I’m on a kick of watching business investment shows. The investors ask for certain percentages of the business, but what does that actually get them? What’s the difference between a 5% stake and a 25% stake? Do they take a profit share, do they also take on a percentage of the businesses debts? What is equity in layman’s terms?
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Think of a business like a pizza. A 5% stake is one slice of a pizza cut into 20 pieces. A 25% stake would be 5 out of 20 slices. Or 1/4 if cut into just 4 quarters.
The equity stake means the holder owns that amount of the business. That could mean a percentage of profits, but also the business itself might grow in value if it is successful. And a successful business might get acquired, might go public in an IPO and an equity stake would mean a payout or shares in the company.
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