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When someone or a company invests in a startup, does the existing owner take some money from the new investment?

For example, if Amazon invested $2 billion in my company, can I take some from it for myself?

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  • 1
    I suggest that you watch a dozen Shark Tank episodes to get a better idea how businesses work.
    – Mattman944
    Jun 12 '20 at 1:39
  • Sure, many owners don't draw a salary until investors come on board, some don't even after they're funded. It all depends on the agreements made between the owner and investors.
    – Hart CO
    Jun 12 '20 at 1:43
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Suppose private company A has 1000 shares issued. Whoever owns shares in the company (even 1 share) is a shareholder/owner of the company.

Suppose an outsider (e.g. Amazon) now wants to invest in the private company by becoming an owner of some shares. There are two ways Amazon could get shares in the the private company (and hence become an owner):

  • Amazon could buy some shares from an person/entity who currently owns shares in the private company. For example, if Bob owns 50 shares in company A, Amazon could buy 30 shares from Bob. In this way, Amazon will own 30 shares of company A. Amazon has become an owner/investor in company A by buying some existing shares from Bob.

  • If the private company is authorized by the existing owners to mint new shares, it could mint new shares and sell those new shares to Amazon. For example, company A could mint 500 new shares and sell them to Amazon at some negotiated price. Once Amazon owns those 500 shares, it becomes a shareholder/owner of the company. Amazon will have a 33.3% stake in the company (500 / 1500 = 0.333...).

So to answer your question:

If Amazon invested $2 billion in my company, can I take some from it for myself?

If Amazon bought your shares (see case 1 above) for $2 billion in cash, that $2 billion is yours.

If Amazon bought new shares (see case 2 above) for $2 billion, that $2 billion belongs to the company. The company can then use the $2 billion to expand its business.

Of course, Amazon could also buy shares from you and also buy shares from the company (combination of case 1 and case 2).

Notes

I suggest that you learn about how businesses are structured. For example, learn about sole proprietorships, partnerships, private limited companies, public limited companies, etc.

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It depends on what you and investors want. It can be creating new stock and selling to investors, or selling half of your existing stock and taking all the money or anything in between.

e.g. You can take the whole 2 billion for yourself, or have the 2 billion invested in the company or take some for yourself and some for company.

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When someone or a company invests in a startup, does the existing owner take some money from the new investment?

There are two different scenarios here.

If the company creates new shares, then these shares can be sold to the invester. All the money goes into the company, allowing it to grow. None of the money goes to the existing shareholders. This is likely to be the preferred option for someone investing in a start-up.

If the existing shareholders sell some of their shares to the invester, then the invester becomes a co-owner. All the money goes to the shareholders, and no new money goes into the company. There is no extra money allowing the company to grow. This is the likely option for someone buying into an established business, and is what happens when you buy shares in a publicly traded company.

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