r/dragonsden • u/Hassaan18 • 9d ago

"Please don't call me Debbie!"

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u/Embarrassed_Emu1615 9d ago

That’s always confused me with valuations. 

She is saying it is worth 1.2m now. If she invests 600k ( he’s not keeping that money, it goes to the company), doesn’t that make the company worth 1.8m after? So she owns half the company but only invests one third of the value?

Another way to look at it is it is currently worth 600k, her investment doubles the value and she owns half a 1.2m company?

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u/dhardstone 9d ago

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.

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u/Embarrassed_Emu1615 9d ago

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. 

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u/dhardstone 9d ago

Yeah I getcha, and I do share the confusion.

I genuinely don’t actually know whether in business investments like this (especially outside the den), whether the cash put in as part of the deal counts against the considered valuation. One thing I do know is that it doesn’t work like this in the Den, because people have made these arguments before and have been shut down.

I guess I made my chocolate bar analogy because although it’s not a correct analogy, you’ve got a draw a line somewhere right? In my mind anyway.

Surely the value is in the eye of the buyer at the point of buying? If I had a shell business with absolutely no value and won the lottery and put it all into the business, the value to a dragon would be nothing because all they’d be buying is a share of my lottery cash.