and I've got confidence he won\t rip me off, but it'd be professional and prudent to protect each other??
It will protect your relationship with him too (i.e. helping avoid a fall out).
From what i've seen/experienced, most family/friend/acquaintance are happy to accept the downside risk associated with these types of less formal arrangement (e.g. I'll give you the money but I acknowledge that if the business fails I might not get anything back). This risk is at the forefront of any investor's mind, so the fact that he is prepared to invest on the terms you've mentioned suggests he has at least considered that risk (in principle at least!).
The greatest problem tends occurs when you look at who benefits from the upside (i.e. what if the business does far better than anticipated). This is rarely provided for at the time when the funds are put in.
To use a recent example which affected a friend of mine - he set up a business, a wealthy friend put in about £100,000 but wanted nothing to do with the business, only that he would be paid back £10,000 per year until the "loan" was repaid with interest. This wasn't properly documented (the two were close friends).
The business ended up really taking off. The investing partner (he was considered a partner since the "loan" was never properly documented as such) felt aggrieved that he had taken all the risk and was now not seeing any real return on his investment, compared to what the business was earning. Despite the best efforts of my friend to offer a better deal/return/share, the investing partner took him to the cleaners and walked away with the majority of the business.
This whole sorry tale could have been avoided if proper documentation had been put in place at the time. But no one ever things about a fall out when everything is running smoothly and even fewer consider a fall out arising as a result of a business doing well!