Let’s say Jane creates a company and owns 100% of it. Jane then decides to give John 25% of the company in exchange for $100,000. Does this $100,000 go into the bank account of the *company* ? Or does it go to Jane, the *individual*, for giving up a portion of her company?
On shows like Shark Tank, the sharks frequently ask the contestants what they plan to do with the shark’s money if they invest, implying that the money will go into the bank account of the *company*. If that is the case, how does Jane, the *individual* who worked hard to create the company, get compensated for the portion of the company she used to own that has been transfered to this new investor?
In: Economics
Usually, the purpose of the investment is that it goes into growing the company. The idea is that the $100k investment will turn a $400k business into a $2m or $4m business or whatever by allowing the money to further growth. Perhaps outside investment might allow for the founder to start taking a salary as one of the expenses it funds.
There may be points where earlier investors do sell personal stakes for money that goes into their pocket, but that’s usually later rounds of private investment or during the IPO.
Latest Answers