Timeline for How does it work when somebody invests in my business?
Current License: CC BY-SA 4.0
8 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Mar 26, 2019 at 21:21 | comment | added | Acccumulation | I don't think the terminology "shares" tends to be used in early rounds. | |
| Mar 26, 2019 at 15:15 | comment | added | Mohair | @Makyen My example was purposely kept simple to avoid unnecessary complexity to answer the question that was asked. You are focused on much larger things. I'm micro. You're macro. | |
| Mar 26, 2019 at 14:58 | comment | added | Makyen | @Mohair The company and owners of the stock are definitely not one and the same. One major point of having a corporation is to establish a separate legal entity from the person or persons who own the stock. Sometimes, that's the entire point of the corporation (obviously, if you're seeking investment, it's not the entire point for this company). However, strictly maintaining that legal separation is critical. While someone might be willing to purchase stock that's privately held, that's not what's normally considered investing in the company. It's generally considered investing in the stock. | |
| Mar 26, 2019 at 13:28 | comment | added | Mohair | @Makyen In my simple example, yes, it is that simple. There is one owner of the company who owns all 1 million shares. He sells 25% of his shares to someone else. True, the proceeds of that sale go to the person who owns them, not the company, but in my example, the owner is effectively the company, so they are one and the same. | |
| Mar 26, 2019 at 1:33 | comment | added | stannius | Doesn't the investment dilute ownership in (theoretically) exact proportion to how much money the investor invests? Per the comments on the other answer - investor pays $1 million for 25% of a company now valued at $4m. The company just got $1m cash on the books, so, more or less they were worth $3m before the investment. They might have a smaller share but it's of a pie that's exactly embiggened enough that they break even. In fact the newly capitalized company could potentially be worth more than it was before (like, maybe it was only worth $2m) because now it can sieze opportunity! | |
| Mar 26, 2019 at 1:19 | comment | added | Makyen | Alternately, the shares could already exist, or be authorized, but be owned by the company/not issued. In which case, only 750,000 shares are owned by others. However, their effective ownership percentage is reduced when the additional shares are sold by the company. In other words, in that scenario 750k shares represented 100% ownership of the company, but once the additional 250k shares are sold, the 750k shares represent 75% ownership. | |
| Mar 26, 2019 at 1:18 | comment | added | Makyen | Note that it's not a simple matter of selling 250k shares of 1M. If you are selling shares, then the shares have to come from somewhere. Either they are being sold by someone who already owns them, which results in the money not actually going to the company, or the company creates/sells shares that are not owned by anyone other than the company (this latter is the usual intent for raising capital). Doing the latter dilutes the ownership share represented by the current outstanding shares. This can be that new shares are created, resulting in 333,333 new shares, for 1,333,333 shares total. | |
| Mar 25, 2019 at 22:56 | history | answered | Mohair | CC BY-SA 4.0 |