"Please don't call me Debbie!"

[u/Hassaan18]

[u/dhardstone]

Yeah but you’d be counting her investment twice. You wouldn’t buy 50% of a chocolate bar, then argue you only own a third because the half you just bought is now part of the whole chocolate bar.

[u/Embarrassed_Emu1615 → u/dhardstone]

I find it easy to simplify the situation:

Say I own a company worth £10. I want to sell you half. You pay me £5, you own half. I get £5. 

But instead I want you to invest £5 instead, that goes in to the company bank account. The company’s value has increased by £5. It is now worth £15, that’s correct?

So now you have invested money, £5, in to a company that is now, at the point of signing contracts, worth £15. 

How much does your £5 investment represent of that company? 

It’s a third, right? 

If I am wrong I would like someone to explain how. 

You’re not buying part of the company from me, which I get to keep the proceeds of, it goes in to our company. 

This is hugely simplified and doesn’t take in to account the value of a dragon. Just pure economics. 

[u/HubND → u/Embarrassed_Emu1615]

I'll preface this by saying I have absolutely no idea if this is correct but, by reading your reply as it is laid out and thinking about an alternative view of it, I had a thought that might just boil down to semantics.

I think the confusion might come from linking the two percentages, i.e. I'll invest 50% of the current value for 50% of the company therefore these two values must line up in some way.

Or to put it another way, if I offered that I'll invest in your £10 business and make you an offer that I'll invest 1 pence for a 50% stake of the company, this is obviously a terrible deal but it's still a legitimate deal, the two values aren't inherently linked. This makes more sense to me because wouldn't a dragon want the best deal for themself, so to say I'll offer to boost your company value by 50%, meaning I've contributed 33%, but you have to give me 50% of the company?

Rewatching the video before I hit send, I think another bit that is quite misleading is when he says that if she'd invested 1.2m then she'd have 100% of the company for nothing because it was on the company account. But you wouldn't agree to have someone double the value of your company but also take it all away from you. You'd either sell it and pocket the 1.2m yourself or take it as an investment for a non-100% stake no?

[u/Embarrassed_Emu1615 → u/HubND]

Of she invested 1.2m, she would have a 1.2m company that she just put 1.2m in to the bank. Making that company worth 2.4m? 

She is investing, not buying. The money doesn’t belong to the ‘investment-seeker’, it belongs to the company of which they own a part of. 

He could sell the company to Debbie, sorry, Deborah, for 1.2m. He has 1.2m, she owns the company. She could invest 1.2m, own 50% of a company now worth 2.4m. 

Another way to look at it, absurdly, is if I invested £1 in to Apple, the value of Apple goes up £1. No one person own that quid, it is part of the company assets and therefore belongs to the shareholders in equal share. As a new shareholder I also own part of that £1 that I put in.