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
If the investor and the owner agree to sell 25% of the company for $100,000 that means that they are valuing the current company and its assets at $300,000. Before the sale, the owner owns 100% of a $300,000 company. After the sale, the company has an additional $100,000 so it’s worth $400,000. The investor owns 25% of a $400,000 company (worth $100,000) and the owner owns 75% of a $400,000 company (worth $300,000). Both the owner and the investor have the same value before and after the sale, but the company now has cash to use to create more value.
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